Little R&R for Vail Resorts

Perk up your ears, snow bunnies. Motley Fool Hidden Gems pick Vail Resorts (NYSE: MTN  ) has come to own some of the choicest ski resorts in the United States, including Vail, Beaver Creek, Breckenridge, and Keystone.

These ownership positions provide Vail with a very impressive economic moat. The company also runs sizable real estate and lodging segments to complement its ski resorts through the development and management of hotels, resorts, and private residences. Hilton and Starwood Resorts (NYSE: HOT  ) are pursuing a similar strategy. These segments warrant a long-term perspective on the business and make Vail's quarterly fluctuations less of a concern to investors.

Of course, quarterly trends still matter to Wall Street, and the shares continue to be weak as Vail's third-quarter results missed analyst projections rather significantly. Total sales still grew almost 15%, and the earnings miss is somewhat understandable given that food and energy inflation leave fewer discretionary dollars for consumers to spend on ski vacations. But at the same time, management probably should have let investors know of the coming shortfall, as it puts the company at risk of falling below the full-year guidance it laid out back in March.

OK, maybe now I'm getting too caught up in near-term trends. In the earnings press release, CEO Robert Katz proclaimed his excitement for strong ski-pass sales results and the introduction of the Epic Season Pass to allow "skiing at all five of our resorts for the entire season." There are also a wide array of real estate developments in the works, including Marriott's (NYSE: MAR  ) Ritz Carlton Residences in Vail and a new resort at the Turks and Caicos Islands in the Caribbean as Vail looks to diversify from its winter-destination heritage.

Given the recent stock slide, Vail's stock can be had for less than 20 times this year's earnings projections. I wouldn't characterize that as a steal given the more challenging economic climate right now, but I am keeping an eye out for a further pullback, as Vail Resorts is a truly unique collection of properties for the vacation-minded.    

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Vail Resorts is a Motley Fool Hidden Gems recommendation. Try the newsletter free for 30 days.

Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.

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  • Report this Comment On June 13, 2008, at 3:33 PM, GWKolb wrote:


    Overall I think this is nice commentary but I think you missed what is actually going on here.

    First: Street expectations were WAY off on revenues and therefore earnings. Only two analysts were even in the ballpark: JMP Securities and Janco Partners, Inc. both had close revenue estimates. The other analysts compeletely missed the boat on real estate revenues and timing. Estimates of between $500 - 550 M are just ludicrous and brought consensus to $480 M. They were GUARANTEED to miss.

    Second: More importantly, on nearly $55 M in Real Estate revenues the company only garnered $0.9 M of EBITDA. That is probably the most disappointing part of the picture. Why did this happen? Not from food and energy inflation as you say but rather because overhead and marketing costs are expensed as incurred. I would presume sales cycles have extended on other projects causing greater costs incurred today for marketing pressuring margins. That is more problematic going forward as unit sales volume has slowed out there.

    Third: The second biggest cause of the drop was guiding to the lower end of previous guidance and saying they could miss Net Income (therefore EPS) guidance.

    The point I am making is that mountain and lodging estimates were largely inline with everyone's expectations and real estate was the big let down. They had no real effects from food and energy this quarter. I think rising food and energy costs are yet to come and could be a problem for next year. Regardless, the name is still a great long term play.

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