Wynn wins praise for cuts


Not surprisingly, Wall Street lauded plans by Wynn Resorts Ltd. to reduce expenses by $75 million to $100 million annually at Wynn Las Vegas and the recently opened $2.3 billion Encore.

The casino operator said Tuesday it will cut salaries, trim workweeks and suspend 401(k) contributions, but not impose layoffs, something casinos operated by other Strip gaming companies instituted throughout 2008.

"Wynn's decision ... will in our opinion bolster employee morale as workers around the United States fear losing their jobs and medical benefits much more than reduced pay," Deutsche Bank gaming analyst Andrew Zarnett told investors shortly after Tuesday's announcement. "Further, we laud management's ability to implement these efficiency initiatives without compromising service levels within six weeks of opening Encore."

The financial community has wanted the gaming industry to find ways to reduce expenses. The sagging economy sent gaming revenues and cash flow plummeting to historically low levels in 2008. Room rates on the Strip continue to fall even as occupancy levels drop.

"It is encouraging whenever operators are willing to cut costs in difficult times," Majestic Research gaming analyst Matthew Jacob said in an e-mail. "But it is also a sign of the times in Las Vegas. Even high-end properties like Wynn's are not immune. It implies that Wynn's margins, particularly at Encore, could be very weak during the fourth quarter and January."

Gaming analysts are forecasting poor results as casino operators announce earnings this month for the fourth quarter.

Throughout 2008, gaming companies such as MGM Mirage, Harrah's Entertainment, Station Casinos, Las Vegas Sands Corp., Boyd Gaming Corp. and International Game Technology have laid off workers in order to shed costs.

Lowering expenses, analysts said, is an important step in a challenging market, even with a company such as Wynn Resorts, which has been credited with having a better-than-average balance sheet.

Wynn executives said Tuesday the company had $1.1 billion in cash, $375 million in loans coming due over the next two years, and that the under-construction Encore at Wynn Macau is fully financed.

"Given the well-publicized room-rate degradation on the Strip, these cost initiatives seem appropriate," Goldman Sachs gaming analyst Steven Kent told investors. "These cost cuts ... could offset some of the incremental revenue decline we are expecting from a generally weak operating environment."

Kent estimated that if 80 percent of the savings come from the 9,000 full-time employees at Wynn Las Vegas and Encore, each worker could lose $4,500 in salary or wages this year.

JP Morgan gaming analyst Joe Greff said lost wages were better than a pink slip.

"We note that these measures are to protect margins while preserving jobs," Greff said.

Shares of Wynn Resorts, traded on the Nasdaq National Market, fell $2.59, or 8.99 percent, to close at $26.23, a 52-week low.

Other gaming companies also sank in the stock market Wednesday. MGM Mirage closed the day at a 52-week low of $5.95 on the New York Stock Exchange, down $1, or 14.39 percent; Las Vegas Sands closed at $3.47, down 59 cents, or 14.3 percent; Boyd Gaming closed at $3.96, down 23 cents, or 5.49 percent; Penn National Gaming fell $1.47, or 7.77 percent, to close at $17.46; Pinnacle Entertainment closed at $6.31, down 24 cents, or 3.66 percent; and Ameristar Casinos fell 31 cents, or 3.32 percent, to close at $9.03.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.

 

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