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It was an ugly-looking quarter for casino operator Wynn (Nasdaq: WYNN ) . On a GAAP basis, the company reported a $34 million loss on a 5% drop in revenue as its casino in Macau slumped and The Las Vegas Strip continued to feel pressure from the recession.
Interestingly, while I pointed out that MGM Mirage's (NYSE: MGM ) first-quarter results may not have been as good as they looked, Wynn's results may not have been as bad as they looked. Just prior to the beginning of the first quarter, Wynn opened a sister property to its Wynn Las Vegas, Encore at Wynn Las Vegas.
While the new property brings new revenue streams to Wynn, it may take some time to ramp up, particularly in this economic environment. Operating expenses from Encore, however, have already started to take a bite out of results. General and administrative costs rose 18% from last year and depreciation was up a whopping 62%.
Wynn's Macau property in China, which generates the majority of the company's profits, saw worse revenue declines than the Las Vegas properties as the top line dropped 9%. However, it kept its adjusted EBITDA drop to 11% versus the 36% tumble from the Las Vegas properties. Wynn is continuing construction on Encore at Wynn Macau, which will give the company further exposure to Macau in the form of 400 suites, restaurants, retail, and, of course, gaming.
Debt is the subject of greatest importance lately when it comes to the gaming companies, and I continue to view Wynn as safer than competitors such as MGM, Las Vegas Sands (NYSE: LVS ) , and Riviera (AMEX: RIV ) . The company's interest coverage ratio in the first quarter was 2.3 based on EBITDA, and 2.8 based on adjusted EBITDA. Both numbers are below my typical comfort zone, but given the situation with Encore, I could see both increasing in coming quarters.
Maybe more notable is that Wynn concluded the quarter with $1.7 billion in cash against its $4.8 billion in debt. This puts it alongside Penn National (Nasdaq: PENN ) and Boyd Gaming (NYSE: BYD ) as one of the gaming companies with access to significant cash. Not only does this give Wynn a cushion on its debt, it also gives it the opportunity to jump on an asset being hastily sold by a competitor (that's right, I'm looking at you MGM).
Gambling is the name of the game when it comes to Wynn's business, but I view its stock as less of a gamble than some of its competitors, given its select collection of properties and stronger balance sheet. Of course as the rally in gaming stocks continues -- Wynn has nearly tripled from its March lows and MGM is a seven-bagger -- even my more favored picks like Wynn are getting less attractive.