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Penn National Gaming, Inc. (PENN)
March 07, 2013 11:15 am ET
William J. Clifford - Chief Financial Officer and Senior Vice President of Finance
Previous Statements by PENN
» Penn National Gaming's Management Presents at DbAccess Consumer, Retail, Gaming & Lodging Conference (Transcript)
» Penn National Gaming Management Discusses Q4 2012 Results - Earnings Call Transcript
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So Bill, maybe we could just start off and maybe from the prism of Penn National, maybe you can just talk about the state and the status of the regional gaming consumer, what kind of trends are you seeing. Obviously, it may be hard to do that since we've had some bad weather to draw any kind of inference from recent spend. But if can you just give us a broad overview there, that would helpful.
William J. Clifford
Yes. I think, as I kind of predicted last year, I said the Street is going to go into absolute panic in the first quarter of '13 because the first quarter of '12 was absolutely a blockbuster quarter. I mean, it carried the entire year for Penn National. I personally made bonus on the first quarter of last year. And the rest of year was pretty flat. So I think what we're looking at from a comp perspective is people have got to really be a little bit more thoughtful and go back to -- I would argue, go back to '11 and take a look at where trends are relative to 2011 in terms of making a judgment call on what's happening in this quarter. Having said that, last year, there was no winter storms. It just seems like -- and what few winter storms we had were middling little things that happened on a Tuesday or a Wednesday. And this year, it seems like they cycle in every weekend. So clearly, and as you're seeing the numbers, based from the numbers that are public so far in February, in states where we've had the weather impacts, the impact is fairly large. Not to mention, they were also missing a day versus last year. So having said all that, I think the way we look at it is we haven't really seen any indications, because what we have seen when the weather is good is just unbelievable days. Now obviously, some of that is pent-up demand. I don't want to indicate, "Well, gee, as soon as the weather clears up, we're just going to have a rock 'n roll kind of year and we're just going to make a ton of money and charge type of stuff." But when you have -- when you look at the individual days and you look at the individual results by property and you look at the ones that are impacted by weather, you can clearly see that they're off 60% on some days when there's a snowstorm, and then when there's -- when we have good weather, we can be up as much 25%. So what I would say is, wait, wait til March is over. At the end of the day, what we've typically seen in our history at Penn is that by the time the quarter is over, you usually get to some kind of normalcy. A little bit -- obviously, that can be affected a little bit by any number of factors. But, and obviously weather can have a little bit of an impact. But when you roll January, February, March altogether -- and I don't know where March is going to end up obviously, we're just pretty early in the month. But that's how we're going to take a look, and we've kind of internally, after doing some analysis, come to the conclusion that, that's really -- it's kind of fruitless and candidly a waste of energy right now getting too worked up on analyzing exactly what's been happening so far this year.
Okay. What we've seen the last couple of years, broadly speaking across regional markets, is that the promotional environment's been fairly stable. Obviously, with a focus on improving margins, given whatever the revenue pies might be in whatever specific markets, is that still the case right now? Or -- and maybe you can also talk about, too, about how maybe you're changing your marketing now versus 5 years ago and maybe given the different state of the gaming consumer.
William J. Clifford
Well, first of all, I would say people should kind of relax on the environmental -- or not the environmental, the marketing environment. You're going to have a great leading indicator of when it's a problem. And it's real simple. Listen to the earnings calls. And when the CEOs and the people in the earnings calls start talking about market share, share of wallet, how much they -- whether they're #1 or #2 in each market, when that conversation starts on the earnings calls, watch out. That means everybody has decided that they no longer care about EBITDA. As long as everybody at the -- on these earnings calls in the gaming sector is focused on EBITDA, the promotional environments are going to stay rational. That doesn't mean you won't have an occasional outlier here or there, a GM that runs amuck or whatever we have them every once in a while even internally, who's decided that he's solved the Rubik's cube and that he's figured out how to affect the macro environment. And what I mean by that is he somehow thinks that he's going to single-handedly convince consumers, who are perhaps not feeling that well this month, that they should really come out to his casino and spend a lot of money. It just basically, in our view, just doesn't work. I mean, the Penn thought process on marketing, and when you say what's changed since the last 5 years, is that we've really honed in on the concept that it's our job to make sure that we react to the macro and not try to affect the macro. And what I mean by that is if there's cannibalization, if the consumer's not spending, that is not the time to ramp up our marketing expense. It's time to be much more frugal about our marketing expenses and basically draw them back in. Convincing consumers to commit unnatural acts is kind of how we paraphrase it when I talk in these conferences, is really not a good idea. It's you really need to figure out what's the consumer, what's the customer looking for and figure out how to accommodate that. And you'll be much more effective with your marketing spend. I know that's kind of -- that's not a very specific comment. But what it is, is it says, "Don't spend money trying to reverse a negative trend. Don't try to run a special promotion if you know there's a snowstorm coming." Okay, that's kind of the idea. Don't have a big giveaway when there's a blizzard coming. That type of thought process. And literally, that's kind of what's happened in previous periods. So that's how I'd answer that one.