Mixed Results in Atour Lifestyle’s Recent Performance (NASDAQ: ATAT)

Atour Lifestyle Holdings Limited (NASDAQ: ATAT) recently announced its Q1 2024 financial results, showcasing significant growth in its core hotel business and retail segment. Despite the positive revenue outlook, concerns have been raised regarding the increase in selling and marketing costs and uncertainty surrounding future capital return initiatives.

In the first quarter of 2024, Atour Lifestyle’s top line surged by 90% year-over-year to RMB1,468 million, surpassing analysts’ consensus forecast by 7%. The company’s hotel business revenue, which includes both manachised and leased hotels, grew by 58% year-over-year to RMB1,004 million, contributing 68% to the total revenue for the quarter.

The growth outlook for Atour Lifestyle’s core hotel business remains positive, driven by a mix of travelers and the potential rebound in business travel demand. The company’s Atour Light brand, targeting young urban travelers, has shown promising growth prospects with plans to expand the number of Atour Light 3.0 hotels from 36 to 100 by the end of the year.

In addition to its core hotel business, Atour Lifestyle’s retail segment has emerged as a key growth engine, with revenue and Gross Merchandise Value (GMV) soaring by 269% and 277% year-over-year, respectively. The company has revised its full-year revenue growth guidance from 30% to 40%, citing the outstanding performance of its retail business as a primary reason for the upward revision.

However, despite the impressive revenue growth, concerns have been raised over the sharp increase in selling and marketing costs, which rose by 212% year-over-year in the first quarter of 2024. This spike has led to a decline in the company’s EBIT margin, raising questions about the impact on future financial performance.

Moreover, there is uncertainty surrounding Atour Lifestyle’s approach to shareholder capital return. The company does not have a regular dividend policy or an active share repurchase program, leaving investors questioning the management’s plans for future returns to shareholders.

In conclusion, while Atour Lifestyle’s revenue growth and valuation metrics appear favorable, the concerns regarding escalating expenses and uncertainty over capital return strategies have led to a Hold rating for the stock. The company’s valuation, although lower than its peers, is deemed reasonable considering its size and approach to shareholder returns. Investors will be closely monitoring Atour Lifestyle’s future financial performance and capital allocation decisions to gauge the stock’s potential moving forward.