Wynn Earnings Call Tidbits – Q1 2014

Yesterday $WYNN (no positions) released earnings and held their quarterly conference call.    For the uninitiated, I view Steve Wynn’s conference calls as the one “must listen to”  conference call of the quarter.   Steve Wynn speaks with a candor and clarity that I have not found anywhere else, enlightening novices and experts alike about the intricacies of his business.   Let’s dive into the transcript and pull out the interesting parts:

on Vegas finally catching up with the bubble-growth:

“there’s always been a lot of talk the last couple of years from our colleagues up and down The Strip about, is Las Vegas recovering? And I’ve been a little reticent to say that we see it. And I must say that this year, for the first time, I’m willing to say that I see Las Vegas getting a footing that it hasn’t had quite as clearly in the past. So I want to put myself in a category of guys that say, “I think Las Vegas is sort of growing into its additional capacity that was added in the past.”

On Macao, which he thinks could become the leading tourist destination in the world:

“And the things that we’re doing in the Wynn casino in Macau and The Peninsula are going to be — I’m going to use the right word — sort of startling in what they offer in terms of VIP gaming…”

“And I think, if I’m not mistaken, in the next 60 months, between Hengqin Island and Cotai and Macau’s Peninsula, that the Macau area, once the bridge is finished, will probably be the most robust destination tourist center in the world, competing with Orlando, Las Vegas and any other place on the planet.”

The kind of explanation of credit variation you will not find anywhere else:

“Well, it’s axiomatic that when the customers get lucky, the drop goes down, and the markers go down because most understand what happens in Las Vegas. The customers walk up to the Baccarat table in the private rooms, and we have a very, very strong grip on that kind of business in this town. They walk in to the table, and they say to the boss, “Let me have $1 million” and they have established credit. We put up a table marker, a lammer, a little round circle that’s visible on television on our continuous taping. And we slide the money across. Now the guy plays. He goes up. He goes down. He wants to go to dinner. He leaves the money in front of him. There’s no — there is no drop yet. There is no handle. Until remember — handle in a Las Vegas casino is made up of cash in the box and credit slips associated with markers as opposed to credit slips associated with chip returns when the rack is too full. Markers and cash make up drop. We don’t have any drop unless the guy loses, which, in many cases, they don’t sign the marker until they’re ready to leave in 2 days. They leave the money on the table overnight. We lock it up with a case, but they’re very superstitious about that. So there’s only a table lammer up. So when a customer, let’s say, plays for 6 hours and at the end of the thing, he’s up, down, up, down a couple million dollars, but he’s up $1 million. At the end of his play he slides the chips back and says, “Take down the mark — the table marker,” and there is no drop. So there is no credit. So when the win is down, credit is also down. When the casino holds a higher percentage, you will invariably see our marker, our receivables and our markers go up.”

Felicia Hendrix from Barclays asked a question about gaming disruption during construction in the Macao Peninsula, and Steve explained:

“What we did is we hijacked the poker tables…It was an easy decision.”

*sigh*… No love for poker, which we know isn’t very profitable for the casino.

On business being cannibalized – here’s a money quote:

“I remember several years ago, on an annual report back in the days when we actually used to print annual reports, I put a cartoon on the cover of the report, and the cartoon on the left there were 3 pictures. There was a house of straw with a little pig laying there in a collapsed mode. Then there was a house of wood and the pig was collapsed and laying in a pile of wood. And there smoking a cigar on the roof of a house of bricks was a smart little piggy that built the house of bricks. I’ve always thought the 3 Little Pigs was one of the greatest business case studies of all time. And I’ve put on the top of our annual report, we build the houses of brick. And Wynn Macau Encore facility is a house of brick. And it has held its market share against massive multibillion-dollar expansions on Cotai, and has done nothing but grow as of this morning. So when we add in terms of total footage of tables, a rather small increment at Cotai, we believe that our market share will continue to hold its own, both at The Peninsula.”

On low interest rates:

“Now on one hand, as a businessman, I’m thrilled. Never dreamt that we would see anything so tasty and wonderful as that. On the other hand, it’s a reflection of questionable fiscal and monetary policy in the United States that is artificially depressed interest rates because of quantitative easing by the Fed, which is also sort of killing the value of the dollar and the living standard of the working people. So the good news is, if you’re a high-class borrower with good credit rating, this is one of the most tastiest seasons of all time for 2 reasons. You’re borrowing money at artificially depressed rates. And you’re most likely going to pay them back with 85-cent dollars. It’s a perfect storm for a businessperson unless you look at the truth of the matter and the impact it has on your customers and your employees. And that’s a much darker story. It doesn’t lend itself to a soundbite, but it’s — for every businessman in America and any economist that has their heads screwed on right, it’s an ominous situation. But in terms of our moment in history, in commercial history and our projects in Cotai, along with our colleagues in the industry, it’s nirvana. Capital structure now is — these are mostly at the Venetian and the Wynn, things of beauty. They’re lovely, better than you could ever want. I mean, they’ve got everything, low interest rates, long maturities, low covenants. What else do you want? I mean, it’s great. If you look at it from our point of view, look at it from a consumers’ point of view or a working person’s point of view, who’s paying for all this cheap money? Well, right now, the Fed is. I thought Bernie Madoff went to jail for that. But anyway, that’s my answer about your capital structure.”

I liked this next exchange where Wynn basically told the questioner to GFY… here’s an image of the transcript, because I think it’s easier.

wynn_q_aResponding to a question from Steve Kent of Goldman Sachs:

“the only thing left to do in the industry that we’re in, in spite of all the technology, in spite of all the imagination, the only thing left to do, and I don’t mind being quoted about this, and I don’t mind saying it because I know all my competitors are listening, is to do the basics better. I’ll say it again. The only way you take this to another level is by doing every little thing better, from human resources, every aspect of services, purchasing, interior designing, including lighting, as well as the decorative elements and fixturization of the place. Everything has to be better. And the only reason our REVPAR and our EBITDA per table is better than the rest of the guys is because we subscribe relentlessly to that principle.”

and then:

“We have owned the leading casino on The Strip every single minute that we’ve been in business for 47 years. Think of Macau. The most profitable place per foot, per table is Wynn Macau. Obviously, there’s a common idea that is a thread through all of this. So what is Cotai going to be? The most expensive, the most carefully thought-out and the largest place we’ve ever built in terms of gaming capacity. Nothing new, Steve, same old stuff, but it’s worked every single time without exception. The most successful largest-grossing casino on the Gulf Coast is Beau Rivage, never has changed. We’ve never not dominated with a facility we’ve built pound for pound any market we’ve ever been in for 47 years.”

finally:

“And that’s the answer to your question about REVPAR and occupancy. Those are symptoms. Those are effects. The cause is our focus and our energy on the detail.”

 

Seeking Alpha:  WYNN Q1 21014 Earnings Call Transcript

-KD

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