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Vail Resorts Goes Through the Summertime Blues

By Dan Caplinger - Sep 28, 2015 at 9:55AM

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The ski resort company routinely posts big losses during the snowless seasons, but they still give a window to future growth.

Most Americans look forward to summer as a chance to have warm-weather fun. For investors in ski resort operator Vail Resorts (MTN 1.25%), though, the snowless months in the middle of the year inevitably produce big losses, and coming into Monday morning's fiscal fourth-quarter financial report, shareholders were rightly braced for another flood of red ink. Vail Resorts reported mixed results for the quarter, but most of those following the stock are much more interested in the company's early read on how the 2015-16 winter season will go. Let's take a closer look at Vail Resorts and what's on the horizon for the resort operator.

Vail Resorts shies away from the sun
Vail Resorts managed to deliver fairly strong top-line growth, but it still wasn't enough to come even close to profitability. Revenue for the resort operator jumped almost 20% to $162.1 million, easily topping the 11% growth rate that most investors had expected from Vail Resorts. On the income front, the company's net loss narrowed to $70.1 million, but the resulting loss of $1.92 per share was almost a nickel worse than the consensus forecast among investors.

The main issue that Vail Resorts faces in the summer is that its core mountain operations aren't profitable from an operating standpoint. The mountain segment's sales soared by half compared to the year-ago quarter, and ordinarily, a corresponding 18% rise in operating expenses wouldn't be a problem. Yet because those expenses are so much larger than revenue, the segment's operating loss was still $50 million, only falling by about $7 million from last year's quarter. Lodging revenue climbed more than 10%, but sales from the real estate division fell by more than a third.

CEO Rob Katz, however, focused on the company's full-year results. "We achieved another year of record-breaking resort revenue," Katz said, and "our season pass program continued to drive growth, customer loyalty, and financial stability." Katz also highlighted the efforts that Vail Resorts has made in developing a year-round business, explaining that "our summer business continues to grow as we build out Epic Discovery activities at Vail, Breckenridge, and Heaveny and tap into the strong existing summer tourism in those markets."

What's next for Vail Resorts?
Much more importantly for Vail Resorts are its early results for season pass sales for the coming winter season, and so far, the numbers have been extremely encouraging. Through September 20, season pass sales were up 22% in dollar revenue terms from a year ago, with 16% more actual passes sold and ticket-price increases making up the rest.

Vail Resorts has also moved forward aggressively to integrate its Park City and Canyons resorts in Utah after having acquired Park City after a protracted dispute over the property. The company said that its plans are on schedule, and the result will be to make Park City the largest U.S. ski resort. In addition, Vail Resorts completed its acquisition of Australia's Perisher resort at the end of June, and that should give the company some additional revenue in the middle of the year, which corresponds to wintertime in the Southern Hemisphere.

Looking to fiscal 2016, Vail Resorts gave favorable guidance on many fronts. Resort-reported operating earnings should come in between $405 million and $430 million, leading to net income of between $118 million and $144 million. Those growth rates are considerably slower than the acquisition-primed gains during fiscal 2015, but they still imply EBITDA growth of 10% to 18% and earnings gains of as much as 25%.

Vail Resorts didn't respond particularly strongly to the news, inching down about half a percent in the opening minutes of the regular session following the announcement. Overall, though, the ski resort operator has put itself on an upward track for further growth, and if it can keep building on its long-term successes, the time may come when summer won't be such a sad time for Vail Resorts shareholders.

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