Vail Resorts recovers from dry early season
VAIL – Vail Resorts recovered from a dry early season and reported significant gains across key areas of its business March 6 during its second quarter earnings report, but the company did not raise its fiscal 2013 guidance back to what it originally issued last fall.
Chief executive officer Rob Katz said the strong second quarter performance was especially notable because of the early season dynamics: A warm and dry start to the season in Colorado that limited terrain, followed by more normal weather conditions around the holiday season that led to “significant consumer spending in our ancillary businesses producing a record holiday season.”
The momentum continued throughout January, the final month in the three-month quarter.
Everything from lift revenue to lodging revenue to real estate revenue was up over the second quarter last year. The company’s total net revenue for the second quarter was $422.5 million, a 13.2 percent increase over the second quarter last year.
Wall Street analysts expected Vail Resorts to report revenue of $414.13 million on earnings of $1.70 per share. While revenue was higher than expectations, the earnings per share was slightly lower at $1.65.
Last fall, Vail Resorts issued a fiscal 2013 guidance of $260 million to $270 million, but in mid-January reduced the range to $244 million to $254 million, still a 19 percent to 24 percent increase over fiscal 2012. Net income is expected to be in the $39 million range, more than double fiscal 2012, but down from last fall’s original guidance of $50 to $60 million.
The company reported much of its second quarter revenue excluding its acquisitions over the last year – Kirkwood in California, Afton Alps near Minneapolis, Minn., and Mount Brighton near Detroit.
Excluding those new resorts, the company’s lift revenue, excluding season pass revenue, was up 11.9 percent compared to the same period last year, while dining revenue was up 11.7 percent, retail/rental was up 10.7 percent and ski school revenue was up 9.5 percent. The result was mountain reported EBITDA (earnings before interest, taxes, depreciation and amortization) was up $16.6 million for the quarter.
“The growth in season-to-date visitation and ancillary revenue reflects the continued strong performance of our business despite managing through a challenging start to the season. We are seeing continued success from our efforts as the trends in visitation, lift ticket revenue and guest spending have all accelerated since we last reported metrics in mid-January,” Katz said. “This season further underscores the strength of our business model, which is to continually reinvest in our world-class resorts and provide exceptional guest service and a comprehensive vacation experience, driving continued guest loyalty, including through our industry-leading season pass programs.”
Katz announced what that reinvestment will look like in 2013. The company plans to spend $130 million to $140 million this year alone, including $10 million toward upgrades at its newly acquired Midwest resorts, $25 million on the first phase of Epic Discovery, the company’s summer recreation expansion announced last summer, and undisclosed amounts for the Peak 6 terrain expansion at Breckenridge, a new Beaver Creek restaurant at Red Tail Camp, the replacement of Chair 4 at Vail with a high-speed, six-person chairlift, and Epic Mix Academy, the fourth generation of the company’s Epic Mix program.
Katz called the level of capital investment in 2013 unprecedented in size. Financial analysts on the earnings call were particularly interested in that investment not only for 2013, but beyond.
Felixia Hendrix, with Barclays Capital, asked Katz what else is on his wish list.
“As we look ahead, I think the capital plan certainly for our existing resorts and for the winter business, I think becomes a little bit more limited in scope after these projects are done,” Katz said. “I think there’s probably some additional capacity enhancements in lifts potentially at Beaver Creek as we see that resort continue to grow, and probably a restaurant or two, at best, as we look out over the next 3-5 years.”
Shaun Kelley, of Bank of America Merrill Lynch, took the opportunity during March 6’s call to ask Katz about the company’s decision to buy Afton Alps and Mount Brighton – two small, relatively unknown ski resorts.
The answer is simple: Those are the best markets in terms of skiers and snowboarders who take trips out west. There are 450,000 skiers and snowboarders between the two markets, Katz said.
Part of getting skiers from those markets out west is to first give them good experiences at home. By making the $10 million in upgrades at the resorts and creating better experiences there, Katz said it will help garner more market share and attract those skiers and riders to the company’s western resorts.
“It’s not a strategy that we want to own 50 ski resorts in North America,” Katz said, adding that the company could potentially buy more resorts in a few markets that make sense. “It’s that we want to better support the iconic, large destination resorts that we already own.”
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