Vail Resorts Inc. Fundamental Analysis
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Vail Resorts Inc.
Last Updated: 13 Jun 2024
NYSE: MTN
GICS Sector: Consumer Discretionary
Sub-Industry: Resorts & Casinos
Table of Contents
You can download a summary of Vail Resorts Inc's fundamental analysis in PDF here.
Management
CEO: Kirsten Lynch
Tenure: 2.6 years
Kirsten A. Lynch became the Chief Executive Officer and Director of Vail Resorts Inc. in Nov 2021. Before this role, she served as the Chief Marketing Officer and Executive Vice President at Vail Resorts from Jul 2011 to Oct 2021.
From 2009 to 2011, Lynch worked at PepsiCo as the Chief Marketing Officer of Quaker Foods and Snacks, where she transformed the brand into a health and wellness platform. She was Vice President of Marketing for Kraft Foods' Cheese and Dairy Business Unit from 2007 to 2009 and has been with Kraft since 1996 in various marketing roles.
She holds a Bachelor's Degree in Marketing from Illinois State University and a Master's Degree in Business from Washington University in St. Louis.
Let us now analyze the CEO’s compensation.
Vail Resorts Inc. CEO Compensation Analysis. Source: Simply Wall St
The total compensation refers to the sum of all forms of payments and benefits the CEO receives per year. This can include salary, bonus, stock options, and other perks.
The graph above shows that the CEO’s compensation has been consistent with the company's performance over the past year, which can generally be a positive indication.
When CEO pay reflects company results, it suggests the CEO's goals are aligned with shareholders. Investors want CEOs who are focused on making the company successful, which should, in turn, benefit shareholders.
Looking broadly at Vail Resorts Inc.’s management team, the average tenure is 2.6 years, which is considered experienced.
Business Overview
Vail Resorts Inc., through its subsidiaries, operates mountain resorts and regional ski areas in the United States. It has three segments: Mountain, Lodging, and Real Estate.
Mountain Segment
Vail Resorts' Mountain segment operates 41 destination mountain resorts and regional ski areas, including five of the top ten most visited resorts in the U.S. for the 2022/2023 ski season.
This segment generates revenue through lift tickets, pass products, ski and snowboard lessons, equipment rentals, retail merchandise sales, dining venues, private club operations, and various recreational activities throughout the year. Furthermore, some owned and leased commercial spaces are leased to third-party operators, enhancing the mix of amenities at the resorts with unique restaurants and retail stores.
The resorts, catering to a diverse clientele, offer extensive winter and summer recreational activities such as skiing, snowboarding, snowshoeing, mountain biking, and more. Many resorts operate year-round, providing a comprehensive resort experience. Collectively, these resorts are conveniently located near population centers totalling approximately 110 million people.
Vail boasts three of the most popular US resorts: Breckenridge (number one), Park City (number two and the largest by acreage), and Vail Mountain (number three). In 2023, Vail acquired a controlling stake in Andermatt-Sedrun, its first European resort. Located in Switzerland, Andermatt-Sedrun offers extensive terrain and connects to the independently owned Disentis ski area.
Vail Resorts also has a strong presence in Australia, owning three of the five largest ski areas, including Perisher, Falls Creek, and Mount Hotham. These areas attract skiers from the Sydney and Melbourne metropolitan areas. The Epic Australia Pass is explicitly marketed to Australian guests for both domestic skiing and international visitation.
Vail Resorts Inc.'s destination mountain resorts and regional ski areas. Source: Vail Resorts Inc. 10K
Lodging Segment
Vail Resorts' Lodging segment includes owned and managed properties, such as luxury hotels under the RockResorts brand, and managed condominium units around its mountain resorts in Colorado, Lake Tahoe, Utah, Vermont, New York, Pennsylvania, and British Columbia.
The segment also manages two NPS concessioner properties near Grand Teton National Park in Wyoming, a resort ground transportation company in Colorado, and mountain resort golf courses in Colorado, Wyoming, Lake Tahoe, and Park City.
As of 2023, Vail's Lodging segment boasts roughly 5,500 rooms and condos. RockResorts properties fall under the luxury category, achieving high average daily rates comparable to Four Seasons and Ritz-Carlton hotels.
Vail Resorts' other owned hotels are mainly in the upper upscale segment. Due to ski resorts' seasonal nature, Vail's hotels have a lower occupancy rate than the broader upper upscale market. However, Vail's average daily rate surpasses the upper upscale segment, demonstrating strong demand during peak seasons.
Real Estate Segment
Vail Resorts maintains a significant real estate portfolio, primarily in Summit and Eagle Counties, Colorado.
The company focuses on selling land parcels to developers and meticulously plans future projects, securing zoning and permits. Vail Resorts prioritizes working with third-party developers over significant in-house vertical projects.
Beyond the revenue generated by land sales, this real estate development strategy strengthens the core Mountain and Lodging segments. Firstly, it fosters the creation of new resort amenities like restaurants, spas, and skier services, generating recurring revenue streams and enriching the guest experience. Secondly, it allows Vail Resorts to curate the architectural aesthetic of its resorts. Finally, development expands the company's property management and commercial leasing capabilities.
Vail Resorts Inc. Reportable Segment Revenue for the fiscal year ended 31 Jul 2023. Source: Gurufocus
Vail Resorts Inc. Revenue Geographic Breakdown for the fiscal year ended 31 Jul 2023. Source: Gurufocus
Vail Resorts faces significant seasonal revenue fluctuations due to North American ski seasons typically running from mid-Nov to mid-Apr. To combat this, they offer summer activities like mountain biking and sightseeing, attracting conferences during off-peaks. Additionally, Australian resorts with a Jun-to-Oct ski season partially offset the North American lull.
Recognizing seasonality in lodging, Vail also promotes conference facilities and off-season activities alongside golf courses near their resorts. These efforts aim to create a more balanced revenue stream throughout the year.
Trends, Competition, and Strategy Overview
North America boasts about 760 operational ski areas, with around 480 in the U.S., catering to day skiers and vacationers alike. The 2022/2023 ski season witnessed approximately 85.8 million skier visits across the continent, with Vail Resorts hosting roughly 17.2 million, constituting 20.0% of the total visits.
Due to limited land availability, regulatory hurdles, and substantial capital requirements, new destination ski resorts face challenges. Consequently, no sizable destination resorts have emerged in North America for over four decades, allowing established ones like Vail Resorts to capitalize on industry growth.
Vail Resorts' competitors include renowned resorts such as Aspen Snowmass, Copper Mountain, and Mammoth, as well as various others across different regions and countries. Furthermore, pass products vie for market share against alternatives like the IKON Pass and the Mountain Collective Pass.
Vail Resorts stands out in the ski industry thanks to its collection of premier mountain resorts. These iconic destinations boast geographically diverse locations across North America, from the Rockies to Lake Tahoe. Beyond the U.S., Vail Resorts operates resorts in Australia and Switzerland.
To solidify their position, the company strategically invests in exceeding guest expectations. This focus is evident in several ways.
First and foremost, Vail Resorts leverages data-driven marketing to target specific demographics with personalized offers precisely, maximizing the effectiveness of their campaigns. Secondly, they make substantial investments in season pass programs, a strategic move that incentivises early commitment and fosters guest loyalty, a key driver of their success. Lastly, Vail Resorts consistently enhances its infrastructure, upgrading lifts and expanding terrain to ensure a top-notch skiing experience, a testament to its commitment to quality.
Vail Resorts prioritizes exceptional service at every touchpoint. They streamline the guest journey from comprehensive websites to a new mobile app. The My Epic App allows online pass purchases, hands-free lift access, and real-time mountain information.
Season passes are a cornerstone of Vail Resorts' strategy. They offer various options catering to both local and destination guests, all at a discounted price for pre-season commitment. The company further strengthens its pass offerings through strategic alliances with third-party resorts, expanding the value proposition for pass holders.
Vail Resorts also boasts renowned ski schools staffed by experienced professionals. Top-notch facilities and diverse learning terrain cater to all skill levels, encouraging a lifelong love for skiing and snowboarding.
Beyond the slopes, Vail offers a variety of dining options, from fine dining to casual on-mountain fare. Retail and rental locations are conveniently situated throughout the resorts, providing guests easy access to equipment and expert advice.
Vail Resorts isn't just about winter sports. They are creating year-round destinations. Summer activities like mountain biking and scenic gondola rides broaden their appeal. The Epic Discovery program caters to families, offering educational elements, zip lines, and other fun activities. Several golf courses surround the resort, providing options for all types of vacations.
High-quality lodging is another pillar of Vail Resorts’ strategy. They own and manage properties near their resorts, including luxurious RockResorts and condominiums. Under its Real Estate segment, the company strategically sells land parcels to developers to construct additional lodging, restaurants, and retail shops, ultimately enhancing the overall resort experience.
Vail Resorts Inc. Economic Moat
There are many ways to identify Vail Resorts Inc.’s economic moat, but I focus on these 5 sources. The rating is purely subjective and is based on my in-depth understanding of the company.
Vail Resorts Inc. Economic Moat
Economic Moat: Narrow
Vail Resorts proudly presents an exclusive collection of premier ski destinations, a treasure trove that spans North America and beyond. This unparalleled variety and prestige make it a challenge for competitors to match.
Each resort in this unique portfolio is a gem, and Vail Resorts has masterfully cultivated a brand reputation synonymous with quality, luxury, and exceptional experiences. This brand image is a powerful intangible asset that lures discerning customers eager to experience exclusivity and premium offerings.
That reputation for quality isn't empty words. Vail Resorts consistently delivers exceptional experiences, from meticulously groomed slopes to first-rate lodging and dining. Such a reputation ensures customers are drawn to their resorts, fostering repeat visits and word-of-mouth endorsements. New entrants would need significant time and resources to develop a comparable brand image and earn customers' trust and loyalty.
But Vail Resorts understands that happy guests are loyal guests. They go the extra mile to make every visitor feel special, from user-friendly apps to top-notch instruction. This translates into seamless, enjoyable experiences that have guests raving to their friends, bringing in even more business.
Technology plays a starring role in the Vail Resorts experience. The My Epic App and user-friendly websites streamline the guest experience, providing a competitive edge. Proprietary technology, like hands-free lift access and real-time mountain updates, distinguishes Vail Resorts from its competitors. To compete, new players must invest heavily in infrastructure and services to meet these high standards, which can be prohibitively expensive.
Strategic partnerships are a key element in Vail Resorts' winning strategy. These alliances with other resorts not only expand their offerings and reach but also extend the value of their season passes. By leveraging these partnerships, Vail Resorts strengthens its position in the market, instilling confidence in its long-term success.
Cracking Vail Resorts' partnership stronghold is a particularly daunting feat for new players. Their extensive network of partnerships, mainly through the Epic Pass, offers significant value and seamless customer experiences, which are challenging for new entrants to replicate. Establishing similar alliances requires complex negotiations and substantial investments, which are overwhelming without an established reputation.
Vail Resorts understands that their employees are the backbone of their success. A skilled workforce is essential for maintaining top-notch ski schools, running efficient operations, and delivering exceptional customer service. They further solidify this advantage by investing in employee training, particularly within their ski schools. Experienced instructors and well-trained staff contribute significantly to the overall high-quality experience, reinforcing Vail Resorts’ reputation for excellence.
Vail Resorts Inc. Performance
My quick performance checklist:
Has Vail Resorts Inc.'s revenue consistently grown year-over-year for the past 5 years? No, it dipped from the fiscal year 2019 before rebounding in 2022.
Is the net income consistently increasing year-over-year for the past 5 years? No, it is inconsistent year after year.
Has the cash flow from operating activities shown consistent year-over-year growth for the past 5 years? No, it is inconsistent year after year.
Has the free cash flow remained positive for the past 5 years? Yes.
Is the gross margin % consistent or growing over the past 5 years? Yes, it has been consistent over the past five years, averaging 42%.
Has the EPS shown growth over the past 5 years? No, it is inconsistent year after year.
Vail Resorts' Mountain business saw a profit increase of $11 million thanks to more skiers and higher spending on extras like lessons and meals. This bump was partially offset by rising staff costs and weather-related expenses. Lift ticket sales grew 8% due to both season pass sales and individual ticket purchases.
However, total revenue per skier visit actually decreased slightly as more skiers opted for season passes, which typically bring in less money per visit compared to individual tickets. Revenue from extras like ski lessons and dining soared due to both a rebound from COVID restrictions and increased skier visits.
In contrast, Lodging business declined by $13 million, mainly due to rising labor costs and administrative expenses associated with increased staffing and operational normalization. Dining revenue rose, partly due to the acquisition of Seven Springs Resorts. Golf courses also saw a revenue increase. Other lodging revenue grew as pandemic restrictions eased and amenities like spas and conference services reopened.
Vail Resorts Inc. Revenue, Net Income, Operating Cash Flow, and FCF (USD Million)
Has free cash flow per share increased over the last 5 years? No, it is inconsistent year over year.
Vail Resorts Inc. FCF per Share
Management Effectiveness
Has Vail Resorts Inc.'s ROE stayed within or above the 12%-15% range year over year for the past 5 years? No, the company’s ROE was below 10% for the fiscal year 2020 and 2021.
Vail Resorts Inc. Return on Equity
A company having a ROE higher than the industry average is generally considered positive. It might point to a sustainable competitive advantage, allowing the company to outperform its peers.
Has the ROIC stayed within or above the 12%-15% range year over year for the past 5 years? No, it has always been below 9%.
Vail Resorts Inc. Return on Invested Capital vs Weighted Average Cost of Capital
When ROIC is greater than WACC, it means that the company's investments are earning a good return, beating the cost of funding those investments. This means they have efficient capital allocation and are creating value for shareholders.
The trendline for the number of shares outstanding is declining, which would please an investor.
Vail Resorts Inc. Shares Outstanding (Million Shares)
Vail Resorts' board has repeatedly authorized share repurchases, reaching a total of 10 million shares since 2006. By Jul 2023, the company had bought back 8.6 million shares for nearly $1 billion. With over 1.3 million shares still available for repurchase, the company can buy them at prevailing market prices under specific regulations.
The company will consider its financial health, cash flow, borrowing restrictions, share price, and available sellers when deciding how many shares to buy. There's no deadline for these repurchases.
Vail Resorts Inc. Financial Health
Vail Resorts Inc. Financial Health (USD Million)
Current Ratio: 1.2 (pass my requirement of >1.0, but <3.0)
I use the current ratio instead of the quick ratio to analyze the company’s liquidity. This is because I want a general overview of financial health, and the company’s inventory is a significant asset and can easily be converted to cash.
The current ratio improved from 0.7 in fiscal year 2019 to 1.8 in 2021 before trending downward to 1.1 in 2023.
A declining ratio suggests the company has fewer current assets relative to its current liabilities. This could make it harder to pay off bills on time.
When compared to its industry, Vail Resorts Inc.'s current ratio is worse, as it is below the industry median of 1.3.
Debt-to-EBITDA: 3.6 (fail my requirement of <3.0)
Interest Coverage: 3.4 (fail my requirement of >3.0)
Debt Servicing Ratio: 27.2% (pass my requirement of <30.0%)
Vail Resorts Inc. Stock Performance
The total return graph below is presented for the period from the beginning of the fiscal year ending 31 July 2019 through the end of the fiscal year ending 31 July 2023.
The comparison assumes that $100 was invested at the beginning of the period in Vail Resorts Inc.'s common stock, The Russell 2000 Stock Index, The Standard & Poor’s 500 Stock Index, and the Dow Jones U.S. Travel and Leisure Stock Index, with dividends reinvested where applicable.
Stock Performance. Source: Vail Resorts Inc. 10K
Vail Resorts Inc. Intrinsic Valuation
Estimated intrinsic value: USD $148.24
Value is calculated using the discounted cash flow method (considering their cash and debt) and scenario planning.
Average free cash flow used: USD $390M
Projected growth rate: 9% - 10%
Beta: 1.1
Discount rate: 8.5%
Ideal margin of safety: 50% (Uncertainty: High)
Price range after the margin of safety: <USD $74.00
Date of calculation: 13 Jun 2024
Vail Resorts Inc. Valuation
I use the past 5 years' free cash flow and apply a weighted average, giving more focus on the recent years. I then round the average to the nearest tens. In some instances, I use a more realistic number to represent the free cash flow.
The total debt and cash and short-term investments are the last quarter figures that are rounded to the nearest tens. In some instances, I use more realistic numbers to represent them.
Vail Resorts Inc. Intrinsic Valuation
Vail Resorts Inc. Relative Valuation
Vail Resorts Inc. Price-Earnings Ratio vs its Peers
Vail Resorts Inc. Historical Price-Earnings Ratio
Additional Resources
I recommend reading The Five Rules for Successful Stock Investing as it greatly helps in my stock analysis. If you want a complete collection of recommended books, please visit here.
My Concerns
Vail Resorts faces economic risks. Skiing, travel, and tourism are discretionary and costly, and they may suffer during economic downturns or recessions. Inflation, high gas prices, and recessions could scare people away from vacations, hurting Vail Resorts’ bookings and revenue.
Moreover, Vail Resorts is confronted with a myriad of travel risks that are beyond its control. The recent COVID-19 pandemic is a stark example. Unforeseen airline disruptions and shifts in consumer preferences, such as a waning interest in skiing, could pose significant challenges to the business.
The high prices for lift tickets and ancillary services could further deter guests, forcing the company to offer more discounts and negatively impacting financial results. Changes in exchange rates or travel restrictions could also reduce international visitation, significantly affecting operations.
Vail Resorts is heavily dependent on favorable weather conditions. Insufficient snowfall can adversely affect their business. The cost of snowmaking during warm weather and the management of heavy snowfall can be significant. The threat of climate change worsens these issues with the potential for less snow and unpredictable weather patterns.
Unlike summer activities, winter operations are Vail Resorts’ primary source of income. Past snowfall patterns can affect season pass sales, and early season conditions can set the tone for the year. Unhappy guests with lousy weather might delay or cancel trips. While Vail Resorts has resorts in different areas to offset weather risks, they can't control the weather itself.
This means that investing in Vail Resorts involves substantial seasonal risk. The North American and European operations peak from mid-Dec to mid-Apr, generating most revenue and profits. However, historically, late spring to late fall sees losses due to reduced activity. Australian Resorts, Flagg Ranch, and summer activities from Jun to Sep don't bring in enough money to cover those losses. This seasonality poses a significant consideration for potential investors.
Lastly, Vail Resorts faces a web of environmental and safety laws. They must follow strict waste, water, wildlife, and land use rules. New projects can be delayed or blocked if they don't meet these regulations. Government inspections and potential fines are also a risk. Even if Vail Resorts complies now, future changes in laws or hidden environmental issues could cost them dearly.
While Vail Resorts boasts a strong position in the ski industry, the company's recent performance and capital allocation strategies leave much to be desired. Both ROE and ROIC fall below acceptable benchmarks, indicating inefficiencies in generating returns from shareholders' equity and invested capital.
The debt-to-equity ratio has ballooned from 54% to a concerning 182% in just five years. Such high leverage amplifies financial risk and limits flexibility in adverse economic conditions. To justify an investment, the stock price would need to offer a substantial discount, ideally a 50% margin of safety compared to its intrinsic value.
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