MARRIOTT INTERNATIONAL INC /MD/ Q1 FY2025 earnings call

• Strong first quarter results despite uncertain macroeconomic environment with regions outperforming expectations. - Development activity robust with record first quarter global signings and net rooms growth 4.6% over trailing 12 months through March. - Global RevPAR rose 4.1% above 3%-4% guidance range, with ADR up 3% and occupancy up 1 percentage point. - Discussed regional performance including U.S. and Canada, international, CALA, EMEA, and Greater China. - Announced acquisition of citizenM, which has over 8,500 open rooms and 600 pipeline rooms. - Marriott Bonvoy loyalty program had nearly 237 million members at end of March with 68% member penetration. - Launched global ad campaign 'You Are The Greatest Souvenir'. - Making progress on digital and technology transformation of reservations, property management, and loyalty systems. - Gratitude to global associates for their hard work and dedication.

Global RevPAR increased just over 4%. U.S. and Canada region RevPAR rose over 3%, with Luxury and Full-Service hotels meaningfully outperforming Select Service properties. International RevPAR was up nearly 6%, led by APAC where first quarter RevPAR rose 11%, driven by strong ADR growth and higher demand from international guests, with RevPAR increases of 16% and 17% respectively in India and Japan. CALA RevPAR rose 7%, led by strong luxury and resort results. EMEA RevPAR rose 6% on solid increases in ADR and occupancy. Greater China RevPAR declined 2% due to weaker macro environment and tough year-over-year comparisons but came in ahead of prior expectation. Group RevPAR rose 8% globally and in the U.S. Business transient and leisure transient each grew 2% globally and 1% in the U.S.

• Lowered full-year RevPAR growth guidance by 50 basis points due to more cautious outlook in U.S. and Canada region. - Second quarter global RevPAR expected to increase 1.5%-2.5%, full-year 1.5%-3.5%. - Full year gross fees expected $5.4B-$5.5B, IMFs relatively in line with last year. - Co-brand credit card fee growth lower than 2024's nearly 10% growth. - Residential branding fees anticipated to decline nearly 50% due to timing of unit sales. - Net rooms growth expected to approach 5% in 2025, with long-term global net rooms growth in mid-single digit range.

• Macro economic uncertainty in U.S., particularly concerns about slowing economic activity and lower consumer confidence. - Impact of construction costs and challenging financing environment in U.S. and Europe. - Potential trade down not seen during the quarter but still a risk. - Weakness in U.S. government RevPAR affecting results in March in U.S. and Canada region.

Q: Just to start on the macro, can we just zoom in on the sort of weaker select service performance that you noted? I mean, how much of that do you think is regional versus the Easter shift impacting demand patterns? And then just more broadly, any more thoughts that would be helpful, especially in light of the fact that you said you're not seeing any trade down effect?

A: Yeah, maybe I'll make a couple of broad macro comments, and then Leeny might give you a little more granular response to your answer. You know, we came out of the start of the year really strong. January and February were terrific. March, as Leeny mentioned in her prepared remarks, we saw a little bit of softness around the edges in the U.S. and Canada. And it was as if the travel community felt a little bit of shock and awe from the early days of the administration. One of the things that's encouraging to us, you heard Leeny talk about preliminary April results. And if you normalize March and April by excluding the impact of Easter, you saw sequential improvement from March to April, which is encouraging. So the hope is, and embedded in our assumptions, is a bit of steady as she goes. Leeny mentioned, we're not assuming a recession scenario. We expect to continue to see pretty solid demand on a global basis, a little more weakness in the U.S. and Canada. And the 50 basis point reduction in guidance really is reflective of Leeny's comment, which is tougher visibility into the back half of the year, given the relatively short booking window.

Q: Just to start on the macro, can we just zoom in on the sort of weaker select service performance that you noted? I mean, how much of that do you think is regional versus the Easter shift impacting demand patterns? And then just more broadly, any more thoughts that would be helpful, especially in light of the fact that you said you're not seeing any trade down effect?

A: Yeah, maybe I'll make a couple of broad macro comments, and then Leeny might give you a little more granular response to your answer. You know, we came out of the start of the year really strong. January and February were terrific. March, as Leeny mentioned in her prepared remarks, we saw a little bit of softness around the edges in the U.S. and Canada. And it was as if the travel community felt a little bit of shock and awe from the early days of the administration. One of the things that's encouraging to us, you heard Leeny talk about preliminary April results. And if you normalize March and April by excluding the impact of Easter, you saw sequential improvement from March to April, which is encouraging. So the hope is, and embedded in our assumptions, is a bit of steady as she goes. Leeny mentioned, we're not assuming a recession scenario. We expect to continue to see pretty solid demand on a global basis, a little more weakness in the U.S. and Canada. And the 50 basis point reduction in guidance really is reflective of Leeny's comment, which is tougher visibility into the back half of the year, given the relatively short booking window.

Q: Hi. Good morning, everyone. Tony or Leeny, maybe we could tackle the development side of the equation. Obviously, your comments and it looks like your activity in the quarter were very encouraging, but could you help us dig in a little bit, particularly on the full-service side? Just how are conversations like in the U.S. right now? What are some of the risks around just slippage with tariffs or kind of uncertainty? And how are developers sort of reacting to what we consider the run rate here in March and April, once some of this uncertainty has kicked in a little bit?

A: Sure. So again, maybe I'll start at a high level and then let Leeny give more detail. To me Shaun, the most encouraging metric on growth that we shared was we signed four rooms in Q1 than in any Q1 in our history. So that in many ways reinforces a theme we've talked about the last number of quarters, which is the vast majority of our owner and franchisee community are long-term investors in the sector, not necessarily getting spooked by some of this short-term turbulence. They believe in the long-term opportunity and the long-term demand trends and travel. They are excited, particularly here in the U.S. and Canada, about a continuation of historically low additions to supply and what that means for them in terms of opportunities. They are, to be sure, a bit frustrated about the relative lack of availability of debt financing for new construction, but they are quite bullish on the long-term.

Q: Hi. Good morning, everyone. Tony or Leeny, maybe we could tackle the development side of the equation. Obviously, your comments and it looks like your activity in the quarter were very encouraging, but could you help us dig in a little bit, particularly on the full-service side? Just how are conversations like in the U.S. right now? What are some of the risks around just slippage with tariffs or kind of uncertainty? And how are developers sort of reacting to what we consider the run rate here in March and April, once some of this uncertainty has kicked in a little bit?

A: Sure. So again, maybe I'll start at a high level and then let Leeny give more detail. To me Shaun, the most encouraging metric on growth that we shared was we signed four rooms in Q1 than in any Q1 in our history. So that in many ways reinforces a theme we've talked about the last number of quarters, which is the vast majority of our owner and franchisee community are long-term investors in the sector, not necessarily getting spooked by some of this short-term turbulence. They believe in the long-term opportunity and the long-term demand trends and travel. They are excited, particularly here in the U.S. and Canada, about a continuation of historically low additions to supply and what that means for them in terms of opportunities. They are, to be sure, a bit frustrated about the relative lack of availability of debt financing for new construction, but they are quite bullish on the long-term.

Q: So I wanted to drill down just a bit on the NUG guidance, which is 4% to 5%, inclusive of citizenM, and noting your commentary that it's pushed toward the higher end. Could you just talk through maybe the puts and takes of, if citizenM is adding 50 basis points, is there a reasonable thought that it could have risen to 4.5% to 5.5%? And what if anything changed that may have altered the thinking there?

A: Yeah, sure. No, I think it's the reality, David, that we start at the beginning of the year with as wide a range as we do, given you are at the very beginning of the year. It's absolutely no other change to our view, except that we're farther in the year, we've got greater visibility, and this is our best thinking at the moment, that with citizenM we're approaching 5%. So no change compared to a quarter ago.

Q: So I wanted to drill down just a bit on the NUG guidance, which is 4% to 5%, inclusive of citizenM, and noting your commentary that it's pushed toward the higher end. Could you just talk through maybe the puts and takes of, if citizenM is adding 50 basis points, is there a reasonable thought that it could have risen to 4.5% to 5.5%? And what if anything changed that may have altered the thinking there?

A: Yeah, sure. No, I think it's the reality, David, that we start at the beginning of the year with as wide a range as we do, given you are at the very beginning of the year. It's absolutely no other change to our view, except that we're farther in the year, we've got greater visibility, and this is our best thinking at the moment, that with citizenM we're approaching 5%. So no change compared to a quarter ago.

Q: Hi, thanks. Maybe just to follow-up on the pipeline conversation. I think there's been some questions around both fees per room over time, as well as key money or the new term lenders associated with development. I'd love to hear just how you think about the fee per room kind of trajectory that's embedded within the pipeline and any capital support, whether it's contract acquisition costs or otherwise, and how you see that changing over time.

A: Sure, maybe I'll take the key money one and you can take the fees per room one. On the key money, to be sure, particularly given the growing importance of conversions across the industry, you are seeing incrementally more use of key money. It tends to be more frequently used in the upper quality tiers, luxury and upper upscale, although occasionally we'll see it come down a category or two, particularly for some of the larger customer urban deals. As our system grows and grows meaningfully, not unreasonable to assume that the absolute amount of key money will go up, but interestingly in 2024, the average amount of key money per deal came down a bit. And so I think the takeaway from that should be, we continue to use the same rigor and discipline that we always have in evaluating when and if we should use some measure of merit balance sheet capacity to drive growth. And as we've talked about frequently, we tend to use merit capital in deals that drive disproportionately high fees.

Q: Hi, thanks. Maybe just to follow-up on the pipeline conversation. I think there's been some questions around both fees per room over time, as well as key money or the new term lenders associated with development. I'd love to hear just how you think about the fee per room kind of trajectory that's embedded within the pipeline and any capital support, whether it's contract acquisition costs or otherwise, and how you see that changing over time.

A: Sure, maybe I'll take the key money one and you can take the fees per room one. On the key money, to be sure, particularly given the growing importance of conversions across the industry, you are seeing incrementally more use of key money. It tends to be more frequently used in the upper quality tiers, luxury and upper upscale, although occasionally we'll see it come down a category or two, particularly for some of the larger customer urban deals. As our system grows and grows meaningfully, not unreasonable to assume that the absolute amount of key money will go up, but interestingly in 2024, the average amount of key money per deal came down a bit. And so I think the takeaway from that should be, we continue to use the same rigor and discipline that we always have in evaluating when and if we should use some measure of merit balance sheet capacity to drive growth. And as we've talked about frequently, we tend to use merit capital in deals that drive disproportionately high fees.

Q: Thank you. And maybe just as a very brief follow-up, but Tony, there's some high level concerns out there about just sort of U.S. brands operating in China, specifically given the specific trade tensions there. Could you just kind of think about, help us think about your positioning there? How do you kind of navigate that as a CEO?

A: Thank you, Shaun. Yeah, so we've talked about this a bit in the past. To me, one of the things that gives me a lot of confidence about the long-term opportunity for China, which is in fact our second largest market, we really are woven into the economy there. Almost the entirety of our 600 plus hotel operating portfolio, almost the entirety of our more than 400 hotel pipeline, is Chinese owned. The vast, vast majority of the associates working in those hotels are domestic Chinese associates. And so, I don't think there is a view in that market that we are just a big American company. I mean, it is viewed in many ways as a Chinese business. The fact that the market is being so driven by domestic Chinese demand, and the way that we're performing there, I think is reflective of the manner in which that domestic Chinese traveler has embraced our portfolio.

Q: Thank you. And maybe just as a very brief follow-up, but Tony, there's some high level concerns out there about just sort of U.S. brands operating in China, specifically given the specific trade tensions there. Could you just kind of think about, help us think about your positioning there? How do you kind of navigate that as a CEO?

A: Thank you, Shaun. Yeah, so we've talked about this a bit in the past. To me, one of the things that gives me a lot of confidence about the long-term opportunity for China, which is in fact our second largest market, we really are woven into the economy there. Almost the entirety of our 600 plus hotel operating portfolio, almost the entirety of our more than 400 hotel pipeline, is Chinese owned. The vast, vast majority of the associates working in those hotels are domestic Chinese associates. And so, I don't think there is a view in that market that we are just a big American company. I mean, it is viewed in many ways as a Chinese business. The fact that the market is being so driven by domestic Chinese demand, and the way that we're performing there, I think is reflective of the manner in which that domestic Chinese traveler has embraced our portfolio.