Wednesday, July 25, 2001 | 11:19 a.m.
Station Casinos Inc. announced this morning it is abandoning a controversial casino proposal in North Las Vegas.
The announcement came in an earnings report that showed Station's business was down sharply in the quarter ending June 30, 2001. The company reported earnings before one-time charges of $10.6 million, or 18 cents per share; a year ago, Station posted earnings of $20.7 million, or 33 cents per share. Analysts had expected 20 cents per share.
Once one-time charges are included, Station earned $3.8 million, or 6 cents per share. Revenues fell 13 percent to $212.8 million, while cash flow was down 18 percent to $58.5 million.
The impact on Station's stock was relatively minimal -- this morning, Station traded at $14.63, down 31 cents.
A big chunk of the decline came from Station's sale of its two Missouri casinos in December, which had produced $22.6 million in cash flow in the year-ago quarter. However, Station also added three properties -- the Santa Fe, Fiesta and Reserve -- in that same period. As a result, its total Las Vegas operations reported total cash flow of $63.1 million, up 19 percent.
But Station acknowledged its Las Vegas business is slowing down, particularly in North Las Vegas. Station's "core" properties -- Sunset, Boulder, Texas and Palace -- posted a cash flow decline of 7 percent over last year.
The company blamed a grab-bag of factors, including increased competition across Las Vegas, a slowing economy, soaring energy costs and disruption from road construction on Sahara Avenue and Interstate 15 in front of Palace Station.
Station Chief Executive Frank Fertitta III, however, urged investors to keep their eye on the long-term potential at the company.
"Our long-term expectations, over a three to five year horizon, are still the same as they've always been," Fertitta said. "When you look at the platform we have in the Las Vegas locals market, and the supply-demand dynamics over that time, we've very comfortable with that position."
Fertitta did note, however, that Station's properties were suffering from the addition of new locals casinos over the past year, particularly Suncoast, Terrible's Casino, Arizona Charlie's East and an expanded Sam's Town.
"There has been a short-term bubble (in new competition), but beyond the (Maloof family-owned) Palms and Green Valley Ranch (Station Casinos-Greenspun family), there's no new capacity on the horizon, and we own virtually all the viable local sites (for new casino development). Over the long-term, we're very bullish on our strategy."
Some observers, however, aren't as optimistic.
"The (tough) locals market is more related to the fact that Coast Resorts (owner of the Suncoast) is doing a laudable job," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "Anyone would find it tough competing in this locality."
Ehlers pointed out that Station's long-term debt rose from $1.03 billion to more than $1.25 billion over the past six month even while its cash flow declined, and that its cash balance had dropped from $256 million to $61.5 million.
"Given this scenario, I am not surprised the management of this company is 'considering its options,"' Ehlers said.
One option that's out is "Craig Ranch Station Casino," proposed near the intersection of Craig Road and Martin Luther King Boulevard in March 2000. Since its inception, the project drew furious opposition from some North Las Vegas residents, who objected to the construction of a new casino in their neighborhood.
The company attempted to swap its land parcel on MLK for one located on the Craig Ranch Golf Course in an effort to appease North Las Vegas city officials. Though the city council did approve this plan, the state Gaming Policy Committee shot it down, and refused to switch Station's gaming entitlement from the MLK site to the golf course site.
Station still had the ability to develop the original 34-acre site, located at MLK and Smoke Ranch Road. This morning, however, Station said it has decided not to proceed with a casino there and instead will sell the property for a non-gaming use.
Station said it also plans to begin selling off "non-strategic (land) parcels around the Las Vegas valley," including a 29-acre land parcel at Rancho and Smoke Ranch roads it bought from Coast Resorts Inc. in January. Fertitta also said the company is looking at selling off land parcels near Sunset Station in Henderson -- but said any land parcels sold by the company will be first stripped of gaming entitlements.
Feritta, however, still appeared committed to a long-term strategy of developing certain sites, particularly those located near Summerlin and in the southwest.
"We bought those pieces of property (in North Las Vegas) before we knew we would have Santa Fe and Fiesta," Fertitta said. "As we look at what's going on in the market ... we think it makes more sense to leverage the current assets we have there (in North Las Vegas). It makes more sense to sell some of that land, bring in the cash (to reduce debt), and focus on the current properties we have."
Fertitta made it clear he wasn't happy with results at the Fiesta so far; he blamed this on a tough transition period at the property.
"Some of the cultural changes of integrating the Fiesta into our company has been more difficult than I would have liked," Fertitta said.
Texas Station's results were hurt badly by an attempt to completely revamp that casino's slot floor to slot machines that offer customer multiple games. This backfired badly, Fertitta said, and the aggressive change-over has been halted.
"There's too many games, and no one knows what games have been selected," Fertitta said. "The early results have been very, very disappointing at Texas Station."
Elsewhere, business on the Boulder Strip has been flat, but a tough environment there appears to be easing, Fertitta said. And Palace Station should start to see results improve only after road construction ends on Sahara Avenue next year.
But the outlook remains fairly bright in the Henderson area, said Glenn Christenson, chief financial officer. There's one simple reason, Christenson said -- the company controls virtually all the remaining land that can be used for new casinos.
"We're a little more optimistic about the southern portion of Las Vegas," Christenson said. "You have Sunset, Green Valley Ranch and the Reserve, and that's about it for capacity in that area."