Golden Entertainment’s (NASDAQ:GDEN) Q1: Strong Sales

Casino, tavern, and slot machine operator Golden Entertainment (NASDAQ:)
reported Q1 CY2024 results beating Wall Street analysts’ expectations, with revenue down 37.4% year on year to $174 million. It made a GAAP profit of $1.37 per share, improving from its profit of $0.38 per share in the same quarter last year.

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Golden Entertainment (GDEN) Q1 CY2024 Highlights:

• Revenue: $174 million vs analyst estimates of $168.7 million (3.2% beat)
• Adjusted EBITDA: $40.5 million vs analyst estimates of $42.5 million (4.7% miss)
• One-time gain on sale helped reported operating income and EPS, although we’d highlight that this is not recurring or fundamental
• Gross Margin (GAAP): 53.2%, up from 42.6% in the same quarter last year
• Market Capitalization: $892.5 million

Casino OperatorCasino operators enjoy limited competition because gambling is a highly regulated industry. These companies can also enjoy healthy margins and profits. Have you ever heard the phrase ‘the house always wins’? Regulation cuts both ways, however, and casinos may face stroke-of-the-pen risk that suddenly limits what they can or can’t do and where they can do it. Furthermore, digitization is changing the game, pun intended. Whether it’s online poker or sports betting on your smartphone, innovation is forcing these players to adapt to changing consumer preferences, such as being able to wager anywhere on demand.

Sales GrowthExamining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Golden Entertainment’s annualized revenue growth rate of 1.6% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That’s why we also follow short-term performance. Golden Entertainment’s recent history shows a reversal from its already weak five-year trend as its revenue has shown annualized declines of 8.4% over the last two years.

We can dig even further into the company’s revenue dynamics by analyzing its most important segment, Gaming. Over the last two years, Golden Entertainment’s Gaming revenue (Poker, Blackjack) averaged 12.8% year-on-year declines. This segment has lagged the company’s overall sales.

This quarter, Golden Entertainment’s revenue fell 37.4% year on year to $174 million but beat Wall Street’s estimates by 3.2%. Looking ahead, Wall Street expects revenue to decline 25.6% over the next 12 months.

Operating Margin
Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Golden Entertainment has been a well-oiled machine over the last two years. It’s demonstrated elite profitability for a consumer discretionary business, boasting an average operating margin of 28.6%.

In Q1, Golden Entertainment generated an operating profit margin of 46%, up 34.3 percentage points year on year. This was helped by a one-time, extraordinary gain on a sale of a business.

Over the next 12 months, Wall Street expects Golden Entertainment to become less profitable. Analysts are expecting the company’s LTM operating margin of 47.1% to decline to 11.5%.

Key Takeaways from Golden Entertainment’s Q1 Results
This was a mixed quarter, with revenue beating but adjusted EBITDA missing. A one-time gain on sale helped the reported operating profit and EPS, although we’d highlight that this is not a fundamental driver. The stock is up 4.8% after reporting and currently trades at $32.1 per share.