Wynn Takes a Loss

Excluding expenses, the company's adjusted earnings met Wall Street's average estimate.
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In its first quarter with an actual operating casino,

Wynn Resorts

(WYNN) - Get Report

hit Wall Street's expectations, although it still lost money as preopening expenses ate into the bottom line.

Investors dumped Wynn's shares, taking profits after a recent run-up in anticipation of the quarterly results. Given company Founder Steve Wynn's reputation for developing legendary resorts like the Bellagio and the Mirage, and the recent string of blowout quarters at other big casino companies, some investors also may have been betting on an even better performance.

Shares were lately falling $2.58, or 4.6%, at $54.09.

Late Monday, Wynn said it lost $35.2 million, or 36 cents a share, in the second quarter, vs. a loss of $41.9 million, or 49 cents a share, a year earlier. The company attributed the loss to $43.4 million in preopening costs at its ultraluxury Wynn Las Vegas resort, which opened April 28, and at its Wynn Macau and Las Vegas Encore projects, which have yet to open.

Excluding those expenses, the company reported adjusted earnings of $8.2 million, or 8 cents a share, hitting the average Wall Street estimate from Thomson First Call.

Company revenue was $201.1 million, up from $59 million a year before.

"The initial response from customers and employees has been very gratifying," says Chairman and CEO Wynn. "In our first two months of operations, we achieved outstanding revenue numbers in various departments, including slots, tables and retail."

Wynn said the company deliberately overstaffed the new Las Vegas resort for its grand opening in order to compensate for lower productivity as employees worked out the initial kinks in a complex operation.

"We had more than 9,000 employees working with approximately 58 newly integrated operating systems," Wynn says. "In the upcoming months, our main focus will be on raising margins through increased operational efficiencies."

One key measure of operating performance, adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, was $58.7 million, a figure that analysts characterized as impressive. They also liked the property's EBITDA margin of 29.2%, and said it could get better.

"Looking ahead, we'd expect Wynn Las Vegas to generate improved margins as staffing gets right-sized and productivity ratios improve," writes Bear Stearns analyst Joseph Greff in a research note. The analyst, whose firm does and seeks to do business with companies covered in its research reports, is maintaining an outperform rating on the stock.

David Anders, a Merrill Lynch analyst who has been

voicing caution about big casino stocks, acknowledged that Wynn's margins were surprisingly good, but not good enough for him to reconsider his sell rating on the company's shares. Anders questions how great a return on investment the Las Vegas casino can provide over time, given the $2.75 billion Wynn Resorts spent to build it.

He also wonders whether increasing competition and new properties in the next few years will temper the casino's results. Merrill Lynch does and seeks to do business with companies covered in its research reports.

Wynn Resorts said its flagship casino had gaming revenue of $98.7 million, including slot machine revenue of $34.2 million and table games revenue of $62 million, representing a win per table of $7,117 a day. The casino's table games win percentage was 21.1%, within its expected range of 18% to 22%.

On the hotel side, the resort had an average daily room rate of $284 and an occupancy level of 90.1%. That combination generated revenue per available room, a key lodging industry metric also known as revpar, of $255.

The company said construction of its Wynn Macau resort in China is proceeding on time and within budget, with an expected opening next September. Wynn is banking on the recent expansion of gaming in the former Portuguese colony. At the end of the second quarter, Wynn Resorts had funded about $206 million of the project's costs and estimated a total price tag of $498.3 million.