Bolstered by record revenues at the STRAT, Golden Entertainment reported a record second quarter and company executives said there’s plenty of room for improvement with the opening of Resorts World and the expansion of the Las Vegas Convention Center on the north end of the Strip.
Golden Entertainment reported record revenue of $292 million during the second quarter, along with record adjusted earnings of $91 million that were 50% higher than the previous record set in the first quarter.
All casino properties and distributed gaming operations hit the highest quarterly adjusted earnings in Golden’s history, executives said.
“We’ve seen significant growth across the entire portfolio, from the Las Vegas Strip to local taverns, and we still see room for improvement,” said Charles Protell, president and chief financial officer.
The STRAT generated its highest-ever quarterly adjusted earnings that doubled the first quarter and were 45% higher than second quarter 2019. Occupancy levels were 74% for the quarter compared to 90% for the same period in 2019. The occupancy rate continues to be hurt by a lack of midweek visitors, which is expected to pick up once conventions do. Road construction is also impeding foot traffic along the Strip corridor until the end of the year.
“Our $110 million investment (in room and casino-floor upgrades and food and beverage outlets at the STRAT) completed in 2020 is helping us capture more of our guests’ wallets and earning a significantly higher (return on investment) than we expected,” Protell said. “We anticipate the property performance will improve as midweek business increases and we return to citywide conventions and international visitors.”
Blake Sartini, chairman and CEO, added that they’re “very bullish on the outlook at that property” and that the record performance continued through July. The STRAT had a deficit of 38,000 room nights during the second quarter compared to the same period in 2019, but Sartini said they saw 30% more spend by customers than they did in the past, thanks to higher room rates, more casino gaming, and increased outlays for food and beverage, such as the Top of the World restaurant. They targeted customers who would spend more, he said.
“Between the deficit room nights and additional spend, we see continued upside at that property that’s pretty significant,” Sartini said. “In addition, as we program the property, we’re directly booking 30% of our hotel rooms; when we bought the property, it was 6% or 7%. Our casino marketing programs, targeted resort marketing, and new entertainment offerings and food and beverage upgrades are driving this direct-booking trend, which is enabling us to generate that additional 30% spend that we anticipated by providing a full-resort experience at that property.”
Resorts World Las Vegas, which opened in June, the Marriott resort (former Fontainebleau) expected to open in 2023, and the major expansion at the Las Vegas Convention Center are all in close proximity to the STRAT.
“All bode well for driving future revenue,” Sartini said. “We’re seeing great results at the moment, and that’s without convention activity, no entertainment activity, and no full sports stadiums. All of this leads to the benefit of the STRAT.”
Sartini said he’s confident that Resorts World and the Marriott, when it comes online, will generate foot traffic walking north to the STRAT. That will “absolutely help us in the tower operation and Top of the World restaurant, the thrill rides, the viewing deck,” he said.
Golden’s two local Las Vegas casinos, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, continued to outperform historical results, Protell said. The second-quarter adjusted earnings increased 124% over the second quarter of 2019. Margins were up 55%.
“Even with the strength of our two local properties, we’re still missing some of our rated players, whom we expect to return this year,” Protell said. “We’re also continuing to see increases in out-of-state enrollments in our players club, which reinforces long-term Las Vegas population growth as an ongoing driver of the Las Vegas market.”
In Laughlin where Golden owns the Edgewater and Aquarius resorts, adjusted earnings improved 47% from the second quarter of 2019 with margins of more than 50%.
Protell said their 12,000-seat outdoor venue wasn’t open during the second quarter and six concerts scheduled for the fall will draw additional traffic.
“Given we have yet to see full occupancy return to the STRAT or Laughlin and we’re still missing some of our rated players, we see sustainable and potential improved performance to our casino operations in the future,” Protell said.
In Pahrump, Nevada, where Golden owns three casinos and an RV park, adjusted earnings rose more than 100% compared to the second quarter of 2019 and margins were up more than 50%, Protell said. The Rocky Gap casino in Maryland also fared well, he said.
For distributed gaming, Golden reported adjusted earnings improved 86% from the second quarter of 2019.
“All of our distributed operations, from gas stations to supermarkets, demonstrate strong performance in line with our casino operations,” Protell said.
Protell said the state didn’t open to 100% until June 1, 2021, so Golden hasn’t seen the full potential of its 66 wholly owned taverns in Nevada. Some of them had enrollment for players club up 10 times over historical levels, he said.
After the second quarter ended, Golden Entertainment received a $60 million cash payment from Caesars Entertainment for its acquisition of William Hill. It has the potential to receive an additional $15 million from Caesars from a sale of William Hill’s operations in the United Kingdom.
In its note to investors, Jefferies Equities Research said the takeaways from the earnings and Golden Entertainment’s story “are straightforward and bullish with strong cash-flow generation and yield that exceed most peers. Despite the stock outperformance (138% year to date), management projects confidence toward margin sustainability and longer-term upside at the STRAT, which suggests further upside.”
Deutsche Bank said Golden Entertainment has continued the trend of “beating estimates handily this earnings season.” Net revenue beat its estimate by $49.9 million while adjusted earnings was $28.8 million above their forecast.
“While the Nevada casinos drove the majority of the delta relative to our forecast, each of the four segments were better than our model,” Deutsche Bank said. “We continue to believe the Las Vegas locals market, driven by the child tax credits and enhanced unemployment benefits, population growth, and operator disciplines around promotions and marketing (in a tight market) has longer legs than most regional markets, as it pertains to the longevity of the outperformance currently being experienced.”
