Zacks_Analysts' Blog : Winter Dampens Monarch 1Q - Analyst Blog

Monarch Casino & Resort Inc. (MCRI) reported first-quarter 2011 earnings of nine cents per share; shy of the Zacks Consensus Estimate of 15 cents and unchanged from the year-earlier earnings.

Net revenue declined 3.2% year over year to $33.3 million and lagged the Zacks Consensus Estimate of $35.0 million. The underperformance was primarily due to a severe winter and high snowfall in the Sierra Nevada mountain range.

Additionally, tough comparisons also remained another cause for concern. Out of the 13 weekends in the first quarter of 2011, as many as 7 were either threatened or hit by snow storms that closed major highways to and from the company’s feeder markets, California. Comparatively, only 3 out of 13 weekends had been affected by snow fall. To make the situation worse, a rise in expense on a low revenue base led to the quarter’s shortfall.

Inside the Headline Numbers

Revenue generated in the casino, hotel and other operating departments decreased 3.9%, 3.4% and 4.1%, respectively, while revenue generated from the food and beverage department increased 1.1%.

However, the company experienced an upside in its cost structure. Casino operating expense increased 1.6% year over year due to increased complimentary food, beverages and other services provided to casino patrons. As a percentage of casino revenue, casino operating expense was 40.8%, up 220 basis points (bps).

Food and beverage operating expense as a percentage of food and beverage revenue increased 280 bps to 46.5%. Other operating expense jumped approximately $94,000 over the prior-year quarter primarily due to the purchase of small equipment and related operating supplies for the spa and salon.

Balance Sheet

Monarch Casino & Resort exited the quarter with a total cash balance of $10.3 million and no long-term debt. During the quarter, the company paid down its credit facility by $6.6 million, which lowered the outstanding balance to $22.0 million.       

Our Take

Following the quarter’s poor performance, we expect the Zacks Consensus Estimate for Monarch Casino & Resort to trend down in the upcoming quarter. Monarch Casino & Resort, through its subsidiary, Golden Road Motor Inn Inc., owns and operates the Atlantis Casino Resort Spa, a hotel/casino facility in Reno, Nevada, which features approximately 61,000 square feet of casino space. While big names like MGM Resorts International (MGM) and Wynn Resorts Ltd. (WYNN) can depend on Asia to sustain their growth momentum, Monarch does not have such exposure.

However, the U.S. market and business at Nevada, especially Las Vegas is also rebounding, which might influence Monarch’s results in the seasonally strong second quarter. Monarch currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock.