WYNN: WHAT, NO SPECIAL DIVIDEND?

A fairly in-line hold adjusted quarter but the lack of a special dividend is a disappointment.  

We’re not sure we’ve seen a special dividend more telegraphed than this one.  The problem is…there was none.  Not sure if the Board nixed it at the last minute and/or management decided to hoard some cash for the prospect of future development.  Either way, the lack of a special dividend will likely be a disappointment to the fast money in the stock for that very reason.

In any other sector, WYNN’s results would look fantastic.  However, the downside of operating in Macau is that investor expectations are usually at high altitude.  Relative to those expectations, Q3 results were a little lackluster.  Las Vegas was in-line after adjusting for hold but Macau missed our estimate because of the cost side. 

Management was bullish about current trends in Macau which told us essentially what we already knew:  Golden Week was terrific and October is tracking up 34-39% over last year.  While the US$73 million in EBITDA through the first 18 days of October (as disclosed on the call) sounds great, that would project out to $325 million in EBITDA for Q4, essentially in-line with our projection.  One cannot straight line the busiest part of the quarter over the full quarter.

Here are the details of the quarter:

Macau:

Net revenue came in $4MM higher than our estimate but EBITDA was $11MM light due to higher junket commissions and higher fixed expenses.  Higher than theoretical hold on the VIP side of the business and strong hold on Mass benefited EBITDA by roughly $14MM. 

• Net VIP table win was $4MM higher than we estimated
  • Direct play was 10% vs. our estimate of 8% but hold was only 1bps lower than we estimated, resulting in gross table win that was $19MM above our estimate.  However, that was offset by a rebate rate that was 3bps higher – 93bps or 31.5% of win.
  • We estimate that all junket commissions & rebates were 42.8% compared to our estimate of 41.2%.  However, we won’t know for sure until Wynn Macau reports.
  • If we used theoretical hold of 2.85%, then gross win would have been $31MM lower and EBITDA would have been $5.4MM lower
• Mass table win was $1MM lower than we estimated
  • Drop was 10% less than we estimated but the win % was 2% better.  Wynn’s mass hold during the last 3 quarters has been trending at 27.8% - noticeably higher than 23.6% in 2010.  The last 4 quarters have averaged 27.4% hold, so this could be the new norm for their business.  However, if we use a 7 quarter average of 25.3%, revenues would have been $17MM lower and EBITDA would have been about $9MM lower.
• Slot win was $1MM higher than we estimated
  • Slot handle was disappointing - flat YoY - but a 1% improvement in hold % made up the difference.  It’s probably not a stretch to say that at roughly a $700/win per device, we are seeing some saturation here.
• Net non-gaming revenue was in-line with our estimate with higher gross revenues in room, retail and other, offset by higher promotional expenses
• We estimate that fixed expenses, totaling $101MM, were $6MM higher than our estimate

Las Vegas

Revenues and EBITDA came in below our estimate by 6% and 14% respectively due to low hold, higher promotional spending, and lower F&B spend which was somewhat offset by better expense control

• Net casino revenues were $13MM below our estimate
  • Table drop grew an impressive 15% YoY, much better than our estimate of flat table drop, but hold was only 18.3% vs. our estimate of 24%
    • If we use a normalized hold rate of 23.5% (the past 7 quarter average), revenues would have been $32MM better and EBITDA would have been about $16MM better.
• Slot win was $1MM better than we estimated
  • Slot handle on the other hand wasn’t so impressive – decreasing 2.4% YoY vs. our estimate of 5.0% growth.  A better win % more than made up the difference though. Wynn’s win % has been increasing over the last few years largely due to the removal of the video poker machines which had payout ratios of about 99% and what looks like some recent yield management.
• Total gaming discounts and promotions totaled 17.4% of gross casino win- higher than the 15.9% discount rate from 2010 and the 15.9% rate last quarter