Great Wolf Resorts, Inc. ( WOLF)

Q3 2010 Earnings Call

November 03, 2010 09:00 am ET

Executives

Nikki Sacks - IR

Kim Schaefer - CEO

Jim Calder - CFO

Analysts

Will Marks - JMP Securities

Bill Crow - Raymond James

Jeff Thompson - Keefe, Bruyette & Woods

David Hargreaves - Stern, Agee & Leach

Presentation

Operator

Greetings and welcome to the Great Wolf Resorts' third quarter 2010 earnings conference call. At this time our participants are on a listen only mode. A brief Question AND Answer Session will follow the formal presentation. (Operator Instructions) As a reminder, today's call is being recorded. It is now my pleasure to introduce your host Ms. Nikki Sacks with ICR. Thank you Ms. Sachs you may now began.

Nikki Sacks

Thank you. Welcome to Great Wolf Resorts third quarter 2009 earnings conference call. Great Wolf Resorts released the third quarter 2010 results and I hope you have had a chance to review the press release. If you did not receive a copy, you can call 703-435-6293 and we will be happy to fax or email a copy to you. You also may view a copy of the release at the Company's website, www.greatwolf.com by clicking on a corporate site at the bottom of the page and then clicking on the news releases at the bottom. In compliance with the SEC's Safe Harbor guidelines, certain statements that might be made during today's conference call could be considered forward-looking and subject to certain risks that could cause results to differ materially from those projected.

Those statements may include, but are not limited to, estimates of the Company's future revenues, earnings and development activities. I refer you to the Company's SEC filings for further information on the factors that could cause actual results to differ from any estimates. Now, I would like to introduce Kim Schaefer, Chief Executive Officer and Jim Calder, Chief Financial Officer who will provide you with some insights into the Company's third quarter 2010 financial and operating results. I will now turn the session over to you Kim.

Kim Schaefer

Thanks Nikki. Good afternoon everyone. In the third quarter we once gain performed above our expectations as consumers continue to enjoy Great Wolf getaway. The third quarter is seasonally strong one for Great Wolf, as it includes our two leisure months July and august. We are pleased that we continue to deliver steady growth even in slow consumer recovery. We were able to drive same store revenue for available room or referral gains and we realized higher average daily rates. Our guests are spending money on higher margin amenities and flooded our reserves as well. This resulted in adjusted EBITDA growth of 3.5% to $25.7 million. One element sustain our relative stability has been the strength of our repeat and referral guests which accounted for 64% of our business in the third quarter. One guests have had a Great Wolf experience they do seem to want to come back for more and detail their friends. In the third quarter we offered our best promotions to this group including an added value and an early booking offer. Importantly even with these discounts we were able to drive average daily rate or ADR growth in the quarter. A slight rate increase does not tend to be a deterrent to booking as the value proposition and experience is clearly still the decision driver for our guests. Our ADR increased by 2.2% compared to the same period last year. The key segment compliment our leisure trends and growth is the group market. In the third quarter group GAAP accounted for 15% of room sold compared to 11% last year with group revenue of approximately 35%. The group social guests constitute the largest segment within our group business but we are making nice progress in attracting more corporate groups association and conventions. Ancillary expense continue to improve in the quarter up approximately 2% from the prior year but this increase was in banquet. As a result of the stronger group business in the quarter. And MagiQuest who continues to hold particular PO with (inaudible) to participate in this unique activity. With respect to the booking window it has remained fairly flat for last year with 70% of guest booking they are close to home vacation within 30 days of their visit.

Touching briefly on newest resort Concord, North Carolina. In the third quarter revenue was up over year over year primarily due to increase occupancy driven by the increase group business. Fourth quarter also looks solid over year and we continue to gain awareness on the group sales side. We do remain excited about this resort and the area in general over the long term for leisure guess as well.

As the economy Charlotte which was particularly hard hit. It does continue to improve from the reception. Another area of focus is extending our margin, we’ve been working hard to implement operational enhancement to improve our cost structure. As a percentage of revenues resort development of expenses the biggest piece of company’s controllable expenses declined by 82 basis points to 31% in the third quarter.

Later cost were down 3% overall as we continue to evaluate our operating models and implement efficiencies. Food and beverage cost were down 1% as a result of menu and portioning improvement. Importantly this focus on cost control and margin improvement has not come at the expense of guest satisfaction.

In third quarter guest service scores remained flat to prior year and already high level for the hospitality industry. Consumer awareness of Great Wolf Resorts is vital to our ongoing growth. To that end the month Great Wolf Resorts was featured in an episode of the CBS hit show Undercover Boss. The fact that a major network (inaudible) and so wanted to show case (inaudible) is estimate to the strains of the brand.

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