High rollers roll less at Mirage

It's no mirage.

Belittled since it first began, the Asian economic slump led to a stunning drop in first-quarter earnings for the company analysts consider the gaming industry's premier casino operator, Mirage Resorts Inc.

The 32.3 percent drop in Mirage's basic per-share net income surprised Wall Streeters by its breadth and set analysts scrambling to revise their outlook for other Las Vegas casino companies.

"Nobody expects the leader in the market to have felt the impact of Asia and room overcapacity as much as they did," said one analyst who asked not to be identified.

The earnings report, released after the stock market close Monday, may have been anticipated by traders, however. A 1.1 million-share block was offered at $20 per share -- 50 cents below the 52-week low -- right after the close and before the results were disclosed.

Mirage shares today were up 1 9/16 to 22 1/16. It closed Monday at 20 1/2.

Mirage reported its first-quarter net income fell to $38.1 million, or 21 cents per basic share, from $54.5 million, or 31 cents a share, in the 1997 first period.

Fully diluted per-share net, reflecting slightly more than 13 million shares for stock options, fell to 20 cents a share from 28 cents in the 1997 quarter.

Net income included a $3.5 million charge in the latest quarter for early retirement of debt, compared with a $2.2 million charge in the year-ago quarter. In the 1997 period, Mirage's net included a $3.6 million pre-tax gain from the sale of land. There was no such gain in the latest quarter.

The 1998 quarter's net also reflected a slightly lower win percentage on table games and about $2 million to $3 million in costs related to hiring for resort openings later this year and early in 1999.

Net revenues fell 5.4 percent to $342.6 million in the latest quarter from $362 million in the 1997 first period.

Wall Street's consensus estimate for per-share earnings was 27 cents, though a few had predicted lower numbers closer to the final result. Yet even they were surprised by the 21-cent basic per-share number.

"The question now is how bad things really are in Asia and how long will the 'whales' -- the really big players -- stay away?" said Andrew Zarnett of Ladenburg Thalmann & Co. He had predicted net income of 24 cents a share.

"I think things continue to be worse than we thought and that wealthy Asians are focusing on their businesses and local issues and are making fewer visits to Las Vegas and other venues. The timing of any turnaround is difficult to predict," Zarnett said.

"This makes it clear that the Asian situation and room-price compression are hurting everybody on the Strip," said Jason Ader of Bear Stearns & Co. He had forecast per-share net at 25 cents.

"What was very telling was the decline in baccarat play and -- for the first time in a long time -- a decline in room prices," Ader said. "The decline in Asian play is a function of economic conditions there, but the room-price drop clearly resulted from a decline in air service and an increase in room inventory in Las Vegas."

Mirage reported its international baccarat play was strong in January but "declined significantly" in February and March.

"As a result, the company's baccarat revenues declined 30 percent from the prior-year period, which was the principal factor in the 5 percent decline in the company's total net operating revenues," Mirage said.

Mirage also reported that, while its company-wide occupancy rate slipped just 1.3 percentage points, to 98.1 percent, its average daily rate for a standard guest room fell to $89 in the latest quarter from $94 in the 1997 first period. That equates to a decline of $3.6 million -- almost all of it profit -- when spread across the company's 8,000 rooms for the 90-day period.

Those occupancy and room-rate figures exclude Mirage's 50 percent stake in Monte Carlo, its joint venture with Circus Circus Enterprises Inc. Due to a $70 million reduction in debt, Monte Carlo's contributions to Mirage income increased slightly in the latest quarter.

Mirage Vice President Alan Feldman noted the baccarat downturn at Mirage mirrors the 30 percent drop in such play statewide. But he pointed out that, excluding baccarat, table game revenue at the company's flagship resort rose 2 percent and slot revenue jumped 9 percent.

Operating cash flow, a measure investors often use to value a company's stock, fell to $89.5 million in the latest quarter from $113.3 in the year-ago period. The bulk of the drop came from The Mirage and Treasure Island, the company's top two properties, which both boosted promotional spending in the face of stiff competition for customers from other resort operators.

Currency devaluations and stock market crashes in several Asian countries have resulted in the loss of nearly $1 trillion in wealth since the 1997 first quarter. Initially, casino executives downplayed the potential impact such losses would have on their business.

But the Asian events, increased competition from other domestic gaming venues, and a drop in Las Vegas visitor volume coupled with a sharp rise in hotel-room inventory here have cut into profits for nearly all the top Strip hotel-casino operators. The result has been a sharp drop in gaming stock prices, while most other industries are enjoying record advances.

Mirage and MGM Grand Inc., for example, have seen their stock drop 16 percent in the past two years, while Circus Circus is off 52 percent.

Some gaming analysts now believe Mirage stock will trade in the $20 to $22 a share range prior to the opening of its $1.8 billion Bellagio resort in Las Vegas this fall, while others say it might climb into the mid- to high-$20s in a runup similar to that experienced before other resort openings.

But Feldman said Mirage executives are more concerned with the long-term performance of the company than with short-term stock -price fluctuations.

"You've always got to take a long-term view of Las Vegas," Feldman said. "This isn't a market that lends itself to quick hits.

"As gaming has grown in prominence, people have realized it's a good industry to invest in. but it's not one where you can always double your investment in six months.

"The industry's past successes may victimize us, now that there's reality in the marketplace relative to price pressures. People are reacting on a day-to-day basis and not looking at how healthy this company is. Mirage is a good long-term investment.

"You may recall people saying that Las Vegas is recession-proof. Well, this current situation is proof it isn't, because the Asian turmoil does have an impact on high-level baccarat play. But we are still somewhat insulated because the other numbers are still very strong."

Feldman said Bellagio and Beau Rivage, the company's new resort in Biloxi, Miss., are scheduled to open in mid-October and next spring, respectively, and remain on budget.

The company has already scheduled more than 45,000 interviews for the 13,000 new jobs being created.

Separately, Boardwalk Casino Inc. reported a net loss of $437,000 for its fiscal 1998 second quarter ended March 31, compared with a net loss of $464,000 in the year-earlier period. Revenue rose 11 percent, to $11.2 million from 10.1 million.

Boardwalk said it has scheduled a special stockholders meeting on May 27 for a vote in its previously announced merger into Mirage. Boardwalk operates a 653-room hotel and casino on the Strip between Bellagio and Monte Carlo.

Mirage, which wants to acquire Boardwalk for future growth, has said it will continue to operate the hotel-casino as is for at least a year.

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