In the realm of competitive advantages, it's hard to beat Vail Resorts
Vail, Heavenly, Beaver Creek, Keystone, and Breckenridge all combine to make up Vail Resorts' vast portfolio of ski lodgings. Any skier or snowboarder has heard of at least one of these resorts. Each of the five resorts has made the list of the Top 10 of most-visited resorts in North America, and has also placed in SKI Magazine's top 20 rankings. The majority of them cater to high-end customers with an average income of $170,000. This well-heeled clientele drives Vail Resorts to constantly improve its customer service, amenities, and lodging, in order to increase its value proposition.
Be loyal, my son!
But there's much more to Vail Resorts than stylish skiers or magazine accolades. The company's capex spending has generally resulted in higher revenues – always a good sign. Just take a gander at Vail's revenue growth over the last few years:
Vail Resorts Fiscal Year Revenues (ending July 31)
|
Year |
Revenue (in thousands) |
% Gain (Loss) |
|---|---|---|
|
2009 |
$976,988 |
(15.2%) |
|
2008 |
$1,152,156 |
22.5% |
|
2007 |
$940,536 |
12.1% |
|
2006 |
$838, 852 |
3.6% |
Sure, revenue was down last year. Most luxury businesses suffered amid one of the toughest economic environments we've seen in decades. But a 15% decline is hardly that bad, all things considered. Moreover, season pass visits increased by 17%, suggesting that Vail sold more such passes to an admirably loyal customer base that enjoys repeat visits. On the balance sheet, Vail shows sufficient cash, and enjoys a long-term debt-to-capital ratio of less than 40%. Double bonus: None of its long-term debt matures before 2014, which, by my math, gives the company more than four years of breathing room. Not too shabby.
If you build it, they will come
While its five resorts drive more than 60% of revenue, the company doesn't rely solely the mountains to make money. It's also running a successful real estate segment called Vail Resorts Development Company (VRDC). VRDC develops the lodging and retail space around the company's resorts, providing more beds for weary heads (through both rental and ownership), and leasing space to stores and restaurants.
VRDC protects itself from the risks of real estate development by getting maximum guaranteed construction contracts, pre-selling as much of the project as possible, and requiring significant nonrefundable deposits. VRDC makes up only about 20% of total revenue; recent economic troubles notwithstanding, this segment has grown tremendously, up more than 80% from 2006 to 2007, and more than 100% from 2007-2008.
While some of this growth could owe to the real estate boom, VRDC showed resilience even in the tough 2008 market. Management understands that available land to develop is very scarce, so it's taking full advantage of the opportunities it has. Not only is the company proceeding with projects that enhance its lodgings (gondolas, golf courses, etc.), but it's also working on single-family houses, roads and other infrastructure, and a multitude of mixed-use projects that are typically sold or leased to third parties.
But people have tightened their pocketbooks, dummy
I know what you're thinking: "In this economy, folks just don't have room for discretionary spending." True, but isn't it somewhat reassuring that the company caters to mostly high-net-worth individuals? Sure, families could also vacation at theme parks owned by Disney
The top-notch ski resort properties are an ironclad competitive advantage, as is the supremely loyal customer base. Couple this with the growth and diversification from new development, and a likely economic rebound, and you can expect Vail Resorts to climb to new heights.
I know that I'll continue to visit. Come out and join me in plowing through some fresh powder!
