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Vail Resorts planning $25 million in cuts

Cliff Thompson

War with Iraq hurt Vail Resorts’ busiest and most profitable quarter this ski season just as the company was poised for a record performance, the company’s chief executive said Thursday.

“Consumers were scared away from venturing too far from their living room sofas,” said Adam Aron, Vail Resorts’ chief executive officer and chairman, Adam Aron. “The war undid us.”

The third quarter is typically the company’s most profitable because it contains revenue from peak ski and resort lodging activity, and the company is reporting a 9 percent increase in total revenue, to $269 million, for the quarter. The company operates ski resorts at Vail, Beaver Creek, Keystone and Breckenridge in Colorado and Heavenly at Lake Tahoe, as well as luxury resort hotels across the country.

Aron again announced the company will be “preparing for the worst” by paring an additional $25 million in expenses – without wholesale cuts in staff – for fiscal 2004. Last year the company cut $10 million in expenses, downsizing its work force by 100 positions, in response to the national recession.

“No Black Tuesday’

“There will be no Black Tuesday or Black Thursday,” Aron said Thursday regarding layoffs. “We’re not trying to cut costs by forcing efficiency on the organization.”

The $25 million in new cuts, Aron said, is being made across the board, from marketing to limiting cell-phone use.

One of the largest budget items in the company’s cost-cutting sights is $49 million in annual marketing and advertising expenses, Aron said. The company hopes to leverage its strong branding messages while cutting expenses there by 10 percent.

Health benefits are another area in which the company will be paring expenses, Aron said, as the company will be tightening seasonal and part-time benefits.

Aron said he also expects the company to realize cost savings from what he called a “looser labor market.”

“There will not be the wage pressure there used to be,” he said, adding the company may realize as much as $1.5 million in savings in this area. “We won’t need as many employee beds.”

Meanwhile, the company is offering $2 million in increased salaries to employees if the cost-cutting exceeds $25 million. Aron said merit pay increases of 2 percent are planned, with additional raises of up to 4 percent, depending on how much more expense can be pared. Those expense cuts are expected to drive an additional four points to the company’s bottom line, Aron said.

Less profit, more revenue

The company reported revenue from its mountain operations increased 9.6 percent, to $211.7 million from $193.2 million last year. Excluding Heavenly, which Vail Resorts acquired last spring, “same store” mountain revenue at its Colorado resorts declined 6 percent.

Skier visits, often used as an economic gauge for a ski season, were a mixed bag for the company’s ski resorts. Heavenly’s skier visits grew by 12.5 percent, to 935,000, and lift-ticket revenue grew by 19.3 percent, Avon said.

Beaver Creek had a record year, with 718,000 skiers, largely on the strength of the new Ritz-Carlton, Bachelor Gulch, Aron said. Vail Mountain’s skier-day total, meanwhile, increased 5 percent, to 1.6 million skiers, its second-best ever behind 2000’s 1.646 million.

Breckenridge’s skier numbers dipped slightly, to 1.425 million, while lift ticket revenue was up, Aron said; and skier numbers at Keystone declined 2.8 percent, to 1.039 million, down from the 1.069 million logged the previous year. Aron said part of the reason was poor snow there.

Across the country, meanwhile, a record year was reported, with 57.6 million skiers. That’s up 0.5 percent from the previous best.

Colorado’s ski resorts as a whole didn’t host record numbers of skiers, but they did see a 4.29 percent increase, to 11.6 million.

“We’re frustrated,” said Aron. “The financial results for the first half of our fiscal year were impressive and robust. With the actual outbreak of war during the busiest weeks of our ski season, both our mountain and lodging segments were adversely affected.”

In the lodging sector, the company’s discounted room-rate strategy, which aimed to make up for soft business and group bookings, increased occupancy but hurt the bottom line, Aron said.

Year to date

Year-to-date performance for the company shows total income of $92.5 million on revenue of $629.7 million. The mountain operations segment of the company, its largest division, had year-to-date revenue of $435 million vs. $368 million last year.

Vail Resorts’ lodging operations reported $120.5 million, vs. last year’s $110 million, while its real-estate operations reported $73.8 million, compared to $54 million last year. Real-estate operations include slope-side properties, 10 exclusive RockResorts properties and the Grand Teton Lodge in Wyoming.

The company’s year-to-date operating expenses were $537.2 million, compared to $435.7 million last year.

The real estate division reported revenue of $61 million, significantly ahead of last year’s $43 million. Those sales included exclusive Red Sky Ranch home sites, the final two Bachelor Gulch single-family home sites and other high-end real estate.

The company also took advantage of low interest rates to secure debt financing, including a new $325 million revolving line of credit and $100 million in term institutional loans.

The company also will continue to look at acquiring additional lodging outlets and seek what Aron called “sliver equity” deals that lead to lodging management opportunities.

The snowmaking system at Keystone will see an overhaul expected to save $500,000 in annual maintenance costs, Aron said.

Aron said projections and recent stock-market performance indicate there’s a glimmer of hope the sagging national economy will rebound sometime in the next six months.

Corporate figures

Vail Resorts’ skier days 2002-03:

– Vail Mountain – 1.611 million-second best

– Beaver Creek – 718,000-record year

– Keystone – 1.039 million, down 2.8 percent

– Breckenridge – 1.425 million, down 3 percent

– Heavenly – 935,000

Third-quarter numbers:

– Revenue – $269.1 million

– Net income – $35.4 million

Stock price (MTN-NYSE):

– Thursday market close – $13.35, up 4.2 percent

Cliff Thompson can be reached at 949-0555 ext 450 or cthompson@vaildaily.com.


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