Ladies and gentlemen, thank you for standing by, and welcome to the Atour Lifestyle Holdings Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Alison Zhang, Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning, and good evening, everyone. Welcome to our second quarter 2024 earnings conference call. Today, you will hear from our Founder, Chairman, and CEO, Mr. Wang Haijun; and our Co-CFO, Mr. Jianfeng Wu. Before we continue, please be aware that today's discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties and actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website at ir.yaduo.com, where a copy of the results presentation is also available. Now, I will turn the call over to Mr. Wang, our CEO.

[Foreign Language] [Interpreted] Thank you, Alison. Hello everyone, and thank you for joining Atour's second quarter 2024 earnings call today. During the second quarter of 2024, domestic travel market demand remained steady, with leisure tourism extending its healthy upward trajectory alongside continuously evolving customer demand. By proactively adapting to these shifting marketing -- shifting market dynamics, we further strengthened our leadership in the upper midscale hotel market. We consistently elevated the Chinese experience in our accommodation business during the first half of the year to better address our customer's personalized, diverse, and quality-driven expectations. Meanwhile, we adeptly capitalized on emerging opportunities presented by the latest wave of retail business development. We made substantial headway in propelling holistic, high-quality growth across our business and brand portfolio while continuously, deepening our insight into customer needs and amplifying our brand reputation. Now, I would like to provide more details on our performance for the second quarter of 2024. Let's begin with our hotel business. Please turn to Slide 4 of our second quarter 2024 results presentation. Our RevPAR reached RMB359 in the second quarter of this year, representing 93.5% of its level in the same period of 2023. Notably, our OCC growth remained solid, reaching 101.7% of 2023's level for the same period, further underscoring Atour's resilient demand and strong brand influence. ADR was 92.8% of its level in the same period of 2023, largely due to last year's high comparison base effect. Please turn to Slide 5. Our mature hotels in operation for more than 18 months continued to outpace Group's overall performance during the second quarter. Excluding structural impacts such as the ramp-up of new hotels, same-hotel RevPAR in the second quarter of 2024 reached 96.2% of 2023's level for the same period, outperforming the Group's blended performance by 2.7 percentage…

Thank you, Haijun. Now, I would like to present the company's financial performance the second quarter of 2024. Please turn to Slide 17 of the result presentation. Our net revenue for the second quarter of 2024 grew by 64.5% year-over-year and 22.4% quarter-over-quarter to RMB1,797 million. The year-over-year increase was driven by robust growth in the Manachised hotel business and retail business. The quarter-over-quarter increase was mainly attributable to an increase in RevPAR, which reached RMB359 for the second quarter of 2024, compared with RMB328 for the previous quarter. Revenues from our Manachised hotels for the second quarter of 2024 were RMB1,027 million, up by 63.9% year-over-year and 22.8% quarter-over-quarter. The year-over-year increase was primarily fueled by our ongoing hotel network expansion and the rapid growth of our supply chain business. The total number of Manachised hotels increased to 1,382 as of June 30, 2024, up by 38.1% year-over-year. The quarter-over-quarter increase was mainly due to an increase in RevPAR. RevPAR of our Manachised hotel was RMB355 for the second quarter of 2024, compared with RMB324 for the previous quarter. Revenues contributed by our leased hotel for the second quarter of 2024 were RMB180 million, reflecting a 17.9% year-over-year decline, about 7.3% quarter-over-quarter increase. The year-over-year decline was primarily due to a decrease in the number of these hotels as a result of our product mix optimization as well as a decrease in RevPAR. The quarter-over-quarter increase was driven by an increase in RevPAR, our leased hotels RevPAR was RMB503 for the second quarter of 2024, compared with RMB455 for the previous quarter. Revenues from our retail business for the second quarter of 2024 were RMB537 million, marking a significant increase of 153.6% year-over-year and 28.8% quarter-over-quarter. These increases were driven by widespread recognition of our retail brands and effective…

Thank you. We will now begin the question and answer session. [Operator Instructions] For the benefit of all participants on today's call, if you raise your questions in Chinese, please immediately repeat your questions in English. Please limit your questions to one at a time, if you wish to have follow-up questions, please rejoin the queue. One moment for the first question. Our first question comes from the line of Dan Chee from Morgan Stanley. Please go ahead.

[Foreign Language] [Interpreted] Please allow me to translate my question. This is Dan from Morgan Stanley. First of all, congratulations on the new quarterly record on hotel new openings. I have two related questions on hotel opening and signing. We saw signing progress trended very well in Q2 but Mr. Wang also mentioned about RevPAR year-on-year decline due to high base. So will this change in RevPAR affect the signing progress in second half of this year compared to the number of signing in the first half this year. My second question is given the strong opening so far year to date, will the company change the full year opening target of 360 hotels? That's all for my question. Thank you.

[Foreign Language] [Interpreted] Thank you, Dan. Well, first, we have seen some quite nice progress in both new openings and new signings overall this year. And in that second quarter, we maintained a very positive trend in hotel network expansion with 123 new hotel openings, which also once again broke our quarterly record, and due to this acceleration of openings in the first half of the year, we are now confident that this full year's new openings target will increase from 360 to 400. And as for new signings, due to our continuously strengthening brand influence and product competitiveness in the upper midscale and midscale markets, it's fair to see that we have franchisees having very great confidence and being strongly willing to join our Atour system. We have now more than 700 hotels under development by the end of the second quarter. Meanwhile, we have also applied more stringent requirements on projects' quality this year, because we aim to achieve quality growth with quality. Franchisees also recognize that. They recognize our leading operating performance and the long-term investment return of our brand across the market and we will maintain that momentum to have a healthy and solid signings pace in quarter three. And besides, we believe that now in China, with the increasing chain rate of upper midscale and mid-scale hotel market also that we see the customers are having increasing demand for higher quality products and better accommodation experiences. And we do have enough capabilities to leverage our Atour and Atour Light brands to differentiate ourselves and exert our brand influence to bring some impact to the hotel market and there is enough room for our future growth of both Atour and Atour Light. Thank you.

Thank you, Dan. Next question, please.

One moment for the next question. The next question comes from the line of Xin Chen from UBS. Please go ahead.

[Foreign Language] [Interpreted] Let me translate. I'm Xin Chen from UBS. Thanks to the management for giving this chance to ask questions. The first question is that, may you share with us the company's RevPAR performance since July and does the company have guidance for the full year 2024 RevPAR? The second question is that considering the changes in the Group's revenue structure, may you give us some color on the full-year margin outlook. Thanks.

[Foreign Language] [Interpreted] Thank you, Xin Chen, and let me try to answer your questions. Well in quarter three last year, with the full recovery of domestic tourism, we saw the number of tourists embarked on their summer trips significantly exceeded 2019's level, and this year, our performance in the tourism market actually showed some resilience. However, we still do expect that the high base effect due to the summer peak season last year will still exist in this year's July and August performance. While, looking on the whole year, we do notice that there are still some uncertainties remain for RevPAR. But at Atour, we are quite confident of our performance, especially after removing the impact of new hotels ramping up. We can see that the same hotel RevPAR for mature hotels in operation for more than 18 months, their performance is expected to outperform the Group's blended performance by about 2 percentage points, which is maintained at a relatively stable position. And as for our revenue guidance, despite some volatility in RevPAR, we do expect the group's 2024 revenue to maintain a faster growth and like we previously mentioned, we would like to raise our 2024 full-year revenue growth guidance from 40% as we estimated in the last quarter, to 48% to 52% year-over-year, maintaining our industry-leading growth rate driven by our continued expansion of hotel network and a rapid development of our retail business. As for profit, considering the fluctuation of RevPAR this year, and like you have mentioned, our revenue structure change and continuous optimization of our cost structure, our adjusted net profit margin is expected to remain at about 18% for the whole year. Thank you.

Thank you, Xin. Next question, please.

Thank you for the questions. One moment for the next question. The next question comes from the line of Sijie Lin from CICC. Please go ahead.

[Foreign Language] [Interpreted] So, congratulations for another strong quarter and very happy to see that we achieved continuous breakthrough in product upgrades. Could you please share with us the opening guidance of Atour 4.0 this year? And how would this contribute to RevPAR increase? And regarding our upscale brand, we mentioned before, we are doing some brand upgrades. So how's the progress? Thank you.

[Foreign Language] [Interpreted] Thank you, Sijie, for your question. With the grand opening of our first Atour 4.0 hotel, our upper midscale hotel market has entered a new stage of high-quality development as we see it. Now, there are 50 Atour 4.0 hotels in our pipeline. The benchmark projects in various core business areas will be introduced to the market gradually and it is expected that 8 to 10 Atour 4.0 hotels will be opened within this year. For the first batch of Atour 4.0 projects, we are having higher standards and requirements on those projects, for example, such as on-site selection and property conditions. We have strict screening, because we aim to create a batch of Benchmark Atour 4.0 hotel projects to better demonstrate our brand value and market competitiveness. Like we previously said, during its first month of operation, our first Atour 4.0 hotel achieved a RevPAR exceeding RMB710 and an OCC surpassing 91%. Its outstanding operating performance has far exceeded our product model expectation and that further boosted our confidence in this product of Atour 4.0. We believe that with the scale of Atour 4.0 hotels gradually expand, those hotels will also make a positive contribution to the RevPAR of the whole group as a whole. And you also mentioned in your question you want to know about our upscale brand. Well, our plan is to officially launch our next generation upscale brand within this year, hoping to continuously boosting the development of our brand with some new vitality. Thank you.

Thank you, Sijie. Next question, please.

Thank you for the question. Next question comes from Ronald Leung from Bank of America. Please go ahead.

[Foreign Language] [Interpreted] Congratulations to management for achieving very rapid expansion in the midscale market. Could you elaborate on the new opening target for Atour Light 3.0 this year? And also could you share some color on the initiatives of Atour Light to connect with younger demographic and enhanced brand recognition? Thank you very much.

[Foreign Language] [Interpreted] Thank you, Ronald. Since the launch of our Atour Light, it has been highly recognized in the market. In the second quarter of this year, we had a total of 37 new signings of Atour Light 3.0 and that accounted for more than 20% of our total new signings. As of the end of June, the number of Atour Light 3.0 hotels in operation had reached 54 and we expect that the number of new openings of Atour Light 3.0 hotels within this year will be around 70 to 80 and the number of Atour Light 3.0 hotels in operation could possibly reach 100 by the end of this year. And based on our initiatives of the diversification and youngness of the Chinese experience, we now see a significant increase in the proportion of young consumers and female consumers, both of them for Atour Light. In the first half of this year, the proportion of under 30 years old consumers of Atour Light increased to 30%, and that was nearly 5 percentage points higher than 2023. The proportion of female consumers was also close to 50%. To build upon our ethos of life at ease, we've been consistently introducing and refining the distinctive services at Atour Light hotels, such as we expanded co-branded collaborations with renowned cultural IPs. We better address the needs of young business travelers to deepen their awareness of our brand, Atour Light, and continue to grow our membership and our consumer base. Thank you.

Thank you, Ronald. Next question, please.

Thank you for the questions. One moment for the next question. Next question comes from the line Liu Ji Wei from CITIC. Please go ahead.

[Foreign Language] [Interpreted] I'll translate my question, I am Ji Wei from CITIC. I thought company announced the dividend plan for the next three years roughly calculating the dividend payout ratio is about 60% of the last year net growth rate. So what's the guidance on the dividend payout ratio for the next two years. Also, I want to know if the company will consider other shareholder return plans such as share. Thanks.

[Foreign Language] [Interpreted] Thank you, Ji Wei for your question, and we have always been evaluating and implementing sustained returns for our shareholders. Based on our confidence in the company's future long-term development and upon careful consideration of our profit distribution, we have declared the distributed dividends with an aggregate amount of no less than 50% of its net income for the preceding financial year in each of the announced three financial years commencing this year. However, as our company is still now in a rapid growth phase, we will maintain some flexibility and capital utilization while ensuring business development. The specific dividend amounts will be comprehensively evaluated based on the company's actual and projected results of operations, financials and cash position, capital requirements, and as well as other factors. And in addition to cash dividends, we will continue to explore and actively consider other feasible ways to share the benefits of our growth with our shareholders. Thank you.

Thank you, Ji Wei. Next question, please.

One moment for the next question. Next question comes from Lydia Ling from Citi. Please go ahead.

[Foreign Language] [Interpreted] Thanks, management, I have a question regarding the retail business which we saw still have very solid momentum in the second quarter. So can management share like what's the growth driver behind this very solid growth? And also, could you share your latest retail revenue guidance for the retail business? And yes, and also like what kind of the new products you're planning on the pipeline and also the OP margins for the retail business. Thank you.

[Foreign Language] [Interpreted] Thank you, Lydia. Atour Planet focuses on deep sleep scenarios and we address consumer needs for improving their sleep quality. We are not only paying attention to the innovation of design and materials during our new products R&D, but we also pay special attention to the iterative upgrading of products to ensure that Atour Planet products can timely capture the needs of consumers and whatever the market is changing towards and so that we can continue to provide better sleep experiences to them. And as you asked about any new products, we previously mentioned that we recently had the official launch of our Deep Sleep Thermo-Regulating Comforter PRO. And that product is a groundbreaking addition to our Atour Planet Deep Sleep series. And it had for another time, reinforced our commitment to product development driven by user needs. And as for retail revenue, our second quarter retail revenue reached RMB537 million, a year-over-year increase of above 150%. This not only maintained well because that it's above the growth rate of the industry, but it also even led to the overall growth of the relevant categories on those e-commerce platforms. And based upon this strong performance in the first half of the year, we believe our retail revenue for the full year of 2024, is expected to double year-over-year. And as for retail OP margin, you can see that with our product gross margin being improved and because of our product structure and our channel structure are being optimized and in the second quarter, the gross margin was maintained at 51% and expenses are being well controlled and we do believe that the retail OP margin will be maintained within a double-digit. Thank you.

And that concludes the question-and-answer session. I would like to turn the conference back over to Alison Zhang, for any additional or closing comments.

Thank you for joining us today. If you have any further questions, please feel free to contact us. We look forward to speaking with you again next quarter. Thank you and good-bye.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.