Amid a shaky economy, persistent inflation, and climbing interest rates, Wynn Resorts (WYNN -0.74%) produced record earnings results last quarter. Here's why I'm bullish on this casino stock despite today's challenging operating environment.
1. Record earnings in Las Vegas
Wynn's Las Vegas portfolio, consisting of the adjacent Wynn Las Vegas and Encore resorts, generated all-time high earnings in Q1. Adjusted property earnings before interest, taxes, depreciation, and amortization (EBITDA) reached a record $232 million between the two sister hotels.
Two main factors drove last quarter's performance in Vegas: hotel occupancy and casino hold, or gains earned from active gamblers. Occupancy hit 88.8%, an 11.9-percentage point increase above last year and 6.2 percentage points over pre-pandemic 2019.
During Wynn's Q1 earnings call last month, CFO Julie Cameron-Doe stated that "higher-than-normal hold positively impacted EBITDA by around $4 million in Q1." Beyond casino-derived earnings, Wynn's other businesses, like entertainment, retail, and dining, also grew last quarter. Cameron-Doe highlighted how these segments "were up nicely year over year and also well above pre-pandemic levels."
CEO Craig Billings stated how "it's a fascinating time in our business," highlighting how Wynn's strong Q1 performance was "supported by a consumer that continues to feel flush." Hinting at Q2 results, he said Vegas operations "delivered the best April in the history of the property."
2. Quarterly dividend reinstated
In a show of confidence last quarter, Wynn's management team announced the resumption of its quarterly dividend payments to shareholders. As Billings explained, "With Macau returning to profitability and North America continuing to perform well above historical levels, we have sufficient financial flexibility to also return capital to shareholders."
After a three-year pause, Wynn will start its dividend payments at $0.25 per share. Billings said the company "felt like this initial dividend was a great place to start," emphasizing that "the dividend is the cornerstone of our capital return strategy." He also referenced "growth projects in flight" that are projected to "add meaningful EBITDA" in future quarters.
3. Faster-than-expected recovery in Macao
Although Wynn's combined Macao properties finished with EBITDA losses last quarter, Billings affirmed that the Macao market "is coming back much more quickly than anybody would have thought of, certainly six, nine months ago. It's incredibly good to see."
Impressed with gross gaming revenue generated by Wynn's two Macao properties in the first quarter and April, Billings said the segment was on track to reach over $22 billion in gross gaming revenue this year. Wynn's Macao resorts now contend with a casino market that's "structurally different than it was in 2019," according to Billings. After a long shutdown period, the Macao gambling industry has seen a reduction in VIP business, combined with an increase in mass-market casino business.
An estimated $10 million in potential EBITDA was left on the table in Macao last quarter due to lower-than-normal VIP hold, but much of Wynn's Macao casinos were closed for renovation during the period. All things considered, Billings was actually encouraged by Wynn's ability to rival full-year 2019 market share levels in the Macao region.
If Wynn's Macao gaming business continues to accelerate while its North American operations keep humming, I think company progress will ultimately translate into recovery for Wynn Resorts stock.
