Hotel franchisor Choice Hotels (NYSE:CHH) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 8.8% year on year to $389.8 million. Its non-GAAP profit of $1.55 per share was 4.5% above analysts’ consensus estimates.
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Choice Hotels (CHH) Q4 CY2024 Highlights:
- Revenue: $389.8 million vs analyst estimates of $379.3 million (8.8% year-on-year growth, 2.8% beat)
- Adjusted EPS: $1.55 vs analyst estimates of $1.48 (4.5% beat)
- Adjusted EBITDA: $140.4 million vs analyst estimates of $131.9 million (36% margin, 6.5% beat)
- Adjusted EPS guidance for the upcoming financial year 2025 is $7.11 at the midpoint, beating analyst estimates by 1.7%
- EBITDA guidance for the upcoming financial year 2025 is $632.5 million at the midpoint, above analyst estimates of $606.9 million
- Operating Margin: 30.6%, up from 10.5% in the same quarter last year
- Free Cash Flow Margin: 19.9%, up from 4% in the same quarter last year
- RevPAR: $50.51 at quarter end, up 9.8% year on year
- Market Capitalization: $6.87 billion
"Choice Hotels generated another year of strong results in 2024, exceeding the top end of our earnings guidance and delivering a 4.3% year-over-year net increase in our more revenue-intense domestic rooms portfolio, a testament to the success of our growth strategy," said Patrick Pacious, President and Chief Executive Officer.
Company Overview
With almost 100% of its properties under franchise agreements, Choice Hotels (NYSE:CHH) is a hotel franchisor known for its diverse brand portfolio including Comfort Inn, Quality Inn, and Clarion.
Travel and Vacation Providers
Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, Choice Hotels grew its sales at a sluggish 7.3% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Choice Hotels’s annualized revenue growth of 6.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. 
We can dig further into the company’s revenue dynamics by analyzing its revenue per available room, which clocked in at $50.51 this quarter and is a key metric accounting for daily rates and occupancy levels. Over the last two years, Choice Hotels’s revenue per room averaged 2.1% year-on-year growth. Because this number is lower than its revenue growth, we can see its sales from other areas like restaurants, bars, and amenities outperformed its room bookings. 
This quarter, Choice Hotels reported year-on-year revenue growth of 8.8%, and its $389.8 million of revenue exceeded Wall Street’s estimates by 2.8%.
Looking ahead, sell-side analysts expect revenue to grow 3% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Choice Hotels has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.1% over the last two years, slightly better than the broader consumer discretionary sector.
Choice Hotels’s free cash flow clocked in at $77.38 million in Q4, equivalent to a 19.9% margin. This result was good as its margin was 15.8 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Key Takeaways from Choice Hotels’s Q4 Results
It was encouraging to see Choice Hotels’s full-year EBITDA and EPS guidance both beat analysts’ expectations. We were also happy its revenue and EBITDA outperformed Wall Street’s estimates in the quarter. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 7.6% to $158.90 immediately following the results.
Choice Hotels put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
