By Eric Smith
Shares of Vail Resorts Inc. (MTN) dipped again Thursday, a day after the company provided updated commentary on its fiscal 2020 results and the evolving impact of the coronavirus on its operations.
The company’s stock closed the day with only a 1 percent decline, but that follows a recent downward trend—Vail’s shares have lost about a third of their value from February 21. One bit of good news: Friday’s morning trading saw a bump in Vail’s shares as the market rebounded for many stocks.
The diminishing value over the last month isn’t a surprise. The company this week officially closed most of its North American ski resorts, in addition to its numerous lodging properties and transportation business, for the remainder of the 2019/20 ski season.
Vail said it would consider reopening Breckenridge Ski Resort in Colorado, Heavenly Mountain Resort in Lake Tahoe and Whistler Blackcomb in British Columbia in late April/early May, “dependent on the situation with COVID-19 as well as weather conditions,” according to CEO Rob Katz.
But the seasonal closure of about 30 resorts is taking a huge toll on Vail and the communities where it operates some of the most iconic ski areas in the world. Workers have left en masse (after being instructed by Vail to do so), and the company’s hotels and rental and retail shops are now shuttered, turning ski towns into ghost towns.
“We knew this decision would impact our employees, guests and local communities and would also have a significant negative impact on our financial results,” Katz said. “However, our top priority is the health and wellbeing of all our constituents and stakeholders, and we believe this decision was absolutely the right one.”
The likelihood of Vail reopening those three resorts—at least Breck—took a hit Wednesday when Colorado Gov. Jared Polis extended the mandatory closing of all ski resorts until April 6. His reasoning was understandable. The state’s mountain towns have been especially ravaged by COVID-19 with as many cases in places like Eagle County (home of Vail) as there are in Denver. Look for that closure to be extended yet again.
Analyst reaction to Vail’s update focused on near- and long-term projections. There will be an obvious blow to the company’s fiscal 2020 results, with reductions in both lift and non-lift (i.e., lodging, rental, etc.) revenue, but there could be some lasting effects of the coronavirus outbreak on businesses like Vail.
One key takeaway from the note that Alex Maroccia, Sam England and Brett Knoblauch of Berenberg Capital Markets LLC wrote for investors speaks volumes—Vail is “stepping back three years.”
The company projects its operating results for March and April will have a negative impact of $180 million to $200 million compared to the resort reported EBITDA the company had as of March 1.
Vail is now guiding resort reported EBITDA of $578 million to $598 million. The midpoint of that range is about 20 percent lower than the previous consensus EBITDA of $726 million—a major setback for the company.
“The $588 million midpoint of the company’s new resort reported EBITDA guidance sets the company’s financials back three years to 2017, despite the additions of Whistler Blackcomb, BC; Peak Resorts’ 17 properties; Falls Creek and Hotham, Australia; Okemo, VT; Mount Sunapee, NH; Crested Butte, CO; Stevens Pass, WA; and Stowe, VT,” they wrote.
As SGB Executive noted in a recent story on the abrupt end to the ski season, Coronavirus Closes Ski Resorts, Vail boasts myriad underlying strengths, including a clean balance sheet, strong financial position, robust liquidity, diverse geographic footprint and dynamic product offering with the Epic Pass. Katz said these will bolster the company during this time of uncertainty.
“As we look further into the future, we believe the underlying strengths of our business position us very well with our outstanding network of destination, regional and local resorts, the stability, loyalty and value offered through our advanced commitment pass products and our new Epic Mountain Rewards program that provides additional value to our guests who purchase their pass products ahead of the season,” Katz said.
However, as the Berenberg analysts noted, spring is the optimal time for skiers and riders to purchase their Epic Passes for the 2020/21 season. As the coronavirus decimates consumer confidence, pass sales could suffer. Why would someone drop upward of $1,000 when their job security is at risk?
“While we are not yet concerned with the company’s operations for early FY2021 due to the expected Q4 ski openings in Australia and summer activity openings at its North American resorts, we believe the company could lose a significant portion of its Epic Pass base that has been built in the past three years as consumers change their spending habits,” Berenberg wrote,
Another issue is that Vail is reconsidering its previously announced 2020 capital spending plans of $210 million to $215 million in ski area improvements due to the “potentially challenging economic environment,” Katz added.
David Katz, Khoa Ngo and Cassandra Lee of Jeffries Group LLC, in their note to investors, said that while they have “high confidence” in the company’s financial wherewithal to weather the storm of two lost months of revenue, challenges remain for the company.
But what’s certain is that Vail, which is only halfway through its fiscal 2020, will be happy to turn the page on the current calendar.
“The announcement confirms for MTN,” they wrote, “that 2020 is a year to forget.”
Photo courtesy Breckenridge Ski Resort