8 million pillows support revenue, Atour welcomes a bumper year

Benefiting from strong retail performance, hotel operator Atour expects a 35% increase in full-year revenue for 2025, higher than the initial forecast of a 25% increase.

Key Points:

• Atour's third-quarter revenue grew by 38.4% year-on-year, and the full-year revenue growth guidance was raised from the original forecast of 25% to 35%.
• Average Revenue Per Available Room (RevPAR) continued to decline in the third quarter, but the company stated that with strong performance during the "Golden Week" seven-day holiday, the situation is expected to improve.

Yang Ge

For Atour Lifestyle Holdings Limited (ATAT.US), the growth story for 2025 begins with a pillow.

The high-end hotel operator announced last week during its third-quarter earnings that it expects full-year revenue to grow by 35%, significantly up from the initial forecast of a 25% increase. The main driver of this growth comes from the company's retail business, which allows guests to purchase various products used in their rooms through Atour's online mall. Notably, bedding products, including pillows, have performed exceptionally well, becoming the main source of growth for the retail business.

Investors were generally encouraged by the company's latest financial report, driving Atour's stock price up by 8.5% over the five trading days following the earnings announcement. Analysts also gave positive evaluations of the company, with all 19 analysts tracking the stock rating it as "Buy" or "Strong Buy." In the context of an unclear outlook for the slowing Chinese economy, such unanimous optimism is quite rare.

Atour has not been completely immune to the impact of the economic slowdown, as its average Revenue Per Available Room (RevPAR) recorded a quarterly decline again in the third quarter. RevPAR is the industry's most closely watched core metric, combining room rates and occupancy performance. In 2023, driven by the post-pandemic "revenge travel" wave, Atour and its peers experienced strong RevPAR growth, but it has begun to contract since last year.

Somewhat encouragingly, the decline in Atour's RevPAR has continued to narrow this year, with a year-on-year decrease of only 2.4% to 371 yuan in the third quarter, reflecting that adjustments in pricing strategy have begun to stabilize occupancy demand. Meanwhile, the "Atour Light Stay" brand, positioned in the entry-level market, has performed well, successfully attracting cost-conscious consumers. Another positive signal came from the RevPAR rebound recorded by the company's hotels during China's Golden Week holiday, with related results expected to be reflected in the fourth-quarter earnings report.

Atour's founder and chairman Wang Haijun stated during the earnings conference call, "In terms of the hotel industry, the overall market has shown a moderate recovery since the third quarter." He added, "Although travel and leisure demand remains strong, the industry is also exhibiting characteristics of rapid shifts in hotspots and uneven regional recovery." However, he did not provide specific details.

Like most consumer-facing industries in China, the leisure and tourism sector suffered severe blows during the pandemic but saw a strong rebound in 2023. However, under the pressure of slowing economic growth, it has weakened again since last year. Against this backdrop, Atour and some peers have continued their growth story through active expansion of new hotel networks During the third quarter, Atour opened 152 new hotels, bringing the total number of hotels under its brand to 1,948 by the end of September. This number is roughly equivalent to the total number of new hotels added in the first half of the year, indicating that the pace of opening new hotels is continuing to accelerate. This expansion speed is expected to continue into the fourth quarter. The company stated in its earnings conference call that it remains "confident" in achieving its goal of "operating 2,119 hotels by the end of 2025." To reach this target, the company needs to add another 171 hotels in the fourth quarter.

Golden Pillow

Driven by the accelerated opening of new hotels, Atour's revenue in the third quarter grew by 38.4% year-on-year, reaching CNY 2.63 billion (approximately USD 372 million), which is a faster growth compared to the previous two quarters. This resulted in a cumulative revenue growth of 35.5% year-on-year for the first nine months of the year, which is also the main reason the company raised its full-year revenue growth forecast from the original 25% to 35%.

The retail business can be considered the company's "secret weapon" for driving strong revenue growth. In the third quarter, revenue from this business surged by 76.4% year-on-year, rising from CNY 479 million in the same period last year to CNY 846 million. In contrast, the revenue growth rate of the core hotel operations significantly slowed, with only a 25.5% year-on-year increase in the third quarter, from CNY 1.37 billion last year to CNY 1.72 billion this year. As the retail business rapidly expands, its revenue share has increased from about one-quarter last year to nearly one-third currently, significantly raising its proportion in the group's revenue structure.

Particularly noteworthy is the performance in bedding product sales. The company stated that one of the best-selling products in its retail business recently is the "Deep Sleep Memory Pillow," which recorded a total merchandise transaction value (GMV) of CNY 100 million within the first 25 days of its launch, with a cumulative sale of 8 million pillows since its release.

In the first nine months of this year, the company's retail business revenue grew by 75% year-on-year, giving the company confidence to predict that the full-year revenue increase will "at least reach 65%." However, it should be noted that this business recorded a growth of up to 126% in 2024, indicating that as the business matures, the growth rate is likely to continue but may slow down rapidly.

The retail business is a significant feature of Atour and may be one of the reasons analysts are highly optimistic about the company, as its gross profit margin is significantly higher than that of the hotel main business. Atour stated that the gross profit margin for the retail business in the third quarter was 52.7%, unchanged year-on-year; in contrast, the gross profit margin for the hotel business increased by 1.3 percentage points year-on-year to a significantly lower 37.3%.

In terms of profitability, the company's net profit grew by 24.6% year-on-year to CNY 474 million during the same period. Compared to revenue growth, profit growth was relatively slow, mainly affected by non-operating factors, including increased tax expenses. The company also announced the distribution of its second dividend for the year, bringing the total dividend payout for the year to over USD 100 million