Despite general chatter by economists and analysts around a potential recession, Wyndham Hotels & Resorts executives expressed continued confidence in the company's recovery and no qualms about demand or development slowing down.
"Consumer intent to travel and their willingness and ability to spend remains healthy despite the broader economic concerns," Wyndham President and CEO Geoff Ballotti said on a call with analysts to report second-quarter earnings. He noted that guests at the company's hotels are booking further out from their travel dates, as well as longer stays.
He said Wyndham's core guests "represent the vast demographic of America, and what we're seeing is they're earning more and they're spending more ... and we believe they have ample savings and resources and they're wanting to travel more than ever this year."
Ballotti added that even if the economy does go into a recession, "our brands are significantly less volatile during a recession, and we've been more resilient and out performed during the past two downturns."
After a first quarter in which results were driven by record-setting performance in revenue per available room, occupancy and rates, Ballotti said the company was gearing up for what it expected would be its best summer ever, surpassing the summer of 2021, which already had topped pre-pandemic 2019 performance.
The company's second-quarter results show that it is well on its way to meeting those expectations.
"We kicked off our high-demand summer season with the strongest Memorial Day we've ever experienced, as guests traveled further, stayed longer and spent more at our hotels than they did pre-pandemic," Ballotti said in an earnings release. "Our business experienced another strong quarter performing above both last year and 2019 as international recovery accelerated and our development teams grew our pipeline to a record level. Our second quarter results once again demonstrated the strength and durability of our business model, and we are well on track to deliver on our 2022 commitments."
Wyndham reported global revenue per available, in constant currency, room grew 23% year over year in the second quarter. That RevPAR improvement was driven by a 15% increase in the U.S. and a 59% increase internationally. Compared to the same quarter in 2019, RevPAR was up 9% in the U.S., but down 6% internationally, for a global improvement of 3%.
In July so far, RevPAR is up 6% year over year, Ballotti said, noting "certainly we're pleased with how the summer is shaping up."
Chief Financial Officer Michele Allen said the company's pricing power continued to improve in the quarter, with average daily rate in all regions exceeding 2019 levels and global ADR up 117% year over year.
Global occupancy improved to 88% of 2019 levels, reflecting 96% of 2019 levels in the U.S., 98% in Canada, 88% in the Europe, Middle East, Africa region and 67% in China. Allen said this illustrates "room for continued demand recovery."
"As we enter the second half of the year, we believe our resilient business model and strong balance sheets position as well to deliver on shareholder commitments, even in changing and challenging times," she said.
Net income for the quarter was $92 million, up $24 million from 2021; and adjusted earnings before interest, taxes, depreciation and amortization was $175 million, up 4% year over year. Fee-related and other revenues increased 10% year over year to $354 million.
During the quarter, the company sold its last remaining owned hotel, the Wyndham Grand Rio Mar Resort in Puerto Rico, and exited the select-service hotel management business, which had a $21 million impact on revenues and an $8 million impact on EBITDA.
Net revenues of $386 million also reflected an 18% year-over-year improvement in the company's hotel franchising business and a $59 million loss on the management side due in part to a $53 million decrease in cost-reimbursement revenues.
Wyndham executives said the company is poised for continued growth, both organically with its existing brands and potentially through mergers and acquisitions.
"I don't think our developers are any less confident than they were at the beginning of the year, either here in the U.S. or in China," Ballotti said. "What gives us confidence is our economy and midscale select-service brands are selling right now here in the states at just record levels, and it's reflecting developer confidence that now is a good time to be building. ... All of these developers that had a record year last year, they still believe they're going to have a very good year this year. If you can build, now's a good time to build because we're at the very early stages of what they believe in their heart and their core will be a sustained, multi-year recovery."
Wyndham grew its portfolio by 3% to 818,900 rooms globally, signing 187 new contracts compared to 154 in the second quarter of 2021. Broken down geographically, system size was up 2% in the U.S. and 4% internationally. Signings include 22 new-construction projects for the company's new extended-stay brand, which launched in March and now totals 72 contracts.
As of June 30, the company's global development pipeline consisted of approximately 1,600 hotels totaling 208,000 rooms, a 9% improvement from the second quarter of 2021. The majority of growth is in the midscale segment and above — 80% of the pipeline globally and nearly 70% in the U.S. — which the company noted is driving RevPAR improvement. According to the earnings release, "approximately 62% of the company's development pipeline is international and 78% is new construction, of which approximately 36% has broken ground."
Wyndham ended the quarter with $400 million in cash and approximately $1.1 billion in total liquidity. The company generated $99 million in free cash flow in the quarter, up 37% year over year, and with the free cash flow expected over the remainder of the year plans to have "just over $600 million of cash to deploy," Allen said.
"From an M&A landscape perspective, we're looking for opportunities both domestically and internationally particularly in what we consider to be high-growth markets with high-demand generators," Allen said. "That probably looks more like smaller regionals in the midscale select-service or even upscale space. But I'd also say that nothing is off the table if that meets our criteria. We believe that consolidation in the industry is inevitable, and size and scale matter. They matter now more than they ever have, and we expect that to continue."
For full-year 2022, the company continues to project 2% to 4% growth in rooms and 12% to 16% growth in RevPAR year over year. Its outlook for adjusted EBITDA and fee-related and other revenues improved by $6 million to a top end of $631 million and $1.32 billion, respectively.
As of press time, Wyndham Hotels & Resorts’ stock was trading at $69.45 per share, down 22.5% year to date. The S&P 400 MidCap Index was down 15.6% for the same period.
