Choice Hotels Faces Declining RevPAR, Limited Growth Amid Economic Uncertainties

Choice Hotels faces declining RevPAR and limited growth prospects due to economic uncertainties, reduced government and international travel, and softer leisure demand. The company's recent financial results showed a 2.9% YoY decline in RevPAR and lower full-year RevPAR guidance. Choice Hotels' valuation is considered full, and its growth outlook is muted, contributing to a Sell rating from J.P. Morgan with a $124 price target.

Choice Hotels International (CHH) has reported declining revenue per available room (RevPAR) and a muted outlook for growth in its recent financial results. The company's second-quarter financial performance showed a 2.9% year-over-year (YoY) decrease in RevPAR, with the average daily rate (ADR) falling 1.8% to $97.65 and occupancy decreasing 70 basis points to 59.6% [1].

The Bethesda, Maryland-based hotel brand has revised its full-year 2025 RevPAR outlook downward, projecting a change between a 3% decline and flat performance. This is a significant downgrade from its prior outlook, which predicted a full-year RevPAR change between a 1% decline and 1% growth. Additionally, the company's outlook for 2025 net income has been lowered to between $261 million and $276 million, down from the prior range of $275 million to $290 million [1].

Choice Hotels President and CEO Patrick Pacious attributed the company's RevPAR forecast downgrade to two main factors: international inbound demand to the U.S. and government travel. He noted that while the first two quarters were challenging, the environment is starting to clear up due to factors such as rising consumer confidence, stable credit card delinquencies, lower gas prices, and positive catalysts like tax reform and a solid labor market [1].

Despite the challenging conditions, Pacious expressed optimism about the future of RevPAR growth. He pointed to the limited hotel supply growth and the company's franchisees' ability to maintain occupancy and gain market share. Choice's extended-stay brands, in particular, are seen as more resilient to economic cycle dynamics due to their higher revenue intensity and lower cost per occupied room [1].

The company's net global rooms grew by 2.1% to 644,400 in the second quarter, with a 3% increase in rooms for its global upscale, extended-stay, and midscale brands. Choice also announced the acquisition of the remaining 50% stake in Choice Hotels Canada for $112 million, consolidating its operations in Canada and transitioning from a master franchising model to a direct franchising model [1].

However, the company's valuation is considered full, and its growth outlook is muted, contributing to a Sell rating from J.P. Morgan with a $124 price target [2]. The stock price was trading at $124.85 per share as of the publication date, down 11.9% year to date, while the NYSE Composite Index was up 7.3% for the same period [2].

References:
[1] https://www.costar.com/article/854004159/choice-revises-full-year-revpar-outlook-down-citing-demand-softness-across-us
[2] https://www.theglobeandmail.com/investing/markets/stocks/CHH-N/pressreleases/33939480/choice-hotels-chh-q2-ebitda-up-2/