Red Lion Hotels Corporation (RLH) reported second-quarter 2012 loss from continuing operations of 2 cents per share, lower than the Zacks Consensus Estimate of a loss of 4 cents. However, this compared unfavorably with the year-ago earnings from continuing operations of $1.00 per share.
Total revenue came in at $38.8 million, missing the Zacks Consensus Estimate of $39.0 million and year-ago revenue of $42.2 million. The decrease was attributable to a 4.3% decline in hotel revenue and 48.8% decline in entertainment revenues, partially offset by 38.5% surge in franchise revenue and 12.1% increase in other revenues.
Comparable hotel revenue increased 4.9% year over year to $34.5 million. Revenue Per Available Room (RevPAR) for comparable owned and leased hotel increased 5.4% year over year to $56.32, while RevPAR for franchised hotels upped 2.9% to $62.57.
Occupancy in owned and leased hotels increased 280 basis points (bps) to 66.8%, but decreased 30 bps to 69.5% in franchised hotels. Average daily rate (:ADR) increased 1.0% to $84.28 for owned and leased hotels and 3.2% to $89.98 for franchised hotels.
The company reported operating income of $1.2 million, which was down substantially from the year-ago income of $34.7 million.
The company is focused with a long-term strategy of expanding its franchise network. In connection with this, on July 18 the company announced it had signed a franchise license agreement with WR Management Co. for a hotel - Quality Inn & Suites Date Palm - in Cathedral City, California.
In addition, on July 31, the company disposed its Red Lion Colonial Hotel in Helena, Montana for $5.6 million. On August 6, Red Lion inked a deal to sell its Red Lion Hotel Denver Southeast for $13.0 million.
Red Lion ended the second quarter with cash and cash equivalents of $4.9 million and total outstanding debt of $99.4 million. It had $10.0 million available under a credit facility.
The company reaffirmed its previous guidance. The company expects RevPAR for owned and leased hotels to increase in the range of 2% - 4%. Red Lion also expects to invest around $10.0 million in capital improvement.
We remain bullish on the stock, given the company’s significant portfolio restructuring activity, expansions in core markets as well as growing RevPAR and occupancy. Based on these positives, we expect analysts to increase their estimates in the coming days. Currently the Zacks Consensus Estimate for 2012 and 2013 is pegged at loss of 23 cents and loss of 16 cents, respectively.
Red Lion competes with the likes of Starwood Hotels & Resorts Worldwide Inc. (HOT), which reported its second quarter 2012 adjusted earnings of 70 cents per share, widely surpassing the Zacks Consensus Estimate. Red Lion currently carries a Zacks #3 Rank, implying a short-term Hold rating. We also reiterate our long-term Neutral recommendation on the stock.
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