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🔥 Top Movers
🏨 Marriott International: What Recession?
Despite recession fears, Marriott International Inc. (MAR), the world’s largest hotel company, is seeing no threat to demand. Most of the company’s metrics crossed pre-pandemic levels. However, some factors may be a hurdle to its growth. Can Marriott manage to sustain this momentum?
Luxury Over Necessity
Marriott International lost $250M in 2020 as international travel reached a standstill during the pandemic. Yet, the company managed a turnaround by prioritizing local customers and focusing on collaborations between industry, technology, and digital partners.
Local customers craved luxury and relaxation after months of being confined indoors. Marriott pivoted towards its Food & Beverage offerings at its local destinations. It planned on becoming the favorite destination where locals gathered to meet, eat, and drink. The chain’s F&B offerings accounted for ~40% of its overall business and up to 50% for brands like The Ritz-Carlton and St. Regis.
The strategy paid dividends as Marriott returned to profitability after just three quarters of losses. Since the $11M net loss in Q1 2021, the company has netted ~$2B in profits in the five subsequent quarters. Marriott’s revenue and EPS beat estimates in Q2 as travelers booked more group travel and extended hotel stays.
Key Highlights From Q2:
- Revenue: $5.34B Vs $4.83B expected
- Earnings Per Share: $1.80 Vs $1.56 expected
- Net Profit: $678M Vs $422M Year-on-Year
Consumers are shifting their spending from goods to experiences as Marriott’s high-end chains recover faster than limited service brands. There is a strong rebound in leisure travel while business travel is gradually picking up.
Travel to major cities is also on the rise as hotels in New York, San Francisco, Washington D.C., and Los Angeles had occupancy rates between 76%-86% in Q2. However, they continue to trail resort destinations. Cross-border travel is yet to return to pre-pandemic levels, but the US ending the negative Covid-19 test requirement on arrival can catalyze its recovery.
Marriott’s Revenue per Available Room (RevPAR) surpassed 2019 levels in Q2. Worldwide occupancy at 68% is seven percentage points lower than pre-pandemic levels.
Marriott expects to earn $6.33-$6.59 per share for the full year, ahead of estimates of $6.01. It expects worldwide RevPAR to remain 6% to 3% lower than 2019 levels. It added 97 properties to its worldwide lodging portfolio, totaling over 8.1K properties and 1.5M rooms.
More Guests Than Workers?
Hotels are struggling to find enough workers to keep the properties running smoothly. More than 760K workers have quit the accommodation and food service industry, a 10% jump from May 2019. There are 1.7M accommodation workers employed across the US in June, a 16% drop from June 2019.
Marriott CEO Anthony Capuano mentioned in an interview last year that companies like Amazon pay entry-level workers “too much,” making it hard for hotels to hire cheap labor. After the mass layoffs in 2020, workers do not trust hotels as a place to build a long-term career.
The Average Daily Room Rate in the four weeks ending July 17 reached $156, 17% higher than the same period in 2019. Overall room occupancy is 4.5% lower than pre-pandemic levels as some full-service hotels sell fewer rooms than they could because they do not have enough housekeepers to clean them.
97% of respondents of an American Hotel & Lodging Association survey are experiencing a staffing shortage, with over half of them ranking housekeeping as the most critical challenge. As a result, most hotels have increased wages and offer flexible work hours to recruit more workers.
The labor shortage has pushed hotels to scale back on amenities like daily housekeeping and room service. Operators like Marriott are turning to technology for help. The hotel chain has beefed up its mobile app, which guests can use to check in, gain access to their room, and text the front desk to request extra blankets and pillows.
Analysts believe that the labor challenge is significant despite the technology push. They also say that the squeeze is unlikely to abate unless rising unemployment pushes workers back into jobs they are now avoiding.
Marriott is also looking to bring down its debt that surged during the pandemic. As of June this year, the hotel chain had net debt of $8.3B from $8.7B in 2021. A portion of Marriott’s debt carries tenures of between 10-12 years, and 10-15% of its debt has floating rates, which fluctuate throughout the contract.
Shares of Marriott are outperforming peers this year, although they are down 3%. The company is making profits, visitors continue to flock to their resorts, and occupancy levels are nearing pre-pandemic levels. But will it manage to find enough workers to cater to the rising demand? There is also the threat of sustaining such a performance consistently. For now, visitors and more visitors remain the key to Marriott’s success!
MAR ended at $158.24, down 0.83%.
Company Snapshot 📈
MAR 158.24 -1.33 (0.83%)
Analyst Ratings (20 Analysts) BUY 40% HOLD 60% SELL 0%
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Today’s Fun Fact
Hilton owns only 4% of the hotels in its systems