Racing, gaming, and entertainment company Churchill Downs (NASDAQ: CHDN) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 8.7% year on year to $642.6 million. Its non-GAAP profit of $1.07 per share was 2.9% above analysts’ consensus estimates.
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Churchill Downs (CHDN) Q1 CY2025 Highlights:
- Revenue: $642.6 million vs analyst estimates of $643 million (8.7% year-on-year growth, in line)
- Adjusted EPS: $1.07 vs analyst estimates of $1.04 (2.9% beat)
- Adjusted EBITDA: $245.1 million vs analyst estimates of $244.1 million (38.1% margin, in line)
- Operating Margin: 20.9%, in line with the same quarter last year
- Free Cash Flow Margin: 25.9%, up from 16.9% in the same quarter last year
- Market Capitalization: $6.86 billion
StockStory’s Take
Churchill Downs’ first quarter performance was influenced by continued growth in its casino and historical racing machine (HRM) venues, with management highlighting the impact of new property openings and improvements at established locations. CEO Bill Carstanjen pointed to disciplined project execution, even amid weather disruptions and a leap-year calendar quirk. He emphasized, “We have demonstrated we can nimbly apply our strategy in any economic environment to effectively manage our capital.”
Looking ahead, management’s guidance is shaped by a temporary pause on major capital projects, notably the $900 million Churchill Downs Racetrack overhaul, as the company waits for more predictable construction costs. The leadership team described ongoing economic uncertainty, including new tariffs and inflation risk, as reasons for this delay. CFO Marcia Dall noted that near-term capital will focus on smaller, lower-risk upgrades and ongoing expansion of HRM venues, stating, “We have reduced our 2025 project capital forecast by $100 to $110 million.”
Key Insights from Management’s Remarks
Management cited new venue openings, capital allocation changes, and customer trends as the primary drivers of the quarter’s results and forward strategy.
- HRM Venue Expansion: The launch of the Owensboro HRM property in Kentucky was completed ahead of schedule and below budget, contributing to segment revenue growth and affirming the company’s disciplined approach to market entry.
- Capital Project Pause: The company temporarily paused its $900 million multiyear Churchill Downs Racetrack redevelopment, citing cost uncertainties from inflation and tariffs. Leadership stressed this is a pause, not a cancellation, to wait for more stable market conditions.
- Selective Upgrades at Churchill Downs: Management announced targeted renovations for the Finish Line Suites and the Mansion, aiming for completion before the 2026 Kentucky Derby. These lower-risk projects are expected to improve guest experiences and support premium pricing.
- Virginia Market Maturity: The Rose Gaming Resort in Virginia showed sequential improvement, though overall performance in the state was mixed due to weather impacts, tax changes, and new competition. Management believes these assets are still ramping and have not yet reached maturity.
- B2B Technology Growth: The Exacta technology acquisition supported both in-house and third-party HRM operations. Management cited growing deployments in Kentucky, Virginia, and New Hampshire, with further expansion into new jurisdictions possible if regulation allows.
Drivers of Future Performance
Management expects near-term growth to be shaped by measured capital deployment, ongoing casino property ramp-up, and careful response to macroeconomic pressures. Their outlook emphasizes flexibility and a focus on guest experience and operational discipline.
- Pacing of Major Investments: The timing of large capital projects, especially at Churchill Downs Racetrack, will hinge on stabilization of material costs and inflation, impacting when revenue from new premium experiences will materialize.
- Scaling HRM Operations: Ongoing expansion of HRM venues in Kentucky and Virginia, including new properties and electronic table games, is viewed as a primary growth lever as these markets mature and customer databases deepen.
- Consumer Behavior Uncertainty: Management highlighted persistent hesitancy among lower-tier casino customers, as well as competition and macro volatility, as risks that could influence both visitation and spend patterns going forward.
Top Analyst Questions
- Chad Beynon (Macquarie): Asked about softness among low-end casino customers; management replied that hesitancy has remained consistent, with the impact most visible in unrated play.
- Barry Jonas (Truist): Inquired about Kentucky Derby demand and international visitation; CEO Bill Carstanjen reported steady international interest and strong upper-tier ticket sales, but noted some softness in lower-tier Derby tickets.
- David Katz (Jefferies): Sought clarity on long-term Derby growth after the capital project pause; management described plans to yield higher pricing and experiences once new areas are proven, though near-term demand is less robust.
- Jordan Bender (Citizens): Questioned the rollout of electronic table games and associated tax rates; Carstanjen indicated regulatory and tax challenges are the main hurdles, with a slow, careful rollout planned.
- Jeff Stantial (Stifel): Asked about Virginia asset maturity and normalized growth; management emphasized that these assets are still in early growth stages and expects further ramp-up as customer bases build.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be monitoring (1) the pace of HRM venue ramp-up in Kentucky and Virginia, especially as new properties mature and customer engagement grows, (2) clarity on when paused capital projects, like the Churchill Downs Racetrack redevelopment, will resume amid shifting inflation and tariff conditions, and (3) the impact of rolling out electronic table games on both regulatory acceptance and revenue. Continued progress in optimizing the product mix and regional market share will also be important to track.
Churchill Downs currently trades at a forward P/E ratio of 14.6×. In the wake of earnings, is it a buy or sell? See for yourself in our free research report.
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