Steve Wynn, the fouder and CEO of Wynn Resorts, Limited (WYNN -0.49%), doesn't give a lot of interviews but when he does speak in public it can be explosive. He's known for speaking his mind about political candidates, his competitors, and of course talks highly of his own casinos (admittedly, he has the track record to do so).
His recent conference call with analysts was maybe one of the most informative I've ever heard from Wynn. He gave dire predictions about Las Vegas and Macau, stood his ground on cutting the company's dividend, and gave both positive and negative news about his $4 billion resort in Macau. Here were the five biggest takeaways from the call.
Macau isn't going to recover anytime soon
"Our hopes for an improvement in Chinese new year turned out to be incorrect. And the repositioning of the market and the degradation of the volumes in VIP have continued even into April." --Steve Wynn, Founder and CEO
Wynn would go on to say that he can't predict how long the downturn would last and that the company could only react to market conditions. In the first four months of 2015, Macau has seen an incredible 37.1% drop in gaming revenue, which has affected every part of the gaming industry. A crackdown on corruption in Mainland China has at worst affected some of the regions biggest players and at best caused gamblers to think twice about heading to Macau.
The problem is that no one knows when the slowdown will end, or if we're now in a new normal level of gaming revenue.
Doubling down on experience
"Guest experience is what creates a better tomorrow and allows us to continue in business, eventually raise our prices to offset the rising cost of business. People that have a good experience tell their friends and they come back again and again. Guest experience is the beginning, the middle, and the end of the story." --Steve Wynn, Founder and CEO
Wynn could have cut costs in early 2015 in an effort to maintain some profits, but he thought that would take away from the guest experience. I recently covered that Wynn is playing the long game here, betting that customers will be willing to pay more in the future if reputation is maintained today. That's good for long-term investors, even if it resulted in some pain short-term.
Wynn won't borrow money to pay dividends
"So as we look backwards for the fourth quarter and especially during the last four months and understand what's happening both in Las Vegas, because of the Asian impact on baccarat, and we look back and then we extrapolate and try and predict the future or at least understand what most likely will be the future, it is foolhardy and immature and unsophisticated to issue dividends on borrowed money. We only distribute money that's free cash flow based upon our earnings trail. Therefore, today we lowered the dividend." --Steve Wynn, Founder and CEO
The uncertain operating environment makes it tough to pay dividends, according to Wynn. The company kept a $0.50 per share dividend quarterly, but that was down from $1.50 per share last quarter.
This is what the market absolutely hated because investors tend to put a premium on stable dividends. But long-term, it was the right thing to do and the dividend should grow after projects in Macau and Boston are completed. At the very least, this sets the expectations for dividends in the future, something Wynn was sure to make clear to investors.
Gaming in Cotai is still unknown
"We do not know how many tables we're going to have. That's a very difficult uncertainty to adjust to. But nevertheless, it is the uncertainty of the moment as to what the government will do. When we started the project, we had an understanding that the table levels -- that we would need approximately the same amount of tables as we had at the Peninsula Hotel, and nobody objected. But then subsequent to our beginning, the government made an announcement to institute a cap of a certain percentage of table increases a year." --Steve Wynn, Founder and CEO
Wynn expects to open Wynn Palace in the Cotai region of Macau early next year but management still doesn't know how many table games the resort will be allowed. Like many other operators, Wynn assumed about 500 table games would be allowed, but that seems to be more uncertain today.
The company can take some table games from the peninsula resort for opening but getting a large allotment of tables will be key for profitable operations. Keep an eye on comments around table games in coming quarters.
Las Vegas could be in for a bad year
"If you were to ask me, since we are making forward-looking statements, what will the second quarter look like in Las Vegas -- weak. Did you hear me? Weak." --Steve Wynn, Founder and CEO
There was no hesitation from Wynn in saying that Las Vegas will have a bad year. Despite the windfall from last weekend's Mayweather fight, the second quarter is expected to be flat, at best.
Ironically, what's hurting Macau is trickling its way all the way to Las Vegas. Asian gamblers who love to play baccarat and mini-baccarat have lost 4% and 33% less on those games in the first quarter than they did a year ago. Since baccarat is the biggest revenue game in Las Vegas, it's a huge impact on the city and particularly on Wynn's premium customers.
Down but not out
Wynn Resorts is going through a hard time and there's lots of uncertainty, but remember that the company is building its most extravagant resort ever in Cotai, Macau and a resort in Boston will further diversify revenue. With Steve Wynn's continued focus on customer experience I think this is a stock to buy and hold long-term. There may be clouds over the next few quarters but the future looks bright for this gaming company.
