GreenTree Hospitality Group Ltd. (NYSE:GHG) Q4 2023 Earnings Call Transcript March 26, 2024

GreenTree Hospitality Group Ltd. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, ladies and gentlemen. Thank you for standing by for GreenTree's Fourth Quarter and Fiscal Year of 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to hand your meeting over to your host today, Rene Vanguestaine with Christensen. Please go ahead.

Rene Vanguestaine: Thank you, Darcy. Hello, everyone, and thank you for joining us. GreenTree's earnings release will be distributed shortly and will be available on our IR website at ir.998.com as well as on PR Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website. On the call from GreenTree are Mr. Alex Xu, Chairman and Chief Executive Officer; Ms. Selina Yang, Chief Financial Officer; Ms. Megan Huang, Vice President of Sales and Marketing; and Ms. [Ellen Zhao], Financial Director. Mr. Xu will present the company's performance overview of the fourth quarter of 2023, followed by Ms. Zhao, who will discuss restaurant business operations, and Ms. Yang and Ms. Zhao will then discuss financials and guidance.

They will be available to answer your questions during the Q&A session, which will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as may, will, expects, anticipates, aims, future, intends, plans, believes, estimates, continue, target, is or are likely to, going forward, confident, outlook and similar statements. Any statements that are not historical facts, including statements about the company and its industry, are forward-looking statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Xu. Mr. Xu, please go ahead.

Alex Xu : Thanks, Rene, and hello, everyone, and thank you for joining us today. We had a good and stable fourth quarter in our hotel business and continued to make progress in restructuring our restaurant business. Hotel RevPAR increased 23.3% year-over-year, reaching 110% of its fourth quarter of 2019 level during the October national holiday. Restaurant average daily sales were up 14% year-over-year. We continue to streamline our hotel and restaurant operations to increase efficiency and quality. We are working on optimizing our products and service standard to further improve our brand identity for each of our hotel brands. In our restaurant business, we are focusing on growing our network of franchisees as we expand the number of street stores while reducing our footprint in shopping malls and supermarkets.

Now please turn to Slide 5. Compared with the fourth quarter of 2022, hotel RevPAR was RMB 128, up 23.3%, and the restaurant ADS was RMB 5,433, up 14%. Total revenues were RMB 372.2 million, up 3.2%. Hotel revenues reached RMB 289.6 million, up 21.7%. The increase in total hotel revenues was partially due to the continued improvement in RevPAR and the increase in the number of hotels. Income from operations increased to RMB 23.1 million with a margin of 6.2%. Adjusted income from operations, excluding other general expenses, which include the provisions for trademark especially due to the acquisition of the restaurant business, loan receivable related to franchisee loans and impairment of assets, increased to RMB 99.2 million with a margin of 26.7%.

Net income was RMB 7.4 million with a margin of 2%. Adjusted EBITDA as non-GAAP was RMB 161.3 million. That's up 2.1% with a margin of 31.3%. Slide 6 shows detailed numbers for total revenue, income from operations, net income and adjusted EBITDA. On Slide 7, RevPAR was RMB 128. At the bottom of the slide, you can see the weekly RevPAR performance in the fourth quarter compared with 2019. RevPAR during the October national holiday was 110% of its prepandemic levels but trended down for the rest of the quarter to the end of the year even compared with 2019. Slide 8 shows the trend in our quarterly operating performance. In the fourth quarter compared to a year ago, RevPAR for our L&O hotels increased to RMB 161. RevPAR for our F&M hotels increased to RMB 127.

ADR for our L&O hotels increased to RMB 241, and ADR for our F&M hotels increased to RMB 175. Occupancy at our L&O hotels increased to 72.5% and at our F&M hotels increased to 66.9%. Slide 9 highlights the growth in our membership programs, which accounted for most of our direct sales. Individual memberships grew to 91 million, up from 78 million a year ago, and corporate memberships grew to 2.05 million. That's up from 1.94 million a year ago. Slide 10 shows the operating performance of restaurants with ADS up 14% year-over-year at RMB 5,433 but down sequentially due to seasonality. Starting with Slide 12. I will review our strategic execution across our businesses. In our hotel business, we further expanded in the mid-to-upscale segment and increased our penetration in Tier 3 city and lower cities.

As you can see on Slide 13, we continue to grow our mid-to-upscale segment with 474 hotels. That's 11.2% of our total portfolio at the end of the quarter. While the mid-scale segment remains the core of our hotel business with 70.2%, we continue our expansion into the higher-end segment. The economic segment remained stable at 18.6%. Please turn to Slide 14. We continued to expand in Tier 3 and the lower cities, and 73.5% of our hotels in our current pipelines are in such cities, and we will further capitalize on the substantial opportunities in such locations. On Slide 15, we continue to focus on increased profitability in our restaurant business. We closed unprofitable stores, mostly in shopping malls and supermarkets; increased the proportion of franchised and managed restaurants; and expanded the number of street stores.

Next, Selina Yang and [Ellen Zhao] will review operating and financial highlights.

Selina Yang: Thank you, Alex. Please turn to Slide 17. In the fourth quarter, total revenues increased 3.2% year-over-year to RMB 372.2 million. The increase was primarily due to continued improvement in RevPAR and the increase in the number of hotels. Total hotel revenues increased 21.7% to RMB 289.6 million compared to the fourth quarter of 2022. Total revenues from F&M hotels were RMB 162.9 million, up 6.5% year-over-year. While total revenues from L&O hotels increased 48.9% to RMB 125.5 million. On Slide 18, total hotel operating costs and expenses increased 9% year-over-year to RMB 252.2 million. Excluding other general expenses consisting of provisions for trademarks, especially due to the acquisition of the restaurant business, loan receivables related to franchisee loans and impairment of assets, our total hotel operating costs and expenses increased 3.1% year-over-year.

Among the total hotel operating costs, operating costs increased 7.6% to RMB 154.6 million compared to the fourth quarter of 2022. The increase was mainly due to higher consumables and higher cost of general managers of franchise-managed hotels due to the increase of our F&M hotels and partially offset by lower utilities. Selling and marketing expenses were RMB 8.3 million. That's a year-over-year increase of only 0.9%. G&A expenses were RMB 49.7 million, down 12.5% compared with same quarter of 2022. The decrease was mainly due to lower staff-related expenses and lower bad debt. Turning to Slide 19. Income from hotel operations increased from RMB 13.3 million to RMB 47.4 million year-over-year. And net income of hotels was RMB 21 million compared to RMB 7.5 million in the fourth quarter of 2022.

Adjusted EBITDA increased 82.8% to RMB 107.7 million, and core net income increased from RMB 47.8 million to RMB 61.7 million year-over-year. Next, let me turn the call over to [Ellen], the Financial Director of our restaurant business.

Unidentified Company Representative: Please turn to Slide 20. In the fourth quarter, total restaurant revenues were RMB 87.7 million, a 29.2% year-over-year decrease mainly due to the close of L&O stores and partially by increase in ADS. You can also see the revenue breakdown for F&M restaurants and L&O restaurants. On Slide 21, total operating costs and the expenses decreased 16.7% year-over-year to RMB 118.1 million. You can also observe the down trend in material cost, personnel costs and rents. Turning to Slide 22. Loss from restaurant operations was RMB 29 million. Net loss was RMB 18.2 million. Adjusted EBITDA increased to RMB 4 million year-over-year. Core net income was RMB 21.7 million. Next, Selina will review the profitability of our group.

Please? Yiping Yang GreenTree Hospitality Group Ltd. – Chief Financial Officer Thank you. Please turn to Slide 23. Group net income per ADS that's basic and diluted was RMB 0.11. Group core net income per ADS that's basic and diluted non-GAAP was RMB 0.87. Let's now take a look at Slide 24. As of December 31, 2023, the company had total cash and cash equivalents, restricted cash, short-term investments, investments in equity securities and time deposits of RMB 1,377.1 million. That's compared to RMB 1,331.4 million as of September 30, 2023. The minor decrease was primarily due to investment in property and repurchase of ordinary shares, partially offset by primary -- partly offset by bank loans and repayment from our franchisees. On Slide 25, for the year of 2024, we expect total revenues of our organic hotels to grow 7% to 12% year-over-year, and total combined revenues from our restaurant and organic hotel business to grow 3% to 5% year-over-year.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

See also 32 Countries with the Highest Rates of Diabetes and 20 Cloudiest Cities in the U.S., Ranked.

To continue reading the Q&A session, please click here.