Marriott Vacations Worldwide Corp (VAC) (Q1 2024) Earnings Call Transcript Highlights: ...
System-wide Occupancy: 90% in Q1.
Contract Sales Growth: Grew 3% year-over-year, excluding Maui.
First-time Buyer Tours Growth: Increased by 9%.
International Contract Sales Growth: Increased more than 25% year-over-year.
Rental Profit: Increased $12 million year-over-year.
Financing Profit: Declined 4% due to higher interest expense.
Resort Management Profit: Increased 8%.
Adjusted EBITDA: Declined 7% in Vacation Ownership segment; total company adjusted EBITDA declined 8%.
Development Margin: Declined year-over-year.
Shareholder Returns: $78 million returned; $24 million in stock repurchases, $54 million in dividends.
Net Debt to Adjusted EBITDA: 3.9x at quarter end.
Liquidity: $855 million at quarter end.
Securitization: Raised $430 million at a blended interest rate of 5.5%.
Full Year Adjusted EBITDA Guidance: Unchanged at $760 million to $800 million.
Expected Contract Sales Growth: 6% to 9% for the year.
Adjusted Free Cash Flow: Expected to be in the $400 million to $450 million range for the year.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
System-wide occupancy reached 90% in Q1, demonstrating strong demand for Marriott Vacations Worldwide Corp's properties.
Contract sales grew by 3% year-over-year, excluding Maui, with first-time buyer tours increasing by 9%.
International contract sales saw a significant increase of over 25% year-over-year, driven by robust growth in the Asia Pacific region.
The new Marriott Vacation Club Resort in Waikiki has received strong reservations, indicating positive consumer response and potential future revenue growth.
Marriott Vacations Worldwide Corp successfully completed its first securitization of the year, raising $430 million at a favorable blended interest rate of 5.5%.
Negative Points
Contract sales overall declined by 1% due to challenges in Maui and a tough VPG comparison from the previous year.
Development margin declined year-over-year due to lower VPGs, higher marketing and sales costs, and a higher sales reserve.
Delinquencies and defaults continue to run higher than historical averages, indicating potential risks in loan performance.
Adjusted EBITDA in the Vacation Ownership segment declined by 7% year-over-year, primarily driven by lower development profit.
Total company adjusted EBITDA declined by 8%, with challenges in the exchange and third-party management business contributing to the decrease.
Q & A Highlights
Q: Would love to dig into the strength in rentals. It sounds like from the prepared remarks, there was more preview nights, is that pretty lumpy through the year? Do you expect to stay elevated for the rest of the year? And then, I guess, related to the higher preview nights play a role in the higher VOI sales and marketing? If not, what drove that up? A: (John E. Geller - CEO, President & Director) Yes, the preview nights are expected to continue to be much higher than last year, which helps from a tour perspective on the sales side. The geography on the P&L was about $6 million of higher cost, using rental inventory to supply those and that cost gets charged over to marketing and sales. It was a headwind on the development margin, but a benefit to about $6 million on the rental side of the business.
Q: In Maui, it sounds like demand is coming back. I think the base -- your baseline expectation is limited year-over-year growth. In Maui, you mentioned $5 million of contract sales or so, is the major headwind still on the sales side, like meaning the personnel side? And then if so, what's being done to alleviate that? And how do you think about the business going forward? A: (John E. Geller - CEO, President & Director) In Maui, resort occupancies in the first quarter were in the low 90s. Occupancies are coming back, which is a bit of a headwind just in terms of in-house tour flow. On the sales and marketing talent side, progress has been made in replacing some of the talent lost, though not fully staffed yet. New talent is being ramped up to normal production levels.
Q: Want to follow up on what I thought was a bit of a quick comment in the prepared remarks, this concern, the loan loss provision. You talked about needing to see performance improve, I assume that means [Doug], am I correct? to interpret that if it doesn't improve, you would have to take another charge. Maybe you can flesh out, talk a little bit more about that. A: (John E. Geller - CEO, President & Director) Yes, if delinquencies never came down from what we were experiencing, that would potentially be more loan loss reserves needed. The trends are still good, but more improvement is needed over the next quarter or two to get back to more normalized delinquency trends.
Q: John, so you mentioned the new development you're going to be doing in Thailand. I think you said it's part of the JW complex that already exists. And so I'm curious, looking forward, are you seeing more opportunities to do things on sites of existing hotels, whether domestic or international? A: (John E. Geller - CEO, President & Director) Yes, more opportunities are seen in both locations, particularly in Asia Pacific. There are opportunities where resorts are still getting done, and there are some opportunities in the U.S. as well. The development is coming back, and co-located ones work well where we can leverage in-house across the co-located hotel.
Q: John, you made what seems like maybe a passing comment about pricing and consumers' behavior toward pricing. Could you just go back to that and elaborate a bit more on sort of how that's showing up or what the sort of basis is for that. A: (John E. Geller - CEO, President & Director) VPGs were down slightly in the first quarter, and there's some stress on the consumer seen in other businesses as well. People are prioritizing experiences and vacations, which is a positive dynamic for the business. Occupancies are up as we go into the summer months, showing strong demand for vacations.
Q: Just a follow-up question. Hello? Can you hear me okay? A: (John E. Geller - CEO, President & Director) You are breaking up a little bit, but go ahead, Patrick.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
