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    CHH
    Earnings call· Jun 2026(Q2 FY26)

    CHOICE HOTELS INTERNATIONAL INC /DE Q2 FY26 earnings call CHH

    Aug 5, 2026 Source

    Executive summary

    Choice Hotels Q2 FY26 — Strong Net Rooms Growth and RevPAR Recovery

    Choice Hotels reported encouraging Q2 FY26 results, marked by sequential improvements in U.S. net rooms growth and a 1.3% increase in U.S. RevPAR, supported by strategic investments in its commercial engine and technology. The company is transitioning to a pure-play asset-light franchising model, with capital outlays for hotel development significantly reduced. While adjusted EBITDA saw solid growth, operating cash flow was impacted by increased franchise acquisition costs and higher reimbursable expenses, and the company updated its full-year EPS guidance to reflect higher interest and tax rates.

    Highlights

    5

    • Adjusted EBITDA increased 6% year-over-year to $175 million.

    • U.S. net rooms growth improved sequentially for the second consecutive quarter, now nearly flat year-over-year.

    • Global rooms growth reached 2.6% in Q2, driven by a 16% increase in room openings.

    • U.S. RevPAR increased 1.3% year-over-year, supported by strengthening demand and FIFA World Cup tailwinds.

    • Loyalty membership grew 7% year-over-year to $77 million, with loyalty contribution increasing over 250 basis points.

    Concerns

    4

    • Adjusted SG&A increased 7% year-over-year due to the Canada direct franchising transition and higher account receivable reserves.

    • Operating cash flow declined to $67 million in H1 FY26 from $116 million in the prior year, primarily due to higher franchise agreement acquisition costs and increased reimbursable expenses.

    • The prior year's Q3 included approximately $9.5 million in liquidated damages not expected in Q3 FY26, creating a tough year-over-year adjusted EBITDA comparison.

    • U.S. RevPAR lagged the company's chain scale mix, being under-indexed in urban markets and business transient segments.

    Guidance & targets

    11
    CategoryTargetConfidence
    Full-year 2026 Adjusted EBITDA
    $635 million to $650 million
    high materiality
    High
    Full-year 2026 U.S. RevPAR growth
    0% to 1.25%
    high materiality
    High
    Full-year 2026 Global RevPAR growth
    0% to 1%
    high materiality
    High
    Full-year 2026 U.S. average royalty rate expansion
    7 to 9 basis points
    medium materiality
    High
    Full-year 2026 Global net rooms growth
    approximately 1.5%
    high materiality
    High
    Full-year 2026 Adjusted diluted EPS
    $6.86 to $7.10
    high materiality
    High
    Full-year 2026 Share repurchases
    $175 million and $225 million
    medium materiality
    High
    Q3 2026 U.S. RevPAR growth
    exceed Q2 levels
    medium materiality
    Medium
    Q3 2026 U.S. net rooms growth
    remain broadly consistent with Q2 levels
    medium materiality
    Medium
    Full-year 2026 Adjusted SG&A growth
    mid-single digits
    medium materiality
    Medium
    First disposition of wholly-owned hotels
    occur in the first half of 2027
    high materiality
    Medium

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Global
    Driven by increased room openings and U.S. and international momentum.
    Room openings: +16% YoY
    		—2.6%——
    U.S.
    Net rooms growth improved sequentially for the second consecutive quarter, now nearly flat year-over-year. 75% of U.S. agreements signed year-to-date expected to open this year.
    Gross room openings: +27% YoYGross room openings: +9% sequentiallyRoom exits: -50% YoYFranchise agreements awarded: +30% YoYConversion pipeline: +6% sequentially
    		————
    International
    Reflecting growth across EMEA, Asia Pacific, and Americas regions.
    		—13%——
    Canada
    Net rooms growth, with transition to direct franchising producing immediate earnings benefit and longer-term growth opportunity.
    		—5.4%——
    Extended Stay (U.S.)
    Continues to be a key growth driver, benefiting from diverse longer-stay demand drivers. Approximately 45% of portfolio located within 10 miles of major data centers.
    Consecutive quarters of double-digit rooms growth: 12Share of U.S. pipeline: >40%RevPAR growth near data centers: ~100 bps higher than system average
    		—double-digit——
    Mid-scale and Economy Transient (U.S.)
    Developer interest continued to strengthen, and pipeline for these brands continues to build.
    Franchise agreements awarded: +40% YoY
    		————

    Operational metrics

    22
    Adjusted EBITDA
    $175 million+6% YoY
    Q2 FY26

    Primarily reflecting higher U.S. royalties from improving RevPAR and royalty rate expansion, growth in franchisee programs and services, higher partnership revenues, and benefit of direct franchising in Canada.

    Adjusted EPS
    $2.02+5% YoY
    Q2 FY26
    Revenue (excluding reimbursable)
    $277 million+7% YoY
    Q2 FY26
    Capital outlays for hotel development
    declined 80%YoY
    H1 FY26

    Reflecting transition to asset-light franchising model and substantial completion of capital-intensive phase for Cambria and Everhome.

    Share repurchases
    $133 million
    YTD through July 31

    Part of $172 million returned to shareholders.

    Dividends paid
    $39 million
    YTD through July 31

    Part of $172 million returned to shareholders.

    Total liquidity
    $475 million
    Q2 FY26 end
    Net leverage
    3.1x
    Q2 FY26 end

    Comfortably within target range.

    Loyalty membership
    77 million+7% YoY
    Q2 FY26

    Following the relaunch of Choice Privileges.

    Loyalty contribution
    >250 basis pointsincreased
    Q2 FY26

    Increased during the quarter, indicating higher direct business for franchisees.

    Revenue from small- and medium-sized business travelers
    +8%YoY
    Q2 FY26
    Group revenue
    +16%YoY
    Q2 FY26

    Driven by improved group RFP conversion from AI-enabled easy bid platform.

    AI-enabled easy bid group RFP conversion
    360 basis pointsimproved
    Q2 FY26

    Contributed to 16% year-over-year growth in group revenue.

    AI teammate Charlie operational support requests
    reduced ~40%
    early pilot

    Reduced requests for operational support within the property management system.

    FIFA World Cup RevPAR contribution
    ~60 basis points
    Q2 FY26

    Estimated full year benefit at approximately 30 basis points.

    U.S. average royalty rate
    increased 11 basis points
    Q2 FY26

    Reflects continued mix shift towards higher revenue brands and franchisee-focused initiatives.

    Partnership Services and fees
    $28.7 million+6% YoY
    Q2 FY26

    Mainly driven by higher procurement revenues.

    Adjusted SG&A
    +7%YoY
    Q2 FY26

    Increase reflects transition to direct franchising in Canada and higher account receivable reserves.

    Wholly owned operating hotels
    19
    Q2 FY26 end

    Plus one hotel under construction, with no additional wholly owned hotels in pipeline.

    Balance sheet value of wholly owned hotels, JV, and lending
    $650 million
    Q2 FY26 end

    Represents total investment in wholly owned hotels, joint ventures, and lending programs.

    Key money increase
    $15 million to $20 millionhigher than originally expected
    FY26

    Due to higher room openings and mix shift to higher-revenue brands; underwritten for attractive returns.

    Accumulated surpluses for marketing and reservation reimbursable
    ~$25 million
    prior to FY26

    Used to fund elevated investments in franchisee-facing tools and guest delivery capabilities this year.

    Industry KPIs

    3
    MetricValueDetails
    Comparable sales comps1.3%%
    Group booking pace booking window16%%
    Net unit growth development pipeline2.6%%

    Product announcements

    4
    ProductTypeDetails
    Choice Privilegeslaunch
    Business Direct platformlaunch
    AI-enabled easy bid platformupdate
    AI teammate Charliemilestone

    Risks & headwinds

    6
    Higher interest expense and effective tax rateFY26

    Impacted adjusted diluted EPS guidance for FY26

    Mitigation: Partially offset by the benefit of share repurchases.

    Tougher comparisons for U.S. average royalty rate expansionH2 FY26

    Incorporated into 7 to 9 basis points full-year guidance

    Lapping difficult international growth compH2 FY26

    International growth expected to moderate after 13% YoY growth

    Mitigation: U.S. growth expected to pick up, supporting global net rooms growth guidance.

    Cautious approach to EMEA/EuropeFY26

    Unquantified impact on performance

    Calendar shifts impacting RevPARQ3 FY26

    Labor Day holiday pushed deeper into September, fewer weekend days in August

    Mitigation: Mitigates RevPAR performance given higher competition of leisure travel.

    Volatility in key money disbursement timingFY26 and beyond

    Unforeseen circumstances in property improvement plans could accelerate or push into next year

    Mitigation: Company has a good sense of total outlays over an 18-month period and underwrites deals for attractive returns.

    What to watch in Q3 FY26

    5

    U.S. Net Rooms Growth

    Q4 FY26
    CurrentBroadly consistent with Q2 levels in Q3
    TargetMeaningful step-up in Q4

    Why it matters

    Sustained positive U.S. net rooms growth is a top operating priority and a key driver of long-term earnings.

    We expect the third quarter U.S. net rooms growth to remain broadly consistent with the second quarter levels with a more meaningful step-up expected in the fourth quarter as conversion openings seasonally increase and comparisons become more favorable.

    Q&A highlights

    7

    How can royalty rates be increasing while the company is simultaneously delivering greater value to franchisees?

    Management explained that the increase in royalty rates is primarily due to a mix shift towards higher-revenue brands and new contractual rates for incoming hotel owners, not rate increases on existing franchisees. They highlighted various initiatives to lower franchisee costs and increase revenue, such as reduced prototype costs (25%), increased loyalty contribution (250 bps), and FF&E cost reductions (20%), which are driving stronger development results.

    “This isn't raising rates on existing franchisees, but more contractual as new hotel owners come into the system and pay the published rates that we have today.”

    asked by David Katz · answered by Scott Oaksmith

    2 min read5 chapters

    Detailed Narrative

    01

    Net Rooms Growth Momentum and Conversion Strategy

    Choice Hotels demonstrated significant progress in net rooms growth, with U.S. net rooms improving sequentially for the second consecutive quarter and now nearly flat year-over-year. This was driven by a 27% year-over-year increase in U.S. gross room openings, reaching a 7-year high, and a 50% year-over-year decline in room exits, marking a 6-year low. The company's conversion-led development model remains a key differentiator, with approximately 90% of 2026 U.S. openings expected from conversions, and 75% of U.S. agreements signed year-to-date anticipated to open this year, providing strong near-term growth visibility.

    02

    Enhanced Franchisee Value Proposition

    The company is actively strengthening franchisee economics by lowering costs and increasing revenue. Initiatives include reducing prototype costs by up to 25% across key scale brands, implementing a new FF&E procurement program expected to reduce costs by an average of 20%, and leveraging technology. The relaunched Choice Privileges loyalty program saw membership grow 7% to $77 million and loyalty contribution increase over 250 basis points, directly benefiting franchisee profitability by driving more direct business.

    03

    RevPAR Performance and Demand Drivers

    U.S. RevPAR increased 1.3% year-over-year in Q2, reflecting strengthening demand. The FIFA World Cup contributed approximately 60 basis points to Q2 RevPAR. The extended-stay portfolio continues to be a strong performer, with 12 consecutive quarters of double-digit rooms growth and 45% of its U.S. portfolio located within 10 miles of major data centers, generating approximately 100 basis points higher RevPAR growth than the system average. International RevPAR also grew 2.1% year-over-year on a currency-neutral basis.

    04

    Strategic Capital Allocation and Asset Monetization

    Choice Hotels is prioritizing disciplined capital allocation and transitioning back to a pure-play asset-light franchising model. Capital outlays for hotel development declined 80% year-over-year in the first half of 2026, as the capital-intensive phase of building Cambria and Everhome brands is substantially complete. The company plans to monetize its wholly-owned assets, with the first disposition expected in the first half of 2027, aiming to strengthen financial flexibility and return capital to shareholders.

    05

    Technology and AI as a Core Engine

    Technology and AI are deeply embedded across the business to drive efficiency and value. The AI-enabled easy bid platform improved group RFP conversion by 360 basis points, contributing to 16% year-over-year growth in group revenue. An AI teammate named Charlie within the property management system reduced requests for operational support by about 40% in an early pilot, freeing up staff. The company is actively working with major AI platforms to enhance hotel discovery and booking, aiming to be ahead of the curve in this evolving landscape.

    AI-generated summary of the company’s earnings call. Not investment advice.