Extended Stay Lags Q3 Earnings & Revenues; Shares Drop - Analyst Blog

Extended Stay America, Inc.'s (STAY) shares slumped 20% after the company's third-quarter earnings and revenues missed the Zacks Consensus Estimate. Further, investors' confidence slumped as the company lowered the guidance for both revenues and net income for 2014.

Adjusted paired earnings of 29 cents per share missed the Zacks Consensus Estimate of 34 cents by a nickel. Also, it decreased 6.5% year over year owing to lower-than-expected revenues and higher expenses.

This hotelier posted net revenue of $334 million that missed the Zacks Consensus Estimate of $345 million by 3.1%. However, it increased 8.4% year over year backed by strong revenue per available room (RevPAR) growth.

Behind the Headline Numbers

RevPAR grew 8.2% year over year. This is attributable to improvement in average daily rate (ADR) of 7.2% and 60 basis points (bps) rise in occupancy rate to 79.3%. The ADR growth was mainly due to a combination of price increases and a shift in customer mix toward shorter stay, higher profit generating guests.

Total operating costs and expenses increased 5% to $225.0 million due to a 9.8% rise in hotel operating expenses. However, general and administrative expenses declined 20.2% to $19.6 million.  

Increase in operating expenses was offset by a jump in revenues. Therefore, operating income went up 13.6% to $113.6 million. Hotel operating margin on an adjusted basis remained stable year over year.

Financial Update

As of Sep 30, 2014, cash and cash equivalents were $20.4 million, up from $18.7 million as of Jun 30, 2014. The company incurred capital expenditures of $40.2 million compared with $36.3 in the second quarter mainly for capital renovations, regular maintenance and information technology projects.

2014 Guidance Lowered

The company narrowed its revenue, EBITDA and net income guidance for 2014. It now expects total revenue in the range of $1.21 to $1.22 billion, up 6.8% to 7.3% year over year, versus the prior guidance of revenues in the range of $1.21 to $1.25 billion, up 7% to 10% year over year.

Adjusted EBITDA is expected in the range of $550 to $560 million, up 6% to 8% from the year-ago period. The earlier guidance for Adjusted EBITDA was $570.0 to $600.0 million, up 10% to 16% year over year.

Further, it lowered the net income guidance for 2014 to a range of $145.5 to $154.9 million from $164.3 to $194.2 million.

Other Stocks to Consider

Extended Stay presently has a Zacks Rank #2 (Buy). Other stocks worth considering in the hotel industry include Hilton Worldwide Holdings Inc. (HLT), Choice Hotels International Inc. (CHH) and  Marriott International, Inc. (MAR). All these stocks sport the same Zacks Rank as Extended Stay.
 

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