Cost cutting by Vail Resorts after it closed its 34 North American ski areas on March 14 lessened the financial blow of the coronavirus.
Slashing plans for capital upgrades, suspending cash dividends to shareholders, reducing salaries and furloughing hourly workers helped Vail Resorts lose only $140 million in income in the first four months of the year. The continent’s largest resort operator warned investors in mid-March that the COVID-19-related closures could reduce net income by $180 million to $200 million.
Net income for the third quarter — January through April — of Vail Resorts’ fiscal year was $152.2 million, down from $292.1 million in the same period last year. The company reported its third-quarter earnings on Thursday. Resort revenue for Vail Resorts fell 28% from the same quarter in 2019 to $693.7 million as the company’s revenue from lift tickets and pass sales for the quarter collapsed by 29%, ski school revenue deflated 31%, dining revenue fell 22% and retail revenue decreased 32%.
Those declines rank among the worst year-over-year quarterly performances for Vail Resorts since the company went public in 1997. That span includes two recessions and the 9/11 attacks. The third quarter of its fiscal year is the busiest four months of the year for the resort operator. The company saw “a negative change in performance” in early March, before the closures on March 14, company CEO Rob Katz said.
Katz is typically upbeat on calls with investors. He often has good news to share. He was more reserved on Thursday, even though his severe cost cutting had pushed his company ahead of analyst’s dismal projections for the quarter.
The company sold $600 million in bonds in late April, a portion of which was used to pay down debt. The company has $465 million in cash and about $600 million in available debt, which the company said is enough to fund operations for two years “even in the event of extended resort shutdowns.”
Analysts queried Katz on Epic Pass sales, which are typically updated in third-quarter earnings releases as the spring selling season is well underway by June. Last June, for example, Katz noted a 13% increase in pass-sales revenue through May 2019 compared with the same sales period in 2018.
This year, the company will not be giving any updates on pass sales until the end of September. Vail Resorts moved its deadline for early-purchase discounts to Sept. 7, as part of a larger campaign that has the company offering 2019-20 season pass holders credit toward the purchase of next season’s ski pass.
Much of the company’s Epic Pass sales come around the spring and fall deadlines for deals. Without those deadlines, Katz said “it’s tough to read anything into the information we are seeing” around pass sales right now, but added that he was pleased with the “enthusiasm” and “engagement” of buyers this spring.
“Our message to pass holders at this point has been to give them more time,” he said. “But many of the indicators that are out there would suggest there is tremendous enthusiasm to get back on the mountain.”
Vail Resorts will open its three Australian ski resorts in the next couple weeks and Katz said he expects his North American teams will gain operational insights into social-distancing and safety from Australia. He hopes to have summer operations at his North American ski areas opening in late June or early July, which he said also provide learning opportunities for protecting guests while maintaining the mountain resort experience.
And investors pressed Katz on what that experience might look like next winter. Katz said there would be social-distancing challenges at pinch points like chairlifts and restaurants. It’s hard to know what consumer demand will look like from December through March next year and how that might align with the possibility of limited capacity at some areas of resorts, he said.
But while the lift-riding and dining experiences may change, Katz said he’s not scaling back operations for smaller crowds.
“We understand there may be situations where we have less guests, but we will still, of course, have the full mountain open with the full experience for them,” Katz said. “We are not going to back off at all on what a guest would expect when they come to one of our resorts.”