“No gaming consumer slowdown, at least not yet.” That was the headline of JP Morgan analyst Joseph Greff‘s appraisal of Boyd Gaming‘s 2Q22 earnings call. Loyalty players and core customers remain steadfast, as Boyd grew revenues 4% “despite a tough year-over-year comparison.” Unrated players are the Achilles heel, although Greff (rightly) theorizes that their 2Q21 gambling spree “was likely goosed up from stimulus checks.” While unrated play is as much as 40% of overall win, it’s not very profitable in the final analysis. Greff ratcheted his price target on BYD from $83/share down to $71 “despite limited evidence that the U.S. regional gaming consumer is slowing in any meaningful way.” Why? He predicts a 10% revenue decline next year, with serious consequences for the bottom line.
Even so, Greff likes Boyd’s regional diversity “which generates attractive free cash flow.” He’s (not unreasonably) factoring in a “mild” recession, which may be already here, and which he freely admits could be worse than modeled. Fortunately for Boyd, it is not in a position where debt reduction is necessary. Or as CEO Keith Smith put it, “We’re dealing in an uncertain environment and economy, but everything we see says the business is pretty stable. If something were to happen, given our current financial strength, we’re not losing sleep.”
The company grossed $894.5 million last quarter, beating Wall Street expectations and riding strength in the Las Vegas locals ($236.5 million, +11%) and Downtown ($54 million, +32%) markets—and despite mild softness in the Midwest/South segment … blame it on Louisiana. Management took advantage of undervalued stock prices to ramp up a planned $100 million share buyback to $168 million. The company continues to invest $125 million in revamping the Fremont Hotel and $50 million to move Treasure Chest‘s casino ashore. The $170 million absorption of Pala Interactive should close by year’s end.
“Despite uncertainty, [the] tone remains bullish” recalled Deutsche Bank‘s Carlo Santarelli, who dropped his price target on BYD from $73/share to $66 and reiterated his “buy” rating. He added, “we think the report bodes well for [Station Casinos], and less favorably for the likes of PENN and CZR, though we believe stronger than expected LV Strip results and curbed Digital losses likely offset what could be a regional miss, from the latter.” He did take note of considerably heightened promotional activity by Boyd and predicted continued Midwest/South squishiness, save at Valley Forge Resort, the second quarter’s only regional outperformer. But “our Las Vegas region estimates are broadly unchanged in aggregate,” not least because Santarelli likes Boyd’s business fundamentals and strategy.
“The business today feels very different than pre-Covid, in the sense of who the customer is, our focus on that customer, and how we’re marketing to that consumer,” remarked CFO Josh Hirsberg. “Insightful for us is our core customer, that we’re reinvesting in, continues to be very stable and grow. Driving our business and overall performance is a focus on a very loyal and high-quality customer.”
Sports betting generated a $30 million return on investment, as situation Boyd expects to improve as Kansas (autumn) and Ohio (New Year’s Day) enter the fray. The company is avoiding the low-return thumping taken by other operators, having wisely partnered with FanDuel in return for a percentage of revenue. As for that recession, “As of today, management sees no compelling reason to belive [sic] a significant change to the business is coming in the near term.” It is also ready to tap the San Francisco and Sacramento markets with tribal Sky River Casino, which it finished a month ahead of schedule. (When was the last time that happened in gaming?) So that management fee will be an additional source of cash and Boyd has $481 million in dry powder for further stock buybacks.
All of this sufficiently impressed Truist Securities analyst Barry Jonas that not only did he stick with his “buy” rating but with his price target ($80) as well. He also felt that the Boyd results were a harbinger of good news for other companies, though he gave no names. “Trends have been steady into Q3 with little noted impact from macro challenges,” he wrote, in news certain to gladden investors’ hearts. The quarter was Boyd’s second-best ever from a cash flow standpoint, with Downtown setting margin records for the fourth straight quarter. Those fickle unrated players have been replaced with higher-value ones, management said, and it reported no declivity in its traffic from California, despite gas prices. Smith and Hirsberg “also stated that labor pressures have improved over the last twelve months, however there is still an opportunity to add staff to increase occupancy rates and drive revenues.” Yes, by all means, hire more, especially …
As the Nevada unemployment rate declined yet again, down to 4.7% statewide and 5.7% in the state-worst Las Vegas area. It’s a job-seekers market in Reno, where the rate is slightly above 3%. According to Gov. Steve Sisolak (D), who has a vested interest in the matter (being up for reelection), the state has reclaimed all the jobs it lost to the pandemic. For the economy’s sake we certainly hope he’s right.
Said economy will get another shot in the arm as Reid International Airport saw a record number of passengers last month. 4.7 million souls flew in and out of Reid, up 23% from last year. The previous record was 4.6 million in October 2019. A not-inconsiderable help came from international travelers, skyrocketing 357% from last year (when travel constraints were still in effect). Joseph Rajchel, spokesman for the airport, acknowledged the international surge but stressed the opening of new domestic markets like Richmond and Fort Myers. And things could get even better, Rajchel predicted, pointing that June had one fewer weekend day than in 2021 and was absent any major events at Allegiant Stadium. He all but guaranteed a still-bigger July.
Mexico was the biggest donor of international visitors, up 62%, with European carriers like KLM and Condor showing “moderate” increases, according to the Las Vegas Review-Journal‘s Richard Velotta, who added that Air Canada, Virgin Airlines and British Airways were all down. International passengers were 244,000 in number, which testifies to the ongoing strength of the domestic market. The lone exception would be American Airlines, down 2%. Southwest Airlines carried by far the most passengers but Frontier Airlines made a game comeback, surging 58%. Knock yourselves out, lads.
Once those travelers get to Sin City, they can expect to be socked extra hard with fees for simply enjoying the hotel pool, which you used to be a freebie. No more. At lowly Excalibur it costs $125 for a pair of beach chairs at the Spring Pool. Reports the Wall Street Journal, “Perks include shade, a bucket of ice and cold water.” In other words, not too bloody much. And that’s one of the cheaper propositions on the Las Vegas Strip. At Bellagio, one chair will set you back $200 … and don’t even get us started on daybed and cabaña charges. Other hotels in resort markets are also stiffing guests for poolside relaxation but Sin City is the worst offender, per the WSJ. At least at the JW Marriott Desert Ridge Resort & Spa in Phoenix you can book your reserve your lounge chair as though it were a dinner reservation on Open Table.
If you think guests would balk at this price-gouging, think again. Hotels say they “happily” pay for the privilege. “If you want to have a chaise lounge reservation so you know you actually have a place for yourself for the day, you can choose to do that,” asserts Tracee Nalewak-Giraldo of Vegas-based UrVenue. It’s the job of such companies to crunch the data to see how much of your travel time can be ‘monetized’ (read: exploited). “It’s very profitable,” admits hospitality analyst Jan Freitag. Or, as MGM Grand customer Emily Heinbockel told the paper, “Some people pay the extra fee for food delivery per month because they’re so into it. This is a convenience I’m personally willing to pay for.” (An expensive convenience, to be sure.) Yes, free chairs are still available. Good luck finding one.