Atour Lifestyle Q4 2023 Earnings Call Transcript

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March 28, 2024

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Atul Lifestyle Holdings 4th Quarter and Full Year 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. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.

Operator

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 Q4 and full year 2023 earnings call. Today, you will hear from our Founder, Chairman and CEO, Mr. Wang Haijun and our Co Chief Financial Officers, Mr.

Speaker 1

Wang Shodong 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 Q4 and full year 2023 earnings call today. 2023 was an exceptional year for Atour, wherein we unveiled our strategic vision for expanding our portfolio to 2,000 premier hotels nationwide by 2025 and establishing the Chinese experience as the industry benchmark. Throughout the year, we worked diligently to enhance digitalization, organization and corporate culture as well as our management and operations capabilities, which have become the pillars of our sustainable growth as an experience driven business. Today, our signature Chinese experience is resonating deeply with people, evoking a profound collective response.

Speaker 2

Moreover, we have achieved significant milestones in our hotel network expansion. In 2023, we opened a total of 289 new hotels and assigned additional 576 projects, surpassing the targets we set at the beginning of the year and laying a solid foundation for our goal of 2,000 premier hotels by 2025. 2024 is poised to be a year of innovation and breakthroughs as we build on this success. To advance our Chinese experience strategy, we will remain dedicated to providing our customers with multifaceted services and exceptional experiences that go beyond accommodation. 1st, we will promote greater awareness of our cultural inviting and interesting experiences, cultivating lasting bonds with our discerning customers.

Speaker 2

2nd, we aim to establish a virtual cycle fostering seamless customer crossover between retail and accommodation to bring our unique deep sleep experience to all of our members. Finally, we will continue to advance digitalization, empowering experiential upgrades and elevating the Chinese experience to new heights. In terms of our network expansion strategy, we will continue to solidify Atour's leading position in the upper mid scale market while expanding Atour's brand awareness in the mid scale market and establish a sustainable mutually beneficial franchisee ecosystem to help drive our hotel network's steady growth.

Speaker 3

Now I would like

Speaker 2

to provide more details on our performance for the Q4 and the full year of 2023. Let's begin with our hotel business. In the Q4, our RevPAR recovered to 109% of 20 nineteen's level with both ADR and OCC exceeding 20 nineteen's level for the 4th consecutive quarter. Specifically RevPAR's recovery rate for October, November December was 109%, 107% and 110% respectively compared with the same period in 2019. These results underscore the resilience of our hotel business which is primarily fueled by business travel demand.

Speaker 2

Additionally, our mature hotels in operation for more than 18 months performed well during the quarter. Their same hotel RevPAR recovery rates reached 110 percent of 20 nineteen's level in the 4th quarter, aligning with the overall performance of our hotel business. Meanwhile, we have assembled a highly competitive development team with an efficient organizational structure and a unified development strategy in core business districts to empower the rapid expansion of our hotel network. In the Q4, we opened another 100 hotels, a record high on a quarterly basis, resulting in a total of 289 new openings for the full year. As of the end of 2023, we had a total of 1210 hotels in operation.

Speaker 2

Furthermore, our new signings remained robust in the Q4 with our pipeline continuing to expand. As of December 31, the number of hotels under development reached 617 representing 70% year over year increase. AtourLite 3.0, our mid scale offering, continued to garner market recognition as evidenced by 27 new signings during the Q4, accounting for over 15% of our total new signings for the period. As of the end of 2023, we had a total of 25 Atour Life 3.0 Hotels in operation, which progressed swiftly through the ramp up phase and began demonstrating robust operational performance upon entering the mature stage, Particularly in the core business districts of higher tier cities, these hotels have emerged as leaders in both operating performance and customer experiences highlighting a tour of Light 3.0's strength across products, services and brand influence in the mid scale market. Furthermore, we officially established an independent branding department for Couture Lite in the 4th quarter with a primary focus on crafting a differentiated accommodation brand image preferred by young customers.

Speaker 2

We introduced a series of distinctive services represented by Blueprints allowing customers to deeply explore local tourism, cultural and culinary specialties. These initiatives and efforts are dedicated to providing each of our Atour lite customers with a simple pure and relaxing accommodation experience. In addition, to better cater to young business travelers' preferences, we introduced our innovative exclusive AtourLite Privilege Services. Embracing the concept of life at ease, AtourLite 3.0 fulfills young business travelers demand for a stylish personalized and high quality accommodation experience and is earning increasing recognition among customers. As the next flagship brand we are propelling towards the 1,000 hotel mark.

Speaker 2

We are confident in AtorLite 3.0's tremendous potential and firmly believe that it will lead the comprehensive upgrade of China's mid scale hotel market. In the upper mid scale market, we launched Atul 4.0 in November last year, capturing widespread attention and claim from the market upon its release. Guided by even more stringent criteria, we have successfully identified a batch of projects within carefully chosen properties across target cities. The very first Atour 4.0 Hotel is progressing smoothly and is scheduled to open soon. We are confident that as we gradually unveil Atour 4.0 Hotels, they will take our entire upper mid scale portfolio to the next level.

Speaker 2

Moving now to our Prime memberships. Bolstered by Atour's escalating brand recognition, our membership base grew substantially in the Q4 of 2023. As of December 31, our registered members surged by 78% year over year exceeding 63,000,000. Furthermore, a key digitalization initiative this year is to seamlessly integrate retail scenarios into our membership benefits and establish a unified 1 ID a tour membership, which will ultimately encourage mutual access and growth between these 2 major business segments. Moving forward, we will augment premium benefits across all scenarios, unlock value through smooth integration of our corporate and individual membership ecosystems and foster deeper brand collaborations across diverse industries.

Speaker 2

Despite the softening of leisure travel demand during the Q4, business travel activity remained solid. Atour as the preferred brand for business travelers experienced an increase in room nights sold through our CRS to 65.1% for the 4th quarter 63.4% for the full year. Coupled with the rapid expansion of our corporate membership, the contribution of room nights sold to corporate members rose to 20.8% in the 4th quarter. Last but not least, our retail business experienced a dramatic surge in 2023 with full year GMV reaching RMB1.14 billion approximately 3 times higher than last year. Online sales accounted for over 80% of the total GMV with significant breakthroughs on content e commerce platforms.

Speaker 2

For instance, GMV contributed by Douyin soared to RMB400 1,000,000 in 2023, a remarkable 16 fold increase compared with the previous year. Meanwhile, our deep sleep products emerged as a market powerhouse in 2023. Throughout the year, our retail business concentrated on sleep scenarios to gain a deep understanding of customers' sleep related needs and address their sleep difficulties. With a goal of offering customers a relaxing and comfortable sleep experience, Atour Planet's product capabilities continued to strengthen in 2023 with several blockbuster launches in our Deep Sleep series. Among them, our Deep Sleep Pillow Pro sold over 1 point 2,000,000 units across the year topping sales charts in pillow segments on Tmall, Douyin and JD dotcom during the Double 11 Shopping Festival.

Speaker 2

We also maintained our top position as the most mentioned pillow product on Xiaohongshu. Also our deep sleep temperature control quilts a key addition to Atour Planet's ever expanding product portfolio surpassed 100,000 units in sales in 2023. Fueled by our relentless pursuit of innovation and product development, Atour Planet's deep sleep portfolio is poised for further expansion. We made significant strides in our retail business over the past year as we focused on deep sleep scenarios and curated exceptional experiences. Following our Chinese experience strategy, we achieved an industry leading shopping experience across leading third party platforms.

Speaker 2

Moreover, by merging retail and accommodation scenarios, we offered our customers the opportunity to experience and enjoy the comfort provided by the Atour Deep Sleep Pillow Pro through our A plus services during their stay with us, which has attracted a vast pool of customers and recorded more than 400,000 orders to date. Leveraging our invaluable deep sleep insights, we maintain our product growth trajectory in 2023, consistently launching premier products finally attuned to the evolving demands of this era. This strategic approach contributed substantially to the rapid expansion of our retail business. At the same time, we boosted our efforts across brand building and upgrades as well as product development. Drawing upon extensive feedback from our members real sleep experiences, we continually optimize our deep sleep offerings, thereby amplifying our brand and product strength.

Speaker 2

As we move into 2024, our focus will remain on brand driven growth and establishing a comprehensive brand value continuum. We will continue to enhance our products competitive edge and expand product categories utilizing our efficient product development mechanism providing our customers with diverse and superior SME products. Furthermore, we intend to propel synergetic development between our retail and hotel businesses, leveraging our hotels to create a closed loop experiential ecosystem that will allow our customers to engage in a truly immersive sleep experience during their stays. Over the past year, we have witnessed a gradual recovery in domestic business travel demand coupled with explosive growth in leisure travel. Looking into 2024, we expect a sustained upward momentum in business travel and the popularity of experience driven leisure tourism to persist As a leading upper mid scale hotel chain in China, Atour's unique neighborhood style services and innovative deep sleep experience will continue to provide customers with unparalleled accommodation experiences, further enriching towards brand value and expanding the mind share of the Chinese experience.

Speaker 2

Now, I'll turn the call over to our Co CFO, Mr. Wu Jian Feng to discuss our financial results.

Speaker 3

Thank you, Haijun. Now I would like to present the company's financial performance for the Q4 and the full year of 2023. Our net revenues for the Q4 of 2023 grew by 140.4 percent year over year and 15.3% quarter over quarter to RMB 1505 1,000,000. Net revenues for the full year 2023 increased by 106 0.2% year over year to RMB 4,666 1,000,000. The strong increases was driven by the robust growth in both hotel and retail business.

Speaker 3

Revenue from our Managed Hotels for the Q4 were RMB 8 51,000,000, up by 133.3 percent year over year and 9.0% quarter over quarter. For full year 2023, revenue from our Managed Hotels increased by 98.8% year over year to RMB2600 and 6 RMB706 1,000,000. The increases were primarily fueled by the ongoing expansion of our hotel networks and the increase in RevPAR. The total number of monetized hotels increased to 1178 as of December 31, 2023, up by 31.0 percent year over year and 9.1 percent quarter over quarter, while RevPAR recovered to RMB353 and RMB371 for the Q4 and the full year of 2023, respectively. Revenues contributed by our leased hotel for the Q1 were RMB195 1,000,000, representing an increase of 40.4 percent year over year and a decrease of 18.1% quarter over quarter.

Speaker 3

For full year 2023, revenues from our leased hotels increased by 51.9% year over year to RMB808 1,000,000. The increases were primarily due to the increase in RevPAR, which recovered to RMB495 and RMB517 for the Q4 and the full year of 2023, respectively. The quarter over quarter decrease was mainly due to the seasonality and the closure of 1 leased hotel in September. Revenue from the retail business for the Q1 increased by 315.6% year over year and 75.3 percent quarter over quarter to RMB412 1,000,000. For full year 2023, revenues from our retail business increased by 283.2 percent year over year to RMB972 1,000,000.

Speaker 3

The increase was attributable to white bread recognition of our retail brands and compelling product offerings as well as improved product development and distribution capability. Now let's move to costs and expenses. Our hotel operating costs for the 4th quarter increased by 106.0 percent year over year and 18.9 percent quarter over quarter to RMB733 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 quarter over quarter increase was mainly due to an impairment of RMB47 1,000,000 from our leased hotel booked in the Q4 of 2023 compared with RMB13 1,000,000 booked in the previous quarter.

Speaker 3

Hotel operating costs for full year 2023 were RMB2,241 1,000,000, an increase of 60.8 percent year over year. Gross margin for our hotel businesses was 29.9% and 36.8% for the Q4 and the full year of 2023, respectively, compared with 29.3% 27.2% for the same period of 2022. Retail costs for the Q4 increased by 295.4 percent year over year to RMB232 1,000,000. For full year 2023, retail costs increased by 2 138.1 percent year over year to RMB513 1,000,000. The increase was associated with the rapid growth of our retail business.

Speaker 3

Gross margin of our retail business was 43.7% 47.2% for the Q4 and the full year of 2023, respectively, compared with 40.8% 40.1% for the same period of 2022. The increases were attributable to increasing contribution from high margin online sales. Selling and marketing expenses for the Q1 of 2023 increased by 283.2% year over year to RMB207 1,000,000. Selling and marketing expenses for full year 2023 increased by 235.6 percent year over year to RMB470 1,000,000. The increases were mainly due to our increased investment in brand awareness and online channel development associated with our retail business.

Speaker 3

General and administrative expenses for the Q1 of 2023 were RMB105 1,000,000, including RMB2 1,000,000 share based compensation expenses compared with RMB217 1,000,000 including RMB160 1,000,000 share based compensation expenses for the same period of 2022. For full year 2023, general and administrative expenses were RMB451 1,000,000, including RMB152 1,000,000 share based compensation expenses compared with RMB350 1,000,000 including RMB160 1,000,000 share based compensation expenses for full year 2022. The increases, excluding the impact from share based compensation, was primarily due to the increased costs related to management personnel and professional services expenses. Technology and development expenses for the Q1 of 2023 increased by 39.7% year over year to RMB22 1,000,000. Technology and development expenses for full year 2023 increased by 16.8% year over year to RMB77 1,000,000.

Speaker 3

Adjusted EBITDA for the Q1 of 2023 was RMB251 1,000,000, up by 116.1 percent year over year. Adjusted net income for the first quarter increased by 175.8 percent year over year to RMB222 1,000,000. Adjusted net profit margin for full year 2023 was 19.4%, up by 8 percentage points year over year. The significant increase in gross profit margin in both our hotel and retail businesses along with our optimizing operating leverage led to an improvement in the group's overall net profit margin. Notably, we have maintained a healthy cash position with stable growth momentum.

Speaker 3

As of December 31, 2023, our cash and cash equivalents totaled RMB2.8 billion. Among the net cash was approximately RMB2.8 billion. That concludes our financial highlights for the Q1 and the full year 2023. With that, let's open for Q and A.

Operator

Thank Your first question comes from the line of Lydia Ling from Citi. Please go ahead. Your line is open.

Speaker 4

Hi, management. This is Lydia from Citi. So congratulations on the results. And so my question is mainly focused on the growth outlook for 2024. And so basically first is on the like the hotel opening plan and we saw actually like further growth in the pipeline in Q4.

Speaker 4

So what would be your full opening plan for this year? And the second part is on the RevPAR trend, which actually like rebounded well last year. So what's your latest expectation for RevPAR trend for this year and also your revenue guidance? And if any color on the Q1 trend that would be very helpful. And as the Jimmy and the Liberty holiday is approaching, so what will be your expectation on the ramp up performance for these two holidays?

Speaker 4

And so lastly is on the margin trend and so what will be your latest guidance and looking into the 2024 and we see some actual increase in the LIDAR excess ratio in the Q1. So what will be your expectations for the LIDAR 2024? Thank you.

Speaker 2

Thanks, Lydia. Let me answer your question on the new openings. In 2023, we opened 289 new hotels and the total number of hotels in operation by the end of the year was 1210 and that was a 30% increase and we aim to keep that growth rate as well in this year. So this year our target for new openings would reach 360. And among those 360, about 200 to 220 will be a tour hotels, while 60 to 80 will be a tour light hotels.

Speaker 2

And all of this would help us to march towards the 2,000 premier hotels by the year of 2025 and that is our goal. Okay. Now Lydia, let me try to answer your second and the third question. First, regarding the development trend of RevPAR. Well, from the perspective of RevPAR's structure, this year, we will maintain a 30% growth rate of new hotel openings.

Speaker 2

As those new hotels will account for a relatively higher proportion than those of our peers. Meanwhile, the expansion momentum of our mid scale offering, Atour Light, was strong. And that means with more Atour Light hotels to open, they may have a certain impact on our overall RevPAR. And considering what we already have from Q1's data and taking some uncertainties in the external environment into account, overall, we hold a cautiously optimistic attitude for this year's RevPAR growth. We aim to match last year's RevPAR levels.

Speaker 2

And as for the Qiming and May 1st holidays, looking from the reservation data we have, we've seen some very active traffic and obviously they're going to turn out to be pretty nice results for those 2 holidays. And also let me try to update our revenue guidance a little bit as well. As in revenue with the rapid development of both our accommodation and the retail business, we expect the 2024's full year revenue to grow by around 30%. One more note on revenue, that 30% growth will be a leading growth across the industry. And as for profit, we have the confidence to improve it in each of our business segments along with our cost of structural optimizations and the increase of management and operation efficiency.

Speaker 2

However, our overall profit margin may be subjected to changes in the contribution of each revenue streams. We do expect our profit margin to continue with the trend of a relatively stable and moderate growth. Thank you.

Speaker 1

Thank you, Lydia. Let's have next question.

Operator

Thank you. Please standby. Your next question comes from the line of C. J. Lin from CICC.

Operator

Please go ahead. Your line is open.

Speaker 5

So I'll translate my question into English. Thank you, management. We have talked about the new opening. I have a follow-up question on the new signing. So what's the target of the new signing this year?

Speaker 5

And what's the progress in Q1? And do we see obvious change in the franchisees' confidence and interest since this year? Thank you.

Speaker 2

Thank you, Sijie, for your question. As for new signings, we signed 576 projects in the full year of 2023, which was an outstanding performance. And now entering Q1 2024, we have maintained that strong momentum on signings overall. And as we see it, the franchise market is still active. In 2024, we are confident that by leveraging Atour's growing brand influence and with our newly launched product competitiveness, more franchisees are to be attracted into Atour's system for certain.

Speaker 1

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

Operator

Thank you. We will take our next question. Your next question comes from the line of Dan Chi from Morgan Stanley. Please go ahead. Your line is open.

Speaker 2

My question is about scenario based retail business. You recorded a very exceptional performance last year. I would like to ask about the management's 2024 strategic plan on this segment, especially on your product plans. And also any rough revenue guidance contribute to the total revenue, 30% year over year growth revenue guidance? Thank you.

Speaker 2

Well, thank you, Dan, for your question. Retail business as our 2nd growth driver has achieved an outstanding results in 2023 with a full year revenue of RMB970 1,000,000 accounting for 20.8% of our total revenue. In 2024, we will continue to drive the healthy growth of retail business and to keep on strengthening the building of our basic capacity to further focus on the brand and our products. And in terms of branding, we do have the plan to focus on Atour Planet and our deep sleep products. We will consistently improve our R and D capability for retail products to further tap into the deep sleep categories.

Speaker 2

In 2023, we availed of the momentum from 3 Pillow products with 100,000,000 cells each, Successfully launched our deep sleep temperature control quote which had won the consumers favor and very decent sales. In this year's March 21st, I mean 2024 March 21st on the World Sleep Day we launched yet another new product, the Atour Planet Deep Sleep Summer Cool Quilt as a continuous expansion of our product portfolio. At the same time, we will also continue to strengthen the combination of retail business and our accommodation scenarios to place more deep sleep products into our tour hotels this year to create an immersive deep sleep experience scenario for our consumers and to keep on strengthening the mind share of Atoor deep sleep experience. And you probably have noticed that beginning with this latest financial report, we started to disclose information of the retail business as an independent business unit. We also plan to enhance the fundamental capabilities in retail including capabilities in organization, R and D, data infrastructure, channels, etcetera.

Speaker 2

We try to build a solid foundation for our longer term steady growth. Since the beginning of 2024, our retail business continued its positive momentum and we do expect 2024's full year retail revenue to grow more than 50%, reaching RMB1.45 billion.

Speaker 1

Thank you, Dan. Let's have next question.

Operator

Thank you. We will take our next question. Your next question comes from the line of Xin Chen from UBS. Please go ahead. Your line is open.

Speaker 6

This is Xun Chen from GBS. I have two questions. The first is that I have noticed that the effective tax rate has decreased significantly in the Q4. May I know the main reason? The second question is that about the company's plan on the use of cash.

Speaker 6

Is the company considering about raising dividend payout or share buyback to increase shareholder returns? Thanks.

Speaker 2

Well, thank you, Mr. Chen. As for the taxation question, we do have an entity which enjoyed preferential tax policies in 2023 and there was an one off tax exemption in the 4th quarter. As for your second question on cash utilization, well, thanks to our robust business growth and our asset light mode, the group's cash flow maintained healthy growth. On December 31, last year, our group's net cash and short term investment at banks reached a total of RMB3.5 billion.

Speaker 2

And in this year, we will thoroughly consider various means and different ways of rewarding the shareholders such as dividends payout, share buybacks, etcetera to continuously enhance the efficiency of our cash utilization. That's it. Thank you.

Speaker 1

Thank you. And we can take one more question.

Operator

Thank you. We will take our final question. Your final question comes from the line of Candice Sangh from Bank of America. Please go ahead. Your line is open.

Speaker 7

Thanks a lot for the opportunity to raise my questions. This is Candice Zhang from Bank of America. My questions are specifically on A Tour Live 3.0. Management has just shared hotel opening target for 2024. Would you have any goals for new signings of A Tour Life 3.0 in this year?

Speaker 7

And how's the performance and current operation status of those open hotels? Lastly, can management share your views on the competitive landscape of the mid scale hotel segment overall? Thank you.

Speaker 2

Well, thank you, Candace. To our Life 3.0 is our mid scale offering targeting young business travelers and it has been quite popular with the franchisees since its launch in February last year, evidenced by more than 90 new signings in 2023. A tour like 3.0 focuses on core business districts in higher tier cities aiming to set a benchmark for quality in the mid scale hotel segment. And by now, we had a Tour Life 3.0 hotels opened in 21 cities, including Shanghai, Guangzhou, Shenzhen, all with quite decent operational performance. For instance, the average RevPAR for our exemplary hotel, the Atour Life Hotel at Guangzhou Pazhou Exhibition Canton Tower Subway Station, since its opening in November last year, it has exceeded RMB600 in its RevPAR, far exceeding the performance of the surrounding competitors.

Speaker 2

And regarding your second question on the competition in the mid scale market, we believe that the scale of this market has been verified already because with AturaLife 3.0's design catering to the aesthetic view of the young people and the consistent service experience we offer, it can well match the young business travelers' needs for high quality accommodation experience and it has been successfully recognized by the consumers. And as I previously said, the operation performance of Atour Life 3.0 Hotels are very competitive in their business districts. And the advantage in the cycle of return on investment is quite obvious. We believe that with its powerful competitiveness and the extensive market recognition, Atour Light is poised to become our 2nd brand within Atour Group to hit the scale of 1,000 hotels. Thank you.

Operator

And that concludes the question and answer session. I would like to turn the conference back over to Alison Zhang for any additional or closing comments.

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 reconnecting with you next quarter. Thank you and goodbye.

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