Looks like Harrah's won't meet there earnings forecast...hot off the wire via www.fool.com

Harrah's Hits Confessional

Though the casino industry tends to be less sensitive to economic conditions than many other industries, casinos are still influenced by the economic environment in which they operate. In certain markets around the country, that environment is a bit stormy. Harrah's Entertainment will feel the pain, as the company said it will not meet its second-quarter estimates.
July 6, 2001
Thought earnings warnings were just for technology stocks? After the bell yesterday, Harrah's Entertainment (NYSE: HET) proved casino companies are fully able to come to the confessional to warn about profit shortfalls, too.

Harrah's said that it now expects pro-forma earnings per share of between $0.46 and $0.50 for the quarter just ended. Though well ahead of the $0.39 the company earned last year, the new projection falls short of the $0.55 analysts had estimated. Harrah's will release its full earnings results on July 18.

The main problem cited for the shortfall was weakness at the company's three casinos in the Lake Tahoe and Reno area. Between excessive economic weakness in the key Northern California feeder markets, including Silicon Valley, and increased competition from local tribal casinos, the double-digit decline in retail gaming revenues in the area is not terribly surprising.

Harrah's also said that retail revenues were weak across the board, thanks to the anemic economic climate. Harrah's defines retail revenues as those coming from "walk-in" gamblers who do not use the company's Total Rewards affinity cards. (For an interesting article on Harrah's customer relationship management system, check out this recent CNN article.) Revenue remains strong, however, from those customers who use the industry's leading loyalty program.

Problems also continued to pop up at the company's Rio property in Las Vegas. Rio had been on the rebound earlier this year after being a major drag on earnings for nearly all of 2000. But according to the company, lower than statistically expected hold percentages -- the percentage of revenue for the casino relative to the amount gambled by customers -- are rearing their ugly heads yet again at the Rio.

There do appear to be pockets of strength for Harrah's. The company said that it should book modest gains from its flagship Las Vegas casino as well as from its Atlantic City, St. Louis, and Shreveport, Louisiana properties.

Beyond what has been happening at Rio, Las Vegas has remained a relatively strong market both for Harrah's and for MGM Mirage (NYSE: MGG). Unlike the geographically diverse Harrah's, MGM gets most of its revenue from Southern Nevada, and the company said earlier this week that it was comfortable with current profit estimates for the second quarter.

Though the casino industry tends to be less cyclical and less susceptible to economic weather than many other industries, today's news shows that it still influenced to some extent by economic conditions. In certain markets around the country, those conditions are a bit stormy.

Paul Larson used to work in a casino in his younger days. Really. You can see Paul's stock holdings online. The Motley Fool is investors writing for investors.