Chalk up La Quinta's poor performance in the second quarter to nothing more than a blip. The brand has always performed in line with direct competitors. But Wyndham wants to take it to another level.
Wyndham Hotels & Resorts executives earlier this year threw out a big tease that it might be interested in pursuing more acquisitions, showing just how bullish it was on its new La Quinta Inns & Suites purchase.
But during an earnings call Thursday it was evident the large focus for executives will be La Quinta.
Despite the subsidiary missing on earnings last quarter, Wyndham has big plans to grow La Quinta in the U.S. and internationally, primarily leveraging its Wyndham Rewards program and cloud-based distribution system.
Wyndham reported La Quinta suffered a 5 percent drop in revenue per available room (RevPAR) for the second quarter ending June 30. That’s compared to a 6 percent jump in RevPAR in the second quarter of 2018.
According to CEO Geoff Ballotti, Wyndham last year benefited from an influx of construction workers staying at La Quinta properties to complete remediation work following the 2017 U.S. hurricane season. However, the chain immediately leveled off to between flat and 3 percent RevPAR growth in the back half of 2018.
That’s to say the hotel group is not too worried about its new flagship brand’s poor quarter, which ultimately contributed nearly one-fifth of Wyndham’s total revenue in the period.
“La Quinta’s geographic mix, particularly its concentration in hurricane-impacted and energy markets, helped us last year but hurt us this year,” said Ballotti on a conference call with analysts.
Ballotti added La Quinta is now fully operational on its distribution platforms, which have already improved brand performance since the chain completed its integration in April. La Quinta’s occupancy rate, as an example, increased 180 basis points to 48 percent over the first two months thanks to its inclusion in the recently altered Wyndham Rewards program. Wyndham Rewards currently has 77 million members, which account for more than 40 percent of the hotel group’s total domestic bookings.
La Quinta Expansion Plans
Wyndham, currently holding a portfolio of 20 economy and midscale brands, is keen on expanding La Quinta’s market footprint by leveraging its Del Sol design prototype created back in 2015. The concept features exterior LED lighting, indoor and outdoor pools, as well as brand-new contemporary color and architectural schemes that promise to maximize hotel space use for RevPAR growth.
Wyndham opened 14 Del Sol La Quinta locations across nine states in the second quarter, the most since 2016, according to the company. La Quinta’s net unit growth also increased two percent overall in the period, bringing the chain’s footprint up to 924 hotels, or 90,000 rooms, with another 41 Del Sol locations now under construction around the world.
“[Interest in La Quinta] as we talked about is not only domestic, but we also are now beginning to see in our Latin America region actual executions as well as great interest in markets in Europe and also, surprisingly, in Asia,” said Ballotti.
Wyndham’s overall room count outside of the U.S. increased 7 percent, or by 20,000 rooms, last quarter led by growth in its Chinese and Asia-Pacific markets. Retention rates for its brands earmarked for expansion, which also include AmericInn and Microtel, remain at upward of 90 percent.
Wyndham reported a 23 percent increase in revenue in the second quarter of $533 million, while additionally revising up annual forecasts for both net income and earnings per share.
But the chain also reined in expectations for system-wide annual RevPAR growth down to 1 percent, due largely to two management contracts it will look to exit by the end of the year with RLJ Lodging Trust and Hospitality Properties Trust, the company said.
The move follows what was a solid quarter for Wyndham overall. The company reported 5 percent RevPAR growth in both domestic and international markets, with only Canada failing to improve year-over-year.
“The quarter, albeit a little messy, clearly reflects the ongoing evolution of the portfolio, with less productive assets exiting in favor of more productive ones and added rooms exceeding deletions,” David Katz, equity analyst at Jefferies, said in a research note.
Wyndham’s stock dropped 2.3 percent in early market trading after reporting quarterly earnings Thursday morning.
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Photo credit: Wyndham plans to expand La Quinta's Del Sol concept quickly, having opened 14 in the second quarter alone. Wyndham Hotels & Resorts