Is the Las Vegas Recovery Stalling Out?

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The headline numbers don't look good for Las Vegas right now. July's gaming revenue was down 14.4%, to $511.4 million on the Las Vegas Strip, and in the past three months has dropped 6.7%. Comparisons haven't been that bad since we were in the midst of the Great Recession.

A closer look at the numbers reveals that baccarat was the big driver with win down 39.4% from a year ago, to $115 million, versus a very lucky comparison period. Last year, the win percentage was 16.1% versus 11.6% this July, and 12.3% over the past year. 

This shows just how luck can play a role in gaming earnings. The house always wins; it just may not win the same amount quarter after quarter. 

The Strip is still going strong
When we take a longer-term view of the Las Vegas Strip, we continue to see slow, but steady, improvement. Gaming revenue was up 0.31% for the year ending July, even with the tough comparison month. That's not going to blow anyone's socks off, but it's still growth in a tough economic environment.

What may reverse course in the next quarter, given the 1% decline in baccarat over the past year, is outsized gains for Wynn Resorts (NASDAQ: WYNN  ) and Las Vegas Sands (NYSE: LVS  ) , which cater to high-end players. The two companies saw 16.2% and 5.6% revenue  increases, respectively, last quarter in Las Vegas, driven by a jump in casino revenue.

But MGM Resorts (NYSE: MGM  ) and Caesars Entertainment (NASDAQ: CZR  ) may have a better comparison, and by that measurement, a better third quarter, just due to less reliance on baccarat. MGM's wholly owned revenue, (which is dominated by Las Vegas), was up just 2% last quarter, and Caesars was down 4.5%, so both were behind high-end rivals. With that said, one quarter doesn't make a good investment, and I think the high end of the market is still a better bet in an economic recovery that's favored the high end of the market.

Foolish bottom line
It may not look like Las Vegas is growing much if you look at the most recent monthly numbers, but long term, it's still growing slowly. For gaming companies there, that's all that can be expected until the economy really picks up steam.

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  • Report this Comment On September 06, 2013, at 12:16 PM, spokanimal wrote:

    I saw your headline, Travis... "Vegas Recovery Stalling Out(?)"... and thought, jeezz... Travis is going to ballyhoo the 14.4% gaming revs drop and it's ugly component, the 39% yoy drop in baccarat.

    Fortunately, I was wrong, and you rose above the entry-level, motley fool job you occupy and correctly pointed out the "luck" factor... baccarat's 16.1% hold last july vs the 11.6 put up this year. You're improving, despite your lack of training.

    Unfortunately, you're still an M.F. "analyst", and there was more year-over-year data involved. This july had only 4 fridays, 4 saturdays and 4 sundays... one less weekend day than last year and 23 total weekdays concentrated in 5, monday-thru-wednesdays. It doesn't get any worse than that with a 31 day month so yeah... it matters, my friend.

    Interesting that you'd postulate that MGM and Caesars might end up better off than the more heavily-baccarat oriented Wynn and LVS after just one month of Q3 data. The global, macro-economic data that you rarely crunch is suggesting that August is shaping up to look very different than July... particularly in baccarat-intensive geographies. I would love to be the fly on the wall of one of LVS's VIP-ferrying Lockheed L-1011's as Chinese high rollers celebrate their better PMI, export and in all liklihood, GDP numbers in August VS July and grab a flight to Vegas on one of Sheldon's fleet of jets.....

    .... but then, even I can't get THAT granular... but we CFA's are definately inclined to plug some such projections into our models, now aren't we.


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