Okay. So inflation isn’t dead. Maybe not even severely wounded.
But the question still remains: So what?
The U.S. economy has continued chugging along throughout this inflationary period and throughout this time of interest rates being lifted in an effort to squelch inflation.
Or has it chugged along? More important, will it?
The first-quarter earnings season that is about to begin could give us some answers. For a while now, there have been reports that lower-income folks have been cutting back spending. In the world of retail, that translates to shoppers trading down to off-brand stores, to Walmart and to store brands from name brands.
For casinos, that phenomenon has expressed itself in soft gaming revenues from unrated players.
To date, casino operators (and the gaming suppliers who depend on the confidence of operators for their business) have largely described spending trends in positive terms. At first, it was a story of improving margins coming out of Covid restrictions as operators bragged about their ability to cut costs while maintaining profitable revenue from valuable customers. More recently, they have described the softening trends in more defensive terms as they say they have largely protected profit margins through marketing focused on those more valuable players.
But the tone most recently appears to be shifting negative. In retail, even upscale companies are citing softness as consumers cut back, though whether they are up or down still appears to be more company specific rather than an overriding trend. Now, in casinos, we are starting to hear executives talking about softness even among rated players.
As mentioned in this space before, this somewhat sober mood follows an almost ebullient time when a recovering Las Vegas and its unusually strong events calendar combined with the new cost discipline to perhaps mask a larger, lurking weakness.
You can add to that the deterioration of regional brick-and-mortar gaming revenues and the new burden for Las Vegas casino operators of higher labor costs thanks to new union contracts.
All of which gets us to the deluge of earnings and accompanying investor conference calls coming in the next several weeks.
Casino companies will focus on the recent successes that have fed the ebullience—Macau’s recovery, Las Vegas numbers pushed up by special events and the rejuvenated convention business.
But little of that will matter. As always, it is the future that is important. That’s what we’ll be focused on.
ON THE OTHER HAND…
…A case can be made that, if the stock market doesn’t swoon this year, it will be the time for small- and mid-cap stocks to lead the way as they’ve been largely left behind in a market whose major averages have been driven by relatively few tech stocks.
That could be good news for gaming stocks, which have tended to lag even the laggards.
As usual, gaming stocks sell at valuations well below other entertainment, lodging and tourism stocks. Many also sell below their own historical norms.
Of course, it could take a while for valuations to recover, no less reach those of sister industries. But for patient investors, casino stocks could still be a rewarding long-term place to be.
