Melco Resorts & Entertainment (MLCO) Q2 FY26 earnings call: guidance and Q&A

How does REM differentiate from existing offerings, and what is the dividend policy outlook?

REM is a unique, fun, and highly differentiated luxury product, unlike anything else in Asia, complementing existing 5-star hotels. The dividend recommencement is pushed to 2027, aiming for a substantive and meaningful dividend, not a nominal one, while prioritizing opportunistic share repurchases.

“We think in 2027, we will be in a position to recommence the dividend without providing any specific target on that. The intention is to commence the dividend when it can be substantive and meaningful. We're not interested in a nominal dividend.”

asked by George Choi · answered by Geoffrey Davis

Given the intrinsic value exceeding public multiples, are there thoughts on go-privates or M&A opportunities?

The company is always open-minded and innovative but currently prioritizes debt repayment and improving performance in Macau, Sri Lanka, and the Indian market. While watching the market closely, there's a lot on their plate right now.

“But I think at this point in time, our core focus is, I know it's been a few years since COVID, but we're still kind of digging out of the COVID hole that elevated our debt. And so I think the priority is still on debt repayment and really getting our -- improving the performance in Macau, and we opened Sri Lanka a year ago, learning the market there and really trying to crack the code on the Indian market.”

asked by David Bain · answered by Yau Ho

Why was this World Cup more impactful, and what's the outlook for event-driven benefits in Macau's entertainment calendar?

The World Cup likely had a larger impact due to increased access to sports betting, substituting some gaming activity in June/July. The company is exploring entertainment events that drive gaming volumes, noting that the concert calendar has become more rational with fewer events compared to previous years, as not all events are profitable.

“I think this year, similar to the rest of the world, we experienced with a lot of our customers, pretty significant sports betting volumes with respect to the World Cup. And I think in June and July, I would say that our experience is likely that it was, to some degree, a substitute to some of their gaming activity.”

asked by David Bain · answered by Evan Winkler

What is the outlook for Macau-based OpEx per day, and how are post-World Cup trends rebuilding demand?

Macau OpEx per day, including REM, is expected to be closer to $3.3 million to $3.4 million. Post-World Cup, activity has returned to normalcy in late July/early August, with customers returning and normal play volumes, indicating a recovery from the temporary dip.

“Coming out of that period, as we get into the late July, early August period, I think we've seen a reversion to our normality. So we're seeing our customers come back. We're seeing normal plane volumes.”

asked by Joseph Stauff · answered by Evan Winkler

Can you elaborate on opportunities to create better flexibility in the cost structure to align with business volumes?

The company is conducting a wide review of its cost base to find efficiencies, aiming to maintain daily OpEx around $3.4 million even with REM ramping up. This involves strategically trimming spending in areas with less guest impact, particularly at premium levels, without negatively affecting the guest experience.

“we're looking at each one of those and looking at the areas where we really think we have a high level of guests impact in areas where we think we're spending money where we may not be getting as much return on some of those dollars as we would like.”

asked by John DeCree · answered by Evan Winkler

Is regional gaming competition increasing from other markets compared to pre-pandemic levels?

Not significantly, as Macau primarily serves the Mainland Chinese market, while Manila caters to a domestic and Korean market. Each market serves its own catchment area, though Chinese tourist visitation to Manila is showing an uptick with better visa schemes.

“I would say not so much, because the Macau serves a predominantly Mainland Chinese market. We are seeing more and more Southeast Asian tourists and more Korean showing up in Macau nowadays.”

asked by John DeCree · answered by Yau Ho

What is the expected disruption from the City of Dreams retail renovation, and what is the CapEx guidance for this year and next?

The retail renovation will cause significant construction disruption until mid-2027, impacting guest experience despite mitigation efforts. CapEx guidance for the remainder of FY26 is $225 million, dropping to $275 million to $300 million for FY27.

“But we are going to be suffering through some pretty significant construction disruption between now and middle of next year. You're already seeing it in parts of the retail arc that abuts the Cotai Strip that we're going to be completing over the next couple of months that it's going to cycle through various areas of the property really going through summer of next year.”

asked by George Choi · answered by Evan Winkler

Can you review capital structure moves and address softness in the VIP business, especially relative to competitors like Wynn?

No definitive plans for the MLCO 2027 maturity, but options include the upsized RCF. In VIP, the premium direct rolling chip business remains strong, with Wynn not being a leading competitor. The Q2 softness was due to the World Cup impacting premium players and an unfavorable VIP win rate of 2.7% (vs 3.9% prior year), but volumes are recovering.

“And don't forget, our -- in Q2, our win rate in VIP was 2.7%, which is below our normal 3% and definitely way below where we were last year 2Q. I think we were 3.4%, 3.7%. So it's pretty significant in terms of the win rate being unfavorable this Q2.”

asked by Peter McGuire · answered by Yau Ho