Vail Resorts has mastered the art of getting skiers from a lower elevation to a higher one. But when it comes to doing the same for its stock investors, the chairlift is broken.
The latest example is how an otherwise promising start to the ski season got derailed by a strike of ski patrol workers on Dec. 27 at the company’s Park City resort. Headlines and videos of irate customers lambasting Vail Resorts for hour-long waits in lift lines despite paying top dollar during ski during the holidays quickly replaced those of heavy early snow and happy customers and they haven’t let up.
“You can see why the stock’s been lousy for quite some years. If you want to run a travel-and-leisure company, you darn well better give the experience that you’re advertising. Because if you don’t, you will get negative PR and you will get nonrepeating customers — exactly what you don’t want,” an upset Jim Lebenthal, an analyst with Griffin Management who covers Vail Resorts, said on CNBC’s Halftime Report at the start of the month.
Lebenthal was skiing at Park City Mountain Resort, the second busiest in the company’s portfolio of 42 resorts, when he experienced the chaos firsthand. He complained that the company didn’t notify guests, who paid a premium to be there during a holiday week, of the pending strike and reduced terrain. Lebenthal maintains a sell rating on the company’s stock after the experience.
Trading under the ticker MTN, Broomfield-based Vail Resorts shares closed at $180.14 on Wednesday. That is around where shares traded at the start of 2017. Between then and now the stock hit an all-time but unsustainable high of $334.95 on Nov. 5, 2021.
An investor who jumped into the stock at the start of 2017 has had no appreciation in eight years, just a lot of peaks and valleys, so much so that the company’s stock chart bears an uncanny resemblance to a range in the Rocky Mountains. If an investor had the misfortune of buying at the peak, fueled by a late pandemic boost, the decline is nearly 50%.
Over the past year, MTN shares are off 10.4% compared to a 25.8% gain for a more passive investor who just bought an S&P 500 index fund. Over the past five years, shares have nursed a 16% loss while the broader market shot up 82%. Thanks to its recent labor battles, MTN has fallen 5.37% compared to a flat start for the S&P 500 this year through Jan. 8.
In 2016, Vail Resorts implemented a dividend that is currently yielding 4.7%, so investors aren’t absent any return. But that high dividend indicates how out of favor the stock is with investors and how what once was a dynamic growth story tracks more like a utility company in the eyes of Wall Street.
Forget being exceptional, many investors would probably be happy if Vail Resorts could just start being average in terms of performance.
Nothing is glaringly wrong with the company that would indicate a downward spiral, and management was saying all the right things before the strike. It plans to invest $249 million to $254 million in capital this year, including creating a fourth base for Vail Mountain in west Lionshead and improving the bases at Breckenridge and Keystone. It is also working on an efficiency program to cut $100 million in annual costs by 2026, which should boost the bottom line.
EPIC Pass sales are down slightly, but the amount charged per pass is up, allowing revenues to grow.
“We’re very pleased with the outcome of our pass sales and the improvement in the growth rates in the final selling period to get to 2% decline in units and up 4% in sales dollars. So that’s over 2.3 million guests that are committed to coming to our resort,” CEO Kirsten Lynch told analysts on a fiscal first-quarter earnings call on Dec. 9.
Earlier and heavier snows resulted in about 65% of its terrain being open on Jan. 2 compared to 47% on the same date in 2023, pointed out Morgan Stanley analyst Megan Alexander Clapp, in a research note on the company.
The rebound was especially strong in the West Coast and Canadian resorts, and favorable weather conditions buoyed investor hopes for a stronger season to make up for record-low snow levels in Australia and poor conditions last year.
But that all shifted when the Park City Mountain Ski Patrol in Utah, which represents 200 ski patrollers, went on strike, seeking $2 more an hour in wages to deal with higher living costs and improved benefits like paid parental leave and holiday pay. The strike, which came after failed talks, wiped out $400 million in market value for MTN in a single day.
After initially talking about how many pay raises it has already given its workers, the company shifted course and the two sides reached a tentative settlement on Wednesday.
Clapp wrote that she didn’t expect the conflict to spread to Vail Resort’s other unionized mountains — Keystone, Breckenridge, Crested Butte and Stevens Pass. But the strike reduced the terrain available at Park City and could hamper late-season bookings.
Glen Weinberg, who keeps a close eye on mountain real estate as a commercial lender based in Steamboat Springs, said he has tried to understand what is holding back Vail Resorts, given its importance to many ski towns in the state. The company provides recreational activities at its core, but it is also a lodging company, a food and beverage company, an equipment rental business, and a real estate developer.
His take is that Vail Resorts has become the ski world’s equivalent of retailer Target, a middle-market retailer that has failed to inspire consumers and investors alike. Weinberg lines up the two stocks and points out how they have oddly tracked with each other the past five years, with a notable exception. Target has returned 21%, while Vail Resorts is down 28%.
“It is the mid-market that is getting creamed. The middle is getting squeezed,” he said. Vail Resorts needs to figure out how to be more like Costco, whose stock has soared 200% over the past five years.
The list of reasons for what has held Vail Resorts back from even matching the larger market, let alone trying to beat it, is long. Climate change casts a constant snowless cloud over the company’s outlook. Some years are good and some are bad when it comes to snow, but more and more seasons are coming up short, the most recent example being Australia.
Vail Resorts has made a concerted push to acquire ski resorts across the globe, ending up with several in more snow-challenged markets like Ohio, Missouri, Indiana and New York. A reason to do so was to create a “feeder” system that made it more desirable for skiers in other states to buy an EPIC Pass and splurge on a visit to Colorado, Utah or British Columbia.
But as the outlying resort areas dry out, they become less financially viable and less productive as a feeder system for pass sales.
“It will be fascinating to see what happens one to five years from now,” Weinberg said.
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