Wyndham falls short on earnings, but gets past tough comp

PARSIPPANY, New Jersey – Wyndham Hotels & Resorts reported 1Q24 earnings on Wednesday missing analysts' expectations with revenue down 2.6% year on year to $305 million. Revenue of $305 million was slightly below analyst estimates of $308.3 million, while earnings per share of $0.78 vs analyst estimates of $0.74 (4% beat).

Wyndham highlighted results that showed 8% year-over-year growth in its development pipeline and a 4% increase in its system size. The company raised its full-year 2024 earnings per share outlook and increased its share repurchase authorization by $400 million.

“Earnings were slightly ahead of recently reduced expectations, but, more importantly, in our view, is that the toughest y/y growth comparisons are now in the rearview mirror,” said R.W. Baird analyst Michael Bellisario. “Wyndham's plan to step up buyback activity (and increase leverage to do so) should support Wyndham shares over the near term. We had thought the high end of guidance could/should come down a bit (that did not happen); therefore, management will need to execute and numbers will need to hit, in our opinion. Net unit growth appears to be tracking well."

Among earnings highlights:

• Global RevPAR grew 1% constant currency and ancillary revenues grew 8% compared to first quarter 2023.
• Systemwide rooms grew 4% year-over-year.
• Opened over 13,000 rooms, representing a year-over-year increase of 27%.
• Awarded 171 development contracts, an increase of 8% year-over-year.
• Development pipeline grew 1% sequentially and 8% year-over-year to a record 243,000 rooms.
• Entered upscale extended-stay segment through a strategic relationship with WaterWalk Extended Stay by Wyndham.
• Net cash provided by operating activities of $76 million and adjusted free cash flow of $102 million.
• Returned $89 million to shareholders through $57 million of share repurchases and quarterly cash dividends of $0.38 per share.

“Increased interest from hotel owners in our brands has propelled our development pipeline to a record 243,000 rooms, marking an impressive 8% increase,” said President and CEO Geoff Ballotti, “Our strong balance sheet and cash flow generation capabilities provide significant opportunity to continue to enhance returns to our shareholders over both the short and long-term, as evidenced by our Board of Directors' approval of a $400 million increase in our share repurchase authorization.”

System growth

Wyndham’s global system grew 4%, reflecting 1% growth in the U.S. and 8% internationally.  As expected, these increases included strong growth in both the higher RevPAR midscale and above segments in the U.S. and the direct franchising business in China, which grew 3% and 13%, respectively.  The company said it remains solidly on track to achieve its net room growth outlook of 3% to 4% for the full year 2024, including an increase in its retention rate compared to 2023.

On March 31, 2024, the Company's global development pipeline consisted of nearly 2,000 hotels and approximately 243,000 rooms, representing another record-high level and an 8% year-over-year increase. Key highlights include:

• 15th consecutive quarter of sequential pipeline growth
• 5% growth in the U.S. and 9% internationally
• Approximately 69% of the pipeline is in the midscale and above segments, which grew 4% year-over-year
• Approximately 58% of the pipeline is international
• Approximately 79% of the pipeline is new construction, of which approximately 35% has broken

RevPAR results

First quarter global RevPAR increased 1% in constant currency compared to 2023, reflecting a 5% decline in the U.S. and growth of 14% internationally.

In the U.S., Wyndham said it lapped the most difficult year-over-year comparisons during the first quarter, resulting in a decline of 440 basis points in occupancy and 50 basis points in ADR.  Notably, the company saw improving trends in March with RevPAR improving 240 basis points compared to February.

Internationally, Wyndham generated year-over-year RevPAR growth for the first quarter in all regions primarily driven by continued pricing power, with ADR up 12% and occupancy up 2%.  The largest contributors to first quarter growth were our Latin America and EMEA regions.

Operating results

Fee-related and other revenues were $304 million compared to $308 million in first quarter 2023,  reflecting a decline of $5 million in royalty and franchise fees, partially offset by an 8% increase in ancillary revenue streams. The decline in royalties and franchise fees was primarily driven by the decline in U.S. RevPAR and the lapping of our highest quarter of other franchise fees, partially offset by global net room growth and higher international RevPAR.

Wyndham generated net income of $16 million compared to $67 million in first quarter 2023.  The decrease primarily reflects transaction-related expenses resulting from the unsuccessful hostile takeover attempt by Choice Hotels, an impairment charge primarily related to development advance notes and higher interest expense.

Adjusted EBITDA was $141 million compared to $147 million in first quarter 2023. This decrease included a $10 million unfavorable impact from marketing fund variability, excluding which adjusted EBITDA grew 3% primarily reflecting favorable timing of expenses to better match revenue seasonality.

Diluted earnings per share was $0.19 compared to $0.77 in first quarter 2023.  This decrease reflects lower net income, partially offset by the benefit of a lower share count due to share repurchase activity.

Adjusted diluted EPS was $0.78 compared to $0.86 in first quarter 2023. This decrease included $0.09 per share related to expected marketing fund variability (after estimated taxes). On a comparable basis, adjusted diluted EPS increased 1% year-over-year as comparable adjusted EBITDA growth and the benefit of share repurchase activity were largely offset by higher interest expense.

During first quarter 2024, Wyndham’s marketing fund expenses exceeded revenues by $14 million, in line with expectations; while in first quarter 2023, the company’s marketing fund expenses exceeded revenues by $4 million, resulting in $10 million of marketing fund variability. Wyndham said it continues to expect marketing fund revenues to equal expenses during full-year 2024.