by David Fessler, Advisory Panelist
Casino stocks have been more than down on their luck lately. In fact, they’ve been on the ropes more than one of their prizefighting boxers. And it’s no wonder.
The recession has hit consumers hard. And many have cut their spending, doling out their dollars for the necessities: food, shelter, clothing and gasoline - but little else.
To say business has been bad doesn’t really capture the scope of the damage.
- It’s easy to see the effects on casinos - the top dogs in most markets - and we don’t always notice the impact to the rest of the food chain.
- Restaurants have plenty of empty tables these days. Those little beepers you get while waiting in line are just sitting around collecting dust.
- Malls resemble ghost towns; most of the visitors are store employees themselves. Many of the weekend customers are teenagers, with little more to spend than time.
That’s why it’s so surprising to find a company that’s doing well, much less a casino.
Amidst all of this economic devastation there are companies who have been holding their own and putting up impressive earnings figures. We’ve found one casino stock in particular that has a unique business model of drive-to locations that’s been succeeding where Vegas hasn’t.
Casino Stocks Drop As The Travel Industry Suffers
The travel industry is suffering right now. And while it’s put a bite on tourism, it’s hurt most casinos much worse.
And no place got hit harder than Las Vegas. “Sin city” experienced a 10% drop in visitors in January and February. Unfortunately, that’s the good news. Gaming revenues were a paltry $937 million, down almost 20%.
More visitors equal more spending in the gambling capital of the world.
And when you consider that over 37 million visitors go to Vegas every year, a 10% drop equates to 3.7 million people not adding tens of millions to the economy - or a casino’s bottom line.
As the infamous strip has grown, mega-casinos have popped up as well with each casino supporting thousands of workers and capable of adding billions to their parent company’s bottom line. A 20% drop in revenue for many casinos means that they aren’t able to pay their fixed expenses.
That sobering statistic has translated into a huge problem for many of the gaming companies, who now find themselves scrambling to stay solvent. They’ve laid off thousands of employees and slashed expenses in an effort to stem the red ink.
But it hasn’t been enough: Las Vegas-based MGM Mirage, Riviera Holdings and Station Casinos are all in discussions with their lenders and bondholders.
