|By Donald Wittkowski, The Press of
Atlantic City, Pleasantville, N.J.McClatchy-Tribune Regional News
July 24, 2012--Net revenue and gross operating profits fell at Borgata Hotel Casino & Spa during what its parent company acknowledged was a disappointing second quarter in the struggling Atlantic City market.
"These are obviously challenging times for Atlantic City," Keith Smith , president and chief executive officer of Boyd Gaming Corp., said during an earnings conference call Tuesday with analysts.
Borgata's net revenue declined 4 percent to $175.4 million, while gross-operating profits slumped 21 percent to $30.7 million compared with the second quarter of 2011, the company reported.
Revenue from Borgata's slot machines and table games tumbled 6 percent to $152.4 million. Nongambling revenue generated by Borgata's food and beverage sales also fell in the second quarter. Hotel revenue was essentially flat.
Boyd executives made no attempt to hide their disappointment, noting that the results were below the company's projections. They largely blamed higher Atlantic City property taxes and stronger competition from the $2.4 billion Revel megaresort for Borgata's declines.
Josh Hirsberg , Boyd's chief financial officer, said Borgata also had some "self-inflicted" wounds, including its decision to pare back on its marketing and promotional expenses during the second quarter while gauging Revel's impact on the market.
Hirsberg and Smith indicated that Borgata should not have cut so deeply on the promotional side -- the so-called comps and other marketing perks that help to attract customers. The company reported that Borgata had $52.7 million in promotional spending in the second quarter, compared to $56.8 million during the same time last year.
Smith noted that Borgata has since increased its promotional spending for the summer season, normally Atlantic City's busiest time of year. He predicted Borgata would enjoy a strong summer, despite the extra competition from Revel and casinos in surrounding states.
"The business at Borgata remains very strong," he said. "We expect a good summer season."
Borgata continues to be Atlantic City's dominant casino and should remain in that position "for years to come," Smith said. Along with the rest of the casino industry, Borgata has suffered from Atlantic City's 51/2-year slump in gambling revenue, caused by the fragile economy and increased competition.
John Kempf , a casino analyst for RBC Capital Markets, pointed to Revel and the newly opened Resorts World casino at the Aqueduct Racetrack in New York City as Borgata's tougher competitors.
Joel Simkins , an analyst with Credit Suisse, said Borgata was able to withstand Revel reasonably well in the second quarter, but heightened competition in Pennsylvania and the opening of the new $500 million Maryland Live! casino in suburban Baltimore have "put further strain" on Atlantic City.
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