Choice Hotels (CHH) Q4 2025 earnings review
Record Profits Mask Domestic Shrinkage
Choice Hotels delivered record FY25 Adjusted EBITDA ($626M) and accelerated international growth (+12.5% rooms). However, the core Domestic business is under pressure: Domestic RevPAR fell 7.6% in Q4 (or -2.2% excluding prior-year hurricane comps), and the Domestic room count actually shrank by 2.9% YoY as the company 'optimizes' its portfolio. FY26 guidance forecasts slow growth (Adj. EBITDA +1-3%) and continued RevPAR challenges (-2% to +1%). The narrative has shifted from broad domestic growth to international expansion and extracting higher royalties per unit.
🐂 Bull Case
International is booming with 12.5% net room growth and 3.2% RevPAR growth in Q4. The acquisition of Choice Hotels Canada and direct franchising expansion in EMEA are tangible drivers reducing reliance on the US market.
Despite portfolio shrinkage, pricing power remains. The domestic effective royalty rate expanded 10 basis points to 5.19% in Q4, proving Choice can extract more value from its remaining franchisees.
🐻 Bear Case
The domestic footprint shrank by ~15,000 rooms (-2.9% YoY). While management calls this 'optimization,' a shrinking unit count in the core market creates a significant headwind that higher royalty rates must work harder to offset.
Domestic RevPAR collapsed 7.6% in Q4. Even adjusting for the 2024 hurricane comp, it was down 2.2%. FY26 guidance of -2% to +1% suggests management sees no immediate recovery in domestic demand.
⚖️ Verdict: ⚪
Neutral. The international pivot is successful and profitability is resilient, but the core domestic engine is sputtering with negative unit growth and negative RevPAR. FY26 guidance implies a stall in growth momentum.
Key Themes
Domestic Footprint Shrinkage
A major red flag: Domestic net rooms declined 2.9% YoY (from 511,739 to 496,979). Management frames this as 'strategic exits' of lower-performing economy hotels to boost quality, but net unit contraction puts immense pressure on RevPAR and royalty rates to drive growth. Economy chain scale occupancy dropped 290 bps to a concerning 42.6% in Q4.
International Acceleration
International is the new growth engine. Net rooms grew 12.5% YoY, and RevPAR rose 3.2%. Key wins include doubling the portfolio in France (Zenitude agreement) and onboarding 8,300 rooms in China. This diversification is critical as the U.S. market softens.
Ancillary Revenue Growth
Partnership services and fees grew 16% in Q4 and 14% for FY25, reaching $113.8M. Expanding the credit card program and franchisee services is successfully diversifying revenue away from pure room-night dependence, buffering the EBITDA impact of negative RevPAR.
Economy Segment Deterioration
The Economy segment (Econo Lodge, Rodeway) is struggling significantly. Q4 RevPAR plummeted 14.0% and occupancy hit a low 42.6%. This segment appears to be the primary source of the 'strategic exits,' but the severity of the decline suggests structural weakness in the lower-end consumer.
Upscale & Extended Stay Shift
Despite overall domestic contraction, the focus remains on 'revenue intense' segments. Global upscale, extended stay, and midscale rooms grew 1.2%. U.S. Extended Stay managed 11.7% net room growth. The portfolio transformation is real, but it hasn't yet fully offset the economy segment churn.
Other KPIs
Stable/Decelerating. grew 3.6% YoY, hitting a record. However, guidance for FY26 ($632-647M) implies growth slowing to ~1-3%, indicating the business is hitting resistance from macro headwinds.
Accelerating. Up 8 basis points YoY (5.19% in Q4, up 10 bps). This pricing power is the primary defender of margins as unit count falls. Management guides for 'mid-single digits' growth in this metric for FY26.
Includes $135.8M in buybacks and $53.5M in dividends. With leverage at 3.0x Net Debt/EBITDA and $571M in liquidity, the company maintains capacity for returns, though M&A (Canada) took priority in 2025.
Guidance
Stable. Implies roughly 1% to 3.4% growth over FY25 ($626M). This low-growth outlook reflects the difficult RevPAR environment and the net impact of portfolio churn.
Decelerating. Down significantly from FY25 reported Net Income of $370M. *Context:* FY25 included a one-time ~$100M gain from the Choice Hotels Canada acquisition remeasurement. Excluding that, this guidance is roughly flat to slightly up operationally.
Stable/Weak. Essentially flat outlook following a negative year (-3% Domestic in FY25). Suggests no expectation of a V-shaped recovery in demand.
Stable. Matches the 0.5% Global growth seen in FY25. Indicates that international additions will barely outpace domestic subtractions.
Key Questions
Domestic Turnaround Timeline
Domestic rooms shrank 2.9% this year. When does 'optimization' end and net growth resume? Is the current 1% global growth target purely dependent on International?
Economy Segment Floor
With Economy RevPAR down 14% and occupancy at 42%, is there a risk of accelerated franchisee attrition beyond what is planned? How stabilizes this segment?
Capital Allocation Priority
With the stock trading at these levels and growth slowing to low single digits, will the company accelerate buybacks in FY26 compared to FY25?