With the festive season around the corner, it’s a joy ride for the management of almost all B2C companies. Along with the ongoing shopping spree, people across the globe are also busy making their reservations for their favorite holiday destinations. This means a busy schedule for the hospitality sector. This is the time when customers would love to indulge into their desires and go for exotic and fun-filled holidays. This is also the time when the hospitality business and more specifically the resort and hotel business get almost three-fifths of their yearly sales numbers.
Recently, the resort giant Full House Resorts (FLL, Financial) declared their quarter results which do not look very encouraging from the investor’s point of view. Let us delve a little deeper and find out more about its number mix.
Full House Resorts' Numbers
The EPS stood at $0.02, barely meeting the Street's expectations, and revenues of $32.9 million marginally missed expectations. The company noted the economic headwinds as a big hurdle for the quarter. EBITDA has slipped southward from $5.3 million in the third quarter last year to $5.2 million in the last reported quarter, and net income dipped from $37.4 million to $32.9 million year-over-year and this dismal performance comes as revenues were down year over year across nearly all its regional casinos. Owing to such numbers its shares spiraled down by 3% for the last week.
Postmortem of the Catastrophe
The issues with the company are pretty illustrative and easy to quarantine. The major reasons for the underperformance are:
- Excessive CEO pay and perks amongst poor results. At the last shareholder meeting, 37% of shareholders voted against the current management pay.
- A number of mindless acquisitions which is proving to be the area of pain for its business books. Recently, they have acquired three casinos and their adjoining hotels which is proving to be more of a liability than a yield generator. There has been no uptrend in the use of the casinos and people just aren't using hotels to spend the night.
Along with 2Q earnings, the company is also toying with the ideal of redoing the activist investors’ group. It feels that the current group is not effective enough to streamline the business process and hence a relook into strategic alternatives is imminent.
To quote the management from its last guidelines, it stated that “the proposals by the dissident group are inappropriate and disruptive at this time and encourages stockholders to not take any action with respect to the proposals."
Going by the market news, the company is also looking into options of a sell off since Oct. 22. Even as the management is talking about implementing strategic alternatives, the issue of reckless spending in terms of management pays and perks and poorly analyzed acquisitions continue to impact the health of the business adversely, and they have to focus on resolving these issues as soon as possible to stay in form.
The need of the hour is that the activist group need to meet and understand the bleeding shareholders and take their suggestions into consideration and work towards them. Currently, the stock is down over 50% year to date. Trading at less than 7 times its EV/EBITDA is quite an alarm bell for the resort's management. The market would still like to see the activist group to push the Full House Resorts’ management into actions that'll boost shareholder value.
Our View
We are quite skeptical about the company from the investment point of view in the future. Also, there is a mention of a sell off, which is not a very healthy sign from the investment security point of view unless the terms and conditions of a sell off are clear. Furthermore, the reckless spending is yet to be taken care of, and though the management has assured it will look into the matter, they have not yet defined a specific roadmap toward it. Considering all these facts, our take is rather far from being optimistic on the company. We would suggest maintaining a distance from adding any position in the company until the management declares a detailed plan of action to overcome the current situation.Ă‚
