Wynn Resorts' strong quarter in Vegas, Boston was wiped out by Covid restrictions in Macao
Wynn Resorts (WYNN) reported weaker-than-expected first-quarter results after the closing bell Tuesday. Operating revenue of $953.3 million missed expectations of $986 million, according to FactSet. An adjusted loss of $1.21 was slightly worse than estimates of $1.17 loss. Bottom line Overall, no real surprises here: Club holding Wynn Resorts' properties in the United States continued their run of strong results at impressive margins with upbeat commentary for the second quarter. Macao, however, remained under pressure due to Covid restrictions that the market knows all too well by now. That's why shares were down slight in after-hours trading after touching a 52-week low during the regular session. The stock has been cut in half in the past 12 months. The biggest question for Wynn continues to be about China's unsustainable zero Covid policy. Previously, we thought there was a good chance China would loosen its tough stance after the 2022 Winter Olympics. This view was shared by many, and it's one reason why this stock outperformed the market through the first two months of the year. As it turns out, the opposite has happened. China is currently back to its old ways, doubling down on enforcing draconian lockdowns to slow the spread of the coronavirus. We do not know if this lockdown will be the last but China's stance on Covid, which is crushing its economy in the process, continues to delay the recovery of Macao, hurting the stock of Wynn. Macao is a Chinese special administrative region. We continue to believe in the strength of Wynn's best in show properties in Vegas and Boston. We see the Macao recovery as an inevitability. While optimistic about the pent-up demand, we do acknowledge that it's getting tougher to stick with this stock as the expected 2021 recovery was pushed to 2022, and now it may be 2023. Q1 results by property Macao At Wynn Palace, quarterly operating revenue fell 31% year over year to $163.3 million, missing estimates of $211 million. Adjusted Property EBITDA — which stands for earnings before interest, taxes, depreciation, and amortization — was actually a loss of nearly $1 million, down from a profit of $27.4 million last year and a miss versus estimates for a profit of $18 million. At Wynn Macao, operating revenue was $135.1 million, a decline of 25% from last year and a miss versus estimates of $155 million. Adjusted Property EBITDA came in at a loss of $4.7 million, down from a $16.6 million profit last year and a miss versus estimates of a $7 million profit. To no one's surprise, the results were challenged due to restrictions on traveling and lockdowns in China. Despite the uncertain timing of when Macao will fully reopen, management remains very optimistic about the region's future due in part to pent up demand. Management cited that in periods where the market is accessible, they see demand "return very rapidly" with hotel occupancies levels in the 65% to 75% range during portions of the recent May holiday. Vegas Quarterly operating revenue from Vegas Operations rose nearly 60% year over year to $441.2 million, beating estimates of $426 million. Adjusted Property EBITDA was a profit of $159.4 million, up from $28.1 million last year and better than estimates of a $143 million profit. This result was also higher than pre-Covid levels despite a softer January due to the impact of the spread of the omicron variant. Wynn's Vegas properties are clearly benefiting from pent-up demand and permanent costs savings. Management said on the call that strength seen in March has continued into the second quarter and their forward bookings show no signs of a slowdown. Encore Boston Harbor Quarterly operating revenue from this property rose nearly 32% year over year to 190.8 million, matching estimates of $191 million. Adjusted Property EBITDA was a profit of $55.3 million, up from $30.4 million last year but a hair below estimates for a $57 million profit. It was an uneven quarter due to the impact of omicron, but EBITDA improved progressively month over month with March levels approximately 60% higher than January. Management said on the call that this positive momentum has continued into the second quarter with April EBITDA already exceeding the strong March. Wynn Interactive Wynn's digital gaming platform delivered strong results. Quarterly net gaming revenue increased 23% sequentially despite a sharp decline in user acquisition spend. As a reminder, on their third quarter of 2021 earnings call, management announced a pivot to its digital gaming strategy. While others in the industry have spent irrational amounts of money on marketing, Wynn has stayed focused on opportunities where they believe they can achieve a positive return on investment (ROI). This change in customer acquisition strategy has led to a meaningful reduction in EBITDA burn levels. This strategy is paying off: Wynn Interactive continues to improve its overall EBITDA burn rate, which was $31.5 million in the quarter compared to $79.4 million in the fourth quarter and $104 million in the third quarter of 2021. On a side note: Management sees the passage of a sports betting bill in Massachusetts as an important catalyst for the product. They see an advantage over competitors in the commonwealth through their brick and mortar presence. (Jim Cramer's Charitable Trust is long WYNN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Wynn Las Vegas remains closed as a result of the statewide shutdown due to the continuing spread of the coronavirus on April 27, 2020 in Las Vegas, Nevada. Ethan Miller | Getty Images