Las Vegas may not sound like the most exciting place in the casino industry to be expanding, but that's exactly what Wynn Resorts (NASDAQ:WYNN) is doing. The company already has the most profitable resort on the Las Vegas Strip, but it sees more opportunities in expanding the convention and entertainment spaces that drive traffic.
Since co-founder and former CEO Steve Wynn was forced out in early 2018, the company's plans for Las Vegas have changed from a multibillion-dollar tower and entertainment complex to something more subdued. Management recently laid out what they have in mind in a presentation to investors.
Conventions are the new focus
Las Vegas is a big convention town, but Wynn Las Vegas has always had a relatively small space in which to host them. So it's adding 430,000 square feet of convention space, which will be ready to open in the first quarter of 2020, doubling the company's capacity there.
The benefit of hosting conventions isn't just in providing the facilities and services for the meetings themselves, it's that they attract guests to the hotels and gamblers for the casinos. Wynn management said they could see a 4% to 6% incremental increase in occupancy, which could have a notable impact on profits. In Q1 2019, occupancy was only 82.6%, and rooms still accounted for 29.7% of the property's $401.0 million of revenue. The projected incremental increase in occupancy and room rates could drive $35 million of additional revenue, or more, at high margins.
Meetings and conventions are intended to drive both revenue and traffic and that'll also help the restaurant and bar business long-term.
Getting more from the restaurant business
Speaking of restaurants, while one might not expect them to be major profit centers for a multibillion-dollar casino, in Las Vegas, the restaurants, bars, and nightclubs are surprisingly important to resorts' bottom lines. Wynn Las Vegas generated $123.6 million of its $401.0 million of revenue in Q1 from food and beverages, which was even higher than the $111.7 million in casino revenue.
Wynn Resorts is making a few moves to push food and beverage sales even higher. It's opening a new restaurant with Enrique Olvera in the first half of 2020, opening the supper club Delilah in spring 2020, and transforming the old Wynn Country Club space with a concept from Thomas Keller.
Restaurants are not only profitable in and of themselves, they help to drive visitation to resorts. These updates should result in an incremental improvement in revenue.
The remodel never ends
Las Vegas hotels never sit still for long, and in the high-end of the market where Wynn Resorts operates, they need to be refreshed frequently. In 2010, the company did a full renovation of rooms at Wynn Las Vegas, and it intends to do so again in 2020.
Updating hotel rooms won't be a game changer for Wynn Las Vegas, but it's necessary, and could help it raise room rates.
Baccarat is the wild card
Each of the improvements discussed above may lead to incremental growth in revenues and profits, but the biggest improvement could come from baccarat tables. From March to May, casinos' win at baccarat tables across the Las Vegas Strip dropped 42.9%.
There are a number of factors that can impact baccarat play, which is driven by large bettors from Asia. Tariffs, the economic situation in Asia, and plain luck all play a role, but right now, the trends are moving in the wrong direction for the casinos. But if that downtrend reverses, Wynn Resorts is well positioned to profit.
Building on a success story
Wynn Las Vegas is already the best-performing resort on the Las Vegas Strip from an EBITDA perspective, and these improvements should boost its profitability. They also show that the new management team is looking to use incremental changes to drive the business rather than focusing on big, splashy projects. For investors, that should drive an improved return on investment.