Executives at MGM Resorts International shared the initial results of implementing their MGM 2020 plan and their outlook for the Las Vegas Strip and regional properties during the company's first-quarter earnings call.
LAS VEGAS—The first quarter of 2019 was a positive one for MGM Resorts International, executives said during the company’s latest earnings call, as the company is making progress in its MGM 2020 plan and its properties performed better than expected.
“We've made changes to our leadership, announced the addition of a pioneering new digital leader who will oversee growth and revenue, and we are progressing with phase one of MGM 2020, which is expected to deliver $200 million of (earnings before interest, taxes, depreciation and amortization) in 2020,” MGM Resorts Chairman and CEO Jim Murren said.
The company has been working on MGM 2020 for more than a year now, CFO Corey Sanders said. The plan was launched in January and is an evolution of its continuous improvement journey that began with MGM’s profit growth plan in 2015, he said. The current phase is about scaling the centralized operating model to improve operational efficiency and effectiveness.
“We are moving certain key functions out of the properties and into corporate centralized groups called centers of excellence,” he said.
The second phase is about driving a customer-centric strategy to accelerate revenue growth, Sanders said. The company will achieve this through better leveraging digital technology and capabilities as well as an enhanced loyalty program, he said.
Phase one has a target of $200 million of EBITDA uplift in 2020, one third of which is expected this year, Sanders said. That breaks down into $100 million from labor savings—$80 million of which is in fixed labor and $20 million in variable labor—and then $50 million in savings from procurement opportunities and $50 million from revenue optimization. Phase two will have another $100 million uplift in 2021, he said.
To scale the company’s operating model, there will be 18 centers of excellence (COEs) comprising areas such as food and beverage, hotels, entertainment, casinos, marketing and revenue management, Sanders said.
“Effectively leveraging our COEs will be the key to our operating model evolution, as we clearly defined and delineate the responsibilities of the COEs and the properties, to one, eliminate duplicate functions, to allow quicker decision-making, to optimize our management spans and layers and to promote greater sharing and implementation of best practices across the company,” he said.
The centers of excellence will set the strategy and standards instead of the individual properties, which will allow the properties to focus more on execution and service, Sanders said. One implication from this is the new operating model will require fewer managers on-property, creating labor savings. Thirty-five members of the senior leadership team have taken a voluntary retirement package, he said.
“Before the end of the second quarter, we expect a total of nearly a thousand position reductions, some of which were announced just last week,” he said. “These changes will ensure we hit our targets for this portion of MGM 2020.”
Rooms revenue increased by 5% year over year for MGM Resorts’ hotels along the Las Vegas Strip, according to the company’s earnings release. Revenue per available room for these properties grew by 3.7% for the same time period. F&B revenue grew by 8% year over year as well.
MGM Resorts’ regional properties performed well in the first quarter, seeing revenue increase by 21% and EBITDA grow by 24%, Murren said. MGM China’s revenue grew by 23% to $734 million and adjusted property EBITDA grew by 26% to $191 million, he said. MGM Macau achieved $129 million in EBITDA while Cotai continued to ramp up with 18% growth to $62 million, he said.
“We certainly showed good progress and gained market share for the third consecutive quarter,” he said.
MGM Resorts’ stock closed Monday trading at $28.60, up 20.5% year to date. The Baird/STR Hotel Stock Index was up 16% for the same time period.
The company’s outlook for the remainder of 2019 remains the same, Murren said. The second half of the year should be strong as the company begins to realize some of the benefits of its MGM 2020 plan. Gaming trends are positive after a weaker start to the year. Convention bookings for 2019 are in good shape, and the company is benefiting from the expansion of the MGM Grand convention center, he said. Group business in 2020 is shaping up as well, and having it on the books now increases his confidence in Las Vegas, he added.
The upcoming entertainment calendar is exciting, he said, citing concerts by Paul McCartney, Aerosmith, Janet Jackson, Lady Gaga and Bruno Mars. When the Raiders begin to play in 2020, that will change the south end of the Strip, as the games will be played in the backyard of MGM Resorts’ Mandalay Bay Resort and Casino, he said.
“We think it'll be substantive for the property,” Murren said.
MGM Resorts is a more balanced company than it has been at any other time in its history with its trophy assets in each of the markets it serves in the U.S. and Asia, he said.
“To ramp these assets is a key part of our plan to reach our $3.6 billion and $3.9 billion of consolidated adjusted EBITDA,” Murren said. “The other major driver is MGM 2020. MGM 2020 is much more than a cost-cutting plan. It truly changes the way we operate and positions us for continued growth and success.”