CHH Q1 Earnings Call: Flat Sales, Guidance Trimmed Amid Macro Uncertainty

Hotel franchisor Choice Hotels (NYSE:CHH) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $332.9 million. Its non-GAAP EPS of $1.34 per share was 2% below analysts’ consensus estimates.

Is now the time to buy CHH? Find out in our full research report (it’s free).

StockStory’s Take

Choice Hotels’ first quarter results were shaped by expanded business travel demand and ongoing growth in its extended stay and midscale hotel segments. CEO Pat Pacious emphasized that business travelers made up 40% of the guest mix, up from previous periods, with sectors like construction and medical staffing driving longer-term bookings. The company’s rewards program also saw an 8% increase in membership, now topping 70 million, contributing to higher direct bookings and guest engagement. Management noted that, despite increased macroeconomic uncertainty late in the quarter, Choice outperformed its peer chain scales in RevPAR and continued to gain market share in the economy and extended stay categories. CFO Scott Oaksmith pointed to a more affluent customer base and operational improvements such as new technology platforms and targeted profitability tools as key contributors to recent performance.

Looking forward, Choice Hotels’ updated guidance reflects a more cautious outlook, with management citing late-quarter softness and a challenging macroeconomic backdrop as reasons for trimming full-year adjusted EPS expectations. CEO Pat Pacious stated, “Recent trends are informing our more conservative RevPAR assumptions, but our diversified portfolio and strategic investments position us to remain resilient.” The company expects future growth to be driven by increases in effective royalty rates, expansion in higher-yielding brands, and the growing contribution from ancillary revenue streams like partnership services and co-branded credit card fees. Management also highlighted international expansion and conversion of independent hotels to Choice brands as ongoing priorities. CFO Scott Oaksmith warned that continued macro uncertainty and shorter booking windows could weigh on near-term performance, but expressed confidence that strong pipeline execution and cost control measures will help mitigate these risks.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to growth in business and group travel, loyalty program expansion, and targeted brand investments, while noting ongoing macroeconomic headwinds impacting late-quarter trends.

• Business travel growth: Choice reported a 10% year-over-year increase in business travel revenue, driven by sectors such as construction, utilities, and regional sales, which management believes are less sensitive to economic cycles. This mix shift to higher-income, business-focused guests is seen as supporting resilience across the portfolio.
• Extended stay and midscale momentum: The company’s extended stay hotel system grew by 11% domestically, with strong demand for brands like Everhome Suites. Management cited extended stay and midscale as the most attractive segments for developers and owners, particularly during periods of economic uncertainty.
• Loyalty program engagement: The Choice Privileges rewards program surpassed 70 million members, up 8% year over year. These guests accounted for a higher share of direct bookings and exhibited greater retention, with reward night redemptions up 28% versus the prior year.
• Technology and franchisee tools: Recent investments in new web and mobile platforms, as well as cost-saving tools for franchisees, were credited with improving booking conversion rates, especially for upscale properties, and reducing owner operating costs by up to 20%.
• Conversion and international expansion: Choice accelerated the conversion of independent hotels to its brands, with 73% of Q1 openings coming from conversions. The company also grew its international room portfolio by 4%, with a 13% increase in its pipeline outside the United States, highlighting growth opportunities in regions like Latin America and Canada.

Drivers of Future Performance

Management expects flat to modestly positive revenue growth, with future results hinging on brand mix, ancillary revenue streams, and disciplined cost management.

• Pipeline and conversion focus: The company is prioritizing the rapid movement of hotels from its pipeline into its system, particularly through conversions. Management highlighted that conversion hotels are typically brought online within three to six months, accelerating revenue capture and franchisee adoption.
• Ancillary revenue and partnership growth: Choice aims to grow its partnership services and fees, including co-branded credit card income and vendor partnerships. Management expects these streams to contribute incremental EBITDA growth, independent of RevPAR trends, as more franchisees and guests engage with these offerings.
• Macro and booking risks: Management flagged ongoing macroeconomic uncertainty, shorter booking windows, and shifting consumer travel patterns as key risks. The company’s guidance assumes continued softness in RevPAR, offset by cost controls and a focus on higher-yield brands and services.

Catalysts in Upcoming Quarters

In the months ahead, the StockStory team will monitor (1) the pace at which Choice converts pipeline hotels into operating properties, (2) growth in ancillary revenues from partnerships and loyalty programs, and (3) management’s ability to sustain market share gains in midscale and extended stay segments despite macroeconomic headwinds. Progress in international expansion and effectiveness of new technology platforms will also be key indicators of execution.

Choice Hotels currently trades at a forward P/E ratio of 18×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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