Station Casinos’s new Durango Resort has been a non-factor for Boyd Gaming, according to CEO Keith Smith and CFO Josh Hirsberg. They made Boyd’s case to the J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum, being held on the Las Vegas Strip this week.
Smith and Hirsberg “reiterated an unchanged tone on a limited to zero impact from Durango’s opening,” according to J.P. Morgan analyst Joseph Greff. They cautioned that it was still early and that Durango opened during the traditionally slow fourth quarter. The executives foresaw a $20 million to $25 million revenue bite from the new $785 million competitor, “though so far the impact is zero.”
Wage increases from the new Culinary Union contract are proving to be a double-edged sword. On one hand, they’re cutting into Boyd’s margins, as even its non-union properties have to keep pace in terms of pay. On the other, the contract has put extra money into the pockets of Boyd’s local customers, constituting a tailwind for the company.
One potential setback in Las Vegas is an ongoing refurbishment of the Gold Coast, a major disruption compared to the expansion of Treasure Chest in the New Orleans market, characterized as minimally disruptive.
Hirsberg and Smith painted a picture of recovery in Boyd’s Midwestern and Southern markets from severe January weather, with revenues comparable to the fourth quarter of last year. Visitor frequency was described as stable and customer spending higher.
However, the regional customer base was evenly split between rated and unrated players, compared to a historically high amount of rated play. Smith and Hirsberg “noted continued weakness toward the lower end of its database.”
One source of strength was non-gaming revenues. These “continue to benefit from strong hotel rates and group meeting prices and the margin profile of this business is expected to stabilize” in the midrange of Boyd’s numbers in the last half of last year.
Boyd leadership charted a conservative course in their allocation of capital. The mix of $100 million a year in dividends and $400 million in stock repurchases would continue, Boyd execs said.
But capital returns were described as a secondary priority to reinvestment in Boyd’s physical assets. Greff reported that “targeting refresh-based projects that carry a high return profile among their core customers, and [Boyd] doesn’t foresee any meaningful projects in the near-term.”
Management was described as “comfortable” with leverage of two times cash flow (low by casino-industry standards) and wanting to stay there in the future. Any mergers or acquisitions would require a clear path of return to current levels of debt.
