Q1 2024 GreenTree Hospitality Group Ltd Earnings Call
Good day and welcome to the <unk>.
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Good day and welcome to the Greentree Hospitality group first quarter 2024 financial results Conference call.
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I would now like to turn the conference over to Rene <unk>. Please go ahead.
Thank you Betsy.
Hello, everyone and thank you for joining us.
Green trees earnings release was distributed earlier today and is available on our IR website that I adopt 99 eight dot com.
As well as on PR Newswire services.
As a reminder, we also posted a powerpoint presentation that accompanies our comments to just say my our website.
On the call from Green tree are Mr. Alex Xu Chairman and Chief Executive Officer Mrs.
Ms Selina Yang Chief Financial Officer.
And Ms <unk> Zhao financial director.
Mr. Xu will present, the company's performance overview for the first quarter of 'twenty 'twenty, four and Miss Young and MS. Zhao will then discuss financials and guidance.
They would be available to answer your questions during the Q&A session, which follows.
Before we begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 21 E 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 terminology such as May will expects anticipates aims future intends plans believes estimates continue target is or are likely to going forward confident our.
Luke 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 filing 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. Schulz. Please go ahead.
Thanks Renee.
Speaker Change: Hello, everyone and thank you for joining us today.
Overall, we delivered some significant improvement in the first quarter was the substantial increases in both operating and net incomes.
Conditions in our hotel business as well mixed as consumer behavior continues to evolve in a more competitive environment.
While we are continuously upgrading a large portion of hotels in our portfolio.
This scenario, we managed to deliver an 8.8% revenue increase year over year, and a 21.1% increase in hotel adjusted EBITDA.
We believe our business the matrix will improve as we are completing these upgrades and the open more new hotels.
We made further progress in the repositioning of our restaurant business with an absolute focus on robust profitability.
Speaker Change: We grow our network of franchisees, who as we further expanded the number of street stores.
We have completed our closures of the restaurants in the supermarket anchored regional shopping centers due to less foot traffic to our stores.
We have now completed this phase our forward the strategy.
And focused on store count growth again in the regions, where we have a strong brand recognition.
Yeah.
Please turn to slide five.
Speaker Change: Compared with the first quarter of 'twenty to 'twenty three.
Hotel Raw par was 114, RMB, that's down four 6% and the restaurant a D S.
Average daily sales per store was 5525 RMB.
All eight 7%.
Total revenues were 352.2 milling RMB.
7.1%.
Hotel revenue reached 274.8 million RMB, that's up 8.8% attributable to the recovery in the raw power off of our Oh hotels and restaurants revenue decreased to $77 7 million RMB.
As we continue to execute on our strategy to reposition this business.
Income from operations increased to 72.2 milling R&D with a margin of 21, 5%.
Net income was 57 3 million RMB.
It's up 76% with a margin of 16, 3%.
Adjusted EBITDA non-GAAP was 109 point for milling on B, that's up 17.2% with a margin of 31.1%.
Speaker Change: Slide six shows detailed the numbers for total revenues.
Come from operations match income and adjusted EBITDA.
Slide seven shows the trend in our quarterly operating performance.
In the first quarter and compare that to a year ago.
For all PA four O L. A hotels increased.
By eight 9% to 157 RMB.
Speaker Change: However, raw PA for F N. The hotels decreased by four 9% to 113 RMB.
A D R for all hotels increased by 2.8% to 235 RMB.
And ADR for F M hotels increased by 0.7% to 167 RMB.
Occupancy at our El all hotels increased by three 7% to 66, 6% and occupancy at all where F. M hotels decreased by 4% to 67, 9%.
Slide eight highlights the growth in our membership programs.
<unk> accounted for most of our direct sales.
Individual memberships grow to 93 million up from seven to 8 million a year ago and the corporate the membership school to two point those 7 million up from 149 5 million a year ago.
Slide nine shows the operating performance self restaurants, with a D S down eight 7% year over year at RMB.
Speaker Change: 5525, but up sequentially, that's mainly due to seasonality.
Starting with slide 11.
I will review the results of our strategic execution across our businesses.
In our hotel business, we further expanded in the mid to upscale segment and the increased our penetration in tier three and the lower cities in South China.
As you can see on slide 12, we continue to grow our our mid to upscale segment with a 498 hotels.
That's 11, 7% of our total portfolio at the end of the quarter.
While the mid scale segment remains the core of our hotel business at 69, 1%.
The economy segment ended the quarter at 19, 2%.
Please turn to slide 13.
We continued to expand the entire three and the lower cities.
And the 71, 8% of hotels and our current pipeline are you in such cities.
And we will further capitalize on the substantial opportunities in such locations.
On slide 14, we continue to focus on increasing the profitability of our restaurant businesses.
Our strategy is a three pronged.
Close unprofitable L O stores increase the proportion of F M stores and expand the number of street stores.
Franchised and managed our restaurants accounted for 85, 4% at the end of the quarter compared to 254.5% a year ago and the street stores accounted for 44, 3% compared to 31% a year ago.
Speaker Change: Next Selena young and Alan Joe will review operating and financial highlights.
Thank you, Alex Pete and just slide 16.
In the first quarter.
Hotel revenues.
Eight 8% to 274.8 and again Hum.
Compared to the first quarter of 2023.
The increase was primary due to the continued improvement.
Oh tariffs wrap her more.
Speaker Change: The only open air and hotels.
And offset by the decrease in U F M. How tariffs wrap huh.
Total revenues from Oh, tiara, well 122.5 million RMB.
Yeah at 49, 3% year over year.
While our total rack newest spa and hotels decreased 10, 8% to 151 2 million.
Speaker Change: On slide 17.
Total hotel operating costs and expenses increased one 7% year over year to $206 7 million RMB.
The amount of the total hotel operating costs.
Operating costs increased eight 9% to 146 point to me that be yeah over here.
Which with many attributes boat to higher utility costs.
No just improvement Oh hotel strap huh.
And higher rental and now Cox.
The increase in the number of Eric hotels and hotels.
Not in the marketing spend it well 15th part you find me there b.
Speaker Change: Our year over year increase of what party or media.
Mainly due to the increase in business development and the sales numbers.
Yeah, and administrative expenses were 38 5 million.
Down 16, 5% compared with same quarter of last year.
The decrease was mainly due to the reversal of bad debt, resulting from the decrease in accounts receivable.
Turning to slide 18.
Speaker Change: Thanks to the growth in revenues and to control costs and expenses.
Our hotel business improved its profitability in the first quarter.
Speaker Change: In comfort hotel per inch has increased by 52 meter M. B to 70 praying for me I'd be year over year.
Net income of hotels, well its $57 3 million.
Compared to 35 million RMB in the first quarter of last year.
Adjusted EBITDA increased 21.1% to 102 point for me to B.
And core net income increased from 53 million to 61 million RMB yeah over here.
Next let me turn the call over to Alan the financial director of our restaurant business. Please.
Please turn to slide 19 in the first quarter, we continued to deprecation, our restaurant business closing unprofitable stores and opening more franchise the magic sauce.
Total restaurant revenues, well night, 17, 7.7 media RMB <unk>, 38.9% a year over year.
And the total restaurant costs and expenses decreased 40.4% year over year to 17.
5.8 million RMB.
Speaker Change: And on Slide 20, this measures that's to improve the profitability.
Income from our restaurant operations, what was the 1.9 media RMB.
Speaker Change: Adjusted EBITDA increased three point of 7% to 7.0 media RMB yeah over here.
Net profits and of course net income jumped from a loss to breakeven.
Speaker Change: Next selling that will be a deal that profitability of our group.
Speaker Change: Please turn to slide 21.
Thanks to the continuous and stable growth in revenue of the hotel segment.
Speaker Change: And better performance in the restaurant segment.
Our group net income by 80 S. That's basic and diluted increased by 63%, 2% to 58 cents Amit.
And core net income per ADR.
Basic and diluted non-GAAP increased by 22, 3%.
<unk> P M.
Let's now take a look at slide 22.
As of March 31st 2024.
The company had total cash and cash equivalents.
Cash short term investments.
Investment in equity Securities and time deposits.
Speaker Change: 1000, 517.3, maybe be comp.
Compared to 1300, <unk> 7.1 meeting B as of the end of first quarter last year.
The increase was mainly due to continued improvement in our operating performance.
And out of facilities and your repayment from franchisees.
On slide 23.
Based on our performance in the first five months of this year wait.
We maintain our previous revenue guidance for the hotel business.
Speaker Change: And that two weeks back to grow 7% to top of sand, but you're speaking.
We are withdrawing our guidance for the restaurant business given the significant revenue I'm predictability, resulting from the strategic repositioning.
This concludes our prepared remarks.
Speaker Change: Operator, we're now ready to begin the Q&A session. Thank you.
Yeah.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Man thing.
With Q X capital. Please go ahead.
Thank you management for taking my question. The first question is about Oh.
Speaker Change: What's the PV than dividend.
Policy off Greentree.
The company.
<unk> plans to distribute a special dividend.
In the future.
And it affects Hawaii can you elaborate on the strategy.
Our restaurant opening.
Thank you.
Okay I'll take this question Lena Thanks, Ma'am appreciated for the two quick.
Quick questions.
Regarding the dividend policy.
Due to the pandemic impact we actually suspended the dividend continue the dividend policy for a while.
No with the second year after the lift of the pandemic.
We plan, we discussed and plan a continually continue the dividend policy like what we had before but we have.
We have made the.
Internal discussion and I think next quarter, we'll make.
[noise] announcement regarding this our continue the dividend policy you resumption.
Speaker Change: Regarding the special dividend.
We will evaluate our see our cash position and also the investment needs for our growth and to the extent possible will always would like to have more of a dividend and also share buyback to enhance share and you know the shareholders' value.
In addition to our sound business practices.
Okay.
And with regards to your second question the number of <unk>.
Restaurant openings and growth for the for the balance of the year.
The.
Restaurant business for the first quarter and the second quarter, we have yet to complete it but we'll see if there's some of the trend that is more competitive in the restaurant landscape.
And our business is volatile are therefore after internal discussions as to being improved.
And a week, we can combine the strengths.
Oh for our franchisees local expertise versus in the local resources.
Speaker Change: And with our standard.
And high efficient operating system and the brand recognition and we can generate a much better return to our franchise hotels.
That is what we've been doing and in the last quarter.
And so we will plan.
To open I think 45 to 50 more.
New restaurant by the year end.
So that's the restaurant opening business in total will should end the year roughly by 230 plus or minuses.
I Hope I answered your question and as we emphasized I think focusing on the profitability of each store.
And bill can be a restaurant business on a solid foundation.
Think it's more important than the scale and the size at this moment.
Speaker Change: And we our view is we are actually deploying a couple of smaller teams to further.
Explorer.
They are business model.
The restaurants.
And I would like to add one point the the restaurants a D. S. A with some another reason is because we're shrinking our restaurant size and the soon to make that this that the restaurants size a little bit smaller.
And that they are operating space become more efficient. So that's another reason I think the restaurant a D. S is down somewhat like.
8% or so okay.
Yeah.
Speaker Change: Thank you again for the two questions.
The next question comes from Betty too with UBS. Please go ahead.
Hi, Thanks very much.
Speaker Change: Okay, Yeah, that's it.
Question regarding the hotel.
Yes, Yeah, I'm trading Chang.
Speaker Change: How does it affect your company that part and I can't emphasize that that economy.
Economy, Midscale and upper Midscale segments.
Okay.
Speaker Change: Okay.
Okay.
Okay Betty.
Did you you know let me rephrase did you ask of the the raw product trending for the second quarter, because I missed it that a little bit.
Yes, basically the tagging of that part and what's the impact because I feel like I'm reading them, especially I don't have that part and whether I guess.
<unk> economy segments are kind of.
Sure.
Okay.
Ah Thanks, Betty regarding the settlement at all.
I'll leave that to Selina.
But regarding the raw product trend trending down on the second quarter, we observe that our revpar for the second quarter, it's trending about the same rate as the first courtroom.
Speaker Change: The first quarter, we have a we have analyzed our raw PA.
Drop we find that our revpar dropped.
Speaker Change: Its cost also in.
In a large part by.
<unk> are a substantial number of hotels have been taking all at Oregon signed my operation to receive the upgrade and to go through the upgrade.
We typically gave us six months to one year.
For a fee.
Reduction or waiver for the hotels going through the upgrade so therefore, it's a fact that our global.
Speaker Change: Raw PA and affects the occupancy.
Speaker Change: As well.
So.
The second quarter will continue to.
Do the hotel upgrades, because we have a substantial number of hotels needs to be upgraded because of the three years of pandemic and so we are accelerating the upgrading process and that will reduce of raw PA.
Speaker Change: And so we expect that the way.
We expect our row crop.
Speaker Change: Trending.
The similar rate as the first quarter.
Speaker Change: Okay and.
And with regard to which segment.
To upskill, our miscarriage, so lower skills trending down.
I'll leave that to Selina.
Okay. Thank you. Thank you.
If we compare with the second quarter of last year. For example, we use a year over year gross rate at the indicator would be fine. Okay. The indicator for the medium scale segment and it's the best ease of Badger meter chap scale, that's one of the by the economy hotels.
And basically you know for our hotel and Spa.
Our company our a ratio in the economic sentiment takes the largest portion of our total portfolio. So I think that maybe has a impact on our total performance.
As a reminder, if you would like to ask a question. Please press Star then one to enter the question queue.
Okay.
Once again, that's star then one to ask a question.
Okay.
The next question comes from Alpha Wang with Goldman Sachs. Please go ahead.
Thank you and thank you for taking my question I have.
Two questions if I may the first one is.
<unk> given you just mentioned.
Yeah first quarter and second quarter to date, the Revpar has been slightly down.
But we maintain our <unk>.
Full year revenue guidance unchanged. So could you give us a sense of what full year Revpar was a little cat and what are the drivers to achieve the full year revenue guidance.
Speaker Change: Thank you.
Speaker Change: Okay.
Thanks.
Fay.
Even though the raw PA is trending down for the first and second quarter.
Our revenue consist of the existing hotels.
The revenue.
The existing hotels.
And also add the new hotels.
And in addition, we also have some very good performing.
Speaker Change: L a hotels.
That adding together the hotel total revenue, even though with a drop of the raw powerful the existing hotel portfolio sale.
You increased the revenue in the L. A hotels and also the new.
F M hotels.
Is it more that make up the loss in the existing hotels revenue are the raw PA, So our L O and the new F M hotels revenue.
The increase about.
12% or sell to.
15%, that's according to our analysis, so taking down the Royal Palm.
Craig So you blend them together amusement ballpark numbers, arriving to 7% to 12% revenue increase for the year.
For instance, some of our F. M of hotels, we have introduced that new boutique brand already performing.
Excellent.
Speaker Change: Certain regions for instance in the western part.
Our one of our newer brand became the star in the region the entire region within the in the low season, we have achieved as raw par of 2000 RMB.
Speaker Change: Per room per day, and expect another high season or 4000 RMB.
Program per day so.
It's always are contributing to contributing to the revenue increase for the hotels.
Speaker Change: But on the other side are the restaurants.
We expect that the revenue drops in total our 50% so the groups and previously.
Speaker Change: We didn't anticipate the restaurant competitive.
This increased at less at least in the position in the locations of the World. We operating dramatically for instance, we have a larger number of restaurants in the supermarket anchor that regional shopping centers, we observe the least the foot traffic to our stores decreased a lot.
Speaker Change: And.
Plus there was a restaurant has a large size in large area sides of large footprint and therefore, and we made a strategic decision to reduce the exposure in those locations.
And and then expanded two franchised and managed the restaurant business, where we are we only collect a fee so that resulted in the.
Total revenue for the restaurants side is 50%.
So combined that will drag the entire group's revenue down a little bit.
But however.
Because the restaurant <unk>.
Repositioning.
The profitability and the leased and the EBITDA the get a boost in increased so our total bottom line performance will be enhanced so we hope.
We will build our business.
Speaker Change: Both the bottom line and at the top line growth.
Okay.
So that's it.
Speaker Change: That's our raw power for the full year.
The impact to our revenue I hope that answered your questions. Thanks.
Once again, if you would like to ask a question. Please press Star then one to join the question queue.
Speaker Change: Okay.
The next question is a follow up from Nan thing with <unk> capital. Please go ahead.
Okay.
Hello Hello.
As I have other question here for you.
It will take a little bit about your expansion into the higher end segments. Thank you.
Speaker Change: Okay then.
We have increased.
Our mid to upscale segment continuously.
And we have several brands that we are.
Continuously improving the standards for both of the products and the services such as Greentree eastern.
And we also are systematically close some of the less desirable location located the products.
And as a result, I think that we'll continue to.
To have a positive impact on the group's <unk>.
We are for instance.
We reported to you that our all hotels.
Most of our L. L. All hotels leased operated that are in the mid to upscale like Greentree eastern.
Speaker Change: And there you can observe you can see our performance has increased dramatically and that this will showcase.
For our potential franchisees.
To develop more similar branded hotels.
And the addition.
In addition that we also are developing.
Some cultural based boutique hotel brand such as if you check the snow hotels, we developed it.
And has already become the local regional hotel stars.
And the combined I think with our combined efforts and consolidate them resources to put into that area, we hope and we think that the.
Mid to upscale segment.
Speaker Change: Well it will be you know become a larger and larger portion of our business.
We're confident that the after the pandemic areas are gone, we can focus on developing that in debt.
In that segment.
And we'll have a more.
Speaker Change: I think the positive news to report to you the next quarter.
Okay. Okay. Thank you.
As a reminder to ask a question. Please press Star then one to enter the question queue.
Speaker Change: Okay.
Yeah.
Once again, that's star then one to ask a question.
The next question is a follow up from Alpha Wang with Goldman Sachs. Please go ahead.
Thank you and then another follow up question is on the hotel expansion site and.
Speaker Change: And could you.
We provided an update of what kind of hotel opening target for little Canada here and if we breakdown by al versus F. N no, what's how where are you targeting.
Thank you.
Yeah.
Okay, Oh thought that or like what do we provide the last time. The total hotel opening we planned for the year is 480.
Primarily I think 99% of them are going to be franchised and managed.
And so we May we may still do you know a couple of them are selected very very few and showcase all hotels.
But our focus has always been the franchised and managed hotels.
Yes.
Yeah.
As a reminder to ask a question. Please press Star then one to enter the question queue.
That's star then one to enter the question queue.
The next question comes from Bruce <unk> with UBS. Please go ahead.
Okay.
Okay, Hi, Alex penciling out so thanks for taking my question. So I also have a question regarding the hotel openings. So could you. Please give us a breakdown a geographic breakdown of the new Oakland for example, how much will be in tier one cities and how much we're being lower tier cities. Thank you.
Yeah.
Thank you for a question and me yeah.
Yeah.
Actually for amounts of 480 hotels to be open and this year I think I'm, most yet Oh, Spiro and the tier three and the lower cities that is about a 60.
2% to 65%, Yeah, and Oh about a 15.
15% to 20% New open hotels.
I N T O two and the remaining tariff to open in the tier one cities. Thank you.
Speaker Change: And to add on that.
Bruce said, we have a team to.
Speaker Change: To hit that.
Used to be to be very strong in the eastern region, but we are.
Enhancing the team built the team and nationwide where are we how would you know that the more white space in the source.
Southern part of China, like southeastern sauce, southwestern China, and also north eastern.
We have added the more developed members and we're seeing great results. So our.
Close to 500, new hotels can be even hopefully we hope it's going to be evenly spread at that more evenly spread across the continent of China.
And the business development is a driver after.
After the pandemic, so we're focusing more and more even though.
Thus the three year you know six strategies. So we had historically made our company continuously profitable and other than some of the.
Pandemic area or continue the improving let's say existing portfolio.
The building showcase hotels and continue to enhance our technology delivering an enhanced the.
Let's see efficiency.
Off our operation because our margin that's a safety a steel amount the best.
Speaker Change: You know in our service businesses, we want to continue to improve on that.
Yeah edition.
That will continue to enhance our membership up benefit in program.
Which will increased hopefully the percentage of the membership contribution.
In the future as well so with all of that.
Combined with our repositioning of the restaurant business and.
And we'll have you know all lines of business are contributing to the company's profitability on the bottom line and we are in a stronger foundation now I think to.
To grow the business.
That continuously and we that's the reason why we also have a share buyback and the plus.
As we answered earlier and Havent continues.
Dividend policy reinstated.
Planned it to be restated so all of that we hope that we have we can.
Speaker Change: Enhance our shareholder value.
And that building a stronger company for both the franchisees customers as well as our employees.
<unk> gross okay.
Thanks.
Bruce for your great questions.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
Once again to ask a question you May Press Star then one on your Touchtone phone.
Okay.
Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Selina Yang for any closing remarks.
Thank you operator.
In closing on behalf of the entire Greentree management team. We thank you for your interest in Greentree and your participation in today's call.
If you require any further information or have passed to me.
Please feel free to contact us. Thank you again, thank you.
The conference has now concluded thank.
Speaker Change: Thank you for attending today's presentation you.
Speaker Change: You may now disconnect.
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