Choice Hotels's (NYSE:CHH) Q3 Sales Beat Estimates

Hotel franchisor Choice Hotels (NYSE:CHH) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 4.5% year on year to $447.3 million. Its non-GAAP profit of $2.10 per share was 4.4% below analysts’ consensus estimates.

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"Choice Hotels International delivered another quarter of record profitability, underscoring the strength of our portfolio's continued shift toward higher-value brand segments and multiple growth avenues beyond U.S. RevPAR," said Patrick Pacious, President and Chief Executive Officer.

Company Overview

With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Choice Hotels grew its sales at a 13.5% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Choice Hotels’s recent performance shows its demand has slowed as its annualized revenue growth of 1.6% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its revenue per available room, which clocked in at $60.33 this quarter and is a key metric accounting for daily rates and occupancy levels. Over the last two years, Choice Hotels’s revenue per room averaged 2.2% year-on-year declines. Because this number is lower than its revenue growth, we can see its sales from other areas like restaurants, bars, and amenities outperformed its room bookings.

This quarter, Choice Hotels reported modest year-on-year revenue growth of 4.5% but beat Wall Street’s estimates by 7.6%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and implies its products and services will see some demand headwinds.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Choice Hotels’s operating margin has risen over the last 12 months and averaged 26.9% over the last two years. On top of that, its profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q3, Choice Hotels generated an operating margin profit margin of 31.8%, down 3.6 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Choice Hotels’s EPS grew at a spectacular 22.8% compounded annual growth rate over the last five years, higher than its 13.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q3, Choice Hotels reported adjusted EPS of $2.10, down from $2.23 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Choice Hotels’s full-year EPS of $6.91 to grow 4.1%.

Key Takeaways from Choice Hotels’s Q3 Results

We enjoyed seeing Choice Hotels beat analysts’ revenue expectations this quarter. On the other hand, its EPS missed and full-year EPS guidance was lowered. Overall, this print was mixed. The stock remained flat at $91.99 immediately following the results.

Big picture, is Choice Hotels a buy here and now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.