Hospitality company Playa Hotels & Resorts (NASDAQ:PLYA) reported Q1 CY2024 results topping analysts' expectations , with revenue up 9.8% year on year to $300.6 million. It made a non-GAAP profit of $0.40 per share, improving from its profit of $0.31 per share in the same quarter last year.

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Playa Hotels & Resorts (PLYA) Q1 CY2024 Highlights:

• Revenue: $300.6 million vs analyst estimates of $282.8 million (6.3% beat)

• EPS (non-GAAP): $0.40 vs analyst estimates of $0.33 (22.8% beat)

• Gross Margin (GAAP): 54.1%, in line with the same quarter last year

• Market Capitalization: $1.29 billion

Sporting a roster of beachfront properties, Playa Hotels & Resorts (NASDAQ:PLYA) is an owner, operator, and developer of all-inclusive resorts in prime vacation destinations.

Hotels, Resorts and Cruise Lines

Hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Sales Growth

A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. Playa Hotels & Resorts's annualized revenue growth rate of 9.6% over the last five years was weak for a consumer discretionary business.

Within consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Playa Hotels & Resorts's annualized revenue growth of 21.8% over the last two years is above its five-year trend, suggesting some bright spots.

We can dig even further into the company's revenue dynamics by analyzing its revenue per available room, which clocked in at $427.17 this quarter and is a key metric accounting for average daily rates and occupancy levels. Over the last two years, Playa Hotels & Resorts's revenue per room averaged 27.7% year-on-year growth. Because this number is higher than its revenue growth, we can see its room bookings outperformed its sales from other areas like restaurants, bars, and amenities.

This quarter, Playa Hotels & Resorts reported solid year-on-year revenue growth of 9.8%, and its $300.6 million of revenue outperformed Wall Street's estimates by 6.3%. Looking ahead, Wall Street expects revenue to decline 3.9% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Playa Hotels & Resorts has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer discretionary sector, boasting an average operating margin of 17.8%.

This quarter, Playa Hotels & Resorts generated an operating profit margin of 30%, up 1.9 percentage points year on year.

Over the next 12 months, Wall Street expects Playa Hotels & Resorts to become less profitable. Analysts are expecting the company’s LTM operating margin of 18.8% to decline to 17.5%.

Key Takeaways from Playa Hotels & Resorts's Q1 Results

We were impressed by how significantly Playa Hotels & Resorts blew past analysts' revenue, operating margin, and EPS expectations this quarter. That outperformance was driven by a beat in its net package RevPAR ($427 compared to estimates of $400) and a strong Mexican Peso, which appreciated relative to the U.S. Dollar. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock is flat after reporting and currently trades at $9.43 per share.

So should you invest in Playa Hotels & Resorts right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.