Key Points
- Things didn’t exactly go Wynn’s way in Q3, net income attributable to its shareholders plummeted by 80.4% to just $17.3 million, with revenue sliding by 7.9% to $1.69b.
- The poor table hold rate is costing Las Vegas around $24 million, but it’s not the only thing that’s been putting pressure on the company, room renovations & a pretty awful summer have also been making things tough. Wynn hasn’t been able to quantify the impact of those other issues.
- And despite all that, the company is plunking down far more cash on Macau in the coming year, from $350400m to $750800m, a pretty big jump.
Wynn’s blaming its third-quarter struggles on poor gaming results, but when you dig into the financials, there are other problems lurking too. In the space of a year, net income attributable to Wynn Resorts shareholders has plummeted 80.4% to just $17.3 million compared with $88.3 million a year ago.
According to the Q3 SEC filing, Wynn’s consolidated net income has essentially halved to $36.8 million from $128.4 million. That leaves $19.4 million to minority owners of consolidated units and $17.3 million for the shareholders.
The company is of course doubling down on spending in Macau despite the weaker results, so what do they think they’ll get out of this investment?
Revenue Dropped Across All Four Reporting Divisions
Wynn saw a drop of $144.7 million, or 7.9%, to $1.69 billion in revenue, that’s down from $1.83 billion in the same quarter last year.
Adjusted net income, a non-GAAP measure, dropped by 61.8% to $33.9 million from $88.7 million, while adjusted property EBITDAR, which is a measure of operating performance, plummeted from $570.1 million to $464.2 million.
Every single one of Wynn’s reporting divisions saw a drop in revenue, to the tune of: Wynn Palace’s losses alone were $51.7 million, Las Vegas $45.8 million, Wynn Macau $30.1 million and Boston $17.1 million. The Las Vegas operations division takes in both Wynn Las Vegas and Encore Las Vegas.
Chief executive Craig Billings said the Las Vegas operations have been ‘hit hard’ by a hold rate that’s well outside of what they’d typically expect, & for those who don’t know, a hold rate is the percentage of money that a casino gets to keep, & it can change dramatically from quarter to quarter depending on how well the casino is doing.
Volumes Dropped Despite Improvement in Hold Rates in Macau
But Macau is an even harder case for Wynn. It produced more than half of the company’s EBITDAR, but the region saw its revenues drop by 8.2% to $919.2 million. EBITDAR dropped by 17.2% to $255.3 million.
According to the data provided in the earnings release, the margin decreased from 30.8% to 27.8%.
Moreover, according to the earnings call transcript, the cost of operations per day, without taxes on gaming, increased by 5% to $2.9 million. This was partially attributed to “deliberate investments in the premium customer experience,” as CFO Craig Fullalove noted.
Gaming volumes were down too. VIP turnover at Wynn Macau fell by 53.9% to $470.4 million, with the number of VIP tables declining from 17 to 11 in comparison with the previous year.
Wynn Palace saw VIP turnover down by 14.3%. Mass table drop also went down by 12.9% to $1.79 billion.
Improved win rates helped mitigate some of the negative impact. For instance, the win rate for the mass gaming of Wynn Palace improved to 25.8% from 22.6%. And this is not a one-off improvement. In the first nine months of the year, Palace had a mass win rate of 27.4% compared to 23.2% for the same period last year.
The situation with Wynn Macau was exactly the opposite, as its mass win rate declined to 17.1% from 18.7%. According to Fullalove, higher VIP hold rates contributed almost $12.3 million to EBITDAR.
As for September, Billings admitted that the month was weak, but Golden Week performed as well as last year. Moreover, he discouraged investors from expecting continuous growth, saying: “We’re not betting on a straight line.”
Billings Sees a Lack of Accommodation in Macau
What are the reasons behind adding new hotel rooms, if the performance in Macau is deteriorating?
According to Billings, there is plenty of room for more accommodation there. “Macau does 5x the gaming revenue of the Las Vegas Strip, but has 30% of the hotel rooms,” he explained.
This statement comes from Billings and is not verified.
The Enclave Could Cost Up To $950 Million
Wynn started the construction of the Enclave in the second half of 2026. The 432-suite tower adjacent to Wynn Palace costs $900 million to $950 million (including capitalised interest). Wynn expects guests in the early months of 2029.
Also, Wynn Palace will host a new theatre and event centre in 2028.
According to the company, Macau projects are going to cost $350 million to $400 million in 2026. For 2027, the cost is expected to grow to $750 million to $800 million.
Separately, Wynn has stated its maintenance spending plan is $70 million to $80 million for 2026. On the other hand, enhancement spending in Las Vegas will go down to $175 million to $200 million from $350 million to $375 million.
Las Vegas Hold Rate Does Not Explain Everything
Does poor gambling result explain most of the weaker performance in Las Vegas?
In the quarter under discussion, the hold rate of Wynn’s table games declined to 18.9% (way below the expected level of 22%-26%). In the same quarter last year, the hold rate was 23.0% (within the expected level).
According to Fullalove, the decreased hold rate cost the Las Vegas operation “just under $24 million.” However, the adjusted EBITDAR dropped by $44.6 million. This means that there is over $20 million left to be explained.
Billings added that “rooms out of service for renovations contributed to foregone EBITDA.” He also cited the summer period as one of the reasons.
There is supporting information for the above explanation in the SEC filing. The number of available rooms has been reduced due to renovations. While the number of rooms’ revenue has decreased by 2.6% to $181.8 million, the average daily rate has increased by 3.4% to $522.
Casino revenue has decreased even more dramatically by 23.6%. The table drop, which is measured by the money players exchanged for chips, has declined by 9.1% to $592.9 million.
There is an improvement in October. Casino drop, room rates and tenant sales have surpassed the numbers of the previous year.
More than 1,300 employees ratified a new contract on November 5.
What’s Changed Since August?
Wynn’s second-quarter results as reported on August 5 painted a much more impressive picture, revenue had climbed to $1.86 billion, a healthy 7% jump, and Wynn Palace revenue was up a whopping 21%.
But then came the third quarter and things took a bit of a downturn. Palace revenue fell from the $653.4 million we saw in the second quarter, all the way down to $583.8 million in the third.
In August, Wynn also announced that the opening of Al Marjan Island had been pushed back, all the way to September 2027. And to make matters worse, the company bumped up the project’s budget by a pretty hefty $600 million.
Wynn still managed to chuck in another $62.2 million to the project during the third quarter, which, when you add it to the $1.12 billion they’d already invested, is a pretty big number. Just to put that in perspective, the company still has an estimated $465 to $590 million remaining on the project, including the Janu project.
Billings is now saying that he’ll decide on what format the resort will open in, by February. That’s a bit of a change from his statement back in August that it wouldn’t be opening in phases.
Expert Analysis: Does Luck Really Wynn’s Best Defence?
We think that poor gambling results only tell part of the story behind Wynn’s third-quarter decline. The Las Vegas operation actually lost a pretty small amount of money, about $24 million, due to its lower table hold rate. Though that’s not all that’s going on, table drop also dropped off a bit, by 9.1%, and the room renovations knocked a few rooms off the books. We’ve asked for more detail on this, but management has kept that to themselves. Investors have a right to know just how much each of those factors is having on the bottom line.
Macau’s a bit of a tougher nut to crack, though, because gaming turnover actually fell back while the hold rates actually helped out Wynn Palace a bit. If you strip out the $12.3 million boost from VIP hold, Macau’s EBITDAR would have fallen to around $243 million based on our estimates.
For those playing with the numbers, last year Wynn Palace had a VIP win rate of 4.68% which is actually a bit higher, which makes the comparison a bit tricky. Defenders of the company’s performance can point to the 2.2% increase in combined Macau EBITDAR over the nine months, which is a pretty good sign that the business hasn’t completely collapsed.
Billings is saying that Macau needs more hotel rooms, but Wynn’s resorts were both operating at close to 99% occupancy. And here’s the thing, the room rates actually fell a bit. Wynn Palace’s average daily rate dropped 3.6% to $213 while Wynn Macau’s fell 1.4% to $204.
Now, that could either mean that there’s strong demand, or it’s just that customers aren’t willing to pay more. Either way, Wynn needs to give us some kind of explanation for the Enclave. And a shortage of hotel rooms just isn’t a strong enough argument to justify a $900 million or so investment.
We also need to keep an eye on the share buybacks. Wynn repurchased $58.1 million worth of shares at an average price of $92.61 each. This is nice, but not necessarily a game changer.
In September they also refinanced $900 million of debt, replacing notes that had a 5.250% interest rate with new notes at 6.875%. Our numbers suggest that’ll add around $14.6 million in annual interest costs.
So, if the fourth quarter sees the gambling results bounce back but the earnings remain weak, what then does Wynn’s management have left to say?
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