For the second quarter ended June 30, 2010, the Company reported a net loss of $(12.8) million, or $(0.41) per diluted share, compared to a net loss $(5.7) million, or $(0.18) per diluted share for the same period a year earlier.
Great Wolf Resorts, Inc. (NASDAQ: WOLF), North America’s leading family of indoor waterpark resorts, reported results for the second quarter ended June 30, 2010.
For the second quarter ended June 30, 2010, the Company reported a net loss of $(12.8) million, or $(0.41) per diluted share, compared to a net loss $(5.7) million, or $(0.18) per diluted share for the same period a year earlier. The year over year change was due mainly to the effects of a non-cash charge for the write-off of $3.5 million of unamortized loan costs in conjunction with the refinancing of three mortgage loans in the second quarter of 2010, higher interest expense in the 2010 second quarter, and a lower income tax benefit in 2010.
“The value of a Great Wolf vacation continues to resonate with our guests”
“The value of a Great Wolf vacation continues to resonate with our guests,” said Kim Schaefer, chief executive officer. “Even though the consumer economic environment remains challenging and people are still cautious with their discretionary spending, we are fulfilling family vacation needs. We feel this continues to speak to the value and quality we offer in providing a family vacation experience.”
Ms. Schaefer continued, “Beyond our core resort operations, we had a productive quarter as we remain focused on expanding and extending the platform we have developed over the past 13 years. We announced the signing of an additional license and management agreement, which continues our capital light growth strategy. We acquired a majority interest in Creative Kingdoms, LLC, a developer of experiential gaming products including the MagiQuest game attraction currently installed at nine of our resorts. We also announced in July the pending opening of the first standalone Scooops Kid Spa, a concept we have previously introduced at 11 of our resorts.”
“MagiQuest and Scooops have provided benefits to our resorts, and we believe these amenities have the potential for expansion into other areas outside of our resorts,” Ms. Schaefer added. “We are excited about our prospects in continuing to grow by taking advantage of our well-established products, proprietary amenities and relationships with business partners. I am confident that as we continue to innovate and extend the Great Wolf Lodge brand and our proprietary amenities, we will create additional value for our shareholders.”
Operating Results
Total revenues were $68.4 million compared to $68.6 million in the second quarter of 2009. The slight decline was due to in part to the impact of the timing of school vacations including spring break, which fell primarily in the second quarter in 2009 compared to first quarter this year at many schools, and a late start to summer vacation in a few key markets due to the need to make-up missed school days due to extreme weather conditions. Adjusted EBITDA in the quarter was $16.6 million compared to $17.3 million in the second quarter of 2009.
As a percentage of total revenue, adjusted EBITDA was 24.3 percent compared to 25.2 percent in the second quarter of 2009. The reduction in margin was driven primarily by a decline in revenue in peak demand periods, due to the shift in timing of school vacations including spring break in 2010. As a percentage of revenues, resort departmental expenses, selling, general and administrative (SG&A) costs and property operating costs increased modestly by 25 basis points to 67.9 percent, from the second quarter of 2009. As a percentage of revenues, SG&A costs declined by 44 basis points to 21.9 percent in the 2010 second quarter.
Brand Results
Same store revenue per available room (RevPAR) in the second quarter of 2010 was down 0.3 percent (1.7 percent decrease using constant dollars, which normalizes the foreign currency translation effect on operating statistics of the Company’s Canadian resort). Same store occupancy was down 230 basis points. In the second quarter of 2010, approximately 80 percent of the Company’s system-wide room nights sold were to leisure guests. Same store average daily rate (ADR) increased 3.4 percent (1.9 percent using constant dollars). Total same store revenue per occupied room (Total RevPOR), which includes revenue from rooms, food and beverage, and other amenities, increased 3.3 percent (1.7 percent using constant dollars).
Same store RevPAR for Great Wolf’s Generation II resorts, which are generally larger resorts that better represent the Company's current resort development model and contribute more than 80 percent of the Company’s Adjusted EBITDA, decreased 0.4 percent (2.1 percent decrease using constant dollars) versus 2009. Same store occupancy decreased 220 basis points, with an increase in group occupancy offset by a decline in leisure. Same store ADR increased 3.1 percent (1.3 percent using constant dollars), while total RevPOR for Generation II resorts increased 2.9 percent (0.9 percent using constant dollars).
The Company’s RevPAR performance has substantially outperformed the overall U.S. hotel industry’s during the recession over the past two years. Because of the severe declines in overall U.S. hotel industry RevPAR from late 2008 through early 2010, and Great Wolf’s relative stability during that same period, the Company believes a two-year cumulative change in RevPAR, comparing 2010 to 2008, is a more meaningful comparison than the RevPAR change compared to 2009. The following table summarizes second quarter operating statistics on a two-year basis (comparing 2010 results to 2008 results) for the overall U.S. hotel industry according to Smith Travel Research data and the Company’s resorts.
Brand Activities
In June 2010, the Company announced that it has acquired a majority stake in Creative Kingdoms, LLC, a developer of experiential gaming products including MagiQuest, a high-tech, interactive, fantasy entertainment game. The Company acquired a 62.4% preferred equity interest in Creative Kingdoms in exchange for $9.9 million (principal balance plus accrued interest) of convertible indebtedness owed by Creative Kingdoms to the Company.
The Company also announced in June that it signed license and management agreements related to the development of a new 600-suite Great Wolf Lodge resort in Garden Grove, California. The resort will be located less than two miles from Disneyland, near Anaheim and Los Angeles, and will be developed by McWhinney. Once complete, Great Wolf Lodge in Garden Grove's International West Resort will be a full-service, family destination resort with 600 suites, 30,000 square feet of meeting space and 100,000 square feet of indoor waterpark and additional indoor entertainment areas and amenities. Great Wolf Resorts will receive license fees for use of the Great Wolf Lodge brand name and other intellectual property at the resort, and will receive management fees to operate the resort on behalf of the owner. The Company will also advise on certain development-related matters. The resort will be owned by a joint-venture, with Great Wolf Resorts receiving a minority equity interest for its development-related services.
In July 2010, the Company announced the opening of the first Scooops Kid Spa outside of a Great Wolf Lodge resort. This first freestanding Scooops Kid Spa is scheduled to open in August 2010 at Mall of America, a popular retail destination and entertainment complex in Bloomington, Minnesota. Scooops Kid Spa offers its young clientele the perfect pamper package, complete with ice-cream themed manicures, pedicures and hair treatments, specially designed for children ages 4 to 15.
Balance Sheet and Liquidity
As previously announced, in April 2010, the Company’s subsidiaries, GWR Operating Partnership, L.L.L.P. and Great Wolf Finance Corp., completed an offering of $230 million aggregate principal amount of first mortgage notes. These notes were issued at a price to investors of 95.347 percent of their principal amount, bear a fixed interest rate of 10.875 percent per year and mature on April 1, 2017. The net proceeds from the offering were used to repay the outstanding mortgage debt on the Company’s Mason, Ohio; Williamsburg, Virginia; and Grapevine, Texas properties, all of which had maturity dates in 2011.
The Company has no debt maturities until 2012 and no significant long-term capital commitments for construction or development of new properties. Over the near term, the Company intends to utilize the substantial portion of its free cash flow to manage its balance sheet leverage.
Logos, product and company names mentioned are the property of their respective owners.
