Vail Resorts, Inc. MTN is benefiting from a robust season pass program and strategic acquisitions.
The abovementioned tailwinds backed MTN’s second-quarter fiscal 2023 results, wherein revenues surpassed the Zacks Consensus Estimate by 2.9%. Earnings and revenues grew 5.7% and 21.5%, respectively, on a year-over-year basis. The uptrend was also backed by robust pass product sales, contributions from the acquisitions and strong destination guest visitation.
Despite these growth factors, Vail Resorts is facing various headwinds in the form of increased labor costs and operating expenses.
Shares of MTN have gained 3.8% over the past six months compared with the Zacks Leisure and Recreation Services industry’s growth of 17%. Earnings estimates for fiscal 2023 have moved south to $7.66 per share from $8.96 over the past 30 days, depicting analysts' concern over the company's growth prospects.
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Let us discuss the driving factors broadly.
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. In second-quarter fiscal 2023, the company stated that pass product sales increased 16.8% from the prior-year period’s levels. It benefited from the 8% increase in its pass price increase over the prior season's launch price and continued to represent a strong value to its guests. Markedly, the company has been benefiting from its offerings such as Epic Pass, Epic Day Pass and Epic Coverage and the introduction of Epic Mountain Rewards.
MTN continues to reinvest in its resorts to boost customer traffic. For the first two quarters of fiscal 2023, the Seven Springs acquisition contributed to about a 70% increase in unit sales growth in Pittsburgh. This acquisition was completed on Dec 31, 2021, wherein MTN acquired Seven Springs Mountain Resort and its sister resorts, Hidden Valley and Laurel Mountain.
On Aug 3, 2022, the company acquired a majority stake in Andermatt-Sedrun Sport AG, a destination ski resort in Central Switzerland. This marked the company's first strategic investment for operating in Europe. The company also announced plans to invest approximately $10 million at Andermatt-Sedrun in high-impact growth capital projects as an initial step in a multi-year strategic growth investment plan to enhance the guest experience on the mountain.
The company witnessed solid demand and visitation at its western North American resorts. For the 2023/2024 European ski season, the company has added Disentis as a long-term partner resort, providing pass holders access to the largest ski area in the heart of Switzerland spanning across Andermatt-Sedrun and Disentis.
Vail Resorts is facing an increase in costs that is affecting its margins. In the second quarter of fiscal 2023, the company’s margins were affected by inflationary labor costs. In the quarter, labor-related costs increased 55.3%, primarily due to increased staffing and salaries associated with employees and increased headcount to support more normalized staffing and operations at its resorts.
Additional labor costs were also incurred as a result of variable weather conditions, particularly at the Eastern U.S. resorts. For fiscal 2023, EBITDA is expected in the range of $831-$859 million, showing a decline from the prior guided range of $893-$947 million.
High costs are hurting the company. The operating expenses of both MTN’s segments witnessed an increase in the second quarter of fiscal 2023. Operating expenses in the Mountain segment totaled $614.6 million, up 37.6% year over year. Operating expenses for the Lodging segment increased 35.2% year over year to $84.6 million. This included $2.8 million of acquisition-related costs in both segments of the company.
Zacks Rank & Key Picks
MTN currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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