The $4.4 billion Wynn Palace in Macau’s Cotai district struggled to gain momentum after opening in mid-August and factored into Wynn Resorts missing on earnings and revenue projections for the third quarter of 2016, the company reported Wednesday afternoon.
Wynn’s two properties in Macau – Wynn Palace and Wynn Macau – generated just $683 million in revenue for the quarter, well short of the consensus estimate of $734 million, and EBITDA of $172 million was below the consensus of $195 million.
“Wynn’s 3Q is likely to disappoint, despite low expectations going into the quarter,” wrote Cameron McKnight, an analyst with Wells Fargo Securities, in a client note.
On a call Wednesday afternoon with investors, Steve Wynn attributed Wynn Palace’s slow start to ongoing construction projects – including a light rail, the MGM Cotai and a new SJM hotel – that have effectively boxed in the 52 acre property on all four sides, thus making visitor access difficult and, some cases, dangerous.
“What we have is an anomalous situation where we are currently being enclosed by either barricades or construction blockades of one kind or another,” Wynn said. “It has tended to isolate our property on all four sides and has made access to the Palace highly encumbered.
Wynn also reminded investors of his longtime philosophy to spend minimal marketing dollars on a new property’s opening in favor of gauging organic customer sentiment and using that as a foundation to ramp up marketing efforts later on. By not “throwing in the kitchen sink” at opening, he said, “we risk less dramatic results but protect our price.”
The Wall Street crowd was generally forgiving of the lower than anticipated numbers from Wynn Palace, particularly as the construction impediments are almost entirely out of Wynn’s control – although the company says the local government has been understanding of the concerns and cooperative in finding a solution.
“This is inline with our early take on (Wynn Palace) and do believe construction disruption is significantly holding back non-premium mass play (although this segment has traditionally not been Wynn’s core demographic)” said Grant Govertsen of Union Gaming Securities. “In our view, Wynn Palace should ultimately be the property of choice for many higher net worth individuals who have a proclivity for Cotai, although this is likely now a 2018+ story.”
Somewhat counterintuitively, there are expectations that quarterly data points will remain volatile until the nearby MGM Cotai opens in 2017, which will increase overall accessibility to the district. Despite the new competition, Wynn Palace is expected to hold its own as a world-class property despite the growing need to use “hand to hand combat” to fight for Cotai customers.
“At the end of the day, the Wynn story has been one predicated on creating unique experiences that cannot be replicated by its competitors,” said Steven M. Wieczynski of Stifel Nicolaus Capital Markets. “That said, we fully anticipate it to require more than forty days [the length of time the property was open during the quarter] for Wynn to seek out the premium consumers who are attracted to its unique offerings at the price points it is trying to capture.”
The slow start in Macau was offset, however, by a strong performance in Las Vegas and southern Nevada, which boosted revenues by 4 percent year-over-year to $427 million and adjusted EBITDA by 10 percent to $129 million. Wynn hotels in Vegas were filled at a 90 percent clip for the quarter and revenue per available room jumped 6.6 percent to $259.
Wynn said he was “heartened” by the fact that the ratio of non-gaming to gaming revenues at his Vegas properties had reached roughly two to one. “It tells us that these 43 million people that come to Vegas are spending more money and have more disposable income for the non-casino aspects which are really the drivers in our industry.”
The company overall recorded earnings per diluted share of $0.75 compared to $0.86 for the prior year quarter, while net revenues increased by 11.4 percent to $1.11 billion for the same period.
While the Wynn Palace ramp up has taken longer than expected, the company said its volume metric for the property were up about 20 percent in October – the first month of the fourth quarter – and that customer feedback has been “overwhelmingly positive.”
The company also broke ground on its Wynn Boston Harbor Project on August 3 and reported on the call that substantial progress was being made in the groundbreaking efforts. The property is anticipated to open the first half of 2019 at a total estimated cost of $1.9 billion – $2.1 billion.
