MAR 2Q 2013 REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

 

 

OVERALL: SLIGHTLY WORSE

  • MAR hit their guidance for Q2 but quality was low.  RevPAR came in at the low end of guidance.  Going forward, Group and DC remain the laggards.

MAR 2Q 2013 REPORT CARD - MAR123

 

US  

  • SAME:  Reiterates the 'steady as you go' theme.  Comparable systemwide US REVPAR increased 5.2% in 2Q, at the low end of its 5-7% guidance.
  • PREVIOUSLY:  
    • "As we look at the U.S., we think it's steady as you go, good growth environment."
    • "We would expect North America to be the stronger of the continents out there."

EUROPE

  • SAME:  2Q REVPAR was 1%.  France/Russia led the strength.  London will have difficult comps in 3Q due to the Olympics but they're optimistic on 4Q given much easier comps.
  • PREVIOUSLY:  
    • "We get about 10% of our fees out of Europe. It's still flat. The economies in Western Europe, Germany, France, some of those countries, obviously still have some structural issues to get through. Southern Europe, Spain, Portugal, Italy, suffering with high unemployment, so I think Europe's going to be kind of flat for a while."
    • "One area in Europe that is doing well is Eastern Europe, Russia, the 'stans', Georgia, those areas with the natural resources, commodities, continue to drive well and especially Russia seems to be doing well right now."

CHINA

  • SAME:  REVPAR rose only 1% but MAR gained 6% in market share.  2H 2013 have will easier comps.
  • PREVIOUSLY:  "China, same thing, growing middle class, growing business community, so a lot of new travel that's taking place in that part of the world. We think it'll be choppy, but over the long-term it's a great place."

LONG-TERM BOOKINGS

  • WORSE:  Group revenues are up only 2% in 2014.  They have 50% of the MAR brand business booked for 2014.
  • PREVIOUSLY:  
    • "In fact, they were up significantly in the first quarter, the pace for 2014, and we saw big movement in the year for 2014 bookings.  On the shorter horizon, though, on what we call, in the year for the year, that short-term bookings, as we said in the first quarter, we are seeing a little hesitancy at corporate America pulling the trigger on those."
    • "For 2014, we'll probably have 40%, 45% of the group business on the books I would think. And so we're building that book and obviously by the time we get to the end of year we should be something closer to 70%, actually we could be 50%-ish now, maybe low 50% for the total business for 2014 that's already on the books."

DC

  • WORSE:  Remains a challenging environment.  % of group business coming from DC has declined from 5% to 2% for 2013. 
  • PREVIOUSLY:   
    • "On DC, in referring to the government, I guess, DC obviously feels sequestration more than others. But it hasn't been a big mover. I think the government, quite frankly, started cutting costs and stopped traveling or slowed down their travel pretty dramatically in 2012...I think we talked in the first quarter that it's going to cost us 60 basis points to 70 basis points. That hasn't changed. We still see that probably holding up. I think DC, it's interesting as you look at DC, it kind of leveled off. And it's holding its own."

TRANSIENT

  • BETTER:  Transient REVPAR gained 6% in 2Q and the positive trends have continued. 
  • PREVIOUSLY:  "Transient business was very strong, particularly nonqualified or retail-rated business as we eliminated discounts, pushed business into higher rated categories and raised rates."

INCENTIVE FEES

  • SAME:  Strong incentive fee growth in the US offset flat incentive fees internationally.   
  • PREVIOUSLY:  "Incentive fees exceeded our expectations, largely due to strong performance among our full-service hotels in the U.S., particularly in New York and Florida."

TERMINATION/BRANDING FEES

  • BETTER:   Termination fees of $13MM added 2 cents to the bottom line.
  • PREVIOUSLY:  "We expect lower year-over-year termination and residential branding fees and higher pre-opening costs."

 

OBAMACARE

  • SAME:  Due to the delay in Obamacare, MAR is forecasting high single digit increases for healthcare costs for 2014 and a doubling of that rate in 2015. 
  • PREVIOUSLY:  "When you look into 2014, certainly ObamaCare is the biggest new potential wrinkle in the cost profile. Our estimates today for the managed portfolio in the United States is about $60 million to $100 million, and that would be, oh, I don't know, maybe about half of a point, so a 50 basis point impact on margins....obviously these are system costs that will ultimately be borne by the hotel. We will pick up a share of that through incentive fees for the managed portfolio. We don't know what the number would be for the franchise portfolio, but in terms of number of rooms, the franchise portfolio is about the same as the managed portfolio in the United States, so the numbers could be around the same order of magnitude."

MARGIN OUTLOOK

  • BETTER:  Expects 100-150bps improvement in margins for 2013
  • PREVIOUSLY:  "We're more likely to see inflation go up than vice versa, and that will have some modest impact. On the other hand, with each passing year, more of the REVPAR growth comes from rates, and obviously a REVPAR coming through rate is better for margins then REVPAR coming through occupancy. And I think, guys, it's way too early to be giving guidance for 2014 and 2015, but I think our expectations would be that we will net-net see margin growth above 100 basis points in each of those years."

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more