Marriott RevPAR Plummets

On July 16, Bethesda, MD-based hotelier Marriott International (MAR) reported financial results for the second quarter of fiscal 2009. Total revenue was $2.6 billion, down 19.6% versus the prior year period.

Marriott experienced worldwide declines in revenue per available room (RevPAR) across all its brands. RevPAR is a key metric for the lodging industry.

Base management and franchise fees declined 19%, while incentive management fees were down 66% from the prior year. Owned, leased, corporate housing and other revenue decreased 54%, while adjusted timeshare sales and services revenue declined 24%.

Worldwide comparable company-operated properties RevPAR decreased 26.1% (23.0% on a constant-dollar basis), while worldwide system-wide RevPAR fell 23.6% (21.4% on a constant-dollar basis). International company-operated RevPAR fell 31.5% (22.1% on a constant-dollar basis) including a 22.3% decline in average daily rate (11.6% using a constant-dollar basis). The results reflected the economic recession in addition to H1N1 flu concerns, both of which significantly impacted markets outside North America.

Domestic results were weaker as North American company-operated RevPAR decreased 23.4%, with North American system-wide RevPAR down 21.2%. RevPAR at the company's comparable company-operated North American full-service and luxury hotels (including Marriott Hotels & Resorts, The Ritz-Carlton and Renaissance Hotels & Resorts) was down 23.5%, stemming from a 14.7% decline in average daily rate.

Adjusted EBITDA decreased 43% year-over-year. Net income from continuing operations in the quarter ended June 19 plunged to $37 million or $0.10 per share, from $153 million, or $0.41 per share a year earlier.

Adjusted earnings from continuing operations were $84 million or $0.23, down 55% year-over-year on a per share basis. The 2009 results exclude $0.08 per share in restructuring and other charges, and $0.05 per share in certain tax items.

Currently, Marriott has a pipeline of 110,000 rooms. The company opened 8,462 rooms during the quarter, closed 861 rooms, and ended the quarter with a total portfolio of nearly 577,000 rooms.

For the third quarter, Marriott expects adjusted diluted EPS from continuing operations of $0.09 to $0.14 per share, with comparable system-wide hotel RevPAR expected to decrease 20% to 23% in North America and 22% to 24% in all the other regions.

For full year 2009, Marriott expects EPS in the range of $0.76 to $0.86, although management has resisted from predicting results with any finality. This includes an expected decline of 17% to 20% in RevPAR of both comparable system-wide hotels in North America and elsewhere.

As a result of the recession, both business and leisure travel have decreased. Companies are curtailing expenses and restricting business trips and retreats. Hotel operators such as Marriott and Starwood Hotels (HOT) have had to resort to leisure travelers who are more vulnerable to price shifts.

We expect the operating environment in the lodging sector to remain weak throughout 2009 with substantial RevPAR declines forecasted. Given our forecast for negative earnings growth in 2009, along with the ongoing uncertainty regarding the state of the economy and its potential impact on Marriott’s lodging and timeshare businesses, we rate the shares of Marriott a Sell.

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