Tough Road Ahead for Starwood Hotels

Starwood Hotels and Resorts (NYSE: HOT) reported that their fourth quarter profit fell 46% and was impacted by charges associated with reducing staff and writedowns in value of two real estate ventures. Starwood Hotels operate under several recognized brand names including the Sheraton and tend to be higher-end hotels. With most American consumers reigning in spending, it's no wonder that sales are down for the company.

Looking ahead to the rest of 2009, Starwood predicted earnings of $200 million which is just slightly below the consensus of analysts' estimates. This figure has to be looked at with skepticism since Starwood's estimate of the first quarter was given as a range between $3 and $13 million which equates to between two and seven cents per share. Since most analysts expected 13 - 14 cents per share in the first quarter, Starwood has a tough job ahead if they expect to meet their full year expectations. The company acknowledged in its statement that predicting their full year's performance was extremely difficult since they are highly dependent upon the state of the nation's economy.

The company said it expects that revenue from all hotels that have been open more than a year to drop by 12-15 percent in 2009 compared to the prior year. For that to happen, about 6 in 7 families would need to make their normal hotel stays for vacation and other travel this year. With nearly 100,000 job cuts being announced just this week, that seems somewhat unlikely.

Starwood's stock price has risen to $17.41 off its low of $11.44 recorded in November. Like many companies in the past year though, HOT has declined dramatically off its 52 week high of over $55 per share in March of 2008. One must expect that the Starwood Hotels and Resorts stock will see further declines from here. By the time the first quarter report is out, we may see further refinement of the 2009 revenue estimate. Unless the economy is showing signs of strong recovery, expect those revisions to be negative.

Disclosure: no positions

Comments

[Lars Jones:]

This is a stunningly poor analysis. Lost in the "six out of seven families must still go on vacation" figure is the fact that most travel is business travel. And why must one "expect" that the stock will decline further from here? Why may we not expect that the expected decline in revenue and earnings is the very reason the stock has already declined?

Jan 30 09:17 AM

[PROXIMO:]

Hate to break it to you Lars----but with massive layoffs being announced every week and consumer spending falling off a cliff--brace yourself----business travel will take a big hit too.


On Jan 30 09:17 AM Lars Jones wrote:

> This is a stunningly poor analysis. Lost in the "six out of seven
> families must still go on vacation" figure is the fact that most
> travel is business travel. And why must one "expect" that the stock
> will decline further from here? Why may we not expect that the expected
> decline in revenue and earnings is the very reason the stock has
> already declined?

Jan 31 02:20 PM

[RobertH:]

When Starwood dramatically increased the "cost" of getting a room using their frequent stayer (Starwood Preferred guest) points a couple years ago I decided not to bother staying at Sheraton any more. Perhaps others are making the same choice. In this environment if they want to attract repeat business customers they will have to have an attractive frequent stayer program - they don't.

Feb 01 04:58 PM

[Maxi:]

Hotel Industry is suffering at the moment after their boom in past 2 years. They need to cut rates down a bit.

Feb 05 11:06 PM