Although Vail Resorts
The company, which owns ski resorts, manages and owns lodging operations, and develops real estate, reported that despite a 33% increase in sales to $113.5 million, its net loss increased 4% to $35.8 million.
However, to long-term investors, most of the financial results were immaterial. Most of the increase in net sales was due to the timing of sales in the real estate development segment, and the increase in net loss doesn't really reflect the company's earning power. Vail's mountain resorts aren't open during the fall, so the first quarter is seasonally slow. As a result, the first quarter is kind of like the preseason -- more of a time for preparation and an indicator of what lies ahead.
Advance sales were strong. Season passes, which account for almost a quarter of Vail's sales, increased 12% in unit volume and 21% in sales dollars (reflecting pricing increases). The revenue from these season passes will be earned in 2007, so the strong sales bode well. Bookings at ski resort lodges also increased 15% in room nights and 24% in sales dollars. But in the earnings call, management was careful to note that the increase in season pass sales and bookings could either portend a strong season overall or merely mean that customers just happened to be booking earlier than normal. At the end of the day, positive indicators are better than flat or negative indicators.
Although I don't like the fact that Vail's stock is up around 40% year to date -- I don't want to pay more than other people for it -- I like Vail's prospects. The company's five ski resorts are among the most visited ones in the U.S. Furthermore, ski resorts operate with enormous operating leverage: Selling to an additional skier costs almost nothing, so a large portion of the sale goes to the bottom line. For example, in fiscal 2006, the mountain segment sales increase of $80 million from 2005 translated into an operating income increase of $29 million (before depreciation and amortization). This implies an incremental operating margin of 38%. Private equity players are well aware of this: With the significant merger and acquisition activity in the ski resort industry, including Fortress Investments' purchase of Intrawest for $2.8 billion, it's openly debated whether Vail is the next in line.
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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned. The Motley Fool has a disclosure policy. Emil appreciates comments, concerns, and complaints.