Vail Resorts to get more aggressive in pursuing stock buybacks
But could the money be better spent elsewhere?
The practice of share repurchasing, otherwise known as stock buybacks, has generated national headlines in recent months. The idea behind a publicly traded company repurchasing its own stock is fairly straightforward in terms of supply and demand — by buying its own shares, a company attempts to make the remaining stock owned by shareholders more valuable.
But the opportunity cost of buybacks — the investments in labor and technology which the company could have otherwise used the money it spent on share repurchasing — can get those companies in hot water with its customers, the general public and the politicians charged with regulating corporations in the U.S.
When a Norfolk Southern train recently crashed and released a toxic cloud of gas over the Ohio River Valley, questions over the company’s decision to spend $3.4 billion on share repurchases last year, and $3.1 billion in 2021, became a common refrain in the ensuing fallout. Instead of spending a combined $6.5 billion on share repurchases in the last two years, critics charged that Norfolk Southern should have invested that money in making its freight lines safer.
Southwest Airlines faced a similar line of questioning after canceling 5,000 flights over the Christmas holiday season; the Southwest Airlines Pilots Association blamed an outdated IT system while critics pointed to the billions the company had spent on stock buybacks prior to the pandemic as money that could have been used to upgrade that system.
Colorado Sen. Michael Bennet has been critical of buybacks even before the incidents with Southwest and Norfolk Southern, mentioning the practice at a campaign event in Eagle in August, saying if “you’re a publicly traded corporation” performing buybacks, you’re doing so “to engineer your results.”
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Bennet was speaking in reference to the Inflation Reduction Act, which instituted a 1% tax on stocks that are repurchased by publicly traded companies, something he supported. Bennet wrote the corporate minimum tax into the Inflation Reduction Act and “strongly believes that big corporations should be paying their fair share,” Bennet’s Communications Director, Olivia Bercow, said in an email.
In President Biden’s State of the Union address in February, Biden suggested the 1% tax instituted in the Inflation Reduction Act doesn’t go far enough, proposing to quadruple it in an effort to “encourage long-term investments.”
Vail Resorts looks to repurchase 3.5 million shares
In Colorado, Vail Resorts CEO Kirstin Lynch recently informed shareholders that the company’s board of directors increased its authorization for stock buybacks “from 2.5 million to approximately 3.5 million shares.”
Vail Resorts, last year, spent some $75 million on stock buybacks, and CFO Angela Korch, in a March 9 call to investors, said the company has “indicated that we intend to be more aggressive in our share repurchase program with that authorization.”
With Vail Resorts’ recent investments in increased employee compensation and capital improvements, it’s hard to make the same criticisms of Vail that have been lodged at Southwest and Norfolk Southern, especially at its namesake mountain. The company raised employee pay to a minimum of $20 per hour, saw all lifts running for the first time in years in 2022-23, and opened a new lift line this year, connecting the bottom of the Sun Up/Sun Down bowls to the Wildwood area of the mountain.
But there’s still room for improvement — Vail Mountain did not get its tubing hill up and running this year or last year, meaning there’s no public snow tubing option in Eagle County as Meadow Mountain and Beaver Creek also discontinued snow tubing over the course of the last decade. The much celebrated Alpine coaster, touted as a summer and winter attraction on Vail Mountain, was not open to guests this winter season, either.
Companywide, the quality of the on-mountain dining has left something to be desired, as well, according to a slew of recent letters to the editor the Vail Daily has received. And in the East, guests are wondering if better snowmaking capabilities could have created a longer season at the resorts which struggled with low snow in the early season this year.
‘We still believe’
Korch said despite the increase in authorization for more buybacks, Vail Resorts is not making any real changes in its approach to capital allocation.
“We always prioritize high-return capital projects, investing in our people, strategic acquisitions, and this is part of returning excess cash to shareholders,” she said during the March 9 call to investors.
Korch was also referencing an increase in the quarterly dividend paid out to investors, which will be raised from $1.91 per share to $2.06 per share on April 11.
And Korch hinted at another effect that buybacks have on a company, as well, which is to signal that the company believes its stock is undervalued and worth purchasing. After reaching a high above $370 per share in November of 2021, Vail Resorts’ stock had plummeted to $240 by March of 2022 and has remained largely stagnant in the year that has followed, closing at $226.58 on Monday.
“The vote to increase in the dividend, and the increase in the share acquisition, really shows how committed we are, and how we still believe in the long-term stability of the business, and the growth outlook,” Korch said.