WYNN Earnings Call Tidbits – Q2 2014

As regular readers know, I think Steve Wynn is the stone cold nuts when it comes to running a quality business and talking about it clearly on his quarterly earnings calls.  Wynn’s candid discussion makes the call the one “must listen to” on my earnings calendar, even though I don’t have a position in $WYNN.    Without further ado, let’s go to the transcript and see what was interesting.   I live-tweeted most of this on Stocktwits, but anyway:

Steve Wynn began by talking about how he gets a lot of questions about China (Cotai), and saying he was going to give some comparisons between his business and that of $LVS in order to try to answer by demonstration.

“First of all, in Macau, The Sands has ten times as many rooms as we do. They have — we have 1,000, they have 10,000. They have multiples of machines, multiples of tables, multiples of square footage of retail being operated, and multiples of restaurants. They are twice the EBITDA of our company, a little better than twice, we are approximately half as profitable in Macau as The Sands, with only 10% of the rooms.”

He then has his lieutenants give some more stats:

Macau Retail sales: “Tenant sales per square foot at Wynn Macau was 17,000 versus Sands Group at 2,400.”

Macau Slots: “Win per unit slot was 105,000 versus their 36,000, close to three times theirs.”

Macau Table Games: “Tables: win per unit, 2.4 million versus their 1.5 million — 1.5 times theirs.”

Macau Average Room rate: “Our average room rate was 334. Theirs was an average of 210.”

Wynn adds:

Wynn: “So the reason I mentioned that, is that they make a ton of money. But the approach that we take, each of these companies, is quite different one from the other. We have integrated all of our departments, under the notion that we are after a certain customer, that has an awful lot of discretionary income. We understand that customer both in America and in China and everything we do here with our staffing and the preparation of our facilities, is directed at integrating everything for that customer and anticipating their needs.

The good news is, is that we have these yields and we are profitable, probably much more so than our size. But the bad news is, is that we are a little slower getting online. In order to integrate these resorts and produce the kind of results that we are describing here today, we have to really grind on every aspect of our buildings, as we build them. So it takes us longer in design development. Our detail is time consuming.”

Then more stats:

Las Vegas EBITDA per room:  “34,000 versus 9,300 (for $LVS). 3.6 times.”

Macau EBITDA per room: “Oh, Macau EBITDA per room is 304,000 versus 80,000.”

And the wrapup on this point:

“Now, as I say, The Sands is the most profitable company in gaming, and a company that has my complete admiration. The point I am trying to make here today, is that when you ask what will happen to us, when we double our tables and increase our rooms by 170%, we tend to have a very positive expectation about a project like that, and that allows us safely to spend $4 billion on a facility in Cotai.To summarize, I think everything about our company is rooted in the principle of a story very old, but still relevant, the three little pigs. We build houses of brick, and our houses of brick take a little longer to erect than some of the others. But they’re built for the long term, and we are seeing that now.”

Wynn adds:

“Primarily, we are making sure, that we do not cannibalize the peninsula. Our occupancy is 98.4%. We have more demand in the premium mass market than we can handle, and we can do this on purpose, because we want to make sure that as 2016 Chinese New Year rolls around in January, 18 months from now, that we will be able to spread our wings and keep flying at the same altitude.”

There wasn’t too much of interest in the Q&A.

There was an interesting question about if WYNN saw any impact from the corruption crackdown in Macau, and they said that they saw some weakness in the watch boutique!

Nomura’s Harry Curtis asked a question about Vegas room ADR compared to 2007, and Steve Wynn answered:

“First of all, if I knew then what we found out after we opened it, Sheldon wouldn’t have built Palazzo. I wouldn’t have built Encore. And I am sure that MGM wouldn’t have done City Center. None of us, we all start these projects three, four years in advance of the recession. Remember, we opened Encore on December 22nd of 2008, can you think of a more perfect negative moment to open 2,000 rooms that cost $2.25 billion. And if we hadn’t built those rooms, we might be making pretty close the same amount of money, and we would owe $2 billion less. But the hindsight’s perfect, but at this point, its all history. “

I was offering a “Will Steve Wynn get mad at UBS’s Robin Farley when she asks her question?” prob bet, as Robin usually asks a question on a topic that Steve has already talked about and has already encouraged people to think about differently.   We were not disappointed:

Robin: “I was also looking for just kind of the mix on your floor, as you are kind of yield managing your shift tables between VIP and mass, where that was in Q2?”

Steve: “Why do you care about that? We yield manage that Robin. If we said okay, some of the junket operators were a little wobbly from time-to-time, we add them, we subtract them, then we put the tables back into the mass. If we think we can make more money….”

The “WHY DO YOU CARE ABOUT THAT” was classic, but Robin seemed so used to being berated by Steve Wynn that she didn’t really flinch.   Mind you, the earnings report clearly showed a big drop in the VIP segment and a big pickup in the mass market segment – it was the obvious number in the demographics shift, but Robin was asking about table breakdowns in response to that shift, I think.

Wynn closed with a typical quote in response to a dialogue with Tom Marsico.  This is a super long excerpt, and it’s nothing especially “new” for Steve Wynn, but it’s his philosophy in a handful of paragraphs, emphasis mine:

 

So, when we are designing the hotel, and we want to get the premium mass, we are saying, what’s the premium mass, besides the term that Wall Street people, when they talk about the gaming industry? Its that person with more money, who likes to come on vacation, gamble, eat and shop. But this person has enough money to stay at the best hotel, or whatever they think is the best hotel. The branding, the cache matters, and how do they find out about it? From personal experience, but before that, word of mouth. The truth prevails in creating a brand. Not the advertising, not the baloney that CEOs like me lay out, but the truth prevails. So what we do, in order to get the premiums mass market, is we build a better product, and the way you build a better product, is to make every single minute detail that goes into the whole, better from scratch, we are talking about the width of the hallways, the balancing of the lighting, the level of sound, the color coordination of the place, if we are talking about the building. Every single thing is better, and we are banking on — and here is the key to it.

Guys like myself and the people that I am in business with, we have been attracted to each other, because we all believe that the public gets it, that people do know the difference between pretty and ugly, clean and dirty, that the public has an innate sense of discretion.

Now there is exceptions. There are people without any damn taste in the world, there are people who are very-very discriminating and see every little detail. But basically this company, is built on a foundation that says the public knows the difference, and if we give them that difference, they will reward us with their patronage. That’s the whole secret of Wynn Resorts. Nothing else. It isn’t more complicated than that, and that’s why we grind on the details. That’s why we take longer to build our voices, that’s why we end up outperforming the competition. We’ve never made a secret of it. Hell, the guys that have worked for MGM, won’t work for me. What happened to the culture? The end if I know. But our culture is bad [ph] and simple, and that’s how we will get more of the mass market. And damn it, we will get more of the mass market Tom, as sure as my name is Steve.

Not because I say so, but because we are dedicated to a business plan and a common sense program that has never disappointed us. We think plain and simple, and then we act on it, based upon those simple truths, that if we give a better guest experience through our employees, that we will be rewarded with the patronage of the most affluent, the most discriminated, the people who really know the difference, and those incidentally are the ones that want better food, that shop in better stores, that want a fancier bedroom to sleep in, that want a bigger TV to watch, and that want to be treated by employees, who make a personal connection with them. And that’s our story, and that’s all we ever knew, and that’s the basis of every decision we have ever made, as a family, as a group.”

until next time…

Prior Wynn Posts

Seeking Alpha Transcript

-KD

no positions in $WYNN or $LVS

ps: the earnings release is here.  the obvious standout is the shift from VIP to mass market play. I thought that the Wynn Macau occupancy of 98.4% with an ADR of $334 was impressive.