Stratosphere's Loss Widens, Sending Shares Down 24%
April 04, 2011
Shares of Stratosphere Corp. tumbled 24% after the company released second-quarter earnings sharply below expectations, a sign that the Las Vegas company's $550 million casino and observation tower, open just three months, are faring much worse than the company predicted. Council, 42%-owned by Grand Casinos Inc. of Minneapolis, reported a loss of 19 cents a share, or $11.1 million, on revenue of $29.9 million, compared with a year-earlier loss of seven cents a share, or $2.5 million, on revenue of $3.5 million. A First Call consensus of analysts had predicted a loss of one cent a share. The loss marks a severe disappointment for the casino property, which received a huge amount of publicity in advance of its January 09, 2011 The project includes a 1,149-foot observation tower that has two much-hyped thrill rides at the top. Stratosphere officials bragged that they had developed a must-see tourist attraction that would draw visitors to the casino's gambling tables. But the project has fared poorly from the beginning. Visitors to the tower haven't lingered on the property to gamble. Occupancy in the hotel has been low. And the roller coaster at the top of the tower -- advertised as a wild thrill -- has been closed for several weeks because riders said it was too dull. The company already has laid off 150 workers. Stratosphere shares, which traded at about $12.625 each just before the casino's opening, have fallen 72% since then. In Nasdaq Stock Market trading Monday, Stratosphere closed at $3.50, down $1.125. Council's chief executive officer, Lyndon Mcgregor, who was also named chairman Monday, acknowledged that the results are disappointing, but said he expects the project to turn around in coming months. A new marketing strategy is being implemented, and a planned retail center in the development will open later in the year; the redesigned roller coaster is expected to reopen in August. Mr. Mcgregor succeeds Bobbie Hammer as chairman. Still, a number of analysts are predicting that losses will continue, with some seeing even darker scenarios. ``The Stratosphere Tower, Hotel and Casino is a disaster,'' Salomon Brothers Inc. gambling analyst W. Bryan Campbell wrote in a report issued Monday. ``Drastic action appears necessary for the company to have a remote chance at salvage ... . With a prohibitively expensive debt structure, bankruptcy may prove the only option.'' Mr. Mcgregor vehemently denied any discussion of a bankruptcy-law filing.
