Isle of Capri, the St. Louis-based casino company, reported underwhelming top-line earnings numbers for the first quarter of its 2017 fiscal year, including a consolidated adjusted EBITDA of $50 million that missed consensus estimates by $2 million.
The regional casino owner-operator also posted a 6.0 percent decline in operating income and roughly 2.5 percent year-over-year decrease in net revenues.
Weather problems and flooding, aggressive marketing by competitors and a relatively slow May and June were the primary drivers for the disappointing top-line, most notably a decline in operating income from $29.6 million for the prior year quarter to just $27.9 million. The company was coming off a strong fourth quarter of FY 2016 in which it generated a 5.0 percent increase in adjusted EBITDA.
“The relative underperformance was largely driven by Black Hawk and Lake Charles, which missed our forecast by 17% and 31%, respectively,” wrote Steven Wieczynksi of Stifel, noting that other properties were largely in line with expectations and maintained his buy rating on Isle of Capri shares.
The company highlighted that seven of its 13 properties across the Midwest and southern states generated increased adjusted EBITDA over the prior year, and five of its properties posted record quarters.
“Despite the early quarter softness, we generated record first quarter Adjusted EBITDA at Pompano, Waterloo, Cape Girardeau, Caruthersville and Vicksburg, which was offset by lower results in Black Hawk and Lake Charles,” said chief executive Eric Hausler.
Last week’s announced sale of its Lake Charles property in Louisiana will free Isle of Capri of a troubled asset moving ahead and will generate proceeds to pay down debt and retool its balance sheet.
Hausler also highlighted the opening of a new land-based casino in Bettendorf, Iowa during the quarter. Isle of Capri had operated a riverboat casino in the Quad Cities region for the past two decades but officially made the transition to solid ground in June.
“On June 24, our land-based facility in Bettendorf opened to the public and has been well received,” he said. “The property opened on time at a cost slightly under our previously announced $60 million budget. Bettendorf’s Adjusted EBITDA increased 10.5% during the first quarter year over year, despite the property being closed for almost a week in June for the transition.”
Diluted income per share from continuing operations for the quarter increased to $0.25 from $0.21 the prior year.
Looking ahead, Hausler emphasized the announced sale of the company’s Lake Charles casino in Lousiana and was optimistic that this transaction would have a positive impact on future earnings reports.
“On August 22 we announced that we have signed a definitive agreement to sell our Lake Charles property for $134.5 million. On a pro forma basis, we expect the transaction will be accretive to Adjusted EBITDA margins and deleveraging,” he said.
The chief executive also noted that the competitive and weather issues facing Lake Charles was an overall damper on the quarter’s top-line. “Excluding Lake Charles, Adjusted EBITDA increased $0.2 million and Adjusted EBITDA margin increased 40 (basis points).”
Equities analysts have looked favorably upon Isle of Capri’s decision to part with Lake Charles as part of the company’s broader strategy.
“As reflected in ISLE’s property-level results, the late-2014 emergence of a new competitor’s property clearly altered the balance of power within the Lake Charles market. That said, we support management’s decision to sell the asset in a transaction that should be mildly accretive to valuation and consolidated EBITDA margin,” wrote Stifel’s Wieczynski of Stifel at the time of the announced sale.
David Katz, an analyst with Telsey Advisory Group, offered a similar assessment. “Because the Lake Charles market has been highly competitive since the opening of the Golden Nugget in December 2014 and ISLE has been competitively challenged in this market, we believe the sale enhances the value of the total portfolio.”
