Atour Lifestyle Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 16, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the H. O. Lifestyle Holdings Third Quarter 2023 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.

Operator

Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Alison Zhang, Director of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good morning and good evening, everyone. Welcome to our Q3 2023 earnings call. Joining us today are our Founder, Chairman and CEO, Mr. Wang Haijun and our Co Chief Financial Officers, Mr.

Speaker 1

Wang Shao Dong and Mr. 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.

Speaker 1

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 available on our website at ir. Yadu0.com. Now, I will turn the call over to Mr.

Speaker 1

Wang, our CEO.

Speaker 2

Thank you, Alison. Hello, everyone, and thank you for joining Atuo's Q3 2023 earnings call today. We are delighted to report another robust quarter. Our on remitting pursuit of growing to 2,000 premier hotels nationwide by 2025, while establishing the Chinese experience as the industry benchmark, along with the continuous expansion of our brand influence enabled us to capture the growth opportunities arising from both business travel and the peak leisure travel season. As such, we achieved the tremendous breakthroughs across each of our business lines.

Speaker 2

Now I would like to discuss our performance in detail. Let's begin with our hotel business. Travel and accommodation demand maintained solid growth momentum in the 3rd quarter, highlighted by a notable uptick during the summer season. Accordingly, our 3rd quarter's RevPAR increased to a record high of RMB424 and recovery rate rose to 118% of 20 nineteen's level with July, August September reaching 122%, 116% and 115%, respectively. Moreover, our ADR and OCC maintained their robust growth momentum during the Mid Autumn Festival and the National Day holiday period, increasing by 14.6% and 7.2%, respectively, compared with the same period in 2019.

Speaker 2

Together, they boosted our RevPAR's recovery rate for the period to 123% of 20 nineteen's level. Meanwhile, our mature hotels in operation for more than 18 months sustained their excellent performance. Their same hotel RevPAR recovery rate reached 118% of 20 nineteen's level in the Q3, in line with the overall performance of our hotel business, highlighting the market's recognition of Atour's brand as well as outstanding efficiency across our business management and operations. We continued to accelerate our hotel network expansion with 81 new openings in the 3rd quarter, driving our hotel network to reach 11 12 hotels as of the end of September. Meanwhile, propelled by our mounting competitiveness across products and brand, our Q3's new signings grew rapidly and our pipeline continued to flourish.

Speaker 2

As of the end of September, our pipeline had soared to 5 77 hotels, up by more than 60% year over year. AtourLite 3.0, our mid scale offering has continued to gain favor among franchisees since its launch in February. A total of 25 AtourLight 3.0 projects were signed over the quarter, constituting more than 15% of the quarter's total signings. By the end of September, we had opened 13 Atuo Alight 3.0 hotels, primarily located in core business districts in higher tier cities. As a new hotel offering in the mid scale market, Atour 3.0 has won broad market recognition for its stylish design as well as Atour's premier experience, resulting in a strong initial showing.

Speaker 2

In fact, these hotels have performed exceptionally well across key operating metrics since their openings. In their 4th week of operation, average OCC reached 78.8%, while RevPAR surpassed RMB340. We believe AtourLight 3.0 is well positioned to meet young business travelers' demand for high quality accommodation experiences, while capturing the opportunities arising from property grades in core business districts. Moving forward, we anticipate it will rapidly grow to scale. Moreover, we remain dedicated to product innovation to better meet our customers' evolving demands.

Speaker 2

On November 11, we officially launched our brand new upper mid scale flagship product, a tour 4.0 with nature. Inspired by Yado Village, this product revolves around the idea of natural tranquility, providing customers with immersive experiences infused with contentment and relaxation. Elegantly outfitted with images of the brand's distinctive hallmark, Yaduo Village's Tea Tree, a tour of 4.0's lobby is specially designed to reintroduce nature and serenity into urban settings. Its new chatting room offers a practical functional open area to work and socialize beyond accommodations. Additionally, we have fully upgraded Atour 4.0 service standards, amenities and facilities.

Speaker 2

In our Atour 4.0 hotels, we added a special breakfast area providing more diverse options for an exceptionally nutritious and healthy breakfast with carefully selected high quality ingredients such as non GMO soybeans from Northeast China, millet from Midu County on the lowest plateau and many other fresh components. Furthermore, we will cooperate with 2 niche luxury bathing brands to create a comforting experience through their bath products luxurious textures and scents. We also outfitted our gym with equipment from Precor, one of the world's top exercise facility brands to provide our customers a safer and more effective exercise experience in our well appointed fitness facilities. Beyond the enhanced public area design and service standards, we added an innovative exclusive deep sleep floor to our A Tour 4.0 Hotels. This debut concept features stylishly designed corridor slits with a special lighting guidance system as well as our SAF branded fragrance permeating the entire floor to create a serene atmosphere.

Speaker 2

Each room on the floor is equipped with a step less dimming system, one click to sleep smart light controls and enhanced sound insulation, delivering the ultimate in serenity for optimal sleep. Meanwhile, we provide signature products from Atour Planet's deep sleep series in each room to create a perfect balance among support, envelopment and pleasant temperature control further ensuring users relaxing sleep experience. In short, the product innovation we have integrated throughout Atuo 4.0 is a testament to our relentless pursuit of providing the ultimate accommodation experience. We are confident that Atour 4.0 will set a new industry benchmark for customer experience in the upper mid scale market, propelling industry development and further solidifying Atul's market leading competitiveness. Moving now to our Prime memberships.

Speaker 2

Through our persistent efforts to upgrade our membership services and exclusive privileges, our A Card membership program continues to provide outstanding value for our customers. We have progressively expanded our membership network to include hospitality, retail, dining, culture, art, sports and various other premium benefits. Consequently, our A Card membership has gained significant recognition and popularity, resulting in substantial growth of our member base. As of the end of September, the total number of individuals who have enrolled in our A Card membership program exceeded 54,000,000. We are continuously exploring opportunities for cross industry collaboration to enhance ACARD's value perception among our members.

Speaker 2

In October, as an official partner of the Beijing Marathon, Atour extended a series of proprietary rights and benefits to our members, including direct to participant access to the Beijing marathon and an array of value added services such as special breakfasts and energy supply packs. Moving forward, we will continue to broaden our membership benefits and cover more diverse vertical interests through cross industry exploration, developing more opportunities, while building up our membership ecosystem. In addition, we also continued to advance our A plus service offerings to better meet our A Card customers' ever growing and diversifying demands and ensure a unique memorable experience during their stays at a tour. Our signature deep sleep experience is top of mind for many A Card members and our service offerings for achieving deep sleep such as pillow selection and Goodnight Milk have witnessed high levels of demand. Our wide selection of high quality offerings effectively enhance the users' recognition and stickiness, significantly boosting the overall usage rate of our A plus services since the beginning of the year.

Speaker 2

At the same time, our direct sales channels remained effective and strong. Even during the peak summer season for leisure travel, room nights sold through our CRS remained stable, reaching 62.5% in the 3rd quarter. Resilience in both individual and corporate membership channels continued to propel the sustainable growth of our occupancy rate. Now I'd like to move on to our scenario based retail business. We achieved another strong quarter with total GMV reaching a record high of RMB302 1,000,000, increasing significantly by 2 92% year over year.

Speaker 2

Online sales in particular soared, contributing approximately 80% of our total GMV. Our retail business also delivered a remarkable performance during the recently concluded Double 11 Shopping Festival as we topped the pillow sales chart across various third party e commerce platforms. Double 11's GMV across 3rd party online platforms exceeded RMB250 1,000,000, an increase of over 600% compared with the same period last year and an increase of more than 140% from this year's June 18th shopping festival. This impressive performance clearly reflects Atour Planet's continuously strengthening brand awareness and robust growth potential. We have been consistently promoting innovation across our scenario based retail business by identifying and exploring our users' evolving demands through their real feedback.

Speaker 2

Recently, we successfully established an efficient product development mechanism, which has enabled us to roll out numerous blockbuster products. Our Deep Sleep Pillow Pro has enjoyed great success since its launch in March this year, with total sales volume exceeding 800,000 units as of November 11. Moreover, our deep sleep temperature control quilt, which is designed to envelop users in a snug and tranquil environment with its advanced temperature controlled features recorded an outstanding GMV of over RMB10 1,000,000 in September. This remarkable achievement serves as a compelling validation of our outstanding product development capabilities. Beyond our products themselves, exceptional customer experience is the cornerstone of Atour as a leading lifestyle brand.

Speaker 2

Our retail business development and success are not only driven by our innovative deep sleep series products, but also by the high quality shopping experience we provide to our customers. Our Atour Planet flagship stores have garnered 5 star ratings in terms of customer experience on both Douyin and Tmall, significantly outperforming our industry peers. From accommodation to our retail business, we have been proactively implementing our Chinese experience strategy to great effect, further solidifying our brand recognition and propelling our sustainable and quality growth. Last but not least, we embarked upon a journey to rediscover Etou's original aspirations in October and returned to Yunnan Province to revisit Yaduo Village. Yaduo Village's spirit has always been our guiding light, inspiring our commitment to creating an intimate ambiance where people can warmly connect.

Speaker 2

In 2018, we helped the village to form a specialized tea cooperative, adopting an innovative model to encourage full cooperation among enterprises, the cooperative and tea farmers. This initiative has provided a stable income channel for local villagers ever since and empowered Yalo Village to eradicate poverty village wide as of the end of 2019. As of September this year, we have increased the planting area of our 3 tea farms in Nujiang Prefecture to nearly 10,000 Mu and Chinese units of areas. We believe the promotion of tea farms in Yaduo Village will not only help reclaim wasteland for agriculture, but can also contribute positively to Rina's ecological development and environmental conservation. Now I'll turn the call over to our Co CFO, Mr.

Speaker 2

Wu Jian Feng to discuss our financial results. Thank you, Haijun.

Speaker 3

Now I would like to present the company's financial performance for the Q3 of 2023. Our net revenues for the Q3 of 2023 grew by 93.1 percent year over year and 18.4 percent quarter over quarter to RMB1294 1,000,000. The strong increase in the 3rd quarter was driven by the robust growth in both our hotel and scenario based retail business. Revenues from our monetized hotels for the Q3 of 2023 were RMB781 1,000,000, up by 82.9 percent year over year and 24.7% quarter over quarter. These increases were primarily driven by the ongoing expansion of our hotel network and the increase in RevPAR.

Speaker 3

The total number of monetized hotels increased to 10.80 as of September 30, 2023, up by 27.5 percent year over year and 7.9 percent quarter over quarter, while RevPAR surpassed 20 19's level and recovered to RMB418 for the Q3 of 2023 from RMB317 for the same period of 2022. Revenues contributed by our leased hotels for the Q3 of 2023 were RMB238 1,000,000, representing an increase of 49.3% year over year and 8.5% quarter over quarter. These increases were primarily due to the growth of RevPAR. RevPAR of our leased hotels surpassed 20 nineteen's level and recovered to RMB571 for the Q3 of 2023 from RMB384 for the same period of 2022. Revenues from retail and other for the Q3 of 2023 increased by 229.1 percent year over year and 11.4 percent quarter over quarter to RMB275 1,000,000 with scenario based retail revenues growing by 291.7% year over year and 11.1% quarter over quarter to RMB235 1,000,000.

Speaker 3

These increases were attributable to our ongoing efforts to address evolving customer needs as well as our efficient product development mechanism, which enabled us to consistently launch the products that which are well received by customers. In addition, we continued to expand our customer base and enhance our brand recognition through a combination of various online and offline distribution channels. Now let's move to costs and expenses. Our hotel operating costs for the Q3 of 2023 increased by 58.4% year over year to RMB670 1,000,000, mainly due to the increase in variable costs such as supply chain costs associated with the ongoing expansion of our hotel network. Hotel operating costs accounted for 60.5% of total hotel revenues for the Q3 of 2023 compared with 66.3% for the same period of 2022.

Speaker 3

The decrease was due to the robust growth of RevPAR and the economics of scale brought by our rapid network expansion. Other operating costs for the Q3 of 2023 were RMB131 1,000,000, representing an increase of 190.8 percent year over year, driven by increased costs associated with the rapid growth of our narrow base retail business. Other operating costs accounted for 47.6% of retail revenues and others for the Q3 of 2023 compared with 53.8% for the same period of 2022. The decrease was attributable to improved retail business profitability as a result of the increasing contribution from higher margin online distribution channels. Selling and marketing expenses for the Q3 of 2023 increased by 269.3% year over year to RMB112 1,000,000.

Speaker 3

Selling and marketing expenses accounted for 8.7% of net revenues for the Q3 of 2023 compared with 4.5% for the same period of 2022. The year over year increase was primarily attributable to the rapid growth of the scenario based retail business, which was particularly driven by online channels. Bureau and administrative expenses for the Q3 of 2023 were RMB79 1,000,000. Excluding share based compensation expenses of RMB9 1,000,000, adjusted general and administrative expenses increased by 53.3% year over year to RMB 17,000,000 for the Q3 of 2023. Adjusted general and administrative expenses accounted for 5.4% of net revenues for the Q3 of 2023 compared with 6.8% for the same period of 2022.

Speaker 3

The decrease was due to the improvement of our management efficiency and operating leverage. Our technology and development expenses for the Q3 of 2023 were RMB20 1,000,000 compared with RMB16 1,000,000 for the same period of 2022. Technology and development expenses accounted for 1.6 percent of net revenues for the Q3 of 2023 compared with 2.5% for the same period of 2022. We will continue to improve our technology and development capability and invest in comprehensive digital infrastructures to facilitate our long term sustainable goals. Adjusted EBITDA for the Q3 of 2023 was RMB308 1,000,000, up by 122.4 percent year over year.

Speaker 3

Adjusted EBITDA margin for the Q3 of 2023 was 29.4%, with an increase of 4 percentage points year over year. Adjusted net income for the 3rd quarter increased by 144.7 percent year over year to RMB272 1,000,000. Adjusted net gross margin for the Q3 of 2023 was 21.0 percent with an increase of 4 percentage points year over year. The improved group's overall net margin was primarily driven by the increase in gross profit margin in both our hotel and scenario based retail businesses, along with our improved operating leverage. Operating cash inflow for the Q3 of 2023 was RMB543 1,000,000.

Speaker 3

Investing cash outflow and financing cash outflow for the Q3 of 2023 were RMB7 79,000,000 and RMB98,000,000 respectively. Notably, we have maintained a healthy cash position with stable growth momentum. As of September 30, 2023, our cash and cash equivalents totaled RMB2.2 billion. Together with bank structured deposits, we have cash and short term investments totaling RMB3.0 billion. That concludes our financial highlights for the quarter of 2023.

Speaker 3

With that, let's open for Q and A.

Operator

Thank you, sir. We are now going to proceed with our first question. Questions come from the line of Linda Ling from Citi. Please ask your question.

Speaker 4

Thank you. Hi, management. I'm Lily Li from Citi. Thanks for taking my questions. 1st, congratulations.

Speaker 4

I'm very sorry the results for the Q3, including the hotel business and also the retail business. So I want to check with the management that based on the Q4 to date trend, so do you actually have any changes in your full year guidance in terms of the openings like the RevPAR as well as for the top line and the bottom line guidance? And also as we are into the end of this year, also want to check with the company if you have any guidance for growth outlook for next year. Do you have any like the initial expectation to share with us? Thank you.

Speaker 2

Thank you, Lydia. Let me take your question. As of September 30, we have opened 189 hotels cumulatively this year. The trend shows a quarterly increase and we are pretty confident that the new hotel openings will accelerate further in the Q4. And that's why we would like to maintain a target of 280 new hotel openings for the full year.

Speaker 2

And secondly, in terms of the RevPAR, well, in our last earnings call, we had shared that our full year RevPAR recovery rate was to be in the range of 113% to 117%. Well, now that seeing the overall progress till now is including the performance during the summer and the National Day holidays all remained solid and was in line with our expectations. So we are maintaining the full year guidance unchanged still within the range of 113% to 117%. And thirdly, in terms of revenue, as we have achieved many breakthroughs in our retail business, the retail business revenue has continuously exceeded our expectations. Therefore, we will revise up our full year revenue guidance to around RMB4.4 billion with a year on year growth exceeding 90%.

Speaker 2

Regarding guidance for the next year, new hotel openings will progress steadily in line with the pace to achieve our goal of opening 2,000 premier hotels by 2025. And the RevPAR target for next year is to be with some moderate growth based upon this year's fundamental value. And as we are in the middle of internal budgeting for next year 2024, we would like to share more color on the next quarter earnings call. Thank you.

Speaker 1

Thank you, Lydia. Operator, please invite next question.

Operator

Thank you. We are now going to take our next question. And the questions come from the line of Singelyn from CICC. Please ask your question. The line is open.

Speaker 5

So my question is about Atour 4.0, which we launched recently. I feel that it's really big improvement in overall style and quality compared with previous versions. So how can we control the CapEx at $145,000 per room while shipping this? And could you please share with us your expectation on its future RevPAR and the unit economics, including payback period? Thanks.

Speaker 2

Well, thank you very much, Suji, for your questions. Let me answer that. A tour 4.0 with nature distinguishes itself from our traditional business hotels or others. It incorporates many natural native elements to create a sense of natural tranquility. And this provides a relaxation and leisurely ambiance for our guests who are on the business trips or if they are constantly on the go.

Speaker 2

For a mature Atul 4.0 hotel, we would anticipate a RevPAR target of RMB400. At the same time, with breakthroughs in design styles and the upgrades in both facilities and amenities, the CapEx per room would be around RMB145,000 based upon a total number of 140 rooms. Atul 4.0 adopts a large scale modular design, which not only can help to better ensure the project quality, it also helps us to reduce the material and construction period. In general, the investment return period for Atuo 4.0, well, including the renovation period is estimated to be 3.5 years. That is shorter than our previous version, 3.5 years.

Speaker 2

We expect that Atul 4.0 will continue to tour 4.0 will continue to enhance our competitiveness in the upper mid scale hotel market and also lead our long term growth. Thank you.

Speaker 1

Thank you, Sujie. Let's have our next question.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ronald Lang from Bank of America. Please ask your question.

Speaker 2

The performance of the retail business in the 3rd quarters continues to exceed expectations and there was also another breakthrough during Double 11. Could you please provide insights into company's future plans and growth expectations for the retail business? Thank you very much. Well, thank you for your question. Our midterm strategy for the retail business revolves around 2 key approaches.

Speaker 2

The first is to do a subtraction. We aim to focus on concentrating and deepening our presence in the sleep market. And secondly, it is an addition. We are going to leverage our insights into customer behavior and the application of technology to continuously strengthen our product R and D as well as expanding our deep sleep product categories. Like we have previously introduced, our retail product capabilities are continually improving, ranging from the popular deep sleep pillow that gained widespread recognition to the deep sleep temperature control quote, which achieved a monthly GMV exceeding tens of 1,000,000 in September.

Speaker 2

Additionally, we have other products to be launched soon, demonstrating our effectiveness of our product R and Ds, especially the robust system for that. The new product in deep sleep series including the deep sleep mattress, which will be officially launched soon. The deep sleep product line continues to expand gradually extending from hotel users to a broader consumer base. This expansion has significantly increased Atuo Planet's brand influence within the sleep economy. Our retail revenue was RMB235 1,000,000 in the 3rd quarter, increasing significantly by approximately 2 92% year over year.

Speaker 2

During the recently concluded Double 11 shopping festival, we topped the pillow sales chart across various third party e commerce platforms. The Double 11 GME across all third party e commerce channels have exceeded RMB250 1,000,000, an increase of over 6 times 600% when compared with the same period last year and an increase of more than 140% from this year's June 18 shopping festival. With all that, we expect retail revenue for this year to reach RMB900 1,000,000 with a year on year growth exceeding 2 50%. Thank you.

Speaker 1

Thank you. We can take our next question.

Operator

Thank you. We are now going to take our next question. And the question comes from the line of Zhuo Liu from Citix. Please ask your question. Your line is open.

Speaker 2

Thanks management, Zhiwei from Citiks. Tourline 3.0 Warren is making rapid progress on signing and opening. So could you tell us more about the store's current business situation? Besides, will it bring pressure to the group's blended well path with the increase in the production of a tour light? Thanks.

Speaker 2

Thank you, Qiwei, for your question. Let me answer this one. As of the end of September, AtourLight 3.0 has accumulated 71 signed projects, consistently gaining recognition from our franchisees. 13 hotels have been opened, primarily focusing on core business districts in higher tier cities. These stores aim to set a benchmark for quality in the mid scale hotel segment.

Speaker 2

Looking at those Tour Alive 3.0 Hotels that are currently open, they had significantly shortened the ramping up period as a new product. Both ADR and RevPAR are highly competitive when compared to the other mid scale hotels in the same business districts. And regarding the growth of the overall RevPAR next year, despite the structural changes and the pressures brought by the rapid expansion of new hotels and the increasing proportion of tour light, we plan to enhance product competitiveness through product upgrades and rejuvenation of the existing hotels. Additionally, the support for new hotels ramp up will continue, aiming for a sustained and healthy growth in RevPAR. The goal is to achieve moderate growth compared to this year's RevPAR as a baseline.

Speaker 2

Thank you.

Operator

Thank you. We are now going to wait for a few minutes before taking the next question. That concludes the question and answer session. I would like to turn the conference back over to Alison Zhang for any additional or closing remarks. Thank you.

Speaker 1

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.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.

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