Extended Stay America Misses Q2 Earnings, Beats Revenues - Analyst Blog
Extended Stay America, Inc.
) posted mixed second quarter 2014 results. Adjusted paired
earnings of 27 cents per share missed the Zacks Consensus Estimate
of 28 cents by a penny. However, it increased 17.4% year over year
owing to an increase in revenues and improved margins. Share price
fell marginally in response.
This hotelier posted net revenue of $321.9 million that beat the Zacks Consensus Estimate of $319.0 million by 0.9%. Also, it increased 9.6% year over year. The upside reflects strong Revenue per available room (RevPar) growth.
Behind the Headline Numbers
RevPAR grew 9.4% to $45.69, far better than the previous quarter growth of 4.9% to $38.79. This is attributable to improvement in average daily rate (ADR) of 6.8% and an increase in occupancy rate to 78.8%. The company recently completed renovation of 92 hotels. These hotels were under renovation during the first quarter of the year, which helped in improving occupancy rates.
Total operating costs and expenses increased 7.1% to $215.7 million due to a 9.1% increase in hotel operating expenses. However, general and administrative expenses declined 16.3% to $21.5 million.
Increase in operating expenses was offset by an increase in revenues. Therefore, operating income went up 15.3% to $106.2 million. Hotel operating margin increased approximately 30 basis points to 54.4%.
As of Jun 30, 2014, cash and cash equivalents were $18.7 million, up from $11.5 million as of Mar 31, 2014. The company made capital expenditures of $36.3 million compared with $49.4 in the first quarter mainly for capital renovations, regular maintenance and information technology projects.
Third & Fourth Quarter RevPar Update
So far, RevPar growth in the third quarter has been consistent with the second quarter figure of more than 9%. The company expects RevPar to increase in the fourth quarter of the year as a result of its renovation efforts.
Going forward, the company expects its renovation efforts, centralized call center channel that provides greater transparency into key operational metrics such as responsiveness in answering calls and calls converted into bookings; national marketing campaign and many such initiatives to drive occupancy rates, and thereby revenues.
The company re-affirmed its revenue, EBITDA and capital expenditure guidance for 2014. It expects total revenue in the range of $1.21 billion to $1.25 billion, up 7.0% to 10.0% year over year. Adjusted EBITDA is expected in the range of $570.0 to $600.0 million, up 10% to 16% year over year. It expects capital expenditures in the range of $150.0 million to $170.0 million in 2014.
However, it lowered its net income guidance for 2014 to a range of $164.3 million to $194.2 million compared to the previous expectation of $174.0 million to $205.0 million. The new guidance reflects the impact of mezzanine debt refinancing, gain on the sale of two Hometown Inn properties, non-cash foreign currency transaction loss to date and increased depreciation expense.
Other Stocks to Consider
Extended Stay America presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the hotel industry include The Marcus Corporation ( MCS ), Choice Hotels International Inc. ( CHH ) and Marriott Vacations Worldwide Corp. ( VAC ). While Marcus Corporation sports a Zacks Rank #1 (Strong Buy), Choice Hotels and Marriott Vacations carry a Zacks Rank #2 (Buy).
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