Choice Hotels Earnings Call: Growth Mix vs. RevPAR Headwinds

Choice Hotels International ((CHH)) has held its Q4 earnings call. Read on for the main highlights of the call.

Choice Hotels International’s latest earnings call struck a cautiously optimistic tone as management balanced solid financial execution with pockets of near‑term weakness. Executives leaned on in‑line EBITDA and EPS, strong international growth, and a rich development pipeline to argue that current RevPAR softness is transitory and that the portfolio mix shift should drive more durable earnings power ahead.

Profits Track Guidance as Earnings Quality Holds

Choice delivered full‑year adjusted EBITDA of about $626 million, up 4% from last year and squarely at the midpoint of guidance. Adjusted EPS came in at $6.94, while fourth‑quarter adjusted EBITDA reached $141 million and EPS rose roughly 3% year over year to around $1.60, underscoring steady earnings quality despite macro and industry headwinds.

International Engine Powers Revenue and Room Growth

International operations were a standout, with revenues climbing 37% in 2025 and system rooms expanding about 13% to roughly 160,000. Hotel openings abroad surged 82%, and directly franchised rooms now exceed 40% of the international portfolio, more than 20 percentage points higher over three years, signaling structurally higher-margin international growth.

High-Value Pipeline and Faster Conversion Openings

Management emphasized a higher‑quality development pipeline in which 97% of rooms are tied to higher‑revenue brands and are expected to be about 1.7 times more accretive than the current system. The conversion‑led model is fueling speed, with conversion hotels opening roughly five times faster than new builds and helping drive a 12% sequential increase in the U.S. conversion pipeline and similar growth in Q4 conversion franchise deals.

Extended Stay Remains a Structural Growth Driver

Choice continued to lean into extended stay, logging a tenth straight quarter of double‑digit system growth in the U.S. segment. Extended stay now makes up more than 40% of the U.S. pipeline, with record openings up 8% in 2025 and about 57,000 domestic extended stay rooms at year‑end, positioning the company to capture resilient, longer‑duration demand.

Royalty Rate Expansion Supports Revenue Quality

The company’s mix shift toward higher‑revenue brands translated into steady royalty rate gains, a key metric for investors focused on fee growth. U.S. average royalty rate rose 8 basis points for the year and 10 basis points in the fourth quarter versus 2024, reflecting stronger franchisee economics and Choice’s push into more premium segments.

Partnership and Loyalty Flywheel Spins Faster

Ancillary revenue streams kept building, with partnership revenues up 14% for 2025 and 16% in Q4 driven by co‑brand arrangements and supplier and strategic alliances. Loyalty remains an important lever as Choice Privileges membership surpassed 74 million members, growing 7% year over year with international enrollment up 11%, expanding a valuable direct‑booking and cross‑sell base.

Developer Appetite and Franchise Wins Build Optionality

Developer interest stayed healthy even as the broader hotel construction market slowed, with global franchise agreements awarded up 22% by company metrics. Midscale and economy deals in the U.S. rose about 5%, midscale global agreements increased 14%, and Country Inn & Suites U.S. franchise contracts jumped roughly 50%, suggesting sustained pipeline replenishment.

Balance Sheet Strength and Cash Flow Underpin Strategy

Choice closed the year with about $571 million of liquidity and net debt equal to 3.0 times trailing EBITDA, sitting comfortably within its 3.0x–4.0x target band. Operating cash flow topped $270 million for 2025, including nearly $86 million in Q4, supporting disciplined capital deployment and a much smaller $20 million to $45 million net capital use outlook for 2026.

RevPAR Slips Highlight Near-Term Demand Pressure

Despite these strengths, revenue per available room came under pressure, with global RevPAR down 4.6% in Q4 on a currency‑neutral basis. U.S. RevPAR, excluding last year’s hurricane benefit, fell about 2.2% as specific regions softened and the company faced tough comparisons from prior storm‑related displacement business.

RevPAR Outlook Calls for Q1 Weakness, Q2 Turn

Management guided 2026 global and U.S. RevPAR to a range of negative 2% to positive 1% in constant currency, signaling a sluggish demand environment near term. The company expects RevPAR to remain negative in the first quarter as it cycles hurricane‑boosted results but anticipates an inflection starting in the second quarter as comparisons ease and mix improves.

Macro and Travel Frictions Weigh on U.S. Markets

Operationally, a government shutdown and ongoing softness in international inbound travel dented performance in several U.S. markets. These external factors pressured occupancy and RevPAR across parts of the domestic portfolio in 2025, adding to already challenging comps and highlighting the system’s exposure to policy and travel flows.

Working Capital Timing Creates Temporary Cash Drag

Working capital swings were a notable drag on 2025 cash flow, with roughly $98 million in headwinds from working capital and other items. Management framed most of this impact as timing‑related and expects it to reverse in 2026, but investors will likely watch realized cash conversion closely to confirm that improvement.

Selective Exits Hit Short-Term Unit Growth

Choice accelerated the pruning of underperforming hotels, exiting around 20 properties in Q4 that generated royalties well below the system average. While this strategy trimmed roughly 30 to 40 basis points from net unit growth in the near term, management argued it will strengthen the portfolio over time as higher‑quality hotels backfill the gaps.

Key Money Ramps While Development Outlays Peak

Incentive spending stepped higher with net key money at about $83 million in 2025 on roughly $92 million of gross outlays and is expected to rise to around $105 million to $110 million in 2026 as openings accelerate. Even so, the company expects net development capital outlays, which were about $103 million last year, to taper sharply, freeing capacity for other uses over time.

Modest Room Growth and Limited Buyback Visibility

Global room count rose only about 0.5% in Q4 as selective exits, slower industry‑wide new construction, and conversion timing weighed on expansion. Share repurchases, paused after a roughly $100 million Canadian joint venture buyout and later resumed in Q4, still lack a defined guidance range, keeping the pace of capital returns to shareholders somewhat opaque.

Guidance Signals Slow RevPAR but Better Mix Ahead

For 2026, Choice projects global and U.S. RevPAR between negative 2% and positive 1% in constant currency while targeting mid‑single‑digit growth in average royalty rates and adjusted SG&A. The company expects key‑money outlays of $105 million to $110 million, net development capital of $20 million to $45 million, and a strong balance sheet, and it forecasts a return to positive U.S. net room growth on the back of conversion‑driven, higher‑royalty additions.

The call painted a picture of a company leaning on mix upgrades, international expansion, and extended stay strength to offset near‑term RevPAR and unit growth pressures. While the next few quarters may remain choppy, Choice’s disciplined capital allocation, robust pipeline, and focus on more accretive brands suggest the earnings power story is intact for investors with a medium‑term view.