BREAKINGVIEWS-Returning Vail Resorts CEO faces tough repeat run

By Sebastian Pellejero

NEW YORK, June 6 (Reuters Breakingviews) - Vail Resorts MTN.N relishes a business going downhill, but not its stock price. After shedding nearly 60% of its market value following a post-pandemic peak in November 2021, the ski-retreat operator last week brought Rob Katz back to be CEO again. He has a steep climb this time.

During his previous 16-year run through 2021, Katz consolidated slopes with a series of deals and rolled out a season-long, all-access Epic Pass. Turning Vail into a subscription model, which now accounts for three-quarters of visits to Beaver Creek and beyond, worked wonders.

The strategy, however, is losing momentum. This past season, the number of upfront payers declined for the first time, as the $1,000 annual fee squeezed middle-class customers. The company’s valuation has slumped to less than 18 times expected earnings for the next 12 months, according to LSEG data, its lowest since 2008. Although it trades at a premium to theme park operators such as Six Flags, that’s a discount to hotel chains Marriott International and Hilton Worldwide.

There’s a broader industry problem. Annual visits to winter-sport U.S. destinations have hovered between 50 million and 60 million since the 1970s, according to the National Ski Areas Association. As such, Vail’s business depends on attracting snow enthusiasts from rivals and converting occasional visitors into Epic Pass users, who spend more on the lessons, lodging, dining and equipment that accounted for nearly half of revenue last year.

Katz faces a dilemma. Subscriptions roughly doubled Vail’s pre-tax profit margin to about 20% over a decade. It has come at a cost, however, with the expensive bundle and increasingly crowded slopes alienating shredders and novices alike. To make more may require spending more.

Since 2015, Vail has plowed $600 million into high-speed lifts and advanced snowmaking, slashing wait times by 40%, stretching seasons longer and doubling sales. New resorts from the Alps to Japan are also expanding its passport’s access. Recent decisions include $250 million allocated for capital improvements while cutting $100 million in costs through layoffs and hiring outsiders for some tasks. This sends mixed signals about quality, especially after a work stoppage caused a 12-day outage at Park City.

In a letter to employees, Katz emphasized his commitment to staff and to enhancing digital services. Having handled the blue and red runs already, though, he’s now up against the financial equivalent of a double black diamond.

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CONTEXT NEWS

Vail Resorts said on May 27 that Rob Katz, who served as CEO for 16 years until 2021, would return to the role, replacing Kirsten Lynch.