Boyd Gaming reported record margins and adjusted earnings during the second quarter of 2021. This success is so “sustainable,” executives said, that that they’re making plans to reopen two closed Las Vegas casinos and move a floating casino in Louisiana to a land-based operation.
The earnings report presented by Boyd executives late Tuesday came just before Nevada reinstated an indoor mask mandate that covers guests in casinos throughout Clark County. The company released a statement Wednesday standing by its outlook.
“We operated under mask requirements in Nevada for the entire first quarter and part of the second quarter and were able to deliver very strong results. We are confident we can do so again,” Boyd said in the statement to CDC Gaming.
In its research notes issued on Boyd, J.P. Morgan said while there’s “no diminished spend or visitation from its core customers overall,” nor from its older demographic, it “could be susceptible to retrenching given recent COVID-19 spikes.”
Truist Securities added that while the second quarter could represent the peak, the surpassing of expectations was so sizable that it’s hard to be negative. “Even with Nevada reinstituting its indoor mask mandate post-earnings call, Street estimates a likely move higher — rebasing off the first-quarter beat (where indoor masks were still required) instead of the second quarter.”
Jefferies Equities Research said while Wall Street expectations were high, the quarterly results were “meaningfully higher than estimates, which should drive a positive stock reaction.”
The key questions going forward, Jefferies said, should be “the sustainability of current demand and margin levels, any potential headwinds from Delta variants, and demand normalization, coupled with the forthcoming digital growth opportunities.”
Boyd Gaming President and CEO Keith Smith said they company accrued record adjusted earnings of more than $385 million during the second quarter, a gain of 66% from the second quarter of 2019. The margins also set a record of more than 43%.
That’s the first time since the pandemic that gaming revenues surpassed 2019 levels, Smith said. In Las Vegas, adjusted earnings rose 87% over 2019 and margins approached 57%. “While there’s a bit more uncertainty today surrounding the direction of the pandemic, we are confident in our ability to continue well above our pre-COVID levels, as we continue to successfully execute our operating philosophy. We’re optimistic we can maintain much of the recent margin improvement in the long term.”
If Boyd’s two closed properties — Main Street Station in downtown Las Vegas and Eastside Cannery in the Boulder Highway corridor — and the destination-dependent Orleans Hotel & Casino are excluded from the calculations, adjusted earnings grew by nearly 107% and operating margins grew by more than 58%.
Boyd’s two downtown Las Vegas properties, the California Hotel & Casino and Fremont Hotel & Casino, each set all-time records for adjusted earnings and operating margins during the second quarter at 24% over 2019 and exceeded 45% for margins, Smith said.
With that strong showing downtown, Boyd is “in the process of making plans” to reopen Main Street based on growing demand. That goes for Eastside Cannery as well, according to Executive Vice President and Chief Financial Officer Josh Hirsberg.
“Our position to this point has been to believe that demand will catch up and we’ll open in response to demand,” Hirsberg said in response to a Wall Street analyst bringing up any potential sale. “We’re still in this mode of recovery and still have demand on the come that gives us confidence in the level of business we’re seeing and the ability to sustain that level. Eventually, we will need the supply as well.”
Hirsberg said they’re confident they can maintain margins they’ve achieved from what he called recurring drivers of results over the past 12 months. That includes a more efficient business model targeting core customers and consistency in the customer base. They’ve also created a “new normal” for operating the business.
“Customer trends have been consistent and continued into July,” Hirsberg said. “We are in a much stronger financial position today than pre-COVID, with less debt and more free cash flow and lower leverage.”
In the Midwest and South, adjusted earnings topped 2019 by nearly 58% and margins were 42% higher, Smith said. All 26 Boyd properties had growth in adjusted earnings and 25 of them grew double digits, he added.
The second-quarter earnings were aided by government stimulus checks, increased vaccination rates, and easing of COVID-19 restrictions that saw casinos open to 100% in May and the mask mandate removed.
“It’s been a strong performance for the first half of the year and that has continued into July,” Smith said. “Today, our cost structure is more streamlined, our marketing investments more targeted, and we’re successfully driving play from our most valuable customers.”
Smith said focusing on the “right customer” has helped produce the highest margins in history.
Unrated play has remained steady in the low-to-mid-40% range and higher-worth customers continue to play at strong levels greater than 2019, Smith said.
“We continue to see new sign-ups at higher worth than the new sign-ups in 2019. Lower-end tiers we’re not marketing to are falling away. Are they all back? No. We still have a group of some of our older demographic that hasn’t come back, but it has been building since the April and May timeframe. We expect that to continue to build.”
Smith said an area of focus continues to be on implementing its Boyd Pay digital wallet popular with higher-worth customers. It’s active in five properties and should be in 21 by the end of the year, pending regulatory approval. It’s been extended to slot floors with plans to expand the capacity by launching a test program this week in Nevada for non-gaming amenities, Smith said. It will be added to table games later this year.
As for sports betting and igaming, Smith said its Stardust-branded online casino has been “off to an excellent start” in New Jersey and Pennsylvania for player volume and revenue since its launch in mid-April.
Boyd’s partnership with sports betting operator FanDuel, in which it has a 5% stake, “continues to perform well” since being launched in Pennsylvania, Illinois, Indiana, Iowa, and Mississippi, Smith said. They’re focusing on operating in Louisiana for a retail and mobile sportsbook by the end of the year.
Boyd expects to generate more $20 million in adjusted earnings from sports betting and interactive gaming in 2021.
Boyd updated its project with the Wilton Rancheria Tribe south of Sacramento, California. Construction started earlier this year and was scheduled to open by the second half of 2022, but won’t open until the fourth quarter of 2022 with 2,000 slots and 80 tables.
The floating casino Treasure Chest, a strong performer in Louisiana, is being planned for a land-based facility that would be in the $80 million to $100 million range and take 18 to 24 months of construction. The earliest it would start is by the end of this year or early 2022.
“Right now, we’re in the planning stages and have to make sure it pencils out a return for us,” Hirsberg said. “And we want to make sure we understand the cycle of the pandemic. … Due to continued uncertainty with the pandemic in the near term, we remain prudent with capital plans and free cash flow.”
Because of that, Hirsberg said, they will be cautious in reviewing stock repurchases and issuing dividends.
Smith said one of the biggest challenges continues to be hiring enough staff to deliver the services they want, such as opening its restaurants for more days than they do now.
Among other comments, Hirsberg said downtown Las Vegas business hasn’t fully recovered despite the strong numbers. Smith added locals business has largely been gaming-centric and they’re still awaiting the return of midweek business at hotels that cater to conventions, including the Orleans.
The Orleans has had strong results on the back of local players, but isn’t where it was pre-COVID, according to Smith. The property has a lot of upside though, he added.
Forward booking for hotel rooms, along with meetings and conventions, started growing in June when COVID restrictions were lifted to allow large events to proceed. “We’ve seen our forward bookings in hotels match 2019 levels,” Smith said.
