Vail Resort's Turnaround Play: Is the Stock Worth Buying?

Fiscal 2025 was a rocky one for Vail Resorts (NYSE: MTN) as it struggled to drive visitor growth while keeping costs in check. On September. 29th, the company reported total revenue growth of 3% and resort-level EBITDA growth of just 2% to $844 million. Meanwhile, free cash flow for the year declined by 15% to $320 million.

Lower visitation and softer resort spending, combined with higher costs and tough weather, weighed heavily on the company's full-year results. In response to weak results and a stock that's down 22% over the past year and around 40% over the past 5 years, the company announced a Transformation Plan roughly one year ago, and reinstated former CEO Robert Katz in May.

A transformation plan takes shape

To address its challenges, Vail announced a two-year transformation plan in September of last year focused on cutting costs and improving efficiency. The company is targeting roughly $100 million in annualized cost savings by fiscal 2026, largely through a 14% reduction in corporate headcount. In addition, Vail will focus on streamlining operations and increasing shared services to reduce its fixed costs.

Management emphasized that these steps are meant to create a more resilient company by reducing its cost structure while executing on strategies to reinvigorate growth. The ultimate goal is to achieve its targeted cost savings by the end of fiscal 2026, positioning Vail to stabilize margins and drive operating leverage as weather and visitation trends recover. While that's the plan, risks remain as cutting costs too aggressively can negatively impact service quality and guest experience.

Robert Katz returns to steady the ship

In May, investors welcomed the return of Robert Katz as CEO. Katz brings back the experienced leadership that oversaw the creation of the Epic Pass and the expansion of the company's resort portfolio. He could be the stabilizing force the company needs to execute on its turnaround plan while improving market sentiment for the stock due to his previous success as CEO from 2006 until 2021.

Katz is also targeting revenue growth by driving visitor growth and spend per visit by skiers. He sees opportunities to drive higher revenue per visit by evolving how the company reaches its guests on mobile devices. The old way of communicating through email is not cutting it anymore., Moving ahead, the company will focus on meeting its members and guests where they are as competition for travelers' time and spending remains intense. The company also competes directly with other ski destinations, such as Alterra Mountain Company whose growing Ikon Pass network continues to push Vail to sharpen its offering and deliver a more compelling experience for loyal pass holders.

The path ahead

While the company's turnaround will take time to execute, the winter skiing season in North America is right around the corner. Katz and company can control costs all they want, but they can't control the weather, and unfortunately, weather variability is a key risk for a company like Vail. For instance, record-low snowfall shortened the recent ski season in Australia, costing the company an estimated $9 million in EBITDA in fiscal 2025. With total ski visits down around 3% in North America in fiscal 2025, the company is positioned well if the weather cooperates this year. A rebound in traffic to its ski resorts and revenue would drive margin improvement given the company's current focus on containing costs. Looking further ahead, Katz will need to work his magic to get visitation and spending trends in the right direction.

Meanwhile, the risks are straightforward: if the weather doesn't cooperate this year, we'll likely be looking to fiscal 2027 for the early stages of a turnaround. Additionally, Vail needs to attract more visitors to its resorts while executing on its transformation plan without harming the guest experience.

The Foolish bottom line

For investors, the stock is intriguing due to its turnaround potential and underlying asset value. Given the company's fixed cost structure, revenue growth is likely to lead to margin expansion and improving free cash flow. Investors can also afford to be patient given the company's impressive collection of valuable, irreplaceable assets. With Katz back, I think Vail is worth the risk as patient investors get paid a 6.2% dividend yield while they wait for the turnaround to unfold.

Bryan White owns none of the companies mentioned in this article. The Motley Fool has positions in and recommends Vail Resorts. The Motley Fool has a disclosure policy.