Choice Hotels Books a Solid Quarter

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Hotel franchisor Choice Hotels International (NYSE: CHH) beat the Street's expectations in what was expected to be a tough first-quarter operating environment. The only problem is that Choice's room has no view.

The company reported net income of $18.6 million, up 14% from a year ago. Revenue grew 12% from last year's first quarter, and revenue per available room (RevPAR) rose 2.7%. Hotel and room counts increased by 4% and 3.5%, respectively. Choice is looking for 5% domestic unit growth for the full year, but it guided RevPAR growth lower to 2%, from 3% previously.

Some terminations in the international segment tempered the stronger domestic growth, but repositioning in the international portfolio should now be tapering off.

Even though the numbers were good, though, the company doesn't do much group booking in which reservations are typically made well in advance, and that means it lacks the same visibility as other operators. Furthermore, some of its brands are particularly exposed to the vacation traveler, and high gas prices could have an impact on that segment of business this summer.

Unlike larger industry players such as Marriott (NYSE: MAR) Starwood (NYSE: HOT) and Hilton, Choice franchises only to operators. As a result, new franchisees are very profitable to the company's scalable business model, but the availability of credit to those franchisees could hamper growth. Because its own capital needs are limited, Choice historically has sought to return value to shareholders through dividends and especially share repurchases.

Management seems to be relying on industrywide forecasts in its projections and is appropriately conservative in its guidance. But the reality remains that operations are somewhat offset by the lack of visibility in an economically uncertain time. Eventually, of course, the malaise will pass, and business and vacation travelers will be back in force. When that happens, Choice appears to be well positioned.

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Fool contributor Steven Renaldi does not own shares of any companies mentioned. The Motley Fool has a disclosure policy.