Choice Hotels Navigates Mixed Q1 Results with Revised Outlook Amid Macro Headwinds

Choice Hotels International (CHH) delivered a quarter of strategic successes and macroeconomic challenges in Q1 2025, as its results highlighted a resilient core business offset by cautious optimism for the year ahead. While domestic RevPAR outperformance and strong extended-stay growth fueled record adjusted EBITDA, a revised outlook reflecting rising economic uncertainty underscores the balancing act the hospitality sector now faces.

The company’s net income surged 44% year-over-year to $44.53 million, driven by cost discipline and operational leverage. However, adjusted diluted EPS of $1.34 fell short of estimates, while revenue grew just 0.3% to $332.86 million, missing expectations as higher RevPAR gains were offset by volume headwinds.

Key Drivers of Q1 Strength
Choice’s extended-stay and economy segments were standouts. Domestic RevPAR rose 2.3%, outperforming competitors by 60 basis points, with extended-stay RevPAR jumping 6.8%—410 basis points above industry averages. This segment also expanded its room count by 10.8%, reflecting demand for longer stays amid shifting traveler preferences. The economy portfolio added 7.1% RevPAR growth, outpacing its chain scale by 440 basis points, aided by pricing power (ADR up 1.7%) and occupancy gains.

Non-room revenue also accelerated, with partnership services and fees climbing 28% to $25.4 million, as the company leveraged its scale to diversify income streams. The effective royalty rate edged higher to 5.11%, a sign of stronger franchisee performance.

The Revised Outlook: Caution Ahead
Despite these positives, Choice Hotels trimmed its 2025 guidance, citing a “changing macro backdrop” that includes elevated construction costs and interest rates. The company now expects domestic RevPAR to grow between -1% to +1%, down from the prior 1%-2% range. This cautious stance rippled through financial targets:

• Adjusted net income: Reduced to $324M-$339M from $333M-$345M
• Adjusted EPS: Trimmed to $6.90-$7.22 vs. prior $6.98-$7.24
• Adjusted EBITDA: Lowered to $615M-$635M from $625M-$640M

Analysts had modeled $6.95 EPS, excluding one-time items, suggesting the new range now sits below consensus expectations. Management highlighted that macroeconomic pressures, particularly in hotel development, could limit future expansion.

Operational Momentum and Shareholder Returns
Choice’s pipeline remains robust, with 95,000 global rooms under development, including a 16.2% jump in upscale segment rooms. The company also returned capital aggressively: $64.6M spent on repurchasing 456,000 shares and $13.5M in dividends in Q1 alone.

Conclusion: A Resilient Core, but Risks Linger
Choice Hotels’ Q1 results underscore its ability to navigate demand fluctuations through segment diversification and cost controls. The $129.6M adjusted EBITDA—a record high—reflects operational resilience, while extended-stay and economy segments continue to outperform peers. However, the revised outlook signals that management is prioritizing caution in an uncertain macro environment.

Investors should weigh the positives: strong cash flows, a pipeline favoring growth segments, and shareholder-friendly capital allocation. Yet the downward revision to 2025 guidance—particularly the $21M reduction in net income projections—highlights lingering risks from construction costs and interest rates.

For now, Choice’s valuation appears reasonable, with a forward P/E of ~20x (based on the revised EPS midpoint) compared to its five-year average of ~22x. However, the path to recovery hinges on whether domestic RevPAR can stabilize near current levels, rather than contracting.

In a sector where demand is highly cyclical, Choice’s strategy of leaning into extended-stay and economy segments—both less discretionary than luxury travel—provides a defensive edge. Yet until macroeconomic clouds clear, investors may need to brace for a bumpy ride.

The verdict: A hold for now, but keep an eye on RevPAR trends and development cost trajectories.