During Churchill Downs’ first-quarter results conference call Tuesday, CEO Bill Carstanjen expressed a need for honesty.
“What I’m trying to do is just be very candid,” Carstanjen said during the call. “There have been some macro-economic uncertainties, and I don’t want to get on a phone call and tell you those aren’t there. Those are real, and we’re trying to evaluate how they might impact business.”
Churchill Downs on Wednesday reported revenue of $642.6 million, up $51.7 million or 9% year-over-year, a record for a first quarter. The company posted Adjusted EBITDA of $245.1 million, up $2.6 million or 1%, Net income attributable to Churchill Downs was $76.7 million, down $3.7 million or 5% year-over-year.
But Churchill Downs also announced that it was delaying some capital improvement projects, including its Skye, Conservatory and Infield General Admission projects.
Carstanjen admitted the uncertainty around tariffs proposed by President Donald Trump on China, where Churchill Downs gets many of its construction supplies, has caused the delay.
“Whenever we do a project, we do it from the perspective of trying to get it to a single variable equation as much as we can,” he said. “With that single variable being how many tickets are we going to sell, at what price points, over what period of time. We don’t like having the additional variable of what this thing is going to cost to build. … We can’t do that on a major product because of the macro environment.
“So, at Churchill Downs, I expect we’ll pause it for a year, wait for the macro stuff to settle down, and then it’s full speed ahead with whatever relevant, smart changes makes sense based on events we can’t now predict.”
Carstanjen noted that the macroeconomic environment has created “hesitancy” among consumers. That’s most notable in Churchill Downs’ lower-tier players; higher-tier players have been more consistent over the past few quarters, and the company is able to get a “360-degree view” of their behavior.
“But I think the theme we think we see out there is just some hesitancy in the overall market,” Carstanen said. “It’s not that we know or have information that they have less money in their wallet, but perhaps just some hesitancy that we’re managing through.”
For the upcoming Kentucky Derby on May 3, however, Carstanjen has seen no material changes, notably in international visitation. He noted that the event seems impervious to any economic concerns, and that “it might even be better right now.”
“The Derby is a very strong event that continues to grow and is getting stronger year to year,” Carstanjen said. “In general, we had a significant uptick last year with Derby 150. … That was a big step up in all of our financial metrics and I’m pleased this year we’re going to be comparable to that. I think our growth trajectory will continue there.”
Wall Street analysts were amenable to Churchill Downs’ decision to pause capital improvement projects.
“The solid performance is likely overshadowed by the separate announcement of deferral of the previously announced longer-term capital projects at Churchill Downs Race Track,” Jeffries’ David Katz wrote in a statement Wednesday. “We view CDRT as the highest return opportunity within the company, though the currently uncertain macro landscape, coupled with the ongoing ramp in other capital projects and elevated leverage, suggests the decision should be prudent and positive for the shares.”
“The Derby multi-year projects announced last quarter were put on temporary hold given the uncertainty around costs and the macro,” wrote Truist Securities’ Barry Jonas. “We think this is the right thing to do at this stage in this environment and note management will reassess as the landscape evolves.”
