Swing Low, Sweet Marriott

Not every stock took off like a half-priced bottle rocket in yesterday's roaring market. Shares of Marriott (NYSE: MAR  ) traded 3% lower after the company posted healthy second-quarter results, but rained on the bullish parade by posting a disappointing near-term outlook.

Yes, the fiscal quarter -- which is actually a 12-week period that ends in mid-June -- was strong. Earnings before gains in the company's volatile synthetic fuel business and a one-time charge from a stock plan settlement soared 36% higher to $0.57 per share. Revenue climbed 11% higher to hit $3.2 billion.

Revenue per available room (RevPAR), the metric that lodging chains favor to indicate unit-level strength, was up a sharp 7.5% for the period.

OK, so the current quarter isn't going to blow past analyst projections like the second quarter did. Wall Street is bracing itself for a $0.37 per-share showing, and along comes Marriott warning the earnings will clock in between $0.27 a share and $0.31 a share for the fiscal third quarter.

So? Analysts are looking for a profit of $1.92 per share for the entire year, and Marriott's full-year outlook of $1.88 per share to $1.96 per share perches the pros smack-dab in the middle.

Marriott is obviously doing pretty well. The company that watches over a mostly franchised empire of 2,898 properties with 521,240 rooms will be adding nearly 30,000 rooms this year and another 30,000 in 2008.

The company's Courtyard, Fairfield, and Residence Inn brands may convey a mid-tier corporate image, but Marriott is making the right moves to expand into family-friendly resorts by teaming up with Viacom (NYSE: VIA  ) to launch its Nickelodeon Resorts by Marriott chain. It is also taking a sashaying step into the chic getaways camp by teaming up with Morgans Hotel Group (Nasdaq: MHGC  ) founder Ian Schrager to design a hip boutique hotel concept.

Schrager, for those who haven't checked out from under a rock for the past few decades, is the mastermind behind the stylish Delano Hotel in South Beach and San Francisco's Clift. He recently left Morgans and will now see if his swanky inns can work through Marriott on a larger scale without the red velvet ropes.

In the Nick of time
The Nickelodeon Resorts concept is also intriguing. I spent a night at the Nick Hotel in Orlando last month. The all-suite hotel -- home to many of the poolside slime bits that they air on Nickelodeon from time to time -- is not a Marriott property. It is actually part of Intercontinental's (NYSE: IHG  ) Holiday Inn chain.

Now, Holiday Inn has been the surprising sleeper in the family travel market. It has added modest indoor water parks to more than a dozen of its properties in recent years. It's actually a bigger play in that niche than Great Wolf Resorts (Nasdaq: WOLF  ) . However, it somehow let Marriott walk away with the Nickelodeon licensing deal.

The first hotel will open in 2010 in San Diego, complete with a 100,000-square-foot water park for the resort's overnight guests. Yes, families heading out to Legoland, Sea World, and the San Diego Zoo will now have the obvious kid-friendly place to stay, and it will be a Marriott property. If things go according to plan, Marriott may have as many as 20 Nickelodeon hotels by 2020.

Dora, Delano, dud
The surprising thing about Marriott's stock is that it's actually trading lower this year. Yes, the market has been strong. Hilton's (NYSE: HLT  ) $26 billion buyout from the new IPO on the block, Blackstone (NYSE: BX), sent many hotel chains higher. Occupancy and rates are climbing through the industry. What does Marriott need to do to get a room with a view around here?

The neglect is unlikely to last. It will take a few years before Schrager and Nickelodeon begin moving the needle at Marriott, but the company is in a good enough groove on its own as it is.

Marriott expects RevPAR to keep chugging along. That's important. Every 1% uptick there -- or 100 basis points -- adds up to roughly a $20 million annual improvement in pre-tax fees coming Marriott's way.

So let the market turn its back on Marriott if it wants to. It's unlikely to last. As long as the numbers check out, it won't be long before Wall Street checks back in.

Great Wolf Resorts is a former recommendation in the Rule Breakers premium growth-stock research service. Check in for 30 days with a free trial subscription offer.

Longtime Fool contributor Rick Munarriz loves to travel and was surprised to see so many people overpaying for mediocre rooms at the Nick Hotel. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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  • Report this Comment On March 31, 2014, at 4:43 PM, sandylaw wrote:

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