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Snow or Not, This Resort Is Surging Forward

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Like a swiftly declining ski slope, mountain resort operator Vail Resorts (NYSE: MTN  ) saw its share price take a sudden drop of 4.3% following its latest earnings report. The third quarter is always a less-than ideal time of year for the ski resort company- after all, one doesn't expect to see much snow on the ground from July to October. Let's see whether Vail's latest financial findings are worrisome this go-around, or if the company's just suffering from seasonal affective disorder.

Frozen finances?
On Vail's latest income statement, there's both good and bad news. First the good- the company actually saw its overall sales for the quarter go up by 6% compared to the same time last year, even though it's "historically a lost quarter," in the words of chief executive officer Robert Katz. The surge in sales was due to a 10.4% boost in Vail's Mountain segment, as well as an 9% increase in the company's Lodging division.

Now for the bad news- even though Vail managed to improve its performance during an off-season, it spent much more money to do so, and profits tanked as a result. Vail's loss from operations this quarter was $102.1 million, compared to $90.3 during the same quarter a year before. At the bottom line, the company's quarterly net loss was $73.4 million, 21% deeper in the red than this time last year.

Vail's busting out all over
So what did Vail spend those operating expenses on last quarter? The business's execs explained that for the generally lackluster third quarter- when winter resorts (a top breadwinner for Vail) aren't even open- the company has pumped more money into making its dining and retail segments become more desirable to visitors. Both those segments fall squarely in Vail's Mountain division, costs of which totaled to $124.7 million for the quarter. Revenue for the Mountain segment was in turn higher than usual, but relevant operating expenses for the division rose at a faster pace.

Vail has also been working to put the finishing touches on its new Park City, Utah location, the Canyons. The new resort resulted in $307.7 million in cost, which caused Vail's total debt to add up to 3.1 times its EBITDA. The company hopes that new resort ends up paying for itself in total sales, and preferably sooner rather than later.

Vail-cation all we ever wanted
Revenue-wise, Vail appears to be making solid progress on overcoming its historical third quarter slump. Those efforts are making money, but they're also widening margin losses, and that's not going unnoticed by the stock market. This certainly doesn't mean the resort company is toast, though. Everything appears to be in place for Vail's third quarter in 2014 to be its best off-season yet. If this is how the company looks at its supposed worst, imagine how good it could be at its best.

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9/30/2016 4:02 PM
MTN $156.88 Down -0.12 -0.08%
Vail Resorts CAPS Rating: ****