Las Vegas is slipping again and it doesn't bode well for casino companies focused on Sin City. MGM Resorts (NYSE: MGM ) announced earnings today and they were anything but impressive.
Net revenue rose 2% in the quarter to $2.3 billion, but this was driven by a 7% rise in Macau. When you look at wholly owned domestic resorts, revenue declined 2% on broad weakness. Hotel occupancy, food and beverage revenue, and entertainment revenue all fell in the third quarter, indicating continued weakness in the mass market. Gaming revenue increased slightly, but this was largely due to better hold than last year.
The results show that improved results at Wynn Resorts (NASDAQ: WYNN ) may have been an outlier in Las Vegas. Wynn benefited from a much higher hold percentage than a year ago and also saw occupancy fall in the third quarter.
CityCenter falls flat
Net loss fell to $154.7 million for the third quarter from $106.6 million a year ago. The larger loss was driven by a $42.8 million loss at CityCenter from $7.7 million a year ago. CityCenter has been a drag on MGM since it was built and there are only small signs of improvement. Revenue increased 3% from last year and adjusted EBITDA rose 18% from a small base to $59 million, but this improvement may not last. The company is taking charges for demolishing the Harmon, and the site will again be a construction site, which could drive away customers.
MGM's biggest problem is the debt built up by building CityCenter and acquiring resorts in Las Vegas. The company currently has $14.1 billion in long-term debt and quarterly interest expenses of $276 million. With that sort of overhang, it can't afford for conditions to get worse in Las Vegas.
These numbers don't bode well for Caesars Entertainment (NASDAQ: CZR ) , which doesn't even have Macau to lean on for support.
Bright spots ahead?
The only two bright spots I can see for MGM is its Cotai resort and the potential for online gaming in the U.S.
MGM's Cotai resort will be in the center of Cotai, surrounded by Wynn, Melco Crown (NASDAQ: MPEL ) , Las Vegas Sands (NYSE: LVS ) , and SJM. The problem is that this resort won't open until at least 2016, so positive cash flow that could help MGM's debt is years away.
Online gaming could be a plus, but it would require federal approval to make a meaningful impact, and that too may be years out.
Foolish bottom line
MGM's debt situation and continuing weakness in Las Vegas leaves a "Do Not Touch" sign on the stock for me. Investors would be wise to focus on Macau-centric stocks like Las Vegas Sands, Melco Crown, and Wynn Resorts instead of a debt-laden company still focused on Las Vegas.
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