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Macao Sands Outplays the Strip

For Las Vegas Sands, its China casino was strong, while the Venetian hit some bumps.
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Updated from 9:22 a.m. EDT

Las Vegas Sands

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gave a mixed second-quarter performance, as its Macao casino shined like a pearl but its Venetian resort in Las Vegas lost a little luster.

Although a sizeable sequential earnings gain at China's Sands Macao was likely more than enough to assuage jitters about that casino's growth, investors decided to sell after the company reported lower gaming revenue and earnings at the Venetian.

Las Vegas Sands, which went public last December, reported net income of $86.4 million, or 24 cents a share. That compares with $461.9 million, or $1.42 a share, a year before, when profits got a one-time boost of $418.1 million from the sale of the Grand Canal Shops at the Venetian.

Excluding special items, Las Vegas Sands reported adjusted profits of $95.5 million, or 27 cents a share, beating the 26-cent average EPS estimate from Thomson First Call. A year before, adjusted earnings were $39.5 million, or 12 cents a share.

Shares were down 82 cents, or 2%, at $39.60 Wednesday afternoon after losing as much as 4.8% of their value.

Net revenue, which accounts for casino promotions, totaled $398.8 million, up from $266.7 million a year before. The increase was primarily driven by the Sands Macao casino, which was open for only half of last year's second quarter.

"We experienced an exceptional quarter driven largely by record results at the Sands Macao," said William Weidner, the company's president and chief operating officer. "May 18, 2005 marked our one-year anniversary in Macao. We believe the strength of our operating performance and returns to date underscore the potential of the Asian marketplace and make us confident in our long-term plans to not only lead the development of the Cotai Strip, but to be at the forefront of emerging opportunities in other Asian locations."

The company is so bullish about prospects for the former Portuguese colony of Macao that it has decided to build 3,000 hotel rooms in the initial phase of its Venetian Macao resort, doubling the initial count. The resort, which is set to open in the middle of 2007, will anchor the company's developments on the Cotai Strip, a stretch of reclaimed land developers hope to turn into an Asian version of the Las Vegas Strip.

At the Sands Macao, adjusted earnings before interest, taxes, depreciation, amortization and rent, or EBITDAR, a key measure of profitability, totaled $81 million, well ahead of the $67.8 million in the first quarter. It was also ahead of analysts' expectations and likely reassured investors spooked by the virtually flat sequential EBITDAR in the first quarter.

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Casino revenue at the Sands Macao totaled $201.1 million in the second quarter, up from $171 million in the first quarter. The casino benefited from increased wagering by high rollers, as high-end table games volume more than doubled to $2 billion from $856 million in the first quarter. Mass-market table games volume was $923 million, up from $855 million in the first quarter, while slot volume rose to $167 million from $139 million in the first quarter.

Results at the Venetian resort in Las Vegas were less impressive, coming in below analysts' expectations. Casino revenue fell year over year, as did food-and-beverage sales and slot-machine volume, dragging down adjusted EBITDAR to $66.5 million from $78.2 million a year before.

Analysts initially expressed concern that those results might point to a loss of business to

Wynn Resorts'

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new Vegas casino.

But Las Vegas Sands executives said Wynn's April grand opening actually was positive for the Venetian. They noted that mass-market -- as opposed to high-end -- slot volume rose almost 7%, an indication that people lured to the Strip by Wynn's flashy new resort had also wandered into the Venetian.

They also noted that revenue per available room, a key lodging metric also known as revpar, increased almost 5% on higher room rates and nearly full occupancy.

Several other factors did dent quarterly results at the Venetian, however. Executives said the decline in food-and-beverage revenue came from management's conscious decision to make fewer group hotel bookings -- which tend to boost house food-and-beverage sales -- in favor of more lucrative individual bookings.

Executives attributed the drop in overall slot-machine revenue to what they said was an anomaly a year before when a single customer dumped a huge sum of money --

$33 million

-- into the $500 slots.

Lastly, the Venetian suffered the luck-of-the-draw, as the casino's percentage of table game winnings fell to 18.6% from 21.1% a year ago and was significantly below the normal range of 20% to 21%.