Late snow reduced ski visits – not including season pass holders – by 5.3% at Vail Resorts Inc.'s five western ski resorts in the second quarter ended Jan. 31. However, the company said ski lift revenues that were off 13.6% in the early part of the season, were up 11% between Christmas and the end of the quarter thanks to some of the best snow in years.



“Snowfall for the early season in the current year was significantly below the same period in the prior year,” said CEO Robert Katz. “Lift revenue was down approximately $4.9 million, or 13.6%, for the early season compared to the same period in the prior year. However, for the remainder of the quarter compared to the prior year starting with the Christmas holiday period through Jan. 31, lift revenue was higher by approximately $10.3 million, or 11.1%. Lift revenue was also favorably impacted by an approximate 23% increase in international guest visitation compared to the same period in the prior year.”

The company said its mountain revenues, which encompasses all snowsport operations, increased by $7.7 million, or just 2.8%, to $279.7 million from $272.0 million for the same quarter last fiscal year. Mountain operating expense increased $3.3 million, or 2.1%, to $163.2 million. Mountain reported EBITDA, which includes investment income or loss from Vail’s real estate portfolio, increased $3.8 million, or 3.4%, to $117.5 million compared to $113.7 million for the same quarter last fiscal year.


“With both very difficult early season weather and a challenging economy, our mountain reported EBITDA still represented a new all-time record for our second quarter and overall resort (mountain and lodging operations) reported EBITDA was essentially flat with last year's all-time record second quarter,” said CEO Robert Katz. “The second quarter basically contains the first half of our 2007/2008 ski season with mountain segment revenue up 2.8% over the prior year's record quarter with approximately 50% of our revenue growth flowing through to mountain reported EBITDA.


Lift ticket revenue up 4.2%

 

Lift ticket revenue increased $5.4 million, or 4.2%, over the prior year's quarter, driven in part by an 11.2% increase in season pass revenue as well as effective ticket price, or “ETP”, growth of 8.4%. That was driven by higher season pass pricing and increased ETP excluding season pass products of 7.0%, again caused by higher pricing.

 

Partially offsetting the season pass and ETP increases was a decline in skier visits excluding season pass holders of 5.3% at the company's five ski resorts, which entirely occurred from the start of the ski season to the pre-Christmas holiday period in December, or the “Early Season.”


Katz continued, “Revenue from our ancillary Mountain businesses including ski school, dining and retail/rental businesses followed the same trends as lift tickets described above, with overall revenue up $4.9 million, or 4.1%, for these three areas in the quarter, despite revenue being down in these areas by approximately $4.8 million, or 10.0%, in the Early Season, with revenue for these three areas being up by approximately $9.7 million, or 13.5%, in the remainder of the quarter.

 

Average daily lodging rate up 9.6%

 

“Also importantly, our yields for revenue per skier visit relative to these ancillary businesses were all improved with our guests spending more on ski school, dining and retail/rental per visit in the current year.

 

“Looking at our lodging operations, our average daily rate increased 9.6% and our revenue per available room increased 6.9% for the quarter on a “same store” basis at our owned hotels and managed condominiums.”

 

Lodging results for the quarter absorbed approximately $2.2 million of one-time start-up and pre-opening expenses related to the new Arrabelle at Vail Square, a RockResort, and therefore the lodging segment reported EBITDA was a loss for the quarter. Real estate reported EBITDA decreased for the quarter due solely to the timing of closings within the quarter.

 

Katz said the company remains on pace to close on all of The Arrabelle condominium units and six of the thirteen Lodge at Vail Chalets in the current fiscal year with the remaining Chalets anticipated to close in the first half of fiscal 2009.”

“While there are challenges with the U.S. economic climate, we believe our business remains solid as we enter our third quarter, historically our strongest quarter of the season, as reflected in the growth of our mountain revenue results since the pre-holiday period, all achieved within this current economic environment,” Katz said.


He also noted that Vail Resort's balance sheet continues to strengthen with approximately $275 million of cash and cash equivalents on hand and net debt of less than two times trailing twelve months total reported EBITDA.”

Lodging Segment

Lodging revenue up 6.2%


MTN said its lodging revenue increased $2.0 million, or 6.2%, in the second quarter of fiscal 2008 to $34.8 million from $32.8 million for the same quarter last fiscal year. Lodging operating expense increased $6.0 million, or 19.6%, to $36.8 million. Lodging operating expense included approximately $2.2 million of start-up and pre-opening expenses related to The Arrabelle at Vail Square hotel. Lodging reported EBITDA decreased $4.0 million, or 195.9%, to a loss of $2.0 million compared to a profit of $2.0 million for the same quarter last fiscal year.

Resort – Combination of Mountain and Lodging Segments


Resort revenue, the combination of Mountain and Lodging revenue, increased $9.7 million, or 3.2%, in the second quarter of fiscal 2008 to $314.5 million from $304.8 million for the same quarter last fiscal year. Resort operating expense increased $9.3 million, or 4.9% to $200.0 million. Resort equity investment income, net decreased $0.6 million. Resort Reported EBITDA decreased $0.2 million to $115.5 million, a 0.2% decrease from the same quarter last fiscal year. Resort Reported EBITDA excluding stock-based compensation decreased $0.4 million, or 0.3%, to $116.6 million.


Real Estate Segment


Real Estate revenue decreased $10.7 million, or 19.1%, in the second quarter of fiscal 2008 to $45.5 million from $56.2 million for the same quarter last fiscal year. Real Estate operating expense decreased $6.0 million, or 11.9%, to $44.4 million. Gain on sale of real property increased $0.7 million. Real Estate Reported EBITDA decreased $4.1 million, or 69.6%, to $1.8 million compared to $5.8 million for the same quarter last fiscal year.


Total Performance


The company’s total revenue from all operations declined $1.0 million, or 0.3%, in the second quarter to $360.0 million, primarily due to a $10.7 million, or 19.1% drop in real estate revenues. Companywide income from operations decreased $5.2 million, or 5.3%, to $92.6 million. The resulted in second quarter net income of $51.3 million, or $1.31 per diluted share, compared to net income of $53.0 million, or $1.35 per diluted share, for the same quarter last fiscal year.


Six month performance


Mountain Segment


Mountain revenue increased $4.1 million, or 1.3%, for the six months ended Jan. 31, 2008, to $322.3 million from $318.2 million for the comparable period last fiscal year. Mountain operating expense increased $4.8 million, or 2.0%, to $244.1 million. That included approximately $2.0 million in legal fees for litigation related to the company's attempted acquisition of The Canyons ski resort.  Excluding the impact of The Canyons litigation, mountain operating expense would have increased approximately $2.8 million, or 1.2%. Mountain equity investment income, net increased $0.6 million. Mountain Reported EBITDA decreased $0.1 million, or 0.2%, to $81.0 million compared to $81.2 million for the comparable period last fiscal year.


Lodging Segment


Lodging revenue increased $4.9 million, or 6.7%, for the six months ended Jan. 31, 2008, to $78.1 million from $73.2 million for the comparable period last fiscal year. The prior year period included the recognition of $2.4 million of revenue associated with the termination of the management agreement at The Lodge at Rancho Mirage (pursuant to the terms of the management agreement) with the closing of the hotel as part of a redevelopment plan by the hotel's owner. Excluding this termination fee, Lodging revenue would have increased $7.3 million, or 10.4%. Lodging operating expense increased $10.9 million, or 16.3%, to $78.0 million. Lodging operating expense included approximately $3.0 million of start-up and pre-opening expenses related to The Arrabelle at Vail Square hotel. Lodging Reported EBITDA decreased $6.0 million, or 97.9%, to $0.1 million compared to $6.1 million for the comparable period last fiscal year.


Resort – Combination of Mountain and Lodging Segments


Resort revenue, the combination of Mountain and Lodging revenue, increased $9.0 million, or 2.3%, for the six months ended Jan. 31, 2008, to $400.4 million from $391.4 million for the comparable period last fiscal year. Excluding the impact of the prior year Rancho Mirage termination fee, Resort revenue would have increased $11.4 million, or 2.9%. Resort operating expense increased $15.7 million, or 5.1%, to $322.2 million. Excluding the current fiscal year legal expense associated with The Canyons litigation, Resort operating expense would have increased approximately $13.7 million, or 4.5%. Resort equity investment income, net increased $0.6 million. Resort Reported EBITDA decreased $6.1 million to $81.1 million, a 7.0% decrease from the comparable period last fiscal year. Resort Reported EBITDA excluding stock- based compensation decreased $6.3 million, or 7.0%, to $83.6 million.


Business Commentary and Outlook


Commenting on One Ski Hill Place in Breckenridge, Katz said, “We had a successful launch of the first of a multi-building project at One Ski Hill Place including 88 ski-in/ski-out residences ranging from studio to four- bedroom homes with approximately 102,000 saleable residential square feet. To date, we have released 66 units in five phases with an average price per square foot of $1,244 (29% in excess of Crystal Peak released just a year ago, which has already sold out). Currently, we have 38 units under contract, representing gross sales proceeds of $54.5 million. We are excited by the development opportunities that exist at Breckenridge with One Ski Hill Place, a RockResort, creating a unique luxury experience at the base of Peak 8.”


Vail Mountain Club Raises Initiation Fees by up to 42% 


As an update on the Vail Mountain Club, Katz added, “Vail Mountain Club sales continue to be strong. To date, we have sold 332 memberships, including 161 full memberships, which include parking privileges, and an additional 171 social memberships, which exclude parking privileges, representing total sales commitments of $58.6 million of total proceeds when paid in full. This includes the sale of 41 full memberships and 41 social memberships since our Dec. 10, 2007, earnings release. With the pace of the membership sales, we have recently increased the membership initiation fee deposit on the full memberships to $275,000 from $260,000 and on the social memberships to $150,000 from $105,000 with eight full memberships and seven social memberships sold at these new price points. The strength of the Vail Mountain Club sales in this economic climate is certainly a testament to the unique experience that the club will offer members steps from the Vista Bahn chairlift beginning next ski season.”

Commenting on the opening of The Arrabelle at Vail Square, Katz said, “On Jan. 5th, we opened the newest RockResort hotel, The Arrabelle at Vail Square, the crown jewel of our hotel portfolio. This project including its hotel, commercial and real estate components has redefined the look and feel of one of the key base areas at Vail Mountain as guests experience a quintessential European village in the heart of Vail. In addition to world class skiing and snowboarding accessed via the gondola just steps away, lodging guests at The Arrabelle can enjoy the highest level of amenities and services such as a ski concierge, a premium RockResorts spa and fabulous new restaurants including Centre V, a French inspired Brasserie. Since opening, we have had rave reviews for this new luxury, signature property of the RockResorts brand and for the surrounding village we have created, which has fundamentally changed the landscape of one of the main portals to Vail Mountain. In addition, we have closed on 12 of the 67 Arrabelle condominium units in the second quarter with all of the remaining condominium units under contract and expected to close during the remainder of fiscal 2008.”


Guidance


Vait reaffirmed its net income guidance, which was first issued in September, 2007.


 

“As components of the net income guidance, we are also reaffirming our lodging and real estate reported EBITDA guidance, while we are lowering our mountain reported EBITDA guidance by roughly the amount of the lift ticket and the ancillary revenue area declines described earlier which occurred during the Early Season,” said Katz.

Vail Resorts expects full year resort reported EBITDA, the combination of our mountain and lodging segments, to range from $230 million to $240 million and resort reported EBITDA excluding stock-based compensation expense to range from $235 million to $245 million. The resort guidance includes a range for mountain reported EBITDA of $218 million to $228 million and mountain reported EBITDA excluding stock-based compensation expense of $222 million to $232 million, while we expect lodging reported EBITDA to range from $8 million to $14 million and lodging reported EBITDA excluding stock-based compensation expense expected to range from $9 million to $15 million. Real estate reported EBITDA is expected to range from $54 million to $60 million and real estate reported EBITDA excluding stock- based compensation expense is expected to range from $57 million to $63 million.


The company said its current estimates call for net income to range from $112 million to $122 million and net income excluding stock-based compensation expense to range from $117 million to $127 million.


Resort Capital Expenditure Announcement


The company also announced its calendar 2008 Resort capital expenditure plans, exclusive of resort depreciable assets associated with the company's various real estate projects. The company expects to spend approximately $100 million to $110 million of resort capital expenditures in calendar 2008, which includes $40 million to $42 million for capital expenditures that the company believe are necessary to maintain the high quality appearance and level of service at the company's five ski resorts and throughout its hotels.


Highlights of these “maintenance” capital expenditures include:


  •  snow-cat replacements;
  • uniforms for all five mountains;
  • lift maintenance;
  • snowmaking equipment;
  • lodging furniture, fixture & equipment and
  • rental equipment fleet capital.

Resort discretionary capital is expected to be in the range of $60 million to $68 million with projects including:



  •  a new state-of-the-art eight passenger Keystone River Run gondola, including moving the bottom terminal into River Run Village;
  • completion of the second phase of the Beaver Creek children's ski school improvements, including an on-mountain ski school building following the new Buckaroo Express gondola installed in 2007;
  • full renovation of the Inn at Beaver Creek, including substantial upgrades to create a unique ultra-luxury RockResorts branded hotel;
  • new snowmaking equipment at Peak 7 in Breckenridge;
  • re-grading and snowmaking for the main trail connecting California and Nevada at Heavenly;
  • Jackson Lake Lodge room remodel in Grand Teton National Park; and
  • upgrades to the company's central reservations, marketing database and e-commerce booking systems, among other projects.

Vail Resorts subsidiaries operate the mountain resort properties at the Vail, Beaver Creek, Breckenridge and Keystone mountain resorts in Colorado, the Heavenly Ski Resort in the Lake Tahoe area of California and Nevada and the Grand Teton Lodge Company in Jackson Hole, Wyoming. The Company's subsidiary, RockResorts, a luxury resort hotel company, manages casually elegant properties across the United States and the Caribbean. Vail Resorts Development Company is the real estate planning, development and construction subsidiary of Vail Resorts, Inc. Vail Resorts, Inc.


               Resort Revenue by Business Line and Skier Visits
                                (In thousands)
                                 (Unaudited)


                      Three Months   Percentage   Six Months    Percentage
                         Ended        Increase      Ended        Increase
                       Jan. 31,   (Decrease)   Jan. 31,   (Decrease)
                     2008     2007              2008     2007
    Business Line
    Lift tickets   $133,998 $128,617    4.2 %  $133,998 $128,617   4.2 %
    Ski school       35,155   34,198    2.8 %    35,155   34,198   2.8 %
    Dining           22,895   22,468    1.9 %    27,658   26,354   4.9 %
    Retail/rental    66,771   63,291    5.5 %    90,311   87,809   2.8 %
    Other            20,903   23,452  (10.9)%    35,136   41,211 (14.7)%
    Total Mountain
     Revenue       $279,722 $272,026    2.8 %  $322,258 $318,189   1.3 %


    Total Lodging
     Revenue        $34,827  $32,796    6.2 %   $78,144  $73,204   6.7 %


    Total Resort
     Revenue       $314,549 $304,822    3.2 %  $400,402 $391,393   2.3 %


                      Three Months   Percentage   Six Months    Percentage
                         Ended        Increase      Ended        Increase
                       Jan. 31,   (Decrease)   Jan. 31,   (Decrease)
                     2008     2007               2008     2007
    Skier Visits
    Vail              680      725     (6.2)%     680      725    (6.2)%
    Breckenridge      743      774     (4.0)%     743      774    (4.0)%
    Keystone          571      598     (4.5)%     571      598    (4.5)%
    Heavenly          403      407     (1.0)%     403      407    (1.0)%
    Beaver Creek      402      408     (1.5)%     402      408    (1.5)%
    Total Skier
     Visits         2,799    2,912     (3.9)%   2,799    2,912    (3.9)%


    Effective Ticket
     Price         $47.87   $44.17      8.4 %  $47.87   $44.17     8.4 %