Vail Resorts' Strategic Efforts Bode Well Amid High Costs
Zacks Investment Research | Jan 03, 2020 02:31AM ET
Vail Resorts, Inc. (NYSE:MTN) banks on strong season pass programs with increased focus on acquisitions, mergers and efficient marketing efforts to drive growth. However, high costs of operations, risks from mergers and weather-related woes are pressing concerns.
Nevertheless, the company witnessed earnings growth in the first quarter of fiscal 2020, owing to strong season pass programs and acquisitions. Its earnings surpassed the Zacks Consensus Estimate in five out of the trailing eight quarters. In the trailing four quarters, it recorded positive surprise of 10.8%, on average.
Backed by such impressive earnings trend, shares of Vail Resorts have gained 11.8% over the past year compared with its industry’s 10.7% growth.
Catalysts Driving Growth
Vail Resorts has a season pass program under which it offers a variety of season pass products for all the mountain resorts and urban ski areas in both domestic and international markets.
Increased demand for skiing has led the company to witness higher season pass sales lately. Notably, North America ski season pass sales increased approximately 22% in units and 17% in sales dollars through Dec 2, 2019 on a year-over-year basis. It also introduced Epic Day Pass (EDP) sales, which exceeded management's expectations, with the vast majority of sales coming from new pass holders and in destination markets.
Robust growth in season pass sales reflects Vail Resorts’ efficient guest-focused marketing efforts. The company orients its strategy with data analytics to drive targeted and personalized marketing toward guests. Guest data is captured through season pass programs; e-commerce platforms, including mobile lift ticket sales; the EpicMix application and operational processes at the lift ticket windows.
The company also focuses extensively on acquisitions and mergers to build stronger portfolio of differentiated and varied services. It acquired a few mountain resorts, hotel properties and other businesses complementary to its own as well as developable land in proximity to its resorts.
Meanwhile, Vail Resorts spent more than $1.2 billion over the last decade to drive guest loyalty. The company has also made significant investments in its snowmaking systems at Vail, Beaver Creek and Keystone. Additionally, it has completed its full renovation of the Beaver Creek Children's Ski School facilities and the Peak eight base area at Breckenridge, with new ski school and childcare facilities.
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Major Concerns
While Vail Resorts’ relentless acquisitions and mergers are likely to prove beneficial over the long term, there are certain short-term risks associated. It is struggling with added expenses pertaining to acquisitions. In fiscal 2019, EBITDA included acquisition and integration-related expenses worth $16.4 million.
Meanwhile, during the first quarter of fiscal 2020, total segmental operating expenses increased 17.7% year over year to $346.8 million. Resort operating expenses totaled $341.5 million, up 16.2% year over year.
Furthermore, the ski resort and lodging industries are highly competitive. There are roughly 470 ski areas in the United States that serve local and destination guests. Thus, Vail Resorts faces intense competition.
Zacks Rank & Key Pick
Vail Resorts, which shares space with AMC Entertainment Holdings, Inc. (NYSE:AMC) and Carnival Corp. (NYSE:CCL) carries a Zacks Rank #3 (Hold).
A better-ranked stock from the same space is STUDIO CITY IH (NYSE:MSC) , which carries a Zacks Rank #2 (Buy). STUDIO CITY has reported better-than-expected earnings in all the trailing four quarters with the surprise being 90%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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