Luxury hotels and casino operator Wynn Resorts (NASDAQ:WYNN) reported Q1 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 30.9% year on year to $1.86 billion. It made a non-GAAP profit of $1.59 per share, improving from its profit of $0.29 per share in the same quarter last year.
Wynn Resorts (WYNN) Q1 CY2024 Highlights:
- Revenue: $1.86 billion vs analyst estimates of $1.80 billion (3.5% beat)
- EPS (non-GAAP): $1.59 vs analyst estimates of $1.39 (14.6% beat)
- Gross Margin (GAAP): 44.5%, down from 64.3% in the same quarter last year
- Market Capitalization: $10.97 billion
Founded by the former Mirage Resorts CEO, Wynn Resorts (NASDAQ:WYNN) is a global developer and operator of high-end hotels and casinos, known for its luxurious properties and premium guest services.
Wynn Resorts was founded by Steve Wynn with a focus on setting new standards in luxury for the hotel and casino industry. The company's inception was marked by an emphasis on high-quality service, elegant design, and innovative resort concepts, leading to the establishment of notable properties like Wynn Las Vegas and Wynn Macau.
Wynn Resorts's offerings encompass meticulously designed hotels, state-of-the-art casinos, fine dining establishments, premium retail spaces, and a variety of entertainment options. These elements are crafted to cater to the luxury segment of the market, meeting the needs of guests seeking high-end hospitality and entertainment experiences.
The company's revenue primarily comes from its hotel and casino operations, supplemented by its dining, retail, and entertainment ventures. Wynn Resorts' business model is based on delivering luxury experiences, appealing to a clientele that prioritizes exclusivity and top-tier service.
Casino Operator
Casino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can't do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.
Competitors in the luxury hotel and casino industry include MGM Resorts (NYSE:MGM), Las Vegas Sands (NYSE:LVS), and Caesars Entertainment (NASDAQ:CZR).Sales Growth
A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Wynn Resorts's revenue was flat over the last five years. 
Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Wynn Resorts's annualized revenue growth of 32.2% over the last two years is above its five-year trend, suggesting some bright spots.
We can better understand the company's revenue dynamics by analyzing its three most important segments: Casino, Hotel, and Dining and Entertainment, which are 60.2%, 17.6%, and 14.3% of revenue. Over the last two years, Wynn Resorts's revenues in all three segments increased.Casino revenue (Poker, slots) averaged year-on-year growth of 61.6% while Hotel (food, beverage, Wynn Interactive) and Dining and Entertainment (overnight bookings) averaged 35.8% and 13.8%.
This quarter, Wynn Resorts reported wonderful year-on-year revenue growth of 30.9%, and its $1.86 billion of revenue exceeded Wall Street's estimates by 3.5%. Looking ahead, Wall Street expects sales to grow 3.6% over the next 12 months, a deceleration from this quarter.
Operating Margin
Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Wynn Resorts has done a decent job managing its expenses over the last eight quarters. The company has produced an average operating margin of 10.7%, higher than the broader consumer discretionary sector.
In Q1, Wynn Resorts generated an operating profit margin of 19.5%, up 7.6 percentage points year on year.
Over the next 12 months, Wall Street expects Wynn Resorts to become more profitable. Analysts are expecting the company’s LTM operating margin of 14.8% to rise to 18.1%.EPS
We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable. 
Over the last five years, Wynn Resorts's EPS dropped 8.7%, translating into 1.7% annualized declines. Thankfully, Wynn Resorts has bucked its trend as of late, growing its EPS over the last three years. We'll see if the company's growth is sustainable.
In Q1, Wynn Resorts reported EPS at $1.59, up from $0.29 in the same quarter last year. This print beat analysts' estimates by 14.6%. Over the next 12 months, Wall Street expects Wynn Resorts to grow its earnings. Analysts are projecting its LTM EPS of $5.40 to climb by 2.1% to $5.52.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).
Wynn Resorts's five-year average return on invested capital was 0.5%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last few years, Wynn Resorts's ROIC has significantly increased. This is a good sign, and we hope the company can continue improving.
Balance Sheet Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly.
Wynn Resorts reported $3.27 billion of cash and $11.21 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company's debt level isn't too high and 2) that its interest payments are not excessively burdening the business.
With $1.95 billion of EBITDA over the last 12 months, we view Wynn Resorts's 4.1x net-debt-to-EBITDA ratio as safe. We also see its $285.9 million of annual interest expenses as appropriate. The company's profits give it plenty of breathing room, allowing it to continue investing in new initiatives.
Key Takeaways from Wynn Resorts's Q1 Results
It was good to see Wynn Resorts beat analysts' revenue and EPS expectations this quarter, although Hotel revenue unfortunately missed. Overall, we think this was still a solid quarter that should please shareholders. The stock is up 2.5% after reporting and currently trades at $99.67 per share.
Is Now The Time?
Wynn Resorts may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
We cheer for all companies serving consumers, but in the case of Wynn Resorts, we'll be cheering from the sidelines. Its revenue growth has been weak over the last five years, but at least growth is expected to increase in the short term. On top of that, its relatively low ROIC suggests it has historically struggled to find compelling business opportunities, and its declining EPS over the last five years makes it hard to trust.
Wynn Resorts's price-to-earnings ratio based on the next 12 months is 17.6x. While there are some things to like about Wynn Resorts and its valuation is reasonable, we think there are better opportunities elsewhere in the market right now.
Wall Street analysts covering the company had a one-year price target of $124.31 per share right before these results (compared to the current share price of $99.67).
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