Vail Resorts (MTN, Financial) saw its stock drop 4% today after reporting weak Q4 results. The company missed earnings expectations for the tenth consecutive quarter but managed to meet top-line estimates. Despite this, MTN's FY25 outlook shows little improvement from FY24, highlighting ongoing macroeconomic challenges. Consequently, MTN has initiated a two-year transformation plan, including workforce reductions.
MTN relies heavily on a strong travel industry and healthy discretionary spending. Over the past year, the travel sector has been normalizing, with extended lead times. Airbnb (ABNB, Financial) has noted that while longer lead times have affected revenue growth, demand remains stable.
Another challenge for MTN is the need for favorable weather conditions for skiing. During Q4, snowfall at its Western North American resorts was down 28% year-over-year. Eastern U.S. resorts also faced limited natural snow and variable temperatures. Similarly, Australian resorts experienced a 28% year-over-year decline in snowfall, which was 44% lower than the 10-year average.
- Despite these hurdles, MTN's Q4 results were not catastrophic. The company's net losses widened year-over-year, with an EPS of $(4.67), but revenue held relatively steady at $265.39 million, down just 1.6%. This was achieved despite a 9.5% year-over-year decline in skier visits across North American and Australian resorts. On the positive side, MTN saw strong ancillary spending per visit in ski school, dining, and rentals.
- Looking ahead to the 2024-2025 North American ski season, pass product sales are down around 3% in units but up 3% in dollars, reflecting past price hikes. The decline in units indicates persistent industry normalization and weather-related challenges. Lift ticket visitation, which drives pass conversion, has been struggling, leading to sliding pass sales.
- As a result, MTN projected Resort Reported EBITDA of $838-894 million and net income of $224-300 million for FY25, similar to the $825.1 million and $234.4 million posted in FY24, respectively.
- These challenges have prompted MTN to initiate a transformation plan aiming for $100 million in annualized cost efficiencies by the end of FY26. This involves reducing its total workforce by under 2%, including 14% of corporate employees and just under 1% of its operations workforce.
While MTN faces several obstacles, there are positive aspects. The workforce reduction should enhance profitability and support the company through current challenges. Additionally, the Board has nearly tripled the company's repurchase authorization to 1.7 million shares, representing around 4-5% of its market cap, showing confidence in future cash flows. Lastly, adverse weather conditions, although creating yearly volatility, can reverse, potentially boosting future demand, especially with a higher base of skiers post-pandemic.
