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TheStreet Open House

China Lodging Group, Limited Reports Second Quarter Of 2013 Financial Results

Stocks in this article: HTHT

  • A total of 1,216 hotels or 132,557 hotel rooms in operation as of June 30, 2013
  • Net revenues totaled RMB1,034.8 million (US$168.6 million) 1 for the second quarter of 2013, an increase of 29.6% year-over-year, exceeding the high end of previously announced guidance.
  • Adjusted operating margin for the second quarter of 2013 was 13.2%, improving from 11.0% in the same period of 2012.
  • Adjusted EBITDA from operating hotels (non-GAAP) 2 was RMB306.2 million (US$49.9 million) for the second quarter of 2013, an increase of 35.5% year-over-year.
  • Net income attributable to China Lodging Group was RMB96.3 million (US$15.7 million) for the second quarter of 2013, an increase of 37.0% year-over-year. Excluding share-based compensation expenses, adjusted net income attributable to the Company (non-GAAP) was RMB104.0 million (US$16.9 million) for the second quarter of 2013, an increase of 38.7% year-over-year.
  • Diluted net earnings per ADS 3 were RMB1.55 (US$0.25) for the second quarter of 2013. Excluding share-based compensation expenses, adjusted diluted net earnings per ADS (non-GAAP) was RMB1.67 (US$0.27) for the second quarter of 2013, an increase of 37.1% year-over-year.
  • China Lodging Group expects Q3 net revenues growth of 24% to 26%.

SHANGHAI, China, Aug. 15, 2013 (GLOBE NEWSWIRE) -- China Lodging Group, Limited (Nasdaq:HTHT) ("China Lodging Group" or the "Company"), a leading and fast-growing multi-brand hotel group in China, today announced its unaudited financial results for the quarter ended June 30, 2013.

Second Quarter 2013 Operational Highlights

  • During the second quarter of 2013, the Company opened 30 leased ("leased-and- operated") hotels and 93 net manachised ("franchised-and-managed") hotels. As of June 30, 2013, the Company had 514 leased hotels, 679 manachised hotels, and 23 franchised Starway hotels in operation across 213 cities. The leased and manachised hotel rooms in operation increased by 32% and 83%, respectively, from a year ago.  
  • As of June 30, 2013, the Company had 70 leased hotels and 362 manachised hotels contracted or under construction.  
  • Due to fast expansion, the Company had a higher percentage of hotels at the ramp-up stage during the second quarter of 2013 compared to the same period last year. In the second quarter of 2013, the leased and manachised hotels in operation for less than six months contributed 19% of the Company's total leased and manachised hotels' room nights available for sale, compared to 15% in the second quarter of 2012. The ramp-up hotels, as expected, had lower occupancy rate and RevPAR before becoming mature.  
  • The ADR, which is defined as the average daily rate for all hotels in operation (excluding franchised Starway hotels), was RMB182 in the second quarter of 2013, compared with RMB181 in the second quarter of 2012 and RMB172 in the previous quarter. The year-over-year increase of 0.7% was mainly attributable to a 3.4% increase in same-hotel ADR, partially offset by the city mix shifting toward lower-tier cities and a higher percentage of new hotels at the ramp-up stage. The sequential increase resulted mainly from seasonality.  
  • The occupancy rate for all hotels in operation (excluding franchised Starway hotels) was 91.3% in the second quarter of 2013, compared with 97.4% in the second quarter of 2012 and 86.5% in the previous quarter. The year-over-year decrease was mainly because of China's soft macro environment, the temporary demand decline impacted by avian flu, and a higher percentage of hotels at the ramp-up stage in the second quarter of 2013, compared to a year ago. The sequential increase resulted mainly from seasonality.  
  • RevPAR, defined as revenue per available room for all hotels in operation (excluding franchised Starway hotels), was RMB167 in the second quarter of 2013, compared with RMB176 in the second quarter of 2012 and RMB149 in the previous quarter. The year-over-year decrease was a result of a lower occupancy rate offset by a higher ADR. The sequential increase resulted mainly from seasonality.  
  • For all hotels which had been in operation for at least 18 months, the same-hotel RevPAR was RMB185 for the second quarter of 2013, compared with RMB185 for the second quarter of 2012, with a 3.4% increase in ADR and a 3.5 percentage-point decrease in occupancy rate. The increase in same-hotel ADR was driven by price increase to enhance yield. The decrease in same-hotel occupancy rate was mainly due to a soft macro environment in the second quarter of 2013.  
  • As of June 30, 2013, the Company's loyalty program had over 11 million members, who contributed more than 80% of room nights sold during the second quarter of 2013. In the second quarter of 2013, more than 90% of room nights sold were sold through the Company's own channels.
Second Quarter of 2013 Financial Results      
(RMB in thousands) Q2 2012 Q1 2013 Q2 2013
Revenues:      
Leased hotels  764,633  804,692  963,305
Manachised and franchised hotels  81,782  114,591  133,768
Total revenues  846,415  919,283  1,097,073
Less: business tax and related surcharges  (48,181)  (52,346)  (62,263)
Net revenues  798,234  866,937  1,034,810

Total revenues for the second quarter of 2013 were RMB1,097.1 million (US$178.8 million), representing a 29.6% year-over-year increase and a 19.3% sequential increase. The year-over-year and sequential increase was primarily due to the Company's continued expansion of its hotel network.

Total revenues from leased hotels for the second quarter of 2013 were RMB963.3 million (US$157.0 million), representing a 26.0% year-over-year increase and a 19.7% sequential increase.

Total revenues from manachised and franchised hotels for the second quarter of 2013 were RMB133.8 million (US$21.8 million), representing a 63.6% year-over-year increase and a 16.7% sequential increase.

Net revenues for the second quarter of 2013 were RMB1,034.8 million (US$168.6 million), representing a 29.6% year-over-year increase and a 19.4% sequential increase.

(RMB in thousands) Q2 2012 Q1 2013 Q2 2013
Operating costs and expenses:      
Hotel operating costs  580,436  735,181  746,557
Selling and marketing expenses  27,327  23,813  31,947
General and administrative expenses   51,798  58,900  71,233
Pre-opening expenses  56,269  53,967  55,881
Total operating costs and expenses  715,830  871,861  905,618

Hotel operating costs for the second quarter of 2013 were RMB746.6 million (US$121.6 million), compared to RMB580.4 million (US$91.4 million) for the second quarter of 2012 and RMB735.2 million (US$118.4 million) for the previous quarter, representing a 28.6% and 1.5% increase, respectively. The year-over-year increase in hotel operating costs was mainly driven by the Company's hotel network expansion, especially growth in leased hotels. The average number of leased hotels in operation 4 during the second quarter of 2013 increased 34.7% from the same period of 2012 and 5.2% sequentially. Total hotel operating costs excluding share-based compensation expenses (non-GAAP) were RMB745.6 million (US$121.5 million), representing 72.0% of net revenues, compared to 72.6% for the second quarter in 2012 and 84.7% in the previous quarter. The year-over-year decrease in hotel operating costs as a percentage of net revenues was mainly attributable to cost-saving efforts such as effectively reducing staff to room ratio through innovative measures, and revenue mix shift toward higher percentage of higher-margin manachised revenue. The sequential decrease in hotel operating costs as a percentage of net revenues was mainly driven by seasonality.

Selling and marketing expenses for the second quarter of 2013 were RMB31.9 million (US$5.2 million), compared to RMB27.3 million (US$4.3 million) for the second quarter of 2012 and RMB23.8 million (US$3.8 million) for the previous quarter. Selling and marketing expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2013 were RMB31.7 million (US$5.2 million), or 3.1% of net revenues, compared to 3.4% for the second quarter of 2012 and 2.7% for the previous quarter. The year-over-year decrease was mainly attributable to the benefit from economies of scale and the Company's cost-saving efforts.

General and administrative expenses for the second quarter of 2013 were RMB71.2million (US$11.6 million), compared to RMB51.8 million (US$8.2 million) for the second quarter of 2012 and RMB58.9 million (US$9.5 million) for the previous quarter. General and administrative expenses excluding share-based compensation expenses (non-GAAP) for the second quarter of 2013 were RMB64.7 million (US$10.5 million), representing 6.3% of the net revenues for the second quarter of 2013, compared with 6.0% of the net revenues for the second quarter of 2012 and 6.0% for the previous quarter.

Pre-opening expenses for the second quarter of 2013 were RMB55.9 million (US$9.1 million), representing a 0.7% year-over-year decrease and a 3.5% sequential increase. The pre-opening expenses as a percentage of net revenues decreased 1.6% year-over-year due to enlarged revenue base and improved conversion speed.

Income from operations for the second quarter of 2013 was RMB129.2 million (US$21.1million), compared to income from operations of RMB82.4 million (US$13.0 million) for the second quarter of 2012 and loss from operations of RMB4.9 million (US$0.8 million) for the previous quarter. Excluding share-based compensation expenses, adjusted income from operations (non-GAAP) for the second quarter of 2013 was RMB136.9 million (US$22.3 million), compared with RMB87.1 million (US$13.7 million) for the second quarter of 2012 and RMB2.7 million (US$0.4 million) for the previous quarter.

Operating margin for the second quarter of 2013 was 12.5%, up from 10.4% for the second quarter of 2012 and -0.5% for the previous quarter. Excluding share-based compensation expenses, adjusted operating margin for the second quarter of 2013 was 13.2%, up from 11.0% for the second quarter of 2012 and 0.4% for the previous quarter. The year-on-year adjusted operating margin increase of 2.2 percentage points was attributable to higher contribution from manachise business, effective cost control of labor and consumable costs at leased hotels. The sequential increase in adjusted operating margin was mainly due to seasonality.

Net income attributable to China Lodging Group, Limited for the second quarter of 2013 was RMB96.3 million (US$15.7 million), compared to net income attributable to China Lodging Group, Limited of RMB70.3 million (US$11.1 million) for the second quarter of 2012 and RMB0.07 million (US$0.01 million) for the previous quarter. Excluding share-based compensation expenses, adjusted net income attributable to China Lodging Group, Limited (non-GAAP) for the second quarter of 2013 was RMB104.0 million (US$16.9 million), compared to adjusted net income attributable to China Lodging Group, Limited of RMB75.0 million (US$11.8 million) for the second quarter of 2012 and RMB7.7 million (US$1.2 million) for the previous quarter.

Basic and diluted net earnings per share/ADS. For the second quarter of 2013, basic net earnings per share and diluted net earnings per share were RMB0.39 (US$0.06); basic net earnings per ADS was RMB1.57 (US$0.26) and diluted net earnings per ADS was RMB1.55 (US$0.25). Excluding share-based compensation expenses, adjusted basic net earnings per share (non-GAAP) and adjusted diluted net earnings per share (non-GAAP) for the second quarter of 2013 were RMB0.42 (US$0.07), and adjusted basic net earnings per ADS (non-GAAP) was RMB1.70 (US$0.28) and adjusted diluted net earnings per ADS (non-GAAP) was RMB1.67 (US$0.27).

EBITDA (non-GAAP) 5 for the second quarter of 2013 was RMB242.7 million (US$39.5 million), compared to RMB165.1 million (US$26.0million) for the second quarter of 2012 and RMB98.9 million (US$15.9 million) for the previous quarter. Excluding pre-opening expenses and share-based compensation expenses, adjusted EBITDA from operating hotels (non-GAAP) for the second quarter of 2013 was RMB306.2 million (US$49.9 million), representing an increase of 35.5% year-over-year and an increase of 90.8% sequentially. The year-over-year increase was mainly a result of the expansion of the Company's hotel network and improvement in operating margin. The sequential increase was mainly due to seasonality.

Hotel income (non-GAAP), which is the difference between net revenues and hotel operating costs, was RMB288.3 million (US$47.0 million) for the second quarter of 2013, compared with RMB217.8 million (US$34.3 million) for the second quarter of 2012 and RMB131.8 million (US$21.2 million) for the previous quarter. The year-over-year increase of hotel income (non-GAAP) was mainly attributable to the enlarged manachised hotel network and increased number of mature leased hotels in the portfolio. For leased hotels in operation for at least six months, the hotel income (non-GAAP) was RMB210.1 million (US$34.2 million) during the second quarter of 2013, or 25% of net revenues derived from those hotels. Leased hotels in operation for less than six months accounted for 19% of leased room nights available for sale in the second quarter of 2013. Those hotels derived a hotel loss (non-GAAP) of RMB22.5 million (US$3.6 million), or 27% of net revenues derived from those hotels this quarter, mainly due to lower revenue achievement of those hotels during their ramp-up stage in new cities. For manachised and franchised hotels, the hotel income (non-GAAP) was RMB100.7 million (US$16.4 million), or 80% of net revenue derived from those hotels.

Cash flow. Net operating cash flow for the second quarter of 2013 was RMB303.0 million (US$49.4 million). Cash spent on the purchase of property and equipment, purchase of intangible assets, purchase of long term investment and acquisitions, which are part of investing cash flow, was RMB174.7million (US$28.5 million).

Cash and cash equivalents, restricted cash, and short-term investment. As of June 30, 2013, the Company had a total balance of cash and cash equivalents, restricted cash and short-term investment of RMB311.6 million (US$50.8 million).

Loans and other debt financing

As of June 30, 2013, the Company had a short-term loan balance of RMB1.2 million (US$0.2 million) and total credit facility available to the Company of RMB699 million.

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