Investing

Reservations Mount Over Hotel Stocks


Visit your typical downtown hotel during the week and business is likely to be slow and quiet. Come back on Saturday and you might be surprised by the crowds. Those are not the signs of a healthy hotel and tourism business. In a July 16 earnings release, hotel operator ( (MAR)) acknowledged the difficulties it is facing at a time when many business travelers—hotels' usual weekday occupants—are staying home. During the busy spring business travel season, Marriott's weekend occupancy was actually higher than its weekday occupancy. That's a "very surprising statistic," Marriott President Arne Sorenson told analysts on July 16. "Unfortunately, we aren't yet seeing more corporate travelers and business meetings returning to our hotels," Sorenson said. "Instead, our mix of business remains skewed toward price-sensitive leisure travelers." Hotels remain busy on the weekend because of discounts offered to leisure travelers. But those bargain prices, along with empty rooms during the week, are hurting hotels' bottom lines. Due to cost-cutting and other measures, Marriott's earnings per share last quarter actually beat many expectations. But the firm's outlook for the entire year surprised many investors hoping for early signs of recovery in the hotel business. Global Deterioration in Lodging Sales In 2009, Marriott expects revenue per available room—or RevPAR, a measure commonly used in the hotel business—to fall 17% to 20%, both in North America and overseas. Based on that guidance, this "is going to be a very difficult year in the lodging sector in general and [Marriott] in particular," warned analyst Robert LaFleur in a July 16 note. "The domestic business continues to deteriorate and international business is following closely behind." Marriott had been expecting RevPAR to show a lesser decline abroad, but the new estimates predict the same declines inside and outside North America. Part of the blame, executives say, goes to the H1N1 virus and the effects of political instability in Thailand and elsewhere. But the key reason is the state of the world economy. This spring, hotel stocks moved higher on the belief that the economy had stopped its slide and was ready to rebound. There are still reasons to think the economy has stabilized, but hopes of a quick recovery have fizzled. Predictions of economic "green shoots"—the first signs of growth—"have proven in hindsight to be vastly premature," said Raymond James ( (RJF)) analyst William Crow. "It's still too soon to say that we're seeing green shoots," said Marriott's Sorenson. "But to take the analogy a bit further, at least we have some evidence that planting season is not far off." "Stabilization, Not a Recovery" This lack of "green shoots" will likely be a common theme from hotel executives during this earnings season, says Wells Fargo ( (WFC)) analyst Jeffrey Donnelly. "The demand stabilization noted [last quarter] was just that: stabilization, not a recovery." On July 16, Marriott shares tumbled 6.24%, to 20.44. Other hotel stocks also dropped. Starwood Hotels & Resorts ( (HOT)), which reports earnings on July 23, saw its stock fall 2.8%, to 21.13. Shares of Host Hotels & Resorts ( (HST)), which reports on July 22, fell 1.88%, to 8.33. Wyndham Worldwide ( (WYN)) shares started the day lower, but rebounded and ended the day up 1.36%, to 11.94. The hotel chain reports results on July 29. Marriott executives insist that, whenever demand for hotel rooms returns, the firm will profit handily. "We can't tell you when the economy will recover, but we know with near-certainty that the economy will improve," Sorenson said. "When it does, the earnings potential of Marriott will be impressive." When business travelers start checking in again, hotels will do well. But with corporations continuing to slash travel budgets, hotel investors could be facing a long wait.
Steverman is a reporter for Bloomberg News in New York.

American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Companies Mentioned

  • MAR
    (Marriott International Inc/DE)
    • $65.02 USD
    • -0.55
    • -0.85%
  • RJF
    (Raymond James Financial Inc)
    • $49.51 USD
    • 0.20
    • 0.4%
Market data is delayed at least 15 minutes.

Sponsored Financial Commentaries

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus