MGM’s earnings report for Q212 was a largely negative story across the board. Our bearish stance on the company continues as worse-than-expected numbers hit several metrics at the company, which we’ve outlined below. The story here is bookings: basically, people aren’t booking hotel rooms as much as the industry would have hoped.
Hedgeye Gaming Sector Head Todd Jordan broke down the bookings situation as follows:
• The convention mix was a little worse than expected. While MGM predicted convention mix to increase YoY during 2Q [at least +1%], there was a patch of softness from May-June that led to a drop off in yearly convention bookings. MGM’s convention mix for 2012 is trending at about the 14-15% mix level (2011 mix was 14.7) which is below earlier predictions.
• While MGM predicted RevPAR growth for the year to be at least mid-single digit, 3Q RevPAR will be down slightly with weakness in bookings in May/June. Our analysts think it’s too early to make a call on how 4Q will shake out.
Revenue per available room (RevPAR)is only going to get worse and this is one of the biggest factors out there for hotels. However, one very disconcerting comment that management mentioned on yesterday’s earnings call was its guidance for Q3: "We've already seen an improvement in customer trends here in the third quarter.”
Management’s statement seems contradictory. If one had been paying attention to the market today, they’d have noticed that Priceline.com (PCLN) and Orbitz.com (OWW) were getting absolutely CRUSHED, down –17.2% and –25.5%, respectively. Why? Their management teams came out and noted that bookings and other metrics in the leisure space are way down.
And that is why we remain bearish on MGM.