Gaming, lodging, & leisure earnings preview

00:00 Julie Hyman

Investors have a busy week of hospitality and leisure earnings forward, beginning with Marriott on Tuesday. Results will give Wall Street perception into discretionary demand and the spending habits of the common shopper. Here to debate is David Katz, Jeffries’s managing director. David, good to see you. So we have already heard from a handful of lodge chains. We’re going to listen to from extra, in addition to get extra into casinos and gaming, uh, this week. But I’m curious what your impressions have been so removed from what we have heard and the way that form of informs what we would nonetheless find yourself listening to.

00:49 David Katz

Yeah. So look, I believe preparing for Marriott, one of many views that we deliver to it having seen various the lodge firms is, uh, that, you recognize, the volumes and pricing surroundings is absolutely inconsistent. There are challenges inside inbound worldwide journey, uh, notably from Canada. Um, you recognize, we have seen sure segments of enterprise journey, uh, been robust versus weak. We’ve seen low-end revpars, uh, be persistently low. But luckily, once we have a look at firms like Marriott, due to the enterprise mannequin and their means to proceed rising, uh, their models or their nug, uh, they’re capable of proceed rising their base of the core enterprise, and so they additionally get progress, as we all know, from ancillary enterprise. They’re co-branded bank cards and different royalties that they derive. They’re truly even rising sooner, Julie, than, uh, the core enterprise at this level. And so, you recognize, we’re very targeted on these enterprise fashions, uh, and their means to continue to grow, even in a, a very herky-jerky, uh, earnings surroundings that we have been experiencing.

02:45 Julie Hyman

Well, it is attention-grabbing as a result of I’ve, you are not the one one I’ve talked, I’ve heard discuss this web unit progress theme this earnings season. Um, is, is that simply going to, is it, is the reply quantity in a decrease revpar surroundings?

03:15 David Katz

Uh, ever since 2019, proper, in the event you look again at historic revpar, notably within the United States, it has been comparatively anemic. It’s been a low single-digit quantity, uh, however the COVID restoration in that interval. But from a like-for-like foundation, revpar has actually not been a driver of those companies for, for fairly a while, proper? We’re, we’re in yr six of this. What’s been driving these companies is nug and their means to develop their system measurement. Now, a few of that has modified, and that provokes an attention-grabbing debate as a result of, you recognize, the brand new construct of lodges has slowed, and extra of what they’re getting are conversions, both from impartial lodges or different manufacturers switching into theirs, proper? And then extra not too long ago, we have seen these affiliation offers. Like for instance, Marriott has a Bonvoy cope with MGM for the Las Vegas Strip, the place it is not the identical financial depth as a standard deal, however it’s extra rooms within the system, and it is incremental charges, and in order that progress continues, uh, and it begets the ancillary progress that I described earlier.

05:01 Julie Hyman

Interesting. So you need form of extra well-grounded totally different sources of income. Unless folks’s eyes glaze over once more, simply as a reminder, nug equals web unit progress, revpar, income per out there room. Um, on an anecdotal foundation, it would not really feel like will increase in lodge charges, room charges have been slowing down, simply as a shopper, proper? Um, however, however, you recognize, form of, um, situate that for us, contextualize that for us. What charges have been doing?

05:57 David Katz

Yeah. And, Julie, I’m, I’m guessing that the, the finer locations that you just select to remain, uh, you recognize, are most likely nonetheless capable of increase their charges as a result of, uh, if the market will bear it, they will maintain doing it, proper?

06:24 Julie Hyman

So it is my, I, I have to refuse to pay it, I assume is the reply.

06:42 David Katz

Uh, you, you, it is advisable to select to remain someplace else or, or select another trip. Uh, however whenever you look throughout the totally different segments, proper, the financial system and the restricted service segments, uh, have been detrimental for, for fairly a while. Uh, different firms in our protection, for instance, Wyndham selection, that is the place they primarily function, and it has been holding these shares and their valuations again just a bit bit. Uh, the luxurious finish of issues continues to be getting some, some fee progress. The increased finish resorts for some time paused and are actually again getting some fee progress, and one of many necessary drivers we must always contact on, you recognize, is group enterprise, proper, the place conventions are a perform of the enterprise financial system, and they’re nonetheless producing, you recognize, fairly good progress, though we heard some commentary about possibly some slowdown within the again half of this yr. But up to now they have been working properly. The most necessary factor, Julie, to recollect is that revpar lasts for a day, and nug, you recognize, might final a lifetime.

08:16 Julie Hyman

Right, is smart. Um, and simply rapidly earlier than I go away you, I do wish to ask you a query concerning the sports activities betting shares forward of soccer and all of our winter sports activities. Is now the time to get in on these, on these shares?

08:45 David Katz

Uh, there may be completely a seasonal focus from Wall Street on sports activities betting. Uh, these firms will typically spend a good quantity of selling and advertising and marketing in most of 3Q till the soccer season begins. Uh, traditionally, soccer has been roughly 40% of sports activities betting volumes right here within the US. And so we do count on there’s going to be, you recognize, an growing curiosity in sports activities betting shares as we go ahead. I do wish to level out we’re spending a ton of time engaged on the prediction markets, proper? And their legality and what they imply, uh, for his or her presence inside, you recognize, the sports activities betting market over time. But, however I, I’m glad you introduced them up as a result of they’ll turn out to be a way more targeted subgroup of our protection as we get into the following weeks.

09:58 Julie Hyman

Well, good. We’ll must meet up with you once more on that and on that prediction markets, which I agree are fairly fascinating. But, David, we obtained to depart it there for now. Thank you a lot. Appreciate it.

10:12 David Katz

Thank you.