Atour Lifestyle Q1 2024 Earnings Call Transcript

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May 23, 2024

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and welcome to Ateur Lifestyle Holdings First Quarter 20 24 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'd like to turn the conference over to Ms.

Operator

Allison Zhang, Director of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good morning and good evening, everyone. Welcome to our Q1 2024 earnings conference call. Today, you will hear from our Founder, Chairman and CEO, Mr. Wang Haijun and our Co CFO, Mr.

Speaker 1

Wu Jianfeng. Before we continue, please be aware that today's discussion will include forward looking statements under federal securities laws. These statements are subject to various risks and uncertainties, and 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.

Speaker 1

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. Yaguo.com, where a copy of the results presentation is also available. Now I will turn the call over to Mr. Wang, our CEO.

Speaker 2

Thank you, Alison. Hello, everyone, and thank you for joining ATOR's Q1 2024 Earnings Call today. During the Q1 of 2024, the travel market witnessed a contrasting demand patterns, While the recovery of business travel was relatively subdued due to macro uncertainties, experience driven leisure tourism during holidays and weekends maintained its growth momentum from 2023. As a leading upper mid scale hotel brand, Atul remains dedicated to advancing the comprehensive upgrade of its experience strategy amid the ever evolving external environment. By delivering exceptional accommodation experiences, we unleashed greater value across our unique deep sleep scenarios.

Speaker 2

We also continued to enhance and upgrade our products and services, solidifying Ateur's leading position in the industry. Now, I would like to provide more details on our performance for the Q1 of 2024. Let's begin with our hotel business. Please turn to Slide 4 of our Q1 2024 results presentation. Our RevPAR reached RMB328 in the 1st quarter, representing 97.4% of its level in the same period of 2023.

Speaker 2

Notably, we achieved a sustainable OCC growth, reaching 101.1 percent of 2023's level for the same period, demonstrating towards resilient demand and a leading competitiveness. However, due to a high comparison base resulting from the explosive demand for both business and leisure travel in the same period of 2023, our ADR faced some pressure in the Q1 and decreased by 2.9% year over year. Please turn to Slide 5. Excluding structural impacts such as the ramp up of new hotels, our mature hotels in operation for more than 18 months performed well during the quarter. Their same hotel RevPAR was 99.7% of 2023's level for the same period, while OCC reached 102% and ADR stood at 98.4%, both compared to the same period in 2023.

Speaker 2

Please turn to Slide 6. Supported by our tour's increasing brand influence, our hotel network continued to expand and achieved high quality growth in the Q1. We maintained our rapid pace in network expansion with 97 new hotel openings. By the end of the first quarter, we had a total of 1302 hotels in operation, representing a 34.5% increase year over year. Notably, our flagship A Tour brand reached the 1,000 hotel milestone last month, underscoring our leading position in the upper mid scale hotel market.

Speaker 2

Please turn to Slide 7. Moreover, franchisees' confidence remained robust in the Q1 with a continuous increase in new signings and steady pipeline growth. As of March 31, the number of hotels under development reached 674. Please turn to Slide 8. Thanks to its unique positioning and immense growth potential, AtourLite 3.0 continued to gain favor among franchisees.

Speaker 2

A total of 30 new AtourLite 3 0.0 hotels were signed in the 1st quarter, accounting for more than 15% of our total new signings for the period. As of March 31, we had a total of 36 Atour Life 3.0 hotels in operation with mature hotels performances thriving. Despite the traditional off season, the RevPAR of Atour Life 3.0 Hotels in operation for more than 3 months exceeded RMB290 in the 1st quarter and surged to over RMB300 in April, highlighting AtourLight's strong competitive edge in the midscale segment. We anticipate that the operational performance of AtourLight 3.0 will continue to excel during the upcoming summer holiday season. Please turn to Slide 9.

Speaker 2

Building upon our ethos of life at ease, we are consistently introducing and refining distinctive services at AtourLight 3.0 Hotels, striving to transform each hotel into an intimate oasis within its city. In the Q1, we launched the new city guide feature, which helps customers explore nearby dining, entertainment and other attractions, immersing them in the captivating lifestyle and a beautiful, enjoyable and comfortable experiences that are unique to Atour LITE 3.0 Hotels. Furthermore, we unveiled special platinum privileges in our AtourLight 3.0 Hotels, offering our members exclusive benefits. Presently, AtourLite 3.0's comprehensive range of superior services sets the brand apart in the mid scale market. Furthermore, we expanded Atour Life 3.0's co branded collaborations.

Speaker 2

For the post Chinese New Year return to work period and the peak interview season, we partnered with a fashion clothing brand to introduce the Suit Up Station event. This initiative offering convenient suits rental services to Atour Life's customers garnered widespread praise. It not only boosted Atour Life's brand visibility, but also addressed the needs of young business travelers during their trips, conveying a distinctive lifestyle and further strengthening the quintessential A Tour Signature experience. Moving now to our retail business. Please turn to Slide 10.

Speaker 2

Retail sustained its strong performance in the 1st quarter with quarterly GMV up by 2.77% year over year to RMB495 1,000,000. Sales from online channels continued to flourish accounting for over 90% of the total GMV in the 1st quarter. Atour's deep sleep products continued to attract high market recognition. We are devoted to understanding the deep sleep scenarios, identifying customers' sleep pain points and continuously developing and launching new products. Through the expansion of our product categories, we aim to provide customers with enhanced solutions for an optimal deep sleep experience.

Speaker 2

Please turn to Slide 11. Following the success of our popular products like Deep Sleep Pillow Pro and the Deep Sleep Temperature Control Quilt, we leveraged our proprietary product development process to delve deeper into customers' fundamental needs for lightweight bedding during the summer season. On March 10 this year, we proudly introduced another standout addition to our deep sleep series, the Deep Sleep Lightweight Comforter. Crafted from imported breathable and moisture wicking fibers, the core of our lightweight comforter enables efficient heat dissipation, fostering a natural sense of coolness for customers. Moreover, to elevate the deep sleep experience with superior comfort and the touchability, we departed from the conventional design of a comforter with a removable cover.

Speaker 2

Instead, our 1 piece comforter is reversible with A and B side made from distinct materials. The A side features natural cooling fabrics, while the B side is fashioned from a cozy fabric with moisture content akin to human skin, allowing customers to quickly switch from cooling to warmth. Because the integrated cover design imposes heightened cleaning and the maintenance requirements, our deep sleep lightweight comforter is machine washable and it can be air or machine dried at low temperatures, bringing customers an easy care, minimalist deep sleep experience. Since its debut, the Atour Deep Sleep Lightweight Comforter has garnered widespread acclaim. Its GMV sword passed RMB10 1,000,000 just in 21 days after its release and continues to maintain robust growth momentum.

Speaker 2

In April, the Deep Sleep Lightweight Comforter topped the sales charts for comforters on both Douyin and JD.com and ranked among the top 10 in sales on Tmall. The surgeon sales of our deep sleep lightweight comforter are yet another testament to Atour's profound insights and exceptional understanding of deep sleep, as well as our efficient product research and development capabilities, We are passionate about enhancing customers' sleep experience and remain dedicated to crafting innovative upgraded solutions to amplify customers' recognition of the Ateur Planet Deep Sleep series. Transitioning to our membership business, please turn to Slide 12. Our thriving brand recognition, coupled with our top tier products and the services, has inspired a growing number customers to join the A Card membership program, leading to a rapid expansion of our membership base. As of March 31, our registered individual members increased by 86% year over year, surpassing 71,000,000.

Speaker 2

Additionally, our CRS channel experienced a steady growth in the Q1, with a 65.1% contribution to the total room nights sold in the 1st quarter, increasing by 2.6 percentage points from the same period of last year. In addition, we have continued to promote the integration of both accommodation and retail members, further solidifying the foundation of our comprehensive and unified A Card membership ecosystem. Please turn to Slide 13. We plan to offer multi scenario membership points and benefits. Thus funneling customers from different scenarios into the unified A Card membership system.

Speaker 2

We will also identify and push the boundaries of product and service innovation. Together, these initiatives will create an integrated membership experience for our customers while enhancing a car's brand recognition, ultimately empowering us to create a virtuous cycle and achieve greater synergies between the accommodation and retail business. Meanwhile, we will leverage our growing customer insights to provide our customers with more tailored product recommendations and personalized offline accommodation experiences, thereby strengthening Atour's experiential advantages. Last but not least, I am delighted to announce that Ateur has published its inaugural ESG report. Please turn to Slide 14.

Speaker 2

As a leader in providing a quality lifestyle and an advocate for the Chinese experience, Atour consistently pursues win win outcomes for the environment. Our industry and society as a whole by integrating ESG best practices across our business operations. In 2023, we further enhanced our ESG governance to help build warm connections between people as well as between people and nature. We strove to establish an efficient, orderly and responsible management mechanism and foster mutual growth among Atour, our employees, franchisees and partners. Through a broad array of charitable projects, eco friendly operational upgrades, diversity and inclusion initiatives and green development efforts, we upheld our original aspirations while assuming our corporate social responsibility.

Speaker 2

Moving forward, we will holistically deepen our commitment to ESG, augmenting our contributions to society and the industry's sustainable development. Now I will turn the call over to our Co CFO, Mr. Wu Jianfeng, to discuss our financial results.

Speaker 3

Thank you, Haijun. Good morning and good evening, everyone. Now I would like to present the company's financial performance for the Q1 of 2024. Please turn to Slide 16 of the results presentation. Our net revenues for the Q1 of 2024 grew by 89.7% year over year and decreased by 2.5% quarter over quarter to RMB1468 1,000,000.

Speaker 3

The year over year increase was driven by robust growth in both the hotel and the retail businesses. The quarter over quarter decrease was caused by the decrease in RevPAR, which was RMB328 for the Q1 of 2024 compared with RMB358 for the previous quarter and also was due to the renovation of 1 of our leased hotels. Revenue from our Managed Hotels for the 1st quarter of 2024 were RMB836 1,000,000 up by 87.1% year over year while decreasing 1.8% quarter over quarter. The year over year increase was primarily fueled by the ongoing expansion of our hotel network and the rapid growth of the supply chain business. The total number of Managed Hotels increased to 1271 as of March 31, 2024, up by 35.9% year over year.

Speaker 3

The quarter over quarter change was due to the decrease in RevPAR. RevPAR of our Managed Hotels was RMB324 for the Q1 of 2024 compared with RMB353 for the previous quarter. Revenues contributed by our leased hotel for the Q1 of 2024 were RMB168 1,000,000 representing a decrease of 10.3 percent year over year and 13.8 percent quarter over quarter. This decline was mostly driven by the renovation of 1 of our leased hotels into our first 204.0 hotel as well as the decrease in RevPAR. RevPAR of our leased hotels was RMB455 for the Q1 of 2024 compared with RMB464 for the same period of 2023 and RMB495 for the previous quarter.

Speaker 3

Revenues from our retail business for the Q1 of 2024 were RMB417 1,000,000, up by 268.9 percent year over year and 1.1% quarter over quarter. The increases were attributable to the widespread recognition of our retail brands and the compelling product offerings as well as improved product development and distribution capabilities. Revenues from other for the Q1 of 2024 were RMB48 1,000,000 up by 76.8 percent year over year and 1.7% quarter over quarter. The increases were driven by the fast growing membership business. Now let's move to cost and expenses.

Speaker 3

Please turn to slide 17. Operating cost and expenses for the Q1 of 2024 were RMB154 1,000,000, including RMB3 1,000,000 share based compensation expenses, compared with RMB719 1,000,000 including RMB142 1,000,000 share based compensation expenses for the same period of 2023. Hotel operating costs for the Q1 of 2024 increased by 73.5% year over year and decreased by 9.7 percent quarter over quarter to RMB662 1,000,000. The year over year increase was mainly due to the increase in variable costs such as supply chain costs associated with the ongoing expansion of our hotel network. The gross margin of our hotel business was 34.1% for the Q1 of 2024 compared with 39.8% for the same period of 2023.

Speaker 3

This decrease was attributable to a decreased RevPAR and an increased share of revenue generated by the lower margin supply chain business. Retail cost for the Q1 of 2024 increased by 235.0 percent year over year and decreased by 11.2 percent quarter over quarter to RMB206 1,000,000. The year over year increase was associated with the rapid growth of our retail business. The gross margin of our retail business was 50 point 5% for the Q1 of 2024 compared with 45.5% for the same period of 2023. The increase in gross profit margin of retail business was attributable to an increasing contribution from higher margin online sales.

Speaker 3

Now please turn to Slide 18. For selling and marketing expenses for the Q1 of 2024 were RMB175 1,000,000 compared with RMB56 1,000,000 for the same period of 2023. The increase was mainly due to our increased investment in brand awareness and effective online channel development along with the growth of retail business. Selling and marketing expenses accounted for 11.9% of net revenues for the Q1 of 2024 compared with 7.2% for the same period of 2023. General and administrative expenses for the Q1 of 2024 were RMB77 1,000,000, including RMB3 1,000,000 share based compensation expenses, compared with RMB193 1,000,000 including RMB141 1,000,000 share based compensation expenses for the same period of 2023.

Speaker 3

Excluding the share based compensation expenses, the increase was primarily due to the increase in labor cost. Bureau and administrative expenses, excluding the share based compensation expenses, accounted for 5.0% of revenue for the Q1 of 2024 compared with 6.7% for the same period of 2023. Technology and development expenses for the Q1 of 2024 were RMB24 1,000,000 compared with RMB17 1,000,000 for the same period of 2023. The increase was mainly due to the increased investments in technology, systems and infrastructure to support our expanding hotel network and retail business as well as improve the customer experience. Technology and development expenses accounted for 1.6% of net revenues for the Q1 of 2024 compared with 2.2% for the same period of 2023.

Speaker 3

Now please turn to Slide 19. Adjusted net income for the Q1 of 2024 was RMB261 1,000,000, up by 63.4 percent year over year. Adjusted net gross margin for the Q1 of 2024 was 17.8%, a decrease of 2.9 percentage points year over year. Adjusted EBITDA for the Q1 of 2024 was RMB354 1,000,000, up by 53.1 percent year over year. Adjusted EBITDA margin for the Q1 of 2024 was 24.1%, a decrease of 5.8 percentage points year over year.

Speaker 3

The decreases in both margins were primarily due to the decrease in RevPAR and the increase of revenue contribution from lower margin supply chain business as well as organic growth of selling and marketing expenses meet the retail business development. Now please turn to Slide 20 21. Notably, we have maintained a healthy cash position with stable growth momentum. As of March 31, 2024, our cash and cash equivalents totaled RMB3048 1,000,000. Among them, net cash was RMB2956 1,000,000.

Speaker 3

That concludes our financial highlights for the Q1 of 2024. With that, let's open for Q and A.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of CICC, Sujie Lin. Please go ahead, Sujie. Almost achieved the highest quarterly level last year and the revenue growth is also big.

Operator

So will we adjust the full year opening revenue and profit guidance accordingly?

Speaker 3

Thank you.

Speaker 2

Let me try to answer your question. Although we saw some fluctuations in the RevPAR of the entire industry in the Q1 this year, but from the franchisees level, confidence in the hotel industry is still sufficient. And our signings in the Q1 also maintained rapid growth and the projects in our pipeline continued to expand reaching 674. In terms of new openings, in this first quarter, we opened 97 new hotels, continuing the trend in Q4 last year. This year, based on the strategic targets of having 2,000 premier hotels by 2025, we will put forward higher requirements for quality and consider quality as a prerequisite for quantity growth.

Speaker 2

Based on this, we would like to maintain our target of 360 new openings for the full year, and we stay fully confident about achieving that. In terms of revenue, despite some fluctuations in RevPAR we saw, we still expect the group's 2024 revenue to maintain a high quality growth. And based on the outstanding performance in the Q1, especially in our retail business, we would like to raise this year's revenue guidance from what we announced last quarter. The original 30% year on year growth to a new growth of 40% year on year, maintaining a growth rate leading the industry. This is mainly due to the continued expansion of our hotel network and the contribution of our rapidly growing retail business.

Speaker 2

At the profit level, the fluctuation of the overall RevPAR and the change of the company's revenue structure this year will bring certain pressure on our profit margin level. However, we will continue to optimize our cost structure, improve the efficiency of management and operations, and we expect to keep a relatively stable profit margin level. Okay. Thank you.

Speaker 1

Thank you, Sushan. Let's take next question.

Operator

Thank you. Our next question comes from the line of Dan Qi from Morgan Stanley. Please ask your question, Dan.

Speaker 2

Please allow me to translate my questions. Can the management share the recent blended RevPAR trend in Q2 and in particularly occupancy and ADR's respective performance? And what's the company's most updated view on your blended RevPAR for full year 2024? Thank you. Thank you, Dan.

Speaker 2

Let me try to answer your questions. Our RevPAR in Q1 was RMB328, which was down by RMB9 compared to the same period last year. OCC was 73.3%, 0.8 percentage points higher than the same period last year. ADR was RMB430, down by RMB13 from the same period last year. If we narrow down to our 843 mature hotels in operation for more than 18 months, the same hotel RevPAR performance in Q1 this year stood at 99.7%, which was basically unchanged from last year.

Speaker 2

To separate OCC and ADR performances, last year's concentrated bursts of business and leisure travel to a certain extent drove the price base higher and imposed relatively more pressure on this year's price. Since April, including the Labor Day holiday, we have also seen such situation. According to QTD data, our Q2 RevPAR might have bigger pressure than in Q1. As for the forecast on 2024 whole year RevPAR, due to multiple factors affecting its performance, it is rather difficult to give a relatively accurate RevPAR forecast. Seeing from now, the uncertainty of this year exceeds our previous expectation.

Speaker 2

And in this current environment, our strategy is to prioritize stabilizing our OCC base while also sees the core opportunities in revenue.

Speaker 1

Thank you, Dan. Next question, please.

Operator

Thank you. Our next question comes from the line of Xin Chen from UBS. Please ask your question, Xin.

Speaker 4

We noticed that in Q1, relatively more optimistic, the company's revenue from V2 business still maintained a very strong growth. Would the company mind sharing your expectations on retail revenue over the whole year and your expectations since expenditure in retail business? And the second question is that on product level, the summer call, Alquita launched the U Match achieved good results. Could you share about some follow-up planning on products? Thank you.

Speaker 2

Thank you, Chenxing. Let me first talk about the overall retail business and product planning, and then I'll pass it on to Jianfeng to add on retail financials later. I think based on our insights into the real sleep needs for users, our strategy with Atoor Planet's deep sleep products has been kept on becoming known to people outside of the hotel industry and continued to gain users' soundness and recognition. And that promoted the excellent performance of our retail business. Our product R and D capacity based on user needs has been verified once again by the outstanding performance of our new product this quarter, Deep Sleep Lightweight Comforter.

Speaker 2

This year and the next quarters, we will continue to focus on deep sleep products and carry on launching the next generation of deep sleep pillows or deep sleep temperature control quote in the next coming quarters. While continuing to expand the sleep categories, we will also be continually deepening and solidifying our advantages categories. Now Jianfeng, could you please add some more on to the retail financials? Thank you, Quanxin. Our retail revenue in 1st quarter reached RMB 417 1,000,000, maintaining a rapid growth momentum.

Speaker 2

Based on that strong retail performance, we do expect our retail business to achieve high double digit year over year revenue growth for the full year. Meanwhile, our retail business is still in a process of rapid development and that means we will continue to deepen investment in building a solid foundation for longer term growth, branding and channels. In terms of the sales expenditures you mentioned in your question, Quanxing, our retail business in Q1 coordinated campaigns and promotions with high efficiency. The sales expenses in the next few quarters will fluctuate slightly, echoing to our rhythm in new product launches and plans on branding campaigns, but it is expected to maintain a relatively stable level for the full year. Now that with our growth scale of retail business, its margin level has been continually improving And we are confident that the retail business will bring more incremental earnings to the group and more value to our ecosystem.

Speaker 2

Thank you.

Speaker 1

Thank you. Next question please.

Operator

Thank you. Next question comes from C. Wei Liu from Citix. Please ask your question, Cix.

Speaker 4

I translate my question. About the hotel business, could you please share the opening goals for Tour Life 3.0 this year? Also an update on how the Tour 4.0 hotels are coming along. Thanks.

Speaker 2

Thank you, Jie Wei. Let me answer that question of yours. In 1st quarter, there was a total of 30 signings for Atour Life 3.0, accounting for more than 15% of our total new signings. As of the end of March, 36 Atour Life 3.0 hotels are in operation. We expect that by the end of this year, the number of AtourLite 3.0 Hotels in operation will reach about 100.

Speaker 2

Like Haijun just now have mentioned, we focus on the concept of life at least and consistently introducing and refining distinctive services at AtourLight 3.0 Hotels to better meet the needs of young business travelers and won their recognition. Atour Life 3.0 hotels have had eye catching performances in Q1, a commonly off season, the RevPAR of those Atour Life 3.0 hotels in operation for 3 months above had exceeded RMB290 in the Q1 and quickly rose to above RMB300 in April, far exceeding the expectations from those franchisees. At the same time, based on the operation status and user feedback we gathered from those AtourLight 3.0 hotels in operation, we are gradually refining the AtourLite 3.0 model to bring better and better experience to users, while also bring sustainable and stable returns to the franchisees. And you mentioned our Atul 4.0. Since Atul 4.0's launch at the end of last year, we have secured more than 30 benchmark projects in the core business areas of key cities.

Speaker 2

The opening of the first tour 4.0 Hotel is also in busy preparation and will happen soon. It will be worth your waiting. Thank you.

Speaker 1

Thank you, Jiwei. And operator, we can take one more question. Thank you.

Operator

Thank you. Our final question comes from the line of Lydia Lin from Citi. Please ask your question, Lydia. Next management, and I would like to ask if the management has any plans in terms of the returns to shareholders? Thank you.

Speaker 2

Thank you, Lydia. And in terms of shareholder returns, we have always attached importance to and practiced continuous returns to shareholders. In August last year, we announced a one time dividend. This year, we will continue to act upon the overall operating performance, cash position, future business development plan, industry common practices and to consider plans to increase shareholder returns, including dividends. We are committed to sharing the benefits of development with our shareholders.

Speaker 2

Thank you.

Speaker 1

Thank you, Lydia.

Operator

Thank you. And that concludes the question and answer session. I'd now like to turn the conference back to Alison John for any additional or closing comments.

Speaker 1

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

Operator

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

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