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Extended Stay (STAY) Q2 Earnings Top, RevPAR Growth Continues

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Extended Stay (STAY) Q2 Earnings Top, RevPAR Growth Continues

Extended Stay's (STAY) impressive bottom-line growth in the second quarter can be attributed to decrease in effective tax rate and lower depreciation expenses.

Extended Stay America, Inc. STAY reported better-than-expected earnings for the third straight quarter, when it posted second-quarter 2018 financial numbers.

Adjusted earnings came in at 35 cents per share outpacing the Zacks Consensus Estimate of 34 cents. The bottom line also grew 12.9% year over year backed by a decrease in effective tax rate and lower depreciation expenses.

Detailed Revenue Discussion

Total revenues of $336.5 million in the second quarter marginally came ahead of the consensus mark of $336.3 million. However, the metric declined 0.6% on a year-over-year basis. This downside can be attributed to continual hotel disposition by the company as a part of its strategic efforts for boosting long-term growth. The decline was partially overshadowed by increase in RevPAR franchise and management fee revenues. On a comparable basis, total revenues rose 1.8% in second-quarter 2018.

Following the quarterly results, shares of Extended Stay declined nearly 3% in after-hours trading yesterday. Nonetheless, the stock has gained 8% in the past six months against the industry’s 18% decline.

Company-owned hotel RevPAR improved 1.7%.In the quarter under review, comparable system-wide RevPAR increased 1.6% on a year-over-year basis. The uptick was owing to a 3.4% improvement in average daily rate (ADR), partially offset by a 130 basis point (bps) decline in occupancy to 77.6%. Also, comparable company-owned hotel RevPAR rose 2.4% to $54.27 driven by an ADR increase of 4%.

Extended Stay America, Inc. Price, Consensus and EPS Surprise

Extended Stay America, Inc. Price, Consensus and EPS Surprise | Extended Stay America, Inc. Quote

Behind the Headlines

Hotel Operating margin in the quarter was 56.4%, a 30-bps decline from the prior-year quarter. Net income totaled $65.6 million compared with $49.7 million in the same period in 2017. The metric in the second quarter was favorably impacted by a lower effective tax rate, lower depreciation and amortization, decline in hotel operating expenses as well as reduced impairment charges.

Other Financial Details

Cash and cash equivalents as of Jun 30, 2018, was $183.2 million compared with $113.3 million at the end of Dec 31, 2017. Total shareholders’ equity at the end of the second quarter was $1,294.6 million. As of Jun 3, 2018, total debt (net of unamortized deferred financing costs and debt discounts) amounted to $2,480.1 million, down from $2,541.9 million at the end of Dec 31, 2017.

Extended Stay invested roughly $56.2 million in capital expenditures in the quarter under review. This investment included approximately $14.6 million in capital expenditures for new hotel development and $14.9 million for IT projects. On Jul 25, the company’s board of directors announced cash distributions totaling 22 cents per share. The distributions are payable Aug 23, 2018 to shareholders of record as of Aug 9, 2018. Extended Stay also repurchased 1.6 million shares for an aggregate purchase price of $32.8 million during the quarter.

2018 Outlook

For 2018, Extended Stay expects room and other hotel revenues to be in the range of $1.257-$1.279 billion compared with $1.26-$1.28 billion guided earlier. Comparable system-wide RevPAR is envisioned in the 1-2.75% band. Adjusted EBITDA is projected between $595 million and $610 million.

Other Stocks to Consider

Extended Stay carries a Zacks Rank #2 (Buy). Other hotel stocks with the same rank include Hilton Grand Vacations HGV, Hilton Worldwide Holdings Inc. HLT and Hyatt H. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Hilton Worldwide Holdings and Hilton Grand Vacation’s earnings for 2018 are projected to rise a respective 34.5% and 54.3% year over year, Hyatt’s earnings for 2019 are expected to increase 31.1%.

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