The Gulf Coast casino market, which consists primarily of Louisiana and Mississippi venues, is holding up relatively against a challenging macroeconomic backdrop.
That’s the take of Truist Securities analyst Barry Jonas, who recently visited casinos in the Baton Rouge, La., Lake Charles, La., New Orleans and Biloxi, Miss. markets. He observed limited vulnerability over the near-term from less-than-ideal economic conditions.
Our takeaway is that any impact from an unfavorable macro environment has been limited with most operators generally noting consistency and resiliency,” wrote the analyst. “Very few properties we visited spoke to any impact from macroeconomic uncertainty. The only notable softness appears to be with more value-oriented, lower-to mid-tier customers in select (but not all) markets.”
That’s an encouraging view for Gulf Coast regional operators, which include publicly traded names Bally’s (NYSE: BALY), Boyd Gaming (NYSE: BYD), Caesars Entertainment (NASDAQ: CZR) and Penn Entertainment (NASDAQ: PENN).
Gulf Coast Casinos Seeing Tale of Two Consumers
With inflation remaining stubbornly high, there’s increasing concern among casino operators that consumers will look for ways to reduce costs during their stays at gaming properties or eliminate those visits outright.
In the Gulf Coast region, recent data indicate there hasn’t been a big move by consumers to temporarily halt casino visits, but there are some signs of pull backs in certain demographics.
“The only notable softness appears to be with more value-oriented, lower-to mid-tier customers in select (but not all) markets,” added Jonas. “(But there is) enthusiasm over social security cost of living increases and higher interest rates on savings flowing to discretionary spend for the older demographic.”
Conversely, there’s resilience at “destination” properties in the region, which include Harrah’s New Orleans, Golden Nugget Lake Charles and Penn’s L’Auberge du Lac in Lake Charles.
Those venues, which cater to bigger spenders, “have not seen any blips, and nearly all properties we visited are running at 100% weekend occupancy with weekdays relatively solid,” according to Jonas.
Refreshed Gulf Coast Casinos Could Help
While there’s ample casino supply across the Gulf Casino region, there aren’t many new venues. Owing to fierce competition, there’s burden on operator to allocate capital to keeping properties in the region fresh and up-to-date.
Some are doing just that. For example, Boyd Gaming revamping its Treasure Chest Casino in the New Orleans suburb of Kenner while Caesars recently transitioned the Isle in Lake Charles to its venerable Horseshoe brand. Harrah’s New Orleans is in the midst of a $325 million renovation and will eventually take the Caesars name. Jonas forecasts that each of those endeavors will generate the return on investment necessary to justify the capital spent.
Horseshoe Lake Charles “should show a more finalized product and a clearer picture of what market share could look like. Management is already exploring expanding Horseshoe’s hotel (253 rooms are around half of the property’s pre-hurricane count and ~8% of the market). While we think the Horseshoe is a major upgrade from Isle and have no doubt the property will meet management’s [return on investment] objectives ($50M in 2023),” concluded the analyst.
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