Vail Resorts eliminates 100
The company will be doing the same with less now after the company failed to meet earnings expectations for the first time in 23 reporting quarters. Sagging accommodations activity and acquisitions of Heavenly resort in California and other properties contributed to Vail Resorts’ fourth-quarter loss for fiscal 2002 that was nearly twice what it was last year. The downsizing is part of a $20 million cost-reduction program implemented this week.
For all four quarters this fiscal year, Vail Resorts was profitable; but for the year it fell $12 million beneath projections.
The company typically loses money in the fourth quarter, considered a shoulder season during which there is little tourist business. For 2002, that loss was $35.1 million.
Last year the fourth-quarter loss was $19.1 million. For the year, the company’s net earnings, on revenues of $615.3 million, was $107 million, a 1.4 percent decline.
In short, boosted by the acquisition of Heavenly and Vail’s Marriott Mountain Resort hotel, annual revenues increased by 13.1 percent while profitability decreased by 1.4 percent. Without acquisitions, the company’s profits were $103.6 million, down 3.9 percent.
In a letter to employees, the company’s chief executive officer, Adam Aron, called the financial performance for the quarter and the year “lackluster.”
Lodging profits, heavily impacted by a fall-off in business and leisure travel and compounded by heavily discounted lodging to attract travelers, was down 46.5 percent, a $4.2 million decrease. Total lodging revenue increased to $40.7 million, a 24 percent increase.
The year-end financial news was accompanied by an announcement that 50 people will be laid off and an additional 50 vacant positions would remain unfilled. Those cuts will be announced by week-end, Aron said.
The layoffs and elimination of position are part of a $20 million cost-reduction effort by the company outlined in eight pages of ways to cut costs, Aron said.
The severance package for those employees is consistent with that offered 37 middle-managers laid off in May 2001, Aron said. The severance package offered depends on tenure and includes “outplacement counseling.” It will cost the company $2.5 million.
“One layoff is too many,” Aron said. “Every company in the country is looking at their costs. These are tough, troubling times and we’re just trying to batten down the hatches to prepare for what could be a tough winter.
“In my memo regarding Andy Daly’s departure last week, it was noted that if sacrifice is required for Vail Resorts to prosper, then the sacrifice will take place fairly up and down the line, including at the highest levels of the company,” Aron wrote.
There’s also been a reorganization of the top management. Last week, President Andy Daly’s position was eliminated, as were two other high-profile positions this week – those of Porter Wharton III, senior vice president of public affairs, and John Rutter, chief operating officer of Keystone.
Rutter will become the chief operating officer of the Grand Teton Lodge in Jackson, Wyo.; Clay James, the current chief executive officer of the Lodge, will be retiring in 2005.
Breckenridge’s Roger McCarthy, meanwhile, will manage both Keystone and Breckenridge.
Another reorganization places Vail’s Bill Jensen in charge of Vail, Beaver Creek and Heavenly. Beaver Creek’s John Garnsey and Heavenly’s chief executive officer, Craig Blaise, will report to Jensen.
Aron took pains Tuesday to counter rumors that Wall Street is calling the shots for Vail Resorts.
“The speculation that all this was forced on us by a board of directors or Wall Street is not true,” he said. “These decision were made here in Colorado.
We’ll make the company stronger and healthier and more able to deal with what the world may throw at us this winter. Summit and Eagle counties need a healthy Vail Resorts.”
Earlier in the year the company announced that managers would not receive a raise for 2002 and that there would be a freeze on hiring management to fill management positions.
An across-the-board 2 percent raise was given employees, but benefits, such as health insurance, were pared back. Cost of the company’s family medical/dental plan, for example, went from $193 to $222 per month, and the cost of emergency room visits went up from $50 to $100. Generic
prescriptions also went up from $10 to $15, while out-patient co-pays went from $200 to $300.
New auditors, practices
Last summer Vail Resorts changed auditors from beleaguered and Enron-scandal-tainted Arthur Andersen to PricewaterhouseCoopers. The new auditors and the Securities and Exchange Commission recommended the company restate how Vail Resorts reports private club memberships.
In the past that revenue was reported in the year it was received. Now the company will spread that out over 30 years.
The re-audit caused Vail Resorts to revise its earnings downward by 2 percent. It also split the earnings report into three business segments – real estate, lodging and resort operations. Gross revenue for lodging for 2002 was $150.9 million; real estate revenue was $63.9 million and resort revenue was $400.5 million.
The real estate portion of the company posted a strong quarter, said Aron. It had $9.5 million in sales and its earnings before interest, taxes, depreciation and amortization, or cash flow, was $1.5 million.
The market and acquisitions
The year-end and quarterly results were met with a yawn at the stock market. Vail Resorts stock closed Tuesday at $13.84, down 1 percent.
“I think what we reported today had already been anticipated a long time ago,” Aron said.
Earlier this month, the stock reached it’s lowest price ever, $12.23, after hitting a high of $32 three years ago.
Since its initial public offering in 1997, Vail Resorts has spent nearly $1 billion in acquisitions and reinvestment in existing properties, Aron said. Last year it acquired Heavenly for $100 million and spent $100 million acquiring luxury hotels. The company bought Vail’s Marriott Mountain Resort for $49.5 million and is investing and additional $23 million remodeling the Marriott, he said.
This year, operating what the company owns will take precedent over acquisitions, Aron said.
“We’re taking a breather in new acquisitions,” he said. “We’re paying attention to managing costs tightly.”
In spite of the uncertain economic times and the possibility of war with Iraq, the company is forecasting earnings for 2003-04 of between $117 million and $127 million, Aron said.
There are some encouraging indicators for this ski season, Aron said. Year-to-date reservations are up 23 percent over the numbers of fiscal 2001-02, but still behind reservations of two years ago, he said.
“Last year’s bookings were anemic because of Sept. 11,” Aron said.
Aron tempered the financial news with some brighter news: 5 inches of snow fell at Vail and Beaver Creek last night.
CEO explains cutbacks to employees
VAron e-mailed a letter to company employees Tuesday outlining the ski company’s financial status and reasons for changes the company made this week.
“It will probably come as little surprise to many of you that we delivered a lackluster financial performance in both the fourth quarter and fiscal year 2002,” he wrote.
Resort officials face several challenges in the next year, Aron said, including a continued economic downturn, weaker consumer confidence and the threat of war in the Middle East. He told employees they might need to demonstrate flexibility like they did after the terrorist acts last fall.
“This is a sad day for our company,” Aron said about the 50 layoffs expected under the new budget. “There is only one bit of comforting news here, and that is that all of these layoffs will be completed by Friday of this week. After that day, everyone can take a deep breath, regroup and have a more secure understanding of what lies in store.”
Aron said costs also can be cut or held down in administration expenses, snowmaking operation efficiency, lift-operating times during off-peak periods, managing employee housing and marketing and sales budgets.
“But as it is said, this, too, shall pass,” Aron wrote. “Ski season is at hand. The magical appeal of our winter paradises emerges more and more as every day goes by. The snows are now falling, and our spirits will soon be rising. Despite the difficult announcements of the day, brighter days are ahead.”
Cliff Thompson can be reached at 949-0555 ext 450 or email@example.com