Vail Resorts (NYSE: MTN) has made progress in recent years at diversifying its revenue base both in terms of geographies served and the range of warm-weather entertainment offerings. Still, despite having a wider resort footprint today, much of its annual earnings still depend on good winter conditions in its North American properties.
Given that intense seasonality, investors were happy to hear that Vail's fiscal second quarter included healthy visitation gains. CEO Rob Katz and his team had additional good news for investors in a conference call with analysts, where executives provided details on season-pass sales and management's aggressive capital-return plans. Below are a few highlights from that presentation.
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A good start
Vail enjoyed a 16% spike in resort revenue and 15% higher lodging sales for the period that ended on Jan. 31. This time frame includes key holidays like Thanksgiving, Christmas, and New Year's Day, but only a small portion of the ski giant's peak winter selling season.
Metrics like the 17% increase in lift ticket sales and 21% boost in dining helped describe an overall strong quarter that was held back by a few disappointing areas. Specifically, fewer out-of-town guests than expected visited Whistler Blackcomb and Vail's Tahoe resorts over the warmer holiday period, which management attributes to the fact that snow coverage has been inconsistent at these times in prior years. Overall, though, the results kept the company on pace with the reduced outlook it issued in mid-January.
Season pass trends
The volatile cadence of weather events continued to show itself in these latest results, with season-pass sales growth slowing to 10% through early March compared to 12% through two months earlier. Executives said the deceleration had to do with a sharp weather improvement in the prior-year period, which made for a tougher comparison this quarter.
Vail is still happy with overall booking trends, and that's why the company is doubling down on a season-pass program that's grown to account for nearly half of its annual lift revenue. New pass options for infrequent skiers might pressure average ticket prices over the coming quarters, but the company believes that's a fine trade-off to accept in exchange for a wider customer base.
Vail is expecting to earn adjusted resort income of between $690 million and $710 million this year, which is even with its initial outlook issued in late September and slightly higher than its projection from early January. Executives are still targeting a huge year for spending, including on manufactured snow machines that should produce more consistent skiing conditions in its Colorado resorts during the early holiday season.
Management wanted to stress the fact that this spending won't get in the way of short-term earnings growth or of direct cash returns to shareholders. To back those words up with actions, the company boosted its dividend by 20%, which means that payout has increased 30% per year over the last three fiscal years. Vail's improving resort experience and growing visitor base should support further gains for income investors, even through modest economic swings and the usual range of weather volatility.
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