While the whole world has been waiting for some relief from the COVID-19 pandemic, hotels and resorts have been some of the most desperate to see some light at the end of the tunnel. With the rise in new cases hitting at the beginning of the winter season, Vail Resorts (NYSE: MTN) is looking at another tough season across its ski resorts. What does this mean for the company in the long term?
About Vail Resorts
Vail Resorts owns and operates 37 mountain resorts in North America and Australia. These resorts include some of the most well-known ski resorts in the world, including Vail, Breckenridge, Beaver Creek, and many others. While the company isn’t structured as a real estate investment trust (REIT), real estate is a major part of its core business model.
Where the company stands today
Like other resort and hospitality companies across the board, Vail Resorts has been a victim to the COVID-19 pandemic. In March, the company made the decision to close its North American resorts early for the 2019/2020 season and has suffered a significant drop in visitors for the summer activities and the 2020/2021 winter season.
The company ended its fiscal year in July with an EBITDA of $499 million compared to $702 million in 2019. Earnings per share also fell to $2.45 from $7.46 over the same period.
These losses resulted in several cost-saving measures, which included suspending its cash dividends, layoffs, and temporary salary reductions for several of its U.S. employees.
It’s not all bad news, though. Vail’s season pass sales through December 6, 2020, were up 20% compared to the same period in 2019. This is a good indication that their customers will be returning as leisure travel continues returning to normal.
The future of Vail Resorts
While the COVID-19 pandemic delivered an unexpected blow to resorts across the globe, Vail Resorts may be in one of the best positions to come out ahead once the dust settles.
The company made significant investments in snowmaking equipment -- extending its season by up to three weeks in three of its top resorts -- and technology to improve guest experiences ahead of the pandemic. This gives the company a competitive advantage over other resorts that will unlikely be able to make the capital investments needed to match these improvements.
The company also owns three resorts in Australia, where new daily COVID-19 cases have been in the single and double digits since October. These three resorts will likely have closer-to-normal revenue once their season begins in June 2021 to help offset further losses the company faces from its North American resorts in the 2020/2021 winter season.
While it will most likely be at least another year before Vail Resorts’ revenue will begin returning to pre-pandemic levels, the company is sitting on $614 million in available cash and $587 million in available revolving credit.
The company’s liquidity should provide more than enough breathing room to get through the year and leave it in a position to take advantage of acquisition opportunities that arise over the next couple of years as a result of the pandemic.
The play on Vail Resorts
I’m confident that Vail Resorts’ growth trajectory will resume course once the wounds from the pandemic heal. However, I don’t think it’s necessarily the right time to make a buy. While its revenue for the most recent quarter is down over 50% from the previous year, its stock price has recovered to its pre-pandemic price.
With the stock price hovering near its all-time high, and no word yet on when, or if, dividends will resume, I don’t see enough upside to get in today. However, I would take another look at Vail Resorts if its price dips again.