DiamondRock Hospitality’s Mixed Earnings Call Outlook

Diamondrock Hospitality ((DRH)) has held its Q1 earnings call. Read on for the main highlights of the call.

During DiamondRock Hospitality’s recent earnings call, the sentiment was one of cautious optimism. The company highlighted positive trends such as urban RevPAR growth and effective cost management, alongside a strong increase in group revenue. However, these positives were tempered by challenges in the resort portfolio, a decline in food and beverage revenue, and downward revisions in adjusted EBITDA and FFO guidance. This mixed picture reflects the company’s navigation through an unsettled economic environment.

Urban Portfolio RevPAR Growth

DiamondRock Hospitality reported a 2% increase in comparable RevPAR over 2024, with total RevPAR rising by 1.6%. The urban portfolio was a significant contributor, showing a 5% increase driven by group and business transient segments. This growth underscores the resilience of urban markets in the company’s portfolio.

Cost Management Success

The company achieved notable success in cost management, particularly within its resort segment, where expenses were reduced by 24% compared to 2024. This reduction expanded the hotel adjusted EBITDA margin by 76 basis points to 32.5%, demonstrating effective operational efficiencies.

Strong Group Room Revenue

First-quarter group room revenues saw a robust increase of 10.4% over the previous year, driven by a 5.2% rise in room nights. Urban hotels were particularly strong, with a 14.4% increase in group revenues, highlighting the strength of group bookings in these markets.

Improved Free Cash Flow

DiamondRock reported a 10% increase in free cash flow per share over the trailing four quarters, reaching 63¢ per share. This improvement in cash flow is a positive indicator of the company’s financial health and operational efficiency.

Share Repurchase Program

The company repurchased 1.4 million shares of common stock at an average price of $7.85, with $160 million capacity remaining for further repurchases. This move reflects DiamondRock’s commitment to enhancing shareholder value through strategic capital allocation.

Resort Portfolio Decline

Challenges were evident in the resort portfolio, where comparable RevPAR declined by 2.1% over 2024, with total RevPAR down slightly by 40 basis points. This decline highlights ongoing challenges in the resort segment, partly due to external factors such as calendar shifts.

Food and Beverage Revenue Decline

Food and beverage revenue at urban hotels declined by 3.3% year over year, primarily due to changes in group program dynamics at the Chicago Marriott. This decline indicates challenges in adapting to shifting consumer preferences and group dynamics.

Group Booking Conversion Challenges

Despite strong group lead generation, closure rates have softened recently, attributed to an unsettled macroeconomic environment. This highlights the challenges in converting leads to bookings amidst economic uncertainties.

Adjusted EBITDA and FFO Guidance Reduction

DiamondRock revised its 2025 corporate adjusted EBITDA guidance, expecting it to be $5 million lower than previous estimates, with adjusted FFO expected to be $1 million lower. This adjustment reflects a more cautious outlook amidst economic headwinds.

Forward-Looking Guidance

Looking ahead, DiamondRock provided guidance for the year, revising its full-year RevPAR growth outlook to a range of minus 1% to plus 1%, a reduction of about 200 basis points from previous guidance. Corporate adjusted EBITDA is expected to range from $270 to $295 million, while adjusted FFO per share remains unchanged at $0.94 to $1.06. The company continues to focus on shareholder value through strategic share repurchases.

In summary, DiamondRock Hospitality’s earnings call reflected a balanced view of optimism and caution. While urban RevPAR growth and cost management were strong points, challenges in the resort portfolio and revised financial guidance indicate a need for careful navigation in the current economic climate. The company’s strategic focus on shareholder value through share repurchases remains a key priority.