Caesars says comp cuts will help offset wage increases

Caesars Entertainment Corp. said Wednesday it expects to offset $80 million in increased labor costs this year with recently announced corporate level layoffs and fewer giveaways.

The resort operator last month announced it would reduce annual labor costs by $40 million by eliminating some corporate positions such as finance, legal and marketing roles. In an earnings call Wednesday, it said it could reduce costs this year even further.

“Through the combination of this (corporate cut) effort along with additional efficiency gains across both marketing and labor for the full year, we anticipate being able to successfully offset the $80 million in annualized labor headwinds and now anticipate growing margins on a full year basis,” CFO Eric Hession told Wall Street analysts.

Strip operators are facing rising costs as revenue growth remains tepid, pushing them to seek new ways to increase deficiencies and profit margins.

MGM Resorts International announced early this week it will have eliminated 1,000 jobs by June as it tries to boost profits. Caesars has already cut property level employment 12 percent since 2014, Hession said.

Caesars and MGM last year signed a new, five-year contract with the culinary union, Culinary Local 226, that includes compensation increases. Hession said Caesars is also seeing labor cost pressure in the Midwest region due to a tight labor market. U.S. unemployment is near a 50-year low.

“A lot of it is stemming from basically a lack of labor — or having difficulty finding great talent in a lot of these markets — and, as a result, that pushes up the price of labor,” he said.

The CFO said the company will continue to improve marketing costs — such as comped rooms and food — through better technology. However, the marketing efficiency gains will be lower than in previous years, he added.

“We are always trying to improve the way that we can market to customers. We did change fairly dramatically the amount that we were giving back to our customers,” he said.

150,000 more room nights

Hession said the company’s second-quarter non-group bookings are about 150,000 room nights higher than at this same time last year. The higher hotel bookings will lead to higher food, beverage and gaming revenue, he said.

Caesars late last year began more aggressively marketing its Las Vegas rooms to leisure guests following a weak convention and entertainment calendar in the third-quarter that resulted in a sharp decline in revenue.

Hession said those efforts have paid off in the first two quarters of 2019 and anticipates the company will continue to pursue that strategy the rest of the year.

However, Hession said Caesars is not raising its 2019 Las Vegas revenue growth forecast of 2.5 percent.

Higher occupancy

Higher occupancy along with a better gaming hold percentage helped Caesars boost its Las Vegas net revenue 5.8 percent in the first quarter, the company said earlier on Wednesday.

Caesars said its Las Vegas net revenue rose to $953 million compared with $903 million in the same period last year. Its Las Vegas hotel occupancy increased 250 basis points to 95 percent while revenue per available room increased 4.9 percent. The higher hold percentage accounted for about half of its Las Vegas net revenue gains.

Las Vegas cash flow jumped 12 percent to $360 million compared with $321 million in the same quarter last year.

The resort operator’s regional revenues also increased as the acquisition of Centaur offset tougher competition in Atlantic City and temporary closure of Midwest casinos due to bad weather.

Enterprise-wide Caesars net revenues increased 7.3 percent to $2.12 billion. However, the company’s quarterly loss widened to $217 million from $34 million in the first quarter last year. The greater quarterly loss was driven by a $322 million change in the fair value of a derivative security.

Contact Todd Prince at 702-383-0386 or tprince@reviewjournal.com. Follow @toddprincetv on Twitter.