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Casino and hotel operator Wynn Resorts (WYNN -8%) missed Q3 earnings and sales estimates by sizeable margins, spurring a significant pullback today. Demand remained healthy across WYNN's core markets, including Las Vegas and Macau, which are located in China and comprise around half of the company's annual revenue.

However, challenging yr/yr comparisons and ongoing room renovations encroached on overall performance in the quarter. WYNN has been enhancing its hotel room experiences over the past few quarters, causing thousands of room nights to go out of service. A clear point of contention among investors today is that WYNN's renovations are expected to cause 2025 to resemble 2024 in terms of group room nights, which could continue to pressure quarterly numbers. These blemishes are not just dwarfing the silver linings from the quarter but also WYNN's $1.0 bln increase to its share repurchase authorization, representing around 10% of its market cap.

• For the second straight quarter, WYNN fell short of top and bottom-line estimates, delivering adjusted EPS of $0.90 in Q3 on a meager 1.3% lift in revenue yr/yr to $1.69 bln. Operating revenue in Las Vegas inched 1.9% lower yr/yr to $607.2 mln. The relative weakness stemmed from a modest drop in table hold, which refers to how much money a casino wins from a table. On the flip side, WYNN's revenue in Boston crept 1.8% higher yr/yr to $214.1 mln.
• Rising labor costs have been hindering WYNN's profitability for the past few quarters, especially in Las Vegas. In Q3, wage pressure underpinned a 210 bp contraction in EBITDAR margins yr/yr in Las Vegas to 33.4%. However, in Boston, WYNN enjoyed a 60 bp lift in margins yr/yr, reflecting success in mitigating union-related payroll increases with cost efficiencies.
• WYNN's primary Macau market delivered a few highlights, including a 6.3% improvement in revenue yr/yr to $871.7 mln, supported by table games hold remaining in a normal range. If revs hold around a similar rate in Q4, WYNN is staring at a roughly +16% jump in Macau revenue yr/yr for FY24. While EBITDAR margins did compress by 90 bps yr/yr, they advanced by 210 bps compared to 3Q19. The yr/yr contraction reflected higher payroll expenses.
• Looking ahead, WYNN's longer-term outlook surrounding Macau remains decidedly bullish. Meanwhile, WYNN's construction of its hotel/casino in the UAE is rapidly progressing. WYNN believes the UAW will become a $3-5 bln gaming market. Outside of the UAE, WYNN continues to explore potential opportunities in attractive cities.

While plenty of positive developments filled WYNN's Q3 report, its overall performance was disappointing. Concerns surrounding China may be the biggest hurdle for WYNN to overcome in the near term as the economy in the region deteriorates, placing higher dependence on government stimulus to avoid a deeper fallout. Others in the industry are dealing with similar headwinds but remain confident in sustained demand. Las Vegas Sands (LVS) expressed optimism last month that Macau will return to a stronger place in the near future. Likewise, MGM Resorts (MGM) enjoyed record growth in Macau during Q3, fueling confidence in the market's long-term health.