WYNN MAY HAVE COVERED THE POINT SPREAD

Even after normalizing hold, the Q was not good.  Whisper expectations were for a first down punt, however.

Wynn missed Street expectations, even after normalizing hold.  We had low hold already factored into our Wynn Macau and Las Vegas projections (not low enough for Vegas) and Wynn still needed a Hail Mary pass in the form of favorable reserve adjustment to make our number.  So why do we think WYNN could rally?  We’re pretty sure buy side expectations were lower and Wynn may have actually covered the point spread.  Moreover, the stock has been in a tailspin, down 42% and 28% from its 52 week high and recent April high, respectively.  Keep a trade a trade, however.  Wynn is still down by a lot and the opposing side is looking tough:  market share still at risk, Macau VIP may disappoint further, and the modest Las Vegas recovery seems to be moderating further.

Netting the impact of low hold and the benefit of the reversal of provision for bad debt, we believe that Wynn would have reported $1,32BN of revenue and $378MM of EBITDA, still 2% and 3% below the Street.  Wynn recorded a positive adjustment to its receivable reserve which we calculate favorably impacted EBITDA by $25 million.  As a former CPA and Audit Chair of a publicly traded company I find it hard to believe the auditors recommended getting less conservative.  Nevertheless, Wynn has clearly over-reserved historically so the end result on the balance sheet is appropriate.  Only the timing is suspect.

 

Macau

Wynn reported net revenue of $908MM which was just 0.4% below our estimate.  Adjusted EBITDA was 7% higher than we estimated, almost entirely due to a reversal of bad debt provisions.  Lower than historical hold on the VIP business was largely offset by high hold on Mass.  If hold was “normal”, net revenue and EBITDA would have been $15MM and $3MM higher, respectively.  If we adjust for the reserve and normalize for hold then we estimate that Wynn Macau would have reported net revenue of $923MM and Adjusted EBITDA of $289MM, 4% and 3% below consensus going into the print.

• Net VIP table win was $1MM lower than we estimated. 
  • RC volume declined 7% YoY, despite a 9% increase in the number of VIP tables.  Volumes dropped 10% QoQ despite no change in tables.
  • Direct play was 8.3% vs. our estimate of 11.0% and hold was 5bps better than we estimated, resulting in gross table win that was $1MM above our estimate.  
  • The rebate rate was 30.8% or 84bps, a bit higher than we estimated
  • We estimate that all junket commissions & rebates were 41.9%, a little lower than we estimated and impressive in the current “aggressive” promotional environment that Wynn described.  However, we won’t know for sure until Wynn Macau files.
  • The property’s historical hold rate since opening, inclusive of this quarter, has been 2.92%.  Using the historical hold rate, net revenues would have been $27MM better and EBITDA would have been $8MM higher.
• Mass table win was $2MM lower than we estimated
  • Drop declined 5% QoQ, despite a small increase in the number of tables and was 9% less than we estimated but the win % was 2.3% better.  
  • Wynn’s mass hold in 2011 was 28.4% and Wynn considers 26-28% normal. Assuming 28%, revenues would have been $15MM lower while EBITDA would have been about $5MM lower.
• Slot win was $1MM below our estimate
  • Slot handle was down 22% YoY on a 11% reduction of average slots on the floor
  • Hold was 5.3%, 20bps better than we estimated
  • As Wynn mentioned on the call, they are adding some slots, so we’ll be watching to see if more supply drives demand here
• We estimate that fixed expenses totaled $108MM, in-line with our estimate and flat QoQ

Las Vegas

Las Vegas revenues and EBITDA missed our numbers by 6% and 18%, respectively, and missed the Street’s EBITDA estimate by 24%. The entire miss came from lower than normal hold on Wynn’s high end baccarat play which held at only 9% and took down the hold on table games to 15% which is about 9% below normal.  The impact of low hold which the company estimates impacted EBITDA by $34MM was partly offset by the reversal in bad debt provision, which we estimate benefited Wynn Las Vegas by $9MM.  Net/net, we think that on a “normalized” basis, Wynn Las Vegas would have reported $392MM of net revenue and $107MM of EBITDA, which was still a little below consensus.  

A large part of the miss came from lower room revenue and higher promotional spend.  Despite management’s statements on the call, we believe that trying to inflate ADRs probably cost Wynn a lot of occupancy and hurt their gaming and non-gaming revenues in the quarter.

• Net casino revenues were $31MM below our estimate
  • Table drop actually grew 8% YoY vs. our estimate of 5% growth but hold was way below normal, resulting in table win being $26MM below our estimate (we suspected low hold but not this low)
    • Hold was 15%, significantly below the company’s normal range of 21-24% and the 9 quarter trailing average of 23.5%.  Assuming 23% is normal, table win would have been $46MM better and according to Matt Maddox, EBITDA would have been $34MM higher.
• Slot win was $2MM lower than we estimated
• Slot handle 2% better than we estimated but the win % was 40bps lower at 5.7%
• Total gaming discounts and promotions totaled 22% of gross casino win, higher than the 17.7% discount rate in 2011 and last quarter’s rate of 18%.
• We estimate that the reversal in bad debt benefited EBITDA by $9MM