Wynn Resorts reported a notable second-quarter performance on Tuesday, but the announcement was marred by significant setbacks concerning its UAE resort project. The company revealed a six-month delay in the opening timeline and a projected budget increase of $600 million due to the ongoing conflicts in the Middle East. Despite these issues, Wynn displayed strong overall results for the quarter.
The company generated $1.86 billion in group revenue for the quarter, marking a 7% increase compared to the previous year. Its net income surged from $66.2 million a year ago to $140.1 million this year, while group-adjusted EBITDA rose approximately 3% year-over-year, reaching $568.3 million.
Macau emerged as the highlight of the quarter, particularly Wynn Palace in Cotai, which experienced a 21% revenue rise year-on-year to $653.4 million. Adjusted EBITDAR for the property skyrocketed 28% to $201.5 million. Notably, this growth was driven primarily by the mass market segment, in contrast to the traditionally stronger VIP market. In fact, Wynn Palace reported a 32% decrease in VIP turnover and a 29% decline in VIP table games win, while mass market table game wins shot up by 37%.
Earlier this year, Wynn disclosed plans for The Enclave, a new 432-suite hotel tower at Wynn Palace with an estimated cost between $900 million and $950 million, spurred by high demand. During the recent earnings call, CEO Craig Billings confirmed that construction on The Enclave will commence before the year concludes. He also announced plans to begin work on a long-planned event center and theater at Wynn Palace in the coming weeks, slated for completion in 2028, while The Enclave is expected to be finished by 2029.
"We continue to stick to our knitting in Macau," Billings stated to analysts. "Our focus remains on one particular customer type, which is currently driving the market, and we intend to double down on that."
On the Las Vegas front, total revenue remained flat at $643.2 million, although casino revenue saw a 6.5% increase to $158.1 million. This segment's adjusted EBITDAR fell 8% year-on-year to $215.2 million.
Wynn faces mounting competition for high-rollers in Las Vegas, particularly from MGM and Caesars, which are adopting contrasting strategies. Caesars is struggling and will soon be taken private by Fertitta Entertainment, while MGM is gaining traction with quarterly market gains.
"The best way to earn and retain high-value customers in Las Vegas is to continually raise the bar on what we offer them," Wynn CFO Craig Fullalove commented.
Regarding a potential NBA franchise in Las Vegas, which could be finalized by the year-end, Billings indicated that Wynn has held a 38-acre vacant piece of land on the Strip since 2017, which could accommodate an arena project. MGM, part-owner of T-Mobile Arena, and Caesars, reportedly working on their own arena proposal with VICI Properties, are also in the mix. Billings noted that while an NBA team doesn't attract the same level of tourism as an NFL franchise, he remains optimistic:
"We would love to see an NBA franchise in Las Vegas. We tend to attract premium visitors associated with the league and opposing teams when they are in town, which is beneficial for our business."
In Boston, Encore Boston Harbor experienced a revenue decline of 3% year-over-year, totaling $209.2 million, and a 12% reduction in adjusted EBITDAR to $56 million. Casino revenue dropped about 6% because of a 12% fall in table game win. Nevertheless, Billings noted that Encore Boston Harbor set second-quarter records for both revenue per available room (revPAR) and hotel revenue, with overall demand remaining healthy.
A notable development in Massachusetts is the potential legalization of historical horse racing (HHR). This would allow patrons to wager on anonymized previously run horse races, with legalization language included in an economic bill passed by the Massachusetts House in early July. The bill is currently awaiting Senate approval. Suffolk Downs, located five miles from Encore Boston Harbor, stands to benefit if HHR machines are legalized.
Wynn wrapped up the quarter with $1.5 billion in cash and equivalents against $10.7 billion in current and long-term debt. During this period, the company repurchased $75 million of its shares and still has about $326 million remaining in buyback authority. Shares closed at $101.15 on Wednesday, a 3% increase for the day, though Wynn's stock has fallen around 17% since January.
In a note to investors, Macquarie analyst Chad Beynon maintained an outperform rating for Wynn with a target price of $143. He argued that the market is undervaluing the earning potential of Las Vegas and Macau, while still favoring the UAE resorts despite the recent setbacks and budget increases.
"We believe Wynn stands to benefit significantly from projected 5%+ growth in the Macau market, luxury offerings in Las Vegas, the forthcoming Al Marjan Island (UAE) project which may lack competition for several years, and a capital allocation strategy that includes share repurchases," Beynon stated.
