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Vail Resorts (MTN -4%) heads downhill today after the ski resort operator delivered soft Q4 (Jul) results. MTN missed earnings expectations for the tenth consecutive quarter but did turn around its string of top-line misses. Still, the company's FY25 outlook signals little changes from FY24, highlighting sticky macroeconomic headwinds. As a result, MTN initiated a two-year transformation plan, which included a workforce reduction.

Dependent on a robust travel industry and healthy discretionary spending, MTN has encountered a few snags over the past year. The travel sector has steadily normalized while lead times continue to extend. Alternative accommodation platform Airbnb (ABNB) has mentioned that while increasing lead times have hindered revenue growth, it is confident that demand has not fallen off a cliff.

However, adding a third wrinkle into the mix for MTN is that skiing requires favorable weather conditions. MTN stated that during Q4, snowfall across its Western resorts in North America was down 28% yr/yr. Eastern U.S. resorts endured similarly limited natural snow and variable temperatures. Likewise, in Australia, snowfall was down 28% yr/yr and was 44% lower than the 10-year average.

• Still, against this backdrop, MTN's Q4 numbers do not look disastrous. The company's net losses may have widened yr/yr, delivering EPS of $(4.67), but its revenue of $265.39 mln held relatively steady, down just 1.6%. These headline results came despite skier visitation contracting by 9.5% yr/yr across North American and Australian resorts. Conversely, MTN enjoyed another strong period of ancillary spending per visit across ski school, dining, and rentals.
• Looking ahead to the 2024-2025 North American ski season, pass product sales are down around 3% in units but up 3% in dollars, underpinning MTN's past price hikes. The unit compression illuminates persistent industry normalization and weather-related headwinds. The problem is that lift ticket visitation during the season tends to drive pass conversion. Given the recent struggles in visitation, pass sales are sliding.
  • As a result, MTN projected Resort Reported EBITDA of $838-894 mln and net income of $224-300 mln for FY25, similar to the $825.1 mln and $2340.4 mln posted in FY24, respectively.
• The challenges ahead also prompted MTN to initiate a transformation plan, aiming for $100 mln in annualized cost efficiencies by the end of FY26. Achieving this target involves eliminating under 2% of its total workforce, including 14% of its corporate employees and just under 1% of its operations workforce.

While MTN may be receiving the cold shoulder today as investors weigh the many obstacles in its way, there are silver linings. MTN trimming its corporate workforce should enhance profitability and support it through the current unfavorable conditions. Furthermore, the Board nearly tripled the company's repurchase authorization to 1.7 mln shares, translating to around 4-5% of its market cap, underscoring confidence in future cash flows. Lastly, bad weather, while creating volatility each year, can reverse course, igniting a tremendous lift in future demand, which may be further propped up by a higher base of skiers following the pandemic.