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Vail Resorts (MTN) Growth Strategies Bode Well, Costs High

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Vail Resorts, Inc. (MTN - Free Report) continues to bank on extensive marketing and acquisition strategies to drive growth. Additionally, the company’s vast geographical expanse helps it cushion its business against weather disturbances in any particular region. However, high costs due to operations and acquisitions are concerns. Let’s delve deeper.

Key Catalysts

Vail Resorts extensively focuses on acquisitions and mergers to build a stronger portfolio of differentiated and varied services. Notably, the company acquired a few mountain resorts, hotel properties and other businesses complementary to its own as well as developable land in proximity to its resorts.

Moreover, Vail Resorts has completed the acquisition of Peak Resorts for $11 per share. With the completion of this buyout, the company added 17 U.S. ski areas to its portfolio. The newly acquired resorts are located in the Northeast, Mid-Atlantic and the Midwest. Currently, the company has 37 owned and operated resorts worldwide.  

Furthermore, the company has a season pass program under which it offers a variety of season pass products for all the mountain resorts and urban ski areas in domestic and international markets. Increased demand for skiing has led Vail Resorts to witness higher season pass sales lately. On a year-over-year basis, North America ski season pass sales increased approximately 14% in units and 15% in sales dollars through Sep 22, 2019. The company witnessed season pass sales increase across all products and geographies, including destination markets.

Vail Resorts, which shares space with Cedar Fair, L.P. (FUN - Free Report) , Planet Fitness, Inc. (PLNT - Free Report) and Studio City International Holdings Limited (MSC - Free Report) , remains guest-focused in driving marketing efforts. Guest data is captured through season pass programs; e-commerce platforms, including mobile lift ticket sales; the EpicMix application and operational processes at the lift ticket windows. Additionally, Vail Resorts involves in digital marketing and media advertising to drive traffic and sales.

To drive guest loyalty, the company spent more than $1.2 billion over the last decade. It also intends to implement new technology for improving direct-to-lift access at Vail, Beaver Creek and Keystone. Additionally, the company plans to invest in the full renovation of the Beaver Creek Children's Ski School facilities. At Breckenridge, Vail Resorts plans to improve the Peak eight base area, with new ski school and childcare facilities.

Concerns

While Vail Resorts’ relentless acquisitions and mergers are likely to prove beneficial over the long term, there are certain short-term risks associated. Firstly, the company is somewhat struggling with added expenses pertaining to acquisitions. In fiscal 2019, EBITDA included acquisition and integration-related expenses worth $16.4 million.

Secondly, in order to finance acquisitions, the company increased borrowings. It borrowed $70 million for financing the Stevens Pass buyout and an additional $195.6 million to fund the Triple Peaks acquisition.

Meanwhile, during the fourth quarter of fiscal 2019, total segmental operating expenses increased 12.6% year over year to $305.3 million. Resort operating expenses totaled $303.8 million, up 12.5% year over year.
Furthermore, the ski resort and lodging industries are highly competitive. There are roughly 470 ski areas in the United States that serve local and destination guests. Resultantly, Vail Resorts faces intense competition from other ski providers.

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