Great July airport data but if US consumption of luxury goods is slowing, the Strip’s high-end domestic play could be under pressure.
July was likely a strong month on the Strip per the McCarran Airport data released late last week. Management commentary from MGM, WYNN, and LVS seems to confirm the strength. However, we are a little worried about the prospects for high-end domestic play which represents about 20% of Strip table drop.
The Hedgeye Retail team believes that US luxury good sales have been slowing in the past couple of weeks. While we don’t yet have hard correlations to back this up, if high-end retail consumers are cutting back, it stands to reason that high-end gamblers may be doing the same. Table game revenue has been carrying the ball for some time on the LV Strip while high margin slots have yet to show a consistent resurgence. We doubt that slot revenue will improve dramatically over the near term given the macro environment so without the domestic high-end, baccarat may be the only potential growth driver. Overall gaming revenues could be under pressure the rest of the year.
Meanwhile, the McCarran Airport July passenger traffic data showed 4.9% YoY growth against a -1.1% comp. This is the third consecutive month that the number of enplaned/deplaned passengers at McCarran have grown 5% YoY. For each of the past two months, Strip revenues have soared 30% YoY. According to our predictive model, for July, Strip gaming revenues growth should moderate to around 10%, assuming positive auto traffic, normal hold %, flat slot handle per visitor, and positive table drop per visitor. Last July, the Strip reported flat gaming revenues so the comp is still relatively easy. But starting with August’s comp (+21%), Vegas will be matched up with three straight positive YoY comps.