Penn EntertainmentPENN

Penn reported earnings of 44 cents per share, which was higher than the 37 cents analysts expected. Revenue came in at 1.86 billion dollars, matching what the market anticipated. The company's physical casinos were the standout, reaching record sales for the quarter. This is a vital sign for the business, as these physical locations provide the cash needed to fund its expensive shift into digital sports betting.

The digital segment, which includes the ESPN BET app, is also making progress toward becoming profitable. Management noted that trends in both the physical and digital businesses have remained strong through July. While the company is still spending heavily to grow its online presence, the record performance at its traditional casinos shows the core business is healthy enough to support that expansion.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• Interactive losses shrinking: The digital division reported an adjusted loss of $9.5 million, which is a major improvement from the $62.0 million loss it posted this time last year. This move toward making money was helped by record results from the online casino and high interest in the World Cup.
• Retail casinos hitting records: The traditional casino business reached $1.5 billion in revenue for the quarter, and nine different properties set all-time high performance records. These physical locations achieved profit margins of 34.4%, showing that the company can still grow its old-school business while building its digital apps.
• Corporate costs falling: Spending on the main office dropped to $29.5 million from $38.7 million a year ago. The company is becoming more efficient by moving to a new organizational structure and cutting legal fees that previously went toward dealing with activist investors.
• Balance sheet cleaning up: PENN reduced its total traditional debt to $2.8 billion and repaid $106.7 million in convertible notes that were due this year. Taking care of these notes early is good for long-term owners because it prevented 4.6 million new shares from being created, which keeps current ownership from being watered down.
• Profitable path ahead: Management says the business remains on track to meet its goals for the year, supported by recent casino openings in Ohio and Illinois and a new app launch in Alberta on July 13. While they did not give a specific dollar range for next quarter, they noted that the positive trends from the second quarter have continued through July.

Our take: A strong quarter that shows the company is finally fixing its digital business. The massive drop in online losses from $62.0 million to under $10 million is the highlight, proving they can grow without burning through cash. This makes the long-term case much safer as the physical casinos fund the digital expansion.