High-net-worth California residents relocating to Las Vegas and eschewing gambling on the Strip contributed to Red Rock Resorts’ reporting the highest same-property revenue and adjusted earnings in company history.
During a first-quarter earnings call on Tuesday, Red Rock Resorts reported that net revenues from Las Vegas operations were $399.5 million for the first quarter, an increase of 18.1% over $338.4 million in the same period of 2021. Adjusted earnings from Las Vegas operations were $196.7 million for the first quarter, an increase of 18.8% over $165.6 million in the same period of 2021.
“We just achieved the highest same-store net revenue and adjusted earnings and margins in the history of the company,” said Red Rock Resorts CFO Steve Cootey. “We remained disciplined to our core mid- to high-end local customers, as well as regional out-of-town guests. This core strategy allowed us to generate record profitability with our gaming segment in the first quarter. While a combination of omicron and inflationary pressures offset by the lifting of the mass mandates across the state of Nevada on February 10th resulted in a quarter-over-quarter reduction in visitation, this trend was more than offset by increased time on device, as well as strong spend-per-visit across our entire portfolio.”
During the first quarter, the company continued to operate Red Rock Resort in Summerlin, Green Valley Ranch in Henderson, and Santa Fe Station, Boulder Station, Palace Station, and Sunset Station, together with its Wildfire properties, while Texas Station, Fiesta Rancho, and Fiesta Henderson remained closed.
The company plans to take advantage of a higher-end demographic that’s been moving into the valley in higher numbers from California since the pandemic began.
Red Rock executives said that Las Vegas households with income of over $150,000 are expected to grow 32% per year in the coming years.
“The market is much more dynamic than it has been historically,” said Lorenzo Fertitta, vice chairman of the board of directors. “As we look at the demographics of people moving to town, we’re seeing a much higher household income than in the past, and a big focus of the company is on player development and relationship marketing. We’re trying to cater to that end of the business.”
CEO Frank Fertitta III said the company has A-plus locations in the suburbs where the majority of growth is taking place. Five to 10 years ago, those customers weren’t coming to Las Vegas.
To help capture this high-end segment, the company is ensuring its Red Rock and Green Valley properties have amenities on the food and beverage side. It will be offering a new high-limit table-games room Thursday at Red Rock.
“One of the things that we’ve been successful at post-COVID is our ability to attract a lot of table-game customers who traditionally would have gone to the Strip,” Lorenzo Fertitta said. “We’ve been able to attract them up to our properties at both Red Rock and Green Valley. So we’re going to continue to build on that as well.”
J.P. Morgan analyst Joseph Greff said in a note to investors that Red Rock Resorts has a market-share-leading position in a healthy Las Vegas locals market that should have a sustainable future. Las Vegas is the third fastest growing metropolitan area and Greff said the quality of the population migration is better than historical, with higher average weekly earnings, portfolio, and home values. The lower cost of living relative to California has provided an attractive opportunity for more discretionary income, driven by lower tax rates and more affordable home prices, he said.
“These dynamics are supported by higher income population growth/migration from California and a finite number of operators that remain rational on the promotional front, each with less gaming capacity today versus pre-pandemic,” Greff said. “This is positive for margin sustainability. We see Red Rock Resort’s attractive same-store growth complemented by its Durango development (which opens in 2024), one that should achieve a reasonable return on invested capital, given this sub-market’s higher income residential demographic with modest, nearby, competitive supply.”
The 200-room Durango Station casino project in southwest Las Vegas that broke ground in January at a cost of $750 million remains on schedule. It is expected to take 18 to 24 months.
Group sales and catered business haven’t recovered to pre-pandemic levels, due to the slowdown caused by the omicron wave in January, Cootey said. Meeting and convention business has been pushed back until the second half of 2022 and into 2023 for Red Rock properties.
“So as we get that group business back, we can expect to yield even better,” Cootey said. “Fortunately, the team has done such an amazing job with the lack of the group business, they have been able to fill the hotels with high-spending gaming customers. And this is one of the big initiatives related to our moving into the mid- to high end in player development.”
Red Rock Resorts reported continued growth in food and beverage and hotel segments, in which both were the most profitable quarters ever.
“For the hotel (segment), this was almost a record quarter,” Cootey said. “We almost hit $170 (average daily rate) across the system, which is up almost $50 quarter over quarter. And that’s at an occupancy of roughly 77%, which again, was up about 17 points. It’s still about 15 points below our historical norm, all of that related to having midweek group business.”
Rising food and gas prices hurt spending of the lower tier of its customer base, the company said. J.P. Morgan estimated, however, that only 5% of Red Rock’s database is considered lower-net-worth consumers.
Older patrons still haven’t returned in pre-pandemic numbers, but that is being offset by younger customers and new signups, Cootey said.
