CHH Q3 Deep Dive: International Expansion and Higher-Value Segments Drive Growth Amid Margin Pressure

Hotel franchisor Choice Hotels (NYSE:CHH) beat Wall Street’s revenue expectations in Q3 CY2025, 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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StockStory’s Take

Choice Hotels’ third quarter results were met with a positive market reaction, reflecting investor confidence in the company’s business mix and growth initiatives. Management cited continued strength in higher-revenue hotel segments, robust performance from small and medium business travelers, and a notable increase in international business as primary contributors to the quarter. CEO Patrick Pacious highlighted, “We drove adjusted EBITDA 7% higher... reflecting the strength of our higher revenue brand mix, a surge in small and medium business traveler and group's business revenue, continued momentum across our partnership revenue streams and the accelerating earnings contribution now coming from our expanding international business.”

Looking forward, management’s guidance is shaped by expectations of sustained growth in higher-revenue brands, further international expansion, and increased direct franchising. The company plans to leverage demographic trends, such as a rising retiree and road tripper base, and technological investments aimed at franchisee productivity. CFO Scott Oaksmith noted, “We remain confident in our ability to deliver sustained RevPAR growth and expand our RevPAR index share,” emphasizing focus on broadening the business travel base, deepening loyalty engagement, and capturing long-term demand through strategic investments.

Key Insights from Management’s Remarks

Management attributed Q3 performance to strong momentum in premium segments, rapid international expansion, and business travel recovery, while acknowledging operating margin pressure from investments and acquisition impacts.

• Premium segment momentum: The company’s higher-revenue brands, including upscale and extended-stay, delivered above-average growth, supported by a deliberate shift in the portfolio mix and robust developer interest. Management noted that nearly 90% of the global portfolio now consists of higher-revenue rooms.
• International business acceleration: International operations saw significant growth, with direct franchising increasing to 40% of the international portfolio and EBITDA margins reaching 70%. The pipeline of new hotels, especially in EMEA and Latin America, was a major earnings driver.
• Business travel and group demand: Revenue from small and medium business travelers and group bookings surged, with group revenue up 35% and SMB revenue up 18% year-over-year. This mix shift supported weekday occupancy and rate stability.
• Technology and loyalty investments: Choice Hotels continued to invest in an intelligent technology stack and loyalty program enhancements. The next-generation platform aims to streamline franchisee operations and boost direct bookings, with the new loyalty benefits set to launch in January.
• Operating margin pressure: Despite topline gains, operating margins declined due to higher amortization from acquisitions, increased SG&A linked to international expansion, and temporary tax and currency impacts.

Drivers of Future Performance

Looking ahead, management’s priorities include expanding high-value segments, scaling international franchising, and leveraging demographic tailwinds while maintaining disciplined expense control.

• International expansion focus: Management expects international markets to be the highest-growth segment, aiming to double international adjusted EBITDA by 2027. The shift to direct franchising and targeted growth in Canada, EMEA, and Asia Pacific are central to this outlook.
• Demographic and business travel trends: The company is positioning itself to capture increased demand from retirees and blue- and gray-collar workforce travelers. These groups, which make up a growing share of U.S. travelers, are viewed as resilient sources of demand, especially as the retiree cohort expands.
• Productivity and cost management: Investments in AI-driven tools and cloud-based technology are expected to keep SG&A growth in the low to mid-single digits, supporting margin stability even as the company scales internationally and broadens its service offering.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace at which new international direct franchise agreements translate into hotel openings and earnings, (2) the impact of next-generation technology and AI tools on franchisee productivity and SG&A control, and (3) signs of sustained demand growth from retirees and business travelers. Execution on loyalty program enhancements and expansion in key growth regions will also be important indicators of long-term success.

Choice Hotels currently trades at $96.50, up from $91.40 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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