Update on Vail

You’ve probably heard that we’re hosting our Offshore Investment Summit in Uruguay this week. On Monday, Jeff flew over there to speak about the state of the dollar: why its strength is temporary and what we can do to protect ourselves from its coming fall. Since he’s giving presentations and touring the country with the conference’s 80-plus attendees, he asked me to help out with the weekly update.

I want to take this opportunity to discuss our spring-related option that’s expiring in April: the Vail Resorts (NYSE: MTN) $87.50 puts.

This season, we took nice triple-digit profits in Vail, our leading ski-resort operator, during its fall/winter uptick. But, as you may recall, we found another seasonal trend in Vail: After the winter excitement is priced into the shares, Vail has a history of receding ahead of spring. So we jumped back into Vail, but this time we did it with a put option to take advantage of the upcoming sell-off.

This morning, Vail announced earnings before the market opened. It reported a 21% jump in earnings for the quarter, beating expectations and sending the stock surging about 10% as a result. Since we have a put option, this has sent our position underwater.

However, there are some crucial caveats, which Jeff pointed out to me in an email this morning:

First, Vail’s big earnings pop was largely a result of the acquisition it made last fall in grabbing a ski resort it has been fighting to own for years. Analysts, Jeff is convinced, had no way to fully project the company’s earnings stream since they’d never seen the impacts of this acquired resort’s operations. Jeff thinks the analysts simply under anticipated the results, which lead to what is ostensibly an “earnings beat,” but what in reality is just a bad case of estimating.

Second, Vail narrowed the high end of its guidance range, which tells you things are not as exciting as Vail once anticipated. Moreover, Vail reported fewer skiers at its parks — though it made up for that by raising ticket prices, along with spending on ski schools and dining, which helped boost revenue.
If investors begin to digest these facts, Vail’s shares should begin to tail off and follow its weather-related seasonal pattern. Jeff, of course, will monitor the trade, and if we don’t get a drop soon, we will exit before the April 17 expiration date to preserve some of our capital.

Well, that’s all for now. You can take a look at the rest of the portfolio here. Jeff will be back with your weekly dispatch next Thursday, unless, of course, something happens that requires our action.

There’s a silver lining in every cloud,


Chris Orr
Certified Consulting Meteorologist