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Wyndham (NYSE:WH) Misses Q4 Sales Targets


Full Report / February 14, 2024

Hotel franchising company Wyndham (NYSE:WH) fell short of analysts' expectations in Q4 FY2023, with revenue down 3.9% year on year to $321 million. It made a non-GAAP profit of $0.91 per share, improving from its profit of $0.72 per share in the same quarter last year.

Wyndham (WH) Q4 FY2023 Highlights:

  • Revenue: $321 million vs analyst estimates of $323.8 million (0.9% miss)
  • EPS (non-GAAP): $0.91 vs analyst estimates of $0.90 (1.1% beat)
  • Gross Margin (GAAP): 61.4%, down from 95.2% in the same quarter last year
  • Market Capitalization: $6.40 billion

Established in 1981, Wyndham (NYSE:WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.

The company's portfolio is diverse, encompassing over 20 hotel brands that cater to a broad spectrum of travelers and budgets.

At the luxury and upscale end, Wyndham offers brands like Wyndham Grand and Dolce Hotels and Resorts, known for their refined experiences and exceptional service. The company's mid-scale offerings, such as Ramada and Wingate, provide comfortable and value-driven accommodations for business and leisure travelers. Lastly, Wyndham's economy brands, including Days Inn and Super 8, offer affordable and reliable lodging options.

Wyndham primarily focuses on hotel franchising, with most of its properties operated by independent owners under franchise agreements. This model has allowed Wyndham to maintain a wide geographic spread without the substantial capital investment typically associated with owning properties. The company also manages a smaller number of hotels through management contracts.

Customer loyalty is key to Wyndham's operations. Wyndham Rewards, its loyalty program, is a notable example, offering members a simple and generous points system that can be redeemed for free nights, discounts, and other rewards.

Hotels, Resorts and Cruise Lines

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 hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Wyndham’s primary competitors include Marriott International (NYSE:MAR), Hilton Worldwide Holdings (NYSE:HLT), InterContinental Hotels Group (NYSE:IHG), Choice Hotels International (NYSE:CHH), and Hyatt Hotels (NYSE:H).

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Wyndham's revenue declined over the last five years, dropping 5.6% annually.

Wyndham Total Revenue

Within consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Wyndham's 2-year annualized revenue declines of 5.5% align with its five-year revenue declines, suggesting its demand is consistently shrinking. 

We can dig even further into the company's revenue dynamics by analyzing its revenue per available room, which clocked in at $38.90 this quarter and is a key metric accounting for average daily rates and occupancy levels. Over the last two years, Wyndham's revenue per room averaged 11% year-on-year growth. Because this number is higher than its revenue growth, we can see its room bookings outperformed its sales from other areas like restaurants, bars, and amenities.

Wyndham Revenue Per Available Room

This quarter, Wyndham missed Wall Street's estimates and reported a rather uninspiring 3.9% year-on-year revenue decline, generating $321 million of revenue. Looking ahead, Wall Street expects sales to grow 4% over the next 12 months, an acceleration from this quarter.

Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Wyndham has been a well-oiled machine over the last two years. It's demonstrated elite profitability for a consumer discretionary business, boasting an average operating margin of 36.4%.

This quarter, Wyndham generated an operating profit margin of 32.4%, up 4.6 percentage points year on year.

Over the next 12 months, Wall Street expects Wyndham to become more profitable. Analysts are expecting the company’s LTM operating margin of 36% to rise to 38.1%.

EPS

We track long-term historical earnings per share (EPS) growth for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

Over the last five years, Wyndham's EPS grew 48.3%, translating into an unimpressive 8.2% compounded annual growth rate. This performance, however, is materially higher than its 5.6% annualized revenue declines over the same period. Let's dig into why.

Wyndham's operating margin has expanded 16.8 percentage points over the last five years while its share count has shrunk 16.7%. Improving profitability and share buybacks are positive signs as they juice EPS growth relative to revenue growth.

In Q4, Wyndham reported EPS at $0.91, up from $0.72 in the same quarter a year ago. This print beat analysts' estimates by 1.1%. Over the next 12 months, Wall Street expects Wyndham to grow its earnings. Analysts are projecting its LTM EPS of $4.02 to climb by 6.7% to $4.29.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).

Wyndham's five-year average return on invested capital was 9.5%, somewhat low compared to the best consumer discretionary companies that pump out 25%+. Its returns suggest it historically did a subpar job investing in profitable business initiatives.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Wyndham's ROIC averaged a 10.5 percentage point increase each year. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.

Key Takeaways from Wyndham's Q4 Results

We struggled to find many strong positives in these results. Its revenue per room and operating margin missed analysts' expectations. In terms of full-year 2024 guidance, its EBITDA beat while its EPS fell short. Overall, this was a mediocre quarter for Wyndham. The stock is up 1.6% after reporting and currently trades at $79.43 per share.

Is Now The Time?

Wyndham may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We have other favorites, but we understand the arguments that Wyndham isn't a bad business. Although its revenue has declined over the last five years, its growth over the next 12 months is expected to be higher. And while its projected EPS for the next year is lacking, its impressive operating margins show it has a highly efficient business model.

Wyndham's price-to-earnings ratio based on the next 12 months is 18.2x. There are things to like about Wyndham and there's no doubt it's a bit of a market darling, at least for some investors. But it seems there's a lot of optimism already priced in and we wonder if there are better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $88.79 per share right before these results (compared to the current share price of $79.43).

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