VR earnings rebound at mid-season
A healthier national economy, belt tightening and increased prices slopeside are showing up on Vail Resorts’ bottom line at the end of its second quarter.
The company’s November through January operations produced record revenue and a smaller-than-expected $6.7 million loss, as is traditional for the second quarter. That’s $10 million less than last year’s second quarter loss.
Total revenue for the quarter was $247 million, down $1 million, but that was offset by a larger 2 percent drop in operating expenses to $200.6 million.
“It’s nothing but glowing,” said the company’s chief executive, Adam Aron. “It’s a fabulous quarter. We are extremely proud of our achievement in 2004.”
Those earnings follow the company’s $14.5 million loss in fiscal 2003, a slump blamed on the war in Iraq. The war broke out a year ago, drying up the flow of out-of-town guests during what’s typically the company’s most profitable quarter.
The company last year announced a $25 million cost-cutting program that included elimination of positions, paring marketing budgets and other measures.
Beaver Creek is on pace for another record season, Aron said. Last season, Vail’s sister resort logged just over 700,000 skier days and Aron said it will come close to 800,000 this season, he said.
So far this season, Beaver Creek is reporting 349,000 skiers, up 11 percent.
“We’ve seen the return of out-of-state skiers,” Aron said while also acknowledging a decrease in the number of in-state and day skiers on the slopes. “If you exclude the number of ski passes entirely (over this and last year) the number of skiers is up.”
Aron said less than spectacular early-season snow may have resulted in fewer day skiers than in previous, snowier years. The proof of the fact that destination guests have returned is the increasing skier numbers at Beaver Creek, Aron said.
Last year’s war with Iraq caused destination travel to Vail to wither.
“It looks as if some semblance of world peace and an improving economy has started a rebound for the travel and leisure industry,” he said, adding booking information for March and April suggests a good run of business.
“Airport bookings are up 7 percent and hotel bookings are up 5 percent,” he said. “Vail bookings in particular are up 33 percent.”
Ski passes, on the other hand, are one of the company’s strategies for attracting in-state skiers, and according to Aron, it worked. Despite the apparent drop in day skiers, Vail Resorts sold more than 120,000 ski passes, up 9 percent, mostly to Colorado residents, Aron said.
“We’ve got the money banked, whether they ski or not,” he said of the pass sales. The expected competition from Intrawest, which began selling passes that can be used at both Winter Park and Copper Mountain, did not materialize, Aron said.
“We withstood the competitive challenge,” he said.
Skier numbers for the first three months of the ski season were mixed at Vail Mountain and the other three ski resorts the company operates, Aron said.
The season got off to a “somewhat unspectacular start,” with just adequate snow, he said. Last year, heavy early snow allowed the resorts to open early with up to 10 additional days of skiing, boosting skier numbers and giving a healthy jolt to the economies of the towns that depend on the resorts.
Skier numbers at Vail this season have declined 5.2 percent to 698,000.
Heavenly is leading the pack with a 21.5 percent increase in skier visits, from 382,000 last year at this time to 464,000. Keystone’s skier visits declined 12.6 percent to 452,000 and Breckenridge’s numbers were down 0.2 percent to 657,000.
Heavenly was acquired less than 20 months ago by the company for approximately $100 million, and with the installation of new lifts, revitalization of on-mountain facilities and improved marketing, the Lake Tahoe resort has begun to shine, Aron said.
“Heavenly is outperforming our expectations,” Aron said. “It has been nothing but a triumph.”
Keystone, which last year suffered from low snow, started out that way again this year with less than one-third of its terrain open by mid-December, Aron said.
“Keystone has turned (around),” he said. “We spent $5 million last summer on snowmaking and grooming and once the Keystone skier returned to the slopes they’ve been very pleased. Numbers in January and February are actually up year-over-year by a big percentage.”
At Breckenridge, however, the company is reporting it will spend nearly $7 million to fix water damage and mold at its 4-year-old Breckenridge Terrace employee housing complex.
“We’ll be having some rather stern conversations with the developers and people who built that,” Aron said.
Aron took advantage of the earnings announcement to trumpet the revitalization of Vail.
Aron expects Vail’s New Dawn, the $1 billion revitalization of Lionshead and Vail Village that will occur largely in 2005 to 2007, to present the company with some “incredibly lucrative projects.”
Those will include the $350 million Lionshead core project and the $75 million Front Door in Vail Village, among others. The new projects come as merchants in Vail have suffered through an economic slowdown in retail sales.
“In the old days people would have been concerned about us going forward with real estate development in and around Vail,” Aron said. “Now, having seen our plans on Lionshead and Vail Village, they’re saying ‘When can you start?’
The company this year will spend $72 million on real estate development that will also include a new golf course community in Jackson Hole near the company’s lodges.
Total revenue at Vail Resorts for all divisions for the first six months of this fiscal year declined by $10.9 million, or 3 percent, to $350.9 million while total operating expenses decreased $20.4 million, or 5.7 percent, to $334.6 million.
This quarter, two of the company’s three divisions – mountain operations and lodging – are showing good gains. Real estate sales, as expected due to the timing of developments and closings, declined.
For the first six months, the company’s mountain operations produced $235.4 million, a healthy 6 percent increase from 2003’s six-month total of $222 million.
On-mountain business for the first six months was brisk with lift tickets, ski school, dining and retail and rental activity up 6.1 percent in the first three months to $97.1 million. Recently increased lift ticket prices, across the board, helped drive the increase.
Ski School activity was up 4.5 percent to $23.9 million while dining increased by just 1.2 percent to $22.3 million. Retail and rentals were up 5.1 percent to $28.8 million.
Lodging revenue over the first six months grew 6.3 percent to $81 million despite slightly decreased occupancy rates at the company’s slopeside and nationwide RockResort luxury hotels. Rate increases drove the growth in revenue, Aron said.
Total resort- and related-mountain-lodging accounted for $316.4 million, a 6.1 percent increase.
Real estate revenue declined $10.9 million to $34.4 million.
The company freed up some cash by refinancing $360 million in long-term debt, lowering its interest rate from 8.75 to 6.75 percent. That refinancing cost the company $36.2 million in pre-tax charges.
Vail Resorts is also refinancing $100 million of bank loans and will also realize significant savings. By doing so, it saves $5.7 million a year, Aron said. The company’s long term debt is now listed at $600.4 million, compared $548 million last year at this time.
The stock market was unresponsive to the news. Vail Resorts’ stock price (MTN-NYSE) at close of trading Wednesday, was up 1.0 percent to $17.35.
Cliff Thompson can be contacted via e-mail at firstname.lastname@example.org or by calling 949-0555 ext. 450.
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