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 3.5% 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 $1.03 (3.5% beat)
- Adjusted EBITDA: $245.1 million vs analyst estimates of $245 million (38.1% margin, in line)
- Operating Margin: 20.9%, in line with the same quarter last year
- Free Cash Flow Margin: 36.4%, up from 16.9% in the same quarter last year
- Market Capitalization: $7.57 billion
Company Overview
Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ:CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.
Gaming Solutions
Gaming solution companies operate in a dynamic and evolving market, and the digital transformation of the gaming industry presents significant opportunities for innovation and growth, whether it be immersive slot machine terminals or mobile sports betting. However, the gaming solution industry is not without its challenges. Regulatory compliance is a crucial consideration as companies must navigate a complex and often fragmented regulatory landscape across different jurisdictions. Changes in regulations can impact product offerings, operational practices, and market access, requiring companies to maintain flexibility and adaptability in their business strategies. Additionally, the competitive nature of the industry necessitates continuous investment in research and development to stay ahead of competitors and meet evolving consumer demands.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Churchill Downs grew its sales at a decent 16.2% compounded annual growth rate. Its growth was slightly above the average consumer discretionary company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Churchill Downs’s annualized revenue growth of 17.9% over the last two years is above its five-year trend, suggesting some bright spots. 
We can dig further into the company’s revenue dynamics by analyzing its three most important segments: Horse Racing, Gaming, and TwinSpires, which are 42.4%, 41%, and 16.6% of revenue. Over the last two years, Churchill Downs’s revenues in all three segments increased. Its Horse Racing revenue (live and historical) averaged year-on-year growth of 36.5% while its Gaming (casino games) and TwinSpires (horse racing subsidiary) revenues averaged 14.3% and 4.5%.
This quarter, Churchill Downs grew its revenue by 8.7% year on year, and its $642.6 million of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Churchill Downs’s operating margin has been trending up over the last 12 months and averaged 24.4% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.
In Q1, Churchill Downs generated an operating profit margin of 20.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Churchill Downs’s EPS grew at a spectacular 24.9% compounded annual growth rate over the last five years, higher than its 16.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
In Q1, Churchill Downs reported EPS at $1.07, down from $1.13 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.5%. Over the next 12 months, Wall Street expects Churchill Downs’s full-year EPS of $5.84 to grow 10.6%.
Key Takeaways from Churchill Downs’s Q1 Results
It was encouraging to see Churchill Downs beat analysts’ EPS expectations this quarter. On the other hand, its TwinSpires revenue missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 2% to $102.99 immediately following the results.
Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.