MGM Resorts International said Monday its total workforce reduction will cover roughly 1,000 employees by June – almost four times the number of positions the company said it eliminated last week.
The Las Vegas-based casino giant spent a good portion of first quarter earnings conference call discussing the MGM 2020 cost reduction efforts, which the company believes will lead to an additional $300 million in cash flow by 2021.
MGM Chief Financial Officer Cory Sanders said 35 company executives took part in a voluntary retirement program as part of MGM 2020, including his predecessor, former CFO Dan D’Arrigo. In a presentation that went along with the earnings call, the company expects to save $100 million in labor costs, which includes $80 million in fixed costs and another $20 million in variable costs.
MGM CEO Jim Murren
MGM executives said the jobs cuts were companywide. The company, which is considered the largest employer in Nevada with roughly 77,000 employees, operates nine resorts on the Las Vegas Strip, and owns 50 percent of the CityCenter complex, which includes the Aria resort. The company has corporate offices off-site and within several properties.
MGM Resorts has been under fire from activist hedge funds and investors wanting to see the stock price boost in value. Activist hedge funds, including Starboard Value and Canyon Capital Advisors, have built small positions in MGM Resorts since last year.
Sanders said MGM 2020 was not just about cost savings but is laying “the foundation” for a new corporate operating model that calls for a more centralized organization.
“Common activities will be handled more efficiently,” Sanders said.
The company, which has another 10 properties in regional U.S. markets and two resorts in Macau, announced the MGM 2020 program in January. The earnings call allowed MGM executives to provide more details on the program.
Sanders said costs associated with MGM 2020 were $52 million in the quarter, but the expenditures were non-recurring.
MGM Resorts Chairman and CEO Jim Murren said MGM 2020 “is much more than a cost cutting plan.” The company-wide initiative is expected lay the groundwork for a digital transformation to drive revenue growth.
“We are creating a streamlined, nimble organization that empowers leaders to make faster decisions,” Murren said. He did not address last week’s round of 254 layoffs on the call. In a memo to employees last week, Murren wrote the positions being eliminated are part of a “comprehensive change that is meant to be transformative.”
The overall goal of MGM 2020 will be to transfer some of the operating decisions made on the property level to the corporate level. Sanders told analysts the changes would lead to faster decisions, a better match of labor supply with guest demand and fewer layers of management.
Murren said MGM 2020 would also help the company reduce its long-term debt, currently $14.9 billion.
First quarter results
In the quarter, that ended March 31, MGM’s net revenues grew 12.6 percent to $3.17 billion. The quarter included $77.9 million from MGM Springfield in Massachusetts, which opened in August 2018, and $36.6 million from the Empire Casino in Yonkers, New York, which was acquired in January. MGM China, which includes MGM Macau and MGM Cotai, grew revenues 23.2 percent to $734.2 million. CityCenter grew revenues 13 percent to $344 million.
Revenues from the company’s Las Vegas Strip operations – absent CityCenter – were $1.4 billion, down less than 1 percent.
During the quarter, MGM Resorts made rent payment of $205 million to MGM Growth Properties, the real estate investment trust that nearly a dozen of the company’s properties. MGM owns 70 percent of MGM Growth and received $87 million in distributions.
Net income in the quarter was $31 million, down 86 percent due charges involving the Empire Casino acquisition, an extension of the companies sub-concession for its Macau properties. The first quarter of 2018 included a tax credit. Earnings per share was for the company was 6 cents, down 85.1 percent from a year ago.
“The first quarter came in slightly better than our expectations,” Murren said, blaming the relatively flat results in Las Vegas on a reduction in baccarat results. “We had fewer visits from certain Far East players and a bad hold percentage.”
Las Vegas was helped by a 4 percent increase in non-gaming revenues.
Japan potential
Murren said the company has maintained a team in Japan for six years and it recently reached a partnership deal with a Japan-based company for development of integrated resort in Osaka, developing an “Osaka first” strategy.
MGM President Bill Hornbuckle said the company received Osaka’s request-for-concept (RFC) documents and plan to have them completed by the late August deadline.
“It’s robust and we plan to be ready with great deal of programming,” Hornbuckle said.
MGM Resorts announced earnings after the markets closed Monday. Shares of MGM closed $28.60 on the New York Stock Exchange, up 29 cents of 1.02 percent. Shares fell roughly 3 percent in after-hours trading.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
