Wall Street analysts expect Vail Resorts to raise wages
Investors are assuming ski resort operator will increase pay in an effort to adequately staff mountains next season
A common theme has been pointed out among several analysts covering Vail Resorts stock: The company’s workers are likely to be paid more next season.
Wage issues have made it into several opinions from the analysts who cover Vail, adding to uncertainty about next season.
Vail Resorts has responded with a consistent message in both Vail and Park City, where recent editorials from Vail COO Beth Howard and Park City COO Mike Goar used identical statements: “We are also working on a robust company-wide plan for employee wages ahead of next season.”
Last week Truist Securities, one of 13 investment banks with an analyst assigned to cover Vail Resorts stock (MTN), lowered its price target on MTN, meaning the firm lowered its expectation on how well its expecting the stock to perform over the next year.
Increased wage costs for next season is one of the assumptions which prompted Truist to lower the price target, said Patrick Scholes with Truist.
“When we published our report a month ago, we noted that there would likely be some negative hit to fiscal-year 2023 earnings but were hesitant to lower estimates just yet; however, today we have more conviction and are modestly taking down our 2023 estimates for lift ticket sales and for margin growth (due to higher labor costs),” Scholes wrote. “Specifically, our FY2023 Mountain segment revenues are falling by $12M and our Mountain segment costs are increasing by $38M. Our cost increase assumes that MTN raises wages for the 2022/2023 ski season, something we believe they will need to do in order to avoid ‘Epic negative media attention’ again next season. Subsequently, our price target falls to $302 from $322.”
‘They have to do something’
Other analysts which cover MTN have written about similar issues. Jeffrey Stantial with Stifel Financial, in January, pointed out that Vail Resorts had anticipated labor problems heading into this ski season, raising minimum wages across destination markets to $15 per hour, “however, since then we’ve seen select competitors raise wages even higher (e.g. Jackson Hole to $18/hour), while a host of news and social media reports have highlighted pronounced labor shortages limiting MTN’s ability to run at full capacity (both lifts/grooming and ancillary amenities) and driving meaningful crowding even during non-holidays and weekdays.”
Stifel stopped short of another price target reduction on MTN; the firm’s January price target of $322 marked a move from the $358 it held previously. A research report of MTN put out by CFRA on Feb. 5 maintained a 12-month target price of $360.
But analysts have pointed out that MTN’s stock is pulling back quite a bit. Vail Resorts stock (MTN) started 2022 at about $330, down from a high of $372 in November, and has been holding at about $275 for the last couple of weeks, which is lower than it has been throughout most of the last year.
“Still some uncertainty about how they will finish this season given the well documented labor/staffing shortages,” said Tyler Batory, an analyst who covers Vail Resorts’ stock for investment bank Janney Montgomery Scott. “There also are concerns about next season because they have to do something to adjust operations.”
Batory said Janney’s view on MTN hasn’t changed since the start of the year, when the firm set a fair-value estimate of $335 on MTN, but like all companies, Vail Resorts is facing substantial cost inflation, he added.
“And (Vail Resorts) probably will see more churn in the pass base than normal,” Batory said.
Stantial, in his January report, also brought up the possibility of customers switching pass products to other companies, “especially should Ikon opt to match Epic pricing next ski season (and hence evoke concerns of ‘pass swaps’).”
In March, Vail lowered the price of its season passes by 20 percent, which contributed to a 76 increase in pass sales over the 2019/2020 season.
Stantial said the concern of pass swaps emerges out of a growing concern over overcrowding which existed “even before the step function growth in pass unit sales driven by the 20 percent price cut,” noting that the concern was “a key debate” following Vail Resorts’ investor day event in 2021. Vail Resorts’ annual investor day offers analysts a chance to glean some key insights while skiing at Vail Resorts properties, but the event was held virtually in 2021 and will be virtual in 2022 again, as well.
“The counter argument here is that historically MTN operates well-below max visitation levels through much of the ski season, while elevated discretionary spending in CY22’s capital plan should dramatically improve lift capacity,” Stantial wrote. “Nonetheless, we see risk that mounting publicized criticism of the guest experience forces MTN to re-evaluate either the cadence of progression towards their strategic pass sales target (75% of lift revenues) or the staffing and/or capital investment required to get there — especially should Ikon opt to match Epic pricing next ski season (and hence evoke concerns of “pass swaps”).”
Operations before acquisitions
Scholes, in his February opinion, said Vail Resorts’ strategy of going for volume instead of price, in hindsight, has not worked well this season amid a tight labor environment. Scholes examined this ski industry strategy alongside another travel-and-leisure industry, the U.S. full-service hotel industry.
“By comparison, the US full-service hotel industry has (collectively) been doing the opposite of MTN as pricing was up approximately 7 percent in January vs. January 2019, whereas occupancy was down approximately 30 percent vs. January 2019,” Scholes wrote. “While the hotel industry certainly has its own labor issues, we cannot think of a specific major company (such as Hilton, Hyatt, Marriott) that has received the negative media attention for customer dissatisfaction to the degree MTN has.”
Scholes also suggested Vail Resorts hold off on one of the key growth strategies it has employed over the course of the last decade, mergers and acquisitions, suggesting Vail Resorts “digest what you have” before buying more ski areas. A decade ago, Vail Resorts owned six ski areas; today the company owns 40, with 37 in North America.
“Before MTN starts acquiring any more resorts, we would like to see it get the operational issues straightened out, especially at its more recently acquired resorts,” Scholes wrote. “We hope MTN addresses these issues at its upcoming investor day on March 22 and provides an action plan on what they intend to do on staffing issues and employee housing.”
Scholes said investors sympathize with MTN’s catch-22 situation in making skiing inclusive versus limiting crowds, pointing out that the company has been under pressure for years to make skiing less expensive.
“Now that the company has made the ski pass even more affordable, it finds itself in somewhat of a ‘darned-if-you-do, darned-if-you don’t situation,'” Scholes wrote. “While we do not proclaim to know the answer on finding the right balance between price and customer experience, we do believe that improving the staffing and housing situations are a necessary step in the right direction.”
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