China Doesn't Check Out

Like a convenient string of boarders, China's three fast-growing lodging chains have posted their quarterly results over the past three days.

Home Inns (Nasdaq: HMIN), China Lodging (Nasdaq: HTHT), and 7 Days (NYSE: SVN) checked in on Monday, Tuesday, and Wednesday, respectively, giving investors a clear snapshot of the hospitality industry in the world's most populous nation.

The picture isn't very pretty.

Home Inns was Monday's guest, posting an adjusted profit of $0.12 a share as revenue climbed 11% to $115.5 million. The news on the bottom line wasn't good. Home Inns had cranked out adjusted earnings of $0.19 a share a year earlier, with Wall Street banking on a $0.14 a share showing this time around.

Revenue per available room -- or RevPAR -- was down sequentially, but that's not a deal-breaker. Seasonality is at play here. The more accurate metric is the year-over-year comparison for hotels open at least 18 months, where RevPAR climbed 1%. The average daily rate has climbed by 4% over the past year, so it does mean there are more empty rooms. Then again, it's not overly problematic with occupancy rates at a brisk 85%.

China Lodging was Tuesday's overnight guest. Revenue climbed 25% to $64.8 million, fueled primarily by the chain's healthy expansion. The hotelier opened 35 locations during the first three months of this year, bringing its total to 473 hotels. Home Inns is much larger with 848 locations.

However, China Lodging also came up short relative to Mr. Market's expectations. Posting a small loss when analysts are targeting a small profit isn't very comforting. Occupancy is respectable at 82%, but year-over-year RevPAR clocked in 2.4% lower than last year's first quarter.

The news doesn't necessarily get any better with last night's report out of 7 Days. As the relative speedster, 7 Days added 51 largely managed hotels to its roster to close out March with 619 locations. Revenue climbed 39% to $64.2 million, but 7 Days' adjusted earnings of $0.05 a share fell well short of guesstimates. RevPAR also clocked in lower.

If you're trying to juggle the numbers of three value-priced lodging chains in China, let me draw it out for you.

These are fast-growing hospitality chains, so investors shouldn't expect chunky margins. If investors want travel plays with high margins, the best bets are portal operators Ctrip.com (Nasdaq: CTRP) and eLong (Nasdaq: LONG). Hotels are only sexy in Monopoly games and in gaming hubs of Las Vegas and Macau.

Investors still interested in cashing in on China's travel boom via the hotels may want to wait until the chains actually begin landing ahead of Wall Street's marks. It's the best way to secure a good night's sleep.

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