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Vail: Great year, no profit

Cliff ThompsonVail Correspondent

AVON – When Adam Aron finished ticking off the cheering year-end results Vail Resorts experienced in fiscal 2004, he sounded like a gourmand savoring a fine meal.”Mmm … mmm … mmm … mmm,” he said. The reason for his exclamation: Vail Resorts posted the best financial results in its 42-year history, with total revenue of $721.9 million, and showed a profit in all three of the company’s divisions. The company released its July 31 year-end results Thursday.But because of one-time charges this year – $37 million in debt refinance charges and $5 million spent cleaning up mold at an employee housing complex in Breckenridge – the company will report a $6 million loss. In January the company refinanced more than $490 million in long-term debt to get lower interest rates. That move will save the company nearly $5 million a year over the next five years, Aron said.Without those one-time expenses, the company would have posted a $20.4 million profit – a $28.9 million swing in profitability from last year’s $8.5 million loss on revenue of $710 million.Aron said the increase in profitability came from a combination of growth in revenue, paring $25 million in expenses and higher prices. Skier numbers were actually down slightly at three of the company’s five resorts, and 1.6 percent overall, but the company profited from the return to the slopes of freer-spending hotel guests and from higher prices.”Vail Resorts completed a terrifically successful year,” he said. “We’re well positioned for another successful year.”Toward that end, the company guidance, or profit estimates, for fiscal 2005 – which started Aug. 1 – is a bullish $152 to $160 million, with an after-tax profit of $14 million to $22 million. Aron even raised the possibility the company could, for the first time in the seven years since it started selling stock on the New York Stock Exchange, issue a stockholder dividend. Part of that dividend, Aron hinted, could come from the company selling off a “handful” of its lodging properties in the coming year.Last month the company announced it would be issuing a 3 percent merit raise companywide and will be issuing management bonuses. In its fourth quarter, which ended July 31, the company reported it lost $36. 4 million, or 7 percent more than was anticipated. The company typically reports a loss in its fourth quarter, which runs from May through July. In its third quarter, which is the peak of ski season, Vail Resorts reported an after-tax profit of $62.5 million.Investors were not that excited by the news. Vail Resorts stock at close of trading Thursday fell 5.29 percent to $18.09 a share, with 151,900 shares traded, or nearly 170 percent of an average day’s trading volume.Mountain divisionThe company’s largest division, mountain operations, which includes its ski areas and related slopeside businesses, generated $500.4 million in gross revenue, up 7.8 percent over last year. But what was more remarkable, Aron said, was the fact expenses grew just 0.7 percent – inflation was more than triple that.Its pre-tax profit was $132.8 million in 2004, an eye-opening increase of 34.6 percent over last year’s $98.7 million. While Beaver Creek experienced a healthy 7.1 percent gain in skier numbers, marginal early-season and late-season snow is blamed for eroding skier numbers across the company’s other three Colorado ski resorts, including Vail Mountain. California’s Heavenly, which Vail Resorts bought in March 2002, has continued to grow and show the effects of reinvestment in the property, Aron said. “We are clearly on a run at Heavenly,” he said. And the 1.6 percent drop in skier numbers was more than offset by higher ticket prices, which jumped 10.4 percent to an average $37.80 per ticket at its five mountains in 2004.Lift-ticket sales comprise the single largest part of the company’s mountain operations and generate $213 million. Retail and rental sales is the second largest, generating $115 million, with the company’s ski school generating $58.5 million.Vail Resorts sold more than 120,000 discounted season passes last year and that generated nearly $46 million prior to the ski season.The company plans to expand grooming ski runs on Vail and Beaver Creek mountains by putting more snowcats to work, Aron said. Lodging divisionLong an underperformer, the company’s lodging outlets, including slopeside hotels and 10 luxury RockResorts scattered across the country, rallied behind an improving economy and showed a 6.3 percent increase in overall revenue to $176.3 million. That extra business proved profitable. The hotels showed a 138 percent increase in profitability, from $4.9 million last year to $11.8 million.Aron said Vail Resorts is investigating selling some of its properties while retaining the potentially lucrative management contracts, but did not give any specifics.”The market of hotels is quite frothy,” he said. “Stay tuned for a progress report in 2005 and into 2006. Nothing has been sold as yet.”The company could sell one of its RockResort properties and possibly some of its other properties, Aron said. Real estate divisionWhile real estate revenue decreased in 2004 by $35.3 million to $45.1 million, because of the timing and mix of products, Aron said, it’s the part of the company where he expects to see the greatest profit in the coming years. Real estate showed a 73.6 percent increase in pre-tax profit as a result of debt reduction from an early payoff of bonds paid by Vail Resorts to finance water, sewer, electric lines and roads in Bachelor Gulch.Vail’s New Dawn – which will see nearly $1 billion in private and public redevelopment of Vail Village – and the company’s golf and tennis development in Jackson Hole, Wyo., will be driving the profitability, Aron said.The company is expected to develop more than $500 million of residences and commercial space in the Vail area over the next five years.”The luxury real estate market in Eagle County is boiling red hot right now,” he said. “The Gore Creek Place townhomes next to the Vail Marriott have been a blowout success.”Aron expects real estate profits to be boosted by demand. Some of the top-end real estate, which costs approximately $400 per square foot to build, has been selling for $1,000 per square foot, Aron said.The company also owns $135 million in undeveloped land and should have enough real estate projects to last five years, he said.Cliff Thompson’s e-mail address is cthompson@vaildaily.com


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