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Choice Hotels' (CHH) Q2 Earnings Top Estimates, Stock Up

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Choice Hotels International, Inc. (CHH - Free Report) reported second-quarter 2021 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. However, the top and the bottom line increased on a year-over-year basis.

Following the results, shares of the company rose 3.7% during trading hours on Aug 5.

Q2 Earnings and Revenues

The lodging franchiser reported adjusted earnings of $1.22 per share, which beat the consensus mark of 91 cents by 34.1%. Also, the bottom line increased 838.5% from the prior-year quarter’s figure of 13 cents.

In the quarter under review, total revenues were $278.3 million. The top line missed the consensus mark of $298.9 million. However, the metric rose 83.4% from the year-ago quarter.

Franchising & Royalties

During the second quarter, Domestic royalty fees totaled $102.8 million, up 112.8% year over year. Domestic systemwide revenue per available room (RevPAR) declined 1.1% from second-quarter 2019. However, the company’s June 2021 domestic system-wide RevPAR increased 4.5% compared with June 2019. Average daily rate was up 23.1%. Occupancy rose to 62.3% from 39.1% in the prior-year quarter.

The company’s new domestic franchise agreements in second-quarter 2021 were 200, up 32% year over year. Notably, more than 43% of the agreements comprised conversion hotels.

As of Jun 30, 2021, the number of domestic hotels and rooms rose 0.6% and 1.6% year over year, respectively.

Operating Results

Total operating expenses increased 11.7% to $159.3 million. Adjusted EBITDA rose 172% from the prior-year quarter’s figure to $111.8 million.

Balance Sheet

As of Jun 30, 2021, Choice Hotels had cash and cash equivalents of $308 million compared with $223 million on Mar 31, 2021.

Long-term debt at the end of the second quarter was $1,059.6 million, almost in line with $1,059.2 million reported in the first-quarter 2021-end. During the quarter, goodwill, as a percentage of total assets, came in at 9.2% compared with 10% at first-quarter 2021-end.

The company has resumed its divided and share repurchase program. It declared to pay cash dividend of $12.5 million that was paid in July 2021 on the current quarterly dividend rate of 22.5 cents per share. Notably, for 2021, the company expects to pay dividend worth nearly $25 million.

Outlook

Thanks to the pandemic-related uncertainties, the company refrained from providing any formal guidance for the third quarter or 2021. Factors that are likely to impact future operations include resurgence in COVID-19 cases, the duration and scope of mandated travel and other restrictions, and broader macroeconomic recovery.

In July 2021, the company's RevPAR increased nearly 15% compared with July 2019, primarily driven by occupancy levels of 70% and ADR growth of 10%. For the third quarter of 2021, the company expects RevPAR for third-quarter 2021 to rise in the mid-to high-single digits as compared to 2019.

Other Updates

The company's domestic upscale, midscale, and extended stay segments reported an increase of 2.5% and 3.1% in units and rooms, respectively, on a year-over-year basis.

During the quarter, the number of domestic hotels in the upscale segment rose 24% year over year owing to an increase in room count of 11% for the Cambria Hotels brand and 28% for the Ascend Hotel Collection.

Coming to the extended-stay portfolio, the company witnessed rapid expansion, thereby reaching 460 domestic hotels as of Jun 30, 2021. Notably, this highlighted an increase of 11% on a year-over-year basis. Meanwhile, the domestic extended-stay pipeline comprised 300 hotels awaiting conversion, under construction or approval for development.

Since Jun 30, 2021, the WoodSpring Suites and MainStay Suites as well as Suburban brands domestic hotel openings rose 6%, 27% and 15%, respectively.

As of Jun 30, 2021, the company’s total domestic pipeline of hotels awaiting conversion, under construction or approval for development reached 884 hotels, thereby reaching nearly 77,000 rooms.

Zacks Rank

Choice Hotels, which shares space with Marriott Vacations Worldwide Corporation (VAC - Free Report) , Marriott International, Inc. (MAR - Free Report) and Hyatt Hotels Corporation (H - Free Report) in the Zacks Hotels and Motels industry, currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.