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Choice Hotels (CHH) Q1 Earnings Miss Estimates, Decline Y/Y

Choice Hotels International, Inc. CHH reported first-quarter 2020 results, wherein the top and the bottom line surpassed the Zacks Consensus Estimate. However, the top line was almost flat compared to the prior-year quarter, while the bottom line declined year over year.

The lodging franchisor reported adjusted earnings of 76 cents per share, surpassing the consensus mark of 64 cents. However, the bottom line dropped 9.5% from the prior-year number due to a rise in operating expenses.

In the quarter under review, total revenues came in at $218.2 million. Although the figure topped the consensus mark of $214 million, it remained relatively flat compared to the prior-year levels.

Choice Hotels International Inc Price, Consensus and EPS Surprise


The coronavirus pandemic is hurting demand and occupancy. The company expects it to affect operations in the future as well. Owing to the unprecedented nature of the crisis, the company has withdrawn its 2020 guidance. Meanwhile, to boost liquidity, the company has temporarily suspended dividend payouts and share repurchase programs.

Franchising & Royalties

Domestic royalty fees totaled $66.3 million, down 12.2% year over year. Also, domestic system-wide RevPAR declined 15% year over year. Average daily rate (ADR) inched down 3.8% and occupancy was down 610 basis points compared with the prior-year quarter’s level.

The company’s newly-executed domestic franchise agreements were 58 in the first quarter. As of Mar 31, 2020, the number of domestic hotels and rooms rose 1.2% and 2.7% year over year, respectively.

Operating Results

Total operating expenses increased 5% from first-quarter 2019 to $171.8 million. However, adjusted EBITDA declined 8.3% from the prior-year quarter to $69.2 million.

Balance Sheet

As of Mar 31, 2020, the company had cash and cash equivalents of $321.9 million compared with $33.8 million on Dec 31, 2019.

Long-term debt in the same period was $1,208.9 million, up from $844.1 million at 2019-end. Goodwill, as a percentage of total assets, was 30% at the end of the first quarter compared with 67.3% at 2019-end.

In the first quarter, Choice Hotels paid out cash dividends of $12.8 million. 

Meanwhile, management repurchased roughly $0.7 million shares for nearly $54.1 million under the share repurchase program during the first quarter. As of Mar 31, 2020, the company had 3.4 million shares remaining under the current share repurchase authorization.

Zacks Rank & Key Picks

Choice Hotels currently has a Zacks Rank #4 (Sell). 

Some better-ranked stocks in the Consumer Discretionary sector include Vista Outdoor Inc VSTO, JAKKS Pacific Inc JAKK and K12 Inc LRN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vista Outdoor has a trailing four-quarter positive earnings surprise of 72.9%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters.

Earnings in 2021 for JAKKS Pacific are expected to surge 39.4%.

K12 has a three-five year earnings per share growth rate of 15%.

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