With a slow-growth macro environment expected to continue into 2020, Choice Hotels International executives say efforts to revamp the Comfort Inn brand have shifted from being an earnings headwind into being a driver of growth.
ROCKVILLE, Maryland—Choice Hotels International had a tough third quarter on a revenue per available room basis, but company officials see reasons for optimism both in stronger-than-expected earnings and the revamp of the Comfort Inn brand, which they say has reached a turning point.
Speaking during the company’s Q3 earnings call, President and CEO Pat Pacious said the significant investment in refreshing Choice’s largest brand had been a drag on overall numbers—Comfort represents roughly 45% of the company’s revenue—but is now a tailwind going forward.
“Those hotels that finished the renovation in the second quarter had a 60-basis-point increase in RevPAR above the industry,” he said. “We feel really good about that.”
Pacious told analysts roughly 25% of the Comfort portfolio still needs work to be fully up to date, with many owners pushing off renovation work until after the busy summer travel season. He said the brand revamp efforts should be completed soon, which could provide a boost heading into 2020.
He said the company is also focusing on capturing a “great share of business travel” going forward, which he believes will result in greater market share for all of Choice’s brands.
“I do think there is opportunity for us to exceed, or at a minimum meet, where the industry is headed,” he said.
In the third quarter, Choice saw a divergence in RevPAR and earnings before interest, taxes, depreciation and amortization performance, with domestic RevPAR down 0.7% year over year but adjusted EBITDA beating expectations to climb up 7% to $111 million.
Pacious pointed to underperformance in oil and gas markets as a significant factor in the poor domestic RevPAR results, noting those areas represent 7.5% of the company’s portfolio.
Choice executives lowered their full-year 2019 RevPAR guidance to a range of flat to down 1%, while adjusted EBITDA expectations were adjusted up for the year to a range of $362 million to $365 million.