Wyndham Hotels & Resorts reported growth in both revenue per available room and system size for the three months ended June 30, but adjusted its full-year forecast downward.
System Size and Development
Wyndham opened more than 18,000 rooms during the quarter, 16 percent more domestically than last year, and the best Q2 openings the company has on record, President and CEO Geoff Ballotti said during an earnings call with investors. Notably, 75 percent of those openings are in the midscale and above segments—“which we're really pleased by,” he added.
The company’s franchise sales team in the United States signed 33 percent more development deals in the quarter than they did last year, Ballotti continued, which helped grow Wyndham’s global development pipeline for the 16th consecutive quarter by 740 basis points year over year to a record 245,000 rooms.
Wyndham has continued to improve its franchisee retention rate, Ballotti added, noting that the company is currently at about 95 to 95.5 percent retention with a goal to get to 96 percent. “As we grow our system and we manage our quality and portfolio, that number can certainly continue to go up.” On a last 12 month basis, he added, retention has improved 50 basis points globally.
In total, the company's global system grew 4 percent, reflecting 1 percent growth in the U.S. and 8 percent internationally. As expected, these increases included 3 percent growth in the higher revenue per available room midscale and above segments in the U.S., as well as strong growth in the company's two highest international RevPAR regions, EMEA and Latin America, which grew 12 percent and 11 percent, respectively. The company remains on track to achieve its net room growth outlook of 3 to 4 percent for the full year 2024.
As of June 30, the company's global development pipeline consisted of approximately 2,000 hotels and 245,000 rooms, representing another record-high level and a 7 percent year-over-year increase.
The company reported:
- 5 percent growth in the U.S. and 9 percent internationally
- 16th consecutive quarter of sequential pipeline growth
- Approximately 70 percent of the pipeline is in the midscale and above segments, which grew 4 percent year over year
- Approximately 14 percent of the pipeline represents ECHO Suites Extended Stay by Wyndham.
- Approximately 58 percent of the pipeline is international
- Approximately 79 percent of the pipeline is new construction, of which approximately 35 percent has broken ground
- During the second quarter of 2024, the company awarded 180 new contracts, including 96 contracts in the U.S., which represented an increase of 33 percent year-over-year.
RevPAR
Second quarter global RevPAR increased 2 percent in constant currency compared to 2023, reflecting flat growth in the U.S. and 7 percent growth internationally.
In the U.S., the company's midscale and above segments grew RevPAR 2 percent year over year while RevPAR for its economy segment declined 2 percent. Overall, U.S. RevPAR results were driven by growth of 90 basis points in occupancy, partially offset by a decline of 50 basis points in average daily rates. Importantly, RevPAR growth in the U.S. accelerated during the second quarter, improving 520 basis points sequentially, including an improvement of 560 basis points for its U.S. economy brands.
Compared to 2019, which neutralizes the impact of COVID recovery timing, the company grew RevPAR for its economy and midscale brands by 9 percent and 8 percent, respectively, while RevPAR for its upscale and above brands continued to lag 2019 by 2 percent.
Internationally, RevPAR for the company's Latin America, EMEA and Canada regions collectively increased 15 percent due to both continued pricing power, with ADR up 13 percent, and occupancy growth of 2 percent. RevPAR for the company's APAC region declined 12 percent primarily due to a difficult year-over-year comparison resulting from that region's COVID recovery timing in second quarter 2023. APAC occupancy declined 7 percent and ADR declined 5 percent.
Compared to 2019, which neutralizes the impact of COVID recovery timing, the company more than doubled the RevPAR for its Latin America, EMEA and Canada regions, while RevPAR for its APAC region continued to lag 2019 by 11 percent.
Q2 Operating Results
Fee-related and other revenues were $366 million compared to $358 million in second quarter 2023, reflecting global net room growth of 4 percent and a 6 percent increase in ancillary revenue streams, partially offset by a $3 million decline in management fees, in part due to the exit of the company's U.S. management business.
The company generated net income of $86 million compared to $70 million in second quarter 2023. The increase was primarily reflective of higher adjusted earnings before interest, taxes, depreciation and amortization—a benefit in connection with the reversal of a spin-off related matter and a lower effective tax rate, partially offset by higher interest expense and restructuring costs.
Adjusted EBITDA grew 13 percent to $178 million compared to $158 million in the second quarter of 2023. This increase included a $10 million favorable impact from marketing fund variability, excluding which adjusted EBITDA grew 6 percent primarily reflecting higher fee-related and other revenues, disciplined cost management given the recent RevPAR environment as well as a benefit from insurance recoveries.
During the quarter, the company’s marketing fund expenses exceeded revenues by $5 million, in line with expectations; while in second quarter 2023, the company’s marketing fund expenses exceeded revenues by $15 million, resulting in $10 million of marketing fund variability. The company continues to expect marketing fund revenues to equal expenses during full-year 2024.
Looking Ahead
CFO Michele Allen echoed the sequential growth of global RevPAR for the quarter, representing a “more gradual” return to year-over-year growth than previously anticipated. “As a result, we're updating our full-year 2024 growth outlook for RevPAR to be essentially flat year over year,” she said. “Consequently, our outlook for fee-related and other revenues is now $1.41 to $1.43 billion, down from our prior outlook of $1.43 to $1.4 6 billion.”