Shopping at Las Vegas Sands: How This Company Is Winning More Than Just Gaming Revenue

Marina Bay Sands in Singapore has brought in many guests who are more interested in the amazing shopping, dining, and entertainment it offers than gambling. Photo: Las Vegas Sands

Las Vegas Sands (NYSE: LVS  ) has made vacationers, and investors, very happy over the last few years with its incredible casino resorts and smart execution that has resulted in sustained revenue growth, which is ahead of that of competitors like Melco Crown (NASDAQ: MPEL  ) . The company posted first-quarter 2014 revenue of a record $4.01 billion, up over 21% year over year, and second-quarter 2014 revenue up 12% year over year with income up over 21% from the same period of 2013 and this should make investors excited about this stock.

The classic Venetian Macau is filled with some luxury retail shops where mainland Chinese are happy to shop. Photo: Las Vegas Sands

However, the company has more than just gaming revenue to offer. Las Vegas Sands is also getting ahead of the competition in the growing retail sector of its resorts. Las Vegas Sands is winning at the tables and at its malls.

Las Vegas Sands and its winning malls
Here is what retail shopping growth looks like for a winning resort. Retail mall revenue during the first quarter of this year increased 45% over the year-ago period, and then increased nearly 10% in the second quarter over the year-ago period. Las Vegas Sands' resort malls operate by renting their properties, the spaces inside of the casinos where stores can open up, to luxury brands.

Sands' resorts boast over a million square feet of shopping. The repositioning to more luxurious brands should drive even more rent revenue in the coming quarters. Photo: Las Vegas Sands

The company is currently undergoing a "mall repositioning and tenant remix" which is geared toward bringing more high-performing luxury brands to its resort properties. Nowhere is this smart move more striking than at the company's Macau and Singapore locations.

Asian malls, more specifically
During the first quarter of 2014, gross revenue from tenants (the brands that rent property within Las Vegas Sands resorts) at Macau and Marina Bay Sands in Singapore reached $108.4 million. This was a full 27.7% increase year over year.

The operating profit for the Asian retail segment looked even better with an increase of 34.6% for the same period. This followed an increase for all of 2013 of 24% over 2012. While it posted lower second-quarter retail revenue growth at 9% year over year, the growing revenue still looks very strong and could continue throughout 2014.

Las Vegas Sands makes more in one quarter than Melco Crown makes in a year
Melco Crown has also been rewarded with significant revenue increases during the first part of 2014, though they were not as high as those of Las Vegas Sands. As for non-gaming revenue, the company does not list retail results specifically, it lumps them in with "other non-casino revenues" which reached $103.7 million for the year ended December 31, 2013. This figure is below what Sands made in just the first quarter of this year from its retail operations alone.

Melco Crown's City of Dreams Manila resort is set to open this year. Photo: Melco Crown

Melco Crown plans to open a new casino resort on the Cotai Strip, which will of course increase its retail operations in Macau significantly. Additionally, the company's City of Dreams Manila coming online this year in the Philippines will include an entire retail section for visitors. However, in terms of new casinos and retail additions, Sands is winning here too.

One more reason to bet on Las Vegas Sands as the industry leader
Macau generated $45 billion in revenue for casino companies in 2013. Goldman Sachs research estimates that by 2017, that figure will climb above $70 billion. The main area in Macau which is spurring new growth and profits is the Cotai strip, an area that is already becoming dominated by Sands holdings. Both Melco Crown and Las Vegas Sands are opening resorts there next year.

Melco Crown's Studio City, a cinematically-themed integrated resort on the Cotai strip, is set to open in summer 2015. With 500 gaming tables, more than 1,500 slot machines, a five-star hotel, a shopping mall, and more, the company hopes that this resort will drive profits for years to come.

Photo: Las Vegas Sands

However, Sands' bet on Cotai has already proven stronger than those of competitors and this will remain so. The two casinos on the strip owned by Sands, which include the Sands Cotai Central casino resort, reported a 61% jump in revenue and a more than 250% surge in operating income for 2013.

Now, the company's newest resort, The Parisian, promises to keep the company dominating this area. This $2.7 billion integrated resort will include over 3,300 hotel rooms and suites, 2,500 slots, a shopping mall, and a replica of the Eiffel Tower at 50% scale. More property on the strip will mean more revenue. This will become even more true as the number of mass-market gamers strolling the Cotai strip increases in the coming years.

More overnight guests for Sands Macau will help spur higher retail
Las Vegas Sands executives pointed to five trends that will lead to continued growth in Macau over the next five years. The last of these trends is the growth in hotel rooms to accommodate the vast number of tourists visiting the island. Macau hosted 29 million visitors in 2013, impressive for an area that has only 600,000 permanent residents. The rise in the number of Mainland visitors, and those visitors staying for extended periods at Sands locations, will only spur Sands' non-gaming revenue, such as retail, higher in the years to come.


Source: Las Vegas Sands 2013 10-K presentation.

Final thought
The last few years have shown incredible growth in visitor counts and revenue for companies like Las Vegas Sands and Melco Crown. While each company has reported massive gaming revenue, looking at the larger picture is important for investing. The strength and growth of Las Vegas Sands' retail segment is just one more reason to be bullish on this well-performing company. While the company's second-quarter earnings miss has shaken up some investors, its strong revenue growth of 12% year over year is still a great number, and investors should be confident that Las Vegas Sands' smart operations, exemplified by retail, are keeping it at the forefront of the industry. 

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2014, at 11:58 AM, spokanimal wrote:

    2 clarifications on Bradley's article:

    Bradley mentions that MPEL's studio city development will have "500 gaming tables" when it opens.

    It's important to note that Macau strictly controls the growth of gaming tables to about 3% per year, and between 2015 and 2017, many resorts will be opening on the Cotai Landfill. The 500 table figure for Studio City is the usual "hope and a prayer" that MPEL has flung out there, and it's likely that the table allotment for the resort will be significantly less.

    Further, Studio City was originally gazetted as a "non-gaming" resort which MPEL took an equity interest in with hopes that they would be able to secure a gaming license. The resort is now half built, and a gaming license is still not granted. Given the track record the Macau government has regarding fulfilling promises which were not carved in stone (to wit: their revocation of Sand's rights to coati parcel's 7 and 8), I would say that the likelihood of Studio City ever receiving a gaming license is significantly below 100%.

    I also noticed that Bradley referred to "the 2 casinos on the strip owned by Sands".

    Sands actually owns 4 casinos on the Cotai Strip: Venetian, Plaza, Himalaya, and Pacifica. The Parisian casino will be Sand's 5th on the strip.

    Spokanimal

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