The last week saw a couple of companies in the gambling space getting busy with construction and development of their assets while two others came out with their results. Las Vegas Sands Corp. (LVS) received approval to resume the construction of the Parisian Macao -- its fourth property on the Cotai Strip. It also completed the amendment and restatement of its Marina Bay Sands credit facility, which would improve the company’s financial flexibility.

Meanwhile, Caesars Growth Partners, LLC, announced the opening of the Horseshoe Casino Baltimore. Isle of Capri Casinos, Inc. (ISLE) posted earnings despite a challenging operating environment.

However, the optimism was partly hurt by reports of Nevada gambling revenues for the month of July increasing only 0.65% year over year. This compares with revenue increase of 14.4% and 8.1% in the months of June and May, respectively. However, it declined 0.3% in April.

Meanwhile, Iao Kun Group Holding Company Limited (IKGH) fell short of expectations and posted dismal second-quarter results, which resulted in a share price decline of 7%. Sluggish August revenues in Macau, the only place in China where gambling is legal, also came lower. (Read earlier developments: Gambling Stock Round Up for Aug 18, 2014)

Recap of the Week’s Important Stories:

1. Per the Gaming Inspection and Coordination Bureau, Macau’s total gross gaming revenue for the month of August declined 6% to $3.6 billion. This marked the third consecutive monthly decline and was worse than declines of 3.6% and 3.7% in the months of July and June, respectively. Also, the decline was wider than analysts’ expectation of a decline of 2% as reported by Bloomberg. China’s ongoing crackdown on corruption, which includes restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau, could be the reason for the decline.

Restrictions like limitation on the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. This limited gambling among high-rolling VIP customers, resulting in lower revenues. Going forward, tighter restrictions on visas and the impending ban on smoking in casinos would continue to put pressure on gaming revenues in the upcoming quarters. (Read More: Casino Stocks Tumble on Macau Crackdown Fears.)

2. Iao Kun Group posted a loss of 12 cents per share that compared unfavorably with the Zacks Consensus Estimate of earnings of 1 cent and the year-ago earnings of 20 cents per share. The significant downside reflects lower revenues and higher expenses.

Net revenue of $49.7 million declined 22% year over year and missed the Zacks Consensus Estimate of $61 million by 19%. The downside reflects a decline in win rate, slower revenue growth of the VIP baccarat compared to overall growth of gaming revenues in Macau and the economic downturn and tightening of credit in mainland China, where the majority of Iao Kun Group’s VIP gaming patrons reside. The company continues to expect Rolling Chip turnover in the range of $17 billion to $19 billion for its five existing VIP rooms in Macau in 2014. (Read: Iao Kun Group (IKGH) Falls on Q2 Loss, Macau Business Weak.)

3. Despite a challenging operating environment, Isle of Capri Casinos posted fiscal first quarter 2015 adjusted earnings of 2 cents per share that compared favorably with the year-ago loss of 7 cents per share. The upside reflects a year-over-year increase in revenues and margins. Also, earnings were in-line with the Zacks Consensus Estimate. Net revenue of $241.6 million missed the Zacks Consensus Estimate of $243 million by 0.6% possibly due to stiff competition and sluggish economic conditions. However, it went up 1.5% year over year driven by an increase in revenues from casino properties in Florida and Missouri.

Adjusted earnings exclude severance expense and Colorado referendum expense. Including these expenses, GAAP loss per share for the second quarter was 6 cents that compared favorably with a loss of 14 cents per share in the year-ago quarter. Share price of this St. Louis-based gaming and entertainment company surged 7% post the announcement of results. (Read: Isle of Capri Casinos Q1 Earnings In Line, Revenues Lag.)

4. Sands China Ltd. – a majority-owned subsidiary of Las Vegas Sands – announced that the Chinese government has given the requisite permit to resume the construction of the Parisian Macao. It is expected to cost $2.7 billion. Las Vegas Sands expects the Parisian Macao — its fourth property on the Cotai Strip — to open by late 2015. (Read: Las Vegas Sands Unit to Resume Parisian Macau Construction.)

Meanwhile, Las Vegas Sands has completed the amendment and restatement of its Marina Bay Sands credit facility. Besides improving the strength of the balance sheet and financial flexibility, this amendment would enhance shareholder returns.

5. In one other development, Caesars Growth Partners, LLC, a joint venture between Caesars Acquisition Co. (CACQ) and Caesars Entertainment Corp. (CZR), announced the opening of Horseshoe Casino Baltimore. Besides offering more than 2,500 slots, 100 table games and the World Series of Poker room, the complex offers nightlife options such as 14forty, a 24 hour multi-level entertainment venue, and signature restaurants. The company believes that the casino is well positioned and is expected to draw visitors from across the region, thereby bolstering Baltimore's flourishing tourism industry.

Performance

Share price of Wynn Resorts Ltd. (WYNN), Las Vegas Sands, MGM Resorts International (MGM) and Melco Crown Entertainment Limited (MPEL) declined over the last week on sluggish analysts’ expectations for 2014 revenues that reflect stiff competition and labor problems. Las Vegas Sands recorded the highest decline of 3.9%, followed by 3.6% decline witnessed by Wynn Resorts. Meanwhile, Caesars Acquisition Company and Boyd Gaming Corporation gained 2.8% and 0.3%, respectively.

In fact, labor-related problems are expected to adversely impact the margins of these casino companies, going forward. Aware of the huge profits that the operators earn, casino employees are now demanding wage increases and benefits. Casinos, on the other hand, are trying to retain talent, which has reportedly increased staff costs by 10%-15% year over year. With eight new resorts coming up in the region in the next three years, labor issues such as these pose a challenge and can put pressure on margins in the near term.

Considering the current downside in Macau revenues, the sluggish revenue expectations do not come as a surprise. The disappointing numbers are expected to cast a shadow over stock prices of U.S based casinos in the coming weeks as well.

However, a few analysts expect demand to be strong in the coming months owing to the mass market visitors who come directly to the casinos while high rollers are typically brought in by junket companies or middle-men that charge a commission.

Over the last six months, all gambling stocks have declined with Caesars Entertainment and Melco Crown declining the most at 47.8% and 31.2%, respectively.

What’s Next in the Gambling World?

We note that gambling stocks have oscillated between gains and losses in recent sessions and investors can expect such movement in the coming days as well.

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