It has been about a month since the last earnings report for Choice Hotels (CHH Quick QuoteCHH - Free Report) . Shares have lost about 9.4% in that time frame, underperforming the S&P 500.

But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Choice Hotels due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

CHH Q2 Earnings Beat Estimates as RevPAR and Fees Rise

Choice Hotels reported second-quarter 2026 results, with adjusted earnings and revenues beating the Zacks Consensus Estimate and increasing year over year. Adjusted earnings of $2.02 per share beat the consensus estimate of $1.97 by 2.5% and rose 5% year over year. Revenues of $440.76 million surpassed the $431 million consensus mark by 2.3% and increased 3.4% year over year.

Performance benefited from higher U.S. royalties, franchisee programs and services revenues, and partnership revenues. U.S. RevPAR increased 1.3%, while global net rooms grew 2.6%, reflecting improving domestic development trends and continued international growth.

Adjusted EBITDA increased 6% year over year to $175 million. Management attributed the gain primarily to higher U.S. royalties from improving RevPAR and royalty-rate expansion, growth in franchisee programs and services revenues, higher partnership revenues and the continued benefit of the transition to direct franchising in Canada.

Revenues excluding reimbursable revenues from franchised and managed properties increased 7% year over year to $277 million. Choice Hotels reported net income of $64.34 million in the quarter, down 21.3% from $81.73 million a year ago.

Choice Hotels' Cost Profile Pressures Operating Results

Operating income declined 16.4% year over year to $104.14 million from $124.60 million. Total operating expenses increased 11.5% to $336.62 million, reflecting higher selling, general and administrative expenses, reimbursable expenses and depreciation and amortization.

Selling, general and administrative expenses rose 7.7% to $96.15 million. The increase reflected higher provisions for accounts-receivable credit losses, restructuring and executive severance costs, and expenses related to operating Choice Hotels Canada. Reimbursable expenses from franchised and managed properties totaled $197.67 million versus related reimbursable revenues of $163.32 million.

CHH’s Fee-Led Model Helps Lift Revenues

Franchise and management fees increased 5.9% year over year to $187.54 million, supported by higher international royalty fees, franchise programs and services revenues, and U.S. royalty fees. Partnership services and fees advanced 5.9% to $28.67 million, mainly on higher procurement revenues.

Owned-hotel revenues increased 15.4% to $34.90 million, while other revenues rose 6.5% to $26.33 million. The U.S. average royalty rate expanded 11 basis points. Choice Privileges membership increased 7% to 77 million, while loyalty contribution improved by more than 250 basis points during the quarter.

Choice Hotels' Rooms Growth Improves on Conversions

U.S. gross room openings increased 27% year over year to 6,464 rooms, while exits declined 50% to 5,119 rooms. This resulted in 1,345 net room additions. Management said U.S. net rooms growth improved sequentially for the second consecutive quarter.

U.S. franchise agreements awarded increased 30% year over year, while conversion franchise agreements rose 82%. The U.S. conversion pipeline increased 24% from the prior-year period and 6% sequentially. Conversions are expected to represent approximately 90% of U.S. openings in 2026, while extended stay represents more than 40% of the U.S. pipeline.

CHH’s Cash Flow and Capital Returns Stay Active

Operating cash flow totaled $67.36 million during the first six months of 2026, down from $116.07 million in the year-ago period. Management attributed the decline primarily to higher franchise agreement acquisition costs as room openings increased and higher marketing and reservation-system reimbursable expenses.

CHH ended the quarter with $42.83 million in cash and cash equivalents and $2 billion of long-term debt. Total liquidity stood at $475 million, while net leverage was 3.1 times adjusted EBITDA. The company returned $139 million to its shareholders through dividends and share repurchases during the first half, while net development outlays declined 80% year over year to $15.1 million.

Choice Hotels Raises 2026 Operating Outlook

Choice Hotels raised its full-year 2026 adjusted EBITDA outlook to $635-$650 million from $632-$647 million. U.S. RevPAR growth is now expected at 0-1.25%, global RevPAR growth at 0-1%, U.S. average royalty-rate expansion at 7-9 basis points and global net rooms growth at approximately 1.5%.

Adjusted EPS guidance was updated to $6.86-$7.10 from $6.92-$7.14, primarily reflecting higher expected interest expense and a higher effective tax rate, partly offset by share repurchases. Management continues to expect positive U.S. net rooms growth for 2026 and share repurchases of $175-$225 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -5.89% due to these changes.

VGM Scores

At this time, Choice Hotels has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Choice Hotels has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.