Q2 2022 Vail Resorts Inc Earnings Call
Ladies and gentlemen, we are about to begin.
Good day and welcome to the Vail Resorts second quarter earnings Conference call Today's conference is being recorded.
At this time I'd like to turn the conference over to MS. Kirsten Lynch Chief Executive Officer. Please go ahead ma'am.
Thank you good afternoon, everyone welcome to our fiscal 2022 second quarter earnings Conference call.
Joining me on the call. This afternoon is Michael Barkin, our Chief Financial Officer.
Before we begin let me remind you that some information provided during this call may include forward looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described.
In our SEC filings and actual future results may vary materially.
Looking for forward looking statements in our press release issued this afternoon, along with our remarks on this call are made as of today March 14th 2022, and we undertake no duty to update them as actual events unfold.
Today's remarks also include certain non-GAAP financial measures reconciliations of these measures are provided in the tables included with our press release, which along with our quarterly report on the Form 10-Q were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at.
W. W Vail resorts dotcom.
So with that said, let's turn to our fiscal 2022 second quarter results. We are pleased with our financial performance for the quarter visitation trends and demand for the experience at our resorts remains encouraging, particularly with destination guests with results improving post holidays as conditions improve.
More train was opened and the impact of the COVID-19, Omer Cranberry receded.
As expected results for the quarter significantly outperformed the results from the prior year due to the greater impact of COVID-19, and related limitations and restrictions on results in the prior year period.
But 'twenty one 2021 2022 north American ski season got off to a slow start a confluence of storm cycles staffing challenges and the spike in OMA Cranberry ENT cases created challenges through the holiday period impacting our resorts ability to fully open terrain as planned and NEC.
<unk> really impacting the guest experience during that time.
Despite numerous measures taken out of the season, including an investment in wages available staffing was below targeted levels heading into the holidays consistent with challenges faced by the broader travel and leisure industry at that time.
During the holidays COVID-19 cases associated with the omicron variant dramatically accelerated impacting both travel plans and staffing exclusion, despite having a vaccinated workforce.
At some resorts more than 10% of our employees were unable to work due to the COVID-19 due to COVID-19 at one time.
To address these challenges the company increased hourly compensation during the holiday and for the remainder of the ski season at a cost of $20 million in fiscal 2022.
Following the Halloween holiday period, the experience across our resorts improved markedly with better snowfall stabilization and ultimately result reduction in cases of COVID-19, and overall better staffing, allowing us to open terrain across our resorts that was close to normal levels.
But that time period throughout.
Throughout the quarter, we experienced relative strength in destination visitation and lift ticket sales, particularly at our Western ski was U S ski resorts, which exceeded our expectations in January in particular.
Whistler Blackcomb was anticipated disproportionately impacted by COVID-19 related travel restrictions, creating challenging results for U S destination and international visitation to the resort.
Excluding the seven Springs resorts total visitation for the quarter increased 2% compared to the second fiscal quarter of 'twenty 'twenty.
Relative to the second fiscal quarter of 2020, our ancillary lines of business experienced revenue declines, particularly in food and beverage, which was disproportionately impacted by numerous operational restrictions associated with COVID-19, and overall staffing challenges.
Resort net revenue for the second fiscal quarter of 2022 decreased 2% relative to the comparable period in fiscal year 2020, primarily as a result of the headwinds in our ancillary lines of business.
And approximately $33 million of pass revenue that would have been recognized in the second fiscal quarter of 2022, but was deferred to the third quarter as a result of delayed openings for a number of our resorts.
Our lodging business experienced strong results during the quarter with average daily rates exceeding our expectations, partially offset by lower than expected occupancy rates during the early season.
Relative to the second fiscal quarter of 2020 resort reported EBITA increased 5%. Despite the challenging early season conditions and COVID-19 related dynamics resort reported EBITDA margin for the second quarter was 43, 9% an increase from 49.
In the second quarter of fiscal 2020.
Now I would like to turn the call over to Michael to further discuss our financial results season to date metrics in fiscal 2022 outlook.
Thanks, Kristen and good afternoon, everyone.
As Jason mentioned, we're pleased with our performance for the quarter, particularly given the slow start to the season.
Net income attributable to Vail resorts was $223 $4 million or $5 47 per diluted share for the second quarter of fiscal 2022 compared to net income attributable to Vail resorts of $147.8 million or $3.62 per diluted share in the prior year.
Resort reported EBITDA was $397 $9 million in the second fiscal quarter, which compares the resort reported EBITDA of $276 $1 billion in the same period in the prior year.
The increase was primarily due to the greater impact of COVID-19, and related limitations and restrictions on results in the prior year.
Resort reported EBITDA for the second quarter of fiscal year, 2020 was $378 $3 million.
Turning now to our season to date metrics for the period from the beginning of the ski season through Sunday March six 2022 compared to each of the two prior year periods through March seven 2021 and March eight 2020.
Given the significant impacts of COVID-19 in the prior year period, including significant capacity restrictions limited skier visits and ancillary revenue. We're also providing metrics relative to the comparable fiscal year 2020 season to date period.
Which was prior to our announcement to close our resorts on March 15, 2020 for the remainder of the 2019 2020 season.
The reported ski season metrics are for our North American destination Mountain resorts and regional ski areas and exclude the results of our recently acquired seven Springs resorts and our Australian ski areas in all periods.
The reported ski season metrics include growth for season pass revenue based on estimated fiscal year 2022, North American season pass revenue compared to both fiscal 2020 , one and fiscal 2020, North American season pass revenue.
The data mentioned in this release is interim period data and is subject to fiscal quarter end review and adjustments.
We are pleased with the positive momentum we have seen throughout the post Christmas period.
To date total skier visits were up two 8% compared to the fiscal year 2020 season to date period.
And to date total lift ticket revenue, including an allocated portion of season pass revenue for each applicable period was.
Up 10, 3% compared to the fiscal year 2020 season to date period.
Compared to the fiscal year 2020 season to date period excuse me to date Ski school revenue was down eight 9% dining revenue was down 27% and retail rental for North American resort in ski area store locations was down two 8%.
Company performance has continued to improve throughout the post Christmas period, with particular strength in destination visitation and lift ticket sales.
Despite significant growth of our pass program was your visitation for the season to date period was modestly up two 8% compared to fiscal 2020, given the companys strategy to shift lift ticket guests into an advanced commitment pass product.
Whistler Blackcomb was negatively impacted by COVID-19 related travel restrictions, creating challenging results for U S destination in international visitation at the resort.
The ancillary lines of business continued to experience revenue declines, particularly in food and beverage, which is disproportionately impacted by numerous operational restrictions associated with staffing and COVID-19.
It is important to highlight that our season pass unit growth of 47% for fiscal year 2022 created significant revenue stability in a period with challenging early season conditions and COVID-19 impacts.
The growth in Paas units did not drive the dramatic increases in visitation as the company is shifting lift ticket guest into advanced commitment products. In fact, the growth we saw in visitation in the period ended March six 2022 compared to fiscal 2020 occurred on weekdays and non holiday periods, which were up.
Approximately 9% and visits compared to weekend and holiday periods, which were approximately flat and visits.
We also saw peak daily visitation at our resorts during the period that were very consistent with prior with previous years.
For the season to date period, ending March six 2022, 69% of our visits came from season pass holders compared to 56% of visits for the same period in fiscal year 2020.
We remain committed to our strategy to move lift ticket purchasers into advanced commitment products, which offers benefits to our guests and stability to our employees our communities and our company.
Now turning to our outlook for fiscal 2022.
The challenging start to the season through the holidays, we have increased the midpoint of our resort reported EBITDA guidance as compared to our original guidance provided in September .
Demonstrating the resilience of our business model and the benefits of our advanced commitment strategy.
The update to guidance was primarily driven by the strong demand from destination guests at our Western U S resorts, particularly with regard to lift ticket sales, which we expect will continue through the remainder of the season as well as the contribution from the seven Springs resorts.
Additionally, our lodging business is expected to significantly outperform our original expectations and the remainder of the year with strong results on both occupancy and ADR across our properties and the addition of the seven Springs resorts.
The outperformance was partially offset by the challenging U S destination in international visitation trends at Whistler Blackcomb, the $20 million investment in frontline staff bonuses increased wages for our summer operations and the inclusion of an estimated $6 million in acquisition and integration related expenses specific to the seven springs.
Resorts.
We now expect net income attributable to Vail resorts for physical 2022 to be between $304 million and $350 million and resort reported EBITDA to be between $813 million and $837 million.
We estimate resort EBITDA margin for fiscal 2022 to be approximately 32, 9% using the midpoint of the guidance range.
The updated outlook for fiscal year, 2022 assumes normal conditions and operations across our resorts for the remainder of the ski season, and no incremental traveler operating restrictions associated with COVID-19.
Could negatively impact our results, including for our Australian resorts in the fourth quarter.
The guidance assumes an exchange rate of 79 cents between the Canadian dollar and U S dollar related to the operations of Whistler Blackcomb in Canada, and an exchange rate of 72 sense between the Australian dollar and U S dollar related to the operations of parish or Falls Creek and hopping in Australia.
Our liquidity position remains strong our total cash and revolver availability as of January 31, 2022 was approximately $2 billion with $1 $4 billion of cash on hand $417 million of U S revolver availability under the Vale Holdings credit agreement and $214 million of revolver available.
<unk> under the Whistler credit agreement.
As of January 31, 2022, our net debt was two one times trailing 12 months total reported EBITDA.
We are pleased to announce that our board of directors has declared a quarterly cash dividend on Vail resorts common stock of $1 91 per share the dividend will be payable on April 14th 2022 to shareholders of record as of March 30th 2022.
We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in our guest and employee experience.
High return capacity expanding capital projects strategic acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase programs I'll now turn the call back over to Kirsten.
Thank you Michael as we turn our attention to the 2022 'twenty 'twenty three ski season and beyond the company will be making its largest ever investment in both its employees and its in resorts to ensure we continue to deliver our company mission of an experience of a lifetime.
The experience of our employees and our guests is core to our business model and the company intends to use its financial resources and stability. It has created threat season pass program to continue to aggressively reinvest to deliver that experience. We believe our business model allows us to make.
These investments and achieve our short and long term financial growth objectives.
Our employees are the core of Vail resorts mission of creating an experience of a lifetime. We are pleased to announce a significant investment in our employees for the 2022 'twenty 'twenty three north American ski season, with an increase in the minimum hourly wage offered across all 37 of our <unk>.
American resorts.
20 U S dollars per hour for all U S employees and 20 Canadian dollars per hour for all Canadian employees as well as an increase in wage rates for hourly employees as we maintain all leadership and career stage differentials role.
Does that have specific experiences or certification as prerequisites such as entry level patrol commercial drivers and maintenance technicians will start at $21 per hour tipped employees will be guaranteed a minimum of $20 per hour.
The company will also be assessing targeted increases beyond inflation for our salaried employees and will be making a significant investment in our human resources department to ensure the right level of employee support development and recruiting.
Talent is our most important asset.
And our strategic priority at all levels of the company and we expect these investments will be an important step to enhance the experience for our employees.
Through increased hiring retention and talent development.
Our employee investments are intended to help us achieve normal staffing levels and in turn deliver an outstanding guest experience, which supports our advanced commitment strategy and in turn provides greater stability to our business model and the ability to drive long term growth.
The increase in wages and a return to normal staffing levels will represent an approximately $175 million increase in expected labor expense in fiscal 2023 compared to the fiscal 2022 expected labor expense, including inflationary adjustments.
Really we remain dedicated to delivering an exceptional guest experience and will continue to prioritize investments to enhance the experience at our resorts.
We are committed to continually increasing capacity through lift terrain and food and beverage expansion projects and are making a significant one time incremental investment this year to accelerate that strategy as previously announced on September 23rd 'twenty 'twenty. One we are excited to be proceeding with our ambition.
Capital investment plan for calendar year, 2022 of approximately $315 million to $325 million across our resorts, excluding onetime investments related to integration activities employee housing development projects and real estate related projects.
The plan includes approximately $180 million for the installation of 21, new or replacement lifts across 14 of our resorts.
And the transformational lips served terrain expansion at Keystone.
In addition to the two brand new lift configurations at Balan Keystone the replacement lift will collectively increase lift capacity.
This lift locations by more than 45%.
All of the projects in the plan are subject to regulatory approvals and expected to be completed in time for the 2020 to 'twenty two 'twenty three north American winter season.
The core capital plan is approximately $150 million above our typical annual capital plan based on inflation and previous editions for acquisitions and includes approximately $20 million of incremental spending to complete the one time capital plans associated with the peak resorts and Triple peaks.
Ex acquisitions and $3 million for the addition of annual capital expenditures associated with the seven Springs resorts.
We continue to remain highly focused on developing and leveraging our data driven approach to marketing and operating the business. Our planned investments include network wide scalable technology that will enhance our analytics ecommerce and guest engagement tools to improve our ability to target our guest personalized messages.
<unk> and improve conversion.
We will also be investing in broader self service capabilities to improve guest online experience and engagement.
In addition, we have announced a $4 million capital investment plan and Vail resorts commitment to zero initiative, which includes targeted investments and high efficiency snowmaking heating and cooling infrastructure and lighting to further improve our energy efficiency and make meaningful progress toward our 20 <unk>.
<unk> goal.
We plan to spend approximately $9 million on integration activities related to the recently acquired seven Springs resorts.
Including one time investments related to integration activities and $3 million associated with restate real estate related projects. Our total capital plan is expected to be approximately $327 million to $337 million.
Including our calendar year 2022 capital plan Vail resorts will have invested over $2 billion in capital investments since launching.
That path.
Increasing capacity, improving the guest experience and creating an integrated resort network.
Now I will turn it back over to Michael to discuss the impacts of fiscal 2022 trends and our employee investments on our business.
Thanks, Kirsten as we begin to plan for fiscal 2023, there are a number of dynamics related to COVID-19, and unusual weather, but are negatively impacting fiscal 2022 and are important to highlight.
Travel trends at Whistler Blackcomb, our Australian resorts in our group business were all materially negatively impacted by COVID-19 in fiscal 2022 and early season results across our resorts as your were depressed with challenging snowfall conditions.
Returning to normalized levels would result in an estimated incremental resort reported EBITDA of approximately $100 million in fiscal 2022.
The seven Springs resorts did not have a full year of operating results and were impacted by acquisition and integration related expenses full year results with no acquisition or integration related expenses would result in estimated incremental resort reported EBITDA of approximately $7 million in fiscal 2022.
Finally, our ancillary businesses were capacity constrained in fiscal 2022 by staffing and in the case of dining by operational restrictions associated with COVID-19.
Returning to our ancillary business to normalized levels would result in an estimated incremental resort reported EBITDA of approximately $75 million in fiscal 2022, which includes the incremental revenue and operating expenses associated with normal capacity, but excludes incremental labor expense the normalized labor expense for the ancillary businesses.
As included in the approximate $175 million labor investment.
All of these estimates assume normal conditions through outer ski seasons continued strength in consumer demand consistent economic dynamics.
Relative to what exists today and no material ongoing impacts from COVID-19.
Offsetting the estimated $182 million of expected favorable resort reported EBITDA impact from returning the business to normal levels relative to projected fiscal 2022 results.
Is the approximate $175 million labor increase from fiscal 2022 to fiscal 2023 that is expected to be necessary to return the company to normal staffing levels given the shortages in fiscal 2022, and the current labor market dynamics and our resort communities.
These estimates do not take into account any fiscal 2023 projections for volume price or expense growth, which will be evaluated and incorporated in our full year 2023 guidance that we plan to outline in September 2022.
I'll pass it back to cure smell.
We are fully committed to delivering an experience of a lifetime to our employees and our guests and I want to thank all of our employees for their tireless dedication to deliver a safe exceptional experience this year, particularly in the face of this season's unique challenges through the holiday period.
Our team is at the core of Vail resorts mission I.
I am deeply grateful for the commitment demonstrated day in and day out and I'm excited about the path ahead as we make these important investments in our team and the guest experience.
At this time, Michael and I will be happy to answer your question.
Operator, we are now ready for questions.
Thank you.
You'd like to ask a question. Please send them by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure that your mute function is turned off till your signal to reach our equipment.
To accommodate as many questions as possible. We do ask you. Please limit yourself to one question and one follow up before reentering. The queue. Once again that is star one if you'd like to ask a question it.
We'll take our first question from Shaun Kelley with Bank of America. Please go ahead.
Hi, good afternoon, everyone. Thank you for all the detail and obviously, it's good to see the investment in.
The employees and in the business.
I was just wondering if you can help us dig in a little deeper on maybe some of the restructuring or initiatives that you're taking here or are we actually adding head count into the resorts. What levels are you doing not is this.
Like are there actually incremental you know people being added or is it really just the wage increases across the current staffing levels, maybe give us a sense of like kind of magnitude of of either employee increase or things that could give us a sense of how much we're going to be.
Impacting the experienced through these investments that'd be that'd be a great place to start.
Hi, Sean Thanks for your question I would think about this as a strategic investment in the guest experience.
And the goal is to return to full staffing, which we did not have this year, we are looking at making our resort talent, our strategic priority and.
<unk> a leader in comp hiring investing in their development and career opportunities and.
So there are several different components of it the first component is the $20 per hour minimum wage for all employees at all 37, North American resort.
And the goal there, including compression adjustments for career staging and leadership that differential and the goal there is to strategically invest in our employees and get to full staffing is that is what's critical for us to achieve our mission.
There is also a component of the investment that is an investment in HR, which is $4 million and that investment is actually adding incremental incremental talent into the central HR function, almost 50% increase in our central HR services staff.
And that is designed to be dedicated to the resorts in each region provide faster more direct support and hiring onboarding payroll case management and a more personalized experience.
Great and then as my follow up I'm kind of thinking about the other side of the equation, which is let's call. It visitation and you know and you're the volume side of what's going on here. It seems like youre kind of sticking with the strategy of what has gone on in terms of just just.
Yes, I think some of the statistics you called out in terms of visitation at the resort.
Can you just help us break that down a little bit because obviously there is a very very loud.
Industry out there that is suggesting that the resort towns and communities are still struggling with some of the growth that has occurred as a result of Covid I think just expand beyond let's call. It the reach of necessarily just vail resorts, but it seems like the patterns that you saw arent as alarming to you as maybe.
What we're hearing and some of the resort town. So how are you thinking of balancing that as we kind of look out to the next couple of years.
Yeah, we are confident and committed in our advanced commitment strategy and so I'll talk a little bit about you know what have been the visitation dynamics.
So pass sales really has not translated into an outsize visitation growth as you can see our visits your season to date are up two 8% versus fiscal year 'twenty.
And not creating capacity issues for us I think it's important to remember that there's really only a handful of days at our resorts that are really at a high capacity or Max visitation days and there's a whole lot of what I would call underutilized capacity at our.
Our resorts so the past strategy and the growth. We saw we are moving lift ticket gas into a pass which obviously creates stability. We believe creates long term value because of guests lifetime value, but once we make that shift and we move lift ticket gets into a path we see them spreading.
Visit.
And we saw that evidence this year that our peak visits at our resorts was very consistent with previous years, but even more importantly, we saw visits spread.
To off peak periods and.
And so when we look at the holiday and weekend visitation. It is essentially flat relative to season to date fiscal year 'twenty.
The growth that we saw was on non holidays and weekdays Monday through Friday, and that was up 9% and that is actually and outcome that we have wanted to achieve and we are very pleased to achieve.
I think the narrative about passes directly translating into visits is missing that I'm understanding that those are mostly existing gas moving from lift ticket onto a path. It does not directly translate and I never.
Has over the history of our company with past where past growth directly.
<unk> past, Oh, excuse me visitation.
That our pass holder spread their visits across a lot of different resorts all different time periods and there are other sort of limiters on peak days, such as lodging capacity.
So I understand what you're referencing about the narrative, but.
But I would.
Say that the outcome of the dynamics of visitation that we are seeing.
Are very aligned with our strategy.
And our strategy moving forward.
Thank you very much.
Thank you, we'll now take our next question from Ben Chaiken with Credit Suisse.
Hey, How's it going.
You called out a $182 million.
Lift next year as wastewater and early season trends normalized implicitly in that number or does that also assume international inbound to your domestic resorts come back.
I missed it I don't think you specifically called that out or would that be incremental.
Yes, Thanks Ben.
Yes, I think the implicit in the with were returned to normal.
Is an assumption that international does return.
And I think the good news is that Youre border restrictions in Canada are continuing to loosen as one micron receipts and so that is built into that $100 million returned to normal that includes Whistler.
Okay. That's helpful and then related as you reflect on the season to date operating environment, what youre seeing from the consumer and then any decisions that competitors have made.
How does that inform your view if at all on pricing and I ask that in the context of the major investments, we're making both on mountain and also on your employees.
Yeah. Thank you I you know we have a a long history of strategic management of price and.
And I would say that last year, obviously, we did a price reset on pass and that was a discrete decision that we made based on guests lifetime value as we think about it going forward that two things I'll say is that we.
I still believe that we are strong and disciplined at strategic price management, and we have not stated that lever in any way shape or form and any pricing decisions that we make going forward will take into consideration the current macro inflation dynamics.
Got it thank you very much.
Thank you we'll take our next question from Jeff <unk> with Stifel.
Okay.
Hey, great. Thanks, Good afternoon, everyone and thanks for taking our questions I wanted to start on the stronger than anticipated window ticket business here or is that just a function of a highly resilient high end consumer coming out of COVID-19 is there anything to do with how you underwrote the implications from the 20% price Scott just if you could unpack the drivers of that upside that'd be helpful.
Yeah. We are we definitely saw a lift ticket dynamics that were stronger than we expected, especially knowing that we have moved a lot of lift ticket buyers over into our pass I you know I don't think at this point in the season that we know exactly what the motivations are.
Rivers' were there, but it certainly indicates to us that there is strong demand for the experience at our resorts and of course with some of the guest experience challenges that we had in the early part of the season due to staffing.
No those are lift ticket purchasers or destination guests that are making those decisions.
Even with full knowledge of them some of the challenges that occurred over Christmas and making some short term decisions. So we're really encouraged to see that the other encouraging part of it is actually that is right a prospect pool for season pass conversion next year, whether that is converting.
I'm enjoying epic day pass or into a fall season pass so to see that strength.
Lift tickets.
It's very encouraging to us in terms of the demand, but also the future for season passes.
Great. That's that's helpful and then for my follow up on the 175 million investment.
Back into your employees I wanted to follow up on Sean's question and maybe come at it from a different angles with 175, you mentioned $4 million of centralized HR rules coming back online. So we'll call. It $170 million. Thereafter can you just help unpack how much of that is the $5 per hour hike 15 up to 20, and then how much of that is.
More hours worked across your entire employee base, just trying to get a sense for.
How much of it is maybe returned to quote unquote normalcy.
And kind of hours worked across your resort base versus how much of the actual dollar hike itself and then.
Yes, my follow up to that just if you could just maybe walk through how you came to $20 as well that would be helpful. Thanks.
Yes, so I'll start with your first part and then I'll have Jason take your second part.
We're not breaking out the specific components of it as I'm sure you can understand but.
As you know our wage rates are going up substantially so that is a major driver of that every hour right will will be yet.
It will be at a higher wage rate.
That being said there. So that's a substantial investment of course part of that also includes rate and the labor dynamic in our resort communities, which is inflationary and so we do feel like the wage rate increases are important to get us back to norm.
Normal levels of staffing of course I was curious <unk> mentioned, we were not at normal levels of staffing and what we're providing you as a as a number between what we expect fiscal 2022 actuals to turn out to versus what we expect the incremental investment will be required to get the full staffing and to do that as we noted right.
<unk> is really about getting more hours worked.
Across our resorts and certainly that is true across the business and as we called out specifically in our ancillary businesses in particular, which were quite constrained. This year that would include the additional hours worked to get to what we would consider normal levels of staffing and business across all of the.
Those pieces. So it is a combination of both of those and it's yes, it's a very significant investment for us both in the employee experience and in our ability to deliver the guest experience so with that I'll turn it back to Houston on the $20 specifically.
For $20 an hour you know we looked at a lot of different factors to land in that spot we looked at inflation, we looked at cost of living.
We look market by market, because obviously, we operate in a lot of different markets and consider what was going on in the macro environment as it related to the workforce and labor.
I think as we reflect back on last year, we are as a company we're out front of the global labor shortage with a wage increase last summer to $15 an hour, but it was clearly not enough.
And midway through the season, we effectively increase that with a $2 per hour a bonus that would be paid out at the end of the season.
So as we're looking at next year and all of those different factors, where we really decided as well one we would have inflationary labor cost anyway, and to where do we want to land beyond that to take a leadership position.
We want to take a leadership position that seasonal frontline talent is a strategic priority for the company.
And so we're staking out this position at $20 an hour.
Great very helpful. Thank you Paul.
We'll take our next question from Laurent <unk> with BNP Paribas Exane. Please go ahead.
Good afternoon, and thank you very much for taking my question I'm, sorry to follow up on this $175 million incremental spend on Michael but.
It looks like mountain, our labor expenses may grow 25% for next year year over year, I know youre not guiding for 2023, but should we assume a margin reset for the mountain segment going forward.
Yes. So as you noted we're not providing any specific guidance for fiscal 2023, what we're trying to do is give you a bridge to kind of the impacts in fiscal 2022.
Getting back to normal business levels.
<unk> staffing I think what I can point you to is that within that $175 million as we talked about is both the wage rate and returning hours to normal levels to fully staff. The business part of doing that is the benefit of bringing our ancillary businesses back up to capacity.
As I noted in the prior comments, we included an adjustment for $75 million, specifically related to the impact that we saw in the ancillary businesses from staffing constraints and as well as in F&B from the operational impacts of Covid, but I think that yes, it's specific.
That will obviously be in direct offset because we actually believe that we'll be able to generate more incremental revenue than we were able to in fiscal 2022, and our ancillary businesses when windows businesses are fully staffed again.
Okay very helpful in terms of membership retention.
I don't know if you have any updated thoughts with regards to Q earnings post this season.
In terms of the guest experience if you surveyed any sample of your of your new customer base or existing customer base from prior years. If there are any key takeaways that you think.
It needs to be addressed in terms of retaining that customer going forward for the next few seasons.
Thanks, you know as we shared in the comments, we had some issues early season with the guest experience driven by being primarily being short staffed.
And we believe post the holidays or post Christmas that we have rectified that we feel very good about the experience post Christmas and we feel very good about the experience now we do survey our guests about the experience and definitely see that reflected back.
From them that the experience has improved post Christmas.
They think about retention and you know I think we have a compelling portfolio of amazing mountain resorts.
Telling value with our pass products, a strong portfolio of past products at many different levels to bring people in and we've seen strong lift ticket and destination a demand for the experience at our resorts I think the key issue to address as you.
Noted is the investment in the guest experience and that our business model is really based on.
Our commitment to reinvesting back into that experience to keep making it stronger.
And therefore, attracting and retaining our guests and the investments that we're making are the two different investments one with a capital investment of over $300 million into lifts and specifically addressing capacity at the resorts.
As well as the terrain expansion and then the other investment which has been staffing because our business.
It is very much tied to talent and our employees to deliver that incredible guest experience and so when I think about are we addressing the lessons learned yes, and it's also the strength of our business model that enables us to actually reinvest.
And keep a sustainable long term growth trajectory.
Very helpful. Thank you very much for all the color.
Thank you we'll take our next question from Chris <unk> with Deutsche Bank.
Hey, good afternoon, everyone and thanks for taking our questions.
You, obviously spent a lot of time talking about the investment in and your employees and also in the some of the hard Capex, where do you think capacity how much do you think he can increase capacity.
If you need to over the next three years to five years, whether it's with terrain expansion or further investments in employees like where are you as a percentage of your notional.
Max on capacity.
Yes, Chris Thanks for the question.
As we announced in December with the over.
Over $300 million capital plan.
A larger than normal plan for us.
Curious and articulated very excited about what that will do in terms of enhancing the capacity right across many of our resorts with a real focus on lift capacity, which which of course is a key lever for us than the employee investment. Yeah. We think is really instrumental to the guest experience piece as it relates to the overall capacity.
Thank you Kirsten mentioned this earlier, but we actually have a lot of capacity right across our resorts.
There is as you mentioned a certain number of days, where we have true kind of peak days, but those remain actually quite limited and so you know the results that we shared in our comments.
Terms of the success that we've had in having the growth in advanced commitment really result, and what we're seeing this year in terms of a spread away from.
The holidays and weekends into the non holiday periods and weekday periods. We think is actually a great utilization of the capacity. We're also investing against operational initiatives, including using data to increase capacity across our resorts and so that's another way that we increase capacity and then of course the heart.
Capital piece, which we are committed to continuing to invest against our resorts. We have long term plans around that and obviously accelerated some of that this year. So we actually feel quite good about the capacity piece and our ability to serve an increasing number of guests and of course theres other constraints that actually play in in some ways more than the capacity of.
Our resorts like our margin.
Lodging REIT availability at our resorts and things like that so we actually feel quite good about our ability to serve the business as we continue to grow.
Okay very helpful. And then as a follow up I mean, you put through a nice dividend increase this quarter and you've talked you've given us your capital plan, which is like you said above.
Above your historical average, but we think youre still going to have generated a lot of cash and have cash on the balance sheet any thoughts towards share repurchase given given where the stock has been.
Yes, I mean I think.
Yes, we feel very good about our balance sheet and our liquidity position.
Please that our board supported.
A significant increase in our dividend.
91, which of course was ahead of our pre COVID-19 levels and with the success that we're having this year financially and in terms of the projections that we provided the cash flow that we are going to generate the business of just over two times net debt at this point so.
Feeling quite good about that I think we will continue to really focus our capital allocation priorities, where we have right in the past, which is reinvesting in the business, which of course, we're taking a big step forward on today.
And both the operating side and capital side, continuing to pursue acquisitions that.
We think our our.
We're going to do so on a targeted and selective basis, but certainly finding opportunities to continue to expand the network.
And then use the quarterly dividends certainly as our primary means of returning capital, but always looking to add share repurchases as another vehicle and will continue to assess that every quarter with the board and where where market conditions are set.
Okay very good thanks, Michael.
Thank you we'll take our next question from Patrick Scholes with true Securities.
Hi, good afternoon.
Given the discounts that you've announced for Stevens pass.
Resort for next year for customers, who own the epic pass.
This year and have had a shall we say a disappointing season are you considering that for giving a discount for.
Epic pass holders this year, who have used other resorts, where theres been issues such as park city or are some of the new Hampshire resorts.
Hi, Patrick Thanks for the question I would pass sales have not launched for Vail resorts, yet so we're not going to comment on any specifics related to.
The launch I will say as it relates to Stevens pass I do feel really good about the actions that we have taken there. It was a challenging early part of the season It Stevens pass.
We have a very strong GM in place there we opened more terrain extended the season announced summer operational plans and then the Stevens pass.
Credits that they can use on a Stevens pass pass or spend at Stevens pass and I do feel good about the actions that we've taken are beyond Stevens pass not going to comment on any other announcements related to our launch for next year.
Okay, and then somewhat related question you know just given just the tremendous amount of negative media I'll be honest with you I mean, I don't think I can recall.
A major company receiving this much negativity.
Have you considered you know hiring a public relations firm to help out and really improve the.
The image in the minds of the customer or maybe you have them.
So let us know.
Yeah. Thanks, I think yeah, obviously, the narrative has been quite challenging.
To short staffing and passes.
What we really are focused on is what are the actions that we take as a company to give our guests and our pass holders confidence and that's the investments that we're making and the experience on the mountain, which is the lift from the train expansion as well as the investments that we're making in our employees to get.
Careful staffing as the core challenge that we experienced in the early season, yes, there were some low snow conditions initially.
But we went into the season short staffed and then Christmas which is our busiest most critical time period is when the omicron.
Variant hit and we had a lot of employee exclusion. So key for US is we are confident in our strategy and that we're making the investments to deliver a sustainable business model and the long term.
Okay can I just ask one more question.
With the stock trading at about the same levels as it was four or five years ago.
Have you seen any interest.
Interest from private equity.
And and your company when.
When you are.
Give me a call it's hard as you would expect we would not comment on anything around that.
Okay. Thank you.
Thank you we'll take our next question from David Katz with Jefferies.
Hi, good evening, everyone. Thanks for.
Working me in.
I wanted to just touch on something else, which is.
The cost of energies.
And if you could just sort of talk about energy costs and the degree to which you.
Contemplated that I know, it's only been a few weeks and it's been somewhat of a spike, but whatever thoughts might be helpful.
Sure Yeah, I mean, you know, we certainly operate across a wide.
Yes network of resorts and certainly.
Use of energy in the form of fuel electricity otherwise.
And so we're certainly keeping an eye on it it's not a it's not a major.
Part of our cost structure, obviously to the extent that there's significant inflation in any part of our cost structure will take that into account as we plan for.
Next year.
I would just note that this is where our investments and our commitment to zero efforts and and we're putting.
Resources against that including capital investments in our plan this year to actually make our resorts more energy efficient whether that's through.
Standard stuff in facilities with lighting and HVAC also something we really focus on the snowmaking.
And other opportunities. So we're certainly doing our best to drive our own energy usage down which of course drives energy costs down as well.
But again as it relates to the broader economic environment, you know around energy costs or other forms of inflation, that's certainly something that will be assessing as we.
Head into FY 'twenty, three and of course use kind of the best information, we could currently available to inform our FY 'twenty to our updated guidance.
Understood, it's not a not a huge input anywhere near on the scale of what it sounds like labor is I wanted to just follow up with a question on food you've always been.
A thought leader in terms of service have you contemplated any.
Alternative ways of selling and delivering.
Food that might drive some efficiencies for you in some service delivery benefits.
Thanks, we are always looking at innovation in ways to make the business stronger I think as we think about next year getting fully staffed in our food and beverage outlets is absolutely critical to capturing the revenue and.
Both for the company and then yes as we look forward I think we are we're always open to exploring and assessing what are innovative ways to make the guest experience better and also more efficient.
Okay. Thank you very much.
Thank you.
Thank you, we'll take our final question from Brian <unk> with William Blair.
Yeah sure So hey, Michael Thanks for the question.
Maybe just to follow up on David's question, there a little bit.
We've seen pretty incredible onsite spending across a whole slew of entertainment options.
When it comes back from Covid here 400 to tease that out for your business just given some of the staffing when somebody appreciates and restrictions.
I guess just is my question.
You have some maybe like for like ancillary businesses.
Dining locations, where you've been able to get back to more staffing.
More normalized staffing levels and if so are you seeing that kind of pick up in spend as well.
Yeah, I mean I think.
There are really two issues going on.
With our dining operations.
This season, one was was clearly right the staffing environment, which was challenging.
Probably more so it was the the operational restrictions, which you saw our dining numbers are kind of disproportionately impacted relative to ski school and rental largely because of that which is that we had.
Instituted a vaccination mandate.
As well as the reservation system.
So as a result of that are.
Actually explicitly reduced the capacity of our dining operations to accommodate those restrictions and so that was true across all of our major dining operations.
And so no we don't have a real like for like that being said of course, we have significant history operating.
These facilities and so and operations and so we certainly feel like we have a good sense for when those restrictions are lifted assuming that the COVID-19 environment has dramatically improved for next season.
That was how we came up with.
Between that and full staffing the estimates that we included in the outlook section of the release.
Got it.
That does assume some pick up in <unk>.
Spending per capita or is it more in line with historical levels.
I wouldn't say that we're not making necessarily any specific right.
The views on guest spending outside of saying that in the absence of COVID-19 restrictions and with the return of full staffing.
These are levels of spending that we would expect so what the overall business, yes, we will generate substantially more revenue, which of course is how we got to that 75 million.
Part of that the $75 million across our ancillary businesses that we would expect to return.
And of course that in total is more spending I'm not going to comment on specific assumptions as to per guest spending.
Got it alright.
Alright, thank you.
Thank you.
Thank you and that does conclude today's question and answer session I would like to turn the conference back over to management for any additional or closing remarks.
Thank you operator. This concludes our fiscal 2022 second quarter earnings call. Thanks to everyone, who joined US today. Please feel free to contact me or Michael directly should you have any further questions. Thank you for your time this afternoon.
Thank you and that does conclude today's conference. We do thank you all for your participation you may now disconnect.
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