It can be lonely at the top, but it can also be very profitable. Four Seasons (NYSE: FS ) , arguably the premier player in luxury lodging, is more tied to the cyclicality of the global economy than its peers. In lean times, it can be all too easy for price-conscious travelers to set their sights on more affordable accommodations. On the other hand, when travel is brisk, Four Seasons is well positioned to capture the upper end of the market.
Last year's travel slowdown made for a difficult operating environment, and matters were further complicated by the outbreak of SARS in Asia and Canada and the war in Iraq. What a difference a year makes. Competitors such as Marriott (NYSE: MAR ) , Starwood (NYSE: HOT ) , and Hilton (NYSE: HLT ) have all reported solid gains recently, citing a pickup in both leisure and business travel. Their success had raised the bar, but Four Seasons' second-quarter earnings released this morning were equal to the challenge.
Adjusted earnings for the Canada-based company soared 118% to $19.2 million Canadian dollars, or $0.54 cents, from $8.8 million the year before. Based on exchange rates (each U.S. greenback will get you $1.31 in Canadian currency), earnings of $14.6 million, or $0.39, beat estimates by four cents, on revenues that rose 20% to $73.7 million.
Overall revenues per available room (RevPAR) jumped 22.7%, compared with similar gains of 8.3% at Hilton, 13% at Marriott, and 17% at Starwood. The increase was fueled by spectacular strength in foreign markets -- which account for roughly 40% of revenues -- including 96.7% in Asia/Pacific core hotels and 111.4% in Middle East core hotels. Meanwhile, stateside RevPAR grew 8.1%, driven by a 3.5% bounce in occupancy and a 6.2% increase in room rates.
Four Seasons' management earnings rose 47% to $30.1 million, thanks to renewed travel as well as 10 new properties that have opened recently. The company manages 63 hotels, a number that is expected to rise by 17% over the next 18 months. Incentive fees rose 73%, as expanding operating margins have entitled 36 properties to incentive fee income, 10 more than in last year's second quarter.
It's a new season at Four Seasons, and management is anticipating another double-digit increase in RevPAR for the current quarter. The firm's price-to-earnings-to-growth ratio of 2.77, though, reflects the premium typically attached to the Four Seasons brand, one that is visible in both in the company's rooms as well as its stock price.
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Fool contributor Nathan Slaughter hasn't yet checked into a Four Seasons -- he's waiting for his movie career to take off. He owns none of the companies mentioned.
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