Wynn Resorts Faces Mixed Q3 Results Amid Renovation Impact and Macau Growth Prospects

Wynn Resorts faced a significant decline in its stock price following its third-quarter earnings report, which fell short of expectations on both revenue and earnings per share. The casino and hotel operator, which draws approximately half of its annual revenue from its properties in Macau, China, reported adjusted earnings per share of $0.90 and a slight 1.3% year-over-year increase in revenue to $1.69 billion.

Despite healthy demand in its core markets, including Las Vegas and Macau, the quarter was marred by difficult year-over-year comparisons and the impact of ongoing hotel room renovations. A key concern among investors is the continuation of renovations into 2025, which is expected to mirror the current year in terms of group room nights, potentially suppressing quarterly results further. This outlook overshadowed Wynn's announcement of a $1 billion increase to its share repurchase authorization, equivalent to roughly 10% of its market capitalization.

In Las Vegas, Wynn reported a 1.9% year-over-year decrease in operating revenue to $607.2 million. This decline was primarily due to a slight dip in table hold, the percentage of money retained by the casino from table games. In contrast, Wynn's Boston property saw a modest 1.8% increase in revenue to $214.1 million.

Rising labor costs have been a persistent challenge for Wynn, particularly in Las Vegas, where wage pressures contributed to a 210 basis point contraction in EBITDAR margins to 33.4%. However, the company was able to counterbalance union-driven payroll increases in Boston, leading to a 60 basis point improvement in EBITDAR margins there.

Macau's performance provided some positive takeaways for Wynn. Revenue from this key market grew by 6.3% year-over-year to $871.7 million, supported by a stable table games hold. If Macau's revenue maintains this pace through the fourth quarter, Wynn could end the year with a projected 16% year-over-year increase in Macau revenue for 2024.

However, EBITDAR margins in Macau contracted by 90 basis points year-over-year but still showed a 210 basis point improvement compared to the same period in 2019. The recent margin compression was attributed to higher payroll costs.

Wynn remains optimistic about its long-term prospects in Macau despite the challenges posed by the region's slowing economy. Continued economic uncertainties and the reliance on government stimulus to support the Chinese economy are seen as potential headwinds.

Still, Wynn's management is confident in the sustained demand in the region, a sentiment echoed by its competitors. Las Vegas Sands has conveyed similar optimism about Macau's future, and MGM Resorts reported record growth in Macau during the same quarter, reinforcing a positive outlook for the area's market stability.

Looking beyond its established markets, Wynn's ongoing construction of a new hotel and casino in the United Arab Emirates is progressing well. The company projects that the UAE market could generate between $3 billion and $5 billion in gaming revenue, signaling a strategic move to diversify its revenue sources.

Wynn is also actively scouting for other potential expansion opportunities in high-value cities to bolster its growth prospects.

In summary, Wynn Resorts' third-quarter earnings report highlighted a mixed picture of challenges and opportunities. While the company is grappling with the impact of renovations and economic uncertainties in China, its strong positioning in Macau and strategic expansions provide a basis for long-term optimism. However, investors remain cautious, as near-term performance could continue to be pressured by external factors and operational challenges.