Vail Resorts (MTN) Banks on Strategic Investments, Costs High
Vail Resorts, Inc. MTN is likely to benefit from investments in expansion projects, technology program and marketing initiatives. However, a rise in labor costs, repairs and maintenance expenses are a concern.
Let us discuss the factors that suggest investors should retain the stock for the time being.
Vail Resorts continues to reinvest in its resorts to boost customer traffic. For fiscal 2023, the company set aside $180-$185 million to increase lift capacity and enhance the guest experience. The plan includes the installation of new or replacement lifts at Breckenridge, Northstar (NSTR), Heavenly, Stowe, Mount Snow, Attitash, Jack Frost, Big Boulder, Boston Mills and Brandywine. The company intends to upgrade and expand Sedrun’s snowmaking to enhance the experience for key intermediate terrain. The company anticipates the projects to be completed in time for the 2023/2024 European ski season. However, Vail Resorts stated that developments are subject to regulatory approvals.
Moreover, the company is increasingly focusing on digital marketing and media advertising to drive traffic and sales. The company completed one of its modernization projects and invested in technology to program its data-driven marketing efforts. During the fiscal fourth quarter of 2022, the company stated plans to introduce new technology for the 2023/2024 North American ski season that enables guests to store their pass product or lift ticket directly on their phone, eliminating the need for carrying plastic cards, visiting the ticket window or waiting to receive a pass or lift ticket in the mail. Once loaded on their phones, guests can store their phones in their pockets and get scanned, hands-free, in the lift line using Bluetooth Low Energy technology. Also, it initiated work on network-wide scalable technology that will enhance analytics, e-commerce and guest engagement tools. The initiative will likely pave a path to target guest outreach, personalize messages and improve conversion.
The company stated that it holds enough liquidity to survive the coronavirus pandemic for some time. As of Oct 31, 2022, the company had total cash and revolver availability of approximately $1.8 billion compared with the $1.7 billion reported in the previous quarter. The figure includes $1.2-billion cash in hand, $417 million of U.S. revolver availability under the Vail Holdings Credit Agreement and $207 million of revolver availability under the Whistler Credit Agreement. Although Vail Resorts’ long-term debt at the end of the fiscal first quarter stood at $2,769.7 million (compared with $2,670.3 million at the end of the prior quarter), the company stated that it has sufficient liquidity to fund its operations for some time. In the fiscal first quarter, the times-interest-earned ratio came in at 4.2X, almost flat sequentially.
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In the past six months, shares of the company have gained 9.4% compared with the industry’s 7% growth.
Lower-than-expected destination guest visitation at western U.S. resorts remains a concern. The company has been witnessing extreme weather conditions and airline disruptions during the peak holiday period. Given the backdrop of pre-committed guests (through advance commitment pass products), strong conditions across western resorts and current lodging booking trends, the company anticipates a delay in visitation patterns, similar to the holiday period. For fiscal 2023, the company anticipates Resort Reported EBITDA to be in the lower half of the $893-$947 million range.
The company’s margins have been bearing the brunt of high costs for some time. In the fiscal first quarter, general and administrative expenses increased 27.9% year over year. The downside was mainly due to a rise in wage and salary investments and marketing expenses. Other expenses during the quarter increased 32.5%, primarily due to a rise in variable operating expenses associated with increased revenues and increased repairs and maintenance expenses. For fiscal 2023, the company anticipates labor expenses, including inflationary adjustments, to be more than $175 million from fiscal 2022 levels.
Zacks Rank & Key Picks
Vail Resorts currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are World Wrestling Entertainment, Inc. WWE, OneSpaWorld Holdings Limited. OSW and Manchester United plc MANU.
World Wrestling Entertainment currently sports a Zacks Rank #1. WWE has a trailing four-quarter earnings surprise of 25.2%, on average. The stock has increased 80.2% in the past year.
The Zacks Consensus Estimate for WWE’s 2023 sales and earnings per share (EPS) indicates a rise of 4.9% and 10.7%, respectively, from the year-ago period’s estimated levels.
OneSpaWorld currently sports a Zacks Rank #1. OSW has a trailing four-quarter earnings surprise of 84.2%, on average. Shares of OSW have increased 0.3% in the past year.
The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 24.2% and 91%, respectively, from the year-ago period’s levels.
Manchester currently sports a Zacks Rank #1. MANU has a trailing four-quarter earnings surprise of 34.4%, on average. Shares of MANU have gained 72.9% in the past year.
The Zacks Consensus Estimate for MANU’s 2024 sales and EPS indicates a rise of 11.4% and 27.8%, respectively, from the year-ago levels.
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