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GreenTree Hospitality (GHG) Q2 Earnings call transcript Aug 15, 2024

Daily EarningsFriday, Aug 16, 2024 12:04 pm ET
2min read

GreenTree, a leading hospitality and restaurant group, recently held its Q2 2024 earnings call, shedding light on the company's performance, strategies, and future prospects. Here are the key takeaways from the call:

Financial Overview and Performance

In the second quarter, GreenTree faced challenges due to China's economic recovery, leading to a 14.8% year-over-year decrease in hotel revenue. The company, however, reported a positive net income for the quarter after bridging losses in the corresponding quarters of the previous year. The focus is now on growing the number of franchise street stores and stabilizing consumer traffic. Hotel RevPAR and restaurant ADS both saw declines, with RevPAR down 10.8% and ADS down 22.1%. Total revenues decreased by 20.5% to RMB 329.7 million.

Strategic Execution and Trends

GreenTree has been upgrading hotels to better respond to competition and expand in the mid- to upscale segment and Tier 3 and lower cities in South China. The company has a significant presence in these areas, with 72.3% of its hotel pipeline located in these cities. The restaurant business is being repositioned by moving away from lease and upgraded restaurants towards franchise street stores. Franchised and managed restaurants now account for 86.9% of the total, and three stores account for 45.4%.

Financial Highlights and Guidance

Despite the challenging quarter, GreenTree's hotel business saw a decrease in profitability. Income from operations was RMB 81.6 million, down 26.9% year-over-year. Net income was RMB 63.1 million, a 46.4% decrease. Adjusted EBITDA, non-GAAP, was RMB 81.9 million, down 37%. For the second half of the year, the company anticipates hotel performance to remain flat compared to 2023. The Board of Directors has approved a cash dividend of USD 0.10 per ordinary share or ADS payable to holders on September 30, 2024.

Investor Questions and Answers

During the Q&A session, investors asked about the RevPAR trend in July and August, the impact of closing certain L&O hotels, and the company's shareholder return plan. GreenTree's management provided insights into the trends in leisure and business demand, the performance in first, second, and third-tier cities, and the company's focus on increasing core competitiveness. They also discussed the planned hotel openings, M&A opportunities, and the repositioning of the restaurant business.

Future Outlook and Strategies

GreenTree is focused on increasing the profitability of its restaurant business by closing unprofitable L&O stores and expanding the number of street stores. The company plans to open 480 to 490 hotels throughout the year, despite a lower number of openings in the second quarter due to regulatory challenges. GreenTree is also considering M&A opportunities, but only with groups that share the same focus on franchisee profitability and brand value proposition. The company aims to become the most valued brand in the industry, focusing on franchisee profitability and maintaining a disciplined approach to growth.

Conclusion

GreenTree's Q2 2024 earnings call provided a comprehensive overview of the company's financial performance, strategic execution, and future outlook. Despite the challenges faced, GreenTree remains confident in its ability to deliver sustainable profitable growth to its franchisees and shareholders. The company's focus on upgrading hotels, expanding in Tier 3 and lower cities, and repositioning the restaurant business are all strategic moves aimed at maintaining and growing its market presence. As GreenTree continues to navigate the dynamic hospitality and restaurant landscape, it remains committed to delivering value to its stakeholders.

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