Extended Stay America, Inc.’s (STAY) shares slumped 4.5%, despite surpassing the Zacks Consensus Estimate for both fourth-quarter earnings and revenues. We believe that a decline in occupancy rates dampened investors’ confidence.
Adjusted paired earnings of 16 cents per share beat the Zacks Consensus Estimate of 15 cents by a penny. Also, it improved from the prior-year figure of 7 cents, backed by higher revenues.
This hotelier posted net revenue of $282.7 million that beat the Zacks Consensus Estimate of $282 million by 0.2%. Further, it increased 5.2% year over year on the back of strong revenue per available room (RevPAR) growth.
Behind the Headline Numbers
RevPAR grew 5.3% year over year. This is attributable to improvement in average daily rate (ADR) of 7.8% offset by an occupancy decline of 170 basis points (bps). The ADR growth resulted from price increases, and a shift in customer mix toward shorter stay and higher profit generating guests. The lower occupancy was the result of a strategic reduction in longer-term length of stay business, as the company continues to seek to optimize its customer mix.
Total operating costs and expenses decreased 0.9% to $214.1 million, as general and administrative expenses declined 49.2% to $20.2 million, whereas hotel operating expenses increased 8.5%.
Operating income went up 29% to $68.7 million, as revenues increased and expenses declined. Hotel operating margin, on an adjusted basis, declined 80 bps to 50.2% year over year.
Financial Update
As of Dec 31, 2014, cash and cash equivalents were $121.3 million, up from $60.4 million as of Dec 31, 2013. The company incurred capital expenditures of $47.3 million compared with $40.2 million in the prior quarter mainly for capital renovations, regular maintenance and information technology projects.
2014 Full Year Results
Adjusted paired earnings for 2014 was 83 cents, up 20.3%.
Revenues for 2014 increased 7.1% year over year to $1.21 billion.
2015 Guidance
The company expects 5% to 7% increase in total revenue to a range of $1.275–$1.3 billion. Net income is anticipated within $183.8 to $205.6 million. Further, adjusted EBITDA is expected to range from $585 to $600 million, representing 5% to 8% improvement over the 2014 levels.
Capital expenditures are expected in the $190 to $210 million range.
Stocks to Consider
Extended Stay presently has a Zacks Rank #3 (Hold). Some stocks worth considering in the hotel industry include Intercontinental Hotels Group plc (IHG), Marriott Vacations Worldwide Corp. (VAC) and Wyndham Worldwide Corporation (WYN). All these stocks carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment