Despite Losses, Starwood Beats, Raises Outlook

Feb. 5.10 | About: Starwood Hotels (HOT)

Starwood Hotels and Resorts Worldwide Inc. (HOT) has reported fourth quarter loss from continuing operations of $186 million or $1.03 per share. The company incurred a loss of $45 million or -25 cents per share from continuing operations a year earlier.

However, excluding special items, the company has earned $95 million or 51 cents per share in the reported quarter compared to $88 million or 49 cents in the year-ago period. Results are well ahead of the Zacks Consensus Estimate of 22 cents, primarily driven by better-than-expected revenue. Starwood’s forecast for 2010 also topped the Zacks Consensus Estimate.

Revenue fell 1.2% from the prior-year period to $1.28 billion. While the company continued to experience a decrease in revenue per available room (RevPAR), the rate of deterioration has moderated in the quarter.

Starwood’s results in the reported quarter are significantly impacted by charges associated with its vacation ownership business. During the reported quarter, the company decided to stop certain vacation ownership projects and reduce the pricing of certain inventory at existing projects.

The company incurred a pretax charge of $431 million in the quarter, including a pretax non-cash impairment charge of $362 million related to inventory, fixed assets and goodwill at Starwood Vacation Ownership.

The net loss was $107 million or 59 cents per share in the reported quarter compared to a net income of $79 million or 44 cents per share in the year-ago period.

For full year 2009, Starwood reported a net income of $73 million or 41 cents per share, compared to $329 million or $1.77 per share a year earlier.


Starwood expects its first-quarter results between break-even to a loss of about 4 cents per share. For full-year 2010, the company expects earnings of 63 cents a share before special items. This is ahead of the Zacks Consensus Estimate of 56 cents a share. The company said that though group bookings have picked up, the booking pace for 2010 continues to lag behind 2009.

Inside the Headline Numbers

Worldwide system-wide RevPAR for same-store hotels was down 7.2% (9.6% in constant dollars) compared to the year-ago period. System-wide RevPAR for same-store hotels in North America was down 10.1% (10.7% in constant dollars) year-over-year. However, Management and franchise revenues were up slightly by 0.6% year-over-year.

Worldwide RevPAR for Starwood branded same-store owned hotels decreased 7.9% (10.9% in constant dollars) from the prior-year period. RevPAR for Starwood branded same-store owned hotels in North America decreased 9.6% (10.7% in constant dollars) year-over-year. Internationally, the RevPAR decreased 4.6% (11.3% in constant dollars).

Total vacation ownership revenues of $134 million were flat when compared to the prior-year period.

Margins remain stretched as a result of this revenue decline, though the cost-cutting measures provided some relief. Worldwide same-store company-operated gross operating profit margins declined about 240 basis points.

International gross operating profit margins for same-store company-operated properties decreased about 160 basis points, and North American same-store company-operated gross operating profit margins declined approximately 380 basis points.

The company completed a series of dispositions and financing transactions in the reported quarter, resulting in cash proceeds of approximately $650 million. This was primarily used to prepay debt maturing in 2010 to 2013, reducing net debt as of Dec 31, 2009, to $2.819 billion.

As of Dec 31, 2009, Starwood had approximately 350 hotels in its pipeline, representing approximately 85,000 rooms.