Choice Raised EBITDA Outlook as Room Growth Accelerated
Adjusted EBITDA rose 6% to $175 million as the hotel franchisor lifted its full-year outlook.
Choice Hotels International (CHH), the hotel franchisor, posted higher second-quarter revenue and adjusted earnings as improving U.S. demand and faster room growth supported its core franchise business. Revenue rose 3.4% to $441 million, while adjusted earnings increased 5% to $2.02 a share.
The quarter marked a demand inflection from the start of the year. U.S. revenue per available room rose 1.3% after a reported 2.3% first-quarter decline, though growth moderated slightly from the hurricane-adjusted first-quarter increase of 1.8%. Global RevPAR advanced 1.7% after declining 0.8% in the prior quarter.
GAAP results moved in the opposite direction. Net income fell 21% to $64 million, and diluted earnings declined to $1.41 a share from $1.75. Operating income decreased 16% to $104.1 million, widening the gap between reported profit and adjusted performance.
Revenue excluding reimbursable costs grew 7% to $277 million. Franchise and management fees increased 6% to $187.5 million, while partnership services and fees rose 6% to $28.7 million, helped by procurement services. Reimbursable expenses climbed 12% to $197.7 million as the related revenue declined 2%, weighing on GAAP earnings.
The company also expanded its system faster. Global net-room growth accelerated to 2.6% from 1.7% at the end of March, led by 3.6% growth across its upscale, extended-stay and midscale brands. U.S. extended-stay rooms increased 13%, extending their run of double-digit growth to 12 consecutive quarters.
U.S. openings rose 27%, with about 6,400 rooms added, the highest second-quarter total since 2019. Growth in global franchise agreements awarded slowed to 20% from 72% in the first quarter, while the U.S. conversion pipeline reached 24,100 rooms, up 24% from a year earlier and 6% sequentially.
Choice now expects adjusted EBITDA of $635 million to $650 million, $3 million higher at each end of its previous range. It also raised its global RevPAR outlook to growth of 0% to 1% and increased expected global net-system room growth to about 1.5%. Higher reimbursable expenses, interest costs and taxes prompted the company to cut GAAP earnings guidance to $5.07 to $5.31 a share and trim adjusted earnings guidance to $6.86 to $7.10 a share.
First-half operating cash flow fell 42% to $67 million as higher room openings increased franchise-agreement acquisition costs and reimbursable expenses. Choice reduced net hotel-development and lending outlays 80% to $15 million and expects to begin selling owned hotels in the first half of 2027, subject to market conditions, setting a timetable for recycling capital from its 20-property portfolio.