Vail Resorts Inc (MTN) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Vail Resorts fiscal 2011 second-quarter results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, March 10, 2011. I would now like to turn the conference over to Rob Katz, Chief Executive Officer of Vail Resorts. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to the Vail Resorts fiscal 2011 second quarter earnings conference call and simultaneous webcast, both open to the public and press at large. I'm Rob Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Co-President and Chief Financial Officer. Before I turn to a discussion of our results, let me remind you that we are using the term reported EBITDA to report earnings for each of our operating segments -- namely, Mountain, Lodging, and Resort, which is the combination of the Mountain and Lodging segment and Real Estate.

The Company defines reported EBITDA as segment net revenue less segment operating expense, plus or minus segment equity investment income or loss, and for the Real Estate segment, plus a gain on sale of real property. The Company also uses the term net debt, which is defined as long-term debt plus long-term debt due within one year, less cash and cash equivalents. Complete reconciliations of reported EBITDA and other non-GAAP financial measures can be found in this morning's earnings release and on the vailresorts.com website in the Investor Relations section.

I also need to mention that comments made during this conference call, other than statements of historical fact, are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements.

Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission, including the Company's Form 10-K for the fiscal year ended July 31, 2010, and Form 10-Q for the second quarter of fiscal 2011. In addition, the Safe Harbor language in today's press release also applies to our comments on this call. All guidance and forward-looking statements made on this call are made as of the date hereof, and we do not undertake any obligation to update any forecast or forward-looking statements except as may be required by law.

So, with that said, let's turn to our second-quarter fiscal 2011 results and outlook. We are pleased with our performance in the second quarter of fiscal 2011, which was enhanced by an improving economy; better snow conditions, including more terrain open earlier in the season; as well as price increases supported by our outstanding guest service across all of our resorts, also benefiting from many of the strategic initiatives and investments that the Company has made over the past few years. Excluding Northstar-at-Tahoe, which was acquired in October 2010, just before our 2010-2011 ski season started, our resorts saw an 8.7% increase in skier visits, driven in large part by increases in visits from season pass holders, with an increase in visits per pass of approximately 11%, or around a half-day more per pass holder over the first part of our season.

Total lift revenue, also excluding Northstar-at-Tahoe, increased by 8.2%, reflecting the increases in visitation as well as a 7.3% increase in season pass revenue and higher pricing on lift ticket products. Our season pass program continues to capture a larger share of our visitors, adding stability to our business model; and was instrumental in generating strong visitation and ancillary spending, particularly during off-peak periods. Total season pass sales for the 2010-2011 season, which are recorded as revenue in our second and third quarters, were up 18.9% over the 2009-2010 season, which includes Northstar-at-Tahoe pass sales for the current season -- and up 9.1%, excluding Northstar-at-Tahoe.

Effective ticket prices, or ETP, declined slightly due to the impacts of the increased visitation per pass and the addition of Northstar-at-Tahoe. However, ETP, excluding season passes and Northstar-at-Tahoe, increased 7.3%, aided by healthy price increases across a range of products and a change in our pricing philosophy. This season, in addition to our customary price increases, we added an incremental price bump to lift tickets during peak periods that are not purchased in advance, effectively increasing the discount to guests who purchase before they arrive at the resort. This strategy had the dual benefit of higher prices during peak periods and driving greater advanced purchases, which aligns with our strategy of pushing people to purchase their skiing ahead of their trip.

One of the primary goals of these efforts, along with our season pass program, is to stabilize the Company from variations in weather -- which was on full display last season, when our Company reported strong EBITDA growth despite 30-year-low snowfall in the early season. This strategy is also applicable for this season, as record snowfall has not materially impacted our original forecast for the year, which was based on our views on economic conditions and trends in upper-end destination travel.

We are continuing to see a strong rebound in guest spending, a trend that first surfaced in the spring of last year, with revenue from all of our major ancillary areas outpacing the growth in both lift ticket revenue and visitation in the current year. Excluding Northstar-at-Tahoe, ski school revenue increased 11.7%, led by strong demand for private lessons. And dining revenue increased 14.4%, helped by the additions of the Tamarack Lodge at Heavenly and Ski Hill Grill at Breckenridge, as well as an earlier opening of on-mountain restaurants. Retail rental, also excluding Northstar-at-Tahoe, was higher by 14.4%, with strong retail sales across multiple product segments and geographies, including strong retail sales at our Colorado Front Range and Bay Area locations. Mountain net revenue increased $57.3 million, or 22%, and Mountain-reported EBITDA increased $20 million, or 18.7%, which includes incremental revenue and expense of $30.1 million and $20 million, respectively, from Northstar-at-Tahoe.

We are particularly pleased with the performance of the newest member of our portfolio of world-class resorts, Northstar-at-Tahoe. Northstar's performance in the quarter underscores the rationale for our purchase, and sets the stage for a terrific longer-term opportunity. The initial consumer response to the combination of Northstar-at-Tahoe with our Heavenly Resort drove strong increases in season pass sales for both resorts, and that has translated into higher visitation and spending trends.

Northstar is currently on track to achieve a record season in terms of visitation and revenue. We believe we are in the early stages of realizing tremendous potential at that resort, and are moving aggressively to further elevate the profile of Northstar-at-Tahoe through the addition of a number of new signature amenities for the 2011-2012 ski season.

Our Lodging results similarly benefited from increased visitation in our mountains, as both group and transient room nights increased in the quarter, including a rebound at Keystone. Revenue at our owned hotels and managed condominiums increased 18.3%, compared with the prior year, with RevPAR up 14.7% on a 6.3-point increase in occupancy. Lodging segment-reported EBITDA was relatively flat, and we did not get our typical flow-through in the quarter, due in part to the timing of bonus accruals, as well as -- consistent with our Mountain segment, the reinstatement in the second half of last year of certain benefits and merit increases. When combining the impact of the timing of these expense items with the higher variable expenses brought about by the significant increase in occupancy, our Lodging segment, which does not have the multiple sources of revenue and high gross margin that we see from our Mountain group, did not produce the same growth in the second quarter. We would anticipate a stronger flow-through for our Lodging business in the second half of the year.

Now let's take a look at our ski season to-date metrics for the comparative periods, from the beginning of the ski season through Sunday, March 6, 2011, and for the similar prior-year period through Sunday, March 7, 2010. It's important to note that these periods extend into our third fiscal quarter. Our ski season to-date metrics continue to show solid growth in skier visits and strong guest spending trends, even as the comparisons to the prior ski season are getting progressively more challenging. As you may recall, last year visitation and spending trends accelerated through the course of the season, reaching a peak over the spring break/Easter period. In light of those patterns, we had expected the rate of growth in the current year to slow as the season progressed, and we are pleased with the trends, especially in ancillary spending.

Our total skier visits through March 6, 2011, at our six mountain resort properties, adjusted as if Northstar-at-Tahoe was owned in both periods, were up approximately 4.4%; with total lift revenue up 7.5%, as compared to the similar period through March 7 of prior year, which includes an allocated portion of season pass revenue for each applicable period. Our ski school, dining, and retail rental revenues were up approximately 10.4%, 8.7%, and 10.8%, respectively, reflecting a meaningful improvement in guest spend per visit. In addition, our lodging bookings through our central reservations and directly at our owned and managed properties continue to track ahead of last year's level.

Let me now turn the call over to Jeff to further discuss our results and outlook. I will then discuss our calendar 2011 resort capital expenditure plan, as well as some other exciting news.

Thanks, Rob. Good morning, everyone. Earlier this morning, we released our earnings for our second quarter of fiscal 2011 ended January 31, 2011; and also filed our Form 10-Q for the quarter, which you can find available now at our vailresorts.com website. Now turning to our results. Our second-quarter fiscal 2011 financial results reflected an improvement in resort-reported EBITDA of $20 million, or 18.5%, which included the incremental contribution from Northstar-at-Tahoe in the current year, as well as increases in visitation and Mountain and Lodging revenue across all of our major categories, as Rob described in more detail earlier.

Our Mountain-reported EBITDA margin declined slightly, from 41% to 40%, due to the addition of the Northstar-at-Tahoe resort to our overall mix; while Lodging-reported EBITDA margin declined, as Lodging-reported EBITDA was flat despite the significant increase in RevPAR. This was due to the timing of certain expenses, as noted earlier, as well as a higher level of variable-based expenses attributable to the 6.3-point increase in occupancy. Overall, besides the volume-based expense increases across our business areas, including cost of sales for dining and retail, our resort business incurred incremental expenses related to the 2% wage adjustment implemented in April 2010, and the reinstatement of other benefits in the second half of last year, as well as an increase in medical costs that most other companies are seeing as well.

Moving on to Real Estate, our Real Estate net revenue was significantly higher in the second quarter, due in large part to closings at the Ritz-Carlton Residences Vail. During the quarter, we sold six units at the Ritz-Carlton, plus another two that closed after quarter-end, for a total of 20 whole ownership units sold to date. Further, we currently have an additional one unit under contract. We've been very pleased with the rate of sales since our initial closings at the Ritz-Carlton, and are seeing increasing levels of buyer interest in the project.

At One Ski Hill Place in Breckenridge, we've closed on two additional units since the first quarter, and the project has become the defining centerpiece of the resort in its first season. While Real Estate-reported EBITDA totaled a loss of $0.2 million in the quarter, most importantly net proceeds from sales, including those units that closed since quarter-end, equaled $151.1 million since the beginning of fiscal 2011. Our Real Estate-reported EBITDA was slightly negative in the current year second fiscal quarter, despite the fact we closed on several Ritz and One Ski Hill Place units, due to ongoing period costs such as marketing and administrative.

As a reminder, since both the Ritz and One Ski Hill Place projects were substantially completed this past summer, the vast majority of cash capital investment was made in the prior fiscal years. However, real estate accounting rules call for these prior-year cash outlays to be recorded as cost of sales, on a pro rata basis, when the actual units are sold and closed; and therefore, are reflected in Real Estate-reported EBITDA at that time. As a result, our net cash proceeds will significantly exceed the Real Estate-reported EBITDA from these two projects as we sell units, both as it has in this fiscal year and is expected to continue beyond this year.

Our balance sheet remains in a very strong position. We generated $243.7 million of operating cash flow in the six-month period ended January 31, 2011, ending the second quarter of fiscal 2011 with cash of $97.3 million and net debt at 1.9 times trailing 12 months total reported EBITDA -- down from 2.6 times at the end of the prior-year second quarter, and we had no borrowings under our revolver. Moreover, we had virtually no principal maturities due on any of our debt until 2014. We also successfully refinanced our senior credit facility in the quarter, extending the maturity until 2016, provided the senior subordinated notes are paid off or refinanced by the end of 2013.

Now, to discuss our guidance for fiscal year 2011. While we're experiencing a number of favorable operating trends this year, with the momentum extending into third quarter, we are maintaining the guidance issued on December 7, 2010; as it takes into consideration the strong performance we saw in the spring break and Easter period in 2010, as well as the unusually late Easter this year, which falls on April 24, 2011. Our guidance calls for Resort-reported EBITDA in a range of $211 million to $221 million, representing a 13% to 19% increase over fiscal 2010; and Real Estate-reported EBITDA to be in the range of negative $10 million to break even.

Our guidance for net income attributable to Vail Resorts, Inc. is a range of $32 million to $42 million. Before I turn the call back to Rob, I wanted to mention that in April, we will again announce certain season to-date ski season metrics, which will include the spring break and Easter holiday periods. Now, back to Rob.

Thanks, Jeff. As is customary for this time of year, we also have released our Resort capital expenditure plans for the current calendar year -- in this case, calendar 2011. Our operating philosophy is to continually reinvest in our resorts, to offer the absolute highest quality experience to our guests, supporting our pricing strategy, and creating very high guest loyalty. We are currently receiving the highest guest satisfaction scores in the Company's history, representing significant increases over last year's record guest satisfaction performance; and we intend to continue to build upon that success.

Our capital expenditure plan for calendar year 2011 focuses on high-profile, high-return projects that underscore the commitment we have to our guests. We currently anticipate spending approximately $83 million to $93 million of Resort capital expenditures in calendar 2011, excluding Northstar-at-Tahoe; and including $40 million to $44 million of maintenance capital, necessary to maintain the appearance and level of service appropriate to the Company's resort operations, including routine replacement of snow grooming equipment and rental fleet equipment.

In addition, the Company also plans to invest an additional $28 million to $32 million at Northstar-at-Tahoe, which includes $4 million to $6 million of maintenance capital. Some highlights of the calendar year 2011 capital expenditure plan include -- a new, on-mountain, fine dining restaurant at Vail; a new high-speed quad chair lift to replace the existing fixed-grip lift in the Rose Bowl at Beaver Creek; further investments in marketing initiatives, including in our new customer relationship management system; new family programming at Keystone, to build on this year's successful efforts to reestablish Keystone as a premier family mountain; renovations at certain owned lodging properties; and several new retail store build outs.

We also will be releasing a second generation of EpicMix, investing in upgrades and adding some new ground-breaking functionality to continue to capture the interest and enthusiasm of our guests. All of the proposed capital projects are subject to applicable regulatory approvals. We have elected to take an aggressive approach with our first-time investment at Northstar-at-Tahoe. The resort already offers a comprehensive experience not otherwise found in the north shore of Lake Tahoe; and we intend to further widen the gap, with more family-friendly terrain, more grooming and snow making, a best-in-class on-mountain dining experience, and a village experience that is far superior to any other destination in the region.

The highlights for Northstar-at-Tahoe include the addition of a new high-speed lift, serving expanded terrain and new ski runs, adjacent to the existing back side lift, expanding skiable terrain at the resort by 10%. Also, a new 500-seat, state-of-the-art mountain skier restaurant at the top of the Zephyr Express lift, and enhancements to the base village, in conjunction with the introduction of new, exciting tenants. Included in the capital plan for Northstar-at-Tahoe is $2.5 million in IT spending, for the integration and transition of the resort to the systems of Vail Resorts. This will be the first of many steps that will come in future years, as Northstar-at-Tahoe redefines the Lake Tahoe skiing and riding experience.

Our RockResorts business made some exciting new additions to its portfolio over the recent months, expanding the number of warm-weather resort-based locations, and experiencing a significant increase in the number of RockResorts rooms that are open and under management. After announcing in December that RockResorts was awarded the management contract for one of the premier Caribbean destinations, Half Moon in Jamaica, we officially took over management on January 1, 2011, and early indications have reinforced our expectation that this will truly be one of the premier RockResorts properties. We also subsequently added a boutique property in Costa Rica, Alma del Pacifico -- currently named Xandari. And two weeks ago, we were awarded the management contract for a Bahamas-based Bimini Bay, which includes a significant expansion opportunity.

These have been important milestones in expanding the profile of RockResorts as a leading player in luxury resort management, and reflects our continued interest in expanding our resort and lodging operations outside of the United States, including into desirable warm-weather locations. We are excited by the momentum in this segment, and hope to announce additional management opportunities in the near future. In addition to the recent growth of our RockResorts platform, our strategic activities have accelerated in the last year, with the acquisitions of Northstar-at-Tahoe, Mountain News Corporation, and the purchase of the minority interest in Specialty Sports Venture.

Given our leadership position and great balance sheet, we are continuing to pursue additional growth opportunities, both domestically and internationally, as we look to further leverage our platform in ways that would best fit our competitive advantages and continue to drive shareholder value. As we talk today, we have entered our historically largest revenue month of the year for our resort business. We are seeing good momentum this year, and there is still much more to come of this season -- and still more time to come and visit us in the mountains. I look forward to seeing you all there. At this time, Jeff and I will be happy to answer your questions. Operator, we are ready for questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions)Our first question comes from the line of Will Marks with JMP Securities. Please go ahead.

First question I want to ask you is just on cash flow. I think a year ago you gave a trailing 12 months. I heard you on the call give a six-month, but you gave a trailing 12-month number of, I think, $[160] million in what was a pretty bad period. I'm wondering, do you have that figure now?

You know, we haven't -- it's not something we put, obviously, in the report. We'll have an update on that at our investor meeting, for what our trailing 12-month trend has been. I can tell you generally, though, it remains in excess of $100 million from our business, excluding any kind of acquisitions or real estate investment. And I think that's a trend we've been seeing every year, and obviously the results this year only enhance that.

And if you take what the added CapEx spending that -- you will still be able to do over $100 million in the next 12 months?

Well, I think, again, since we -- with that trend, and you look at that CapEx and factor that in. Again, I don't think we're going to forecast out a future 12 month of cash flow, but I wouldn't anticipate that trend to change significantly.

Okay. Another unrelated question. On Northstar, can you discuss how -- it seems really quick that you were able to get approval. Was this something already in the process of getting that 10% increase in the resort and skiable terrain?

Yes, that was something that had been worked on prior to our acquisition. And we considered it a terrific opportunity to make a -- to really improve the skier experience, both in terms of more terrain, exactly the kind of terrain that we're trying to target at Northstar, which is exactly to our kind of best guest demographic, and significantly reducing lift wait times at some of the key lifts around the mountain. Since that had gone through the approval process, it was just a matter of having the capital to make it happen. And for that, this was a pretty easy decision and a great way to kind of kick off next season for everyone who comes to Northstar.

Is the land -- the same landowner, CNL, as the rest of the resort?

Yes, it is.

And then, can you talk about an ROI on that project, as well as the impact on access? Because it's already a little bit strained, or maybe you'd put it different way, but are you doing anything to improve that, to access the resort?

Yes, I think -- I'm not going to comment on an ROI per se, but we definitely put all of our projects through a pretty stringent process about making sure that we feel we can deliver a return. And I think the vast majority of our spending has done that over time. What I would say is, I think the -- we do realize there are a number of -- at Northstar, has made incredible progress over the last three to four years, and there are a number of areas that definitely need to be addressed. One was, I think we felt skiable terrain and additional lift capacity for when you're on the mountain. Another was restaurant seats, and making sure that there was a high quality -- really, state-of-the-art restaurant for the kind of clientele that's coming to Northstar. And access is also an issue.

And I think what you will see for next year, probably, is us managing that access through our pricing and our strategy with season passes, groups, and off peak, and really trying to move the same way we do in Colorado, to ensure that we kind of smooth out, a little bit, the way we see our skier visits at Northstar. I would also say that over the long term, it's definitely something that we will be focused on, in terms of improving both the parking situation and how people access the resort.

Okay. Great. That's all for me. Thank you.

Thanks, Will.

Thank you. Our next question comes from the line of Andrew Didora with Bank of America Merrill Lynch. Please go ahead.

Hi, good morning, Rob and Jeff. Just, I guess, two-part question. First, obviously, your season pass visitation was up a lot in the quarter. But what does this imply in terms of your destination and international visitation? And do you typically get more international in Q2 or Q3? That's the first part of the question. And then, second, I was just trying to quantify a little bit of the impact of the Easter shift. Wondering if maybe could you give us a little bit more color here, in terms of how we might think about it from a visitation and spending standpoint. Thanks.

Sure. On the season pass, I would say, as we continue to move people into our season pass products, obviously that's going to temper the growth of visits, excluding season pass. And I think that's certainly a trend that we saw this year, and I think we would anticipate continuing. International visitation is strong, and it represents probably about 10%, plus or minus, of our total destination visitation. So it doesn't necessarily move the needle or show up in the aggregate visitation stats, but what we would say is we are seeing a really strong growth, particularly from Mexico and Latin America. I would say Australia, Germany, tougher situation in the UK, where the economy is a little, I think, more challenged.

In terms of when the international visitation comes, we do see it in both Q2 and Q3, although historically Q3, because of Easter and the Latin-American visitation that we very often get, we do see a pretty strong piece of that in spring break and Easter. The Easter shift -- candidly, this is about as late, I think, as Easter can be. And it's one of the reasons for some caution on our side, in terms of how we see Q3 playing out. I think at this point, our hope, obviously, is that we do bring in many of the folks who like to travel during Easter for a ski holiday.

But because this is about as late as it's going to be, we're going to be cautious about exactly how that period delivers versus the Easter period last year, which was obviously much closer to the spring break time period. So, we don't have any exact numbers on it. We've obviously factored that in to restating our guidance. We'll probably have more to share on that on our next call.

Andrew, I'd just follow up with two other things. Just to point out again, on pass sales, that once we introduce the Epic Pass and expanded online access to other pass products that we have, people should recognize that part of that pass sales increase is a shift of actual destination related folks into a buying a pass product. So, that has resulted in that kind of shift, when you're looking at our overall stack. Secondly, Easter this year, as Rob said, is April 24. Last year was in very early April, which was kind of perfect. Next year, it will be in very early April again. So, this year really is the outlier, where Easter is sitting.

Great, that's helpful. And then, just one quick last one. Any impact of fuel prices, especially any -- have you seen any effects on flight capacity into Eagle and/or Denver, and maybe any potential impact on the CME business?

What I would say is, no, we're not -- I think we're not seeing an immediate impact on the airlines' lift into the key airports for us. We're not seeing a huge increase just from fuel on airline prices. In general, I'd say for the year, there's no question that airline prices are up over the last year; and certainly, over two years ago.

If we are seeing an increase in the cost for our CME business, that's not material to the overall Company, but certainly to that business, that certainly impacts that operation. What I would say is, I think if oil prices are something that over time, certainly, can have an impact on our business, although we actually showed some record performance in years like 2008, when obviously oil prices per barrel were in the $150 range for periods of time in '07 and '08. So, what I would say is, I think it's a concern for us, but I don't think it's as a big a concern as others in the travel business.

Okay, that's all for me. Thanks.

Thank you.

Thank you. Our next question comes from the line of Chris Woronka with Deutsche Bank.

Hi, good morning, guys. Is it possible to directionally talk about margins at Northstar right now, versus maybe your legacy portfolio, just to get a sense of what impact that's having near term?

Well, I think when we made the comment in our conversation this morning here on margins, and that the impact of adding Northstar impacted our margin slightly to the negative, it's only because of the structure of that mountain where we pay a lease payment to CNL, which is a larger payment than we pay for our US Forest Service fees at the other mountains. So, just proportionately, you'll see that impacting that margin structure for Northstar differently.

I think from an opportunity standpoint, the effective ticket price opportunity is certainly there at Northstar, as well, being -- in other words, it's -- their effective ticket price is lower than we see at Heavenly or any of our other mountains in Colorado. And so, the opportunity, I think, from a standpoint of trueing that up to where we get what we realize at our other mountains gives us some opportunity to increase the margins there, from what we're seeing today.

Okay. That's helpful. And then, on kind of walk-up or cash-paying business for your portfolio as a whole, how did that look this quarter, maybe versus a year ago?

What I would say is, we're seeing revenue from that segment is up as well, so we're seeing -- obviously, season pass revenue is up, and revenue from season pass visits, revenue from people who are walking up. And again, for us, we also have -- there's a group of people that are truly walking up to the window, and then there's a group of people that are buying seven days in advance -- their lift tickets. And we have seen a greater shift this year, given the pricing strategy, from the walk-up purchaser to the advance purchaser. And that's a trend that we want to continue to push for.

Okay. Great. Maybe just a quick update on groups. Where do you think you are this year, and where is that kind of versus peak, maybe in '07, '08?

I think we are making progress over two years ago, but I think we are still below, where we were seeing group business in '07 and '08. And I think that's true for both the Mountain side of the business and the Lodging side of the business.

Okay. And just finally, are you guys renting out the Ritz and One Ski Hill Place units that are not sold or under contract?

Chris, we are renting out many of the units, not all of the units. So, at One Ski Hill Place, the units are furnished already, and so we have a, I'd say, a significant number of those in the rental pool. And we're actually seeing some great success out of that project, as far as people renting and the prices they are paying, which is kind of ground-breaking in Breckenridge for renting of property or hotel rooms or condos or whatever you want to call it. So, that's actually been very encouraging for us. And we would continue to include that, or continue that.

At Ritz, we have actually furnished some of the units and are renting those out, but on a lesser scale than at One Ski Hill Place. I think the benefit, besides just showing that we can rent these out and bring guests in who obviously enjoy the rest of our mountain and the ancillary services that we can provide, is that, obviously, anyone that stays in these units gets to really realize what these units are and how they interact with the mountain and the resort. And, therefore, I think they become potential real estate purchasers as well. So, we think there's a benefit on that side, that does definitely -- is a -- outweighs potentially the impact of renting out some of the unsold units.

Okay. Very good, thanks.

Thank you. Our next question comes from the line of Lou Taylor with Paulson. Please go ahead.

Thanks, good morning. Jeff or Rob, can you talk a little bit about labor, and the reinstatement of some of the freezes and cuts from last year? And as we look going forward, if you had a more normal year in terms of just merit increases and the like, what are the increases more likely to be?

Sorry, the increases in --

In labor.

Yes, I think what I would say is, I think we will probably continue to see some catch-up from -- obviously, the Company a couple years ago, in the middle of the recession, took a pay reduction, and then, has held wages flat while the recession was kind of in the toughest time period. And I think since then, we have started to make a recovery, I think, in both our wage structure and our benefit structure.

And I think that's something that will certainly continue -- I'd say, into next year, most likely. I think probably after that, you'll start to see that subside. With that said, I would say overall, you're talking about customary increases that are more tied to inflation, more tied to CPI-U, things like that. So, I think those will be impactful, but not overly material to the overall performance of the Company in the next couple years.

All right. Do you think your labor growth will exceed -- the rate of labor growth will exceed your revenue growth?

No. Not even close.

Not even close. And not on a percentage basis?

No. I mean, a percentage -- if you're trying to compare revenue percent increase to the percent on labor, no.

No. Okay. The second question pertains to the CapEx and on the spend. I mean, I -- other than the Northstar plans, in terms of on the Vail and Beaver Creek, the legacy portfolio, what are the big ticket items in the 2011 CapEx plan?

One of the key items is a new on-mountain restaurant that's going to be at Vail, a fine dining restaurant that we feel is going to be part of the Vail Mountain Club -- something that we had discussed a few years back when we put that club in place and brought in about $70 million in membership deposits. It's also going to be open to the public, so it will be an incredible addition, I think, for that high-end clientele that, obviously, we're trying to bring into Vail.

The second big-ticket item is the replacement of the Rose Bowl lift in Beaver Creek, which we really believe will add significant terrain to the resort. We're going to be adding grooming, much more grooming to that area. So, all of a sudden, we're going to be really opening up a new pod; and on peak days, there's no question that there can be a pinch at Beaver Creek, given its success over the last 20 years. We really believe that that's a terrific step towards the future. I think the other pieces are, we've got some upgrades to a number of our lodging properties, and then marketing upgrades, including Epic Mix.

Okay. And then, last question, as you look a little further out -- two, three years out, on the CapEx spend, how would you characterize this level of spending? Is this -- do you think that you will sustain this, you'll increase it, or it will shrink a little bit over time, based on some of your longer-term projects? (Please stand by, audio difficulties).

It is in line with what we have spent historically. It's actually below the spend that we had in '07 and '08. So, I think we reduced significantly our capital spend during the middle of the recession. But as I said up front, our operating model is absolutely to have world-class resorts and to continually invest in that guest experience, and then charge for that guest experience; and that's a key part of our operating model, and a successful part.

Great, thank you.

Thanks, Lou.

Thank you. Our next question comes from the line of Martin Pyykkonen with Wedge Partners. Please go ahead.

Thanks, good morning. Couple questions on real estate. I don't know if you could say a number or even a broad range, but on your Real Estate EBITDA guidance for the full year, minus $10 million to flat, how many closings are you assuming in that for both the Ritz and One Ski Hill? And then, on One Ski Hill -- again, if you are willing to talk about the number, how many are still available for sale? And if there's a number that are actually under contract but not closed yet?

As we mentioned on the call today, besides the 20 Ritz units that we've closed on through the current time period, we have an additional unit under contract. So, roughly 50 units available for sale at the Ritz, remaining whole ownership units. I think our guidance range contemplated more units to close in the first quarter than did; but, I think, less units to close in the remainder of the year than have been, at least to date, through the second quarter. So, I think, obviously, we maintained our guidance range, estimating that the total closings for the year will be plus or minus, in that estimation that we made at the beginning of the year. We're not going to give exact numbers of closings embedded in all of our guidance ranges.

And on Ever Vail, have you received all of the town approvals at this point?

No, actually, we've -- Ever Vail has received the approval of the planning commission, which is the committee -- or an operating group inside the town. But now, the plan is actually starting to be reviewed by the town council. And we're actively involved in that process, and are looking forward to taking input from the -- continued input from the community and the council, to ensure that this is a terrific project for both Vail, the town of Vail, the community, and our Company.

Do you have any update in terms of your best guess as to when the frontage road move would start?

I think that's going to be much more about the real estate market itself. So, right now, there are a couple of projects, including our own, that have additional inventory to sell. And I think there's no question that we're not going to be launching any new real estate projects until we see a acceleration in the velocity of sales activity at our resorts. And I think Ever Vail, obviously being a fairly significant project, is certainly going to be -- we're going to manage that right on that philosophy, as well.

Then lastly, just on the consumer behavior kind of side, with a good chunk of the season behind you, anything you can update on Epic Mix, in terms of what you've learned and how you might use that for your own targeting and marketing and so forth, going forward?

Sure. We've been incredibly pleased with the enthusiasm and engagement in the product. It was really a kind of a ground-breaking effort that I think the whole Company is very proud of. We've seen engagement across all age demographics and income demographics. I think we got started a little later than we had hoped for this season, so things like our kids site isn't really going to be launched until the middle of spring break, most likely. So, I think that -- there's no question that some of those things were disappointments.

One of -- probably the most important things, for our mind, is obviously we feel like this is a differentiator that gives people an extra piece of their experience that they don't necessarily get at other resorts. But what's been interesting to us is the number of times that people will post their information to social sites like Facebook and Twitter; and to date, we've seen about 170,000 posts, primarily to Facebook. And if you do some math on that, in terms of how many -- when people post to their Facebook account -- average Facebook user, according to Facebook, has about 130 friends, you start to get up into some 20 million to 30 million impressions.

And obviously, one of the goals for our Company is to use Epic Mix, so that people feel like they're having fun with it, and then they share that, the excitement and the experience, with others. And we feel like that's going to be one of the key areas in marketing over the next five years, and Epic Mix really positions us perfectly with that effort, and I think in what's going on around us.

And I would say -- the last piece is, I think we mentioned that it's in our capital plan for next year. We have some incredible new features and functionality that we're already planning for next year. And I think it's -- we're not resting on the success of this year, but it's going to be even better, and I think ground-breaking in some other ways within vacation travel, as we start getting closer and we can announce that closer to the start of the '11-'12 season.

Okay. Thank you very much.

Thank you. (Operator Instructions)And our next question comes from the line of Anthony Powell with Barclays Capital. Please go ahead.

Good morning. Just a quick question on private club sales. Have they increased at all this year, given the state of the economy?

We actually are seeing a pickup in our private club sales over what we've seen in the last couple years, both at the Arrabelle club, which we're actively marketing right now, and even out at our Red Sky Ranch golf club. So, I think that's actually been really good to see. On top of -- what I would say, back to the real-estate question earlier, is that we are seeing interest and momentum and activity, more than I think we would otherwise have thought, even a few months ago in our projects, both the real estate and in the club sales. And I think that's a good sign all the way around.

Just a broader question on use of cash. You seem to be investing in your mountains and looking at strategic opportunities. How do you view share repurchases in that bucket?

I think we view -- I think we've had an active share repurchase program over the last five years. We view that program as opportunistic for the Company and for shareholders. I think that we've always talked about, as we go forward, we're going to be balancing -- particularly as our real estate proceeds start coming in from the two projects that we have -- that we're selling today, I think we're going to be looking at all three of those -- investments in our core business, strategic investments, and returning capital to shareholders. And we view returning capital to shareholders as a critical part of what we need to be doing with our excess cash.

Great. That's it. Thanks a lot.

Thanks, Anthony.

Thank you. Our next question comes from the line of Ray Cheesman with LAV Capital. Please go ahead.

Thanks very much for taking my question. You guys have touched briefly on energy and labor. I know in the past, we've talked about insurance with your Company. What are the hot buttons you're seeing in your business, as inflation becomes more of a kind of every night on the news item that people talk about? I mean, I can imagine you serve a ton of burgers, and we know that beef has gone up in price. How do we look at next year, and where are the adjustments you're making in your business plan, and possibly your pricing?

Sure. I think we view -- we probably view those a little bit separately, which is, we do have -- there is cost inflation that we're seeing. I think one of the areas that probably is the biggest for us, and probably the biggest for many, many companies, is medical and health insurance. And so, that's obviously an area that we're always looking at and focusing on. Obviously, our biggest cost across our business is labor, and so that's something that we did address earlier.

There's no question that food costs can impact our business as well; but again, not materially, in our opinion, as you look out towards the future. We don't see that because the margins that we get throughout our business are sufficient, that we can kind of withstand cost increases in different places. What I would say is, I think our view, though, is that as we improve the quality of our resorts, there are no new ski resorts being created. It really makes the experience that we are offering to our guests very, very unique -- not only in the United States, but throughout the world. And we believe that that allows us, as we create that guest loyalty, to charge for that. And that's a key part of the strategy.

And there's no question that for different times of the year, different periods, we're going to discount. And certainly, based on market conditions and based on the economy, that's obviously something we're going to do. And we certainly did a lot of that during the toughest times of the recession. But as we look forward, we do see ourselves returning to a more traditional approach to our kind of long-term pricing strategy.

As a follow-up, I remember in the old days the Canadians used to have an advantage with their currency versus the dollar. Now it's the other way around. I think the dollar versus the basket is down 10% over the last two years. Is that allowing to you reach into markets that you had not thought about or -- just opportunities that didn't present themselves in the past?

Yes, I think it does. I think that's been true also with the Australian dollar. I would say the Canadian dollar is both us being able to reach into Canada, which is a key strategy; but also, making it a little bit more of a heads-up competition between the Canadian resorts and the US resorts, in terms of even folks within the US.

So, I don't think -- where you might have seen, way back, a real advantage for somebody going up into Canada, if they were buying with US dollars, today that advantage isn't there. So, we're competing more heads-up. In the end, though -- again, these markets move up and down all the time, for all kinds of reasons. And we tend to plan our strategy and our approach with the long term in mind, meaning that we were opportunistic where we believe that the dollar represents an advantage, but we don't rely too heavily on that. We try to focus on the markets that we think, long-term, will provide great guest visitation to our resorts.

Thank you.

Thanks.

Thank you. Our next question is a follow-up question from the line of Will Marks with JMP Securities. Please go ahead.

Yes, hello, Jeff and Rob. One quick question on your season pass sales, and just the future of that. With the breakup of Intrawest -- or partial breakup, do you see any change this year in the competitive positioning? And would you expect that to lead to increased sales next year?

Again, we -- hard to comment on what's going on with Intrawest. What I can say, though, is they -- I think you're referencing Colorado, obviously, where Intrawest did own Copper and Winter Park -- and now Copper, they sold Copper to a third party. They -- those two resorts, though, are still offering the same product that they have in the past. So, certainly from where we sit, we haven't really seen a change in terms of the competitive dynamic there.

Obviously, what's more important to us is not so much who owns what resort or what kind of product they have, but, again, the quality of the resorts and the kind of investments that we're making. And that, to us, is a critical factor that season pass buyers in particular take in, in terms of making their purchase. And so, we really try and keep our focus there.

Okay, thanks.

Thanks.

Thank you. (Operator Instructions)And we do have a follow-up question from the line of Ray Cheesman with LAV Capital. Please go ahead.

I wanted to ask just a quick one. There's been a lot of material coming out of Colorado Department of Transportation about Interstate 70. How do you see that issue working its way, kind of near-term versus long-term? I mean, long-term, they have these great, $50 billion worth of plans. Doubt it's going to happen. But that Sunday night drive, or that Saturday night drive, it seems louder as a guest issue this year. I don't know why. Maybe it's just because the snow is great and your attendance is great.

We consider I-70 as a part of the experience, particularly for our Front Range guests. And so, it is something that we focus on. I think, actually, we're pretty pleased that there's been real focus over the last six months on some shorter-term initiatives that could provide some real relief on I-70. There's been talk of a zipper lane, which was used pretty successfully at Whistler, where you kind of have a lane that goes -- you take -- you have a four-lane highway that goes three lanes one way, and then converts back. There was also talk about making some improvements. There was a group that was just pulled together to make some improvements to the twin tunnels, which is another pinch point in the I-70 drive.

And so, we think it's critical for the state to address some of these. And they don't have to be the $10 billion, $50 billion solutions, but more modest solutions that make improvements and, I think, really allow for that connection between the Front Range of Denver and the mountains, which is one of the signature features of moving to the Front Range. So, what I would say is we do think it's an issue that we have to be diligent about. And we also have seen some real progress over the last six months, and are really confident that Governor Hickenlooper and his staff and administration are really going to be tackling this over the next year or so.

Thanks.

Thank you. And at this time, there are no further questions. I'd like to turn the conference back over to Rob Katz for any closing comments.

Thank you, Operator. This concludes our fiscal 2011 second-quarter earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact me or Jeff directly, should you have any further questions. Thank you for your time this morning, and good-bye.

Thank you. Ladies and gentlemen, this concludes the Vail Resorts fiscal 2011 second-quarter results conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030, or 1-800-406-7325, followed by pass code of 4414377. ACT would like to thank you for your participation. You may now disconnect.