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Vail Resorts Was Struggling, Now It Is In A Perfect Storm

Apr. 23, 2020 9:00 AM ETVail Resorts, Inc. (MTN)114 Comments
Harrison Schwartz profile picture
Harrison Schwartz


  • When I covered Vail earlier this year, I detailed its rising labor costs and growing difficulties attracting new customers.
  • Vail Resorts has aggressively pursued growth through leverage and margin expansion which is now starting to backfire.
  • COVID made a bad situation worse by abruptly ending the spring ski season and likely setting the scene for poor 2021 pre-sales.
  • Most skiing profits come from older customers who will likely avoid making winter travel plans and are cutting discretionary spending.
  • Vail has made significant defensive measures to maintain liquidity, but its mountain of debt and negative working capital remains extreme.
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In January I wrote an in-depth short article on Vail Resorts (NYSE:MTN) called "An Avalanche Is Coming For Vail Resorts As Labor Costs And Economic Risks Rise". The core of my short thesis is that the company is expensive, struggling with growing revenue, and is facing rising labor costs. Even more, it has very high leverage and has a high chance of needing to cut its dividend.

My price target range for the company (when it was worth $250) was between $75-$150. The $150 price reflected the company's fair-value given no economic recession, only a rise in labor costs and a drop in its growth expectations. The $75 target reflects a recession-outcome based on a decline in margins, valuation, and a realization of its potential debt refinancing issues.

Of course, I did not adjust for the impact of a global economy-halting pandemic like COVID. The virus not only spurred a recession but also rapidly ended the 2020 winter sports season. It forced the company to furlough the majority of its part-time employees, cut the pay of year-round employees, cut its cash dividend for two quarters, and reduce capital expenditures.

If the virus manages to last until 2021 as an increasing number believe, Vail will struggle to hire seasonal workers as they often live in dorm-like housing. Even more, if the economy is still in a recession by then (which I believe is likely), far fewer will likely be willing to pay the increasingly expensive entrance fees (let alone hotels, restaurants, and other higher-margin products). This was already a slow-growing problem, but now it is a much more immediate one.

As mentioned in their COVID response, many season pass holders were very frustrated to not be able to receive a refund on the shortened season. It would be lethal for the company to

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This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I am/we are short MTN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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