A blowout quarter encourages Mandalay Bay

Sep 9, 2003 5:10 AM

Since its fiscal second quarter falls a month behind most major gaming companies, Mandalay Resort Group’s (MBG) report of a blowout period that ended on July 31 seemed to have encouraged Wall Street investors into thinking better days are coming.

Not only did MBG see its share price move to a 52-week high before the entire market sold off a bit on Friday but other gaming shares appeared to move almost in tandem. In fact, MGM MIRAGE Inc. (MGG) added substance to MBG’s solid report by suggesting that the company saw stronger operating trends for the third quarter.

The good news sent MBG shares to a high of $39.80 before investors backed off a bit with some profit taking. Moving northward also were the MGG shares that reached $37.59. Also benefiting were locals giant Station Casinos Inc. (STN) whose shares reached $31 and the machine manufacturers, International Game Technology (IGT) at $26.92; WMS Industries (WMS) at $25.82; Alliance Gaming Corp. (AGI), $24.50, and Shuffle Master Inc. (SHFL), at $29.46.

For the record, Mandalay Resort Group reported quarterly earnings of $42.3 million or $0.67 per share. This compared with last year’s $29.3 million or $0.41 a share. Cash flow for the period was listed at $172.1 million compared with the $165.5 million generated last year.

Cause for the celebration, said Glenn Schaeffer, president and CFO of Mandalay Resort Group, was the ability of the company to raise room rates. "We are running record room rates at our five resorts for any summer season. Above those received in August 2001, our previous high mark," he said.

Of particular note, he said was Mandalay Bay Resort whose revenue per available room (REVPAR) was up 18% and at the Luxor Resort whose rates jumped 14%. Even the older Excalibur Resort saw increases in room rates of 11%.

And beyond the reporting period in August, Schaeffer said, room rates were "generally up about 6% to 7% on average for the company’s properties.

As noted by Alan Woinski, CEO of Gaming Venture Corp., and editor of its Gaming Industry Weekly Report, "Mandalay Resort Group and MGM Mirage seem to have a knack these days for putting out news together, whether it be good or bad." He recalled earnings warnings issued by the two companies within 24 hours of each other earlier this year. In this case, he reported, both companies reported some positive things.

"Our forward room bookings and overall trends continue to show strength," MGM Mirage Chairman and CEO Terry Lanni reported in a guidance note.

"Recognizing the upcoming strong event calendar led by the sold-out September 13th De La Hoya/Mosley fight at the MGM Grand in Las Vegas, we remain mindful that potential volatility associated with high-end play could further impact our third quarter results" he said.

Schaeffer reported that although all the company’s Las Vegas properties showed increases during the second quarter that was not the case for all other properties. Reflecting the effects of expanded Native American casinos in California and other economic conditions were properties in Reno, Laughlin and Jean.

In other areas of the country, the Detroit MotorCity Casino showed an increase of 7%, generating cash flow of $36 million versus the $33.7 million reported during the second quarter of 2002. And the Gold Strike Resort in Tunica County, Mississippi reported $7.6 million in operating cash flow against $7.2 million last year.

Showing a decline in the period was the 50%-owned Grand Victoria in Elgin, Ill., where the cash flow dropped to $20.6 million from last year’s $28.6 million. Impacting the property was the state’s recent legislation that increased the gaming tax to as high as 70%.