Franchise giant beats the Street, showing strong rebound abroad as well as steady global pipeline activity.
PARSIPPANY, NEW JERSEY – Buoyed by a rebound in international business, Wyndham Hotels & Resorts reported 2Q23 earnings and delivered $362 million of revenues and $158 million of adjusted EBITDA, slightly beating Street estimates. It also returned $139 million to shareholders and strengthened its balance sheet and financial flexibility through the refinancing of a Term Loan B Facility.
Wyndham reported that global RevPAR grew 7% in the second quarter compared to 2022 and 14% compared to 2019.
U.S. RevPAR declined 1% in the second quarter compared to 2022 after achieving record-breaking RevPAR in the preceding year, which is now moderating. Comparing to 2019 to neutralize for COVID-impacted travel patterns, U.S. RevPAR grew 8%, a 30-basis point acceleration from first quarter 2023 growth.
“Demand growth and recovery overseas was strong with occupancy improving 16% year over year and RevPAR grew 34%,” said Wyndham President and CEO Geoff Ballotti during the earnings conference call. “China is now at 99% of 2019 RevPAR levels driven by strong leisure bookings over the main Labor Day and Dragon Boat Festival holidays.”
He said U.S. RevPAR is normalizing against the record comps they saw last year with growth versus pre-COVID levels remaining strong. “We saw growth of 9% in April moderate to 6% in May and then rebound 10% in June, and July month-to-date stands at 12%, a 200-basis point acceleration from June,” Ballotti continued.
Wyndham CFO Michele Allen said their select-service brands continue to be the strongest performers, outpacing the full-service segment by 300 basis points in the second quarter.
Internationally, RevPAR came in stronger than expected, accelerating from a constant currency growth rate of 20% versus 2019 in the first quarter to 33% in the second quarter, with over 10 full points of occupancy opportunity ahead for demand to return to pre-COVID levels, according to Allen.
Southeast Asia and the Pacific Rim was at 97% of 219 levels. At the same time, EMEA, Latin America and Canada were all meaningfully above 2019 levels.
More broadly with respect to performance, Ballotti said, “Recent economic data continues to build our confidence for future demand and booking trends. June's Consumer Confidence Index increased seven points, showing positive movements in both the present and future expectation components, while at the same time U.S. unemployment remains at its lowest level since the 1960s.”
As we prepare for the acceleration of infrastructure spending in the months and years ahead, we’ve expanded our sales teams by 25%. We’ve enhanced our digital capabilities to drive more leads and we’ve invested in new technology to enable seamless bookings for these infrastructure workers. As a result, we’re seeing promising leads generated for our hotels, up 15% year over year. The number of new accounts acquired are up nearly 20%.
Geoff Ballotti
Ballotti also referenced the ninth consecutive quarter revenue increase from general infrastructure-related business accounts, which increased double digits in 2Q23 versus 2019, reflecting both higher ADRs as well as an increase in capture rate. “As we prepare for the acceleration of infrastructure spending in the months and years ahead, we’ve expanded our sales teams by 25%. We’ve enhanced our digital capabilities to drive more leads and we’ve invested in new technology to enable seamless bookings for these infrastructure workers. As a result, we’re seeing promising leads generated for our hotels, up 15% year over year. The number of new accounts acquired are up nearly 20%.”
Systemwide net room growth of 4%, including 1% growth in the U.S. and 9% growth internationally. Wyndham grew its development pipeline 10% year-over-year to a record-level 228,000 rooms (1,850 hotels), marking the 12th consecutive quarter of sequential growth. Signings of 24,000 rooms grew 6% year-over-year and 7% compared to 2019. More than 70% of the pipeline is in the higher revenue-generating midscale, upper midscale, upscale upper upscale and luxury chain segments, according to Ballotti.
“We opened nearly 18,000 rooms in the quarter, which was 23% higher than last year and 10% higher than 2019,” Ballotti added. “Year-to-date through June 30 we’ve opened 198 hotels.”
The big news this week in the U.S. was Wyndham's announced signing of some 60 Echo Suites Extended Stay by Wyndham deal, bring the new brand's global pipeline to 265 hotels and approximately 33,000 rooms.
Internationally, Wyndham opened 66 hotels, 14% more than last year, and grew net rooms by over 9%. It executed 21% more rooms in the second quarter than 2019 with similar growth in both conversion and new construction hotels deals.
Ballotti pointed to Wyndham’s Latin America, which team grew net rooms by 2% sequentially and by 17% versus prior year.
In China, which experienced 4% sequential and 13% growth in Wyndham’s direct franchising system, 10 new construction and 30 conversions opened in 2Q.
Wyndham also returned $139 million to shareholders through $109 million of share repurchases and a quarterly cash dividend of $0.35 per share. The board recently increased the group’s share repurchase authorization by $400 million.
It also refined its full-year 2023 saying there were no changes to the prior outlook for global net room growth, global RevPAR growth, adjusted EBITDA or for free cash flow conversion rate.