Wynn Q3 2012 Earnings Call Tidbits

As I’ve done previously, I’m going to go through the transcript of $WYNN ‘s quarterly conference call and pull out what I find to be the most interesting parts.   Steve Wynn speaks with a clarity and candor that I find to be unrivaled, and it’s always worth the time to listen to his calls or read the transcript.

Steve Wynn:

“We feel the strain of competition in certain areas, like our high limit slots, where our brethren at Cotai have done a very nice job in their high-limit slot rooms, which caused us to revisit our high-limit slot area. And that will be fixed shortly where we’ll be, as usual, prettier, I hope, than the other guys. But at the moment, the level of competition in Macau is terrific. I mean, the people that have built the new hotels, Galaxy and Venetian, they have really done a good job, and they built very, very nice places. And everybody is on their game over there, thinking about how to please customers and learning from their competition.And so it’s a tight game in Macau, and no place to take your eye off the ball for even a minute. And I don’t think that we are and — I’ve got full confidence in our organization that we will continue to garner more than our share of the business and stay more than competitive. “

Wynn:

“…there’s a lot of attention being paid to stocks that have good, strong, consistent predictable yield. And we feel that we can be predictable and have a nice yield at $4 a share a year or $1 a quarter. So we’re changing our dividend policy beginning in 2013 in the first quarter to $1 a quarter or $4 a year.” (KD note:  $WYNN also declared an $8 special dividend)

More on dividends and the tax issues related to them.  from Wynn:

” We believe that companies should make money for their shareholders, period. That’s the reason we exist. And to create safe, steady, secure jobs for the people that make the enterprise breathe, our staff. As long as we keep our staff healthy and safe, we’d like to give the shareholders of this company the maximum benefit possible from the company’s operations. And I say that because so many of us on the board are shareholders, including key members of management, have most of their net worth invested in the company’s stock. So we think like shareholders. The — it’s clear that dividends are a good form of savings. And so therefore, distributions of companies under the current tax policy are intelligent. If — and so the dividend policy of companies are very often affected by the tax policies of the government. When the taxes on the dividends are too high, then companies don’t distribute, the shareholders don’t get the dividends and Uncle Sam doesn’t get the tax on the dividends. Instead, the companies keep the money in and use it for other things. Sometimes, that’s a good policy and sometimes, it isn’t. Now we’ve been able to keep a balanced program of growth and investment in our industry and our properties, as well as giving — having distributions because we’ve been very fortunate to have healthy businesses. Going forward, I think that the basic attitude that we’ve had is still valid: protect and allow for growth, for the safety of our employees in terms of their job security; make sure that as we expand and undertake new projects that we have proper capital structure; and then any excess capital should be distributed, provided that, that distribution doesn’t cause our shareholders to have a confiscatory tax consequence. So when the government put in the 15% tax rate for dividends, it caused a lot of companies to distribute money and a lot of dividend taxes to be paid. I’m not sure the same thing will happen if the tax policy changes dramatically. And what we’ll do at this company is measure our earnings, our capital responsibilities and our feeling about what you and I would call excess capital, excess cash flow, and make a balanced decision. Right now, as you can understand, we’re anxiously awaiting the activities of the lame duck tax discussion to take place in Washington which, of course, would be affected by the election. Other than that, I really don’t have anything else to offer. It’s a bit of an uncertain time as it has been for many months, very difficult to do long-range planning with a government that moves as much as this does on so many issues.”

The next meaty excerpt is a Steve Wynn classic about discounting to get business.  He’s made comments like this before, which I’ve noted in previous posts, and the excerpt is a long one, so I’ll just send you over to Mick Weinsten @ Covestor, who already wrote a post about just this one comment from Steve Wynn.

Steve Kent from Goldmans Sachs asked a question:

“Steve, can you just tell us when you plan on showing some of the renderings for Cotai, some of the project?

and Steve Wynn’s answer is pretty interesting – they built a Vegas mock-up of the Cotai project?!?!?!

“Well, I’m glad you’re really interested in seeing the pictures. We’re — this is something we’ve never done before. We built a building in Las Vegas. This 32,000 square feet glass building next to our staff parking lot. And we built into that building the ability to build both the queen, queen and the king typical room, our suites. A big piece of our casino, smoking and nonsmoking, the corridors and the suites. In effect, we’ll be able to take a camera, walk in this facility and make you think the place is open, full sides [ph] . We’ve never done it before. We spent quite a bit money on this because we’re taking this hotel to another level. But instead of showing you renderings, I’m going to let you walk in it. I’m going to let you feel it. Let you be there. And not a computer rendering, either, the real deal: the carpet, the chandeliers, the decor, touchy and feely. If you come out here, Steve, you can go and it see yourself in person. And so — and pictures of the outside, the fountains, all of the stuff is designed. We’re polishing and finishing the suites in the model. Our models are done, except for one thing we’re finishing in November. But we’re going to take movies and photographs and everything. But this project, before it’s finished, will be completely understood by everybody, including our competitors.”

Wynn then gives another example of why I think he’s a total stud:  look at the detail with which he describes the construction process in Cotai – there is not a chance that another gaming CEO has the same grasp of this that Wynn has:

“The site, as I mentioned earlier, was complex because of water and subterranean garbage. It’s a big landfill. And our part of the landfill, we love having the 52 acres, but our property had a particular problem in one corner, it was very wet. And we had to do a process of compressing that earth with drainage wicks in it. And we lowered the ground on about 8 acres by almost 2 meters. And when we finish that drainage process, it’s going very well. And we think that we’re going to start by the end of November, next month, the actual pile, the caisson construction. So we’re moving dirt, but we’re moving it out of the low-grade out and putting huge, deep 78- to 92-meter caissons in the ground. Our shallowest caisson is 78 meters deep. That’s to get 2 meters into rock. And our deepest caisson that holds up the high rises, the high-rise columns, we’re down as low as 92 meters below grade. Now we had 60 meters when we built Encore in Macau. So that was a time-consuming — once we get out of the ground, which will be probably 1 year from now, once we get above — we get to where we poured the basement, the one level of parking below grade, which will start next — in ’14, then it will go very fast, because it’s only a 20-odd storey concrete building poured in place and the public area is 2-storey podium. That will go very fast. The problem in Cotai for us is getting out of the ground. That’s the problem all over Macau because so much of the place is landfill. Everything on our side of the street in downtown Macau and the peninsula, the Star Wars, MGM, Wynn, The Arc, every one of those places where the ferry terminal is all the way down. That was all water in 1995. Ocean. That street that’s in front of our hotel was an oceanfront street. Beach was there. So building over there is tough in terms of foundation work and expensive and slow because we’ve got to go so deep.”

Responding to a question about if the VIP market in Macau is getting saturated:

“No…we’re Johnny-come-latelys over there. Stanley Ho has been — God knows — every time we think we’ve got a line on this place over there, we get surprised, Harry. We get surprised. The country is so huge and the percentage of penetration of the gaming, based upon the repeat visitation, is so small that I don’t think that we have done that. I think it’s very important that the invitation, represented by all this new construction, that that’s the volume. That’s the volume on the speaker of the outreach of Macau. The louder that invitation of Macau is, the more deeply you can penetrate that market.”

and then:

“And I believe there will come a time when the invitation to Macau will be so loud, so strong that people will start to come from even further away. So I think we’re on solid ground as far as long-term growth.”

On rents he’s getting:

“We made had a deal this month — well, actually, 2 months ago. You know where the coffee shop is in Macau. We took part of the coffee shop. We didn’t need as much of the coffee shop buffet, so there was 2,000 extra feet that we turned over to retail. I made a deal with a guy for $6 million for 2,000 square feet. $500,000 a month fixed rent for 2,000 feet, 5-year lease. I’ll say that slowly. 2,000 feet, fixed rent, $500,000 a month, $6 million a year.”

The Coup de Grace comes after a back and forth with UBS analyst Robin Farley.   Farley repeatedly asks Wynn different versions of a question, unsatisfied with his answer, until he replies:

“You know what the trouble is, Robin?. The reason we’re lousy at answering that question is we don’t care about the next few months the way you do.”

If only Steve Wynn had ended the call by saying: “Class dismissed.”

Wynn Q3 2012 Earnings Call Transcript

-KD

disclosure: no positions in $WYNN

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