Marriott Vacations Worldwide Corporation is a leading global vacation company that offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products, and services. The company operates in two reportable segments: Vacation Ownership and Exchange & Third-Party Management.
Business Overview
The Vacation Ownership segment includes a diverse portfolio of resorts that includes some of the world's most iconic brands licensed under exclusive, long-term relationships. Marriott Vacations Worldwide is the exclusive worldwide developer, marketer, seller and manager of vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton Vacation Club, Westin Vacation Club, and Hyatt Vacation Club brands. The company also has the exclusive worldwide rights to develop, market and sell vacation ownership and related products under The Ritz-Carlton Club brand, and the non-exclusive right to develop, market and sell whole ownership residential products under The Ritz-Carlton Residences brand. Additionally, Marriott Vacations Worldwide has a license to use the St. Regis brand for specified fractional ownership products.
The Exchange & Third-Party Management segment includes an exchange network and membership programs, as well as the provision of management services to other resorts and lodging properties. The company provides these services through its Interval International and Aqua-Aston businesses.
Financials
In the fiscal year 2023, Marriott Vacations Worldwide reported annual revenue of $4,727 million and net income of $254 million. The company generated annual operating cash flow of $232 million and annual free cash flow of $114 million.
Looking at the quarterly performance, in the first quarter of 2024, Marriott Vacations Worldwide reported revenue of $1,195 million, up 2% from the prior year period. Net income for the quarter was $46 million. The company generated operating cash flow of $3 million and free cash flow of -$66 million in the first quarter of 2024.
Vacation Ownership Segment Performance
The Vacation Ownership segment, which accounts for the majority of Marriott Vacations Worldwide's revenue and profits, generated $1,130 million in revenue in the first quarter of 2024, up 3% year-over-year. This growth was driven by a 4% increase in tours, partially offset by a 5% decrease in volume per guest (VPG). Excluding the impact from the company's Maui sales centers, contract sales grew 3% year-over-year in the first quarter.
Development profit margin in the Vacation Ownership segment declined to 21.5% in the first quarter of 2024, compared to 28.5% in the prior year period. This was due to higher marketing and sales costs, including $6 million of higher preview costs, as well as lower sales of vacation ownership products, including $8 million from a higher sales reserve and $7 million from unfavorable revenue reportability. These headwinds were partially offset by $2 million in savings from the sale of lower cost inventory.
Rental profit in the Vacation Ownership segment increased $12 million year-over-year, driven by increased rental revenue and lower expenses as more preview nights were used for marketing purposes. Financing profit declined 4% due to higher interest expense, partially offset by higher financing revenue. Resort management and other services profit increased 8% year-over-year.
As a result, adjusted EBITDA in the Vacation Ownership segment declined 7% year-over-year to $213 million, with margins remaining strong at 29% in the quarter.
Exchange & Third-Party Management Segment Performance
The Exchange & Third-Party Management segment generated $65 million in revenue in the first quarter of 2024, down 8% from the prior year period. Adjusted EBITDA for the segment declined $5 million compared to the first quarter of 2023, driven by lower average revenue per member and exchange volume, partially offset by higher getaways at Interval International. Profit at Aqua-Aston also declined year-over-year due to softness in the Hawaii market.
Geographic Breakdown
Marriott Vacations Worldwide generates the majority of its revenue from the United States, which accounted for $699 million, or 87%, of total revenue excluding cost reimbursements in the first quarter of 2024. Revenue from all other countries totaled $105 million, or 13%, of total revenue excluding cost reimbursements.
Liquidity
As of March 31, 2024, Marriott Vacations Worldwide had $237 million in cash and cash equivalents, and $313 million in restricted cash. The company had $3,111 million in total debt, including $2,178 million in securitized debt and $933 million in corporate debt.
In April 2024, the company amended its corporate credit facility to provide for a new $800 million term loan facility that matures in 2031, refinancing the previous term loan that was scheduled to mature in 2025. This extended the company's debt maturity profile, with no maturities until the first quarter of 2026.
Marriott Vacations Worldwide ended the first quarter of 2024 with a net debt to adjusted EBITDA ratio of 3.9x, above the company's targeted range of 2.5x to 3.0x. The company remains committed to reducing this ratio to 3.0x by the end of 2025 through a combination of debt repayment and growth in adjusted EBITDA.
Outlook
For the full year 2024, Marriott Vacations Worldwide expects consolidated contract sales to grow 6% to 9%, with the strongest sales growth coming in the second half of the year as the company laps the impact of the Maui wildfires. The company also expects development margin to decline by a few percentage points compared to 2023, including in the second quarter, due to higher marketing and sales costs and a higher sales reserve.
Financing profit is expected to continue to be a headwind to growth in 2024 due to higher securitized debt costs, though financing profit should increase in 2025 as the company repays existing securitization transactions with lower interest rates. Rental and resort management and other services profits are expected to show fairly consistent year-over-year growth over the balance of 2024.
In the Exchange & Third-Party Management segment, Marriott Vacations Worldwide expects Interval International members to be down slightly and for average revenue per member to increase. The company also expects general and administrative expenses to be slightly up year-over-year.
Overall, the company expects full year 2024 adjusted EBITDA to be in the range of $760 million to $800 million. Adjusted free cash flow is expected to be in the $400 million to $450 million range, which the company plans to use to repay corporate debt and return cash to shareholders through dividends and share repurchases.
Risks and Challenges
Marriott Vacations Worldwide faces several risks and challenges, including:
1. Macroeconomic conditions: The company's performance is susceptible to changes in consumer confidence, spending patterns, and the broader economic environment, including factors such as inflation, interest rates, and global instability.
2. Competition: The vacation ownership industry is highly competitive, with the company facing competition from other timeshare and hospitality providers, as well as alternative vacation options like short-term rentals.
3. Regulatory environment: The company's operations are subject to various laws and regulations, both domestically and internationally, which could change and adversely impact the business.
4. Reliance on key brands and relationships: Marriott Vacations Worldwide's success is heavily dependent on its exclusive, long-term relationships with Marriott International and Hyatt Hotels Corporation for the development, sales, and marketing of its vacation ownership products and services.
5. Inventory management and development: The company's ability to acquire, develop, and maintain an attractive portfolio of vacation ownership inventory is crucial to its ongoing success.
Despite these risks, Marriott Vacations Worldwide's leading market position, diversified portfolio of iconic vacation ownership brands, and strong liquidity position provide a solid foundation for the company to navigate the challenges and capitalize on the growing demand for vacation experiences.
Conclusion
Marriott Vacations Worldwide is a well-established player in the global vacation ownership industry, with a diverse portfolio of renowned brands and a strong track record of operational and financial performance. While the company faces some near-term headwinds, such as higher financing costs and the lingering impact of the Maui wildfires, its long-term growth prospects remain promising, driven by the continued demand for vacation experiences and the company's ability to leverage its extensive brand partnerships and development capabilities. With a focus on enhancing its operational efficiency, managing its balance sheet, and delivering exceptional customer experiences, Marriott Vacations Worldwide is well-positioned to navigate the evolving industry landscape and create value for its shareholders over the long term.