Marriott International (NASDAQ:MAR) has long been associated with its four star and five star hotel properties. The hotel chain, which is trying to expand its international base, is now offering economy tier three star hotels in Europe. The offerings come through a joint venture with IKEA, the large European retailer.
Moxy Hotels will begin operating in early 2014 with the first location coming to Milan. Plans call for 150 franchised locations in the first ten years of the program. Other locations listed on the new Moxy Hotels site include Berlin, Frankfurt, and London. The company's goal is to use Moxy as a way to expand its European presence in countries including: Germany, Austria, United Kingdom, Ireland, Belgium, Italy, Denmark, Netherlands, Finland, Norway, and Sweden.
President of Marriott International in Europe Amy McPherson had this to say about the new hotel chain, "We see a huge opportunity to expand our market share in Europe with Moxy Hotels. The economy tier in Europe represents nearly half of total room supply, yet only 20 percent of these hotels are branded." I share McPherson's excitement of Marriott's entry into the economy tier. Marriott will still keep all the prestige with its brand in America for now with its top brands, but will see rapid expansion in Europe through the drop in class level.
Inter Hospitality, a subsidiary of IKEA, will help Marriott in the expansion of Moxy Hotels. The IKEA brand already has several hotels on the continent. IKEA stores pay a 3% revenue fee to Inter Hospitality, giving the company plenty of revenue to help fund the joint venture with Marriott. Inter IKEA will be investing at least $500 million in the beginning phase of the venture.
Along with being an economy class hotel chain, Moxy will cater to young people with new features. The hotel rooms, which will range in price from $80 to $100, will offer self check-in through mobile devices. Hotel rooms will also be complete with usb ports and charging stations in rooms to connect the technology traveler and casual vacationer.
Currently, Marriott International has over 3700 locations in 74 different countries. In 2011, Marriott had a small 1% market share in Europe. That number is sure to rise with the company's new joint venture. The company's expansion into Europe could help its rapid expansion to its Marriott Rewards loyalty membership program. The hotel chain now has over 40 million members signed up and counts on these for future reservations.
Marriott is calling for 30,000 to 35,000 additional rooms in 2013. Marriott has a pipeline of 130,000 rooms signed to open, with 59,000 of those coming in international markets. In 2012, Marriott added 27,000 rooms to its hotel base. With the company expecting higher room growth and the new Moxy expansion, the company could be in for two years of solid growth and earnings beats.
Company guidance calls for fee revenue to rise 7 to 11%. Earnings per share are guided by Marriott in a range of $1.90 to $2.05. Analysts on Yahoo Finance expect earnings per share of $2.01 in fiscal 2013. Revenue is expected to climb 6% in fiscal 2013 and 8% in fiscal 2014. Analysts expect earnings per share of $2.38 in fiscal 2014.
Marriott shares trade at $40.29, close to their fifty two week high ($41.84). The company has a high price to earnings multiple, but I really see the company surprising investors in the next two years. European expansion will greatly impact the number of rooms that Marriott has in its international segment. Partnering with IKEA and its hospitality brand is the right choice for Marriott and investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.