And the hits just keep on coming!
Today it’s not the airline industry, or the retailers, or restaurants. It’s the hotels–another industry completely dependent on discretionary consumer spending.
The culprit once again: High gas prices, the housing slowdown and recession worries, what else?
Marriott International (MAR), Wyndham Worldwide (WYN) and Starwood Hotels (HOT) all lost significant ground this week and traded near their 52-week lows.
Marriott said it expects revenue-per-available-room (what the industry calls “revpar”–a key gauge of a lodging company’s performance) for the second quarter to fall below its earlier forecast.
The company now expects revpar growth to be about 2% instead of between 3%–5%. Not the end of the world, but enough to knock 3% off the price of MAR shares.
Rooms Available
Over the next 6-12 months, the hotel sector can be expected to decline in value as this economic drama plays out. In fact, Chairman and Chief Executive J.W. Marriott Jr. said he would be surprised if he saw anything change in the second half of the year. But once the U.S. economy is finished bleeding itself dry, I believe that value investors can take advantage of the selling as they did in late 2002 after the 9/11 decimation.
Remember all the pent-up demand after 9/11? From a Rational viewpoint, the same can be expected to happen again. Here’s how I see it:
• In the short-term, concerns about rising gas and food prices along with home price deflation will continue dominate the headlines, causing wary consumers to tighten their travel budgets.
• In corporate America, shrinking travel budgets and rising air fares coupled with constrained capacity, is likely to hurt mid-week demand for rooms. Upscale hotel chains rely primarily on the revenues they see from mid-week business travelers and group corporate accounts. MAR says it expects tough negotiations ahead with corporations over rates.
• However, the weak U.S. dollar is keeping a full-blown downturn from occurring in the Hotel industry, as foreign tourists pick up the slack in the leisure side of the business. International stays seems to be strong. Marriott expects international revenue per available room to increase 3–5% in the second quarter.
Investor’s Wake-Up Call
After the initial shock and horror of 9/11, the hotel industry rebounded strongly, proving it’s always darkest before dawn. For those of you looking for a sector that set to rebound, set your alarm. Then check in at Marriott and enjoy a nice, long, leisurely stay.
Jamie Dlugosch
Editor, InvestorPlace
