Atour Lifestyle Holdings Limited (ATAT) Q4 2024 Earnings Call Transcript

Thank you for standing by, and welcome to Atour Lifestyle Holdings Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Luke Hu from Senior IR Manager. Please go ahead, sir.

Thank you, operator. Good morning and good evening, everyone. Welcome to our fourth quarter and full year 2024 earnings conference call. Today, you will hear from our Founder, Chairman and CEO, Mr. Wang Haijun, and our EVP, Co-CFO, Mr. Wu Jianfeng. Before we continue, please be aware that this discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties, and the actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website at ir.yaduo.com, where a copy of the results presentation is also available. Now, I will turn the call over to Mr. Wang, our CEO.

Thank you, Luke. Hello, everyone, and thank you for joining Atour's fourth quarter and full year 2024 earnings call today. Please turn to Slide 3 of our fourth quarter and financial year '24 results presentation. The year 2024 marked a chapter of innovation and breakthroughs in Atour's three-year strategic road map. Guided by our vision of Chinese experience 2,000 premier hotels, we continued to expand our brand influence, driving sustained growth in both business scale and operational excellence. As we elevated our experiential offerings, we further deepened the absence of the Chinese experience through a dual engine business model that seamlessly integrates hotel and retail. In terms of network development, we have successfully curated a diversified hotel brand portfolio, reinforcing our leadership in the upper mid-scale hotel market. In 2024, we opened 471 new hotels and signed 670 new projects, not only exceeding our initial targets but also solidifying the foundation for achieving our 2,000 premier hotels target. Now I would like to provide more details on our performance for the fourth quarter and the full year of 2024. Let's begin with our hotel business. Please turn to Slide 5. Our RevPAR reached RMB 337 during the fourth quarter, representing 94.1% of 2023 level for the quarter. Specifically, OCC stood at 98.2% of its level for the same period in 2023. ADR endured ongoing pressure due to the high comparison base effect reaching 96% of its level for the same period in 2023. Please turn to Slide 6. Our mature hotels in operation for more than 18 months continued to outperform the group's hotels overall performance during the fourth quarter. Same-hotel RevPAR for the fourth quarter reached 96% of 2023’s level for the same period. Notably, OCC steadily recovered to 99% of 2023's level for the fourth quarter, while ADR reached a 97.4% of its level for the same period of 2023. Please turn to Slide 7. In 2024, as the group's brand awareness continued to strengthen, the efficiency of our development team became increasingly evident. For the full year, both new hotel openings and signings reached record highs, accelerating the rapid expansion of our hotel network. In the fourth quarter alone, we opened 111 new hotels, bringing the total number of openings for the year to 471, representing a 63% year-over-year increase. By the end of the fourth quarter, the number of hotels in operation had risen to 1,619, representing a 33.8% year-over-year growth. Meanwhile, the number of hotels under development expanded by 20% year-over-year, reaching 741 as of the end of the quarter, further solidifying the foundation toward achieving our goal of 2,000 premier hotels in operation by 2025. Next, I would like to share the latest developments for Atour's hotel brands. Please turn to Slide 8. As our comprehensively upgraded hotel product, Atour 4.0 has consistently reinforced our leadership in the upper mid-scale segment since its launch, enhancing both our brand strength and product offerings. Currently, there are 16 Atour 4.0 hotels in operation and 67 projects in the pipeline. These hotels in operations have swiftly emerged as top performance in both operating performance and customer experience across key business districts in several higher-tier cities nationwide, further highlighting Atour's dominance in the upper mid-scale segment as more of the Atour 4.0 hotels commence operations, we will be well positioned to deliver an exceptional accommodation experience to an even broader customer base. Please turn to Slide 9. We are delighted to share that during the fourth quarter, Atour Light 3.0 achieved the significant milestone of 100 hotels in operation. These hotels are strategically located in key business districts across second-tier cities and above. As our next brand poised for expansion to 1,000 hotels, Atour Light continues to gain robust market traction, driven by its distinct product positioning and substantial growth potential. We have always been deeply committed to strengthening strong brand awareness for Atour Light. Since the debut of Atour Light 3.0, we have closely focused on customer needs thoughtfully crafted unique touch points and successfully launched a series of brand collaborations that have not only showcased Atour Light's unique identity as an innovative youth-centric hotel brand, but also redefined the personalized accommodation experience through a range of immersive social interactions. With well-defined market positioning and a targeted communication strategy tailored to the younger generation, we have significantly enhanced Atour Light's brand recognition and market penetration. These efforts have laid a solid foundation for Atour Group's expansion in the mid-upscale hotel market. Moving now to our retail business. Please turn to Slide 10. In 2024, Atour's retail business maintained its strong growth momentum, with full year GMV reaching RMB 2.59 billion, representing an impressive 127.7% year-over-year increase. Online channels remained the primary driver consistently contributing to over 90% of total GMV, fueled by strong sales performance across multiple e-commerce platforms. With our astute market insights, we remain highly attuned to evolving consumer trends. For the 2024 Double-11 Shopping Festival, our retail GMV exceeded RMB 420 million, reflecting an 80% year-over-year increase and a 36% growth compared to the 2024 June 18 shopping festival. During the recent Spring Festival, we once again delivered outstanding results by seizing key marketing opportunities, creatively fostering emotional connections with customers by seamlessly integrating the festive atmosphere with our fresh brand messaging. The ongoing success of Atour PLANET's deep sleep series, further validates our brand's market appeal and the strong growth momentum we continue to generate. Serving as an innovative interpretation and a tangible extension of Atour's signature Chinese experience, our retail business plays a vital role in supporting our strategy. Let me elaborate on our perspectives and key initiatives within the deep sleep sector. Please turn to Slide 11. In recent years, the market potential of the sleep economy has gradually been unlocked. However, the industry faces challenges such as limited brand differentiation, widespread category homogenization and stagnating product innovation. Against this backdrop, Atour PLANET has leveraged a deep understanding of consumer needs to continually elevate to refine its natural deep sleep brand concept and enhance product competitiveness. These efforts have positioned Atour PLANET as a pioneer at the forefront of emerging trends within the sleep economy. To fuel our product development, we rigorously analyze customers' diverse sleep needs and pain points. These insights, coupled with our innovation in technology, craftsmanship and materials have led to the creation of an extensive range of premium deep sleep products. We continuously refine and iterate these products based on customer feedback. Throughout the brand development, Atour PLANET has cultivated a distinctive product philosophy that drives market success. A prime example of this is the deep sleep memory foam pillow pro series, which has achieved outstanding performance through exceptional product quality and a well-executed marketing strategy, we have established a blockbuster product model that aligns perfectly with consumers' pursuit of superior sleep as evidenced by the deep sleep memory foam pillow pro series annual sales exceeding 3.8 million units. In the pillow segment, Atour PLANET has consistently maintained its industry-leading position, further cementing our reputation as the go-to choice for the deep sleep in consumers' minds. Furthermore, through our dedicated efforts in the sleep market and continuous breakthroughs in product innovation, we have developed a sophisticated product development mechanism that has evolved from creating individual blockbusters to offering a comprehensive product category series, further expanding our deep sleep product portfolio. Take our comforter product series, which represents a significant milestone in our category expansion as an example. In 2024, the deep sleep lightweight comforter and the deep sleep thermo-regulating comforter pro series garnered exceptional market recognition with annual sales surpassing 770,000 units. As the comforter product line continued to perform strongly, it contributed to over 20% of total retail GMV for 2024, reflecting year-over-year growth of more than 300%. Its success not only serves as an emerging driver of Atour PLANET's ongoing growth, but also stands as a testament to our ability to replicate our blockbuster product model across different product categories. In 2025, we will remain focused on the deep sleep ecosystem, efficiently driving progress in both brand development and product innovation. At the same time, we will further strengthen the fundamentals of our retail business, offering customers a broader array of superior sleep products and enriched experiences to propel the long-term growth of the Atour PLANET brand. We are confident that as the sleep economy continues to expand rapidly and the industry undergoes accelerating consolidation, our ongoing exploration of scientific sleep solutions will categorize continuous advancements in industry craftsmanship and quality standards with Atour PLANET leading and shaping the evolution of the customers' sleep experience. Please turn to Slide 12. Last but not least, I would like to share our progress across channel development and our membership business. In terms of channel development, our CRS channel accounted for 63.5% of total room nights sold for the fourth quarter and 63% for the full year, respectively. Notably, the contribution of room nights sold to our corporate members rose to 21.1% in the fourth quarter, driven by the ongoing growth of our corporate members. The steady growth of our CRS channel can be attributed to our continuous enhancement of Atour's membership ecosystem and the ongoing expansion of member benefits. By the end of 2024, our registered individual members surpassed 89 million, representing year-over-year growth of more than 40%. In 2024, we also completed a comprehensive upgrade of the ACARD membership ecosystem seamlessly integrating membership identities and benefits across our 2 primary service areas. This upgrade reinforced the synergy between accommodation and the retail experiences. Additionally, we expanded our APLUS service categories to better cater to the evolving demand for personalized solutions, consistently delivering unique and tailored accommodation experiences to our customers. Please turn to Slide 13. In 2025, we will continue refining and strengthening the ACARD membership ecosystem by expanding value-added benefits across all touch points, ensuring that our hotel and retail customers enjoy seamless high-quality services across various scenarios. Meanwhile, we will consistently upgrade and iterate the tiered benefit system for both corporate and individual members. Additionally, we will strengthen our close-to loop service experience unlocking the cross-consumption potential between accommodation and retail. Looking ahead, we will continue to widen our membership experience moat and roll out more diverse scenario-based promotional activities, further deeming and expanding the Atour's signature Chinese experience to enrich its meaning and broaden its scope. Please turn to Slide 14. As the final year of our 3-year strategic road map, 2025 represents a pivotal moment in laying the foundation for our next phase of growth. As the market landscape becomes increasingly fragmented, Atour will remain focused on strengthening its core competencies. Our priorities will remain on amplifying brand momentum, boosting organizational vitality and advancing digital capabilities. By strategically seizing on development opportunities, we will drive continuous breakthroughs in both scale expansion and quality enhancement across the hotel and retail businesses. Moving forward, with steadfast dedication to achieving our expansion goals, we will continue to establish the benchmark for customer experience, strategically driving sustained high-quality growth for the long term. Now I'll turn the call over to our co-CFO, Mr. Wu Jianfeng to discuss our financial results.

Thank you, Haijun. Now I would like to present the company's financial performance for the fourth quarter of the full year 2024. Please turn to Slide 16 of the result presentation. Our net revenue for the fourth quarter of 2024 grew by 38.5% year-over-year and 9.8% quarter-over-quarter to RMB 2,084 million. Net revenues for full year 2024 increased by 55.3% year-over-year to RMB 7,248 million. The increase was driven by growth in the manachised hotels and retail businesses. Revenues from our manachised hotels for the fourth quarter of 2024 were RMB 1,106 million, up by 30% year-over-year and down by 6.2% quarter-over-quarter. For full year 2024, revenues from our manachised hotels increased by 53.3% year-over-year to RMB 4,149 million. The year-over-year increases were primarily fueled by our ongoing hotel network expansion and the growth of our supply chain business. The quarter-over-quarter decrease was mainly due to a decrease in RevPAR. Revenue contributed by our leased hotels for the fourth quarter of 2024 were RMB 164 million, reflecting 15.9% year-over-year and 13.4% quarter-over-quarter decline. For the full year 2024, revenues from our leased hotel decreased by 16.4% year-over-year to RMB 702 million. The declines were primarily due to a decrease in the number of these hotels as a result of our product needs optimization. Revenues from our retail business for the fourth quarter of 2024 were RMB 765 million reflecting 85.6% year-over-year and 59.5% quarter-over-quarter increases. For full year 2024, revenues from our retail business increased by 126.2% year-over-year to RMB 2,198 million. The increases were driven by widespread recognization of our retail brand and effective product innovation and development as we successfully broadened our range of product offerings. Now let's move to cost expenses. Please turn to Slide 17. Hotel operating costs for the fourth quarter of 2024 increased by 8.3% year-over-year and decreased by 9.4% quarter-over-quarter to RMB 794 million. Hotel operating costs for the full year 2024 increased by 38.7% year-over-year to RMB 3,108 million. The year-over-year increases were primarily due to the increases in variable costs, such as supply chain costs associated with our ongoing hotel network expansion. The quarter-over-quarter decrease was due to a decrease in our number of leased hotels as a result of our product mix optimization. Gross margin of our hotel businesses was 37.5% and 35.9% for the fourth quarter and full year 2024, compared with 29.9% and 36.8% for the same period of 2023. Retail costs for the fourth quarter of 2024 rose by 66.2% year-over-year and 69.8% quarter-over-quarter to RMB 386 million. For full year 2024, retail costs increased by 111.1% year-over-year to RMB 1,084 million. The increases were associated with the rapid growth of our retail business. The gross margin of our retail business was 49.6% and 50.7% for the fourth quarter and the full year of 2024 compared with 43.7% and 47.2% for the same period of 2023. The increases were attributable to the increase in contribution from higher-margin products. Now please turn to Slide 18. Selling and marketing expenses accounted for 17% and 13.4% of net revenues for the fourth quarter and the full year of 2024, compared with 13.7% and 10.1% for the same period of 2023, respectively. The increases were mainly due to our enhanced investment in brand recognition and the effective development of online channels, in line with the growth of our retail business. General and administrative expenses, excluding share-based compensation expenses accounted for 4.8% and 4.5% of net revenue for the fourth quarter and full year of 2024, compared with 6.8% and 6.2% for the same period of 2023, respectively. The decreases were primarily due to improved management efficiency and economies of scale. Technology and development expenses accounted for 2.2% and 1.8% of net revenue for the fourth quarter and full year of 2024 compared with 1.5% and 1.7% for the same period of 2023, respectively. The increases were mainly due to increased investments in technology systems and infrastructure to support expanding hotel network and retail business and improve customer experience. Please turn to Slide 19. Adjusted net income for the fourth quarter of 2024 was RMB 333 million, representing a 49.9% increase year-over-year. Adjusted EBITDA for the fourth quarter of 2024 was RMB 443 million, up by 76.5% year-over-year. Adjusted net profit margin for the full year 2024 was 18%, representing a decrease of 1.4 percentage points year-over-year. Adjusted EBITDA margin for the full year 2024 was 24.4%, a decrease of 1.5 percentage points year-over-year. The decreases in both margins were primarily due to a decline in RevPAR, along with the organic growth in selling and marketing expenses amid our retail business expansion. Please turn to Slide 20. We also maintained a healthy cash position with stable growth momentum as of December 31, 2024, our cash and cash equivalents totaled RMB 3,618 million with net cash of RMB 3,556 million. Please turn to Slide 21. For full year 2025, the company currently expects total net revenues to increase by 25% compared with full year 2024. That concludes our financial highlights for the fourth quarter and the full year 2024. Now let's open for Q&A.

Thank you. [Operator Instructions] Our first question comes from Dan Chee from Morgan Stanley.

Please allow me to translate my question. This is Dan from Morgan Stanley. First of all, congratulations on the new hotel openings and signings record highs in 2024. My question is about the hotel business. Can you share some colors about the hotel's performance on RevPAR in first quarter 2025. We also noticed about the full year revenue guidance of 25%. We are wondering what is the contribution from the hotel business and the company's RevPAR assumption for the full year 2025.

Thank you, Dan. Let me answer your question. Due to our high base effect, our full year RevPAR for 2024 decreased by 6.8% compared to 2023, and that was in line with the guidance we provided previously. And in this year, quarter 1, especially the first half of March due to some seasonal factors and the weather conditions, our overall RevPAR performance was relatively volatile, and we expect a year-on-year decline in Q1 RevPAR of mid- to high single digits. As of now, we believe 2025 still presents some uncertainties and challenges. The market is changing very rapidly, making it difficult for us to provide specific forecasts on the RevPAR. Nonetheless, against the backdrop of policy benefits and continued recovery in business travels, we will continue to implement our balanced and refined revenue management strategy and we are confident to enhance the recovery of RevPAR performance, thereby boosting our long-term revenue of our hotels and solidify our brand value. Although that the RevPAR still is going to remain not so sure, unknown, but our continuously expanding hotel network and the high-quality growth of the retail business, we expect the group's revenue to increase by 25% year-on-year in 2025.

Next, we have Simon Cheung from Goldman Sachs.

And then let me translate that into English. Last year, the company achieved record high in both the hotel opening as well as new signing. Perhaps can you share with us what is your guidance on both measures in 2025?

Thank you, Simon, and let me try to answer this question. In terms of new openings, we had opened 471 new hotels throughout 2024, bringing our total number of operating hotels to 1,619 by the year-end, a year-on-year increase of over 33.8%. And in 2025, this positive trend will continue. We expect to maintain a similar hotel opening growth rate with a full year target of 500 new hotels, so that we can steadily advance towards our strategic goal of achieving 2,000 premier hotels by 2025. Regarding new signings, we can see that the demand in the franchise market remains very active during Q1 of 2025. We observed that franchisees generally believe that the hotel industry still holds significant also quite stable investment potential when compared with other investment opportunities. In their decision-making processes, those mature franchisees pay particular attention to the long-term value of brands and the competitive advantages of hotel products. We believe that based upon Atour's leading brand power and product strength, we expect our group's signings performance in 2025 to remain strong. Meanwhile, we believe that the high-quality supply in the market still remains scarce. Therefore, we will keep strip signing quality control, especially when represented by our new products such as Atour 4.0 and Atour Light 3.0. From the perspective of long-term brand development, we will set high standards and requirements for the site selection and property conditions of those initial projects to better showcase our long-term brand value and market competitiveness. We know that we have the strategy of 2,000 premier hotels. So while we achieved a 2,000 hotels scale target this year, we will continue to solidify our foundation of premier hotels, supporting the group's long-term high-quality development.

Our next question comes from Sijie Lin from CICC.

So in 2024, our retail business continued very strong growth momentum. So what's our plan for the retail business in 2025? And are there any plans for new products or revenue targets?

Thank you, Sijie. Let me first bring up our overall retail business and the product plan, then I'll ask Jianfeng to add some financial details related to retail later. Well, as we have announced in our financial reports, Atour PLANET development is the natural outcome of Atour's long-term commitment to our brand group positioning and serving people business model. Atour PLANET has indeed achieved impressive results in terms of its scale growth and brand momentum. However, we have to say that there's still substantial room for improvement across the whole industry. In 2025, we have set higher goals for ourselves and will strengthen the core competencies of Atour's retail across all dimensions. First, we will continue to enhance product R&D and innovation, consolidate our leading position in existing categories and build product barriers. We will also actively develop and expand new products in the sleep and [can’t] sleep categories, enriching our deep sleep product matrix and continuously unleashing our ability to create blockbuster. Secondly, we will remain user experience-oriented and strive to create Atour PLANET's retail product by referencing a higher standard from the apparel industry, so as to drive the home textile industry to achieve overall improvement and innovation in its processes and the technology. Thereby, we have the target of establishing a leading industry standards in the deep sleep domain and promoting high-quality and sustainable growth in our retail business. In terms of the revenue of retail business, it contributed 30% to our group's revenue in 2024, becoming a significant engine for the group's business growth. Looking into the full year 2025, with the continued scaling of dominant categories and the growth momentum from our new product matrix, we believe the retail business is expected to again outpace our hotel businesses in year-on-year revenue growth. We expect retail revenue to grow by no less than 35% year-on-year in 2025.

Our next question comes from Lydia Ling from Citi.

I want to follow up on the margin side. And firstly, with the right of our retail business. So how do you guide the margin channel for 2025? And also especially for the retail business, what could be the margin trend for this year?

Okay. Thank you, Lydia. In 2024, we achieved an adjusted net profit margin of approximately 18% for the full year, a decrease of 1.4 percentage points compared to 2023. This was mainly due to the fluctuations in RevPAR throughout the year and structural factors, such as the increased proportion of our retail business. For 2025, although we know that the changes in company's revenue structure will continue. So we will also optimize our cost structure, improve our management efficiency to offset the impact on structural profit margins. We anticipate that the adjusted net profit margin will remain relatively stable. In 2024, the operating profit margin of our retail business increased to low double digits. And moving forward, as our retail scale continues to expand we will maintain a certain level of marketing expenditure. We expect the operating profit margin of the retail business to remain at the similar level in 2025. In terms of the marketing strategy, we will continuously improve the efficiency of channel distribution to strengthen our brand building and more importantly, solidify our brand equity of Atour PLANET. Thank you.

Our next question comes from Xin Chen from UBS.

Let me translate to English. This is Xin from UBS. And we noticed the first [Indiscernible] store has already opened, could the management share the main strategy for the high-end brand this year? Additionally, how is Atour Light 3.0 recent performance? And does it meet management expectations?

Thanks, Xin Chen, and let me first address your question regarding upper-scale markets. Thanks, Xin Chen, and currently, our 2 upscale hotel brands, Atour S and Sakura hotel are developing in parallel. Among them, Atour S has won the favor of high-end business travelers by adapting to the contemporary needs, leveraging its precise market positioning and exceptional service quality. Of course, we will also promote the iterative upgrade of Atour S, and we are actively preparing a new version to maintain its competitiveness and brand vitality in the market. As for Sakura, we continued to adopt a long-term mindset in our strategy, aiming to lead the development and direction of China's upscale hotel market. We will meticulously craft each Sakura hotel to establish a flagship for quality and experience. In February this year, our first Sakura hotel opened in Shanghai's Northbound. Since its trial operation, its advanced experiential services such as Sakura butlers and room diffuser selection before checking in have received high price from consumers and its pricing and positioning have also been well received by the market and customers. And let me add something on Atour Light 3.0. The development trajectory of Atour Light consistently aligned with our expectations. As of the end of 2024, we have expanded to over 100 Atour Light 3.0 hotels in 46 cities across the country with strong operational performance that has significantly boosted the confidence of the investment from the franchisees. As a new brand, Atour Light 3.0 requires accumulation and continuous refinement while rapidly expanding. We are now consistently incorporating feedback from consumers and franchisees enhancing our brand strength through product iterations and refined operations. Currently, we have over 100 Atour Light hotels in our pipeline, primarily located in core business districts of second tier and above cities.

Our last question comes from the line of Ronald Leung from Bank of America.

Let me translate my question into English. Could you share the plans for hotel closures plan 2025? Additionally, are there any new plans for shareholder return this year?

Thank you, Ronald, for your question. A key consideration in our decisions of hotel closures is the consistency of experiences. We aim at achieving the strategic goal of Chinese experience 2,000 premier hotels by the end of 2025. Therefore, we will maintain a similar pace of closures in 2025, continuing to strengthen the centralized evaluation of the property quality and operational performance of our hotels in operation. For hotels that still fail to meet operational performance expectations after rectification in areas such as services and customer experiences, we will proactively terminate contracts with them in accordance with the agreement. Regarding shareholder returns, we have always placed a great emphasis on and actively fulfilled our commitment to sustained returns for shareholders. In August of last year, we officially announced a 3-year annual dividend plan, clearly committing to distribute an annual dividend of no less than 50% of the previous financial year's net income over these 3 years. Last year, our dividend payout amount is around USD 62 million. In 2025, we will continue to comprehensively consider our company's overall operations, cash reserves and future business development comprehensively to make integrated physicians on the timing and the proportion of dividends, ensuring that our shareholders continue to share in the company's growth. Thank you.

Thank you. That concludes today's question-and-answer session. I would now like to turn the conference back to Mr. Luke Hu for any additional or closing comments.

Thank you for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you again next quarter. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.