Vail Resorts
Vail Resorts is one of the largest ski resort companies in the world. It owns 41 ski resorts across multiple countries such as the US, Canada, Australia, and Switzerland. The company is divided into three divisions. The mountain segment owns and operates 40 mountain resorts in four countries, Vail Resorts Hospitality owns or manages hotels, lodging, condominiums, and golf courses, and the Vail Resorts Development Company oversees property development and real estate holdings.
I believe ski resorts had one of their best quarters during this winter compared to the previous years. Considering how most of their business operates only during winter time, they don’t have much time to make revenue. Looking back at the winter of last year, there were still Covid requirements placed in many areas along with the fear of people getting Covid, so they mostly just stayed home. However, these restrictions have since been removed and cases have decreased significantly.
The reason why I find Covid to be an important factor is that when I consider the type of people who go skiing resorts, most of them are on their holidays traveling, not locals. This year particularly has had a huge travel boom as restrictions have been lifted and people can finally go on a vacation after two years. Additionally, I believe their hotel business has also largely benefitted from this. As we saw this quarter, many hotels have reported a record number of customers along with revenue. I expect the same to be true with Vail.
The next benefiting factor that I see is the cold winter conditions that were experienced in America. The amount of unprecedented snow this year will in return cause their ski resorts to be operational for a longer time. The cold weather has also caused the snow to be harder and easier to snow on as compared to warmer weather.
I also believe that this past quarter is the best quarter of the year for them. During this period, there were holidays such as Christmas and new years. Not only is this great for their skiing business, but also for their hotels. At the same time, customers are able to spend more time at their resorts due to their holidays and are able to use all of their amenities for a longer period of time. As the retailer and hotel companies also hinted in the previous quarters, there hasn’t been a decrease in customer spending due to inflation so I don’t see it affecting Vail either.
I believe operation costs aren’t also a big issue for Vail when it comes to maintaining its ski resorts. Although a lot of maintenance is required, it’s not costly and the rise of inflation doesn’t have an effect on it. This in return allows them to increase their passes while also being able to increase their profit margins along with it.
Unlike most companies, I believe a future forecast also isn’t something for investors to worry about. Considering that springtime is nearing, it is expected of them to have a decreased revenue and EPS. The main thing investors will be looking for is how well they did this quarter which I believe to be an advantage considering that they most likely did very well.
Advantages:
The company has performed well during the past decade, with shares up over 360% during the period despite facing significant disruption from the pandemic in 2020.
The company has an unmatched number of ski resorts that create a strong moat and should continue to grow steadily. The ongoing shift from selling lift tickets to passes will also provide better revenue stability and help offsets seasonality.
Unlike hotels that can keep building and expanding, opening a new ski resort is nearly impossible due to the constrained supply of mountains. Yet, a strong portfolio of resorts is one of the keys to success. The resorts that operate only in one location may struggle the whole year due to weather inconsistencies. While Vail Resorts is able to diversify the location and encourage customers to go to another resort if the weather is bad in certain areas
The company is able to increase the price and attractiveness of its passes as competitors are not able to provide such alternatives. Not to mention it also operates ski resorts overseas. As the company continues to grow in size, it also has much more money to invest in other services such as lodging and dining which improves the overall experience. Vail Resorts is able to provide the most complete offerings which drive customer loyalty and it is just very hard for smaller resorts to compete in the long run.
Winter is of course the busy season here for the company. If the country gets some arctic blasts of fresh powdery snow, it will be a great thing as these snowy conditions bode well for Vail. Historically, the better the winter season, the stronger the company does.
Vail Resorts continues its effort to shift customers' focus from lift tickets to passes. The company is offering discounted passes to attract customers to make purchases in advance of their travel dates, and they often purchase higher-tier passes such as multi-day or seasonal as they think it has better value.
Customers tend to have stronger commitments and spend more time at the resorts as they have already paid in advance which results in higher spending on lodging and other services such as food. Seasonal passes also encourage skiers to visit more on weekdays and non-holidays which helps utilize excess capacity.
The focus on passes has been seeing strong success. The number of passes grew 76% from. Pass revenue grew from just $78 million in FY08 to $795 million in FY22
While there may be a slight recession looming, Vail Resorts has excellent management, has invested in its future, and is seeing revenues shooting higher.
Season pass sales for the upcoming North American ski season increased approximately 6% in total units and 6% actual in sales dollars compared with the prior-year period.
The company also made another acquisition of the Seven Springs Resorts. This includes Seven Springs, Hidden Valley and Laurel Mountain resorts. Vail has been a serial acquirer of resorts. We love it, including the recent push to get into Switzerland. The Australian resorts are also performing well. We know these acquisitions will have a major impact going forward, and we expect a stellar season this winter. This was noted by CEO Kirsten Lynch
Disadvantages:
One of Vail’s most concerning parts is that the share price is down 10 percent over the past 12 months. While that may not seem like a tremendous issue, the fact that a skiing resort’s share price is still falling in March is a troubling sign for things to come. Vail is plagued with a plethora of administrative problems as well, from poor management to faulty equipment and untrained staff, all issues that can be detrimental to a leisure services company. People are complaining constantly about the long waiting times at Vail ski lifts, which can create a negative image of the resort in the future.
The greatest threat to Vail is its competitor Ikon Pass owned by Alterra Mountain Company rivals Vail’s Epic Pass which serves as its lifeline. Worryingly, its current price is $909 that's up from last year's early-bird price of $841 and compares with $979 from the pre-2021 slash. Raising prices can serve as an indicator of lower revenue or a lack of confidence within management to keep producing results. "Below our expectations," company CEO Kirsten Lynch said in a January letter to investors. She blamed that on "extreme weather causing resort closures and the airline disruptions that impacted travel across the U.S. during the peak holiday period." At the time of her statement, Vail Resorts had reported a 12% drop in the number of Epic and Epic Local passes it sold for the '22-'23 season. That was "consistent with our expectations," read a letter to investors, "relative to the prior year and increasing 39% over the last two years and 55% over the last three years." Though these last three years have been impressive, you also have to consider the lower price of the passes due to COVID, so it really isn't a fair comparison.
A small note about SSI Venture, the retail arm of Broomfield-based Vail Resorts, reported to the State of Colorado that it plans to close 19 equipment rental and retail locations in Aspen, Telluride, and Snowmass Village. The move will permanently eliminate 69 jobs. Though it is a small part of the overall company, layoffs are never a good sign, especially before an Earnings Report.
Management problems are also sprouting up right before the Earning Report with the appointment of Executive Vice President and Chief Operating Officer Bill Rock as President of the company's Mountain Division, effective May 1, 2023, and announced that current President James O'Donnell will no longer be with the company, effective March 3, 2023. Considering also that “Aspen Skiing Co. has lured away a top executive from Vail Resorts Inc.’s Whistler Blackcomb in British Columbia, one of the largest ski resorts in North America. Skico announced Tuesday it had named Geoff Buchheister as the new CEO to run its mountain operations, following a search that began after Mike Kaplan announced his retirement in March 2022.” These are all very bad signs of instability within the top management of the company and can be instrumental in an ominous future outlook that the company can produce.
The effects of climate change also can’t be overlooked with Paoli Peaks, Indiana only open for about 24 days of skiing and riding thanks to other mid-season closures. This is really the Rubicon that all ski resorts will have to face within the coming years, as there’s little to no snow on popular tourist destinations this year, and expected to continue.
Competitors
Research Notes
Other operators in the region have been less fortunate, like Ascutney Outdoors, a resort 93 miles south of Stowe that does not make snow. “Because of climate change, we cannot rely on snow sports,” said Shelley Seward, a board member of the non-profit that runs the resort, which has been largely shut to skiers this year.
Seward noted that in good conditions a family of three can ski at Ascutney for one day for as little as $60 (or $175 for a season pass) versus about $500 for lift tickets and rentals at nearby Okemo, a snow-making resort also owned by Vail. “When we have snow, we will be able to offer an alternative that is affordable.”
Northeastern winter resorts proliferated in the second half of the 20th century to cater to skiers living in large cities such as New York, Philadelphia and Boston. Although the experience pales in comparison to the skiing on offer in the west of the US not to mention the European Alps, it has remained popular with urbanites wanting a weekend destination they can drive to.
At the outset, these resorts were for the most part independently owned, but that changed during successive waves of consolidation, most recently the one engineered by Vail. The Colorado group and its nearest competitor, Alterra, “operate a duopoly for scaled, multi-resort season pass products, " covering nearly 50 percent of the North American ski market, Stifel’s Stantial said.
“It is just really hard to compete and this is something that has been going on for years and really helped accelerate a consolidation trend that you saw really led by Vail,” said Stantial.
Vail’s thirst for new resorts has not been limited to the US. Last year it expanded into Europe for the first time by taking a 55 percent stake in Andermatt-Sedrun in Switzerland for $162mn. In 2019, it made a push into Australia that saw it buy the largest ski resort in the state of Victoria. And it has a partnership with Rusutsu Resort and Niseko in Japan.
The company’s expansion in the northeast of the US, where it owns 94 ski lifts versus 41 for its nearest competitor, Boyne USA, is part of a strategy to turn these resorts into feeder destinations. The idea is that visitors to ski areas in New York and Vermont will become customers for its larger resorts in the west, including the eponymous Vail and Breckenridge in Colorado and Park City in Utah.
Crucial to this effort is selling season tickets, known as Epic Passes, which offer skiers access to its 41 resorts on an unlimited basis or for a set number of days.
“This locks in revenue,” said a spokesperson for Vail, adding “no matter the winter we have, it allows us to make investments in new lifts [and] in snow-making technology.”
In 2019, it acquired Peak Resorts, the owner of 17 ski resorts including Hunter Mountain in New York and Mount Snow in Vermont, for roughly $264mn. Shortly after the deal, then chief executive Rob Katz, told investors: “What it’s really going to do is give some of the major population centres in the US access to local and regional skiing on the same pass that they can access destination resorts within our network.”
“Vail has created a market space that we never even knew existed,” said Jon Schaefer, owner of two ski resorts in New York and Massachusetts that are affiliated with the Indy Pass. “Our business is growing since all [Vail’s] New England acquisitions have happened. If anything it has created a narrative for us.”
Ahead of this season, Aspen Snowmass joined the likes of Jackson Hole, Big Sky and Taos to require reservations for that customer base. Meanwhile, Epic Pass defector Arapahoe Basin has been capping Ikon Pass holders to seven days — what the Summit County ski area has characterized as an attempt to prioritize experience over volume.
In a change, Telluride will require reservations for Epic Pass holders, mirroring a recent move by some resorts under the Ikon Pass. (The Ikon Pass-owning Alterra Mountain Co. — which covers access to Aspen Snowmass, Winter Park, Steamboat, Copper Mountain and others in Colorado — has yet to announce prices for next season.)
One lawsuit was against Vail Resorts, owner of Stowe, Okemo and Mount Snow ski resorts, and the other was against Alterra Mountain Company, owner of Sugarbush and Stratton Mountain ski resorts. The Vail lawsuit was dismissed. The lawsuit against Alterra resulted in a $17.5 million settlement in favor of the skiers.
One of Vail’s greatest advantages against its competitors today is that it has an abundance of snow-making machines, with 83% of slopes in the Stowe location being artificial snow. While climate change will inevitably affect the resorts, Vail might come better off than its competitors in the long run. “Vail owns destinations that have a higher base elevation than the average of the market in the states of New York, New Hampshire, and Vermont. In New Hampshire, for example, where Vail owns four resorts, its average elevation is 2,547ft. For the other 24 ski resorts in the state, the average elevation is 1,685ft” While these are good signs for the business, it will only be a success if they can optimize all of their machinery and systems in order to support the influx of people that will inevitably flow in. Another thing that Vail has to consider is the dominance of the Epic Pass in the market, with customer and employee dissatisfaction at a high, they have to really up their hospitality game if they want to survive against the Ikon Pass and the newly emerged Indy Pass. What Vail has been able to do well in comparison to its competitors is spreading its tentacles as far as it could, with global locations and new acreage in the US, Vail has positioned itself as a dominant force in the winter holiday market of both the US and beyond. Vail is in a very good position compared to its competitors, the question is whether it will be able to capitalize on the opportunity they have, or choose to sweep its problems under the rug and suffer a large tumble.
Sentiments:
“If you bought a day pass at the walkup window, you would have a greater understanding of their profitability. Skiing at most of their resorts has been pretty much relegated to only the well-heeled.”
“This is a real concern. Where do the future skiers come from?In theory, people will buy annual passes at $900 which is sort of affordable if you think you will ski 15 or 20 days a year and really get use from it, and that is their scheme, but now parking is $25 at Park City and parking is becoming more commonly paid around their mountains, and food and price has gone up significantly so a sandwich and a soda is 25 bucks, very few people under 35 can do this.. At the same time, for the well heeled, the quality of the experience has been going down. I skied Park City and Canyons last week and found that the service level had workably dropped in the last 3 years, with unfriendly staff and absurd advertising and climate change signs all over the mountain. Even though I have the epic pass, I went over to Deer Valley instead and paid money rather than ski "for free" at Park City. My bull case for a premium valuation on Vail resorts is that as the industry becomes more of an oligopoly, the oligopolists should earn excess profits. My bear case is that I have seen the quality experience go downhill, pun intended, and even though I can't afford it as their target demographic, I don't know if I will renew my pass next year but instead spend my money at resorts with better service.”
“I am also an avid skiier, the trend to selling passes rather than tickets keeps increasing year after year. I would like to point out in your 'why vail' section you forget to mention particulary ski resort competitors. One big competitor to Vail is Alterra, who manages a bit less mountains than Vail but should still be mentioned as their top competitor. Also, a new season pass launched earlier this year called the Indy Pass. It is a collective of much smaller, independently owned resorts but at a much cheaper price point. Assuming they got together to try to take some market share from Vail/Alterra resort options.
As we know skiing is an expensive sport, I personally believe Vail is at a fair value. Perhaps a good season in Utah and Colorado this year will help propel the stock higher, I will leave that analysis to you! But watch out for competitors! Other pass options are gaining steam”
Recently bought and sold shares of MTN:
Millennium Management LLC boosted its position in shares of Vail Resorts by 157.0% worth $116,180,000. Macquarie Group Ltd. grew its stake in Vail Resorts by 38.1% valued at $143,086,000. Los Angeles Capital Management LLC acquired a new position in shares of Vail Resorts during the third quarter worth approximately $37,123,000. Point72 Asset Management L.P. acquired a new position in shares of Vail Resorts during the third quarter worth approximately $36,215,000. Finally, Renaissance Technologies LLC bought a new position in shares of Vail Resorts in the 2nd quarter worth $29,960,000. 94.12% of the stock is currently owned by institutional investors and hedge funds.
SWOT Analysis:
Strengths:
Have a very diverse portfolio of ski resorts
Have no major competitors
Loyal customers
Weaknesses
Dropping share price
Weak management
Poor company culture
Subpar hospitality
Layoffs and quitting
Opportunities:
Offer lower-priced passes
Advertise more
Expand into more areas in Europe
Do more share buybacks
Threats
Climate change
Up and coming competitors
Poor management
Estimate:
I’m expecting a 4% decrease after their report comes out. After doing research, I realized that in the second quarter of every year, they have the highest amount of volatility after their report due to a higher trading volume. On average, their stock has moved between 2-3% after every report, however, I’m expecting a 4% change this time due to a higher volume.
Time: Thursday after market close
Estimate: -4%
Market Cap: 9,280,548,807
P/E Ratio: 26.98