CASINO

The Star Entertainment to slash staff as gamblers stop spending

TAGs: Australia, The Star Entertainment Group

the-star-entertainment-slashing-staff-gambler-spendingAustralian casino operator The Star Entertainment Group (SGR) plans to slash its workforce in order to keep the lights on until its international VIP and domestic gamblers boost their spending.

On Monday, SGR released a trading update covering the year through June 8, during which domestic revenue managed to rise only 0.3% from the same period last year. The international VIP business fared much worse, with turnover falling 31% year-on-year.

The VIP turnover decline is actually slightly better than the 33% decline reported in the first half of the fiscal year, but win rate came in below the 1.35% theoretical average. Worse, domestic revenue had risen 6.4% in H1 and SGR tried to point out that overall fiscal 2019 domestic revenue is up 3.1% but investors weren’t exactly reassured.

As a result, SGR downgraded its FY19 earnings forecast to a range of AU$550-560m, compared with AU$568m in the 12 months ending June 30, 2018. The news sent SGR’s stock into a tailspin, falling 16% on Tuesday to a four-year low, erasing over $600m in market valuation in the process.

To mitigate the financial impact, SGR is advancing plans to centralize certain functions that are currently conducted within the company’s individual casinos. SGR expects this will involve a 15-20% reduction in its 2k or so non-customer-facing staff, resulting in cost savings of between AU$40m-50m, most of which will be realized by the September quarter.

SGR CEO Matt Beker told the Australian Financial Review that the streamlined structure will allow the company to “scale more efficiently when the market turns,” but some analysts remain unconvinced.

As for those international VIPs, Bekier said visitation was steady but those who were still making the trek to the company’s flagship property in Sydney were spending less, possibly due to concerns over the brewing US-China trade war. Similarly, Bekier explained the domestic slowdown on souring consumer sentiment, noting that “people just don’t take the same risk” that they once would.

Bekier also expressed bewilderment at the investor reaction to the trading update, noting that the company had “reliably grown faster than the market” over the past five years, and perhaps investors had become conditioned to a non-stop parade of impressive numbers.

Analysts noted that SGR’s woes would likely cheer James Packer, formerly the head of SGR’s domestic rival Crown Resorts, who sold one-fifth of the company to Melco Resorts & Entertainment last month. Crown’s shares also took a tumble on Tuesday, as analysts likely expect the company to report similarly unimpressive figures, making Packer’s timing enviable indeed.

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