Why China Lodging Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China Lodging Group (NASDAQ: HTHT  ) were getting abandoned today, dropping as much as 14% after the hotelier reported quarterly results last night.

So what: Sales grew at a brisk clip, up 35.7% in the fourth quarter, to $141.8, and China Lodging finished with $2.9 million in net income for the period, or $0.29 per ADS when adjusted for non-recurring costs. Analysts had expected EPS of $0.56, however, and the sales figure actually represented a 1.2% sequential decline. Earnings were also down from a year ago as costs outpaced sales, which seems to have alarmed investors. Despite the sequential decrease, management still expects strong growth in 2013, seeing a 26% to 29% increase in top-line sales for the year, and 30% to 32% in the first quarter, ahead of analyst expectations.

Now what: Investors seem to be scared about the drop in net income that China Lodging delivered, which management blamed on cost inflation and the impact of opening 77 leased hotels in the second half of the year. Those hotels did not have the opportunity to contribute normal revenue levels. China Lodging's business has seasonality, and makes most of its money in the second and third quarters. Despite the drop, signs seem to indicate the long-term business is on track, and I expect the drop in profits to be a one-off event.

Want more on China Lodging? Add the company to your Watchlist here.  


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2300192, ~/Articles/ArticleHandler.aspx, 4/21/2014 10:46:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement