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Isle of Capri Casinos (ISLE) |
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WIKI ANALYSIS
Isle of Capri Casinos (NASDAQ: ISLE) owns casinos catering to a middle-class clientèle. Its 14 casinos are located in Missouri, Mississippi, Louisiana, Florida, Colorado, and Iowa. The company's casinos feature over 14,500 slot machines and over 350 table games (including approximately 95 poker tables) over 3,000 hotel rooms and more than three dozen restaurants. The company also operates a harness racing track at its casino in Florida.[1] The company earned $1 billion in revenue but incurred a net loss of $3 million in 2009.[2]
As a luxury entertainment provider, Isle is especially vulnerable to fluctuations in the US economy. During sluggish economic times, consumers are spending less money, especially on luxury items and activities. As a result, fewer people visit casinos and Isle's revenue suffers. In 2009, the company's net revenue fell by 10% due to fewer people visiting their casinos.[2]
Company Overview
Business Segments[3]
Isle of Capri owns 14 casinos in the United States. The majority of Isle's revenue (85%) comes from its casino operations, with the rest of its revenue coming from its hotel earnings (11% food and beverage, 4% rooms).
- Casino (85% of Revenue) - Casino revenues, which consist of net winnings from gaming at Isle's casinos, are approximately $1 billion.
- Pari-Mutuel, Food, Beverage, and Other (11% of Revenue) - This segment consists of food, beverage, and other miscellaneous services Isle provides to its customers that do not fall in the casino or rooms segments. These include services such as room service fees, vending machine revenues, and in-room telephone services. This segment also consists of commissions and fees earned at Pompano Park, Isle of Capri's only property that has pari-mutuel betting (a horse track)
- Rooms (4% of Revenue) - This segment consists of revenue obtained from the renting out of guest rooms at Isle's hotel properties.
Business Growth
FY 2009 (ended April 25, 2010)[2]
- Net revenue fell 10% to $1 billion due to 4% lower casino revenues as fewer people visited the casinos due to the sluggish economy.
- The company incurred a net loss of $3 million compared to a net gain of $44 million in the previous year.
Trends and Forces
Economic cycles that decrease disposable income hurt the gambling industry
People tend to participate in luxury activities such as gambling only when they feel they have enough disposable income. In a sluggish economy with high unemployment and high Oil prices, consumers are less like to spend money, especially on luxury activities. The slow economic environment caused by the Subprime lending crisis and fall of the U.S. Housing Market has caused consumer confidence to fall. This trend iss harmful to Isle's business, as its casino revenue depends on consumer spending. As a result of the sluggish economy, the company's casino revenue fell by 4% in 2009.[2]
A declining airline industry is negatively affecting business from out-of-market tourists
Casino/resort operators such as Isle of Capri depend heavily on overall economic strength for its revenue, as people tend to travel only when they feel they have enough disposable income to afford such vacations. As a result of these increasing fuel costs, ticket prices have increased over the years. Pricier flights could lead consumers to not fly at all, meaning that fewer people would visit Isle's casinos. Additionally, more expensive plane tickets mean that customers will cut back spending in other areas, like food/drink and even hotel costs. Isle stands to lose revenue as people cut back on spending. In 2009, room revenues decreased by 7.3% due to fewer decreased occupancy.[2]
Changing gambling regulations in Colorado hurt Isle's business
In January 2008, the Colorado state government enacted a new law prohibiting smoking in state casinos. This new piece of regulation had disastrous effects on the business of state casinos. Because Isle of Capri obtains almost 13% of its revenue from its operations in the state of Colorado, it is heavily affected by this trend.[4]
Isle is affected by the harsh weather conditions in the markets in which it operates
Several of Isle of Capri's properties are located in regions that are prone to inclement weather, including dockside and houseboat properties.[5] Its Biloxi and Lake Charles properties were both shut down in September and October of 2005 as a result of Hurricanes Katrina and Rita.
Competition
Isle of Capri caters primarily to middle-class customers, as opposed to companies like MGM MIRAGE (MGM) that aim to attract high-end tourists in popular vacation hotspots like Las Vegas. As such, Isle primarily competes with casino/resort companies that operate in the same markets as it does. These companies include:
- Ameristar Casinos (ASCA) runs eight casino resorts in the Midwestern United States. Ameristar depends on local residents for the majority of its revenue, differentiating it from most other casino operators. Ameristar competes with Isle's properties in Colorado, Missouri, Iowa, and Mississippi.
- Penn National Gaming (PENN) owns casinos, racetracks, and other betting facilities in 14 states and Canada. Penn Gaming competes with Isle of Capri Casinos in five of the six states in which it operates: Colorado, Florida, Iowa, Missouri, and Mississippi.
- Pinnacle Entertainment (PNK) develops, owns, and operates casino gaming resorts around the world. In addition to its six main casinos in Nevada, Louisiana, Indiana, and Missouri, Pinnacle operates several small casinos in Argentina. Pinnacle thus directly competes with Isle in the Louisiana and Missouri markets.
- Boyd Gaming (BYD) owns and operates 16 casinos in the United States. Boyd, which targets middle-income customers, competes with Isle of Capri in Mississippi, Louisiana, and Florida.
References
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