Marriott rides the wave of the rebound

BETHESDA, MARYLAND – The ongoing rebound in group and international business, robust global leisure demand, as well as a more than expected resilient global economy helped drive Marriott International’s 2Q23 beat, led by a global year-over-year constant dollar RevPAR increase of 13.5%, including 6% in the U.S. and Canada, and 39.1% in international markets. Greater China saw RevPAR surpass pre-pandemic levels and Marriott leadership sees a lot of runway for much stronger outbound contribution from China.

Marriott President and CEO Tony Capuano noted that group revenue increased 10% above 2022 and business transient revenue showed strong growth, driven by solid ADR growth. He also said leisure transient revenue rose, albeit more modestly, as more travelers from the region chose to visit overseas destinations.

Worldwide occupancy in the quarter reached 72% five percentage points higher than the year ago quarter, while global ADR grew 6% year over year. Occupancy for Marriott’s international regions reached 68%, a 12-percentage point improvement versus the prior year quarter.

The group performed well in 2Q23 with revenues in the U.S. and Canada growing 10% year over year. Group revenues are expected to remain strong going forward with the back half of 2023 pacing up 11% to last year. Capuano said meeting planners are beginning to book further out, a trend they are also seeing with transient customers. Group revenue for full year 2024 was pacing up 14% year over year at the end of the quarter, and improvement from up 9% just three months prior. Capuano added that recovery in business transient demand remain slow but steady, with demand from top corporate accounts progressing modestly in the quarter. “In the U.S. and Canada, ADR again rose nicely compared to 2022 thanks to high single digit special corporate rate increases,” he said. “This led to business transient revenues rising 12% year over year.”

While it is still early days, initial interest from the development community has been extraordinary. We are working on several 100 deals and hope to have our first deal signed by the end of this year.

Tony Capuano on Marriott's newly launched extended-stay brand

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During the quarter, Marriott added approximately 33,100 rooms, including 17,300 City Express rooms in the Caribbean and Latin America. Its pipeline grew to nearly 547,000 rooms with more than 240,000 global rooms under construction, including approximately 37,000 rooms from the company’s deal with MGM Resorts International. Marriott also added more than 2,800 conversion rooms. CFO Leeny Oberg added that Marriott has not seen a number of deals leaving the pipeline. Global fallout in the quarter was 1.3%, below its historic quarterly average of just over 2%.

In June, Marriott announced plans to enter the affordable midscale extended-stay space called Project MidX Studios in the U.S. and Canada, and Capuano said they are already seeing strong demand. “While it is still early days, initial interest from the development community has been extraordinary,” he said. “We are working on several 100 deals and hope to have our first deal signed by the end of this year.”

Oberg added that it’s important to note that Marriott thinks there’s lots of room for growth across all segments around the world and among its existing brands. She even pointed to the possibility for a new conversion midscale brand for EMEA and said there should be an announcement in the second half of this year.

During the earnings conference call there was also a lot of discussion about Marriott’s recently announced long-term strategic licensing agreement with MGM Resorts International and the creation of MGM Collection with Marriott Bonvoy. This transaction adds 17 MGM Resorts properties to Marriott’s digital channels beginning later this fall and takes 2023 net rooms growth expectation to between 6.4% and 6.7%.

The MGM rooms will come online in 4Q23 and add 2.4% points to gross rooms growth. Prior unit growth guidance was 4%-4.5% net and ~5.5% gross, and the updated range implies a relatively stable outlook (-20 bps at the high end) for the remainder of the year.

While not offering specifics on terms of the MGM deal, Capuano did say Marriott is getting paid on room revenue across MGM’s U.S. portfolio of 17 resorts. “It’s not just some sort of royalty lockup. It’s structured to look a lot more like a franchise agreement,” he added.

Second quarter adjusted diluted EPS totaled $2.26, compared to second quarter 2022 adjusted diluted EPS of $1.80. Second quarter adjusted net income totaled $690 million, compared to second quarter 2022 adjusted net income of $593 million. Adjusted EBITDA totaled $1,219 million in the quarter, compared to $1,019 million in 2022.

Total gross fees $1.25 billion with guidance of $1.205-$1.225 billion. Owned, leased, and other revenue was reported at $103 million with guidance of $80 million.

The company’s updated guidance for full year 2023 reflects relatively steady global economic conditions through the remainder of the year, with continued resilience in travel demand. RevPAR growth is expected to remain higher internationally than in the U.S. and Canada, where there has been a return to more normal seasonal patterns, and year-over-year RevPAR growth is stabilizing.

The second half of 2023 adjusted EBITDA outlook is increasing by $50 million (at the high end); 2Q23 topped guidance by $60 million and full-year 2023 guidance is increasing $110 million. RevPAR growth projections grew to 12%-14% for the year and 6% to 8% for the third quarter, again drive by international market strength. For the full year, Marriott now expects 7% to 9% RevPAR growth in the U.S. and Canada. It is raising expectations for international RevPAR growth to 28% to 30%.

“While conditions could change rapidly, booking trends remain solid,” Capuano added. “We are raising our full year rooms growth and earnings guidance and now expect to return $4.1 billion to $4.5 billion to shareholders in 2023.”