Choice Hotels Reports 2nd Quarter Diluted EPS Increase Of 27%

Choice Hotels International, Inc. (NYSE: CHH), the world`s second largest hotel franchisor, today reported second quarter 2002 net income of $15.3 million, or $0.38 diluted earnings per share (EPS), increases of 12.5% and 26.7% respectively, over the $13.6 million in net income and $0.30 diluted EPS reported for the second quarter 2001.
“We are greatly encouraged by continued strong unit growth, which rose 4.5% this quarter,” said Charles A. Ledsinger, Jr., president and chief executive officer. “These results demonstrate the demand for our brand portfolio and the services we provide the lodging industry. In addition, strong royalty revenues and initial franchising fees continue to demonstrate the fundamental strength of our business. Choice is well-positioned to thrive in a wide range of economic scenarios.”
He continued, “The company has done an excellent job in leveraging its size and distribution effectively. Our partner services revenue has grown more than 10% and we have managed costs through better use of technology.”
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $30.2 million for the second quarter and $49.0 million for the first six months of 2002, compared to $29.3 million for the second quarter 2001 and $49.6 million for the first half of 2001. Franchise EBITDA margins were 66.7% for the second quarter and 64.0% for the first half of 2002 respectively, compared to 65.7% and 63.9% for the same periods a year ago.
The company reported royalty revenues of $36.2 million for the second quarter 2002, compared to $36.0 million for the second quarter 2001. Revenue from partner services increased 7.5% from $4.0 million in the second quarter 2001 to $4.3 million in the quarter just ended.
The system-wide domestic effective royalty rate increased 4 basis points from 3.94% in the second quarter 2001 to 3.98% for the second quarter of 2002. Domestic revenue per available room (RevPAR) was $35.23 for the second quarter of 2002, compared to $37.10 for the same period a year ago. These RevPAR results are better than the industry as a whole and in line with Choice`s competitive set.
For the first six months of 2002, Choice reported net income of $23.9 million or $0.58 diluted EPS, increases of 13.8% and 26.1% respectively, over the $21.0 million and $0.46 diluted EPS reported for the first six months of 2001.
The company reported royalty revenues of $62.1 million for the first half of 2002, compared to $63.0 million for the same period a year ago. Revenue from partner services increased 10.2% from $5.9 million for the first six months of 2001 to $6.5 million for the six months just ended.
The system-wide domestic effective royalty rate increased 7 basis points for the first six months of 2002 to 3.98% from 3.91% for the same period a year ago. Domestic RevPAR was $30.77 for the first half of 2002, compared to $32.82 for the same period a year ago.
The company announced that it expects 2002 EBITDA to approximate $117 million, with 2002 diluted EPS reaching $1.45 to $1.47, up from the previous estimate of $1.41 to $1.43. Choice anticipates that third quarter 2002 diluted EPS should meet current expectations of $0.52.
Choice signed 70 hotel franchise contracts in the second quarter 2002, compared to the 68 contracts signed in the same period a year ago. Through June 30, 2002, the company has signed 129 franchise contracts, representing 10,883 rooms, compared to 125 contracts, representing 10,771 rooms, for the same period a year ago. In the first six months of 2002, 21 contracts for new construction hotels, representing 1,351 rooms, were signed. The company has signed 108 contracts to convert existing hotels to a Choice brand in the first half of 2002, up from 72 conversions from the same period a year ago.
As of June 30, 2002, the total number of domestic Choice hotels on-line grew 4.5% to 3,394 from 3,249 as of the same date a year ago. As of the same date, the total number of domestic rooms increased 3.8% to 276,380 from 266,187 as of the same period a year ago. The company had 391 franchised hotels with 29,765 rooms either in design or under construction in its domestic hotel system as of June 30, 2002.
*Since Choice announced its stock repurchase program on June 25, 1998, the company has purchased 24.0 million shares of common stock at an average price of $15.90 and a total cost of $381.5 million, as of July 12, 2002. Since January 1, 2002, the company has purchased 2.9 million shares of common stock. Total shares outstanding as of July 12, 2002 were 39.4 million.
*Choice President and Chief Executive Officer Charles A. Ledsinger, Jr. was honored by HVS Executive Search as the industry`s top performing chief executive at the 24th Annual New York University International Hospitality Industry Investment Conference in June.
*On July 1, Choice acquired a controlling interest in Melbourne-based Flag Choice Hotels, its franchising partner in Australia. Under the terms of the agreement, Choice now owns a 55% controlling interest, with an option to purchase the remaining 45% over a five-year period. Choice currently has approximately 400 franchised hotels in Australia and New Zealand under the Flag, Comfort, Quality and Clarion brands.
*Choice named Ervin R. Shames, a veteran CEO and marketing executive, to its Board of Directors. He will serve until the 2005 Annual Meeting. Shames is a visiting lecturer at the University of Virginia`s Darden Graduate School of Business and formerly president and CEO of Borden, Inc., chairman, president and CEO of Stride Rite Corporation, chairman, president and CEO of Kendall Corporation, president of Kraft USA and president and CEO of General Foods USA.
*The company`s Board of Directors, in consultation with its Audit Committee, appointed PricewaterhouseCoopers LLP as the company`s independent accountants to replace Arthur Andersen LLP.
Choice Hotels International is the second-largest hotel franchisor in the world with 4,426 hotels open worldwide, representing 360,674 rooms, and another 582 hotels under development, representing 48,810 rooms, in 46 countries, as of June 30, 2002. Its Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn and MainStay Suites brands serve guests worldwide.
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