Visitation at U.S. casinos slowing in January due to the omicron variant was in line with what casino executives have been saying in their earnings’ reports. But the trend is expected to turn bullish as COVID-19 cases continue their decline, a Wall Street analyst said.
David Katz, an equity analyst with Jefferies Equities Research, released a note to investors that said their monthly measurement of casino foot traffic in January showed it was down 2% compared to December and down 33% compared to December 2019. Foot traffic is one of the measurements used to forecast gaming revenue.
“The omicron strain of COVID-19 likely hampered foot traffic in early January as consumer sentiment may have temporarily declined in the near term,” Katz said. “However, with declining cases, we expect trends to improve through 2022. Although 2021 attendance was meaningfully lower than 2019, we continue to believe there remains a second leg of recovery for consumer demand, supporting our broader bullish stance on casinos.”
In Las Vegas, January foot traffic fell 8% compared to December, which reflects both omicron and seasonality, Katz said.
“January volume remained 33% below 2019 levels, likely attributable to a lack of international visitors, as January (Transportation Security Administration) travel numbers mark a 23% decline vs. 2019 and a slow recovery in convention and group business. With the surge of omicron, the Consumer Electronics Show in January shortened its in-person event, which may signal further delay in convention recovery.”
During earnings reports, casino operators said convention business hasn’t returned to past levels, but expect strength in the back half of 2022 and into 2023.
CES was shortened by one day and attracted 40,000 attendees, down significantly from the 170,000 in 2019. That number was expected to be much higher, but then omicron sent cases skyrocketing and increased hospitalizations.
For casinos that serve the Las Vegas locals’ market, volume was 40+% lower compared to January 2019 and down 9% from December, Katz said. Downtown Las Vegas saw foot traffic improve 8.7% compared to 2019, though it was down 10.9% from December.
In Reno, January volumes were 43.5% lower than 2019 levels and 2.8% lower than December. Laughlin experienced a 42.5% decline from 2019, though it was up 24% versus December, which was seasonally low, Katz said.
Lake Tahoe experienced a 42% decline from 2019, though foot traffic was up 13.9% from December, likely in part due to the level of snow the area saw in December, he said.
Foot traffic in Detroit was down 5.6% from December and 42.5% lower from 2019 levels.
In Kentucky, several openings skew performance relative to 2019, but Katz noted that foot traffic relative to 2020 is down 27.5%. January traffic increased 5.5% over December.
Gaming revenue in Ohio and Illinois for January fell double digits compared to December.
“Lastly, we highlight Black Hawk, Colorado, which saw its $100 bet limit removed on May 1st last year and the significant addition of lodging and gaming capacity by (Monarch Casino & Resort Inc.,)” Katz said. “In January, Black Hawk’s traffic volume was down 41.6% from 2019, and 3.7% lower from December.”
As for issues investors are following, Katz noted that when Penn National and Boyd Gaming reported earnings, the regional markets performed well despite seasonal weakness.
“Some omicron impact started in mid-December, but business largely recovered by the end of January,” Katz said. “Margins are slightly weaker versus second quarter and third quarter, but still elevated versus pre-COVID and should be sustainable going forward. Penn Interactive’s (adjusted earnings) loss is better than expected, with a clearer path to profitability that should provide some support for valuation.”
When MGM Resorts International holds its fourth-quarter earnings call on Wednesday, Katz said regional properties should be consistent with prior quarters, while Las Vegas is “more sensitive to omicron.” He said to expect a weak convention calendar through the first quarter, but strength in the second quarter.
There will also be discussions about BetMGM’s recent launch in New York and upcoming launches in Ontario and Massachusetts.
MGM will also update pending transactions, plans for cash on hand, merger and acquisition potential, digital investment, green-field opportunities, and shareholder returns, Katz said.
In other matters, Katz said labor issues in the hospitality sector are expected to take longer to deal with than expected, based on a conversation with Dan Kesic, founder and CEO of Hospitality Services, a provider of professional staff to businesses in the hospitality industry.
“Our takeaway is that the labor constraints and elevated costs should remain challenging for multiple years and may take longer to stabilize than demand levels,” Katz said. “While the pool of available labor is larger than it was six months ago, it’s largely untrained, because furloughed hospitality employees are rejoining the workforce in other industries.”
Required training is increasing costs and slowing down onboarding, Katz said.
“In our expert’s view, it should take about two years for the new workforce to reach the pre-COVID skill level, which is particularly relevant for those who are responsible for hotel operating costs and execution,” Katz said.
