Pat McKeough recently had this answer for a Member of his Inner Circle who asked about one of the world’s most prominent recreational companies.
Colorado-based Vail Resorts has developed a growing portfolio of mountain resort properties including Canada’s largest ski area, Whistler Blackcomb. Success in selling season passes helped boost revenue and earnings in the latest quarter despite lower snowfalls. While the industry is heavily dependent on snowfall levels, says Pat, barriers to entry are high for ski resorts. And Vail does a good job of getting the customers’ money up front.
Q: Hi, Pat. What is your opinion of Vail Resorts? Thanks.
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A: VAIL RESORTS (symbol MTN on New York; www.vailresorts.com) is one of the largest mountain resort companies in the world, with a growing portfolio of assets.
The company’s owned/managed resorts include Vail, Beaver Creek, Breckenridge and Keystone in Colorado; Park City in Utah; Heavenly, Northstar and Kirkwood in the Lake Tahoe area of California and Nevada; Whistler Blackcomb in British Columbia; Perisher in Australia; Stowe in Vermont; Wilmot Mountain in Wisconsin; Afton Alps in Minnesota; and Mt. Brighton in Michigan.
In addition, Vail owns or manages a collection of luxury hotels under the RockResorts brand.
Mountain operations supply 85% of the company’s revenue, followed by Lodging at 14% and Real Estate at 1%.
New acquisitions of resorts drove Vail’s 70.5% jump in revenue from $1.12 billion in 2013 to $1.91 billion in 2017. Over that period, earnings soared, from $37.7 million, or $1.03 a share, to $210.6 million, or $5.22.
The company reported better-than-expected earnings in the quarter ended January 31, 2018. Earnings per share, excluding one-time items, rose 13.4%, to $4.12 from $3.83. That beat the consensus forecast of $3.63 a share. Revenue rose 1.3%, to $734.6 million, from $725.2 million.
Despite historically low snowfall for the western U.S. this winter, and a 3.1% drop in skier visits, the company’s total lift revenue rose 6.6% in the latest quarter from a year earlier. The gain was mainly the result of stronger sales of season passes for the 2017/2018 North American ski season. A 10.0% increase in the price of those passes as well as for lift tickets also contributed. In addition, overall revenue for Vail’s ski school operations rose 2%.
Growth stocks: $42 million earmarked for improvements at Whistler Blackcomb
The acquisitions of Whistler Blackcomb and Stowe resorts in 2017 have helped strengthen Vail’s network, and it expects that the total number of season pass holders will exceed 740,000 this year.
The company continues to invest in its resorts: it’s nearing completion of a five-year $115 million program intended to refresh and update properties in Colorado; upgrades at Keystone, Breckenridge, Beaver Creek and Vail should also boost lift capacity and the number of ski runs.
Now that integration efforts at newly acquired Whistler Blackcomb are complete, Vail will focus on improving profits for the resort. To that end, it plans to invest $42 million to increase the facility’s on-mountain experience for skiers. That includes improving its amenities and its runs.
The overall success of ski resorts is largely dependent on snowfall levels, although they must also compete with other forms of entertainment. Still, those resorts have high barriers to entry. In Vail’s case, it also gets most of its money upfront through the sale of low-priced season’s passes. That transfers the weather risk to the customer. Geographic diversification also lowers its risk.
Resorts are in the early stages of adopting a data-driven approach to marketing. They increasingly analyze the number of days skied, resorts visited and other key demographics for individual customers in order to increase repeat visits and membership. Vail also has lots of room to expand summer programs at its resorts to boost its revenue.
The stock trades at 25.3 times this year’s forecast earnings per share of $9.00. With the April 2018 payment, the company raises its quarterly dividend by 39.6%, to $1.47 per share from $1.053. The shares now yield 2.6%.
Inner Circle recommendation: Vail Resorts is okay to hold.
Pat I love your slow, steady approach to markets. I made some quick money in my early investment career and it spoiled me for a steady long term view of investing. Thanks, Dwight
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Pat I love your slow, steady approach to markets. I made some quick money in my early investment career and it spoiled me for a steady long term view of investing. Thanks, Dwight