Stock Story -
Casino resort and entertainment company Red Rock Resorts (NASDAQ:RRR) reported results in line with analysts' expectations in Q1 CY2024, with revenue up 12.7% year on year to $488.9 million. It made a GAAP profit of $0.68 per share, improving from its profit of $0.43 per share in the same quarter last year.
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Red Rock Resorts (RRR) Q1 CY2024 Highlights:
- Revenue: $488.9 million vs analyst estimates of $490.7 million (small miss)
- EPS: $0.68 vs analyst estimates of $0.65 (4% beat)
- Gross Margin (GAAP): 62.9%, down from 64.7% in the same quarter last year
- Market Capitalization: $3.21 billion
Casino OperatorCasino 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.
Sales GrowthA company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Red Rock 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. Red Rock Resorts's annualized revenue growth of 3.3% 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, Dining, and Hotel, which are 64.8%, 19.1%, and 10.8% of revenue. Over the last two years, Red Rock Resorts's Casino revenue (Blackjack, Poker) was flat while its Dining (food and beverage) and Hotel (overnight stays) revenues averaged 11.5% and 10.1% year-on-year growth.
This quarter, Red Rock Resorts's year-on-year revenue growth clocked in at 12.7%, and its $488.9 million of revenue was line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 9.9% over the next 12 months, a deceleration from this quarter.
Operating MarginOperating 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.
Red Rock Resorts has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer discretionary business, boasting an average operating margin of 33.1%. In Q1, Red Rock Resorts generated an operating profit margin of 31.8%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.
Over the next 12 months, Wall Street expects Red Rock Resorts to maintain its LTM operating margin of 32.5%.Key Takeaways from Red Rock Resorts's Q1 Results It was good to see Red Rock Resorts beat analysts' Dining revenue expectations this quarter. We were also happy its EPS narrowly outperformed Wall Street's estimates. On the other hand, its total revenue and operating margin missed. Overall, the results could have been better. The company is down 5.8% on the results and currently trades at $51.2 per share.