Investors had low expectations for the latest earnings report from Vail Resorts (MTN 5.73%). The ski resort operator was hit with poor snow conditions early in the season, and the resulting slump was amplified by the intense, omicron-powered COVID-19 surge that struck North America just as the peak skiing season started.
On Monday, Vail said that demand recovered from that slow start, with visitations building back into positive territory after falling through the Christmas holiday period. Management issued a cautiously bullish outlook for the new year, too.
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Key Data Points
Gliding back to normal
A perfect storm of challenges hit Vail's key holiday period around Christmas and New Year's. Storm cycles created poor ski conditions at many resorts, the omicron variant's surge pressured travel trends, and labor shortages impeded its operating capacity.
These issues made December an unusually bad period for the business. However, demand bounced back in January and February so that overall visitations rose 3% compared to pre-pandemic levels.
Image source: Getty Images.
Visits were down 2% on that basis through December, so it is good news that Vail was able to engineer a rebound. "Following the holiday period," CEO Kirsten Lynch said in a press release, "the experience across our resorts improved markedly."
Bumpy conditions
The report contained a fair share of bad news, too. For one thing, Vail's food and beverage business hasn't fully rebounded from the pandemic hit, with fiscal second-quarter 2022 sales down 2% compared to two years ago. The Whistler Blackcomb resort in Canada has been facing extra travel restriction challenges, too, despite healthy season pass sales.
Expenses also rose, especially on labor, as the company made moves aimed at getting its resorts back to being fully staffed. The company is boosting its minimum wage for the 2022-2023 season to $20 per hour, management said, which will likely increase its labor costs by $175 million in its fiscal 2023.
These cost pressures didn't swamp earnings, though. In fact, adjusted profits were up 5% in fiscal Q2 compared to the pre-pandemic period. And its profit margin (based on adjusted EBITDA) this quarter improved to 44% of sales from 41% a year ago.
Looking ahead
Management is now forecasting a less severe drop in its profitability level than they had predicted for fiscal 2022. Demand is looking better, especially at its Rocky Mountain resorts.
All of those factors are contributing to a slightly sunnier outlook for Vail's business through the rest of this fiscal year and into the next one, which starts Aug. 1. It's likely that operating trends will finally see that sharp rebound that investors have been anticipating for two years now.
Sure, Vail's business will still be sensitive to weather patterns around the next winter holidays. But that risk has lessened as the company built up its season pass commitments.
Those subscriptions helped Vail return to visitation growth this past quarter despite several massive but temporary pressures on its business. Its next fiscal year could be great for the resort operator as these headwinds fade.
