Vail Resorts: Caution, Slippery Slope Ahead

Includes: MTN, PEZ, VCR, XLY
by: Judy Weil

FQ1 is generally a slow quarter for ski resort operators as summer has ended and winter ski lifts are not yet open. Vail Resorts' (NYSE:MTN) results were worse than analysts expected, but the ski operator appears to be, uh, weathering the downturn. Advanced hotel bookings are down, but ski passes are up and the real estate segment is doing nicely.

Vail Resorts has yet to alter its guidance. Many variables are uncertain, and the lack of visibility could significantly impact FQ2 results. Key quotes from MTN's FQ109 conference call:

Colorado season pass sales actually strengthened since our last earnings call despite a period of worsening macroeconomic conditions. We introduced… the epic season pass. For the 2008/2009 season, we have sold to date approximately 204,000 total season passes, including epic season passes, for total sales of $90.9 million as compared to approximately 173,000 passes and $70.5 million in sales dollars in the prior year same time period, an increase of 18% in pass units and 28.8% in sales dollars.

Advanced lodging bookings for our upcoming ski season through our central reservations and directly at our owned and managed properties are currently 23% below last year’s levels and room nights.

Bookings to date represent approximately 50% of the ultimate total room nights for the season we historically have booked through these channels.

If booking trends do not improve from the current level, we almost certainly will fall below the low-end of our guidance range.

Once skiers get there, what will margins be like?

The key thing is not really the lift ticket product that they purchased but obviously whether they are a destination customer or a local or regional customer, and I think that’s going to determine what the ultimate spend is.

If we are going to be doing more local and Colorado based business and less destination business, I mean, that is a higher margin customer…If we see some fallout from the bottom of our income scales, that might have been a lower margin customer on the destination side.

Obviously if we have less people in a restaurant, we need less people to bus tables or we need less people to serve but apart from that, the experience will be the same. So I guess in total, yes, I think we are expecting certainly a margin decline.

No salvation from across the pond:

We have definitely seen a slow-down in foreign bookings. That’s certainly included as part of the 23% number that we’ve been talking about. I think a combination of the fact that the economic issues that we had in the U.S. I think started to expand to the rest of the world. I think that’s one issue. I think number two is that the dollar has strengthened and I think particularly against something like the Australian dollar, and that raised issues as well.

Real estate:

We closed on 42 of 45 units to date in our Crystal Peak Breckinridge real estate project for gross proceeds of $54.6 million. In this market, these closings represent a huge vote of confidence.

We received final deposits on 384 of the 390 reserved memberships to date for our recently opened Vail Mountain Club, representing gross proceeds from initiation deposits of $70.1 million.

The FQ109 real estate segment results were driven by the closings on 39 of the 45 Crystal Peak lodge units in Breckinridge, accounting for $51.2 million in revenue, and one lodge at Vail Chalet, accounting for $14.4 million in revenue.

Q: Six Mountain Club buyers haven’t closed. Can you give a reason for that?

A: I don’t know that we can give a reason but they did default... I think there were a couple of full memberships with a $100,000 deposit, a couple of social memberships with a $50,000 deposit.