- The Washington Times - Monday, April 9, 2001

The only thing Choice Hotels International can do to improve its earnings is wait, analysts say.
The Silver Spring franchiser of hotels such as Comfort Inn, Econo Lodge and Clarion reached a 52-week high of $15.94 last April 18 and a 52-week low of $7.50 later on Sept. 19. Analysts say the sluggish economy is to blame for hotel stocks' poor performances.
"The hotel sector is weak overall. There's a strong correlation between the economy and the demand for hotels," says Robert LaFleur, an analyst with Bear, Stearns in New York. "The outlook for the hotel industry is grim for the next couple of quarters."
The company has seen its net income for the fourth quarter ended Dec. 31 plummet 82 percent to $2.5 million (5 cents per diluted share) from $14.0 million (26 cents) for the like quarter the year before. Annual income fell 26 percent to $42.4 million (80 cents) from $57.2 million ($1.03).
Diluted shares reflect the value of options, warrants and other securities convertible into common stock.
Choice's total revenue for the fourth quarter ended Dec. 31 increased 2 percent to $44.5 million from $43.7 million for the like quarter the year before. Annual revenue rose 6 percent to $167.5 million from $157.7 million for the year before.
But Mr. LaFleur says that Choice Hotels will be one of the better performing stocks in the hotel industry.
"Choice has an advantage in a soft market they're a franchise. Their profits are less tied down than those of other hotels," he says. "They've had a strong performance in the limited service sector. In the previous six months, it was the full-service sector that was doing well. Now there's a reversal of trends," he says. Mr. LaFleur points to low levels of consumer confidence as a reason for a drop-off on business travel that normally favors full-service hotel chains.
"Choice caters more to leisure travelers than business travelers. In a soft economy, business people don't travel as much, or they cut back and they don't stay in a Hilton," he says.
Choice Hotels says it isn't worried too much about the economy affecting business.
"Access to Wall Street capital has been pretty robust. The supply of hotels now outstrips the demand, but as consumer-confidence levels increase, we'll be poised to reap," says Joseph Squeri, chief financial officer for Choice Hotels.
Michael Rietbrock, an analyst with Salomon Smith Barney, rates the company a buy, with medium risk attached. He says the company's revenue per available room (RevPAR) a key measure of profitability in the industry increased about 5 percent during the fourth quarter. The company's room growth also expanded over the fourth quarter and is expected to continue growing.
"While the industry's development environment has become increasingly difficult, 2 percent room growth remains achievable" for this quarter, he says.
Mr. Squeri says another plus for Choice is that it doesn't own any of the hotels' assets.
"That's a good thing during an economic slowdown, or God forbid, a recession," he says. "Our revenue is affected by the growth of franchises, more than occupancy. We can continue to grow because we aren't so reliant on a RevPAR basis. We rely more on contracts."

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