VAC Misses on Third Quarter Earnings

[JIMinNC]

I just noticed VAC stock is down over $11/share this morning to $63. Earnings came out this AM and it looks like the street was expecting 87 cents/share and they only delivered 82 cents. Top line revenue was also a big miss at $407 million compared to $413 million in the year-ago period and expectations of $432 million.

The company said its results were negatively impacted by the strong U.S. dollar and "unfavorable revenue reportability" - whatever that means.

On the positive side, the company did increase its full year eps guidance, adjusting expected earnings per share to a range between $3.33 and $3.52, up from the previous range of $3.29 to $3.48 - although since the Board approved a repurchase of 2 million shares, this guidance increase appears to be more from having less shares outstanding than actual bottom line earnings improvement. That's the new tactic in corporate America - when your earnings disappoint, buy back shares to make eps go up anyway.

Here's what they had to say about North American sales which represent the bulk of their revenue:

North America contract sales, excluding residential sales, were $142.8 million in the third quarter of 2015, a decrease of $5.4 million, or 3.6 percent, from the prior year period, driven by a stronger U.S. dollar that negatively impacted sales to Latin American and Japanese customers at certain sales locations by nearly $7 million year-over-year.
VPG decreased 1.4 percent to $3,428 in the third quarter of 2015 from $3,477 in the third quarter of 2014, driven by fewer points purchased per contract, offset partially by higher pricing and improved closing efficiency. Tours decreased 1.3 percent year-over-year.

Third quarter 2015 North America segment financial results were $85.3 million, a decrease of $0.7 million from the third quarter of 2014. The decrease was driven primarily by $9.2 million of lower development margin and $1.1 million of lower financing revenues, offset partially by $3.3 million of higher resort management and other services revenues net of expenses, $3.1 million of higher rental revenues net of expenses, and $3.0 million related to a litigation settlement in the prior year period.
Adjusted development margin was $30.6 million, a $5.6 million decrease from the prior year quarter. Adjusted development margin percentage was 23.1 percent in the third quarter of 2015 compared to 25.5 percent in the third quarter of 2014. Development margin was $24.5 million, a $9.2 million decrease from the third quarter of 2014. Development margin percentage was 20.0 percent in the third quarter of 2015 compared to 24.4 percent in the prior year quarter.

 

[l0410z]

There are so many moving parts to a company's stock price. I smiled whenever it was mentioned by someone in previous posts that the increase in stock price was an indication of how successful the DC program was. It is not just as the current decrease is not an indication of the DC program being unsuccessful.

The basics of business have not changed P=R-C. You need to sell because you can't reduce costs to prosperity.

What is of interest is the buying back of stock. This requires credit or cash and using either suggests it is the best way to put the funds to use. It will be interesting to see how this impacts ROFR. This may give a short window of opportunity to acquire less expensive weeks or points.

A test may come on a waiver put in for a 2 BR EYO Grand Chateau that I paid 1750 for, seller pays all closing costs. Today is the 8 day and the Chateau only has 15 days to decide.

BTW, what happens of it takes MVCI longer?

 

[GregT]

Yes, I saw that and was intrigued by both the results and the stock price. Flat revenues year-over-year isn't good for any company, and it makes sense that investors were a little spooked that the revenue growth moderated.

I think it's still printing cash, even with flat revenues, as they continue to improve their development margin and control their expenses. I believe they are using that free cash flow to repurchase their shares, which I interpret that they don't see a better investment alternative with that cash.

I don't think this will have any impact on ROFR and will be curious what continues to get reported as exercises -- I still believe in the ROFR metric at 23% until we start to hear of exercises above that price (or waivers below that price).

Best,

Greg

 

[krj9999]

Mgmt doesn't look great repurchasing shares above $82/share in the quarter with closing price at <$63 today either.

 

[davidvel]

Its a wonder revenue is down. They keep increasing pricing. Their salespeople are selling "new"product with "used/repurchased" (aka hybrid).

Can't imagine that people aren't running in to pay $35,000 to buy points that could get them a week that they could buy for about $8K.

 

[JIMinNC]

Or it could have nothing really at all to do with the product itself...

If you think about it, the current market volatility began with the big market corrections back in mid-August at about the halfway point of the Sept 30 quarter. When the market tanks, people see their IRAs, 401Ks, and investment statements drop in value and they feel poorer. I would think people who are at a Marriott presentation while the market is so volatile, might be a little more reluctant than usual to plunk down a chunk of cash on a discretionary purchase like a timeshare. With half the quarter occurring with the backdrop of market mayhem, it's not hard to see that could have a chilling effect on a very discretionary purchase.

Having said that, what intrigues me is that even in the face of flattening sales, MVW hiked the Points price fairly significantly during the quarter. In most businesses, raising prices when demand is flat is not a good strategy. Raise prices when demand is booming, yes, but not when it's flat.

 

[Fasttr]

I would suspect they have seen signs of the flattening for a while now. The last couple of gimmicks rolled out this year (adding new benefit levels, allowing post 2010 resale weeks to be enrolled with points purchase) are both seemingly targeted to sell more points to existing MVC customers.

They have seemingly relied on this existing customer base for a lot of their growth since the inception, but it seems their ability to squeeze more from this group is becoming increasingly challenging for them, and I doubt they can rely primarily on new customers to maintain the growth levels that the "street" demands.

It will be interesting to see if the post 2010 resale enrollment promotion helps to move the needle at all in Q4, as that promotion was rolled out very late in Q3, so likely had no to minimal effect in that Q.

The question is, what new changes are on the horizon that they feel will motivate us to be separated from our money to purchase more points.

 

[GregT]

I would suspect they have seen signs of the flattening for a while now. The last couple of gimmicks rolled out this year (adding new benefit levels, allowing post 2010 resale weeks to be enrolled with points purchase) are both seemingly targeted to sell more points to existing MVC customers.

They have seemingly relied on this existing customer base for a lot of their growth since the inception, but it seems their ability to squeeze more from this group is becoming increasingly challenging for them, and I doubt they can rely primarily on new customers to maintain the growth levels that the "street" demands.

It will be interesting to see if the post 2010 resale enrollment promotion helps to move the needle at all in Q4, as that promotion was rolled out very late in Q3, so likely had no to minimal effect in that Q.

The question is, what new changes are on the horizon that they feel will motivate us to be separated from our money to purchase more points.

I agree with this completely -- I think they focused and relied heavily on historical owners and it is much harder to rely entirely on the brand new purchasers. I am also curious if the recent promotion will juice the Q4 number, but we TUGgers now that is not a sustainable future source of revenue.

Interesting stuff.

Best,

Greg

 

[mjm1]

I agree with this completely -- I think they focused and relied heavily on historical owners and it is much harder to rely entirely on the brand new purchasers. I am also curious if the recent promotion will juice the Q4 number, but we TUGgers now that is not a sustainable future source of revenue.

Interesting stuff.

Best,

Greg

I had the same thought about their recent promotion and trying to increase sales. They are being creative while trying to present improvements/enhancements to their existing owners.

Mike

 

[Beaglemom3]

Stephen Weisz, CEO-VAC, is on Cramer/Mad Money right now.





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[JIMinNC]

Some info on the new properties from yesterday's investor conference call:

Stephen Weisz, CEO:

As it relates to our strategy to grow contract sales through a new sales centers at new destinations in Washington D.C. our owners are already enjoying access to our Marriott Vacation Club units at the iconic Mayflower Hotel.

We are currently preparing to sell the inventory from those 71 units through our Points Trust, and we expect the sales center to Mayflower to open in the middle of next year. In California, we begun the conversion of 264 units at our operating hotel in San Diego, with the first phase of these units along with a new sales center expected to be delivered in the middle of next year.

In Hawaii, we continue to have discussions for potential capital efficient structures as we move toward closing on the purchase of 246 hotel rooms at the Waikoloa Marriott on the Big Island of Hawaii. We intend to convert these hotel rooms into a 112 time-share units and also plan to convert a portion of the hotels’ meeting space into our sales center.

Assuming this transaction closes as scheduled we expect to begin sales in the first half of next year. And in our Asia-Pacific segment work is underway on the conversion of several floors of the Surfers Paradise Marriott resort in Australia, as well as a permanent sale center, which is expected to begin sales in the first half of next year.

 

[GregT]

That quote suggests that Big Island will take much longer than expected. Perhaps their real estate partner backed out- it's very odd to announce it and then say they are continuing to explore structures.

Best,

Greg

 

[dioxide45]

That quote suggests that Big Island will take much longer than expected. Perhaps their real estate partner backed out- it's very odd to announce it and then say they are continuing to explore structures.

Best,

Greg

By structures, I suspect they mean financing? Not necessarily physical buildings? I suspect perhaps they are without a financial backer since they are wanting to go asset light. We might end up losing this one.

 

[JIMinNC]

By structures, I suspect they mean financing? Not necessarily physical buildings?

Yes. I would interpret that as they still need to structure the financial deal behind the acquisition of the hotel rooms and their renovation.

 

[davidvel]

I would suspect they have seen signs of the flattening for a while now. The last couple of gimmicks rolled out this year (adding new benefit levels, allowing post 2010 resale weeks to be enrolled with points purchase) are both seemingly targeted to sell more points to existing MVC customers.

They have seemingly relied on this existing customer base for a lot of their growth since the inception, but it seems their ability to squeeze more from this group is becoming increasingly challenging for them, and I doubt they can rely primarily on new customers to maintain the growth levels that the "street" demands.

It will be interesting to see if the post 2010 resale enrollment promotion helps to move the needle at all in Q4, as that promotion was rolled out very late in Q3, so likely had no to minimal effect in that Q.

The question is, what new changes are on the horizon that they feel will motivate us to be separated from our money to purchase more points.

I agree.

While many of you have delved much deeper into the financials, reports and calls than I, as a pure lay-owner/customer, the spin-off, conversions, etc. are not great days for future resort offerings/enhancements, IMO.

These conversions (aka fake MVC resorts) are not a positive, but a further dilution. Much like the old MOC vs. the towers, these are glorified Residence Inns, being used to sell points with the promise of Lahaina Villas and ski week Mountainside.

 

[JIMinNC]

These conversions (aka fake MVC resorts) are not a positive, but a further dilution. Much like the old MOC vs. the towers, these are glorified Residence Inns, being used to sell points with the promise of Lahaina Villas and ski week Mountainside.

I'm not sure I agree that the conversions are dilutions. Many of them -- for example, D.C., SanDiego, and South Beach (which by the way Weisz didn't mention specifically) -- are in places where traditional timeshares wouldn't work.

In my opinion, as the baby boomers on which Marriott has build their sales model age, we will be looking for something other than family-oriented beach resorts. I like the idea of having an option to use our ownership in destination cities and non-traditional timeshare locations where the emphasis is something other than baking in the sand or by the pool. Once our last kid is out of the nest in less than two years - we won't need 2BRs any more. A studio, hotel suite, or 1BR will be ideal. I actually think the addition of more conversions could enhance the value of our ownership rather than detract from it.