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Steve Wynn was more optimistic than the last time we heard from him. Cost cuts were very impressive in the quarter, revenues remain under pressure.  New Mass supply in Macau and high supply in Las Vegas are our major concerns.

 

WYNN 2Q09 Earnings call:

  • Things seem to be stabilizing in Vegas and China
  • Since March they felt a change in operations
  • They are feeling optimistic, still seeing Asian business in Vegas growing
  • They are as satisfied as they can be given that world is still so uncertain
  • More afraid of Washington than the economy
  • Mid week small business meetings are still off, but are benefitting somewhat with dealing with the high end customer
  • Encore – most beautiful building that they have ever built, on time and on budget for this spring

Q&A

  • Thoughts on lowering the gaming tax in Macau?
    • Government may or may not be in sync with Stanley Ho’s comments
    • Likes the new CE, “full-fledged doctor, a PHD”, will look out for the interests of the people of Macau and the businesses that create jobs… Sounds like Steve thinks that there is a good possibility that the tax rate gets lowered
  • Thoughts on VIP commission cap? Any benefit to Wynn?
    • Never went above 1.25%, and the fact that the market has realized that there is no benefit to destroying margins is a positive for the market as a whole.
    • Made some comment about not paying taxes – re: competitors
    • Question of enforcement remains
  • Areas where they cut costs, is there more to go?
    • FTE’s were down by asking for reduced work weeks, salaries and increased time off, they saved $65k per day here
    • Hundreds of other initiatives, related to operating supplies, promotional expenses, communication
    • In total recognized $140k per day of savings, and think that this is where they are going to be
    • $35MM behind on a run-rate basis from 2008 (revenue wise), but comparisons become easier going forward, thinks that the net effect will look softer going forward. Took out a $100MM of costs, which will benefit them as the market recovers
    • Let’s suppose they can take out another $15MM of costs, not sure if it makes sense because it will dislocate their employees… they think it is bad business to cut more costs.  It’s about the people not the money
    • Kicked off initiatives of cost savings in Macau, realized $50MM of costs savings there which can ramp to $66MM.  It’s not at the expense of employees or the franchise.  900 FTE’s lower than last year.
  • Strategy into the City Center opening? Any change in pricing strategy?
    • First people likely to try the new product will be Bellagio and also Wynn customers but the real test of whether they become loyal City Center customers will be guest experience
    • Thinks that City Center needs to charge Wynn/Bellagio/Caesar’s prices to make money
    • Only thing WYNN will do to compete is to keep the service at his property top notch, doesn’t think that price matters.  I’m not so sure, price matters when you have a corporate limit on what you can spend.
  • No reversal of bad debt provisions in Macau or Las Vegas
  • Promotional expense in Vegas being lower – reflection on being more focused on who should be at the hotel (more marketing-focused – hence occupancy was down)
  • Looking forward to the opportunity of developing Cotai … states that the Encore Macau is the most beautiful hotel in the world.  It should be at a cost of $1.6MM per key
  • Another Obama shot…
  • Growth plans, if they raise money in Asia, what will they use it for, can they bring it back to the US?
    • They are in a quiet period - can’t comment on filing
    • Growth plan commentary:  The policy of WYNN is to do one thing and do it well
      • Regarding Aqueduct, they want to do something completely different there.  Just finished presenting their plan this week. May not win, there is a very aggressive group of bidders. Schedule is unclear – decision needs to be made by multiple government bodies.  This Friday they conclude questioning all the applicants. How long they take to make a decision is unclear
      • Next move in Asia is Cotai
      • If Japan would be interested in a large scale resort they would be “on it” and Taiwan would warrant a look. Regrettably passed up Singapore because he was worried that he couldn’t commit to more than one project and give it the appropriate attention given what he had committed to in Macau
      • Love that he takes a shot at MGM & LVS getting into trouble by “losing focus” and biting off too much to chew on
  • Comment on what is happening on the promotional side in Las Vegas
    • Still heavily discounting rates and offering packages with lots of credits
  • Capital expenditures, how the $125MM breaks out, going forward?
    • $50MM was Encore Vas Legas
    • $55MM was Encore Macau 
    • Maintenance was approximately $25MM
    • Budget for Wynn Macau was revised down by $50MM to $650MM will start ramping up and then have the expenses that come 60-90 days post opening
  • Tax rate tutorial?
    • 42% effective tax rate
    • Quarterly tax provisions are hard to calculate because they are based on full year estimates that then get allocated quarterly
    • This quarter, taxes were high because results were better than expected
  • Impact from Danny Gans’ death? Who will they replace him with?
    • Beyonce is a special event
    • Danny Gans was basically break-even to slightly positive but generated a lot of traffic in the restaurants… Wynn basically said it’s an “immaterial” loss from an EBITDA standpoint. Looking to fill the spot now
    • Entertainment doesn’t move the needle anymore in Vegas, but rather F&B, hotel, service… explaining the 750-800MM of nightclub revenues the city makes – kind of “replaced” the “show” business
  • Are they capacity constrained at Wynn Macau?
    • No, feel like they are opening Encore at the right time
  • What else drove margins in Macau? 
    • The $15MM of quarterly run rate cost cuts, no difference between direct vs junket business