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Marriott Vacations (VAC) Sees Rising Occupancy Amid Challenges

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Marriott Vacations Worldwide Corporation (VAC - Free Report) is likely to benefit from increased focus on digitization, reopening of economy and gradual rise in occupancy rate. Notably with improving occupancy and tours, the company will witness higher contract sales in the near term.

So far this year, shares of Marriott Vacations have gained 25.5% compared with the Hotels and Motels industry’s 10.7% growth.

However, dismissal traffic, travel restrictions relating to the pandemic and higher expenses have affected the company.

Factors Driving Growth

Marriott Vacations started to witness a sequential improvement in occupancy rates since May 2020 owing to the reopening of resorts. This highlighted people’s willingness to go on vacations. The company’s vacation ownership business continues to recover strongly and it is expected to continue in the upcoming quarters.

During the first quarter of 2021, the company also witnessed improvement in occupancy rates in states that previously lagged the same. Notably, occupancy rates at Florida Beach resorts increased in the high-80% range, while occupancy rates in South Carolina resorts as well as Colorado and Utah Mountain resorts rose 80% and 85%, respectively. Moreover, U.S. Virgin Island resorts reported occupancy rates of more than 85% during the quarter.

Also, occupancy rates in Orlando represented more than 20% of North America keys, averaged nearly 60% occupancy during the quarter, including more than 75% during March 2021. Notably, the company witnessed solid improvement in Hawaii occupancy rates (excluding Kauai), following the lifting of restrictions in October 2020. Notably, occupancy rates for Hawaii averaged nearly 70% during the quarter, with March 2021 averaging nearly 85%.

Marriott Vacations is largely dependent of acquisition as part of its business transformation work and synergy initiatives. In 2020, Marriott Vacations’ run rate savings came in at approximately $135 million, out of which $85 million were realized in 2020 earnings while the remaining $50 million is yet to be realized. With the coronavirus-induced disruptions, the company is focusing on ways to drive synergies and other cost savings. Resultantly, the company has raised its synergy and cost savings target to a minimum of $200 million by 2021-end. On Apr 1, 2021, the company completed the acquisition of Welk Hospitality Group, Inc, one of the largest independent timeshare companies in North America. With the help of this acquisition, the company can leverage existing infrastructure to eliminate redundancies and deliver cost savings.

 

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Concerns

During first-quarter fiscal 2021, COVID-related travel restrictions and other containment efforts continue to impact the company. Although the company is still reopening many of its sales centers, it witnessed lower contract sales performance due to the impact of the COVID-19 pandemic. Also, comparable store sales at Marriott Vacations’ hotels slowed down due to the pandemic.

Notably, escalated marketing and sales expenses along with management and exchange costs drove total costs. Going forward, costs are likely to shoot up on the coronavirus impact.

Zacks Rank

Marriott Vacations — which shares space with Marriott International, Inc. (MAR - Free Report) , Choice Hotels International, Inc. (CHH - Free Report) and Extended Stay America, Inc. in the Zacks Hotels and Motels industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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