Atlantic City Drags Trump to a Miss

Trump Entertainment TRMP continues to face headwinds in the Atlantic City market, where competition from nearby states is pressuring slot revenues in the city and hurting Trump's margins as the company increases promotional expenses.

Trump -- which I flag as overvalued in the Bricks and Mortar portfolio -- said Thursday that first-quarter revenue fell 3% from a year ago to $227.6 million -- near analyst estimates. However, Trump reported a wider-than-expected loss, which amounted to 59 cents a share, compared with the 42-cent loss analysts expected, according to Thomson Reuters.

Trump shares plunged 8.5% to $2.48 in recent morning trading.

The miss was due to poor profit margins at the company's three casinos in the Atlantic City market. EBITDA margins fell to 11%, compared with 15% a year earlier.

Trump blamed decreased slot handle at Trump Marina and weak table hold percentage at several properties for the results.

The Trump Marina, which is popular with older visitors and families, reported a paltry 5% EBITDA margin, down from 14% a year ago.

At the Taj Mahal, table game hold percentage -- the amount of bets that the casino wins -- fell 220 basis points.

Promotional expenses across the casinos increased to 23% of gross revenue, up from 21% a year ago.

"We are currently facing a business environment that is experiencing the effects of general economic weakness and rising gas prices, as we near the busy summer months and look towards the implementation of the full smoking ban in October," Trump CEO Mark Juliano said in a statement.

Even with the stock trading more than 85% down from when I first flagged it as overvalued in January 2007, I believe Trump remains a value trap. Trump's properties are simply not spinning off enough cash flow to find much value in the equity. Stockholders sit below $1.7 billion of debt and minority interests in the capital structure.

While Trump's properties are irreplaceable and could eventually fetch buyout interest, the problematic debt markets today make any potential purchases very difficult. The Atlantic City market is currently facing two major overhangs on the asset side: the bankrupt Tropicana Resort must be sold, and Pinnacle Entertainment PNK is still deciding whether it can obtain attractive financing to rebuild the Sands into a mega-resort.

In other casino sector news, regional operator Ameristar CasinosASCA was up 4% to $17.83 in morning trading after the company's earnings per share beat Wall Street estimates by 11 cents.

In other mock portfolio news, shares of Pulte Homes PHM and Ryland RYL (two homebuilders I flag as overvalued) fell under pressure after competitor Hovnanian HOV announced an equity raise that will increase the firm's outstanding shares by at least 20%, resulting in significant dilution to existing shareholders.

Hovnanian shares tumbled 9% to $10.11, Ryland fell 3.6% to $31.30 and Pulte dropped 2.2% to $13.39.

Bricks and Mortar Portfolio A Look at How Nicholas Yulico's Picks Have Performed
	Rating Date	Price at Rating	Rating	Current Price*	Total Return**	Year-End '07 Price	2008 YTD Return
Brookfield Properties (BPO)	1/23/2007	28.67	Own	20.50	-28.5%	19.25	6.5%
Global Real Estate ETF (RWX)	1/23/2007	64.00	Own	55.41	-13.4%	56.95	-2.7%
Ryland (RYL)	1/23/2007	56.00	Flag	32.47	42.0%	27.41	-18.5%
Trump (TRMP)	1/23/2007	17.50	Flag	2.71	84.5%	4.30	37.0%
Penn National (PENN)	2/6/2007	45.56	Own	42.12	-7.6%	59.55	-29.3%
Melco PBL (MPEL)	3/12/2007	15.46	Own	14.39	-6.9%	11.56	24.5%
Starwood Hotels (HOT)	7/12/2007	72.37	Own	52.43	-27.6%	44.03	19.1%
Home Depot (HD)	1/30/2008	29.71	Own	28.56	-3.9%		-3.9%
Pulte Homes (PHM)	1/31/2008	16.35	Flag	13.69	16.3%		16.3%
Average Total Portfolio Return, Unweighted, (including closed ratings)					19.1%		8.3%
Closed Ratings	Rating Date	Price at Rating	Rating	Closing Price***	Return**
Hilton (HLT)	3/2/2007	34.69	Own	47.50	36.9%
Home Solutions of America (HSOA)	4/24/2007	4.98	Flag	1.06	78.7%
Standard Pacific (SPF)	10/26/2007	5.25	Flag	2.20	58.1%	3.35	34.3%
	Close At Start of Portfolio			Current Value*
S&P 500	1427.99			1,392.57	-2.5%	1468.36	-5.2%
U.S. MSCI REIT Index	1140.36			926.24	-18.8%	870.64	6.4%
**For "flagged" stocks, a drop in price is tracked as a positive for the portfolio, and a rise in price is a negative. ***Hilton closed out of portfolio on 10/26/07 because Blackstone Group completed purchase of firm. HSOA closed out of portfolio on 12/26/07 at day's closing price SPF closed out of portfolio on 1/11/07 at day's closing price