Atour celebrates ‘Year of the Pillow’ with fluffy revenue growth

The hotel operator expects to report 35% revenue growth for all of 2025, up from a 25% forecast at the start of the year, thanks to strong performance for its retail business

Key Takeaways:

• Atour reported 38.4% revenue growth in the third quarter, and raised its full-year guidance to 35% from a previous forecast of 25% growth
• The hotel operator’s revpar continued to decline in the third quarter, but it said the situation should improve after a strong performance during the weeklong Oct. 1 holiday

By Doug Young

The year 2025 could well go down as the “Year of the Pillow” for Atour Lifestyle Holdings Ltd. (ATAT.US).

In its third-quarter financial results, announced last week, the upscale hotel operator said it expects to report 35% revenue growth this year, marking a strong upgrade from the 25% rise it forecast at the start of the year. The main engine behind that growth is the company’s retail business, which allows customers to buy products they see in their rooms through Atour’s online store. That business has done especially well, led by strong performance for its bedding products, including pillows.

Investors were broadly encouraged by the company’s latest report, sending Atour’s stock up 8.5% in the five trading days last week after the announcement. Analysts also quite like the company, with all 19 who follow the stock rating it either a “buy” or “strong buy” – a relative rarity these days due to uncertainty surrounding China’s economic slowdown.

Atour wasn’t immune to that slowdown, recording another quarter of declines for revenue per available room, or revpar, the most widely watched industry metric that combines room prices with occupancy rates. Atour and most of its peers saw their revpar start contracting last year, after recording strong gains in 2023 fueled by a wave of post-pandemic “revenge travel.”

In a slightly encouraging sign, Atour’s rate of revpar declines has been moderating through the year, and fell by a relatively small 2.4% year-on-year in the third quarter to 371 yuan, as the company lowered room prices to attract guests. Not surprisingly, a bright spot for the company was its Atour Light brand, which attracted budget-conscious travelers due to its positioning at the lower end of Atour’s mid- to upper-end range of offerings. One other encouraging sign came from a rise in revpar for the company’s hotels during China’s weeklong National Day Holiday starting Oct. 1, which will be reflected in its fourth-quarter report.

“For the hotel sector, the overall market has shown a moderate recovery since the third quarter,” said Atour founder the Chairman Wang Haijun on the company’s earnings call. “While travel and leisure demand continues to be robust, the industry is also characterized by rapidly shifting hotspots and uneven recovery across regions,” he added, without giving specifics.

Like many consumer-facing industries in China, the country’s leisure and travel sector experienced a strong rebound in 2023 after taking a drubbing during the pandemic. But it began to sag again last year under the weight of China’s slowing economy. Against that backdrop, Atour and some of its peers have helped to keep their growth stories alive partly by aggressively opening new hotels.

Atour opened 152 new hotels during the quarter, raising its total to 1,948 by the end of September. That number was roughly equal to the total number of hotels it opened in the first half of the year, showing it is accelerating its rate of new openings. That acceleration looks set to continue into the fourth quarter, as the company said on the earnings call it had “full confidence” of meeting its goal announced early this year of operating 2,119 hotels by the end of 2025. That means it will need to add 171 during the quarter to meet that target.

Million-yuan pillow

Atour’s revenue grew 38.4% year-on-year in the third quarter to 2.63 billion yuan ($372 million), picking up from the previous two quarters on its accelerated new hotel openings. That brought its revenue growth for the first nine months of the year to 35.5%, which is why the company felt confident raising its full-year revenue forecast to 35% growth from the previous 25%.

The retail business has been the company’s “secret sauce” behind the strong revenue growth, with revenue from that part of the business rising 76.4% to 846.3 million yuan during the quarter from 479.7 million yuan a year earlier. By comparison, revenue from its core hotel business rose by a much slower 25.5% to 1.72 billion yuan from 1.37 billion yuan a year earlier. In that process, Atour’s retail business has grown to account for nearly a third of its revenue compared with about a quarter a year earlier.

The company has found particular success in selling bedding products. It noted one of the retail business’ recent best sellers was its Deep Sleep Memory Foam Pillow, which recorded 100 million yuan in gross merchandise value (GMV) in the first 25 days after its launch, with 8 million of the pillows sold since the product went on sale.

Revenue from the retail business is now up 75% in the first nine months of the year, giving the company confidence to forecast the figure will rise “at least 65%” for the full year. Here, however, we should note the figure was up by a much larger 126% in 2024, which shows the growth rate is likely to keep slowing rapidly as the business matures.

The retail business is a unique feature to Atour, and probably one of the reasons analysts like the company so much, as it carries far higher margins than the hotel business. Atour said its gross margin for the retail business stood at 52.7% in the third quarter, unchanged from a year earlier, while the figure for its hotel business rose 1.3 percentage points year-on-year to a much lower 37.3%.

On its bottom line, Atour reported its profit rose 24.6% year-on-year to 474 million yuan. The slower rise compared with revenue growth was mostly due to non-operational factors including higher tax expense. The company also announced its payment of a second dividend for the year, which will bring its total dividend distributions for the year to a little over $100 million.

While analysts are bullish on the company, investors seem to have more mixed feelings. Even after a 45% increase for its stock this year, Atour’s shares trade at a forward price-to-earnings (P/E) ratio of just 20. That’s well behind the 35 for rival H World Group (HTHT.US; 1179.HK), whose core China business is also suffering, with revpar down 4.7% in the third quarter. But H World also owns a large overseas hotel portfolio, which was suffering for years but has begun to show signs of improvement, including a 6.1% revpar increase in the third quarter.

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