Participants

Jill Greer; Investor Relations; Travel + Leisure Co

Michael D. Brown; President and Chief Executive Office; Travel + Leisure Co

Michael Hug; Chief Financial Office; Travel + Leisure Co

Ian Zaffino; Analyst; Oppenheimer

Joseph Greff; Analyst; JP Morgan

Chris Woronka; Analyst; Deutsche Bank Securities

David Katz; Analyst; Jefferies

Ben Chaiken; Analyst; Mizuho Securities

Brandt Montour; Analyst; Barclays

Patrick Scholes; Analyst; Truist Securities

Presentation

Operator

(background music)
Greetings, and welcome to the Travel and Leisure Third Quarter 2024 earnings call.
At this time, all participants will be in listen-only mode.
A question and answer session will follow the formal presentation. If anybody today should require operator assistance during the conference, please press star-zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jill Greer of Investor Relations. Ms. Greer you may now begin.

Jill Greer

Thanks Rem. Good morning, everyone, and thanks for joining our third-quarter call. With us this morning are Michael Brown, our President and Chief Executive Officer, and Mike Hug, our Chief Financial Officer. Michael will provide an overview of our financial results and our longer-term growth strategy, and Mike will then provide greater detail on the quarter, our balance sheet and the outlook for the rest of the year. Following our prepared remarks, we'll open the call up for questions. We ask the analysts to keep to one question and a brief follow-up. Before we begin, we'd like to remind you that our discussion today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and the forward looking statements made today are effective only as of today. We undertake no obligation to publicly update or revise these statements are the factors that could cause actual results to differ are discussed in our SEC filings and in our earnings press release. You can find a reconciliation of non-GAAP financial measures discussed on today's call and the earnings press release available on our Investor Relations website. Finally, all comparisons today or to the same period of the prior year, unless specifically stated. With that, I'll turn over the call to Michael.

Michael D. Brown

Good morning and thank you for joining us today for our Q3 earnings report. Before I share our results for the quarter, I'd like to recognize our associates for all their efforts through hurricane Helene and Milton and the wildfires in California. Safety is our top priority and I want to personally extend my thanks to our associates for their professionalism and dedication and taking care of our owners and each other during these devastating events. Our third quarter results show that we are executing against our key priorities for the year and that demand for our products remains solid. We produce strong volume per guest, a healthy 24.4% adjusted EBITDA margin in over $150 million of adjusted free cash flow. Our adjusted EBITDA of $242 million was above the midpoint of our guidance range. We see good momentum in our vacation ownership business, and we're especially pleased with our VPG performance, which remains consistently above $3,000, even during our peak new order mix quarters. VPG was at the high end of our expectations, with especially strong performance from existing holders, further evidence that customers continue to value their ownership. We are nearly 30% above 2019 VPG levels, reflecting the premium owners plays on the consistency, value and flexibility of our product is also a reflection of the increased FICO standards that we established in 2020.
Our average FICO on originations has increased from 725 to 742 over the past four years. And the portion of our portfolio that is under 640 FICO has decreased in the same timeframe. One of our priorities has been to grow our new owner mix to the mid 30s. New order sales drive long term benefit and provide a consistent source of future revenue potential. In the short term, however, a higher new owner mix puts pressure on VPG's. Having achieved a new owner mix above 35% in each quarter this year, we expect the mix pressure to be minimal going forward as we maintain our new owner mix in the mid to high 30s. New owners drive future gross VOI sales through upgrades of their initial purchase and typically spend an additional 2.6 times their purchase amount. This is in addition to revenues from financing property management in exchange fees. With an embedded revenue potential of over $19 billion over the next decade, our work to drive a higher new order base gives us continued confidence in our long-term model. The momentum with VPG is a sign that our team is executing well on our growth initiatives and that our product appeals to our target market. Over the past several years, we have seen a number of trends in our owner base that bode well for future growth. First, the average age of our owners is now in their mid 50s as an increasing amount of sales or the Gen-X millennials and younger generations. This age has been steadily decreasing as our average new owner age is close to 50 years old. Second, our disciplined approach to tour generation has improved the underlying credit quality in our loan portfolio. We believe our combination of average origination fee go and sub-6 under portfolio loans is the best in the industry. Finally, travel continues to be an integral part of the experience economy. While our top destinations are in Florida were also seeing growth in parts and other family friendly locations like Washington, D.C., the Pacific Northwest and the Smoky Mountains. Looking ahead, our vacation ownership business has a solid foundation for long-term growth. Our multi-brand strategy is unique in the industry and is the path to driving consistent growth going forward in the vacation ownership business with a broad geographic footprint and a variety of ownership options, we expect to expand our share by meeting the vacation travel needs of a wide range of consumers. We have been very pleased with the progress of on the core Vacation Club integration, which has allowed us to achieve our initial targets ahead of schedule. We have for sale sites reopen and fully staffed with more sites expected by the end of the year. Accor is delivered more than $3 million in adjusted EBITDA year to date, and we expect Accor growth will accelerate next year. Turning to Travel and Membership. As you know, this is this part of our business is in the midst of a transformation as the vacation ownership industry is consolidated and the points-based product has become more standard. We've seen pressure on exchange volumes during the quarter. We took another step forward in our transformation patients with necessary steps to resize our footprint across the industry. Developers are now a fewer number, but larger in size going forward, we believe we can serve them with higher quality and better efficiency through a more targeted approach. Our focus on higher margin transactions is playing out and we were pleased with the quarter's EBITDA, which was just above the high end. Our guidance range. To summarize, the business is performing well, and our teams continue to raise the bar on execution. We have already begun setting our plans for 2025. We expect the momentum in our vacation ownership business to continue, having achieved our targeted of new owner mix, the ramping up of Accor sales and easing of interest rate headwinds. We also expect further progress on our travel membership, the transformation to allow that segment to stabilize longer term, we expect Sports Illustrated interest rates and our new owner pipeline to provide catalyst for our growth in 2026 and beyond. And now I'll turn the call over to Mike to walk through the quarter in more detail. Mike?

Michael Hug

Thanks, Michael. Overall, we had solid third quarter driven by strong VPG performance. That VPG, combined with our disciplined cost management, offset most of the $14 million headwind from higher interest rates and variable compensation. As a result, our adjusted EBITDA declined slightly year over year to $242 million. Importantly, our 24.4% adjusted EBITDA margin shows the resiliency of our business to overcome headwinds and consistently produce margins in the mid 20s. We had adjusted net income of $110 million or $1.57 per share. Our adjusted EPS growth reflects the benefits of our consistent capital allocation strategy, which suits us regularly in the market repurchasing shares. With regard to the segment results for the vacation ownership business, revenues increased 2% with gross VOI sales of $606 million. We maintain future growth with tours of over 4% and new Archer's up 9%. While higher year over year growth was modestly below our expectations. The shortfall primarily came in nurtures and Las Vegas, consistent with broader gaming industry weakness noted in that market over the summer, we expect to grow to accelerate sequentially in the fourth quarter. In the quarter, our Blue Thread partnership with Wyndham hotels produced 8% of our new auditors, which came with the VPG more than 20% higher than other newer channels. Our package pipeline along with our state, but should provide more channels to drive future growth. The financial strength of our consumer remains solid and trends in our loan portfolio are stable. Importantly, as we progress through the quarter, we didn't see anything in those trends that would cause us to change our guidance. The sequential increase in the provision between the second and third quarters was in line with normal seasonality and consistent with our expectation, that the provision will be around 20% for the full year. On the Travel membership side, our adjusted EBITDA for the quarter was flat on a 3% decline in revenue. As Michael laid out earlier, we believe the steps we're taking in this segment to improve our revenue per transaction at the same time, streamline our cost structure, our print a strong foundation in place to continue to generate Jaime margins and cash flows. For the fourth quarter, we are forecasting adjusted EBITDA overall to be $240 million to $260 million. This guidance is in line with or your guidance that we gave our last call and higher than our expectations at the start of the year. For the Travel and Membership segment, we expect adjusted EBITDA to be $45 million to $50 million for the fourth quarter. Turning to the balance sheet and cash flow, last week, we closed our third ABS transaction of the year, securing $325 million at rate of 5.2%, and a 98% advance rate. The interest rate advance rates are both improvements of our July securitization out the best levels we've seen in over two years. The fact that we have been able to consistently access the ABS markets through a variety of economic conditions is a reflection of the market's confidence in the resiliency of our business. With the improved rates that we're achieving with our ABS transactions. We expect the interest rate headwinds to flatten in the coming quarters and turned to a tailwind as we exit 2025, providing benefits to both EBITDA and free cash flow. We ended the quarter with just under 3.4 times leverage, and we expect to be at that level at the end of the year. We generated $140 million of adjusted free cash flow in the quarter and continue to expect our adjusted EBITDA to free cash flow conversion for the full year to be in the neighborhood of 50%. Longer term, we see a path to move in that conversion percentage higher or lower cash interest and reduction in inventory levels. Help our balance sheet. We have a proven track record of being very shareholder focused with our capital allocation. During the quarter, we returned $105 million to shareholders through dividends and share buybacks. With $70 million of repurchases in the quarter, we bought back 2.25% of the outstanding shares in the company, consistent with our average annual rate of about 10%. I'll close by thanking the entire travel leader team for the work so far this year and delivering great results for our shareholders and our owners. With that, Rob, could you please open up the call for questions?

Question and Answer Session

Operator

Sure. Thank you. At this time, we'll be conducting a question and answer session. If you like to ask a question, please press star one on your telephone keypad and A confirmation tone will indicate your line is in the question queue. You may press star two if you have to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. one moment, please while we poll for questions. Thank you.
Thank you. And your first question is from the line of Ian Zaffino with Oppenheimer. Please proceed to your questions.

Ian Zaffino

Thank you very much. Good quarter. Thank you. It was maybe touch upon what you're seeing on on the lower end consumer or anything you're seeing there. I know you kind of have been focused on taking our pipeline scores on I guess we haven't seen the recessionary like that. Is there. What do you now thinking on the FICO scores as far as like? Is there a chance to maybe lower them again to grow grow volumes or kind of sitting here still with high FICO scores and maybe any other comments there? Thanks.

Michael Hug

Yes, sure. Thanks for the question is Ian. So as far as the Lauren consumer, especially as we talked about last quarter, were two in most of the pressure in the portfolio, Tom, I don't expect that on the new owner side we'll adjust our FICO in the near term. We're very happy with credit quality regenerating. We're on when we look at how the portfolio performed at performed, how we expected in the quarter on delinquencies that usually get worse from Q2 to Q3 did move in that direction and by Blue, but not as unfavorable, they usually do. So that's why we feel the portfolio is kind of stabilized, if you will. As far as how it's moving, we're happy with that trend. So very happy with quality regenerate. On the other side, that's really where we had the opportunity. Keep in mind, FICO are pretty blunt instrument, right? I mean, there's a lot of things that determine how people pay. So for example, we had a owner who had a 630 FICO has been paying for eight years and reduce their loan balance from $15,000 down to $2,000, never missed a payment on their loans or the dues using the product. And you might think about because you have other data going hand, marketing that owner. But we're comfortable that armed because you're on autopilot and things like that. So that's what we're trying to do is use more data other than just FICO, where we have that data primarily on the owner side to drive incremental tour flow. But I'm pretty happy with how the portfolio performed. Obviously, the ABS transaction was another great execution with the best terms we've gotten over two years. So overall, the business is solid. VPGs, another indicator of the consumer where at the high end of our range for the quarter. So on consumer seems pretty steady watching the low end like we always are. And because of that, especially on our side, I don't see us moving below that 640.

Ian Zaffino

Okay, thanks. And then as you may be could focus on some M&A. Is there from what do you kind of seeing out there? What's your appetite going down a little bit more active recently, but anything else out there or anything else that you seem to be interested in? And then finally, I guess there's no real hurricane kind of color for you guys so I think it's business as usual, with Milton and Helene. Thanks.

Michael Hug

So I think our commentary on M&A is consistent with what our commentary has always been, which is we're always focused on our capital return on our dividend is the base of that capital return. We evaluate the M&A landscape. We've consistently done that over the past few years. Obviously, the industry is consolidated and we found unique opportunities through a call or the acquisition of travel leisure. So not necessarily maybe what everyone would always think these are the limited number of M&A opportunities out there. So we'll continue to evaluate and in the absence of that will do what we've done the last two quarters, which is to return about $70 million of capital in the form of share buybacks.

Michael D. Brown

With another $30 million in dividend in the year as well. So total right, we're $100 million range as far as capital allocation returned to shareholders?

Michael Hug

And then you had a second part to that question. Can you just repeat that, please? Yes. I was wondering in your (multiple speakers)

Ian Zaffino

However, hurricanes.

Michael Hug

So. Yes. So, as I mentioned in our remarks that both the hurricanes came up the West Coast of Florida where they are Clearwater resort even today, although it's finally reopened and has still the Tampa and Clearwater has sustained a tremendous amount of damage. Helen moved up and modestly affected our Atlanta property. But there are two properties in North Carolina, a took weeks away since reopening. one is not. So we didn't call them and really affected from south to north up into North Carolina, whereas Milton affected a west to east coming across Central Florida. It briefly shutting our sales galleries and our resorts and it even affecting our Daytona property. And I know it not that it affected the operations in California, but are the wildfires will have six miles of one of our resorts there. So the tough September and October, we hope it's over. But no, the results we mentioned did not call out the hurricanes or wildfires is ours adjustments to the to the numbers, but they did affect fact of bottom-line results.

Michael D. Brown

And I would point out that the reason the resource workflows, were not because of significant damage the resource primarily due to infrastructure, I think in North Carolina, (inaudible), where we've got a couple of Boulder resorts, those resorts are in good shape is just that the infrastructure there's a little challenged in the same thing over on the West Coast with thinking, Tampa. So our resorts came through it in fairly good shape from a from an M&A standpoint. So the closures are primarily in most cases, just due to what's going on with the infrastructure in those markets.

Ian Zaffino

Okay. I'm going to just one more. I wanted to say on this for a second, and I'll let someone else hop on. Sorry on. And then was there any impact on our core volumes or anything like that? A lot of airports were close there. I guess if there was a financial impact, can you kind of call out maybe what it was?

Michael Hug

There were there were definitely tour impact because we closed resorts and with almost on arriving at affected arrivals, the tour impact. And I would say volume approximately about $5 million of volume that it costs us. So some EBITDA, some volume. But again, we felt given the limited nature of the financial impact, we didn't want to call that out or need to call it out,

Michael D. Brown

Right, I mean, we've registered at the midpoint a little bit above the midpoint of quarter holding the full year. So great quarter by the by the business and would also point out the other fact that we've always talked about the diversity of our locations gives us protection. And when something like this happen, drive being able to not have a single market or just really just one markets over 10% allows us when we do have a slight disruption in one of our markets, Florida, if you will, we're able to basically make it up through other operations in the business. So I think it's just once again a proof point as to the resiliency that business and the value we get from having diversity those locations and in Milton came in October and how it was in September.

Ian Zaffino

Great. Thank you so much, really efficient.

Michael Hug

Thank you.

Operator

Thank you. The next question is from the line of Joseph Greff with JP Morgan. Please proceed with your questions.

Joseph Greff

Good morning, everybody at two relatively quick ones and vacation ownership and anywhere in the, I guess, the sub 700 FICO score band spectrum, are you doing anything in terms of implementing any higher down payments? And then my second question, you mentioned earlier that in the 3Q new owner tours are tours in Las Vegas were weaker. Can you talk about what you're seeing or what you anticipate here in the 4Q?

Michael D. Brown

Sure, yes. Thanks, Joe. This is Mike Brown, um, yeah we saw, I think like everyone saw in Q3, gaming was a little weaker in Las Vegas, and we saw that come through our new owner tour flow on, as Mike Hug had mentioned in his remarks, he mentioned that will be we expect to reach the acceleration of tour growth in Q4. So I think as we finish the year out and look backwards, it feels like throughout this year all the questions. Every one of the quarterly calls has been where's the weakness in the consumer. I think when we look back at the end of this year, we're going to turn back around and say our VPG. was above our expectations. Our tour growth was right around 10%, which is what we said at the beginning of the year. Our newer new owner tour growth was about 15%, which is what we said at the beginning of the year. And we've raised our guidance and our portfolio was increased by 100 basis points on our last call. So although the poking and prodding around the strength of the consumer has been consistent this year, when you look at our full year, we're pretty confident that you're going to be able to say that the consumer performed at or above our expectation for 2024 and we put ourselves in a really good position to open 2025. I think as it relates to the portfolio and down payments in Q4 by a Q&A, just touch on the.

Michael Hug

Yes, it's a great question, Joe. And you're spot on. We will be looking potentially for higher down payment levels at the sales table to provide us protection kind of the portfolio risk, if you will. But um, overall, you know, I don't know that we can say it's got to be just below 700 FICOs will pilot for higher down payments across the board. But the portfolio, as I mentioned, is kind of right in line where we expected a default levels are a little elevated, but didn't get any worse the quarter. So pretty happy with the way the portfolio performed. I touched on the ABS transaction. So overall, happy with the way the consumer, whether it's BPG. or whether was portfolio performed through the quarter and third quarter. And we will look for a little bit higher down payments potentially in Q4 from some customers.

Joseph Greff

Great. Thank you.

Michael Hug

Thanks, Joe.

Operator

Our next questions are from the line of Chris Woronka with Deutsche Bank. Please proceed with your question.

Chris Woronka

Good morning, guys. So I was hoping we could first me drill down on the on the close rates a little bit, right? I noted those those would naturally can be lower as you intentionally kind of focused on more of a higher new owner mix. But I'm curious what someone when I knew it would be first timer comes and takes in tour thousand by ensuring feedback you're collecting your research you're doing. What are the top few reasons that are giving is it is a cost or or something else has and has that been your on your view changed much in the past few years?

Michael D. Brown

Well, let's let's just touch on that. As the year has progressed, we haven't seen much modulation in our close rates between owners in new owners. They go up and down every quarter a little bit. But there's nothing that's really stood out to us as it relates to close rates and especially given how our VPG. has held up, it's really a reflection of consistent close rates throughout this year. What I would say as far as consumer feedback is, we, our close rates were higher by about two years ago as we came out of COVID. And as hotel rates really rose, the value that we've always presented that is inherent in an element of timeshare wasn't as apparent as it's ever been as we've moved further away from COVID and close rates have come back to where they're they've sort of consistently state, but noticeably above pre-COVID, it's really an affordability and value equation that we see in the consumer and what they're evaluating today, again, with higher close rates than we had pre-COVID, really value and high flexibility in their ownership and the way that we like to really measure that is retention and seven out of eight of our owners have fully paid off their timeshare loan, and we have a 98% retention rate on those consumers. So, it's a bit expanded explanation, but it really comes there needs to be value. You have flexibility and affordability at the sales table. And that's what's led to our increased close rates to its pre-COVID along with the stronger consumer facing the West.

Chris Woronka

Okay. Got you. I appreciate all the perspectives, Michael. And then as a follow-up on and this is really more of a multiyear question, doesn't really to 2Q 3Q for '24, '25 is we think about inventory over time, and I really wouldn't want to ask is the mix and kind of your your inventory recapture or repurchase, you expect that to kind of remain stable or move up over time. And maybe just remind us of where you see yourselves on the inventory spend we can kind of on an average now, say three to five year over year basis looking forward? Thanks.

Michael Hug

Yes, Chris, this is Mike Hug. As it relates to inventory, we do expect to recapture to be pretty consistent. Our total inventory spend on annual basis around $100 million, $50 million to $60 million of that is buybacks from owners HOAs at the resale market, the other $40 million roughly for our international business. When we look at our domestic business, which is 90% of the business, that's we've got enough inventory for the next four years for that business. We've talked about that just as far as how the inventory built up through covenant, things like that. So in a good spot. As relates to the inventory on the balance sheet for the current business, what you will see is as we continue to further develop SI, you will see that inventory spend go up little bit over the next couple of years potentially. But obviously, that comes with incremental revenues as we start to ramp up our SI, our market channels and things like that. But for the core business, we have today $100 million of inventory spend about half to recapture. The other half is for the international business, which normally curious about six to nine months of inventory.

Chris Woronka

Okay. Very helpful. Thanks, guys.

Michael Hug

Sure. Thank you.

Operator

Our next questions are from the line of David Katz with Jefferies. Please proceed with your questions.

David Katz

Hi, morning, everybody. Thanks for taking my question. I wanted to I know there was some discussion about the most recent hurricane, but I wanted to just get your thoughts in and a bigger broader way because it does seem as though we're having major weather events on on a regular basis, right. So the sort of look current nonrecurring events seems to be a saying how do you think about that? How do you think about working that into your marketing approach on how you deal with that on a customer level? There's no profound evidence, but do you see any signs of evidence or anywhere in the model for sort of weather impacting people's decision for buying travel, etcetera?

Michael D. Brown

Why it's a great question. It's it comes back to something we've spoken about over quarters and years, which is diversity of our geographies makes a big, big difference. Yes, the path of Hurricane GZ catches no matter where it comes to our resorts. And that's not just in the U.S. but in the Asia Pacific region. But having diversity and lack of over reliance on a particular market really needs, the impact of what an individual disaster can create. We've seen over past years that wouldn't path. Is it right? It does. It's meaningful to our quarter end locate was, it wasn't material to this quarter, but it did have an impact. But again, I think it comes back to our diversity of resort locations around the world that people have other options. And obviously, we look to accommodate them whenever there's a rival challenges, we still won't be able to get to another location join their vacation. I think the I think a real benefit that we offer as well is that coming back to the value equation is the cost of Vacation Ownership ongoing is very important to all owners and especially with our Florida resorts. Insurance is a very important component of that and maintaining affordable maintenance fees on an annual basis. And our finance team and our risk management team has done a world-class job in having great insurance rates that we can pass along to our major ways to keep their vacations. Affordable is still still keep going into great locations in Florida and the Caribbean that we are impacted by hurricane. So it's a combination of diversity and having buying power with insurance companies to keep running costs down.

David Katz

Perfect. And as my follow-up, I just wanted to talk about something we almost never do, which is the sales force and what are you sort of seeing doing and on applying within your sales force and Spirit and the execution that you having right there? There are other areas. There's enormous through execution of some kind of a point of discussion on Is there sort of any on their leadership changes or any management changes? And it and we've been talking about there. I've got to the highlights the strong institution, and that's just something. That's it from me, Thanks.

Michael D. Brown

Yes. So will it lets them proactively dispel a question that is inherent in that is the tools that the team have as far as price discounts or things of that nature to drive performance. We haven't and we haven't deployed any of those. Our team has sold with with prices even through COVID. We didn't discount pricing. So it really comes down to the talent and quality of our sales force, starting with their leadership. That leads. The leadership team is incredibly solid, consistent dynamic in the sense that they don't they don't get dealt month-in and month-out with I said, set of variables there changing everyone, depending on the company's needs, depending on the consumer needs, yet they continue to perform because again, the leadership is dynamic and very quick to react to what's going on in the marketplace. And the sales team obviously follows the leadership in that direction. What I would say is that part of the move to the quality of the consumer that we've moved up market and I think it shouldn't be lost on people that are FICO have gone from 725 to 742, that means as a tighter sales force that sees more tours. And with volume per guest over approximately 30% pre COVID, the sales force as well can be more efficient in their earning by having tours that are generating a higher VPG. So it starts with great leadership. It starts with the right culture of being reactive to the environment. But it ends with, I think, a strategy that rewards our best salespeople, rewards as sales organization that gets people on vacation and satisfy that at higher levels. And I would say the sales satisfaction scores have increased tremendously over the last five years, which is a credit not only to their ability to sell, but to also create a positive sales environment when somebody takes a tour, whether they buy or (inaudible).

David Katz

Understood. Thanks very much. Nice quarter.

Michael D. Brown

Thanks for asking a question. That's you're right. We don't talk about enough, but without a great marketing and sales force, this business does not run.

David Katz

Okay.

Operator

Next question's from the line of Ben Chaiken with Mizuho Securities. Please proceed with your questions.

Ben Chaiken

Hey, good morning. Thanks for taking my questions. There was a conversation around inventory earlier on the call, and I believe you were suggesting working that down to more appropriate levels, which which makes sense and frankly is common in the entire industry. I believe this may not be specific to T. and L., but do we need to start thinking about slight increases in cost of the pie as the mix of newly developed inventory becomes a larger portion of the mix versus where we stand today? Like would you agree with that? And then are there any offsets you would consider again, we're talk, kind of talking like long-term picture. Thanks.

Michael D. Brown

It's a great question, Ben. So for the core business that we had today, as I mentioned, right, four years of inventory on the balance sheet. So I would say a pretty long time before we have pressure on some cost of sales related to an improvement from most of the inventory that we have day was procured or priced pre-COVID. So even though we did have some just-in-time transactions that get delivered in '21 and '22 and '23, those prices were all pre COVID prices. So that's the other reason that, you know, in the near term wouldn't see a significant pressure on cost of sales went outside, starts to develop and come on up to the next several years. Could see some cost of sales pressure there on that product might keep in mind that's when you look at doing $2 billion plus in VOI sales as that ramps up, it's not a huge impact on the cost of sales. And when you think about when you get two, three, four years down the road, the tailwinds we have, we would expect over the longer term that provision to come back down to below 19%. Are you seeing no clear signs that the interest rate environment is going to become a tailwind in 2026? So like we always do. And then, Mike, you pointed out, we look at the overall business and trying to manage all aspects of the business, whether it's our sales and marketing costs, whether it's our interest rates, whether it's our G&A on trying to make sure that we should keep those margins into 23%, 24%, which is what we've demonstrated our ability to do and flex that longer term, we do get to higher inventory costs several years down the road, Tom do feel will have some some tailwinds to offset that and keep those margins into 22%, 23% range.

Ben Chaiken

Got it very helpful. And then kind of switching gears a little bit. Can we talk about the progress you're making on a core? It would be curious where we stand and how you're thinking about the trajectory and opportunity of this business. I believe the path is to leverage the brand internationally. But just curious any color here?

Michael Hug

Thanks. You're absolutely correct. It is it's reopened in the Asia Pacific region. I was just visiting our resorts in Australia two weeks ago. Fantastic locations, great experiences, and our opportunity is absolutely the goal that internationally in both the South Pacific and in Asia and we plan to do that. We're extremely pleased with the integration of Accor to the first half is always create the synergies in the organization that was accomplished and basically the first four months. And then of the more important element is the revenue synergies. And those have already started to occur as we reopen for sales galleries with plans to open more on, we put a very modest target out there for the first nine months of this year. We achieved that in the first six months. It's yields. It's small dollars, but it's indicative of how quickly the team has integrated and how well we've been able to really bring that brand on and now look to what's more important, which is growth not only in sales but in resorts for 2025. So very pleased with the progress of the first six months there.

Ben Chaiken

And just sneak one more and there is that when you think about longer-term growth, is that kind of newly developed inventory for that brand? And then is there any way to open the core customers up to the broader T&L or those kind of like separate?

Michael Hug

So to answer the second first is they're separate operations today, growth running multi-brands as you need to maintain separate operations for Accor and what other brands we have as it relates to future development, I might mention that our international operation really runs a pretty tight just-in-time operation. They have somewhere between six to nine months of inventory for future development will be more than likely a combination of conversions and new build. But that team does a great job in the region and finding some incredible properties and keeping that just-in-time model working really well.

Ben Chaiken

Thank you. Appreciate it.

Operator

Our next question's from the line of Brandt Montour with Barclays. Please proceed with your questions.

Brandt Montour

Hi. Good morning, everybody, and thanks for taking my question. So I know we talked about the third quarter. I want to circle back and just one aspect of the of the third quarter, the gross VOI sales came in below the guidance you guys gave. And I think that the numbers you just said you said for hurricane volume impact wouldn't have bridged to total cap. So there it was Las Vegas, the rest of it. And it seems like Las Vegas for you guys isn't that big of a market. So I'm just trying to bridge the gap for that one metric, if you could just help us with that?

Michael Hug

Well Las Vegas is one of our biggest markets beyond Florida. Florida is our biggest and Las Vegas is second. And then with the of the leading cause of our gap was Las Vegas, and it's pretty well noted that their summer was weak and given that it was new owner tours to us lines up pretty closely. There were a few of the shortfalls. Yes, hurricane was in there but wasn't didn't bridge the gap. There were just some other small misses in our individual regions. Nothing that is repeatable or of concern. That's why, as Mike pointed out, we expect to realize reacceleration of toward growth in Q4. Not not not a trend that will continue. I think when you really just pull back though and look at our Q three, yes, Tore growth was modestly below our expectation. But as you sort of come back and look at the full year, again, we were very strong in the first two quarters of this year and maintained a 10% right around 10% tour growth for the year. And we put VPG. guidance out. And as I mentioned on an earlier answer, when you when you look back on this full year, we will achieve our full year toward number in our VPG is going to be above what we said at the beginning of the year or so or definitely within our range. So we're we think the 2024 numbers are going to despite all the volatility and concern around recessions and consumer weakness and all that. We in hindsight strongly, but they were going to be able to turn around and say we delivered at the expectations we laid out at the beginning of the year, if not higher. But yes, Q3 were just a bit often primarily led by a market that more macro wise suffered and then have a few other small impacts in regions, though none of which are material enough to call out.

Brandt Montour

That's. That's super helpful. And then just a follow-up, broader question for you, Mike. I know we're not talking about we can get '25 guidance this point. But just talking about we're thinking about the consumer and what you're seeing '24 was the year of sort of normalization. We saw it across a number of different travel and leisure markets. When you think about next year and obviously, we're waiting on the election and then can evolve from here. But where do you think the consumer is going to how the consumer is going to feel about travel and '25?

Michael Hug

Well, I yes, you're right. It's a little early to say what I would I would flip that question around two, how do I feel about our business going into '25? Because my perspective on this year is that in the last two years is that we've had a super hot market in '22, and we've had a very choppy market in the middle of the year as far as uncertainty. And in both of those scenarios, we've consistently been able to deliver vacations for people and all our occupancies were made high. So when we go into 2025, I do think the consumer demand for our product or remains will remain strong. We underlying, our underlying business model relies on bigger accommodation, a branded product with amenities and high flexibility and none of that changes for next year and into the downturn people might drive to our destinations more if the economy avoids a recession, which seems more and more of the commentary, I don't have commentary on macroeconomic events, but if that's the case and we're very well positioned. I think the two fun fundamental focus areas we have for next year is number one, our core business of video and Travel and Membership. Everything in those areas, I think we have our hands very steadily on the wheel were not overcommitted on inventory. You just heard that answer and our interest rate headwinds, we have finally subsided, and it looks like we'll be neutral to positive next year on interest rate interest rate movements. And then we have laid the seeds but are not overly reliant on two new businesses. The core Vacation Club and Sports Illustrated, which will start to pay dividends in 2026. So I think we're set up for a good 2025, no matter what the macro gives us by having a solid core business and beginning to experiment with two new businesses.

Michael D. Brown

And the other thing I'll point out when you think about our two biggest markets being Las Vegas and Central Florida, Universal announced that they're going to open their Epic Resorts in May of 2025. So that just reinforces the strength of the central Florida market for next summer as people come to an experience that great new resort. And then we talked about the softness in Las Vegas, but we all know that it's Vegas can move up and down, but they very seldom place down for a long time. So Vegas comes back a little bit in our two biggest markets are in good shape. So, um, you know, when we think about work will travel to and where our markets are closer to that represent the biggest piece of our business and especially with Epic Resorts, opening provenance, Orlando.

Brandt Montour

Thanks, everybody.

Michael Hug

Thank you.

Operator

A final question is from the line of Patrick Scholes with Truist Securities. Please proceed with your questions.

Patrick Scholes

Hi, guys. Good morning. Mike mentioned (multiple speakers) it was an update on the money from a business update on Sports Illustrated. I'm curious where you stand on sort of what your longer-term expectations and vision for that. Correct me if I'm wrong, the positive plus number, you might eventually $300 million to $500 million of all the business, and if so, what would be the timeframe on that in the down-market click and I could be incorrect or not.

Michael Hug

Yes. So thanks for the question, Patrick. While we've talked about when we're talking about the new brands that we're going to be action against is over time, those Dearborn becoming, you know, $300 million to $400 million business over the longer term, if you were kind of look at what we were able to do with the Wyndham brand brand is a Blue Thread kind of grew that $25 million a year to get that. So, you know, currently over $100 million. So I think that, you know, win that business starts we would expect to start in. Of course, it's going to comment on what time of the year we start sales, but I think that would be the cadence, as you know, $25 million to $30 million a year, maybe a little more about growing that over time a $300 million a year business. So that's kind of how we think the math works, whether it's that brand or any other additional branch we might bring on over time.

Patrick Scholes

Okay. Thank you.

Michael Hug

Sure, Thank you.

Michael D. Brown

Thanks, Patrick.

Operator

Thank you. We have reached the end of our question and answer session, and I'll hand the floor back to Mike Brown for closing remarks.

Michael D. Brown

Thank you. Our performance year to date shows that the business is performing well and that our team continues to set the bar for execution. We're getting ready to roll out a number of technology enhancements in the coming months to improve our own experience and make it easier for them to enjoy a great vacation. We're producing solid financial results and cash flows in our day, delivering our on our commitments to share to our shareholders. So thanks again to everyone for joining us today, and we look forward to speaking to you throughout the quarter at conferences and on our Q4 call in February. Have a good day, everyone.

Operator

This will conclude today's conference. May disconnect your lines at this time. We thank you for your participation.