Vail Resorts Rides On Acquisitions Despite High Expenses

Vail Resorts, Inc. (NYSE:MTN) banks on robust marketing efforts to boost its top-line performance. Additionally, the company’s increased focus on acquisitions and mergers continues to drive growth. However, high costs of operations as well as added expenses stemming from acquisitions are concerning.

In first-quarter fiscal 2019, the company was plagued with high operating expenses in Resorts and both the Mountain and Lodging segments. However, its earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 7.2%.

Additionally, revenues exceeded the consensus mark in three of the trailing five quarters. The company continues to grow on a full-proof business model and a wide range of guest-centric offerings.

Nonetheless, seasonal fluctuations are a pertinent threat to Vail Resorts’ business. Over the past year, shares of the company have lost 1.1%, outperforming the industry’s 21.3% decline.

Marketing Efforts & Continual Acquisition

Vail Resorts has a season pass program, under which the company offers a variety of season pass products for all the mountain resorts and urban ski areas in both domestic and international markets. Increased demand for skiing led the company to witness higher season pass sales lately.

Robust growth in season pass sales reflects Vail Resorts’ efficient guest-focused marketing efforts. The company, with the help of data analytics, provides targeted and personalized services to guests. Guest data is captured through season pass programs; e-commerce platforms — including mobile lift ticket sales; the EpicMix application and operational processes at the lift ticket windows. Additionally, Vail Resorts involves in digital marketing and media advertising to drive traffic and sales.

In the first quarter of fiscal 2019, North American ski season pass sales increased approximately 21% in units and 13% in sales dollars on a year-over-year basis. Excluding sales of military passes to new purchasers, who were not pass holders last year, season pass sales increased approximately 8% in units and 10% in sales dollars over the comparable period. Notably, the company witnessed season pass sales increase across all products and geographies, including destination markets.

Meanwhile, Vail Resorts focus on acquisitions and mergers to build a stronger portfolio of differentiated and varied services is encouraging. In this regard, it is imperative to mention that the company acquired a few mountain resorts, hotel properties and other businesses complementary to its own as well as developable land in proximity to its resorts.

On Aug 15, 2018, the company acquired Stevens Pass Resort in Washington from Ski Resort Holdings, LLC, for $64 million. Additionally, on Sep 27, 2018, management acquired Triple Peaks, LLC — the parent company of Okemo Mountain Resort in Vermont; Crested Butte Mountain Resort in Colorado and Mount Sunapee Resort in New Hampshire for a cash price of roughly $74 million.

Vail Resorts expects these buyouts to positively contribute toward the company’s operating results going forward.

Concerns

While Vail Resorts’ consistent acquisitions and mergers are likely to benefit the company over the long term, there are certain short-term risks as well. The company is somewhat struggling with added expenses stemming from acquisitions. In fiscal 2018, EBITDA included $10.2 million of buyouts and integration-related expenses.

Additionally, Vail Resorts’ operational efficiencies come at the cost of increased expenses. During the first quarter of fiscal 2019, total segment operating expenses increased 6.6% year over year to $294.7 million. Also, operating expenses at the mountaineering and lodging segments increased 7.4% and 4.8%, respectively, from the year-ago quarter.Resort operating expenses totaled $293.4 million, up 6.8% year over year.

Zacks Rank & Stocks to Consider

Vail Resorts currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry include Hudson (NYSE:HUD) , Manchester United (NYSE:MANU) and Cinemark Holdings (NYSE:CNK) . While Hudson and Manchester United sport a Zacks Rank #1 (Strong Buy), Cinemark Holding carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hudson, Manchester United and Cinemark Holdings’ earnings for 2019 are expected to increase 11.1%, 14.3% and 11.6%, respectively.

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