Jefferies initiates Atour Lifestyle stock with Buy rating on retail growth

Jefferies initiated coverage on Atour Lifestyle Holdings (NASDAQ:ATAT) with a Buy rating and a $48.00 price target, driven by expectations of strong retail sales growth and membership expansion. The firm projects a 30% year-over-year total revenue increase to RMB9.4 billion for 2025, primarily fueled by a 60% surge in retail revenue from its Deep Sleep Solutions brand. Despite robust Q2 2025 net revenue growth of 37.4% year-over-year, Jefferies highlighted potential risks such as slower RevPAR recovery and the impact of aggressive investments on EBITDA margins.

Analysis

Jefferies has initiated coverage on Atour Lifestyle Holdings (ATAT) with a Buy rating and a $48.00 price target, signaling potential upside from its recent 52-week high of $40.39. The positive outlook is predicated on a strategic shift towards a high-growth retail segment, which is expected to complement its established hotel business. Jefferies projects Atour's retail revenue will surge 60% year-over-year in 2025 to RMB3.5 billion, primarily driven by its 'Deep Sleep Solutions' brand, causing the segment's contribution to total revenue to expand from 30% to 37%. This forecast is supported by strong recent performance, including a 37.4% year-over-year increase in net revenues for Q2 2025 and a 35% growth in its membership base to 103 million. Overall, total revenue is estimated to grow 30% in 2025, accompanied by a gross profit margin expansion of 2.7 percentage points to 44.3%. Despite the bullish projections, risks identified include slower-than-expected RevPAR recovery, potential EBITDA margin compression from aggressive investments, and macroeconomic shifts. A minor decline in the adjusted net profit margin in the latest quarter also warrants attention as a potential counterpoint to the otherwise strong growth narrative.

Key Decisions for Investors

• Investors should assess the dual-engine growth story, where the high-margin, high-growth retail segment is becoming a significant value driver alongside the recovering core hotel business, as reflected in the $48 DCF-based price target.
• Monitor the gross merchandise value (GMV) and revenue growth of the 'Deep Sleep Solutions' brand, as its projected 60% year-over-year expansion is the central catalyst for the firm's bullish 2025 financial forecasts and margin expansion.
• It is prudent to watch for key risk factors, specifically any deceleration in hotel RevPAR or margin erosion from investments, which could challenge the valuation thesis, especially given the minor decline in adjusted net profit margin observed in Q2 2025.