Ladies and gentlemen, thank you for standing by. Welcome to the Atour Lifestyle Holdings Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 Mr. Luke Hu, Senior IR Manager. Thank you. Please go ahead, sir.

Thank you, operator. Good morning and good evening, everyone. Welcome to our Third Quarter 2024 Earnings Conference Call. Today, you will hear from our Founder, Chairman, and CEO, Mr. Wang Haijun; and our Co-CFO, Mr. Wu Jianfeng. 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 the 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.

Thank you, Luke. Hello, everyone, and thank you for joining Atour's third quarter 2024 earnings call today. In the third quarter of 2024, domestic travel demand demonstrated steady growth. Leisure tourism remained highly active, highlighting the strong resilience of the service consumption market. Following last year's surge in pent-up travel demand, consumer behavior returned to a more rational pace this summer, with a more diverse array of tourism hotspots emerging. In response to a fluctuating market environment and evolving consumer demand, as a leading lifestyle brand, we will continue to innovate and elevate our hotel offerings while strengthening our service advantages to deliver a superior customer experience. Additionally, we will drive high-quality growth in our retail business centered around our deep sleep products to reinforce towards distinctive competitive edge. Now, I would like to provide more details on our performance for the third quarter of 2024. Let's begin with our hotel business. Please turn to Slide 4 of our 3Q24 results presentation. Our RevPAR reached RMB380 in the third quarter of 2024, representing 89.5% of its level for the same period of 2023, with OCC and ADR achieving 97.5% and 92% of their levels for the same period in 2023, respectively. Due to the high comparison base effect, ADR faced a certain pressure this summer, while OCC also experienced a year-over-year decline amidst the shift to outbound tourism. Please turn to Slide 5. In the third quarter, our mature hotels in operation for more than 18 months continued to deliver solid operational performance. Excluding structural impacts such as the ramp-up of new hotels, same-hotel RevPAR in the third quarter of 2024 reached 91.6% of 2023's level for the same period, outperforming the group's blended performance by 2.1 percentage points. Specifically, OCC and ADR stood at 98.3% and 93.4% of their…

Thank you, Haijun. Now I would like to present the company's financial performance for the third quarter of 2024. Please turn to Slide 18 for the results presentation. Our net revenues for the third quarter of 2024 grew by 46.7% year-over-year and 5.7% quarter-over-quarter to RMB1,899 million. The year-over-year increase was driven by robust growth in the manachised hotel and retail businesses. The quarter-over-quarter increase was mainly attributable to an increase in RevPAR, which reached RMB380 for the third quarter of 2024 compared with RMB359 for the previous quarter. Revenues from our manachised hotels for the third quarter of 2024 were RMB1,179 million, up by 51.0% year-over-year and 14.8% 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 1,504 as of September 30, 2024, up by 39.3% year-over-year. The quarter-over-quarter increase was mainly due to an increase in RevPAR. RevPAR of our manachised hotels was RMB376 for the third quarter of 2024 compared with RMB355 for the previous quarter. Revenues contributed by our leased hotels for the third quarter of 2024 were RMB190 million, reflecting a 20.4% year-over-year decline, by a 5.1% quarter-over-quarter increase. The year-over-year decline was primarily due to a decrease in the number of leased 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 RMB527 for the third quarter of 2024, compared with RMB503 for the previous quarter. Revenues from our retail business for the third quarter of 2024 were RMB408 million, reflecting a 104% year-over-year increase by a 10.6% quarter-over-quarter decline. The year-over-year increase was driven by widespread recognition of our retail brands…

[Operator Instructions] Our first question comes from the line of Ronald Leung of Bank of America. Please go ahead.

Let me translate my question in English. Thank you very much for taking my question, management. Could you provide more color on the third quarter Q4 and also October RevPAR performances? Also, could you advise on the RevPAR guidance for 2024? Would there be any change to the full-year revenue growth guidance as well? Thank you very much.

Let me answer your question, Ronald. When we split the 3Q RevPAR into details, we can find that it was influenced by not just the high base from last summer, but also from multiple factors, including the two typhoons we faced in September, the multiple new hotels that got opened near the end of the month and that the public holidays were rearranged. So those were the main reasons for September's RevPAR performance to be under pressure and impeding the overall 3Q performance. However, we do see that the high base effect has eased since October, especially during the National Day holiday. We saw the traffic growth driven by leisure travel has led to an increase in OCC year-over-year, although there are still some pressure on prices, but the decline in RevPAR has shown a narrowing trend. And as for the full-year RevPAR forecast, well, due to the influence of multiple factors, we believe there are still uncertainties. We will prioritize stabilizing our OCC and capture the core revenue opportunities ahead of us. The full-year RevPAR is expected to decline by a mid-to-high single-digit year-on-year. For financial outlook, although our RevPAR faces some volatility, but thanks to our rapidly expanding hotel network and our strong retail growth, we maintain our previous revenue guidance of growth for 48% to 52%.

Thank you.

Thank you, Ronald. Next question, please.

Thank you. One moment for the next question. Next question comes from Sijie Lin from CICC. Please go ahead.

So congrats for another strong quarter. My question is, since this year we have achieved rapid hotel opening, will we maintain the 400 hotel opening guidance or adjust again? And the new signings are also strong, but considering the RevPAR decline led by high base and supply growth, will there be any changes in new signing momentum going forward? Thank you.

Thank you for your question, Sijie. Well, this year, our overall rhythm of new openings and new signings had both maintained quite good momentum. As for new openings, this year we have the positive trend, which got continued in our third quarter with a total of 140 new openings, and that once again broke our quarterly record. So far this year, we have opened 360 hotels and we are confident enough to raise our full-year new openings guidance from the original 400 to 450. In terms of new signings, although our RevPAR has fluctuated, but the franchising demand is still very active with franchisees' investing will stay very strong. In the third quarter, the repurchase rate of our franchisees exceeded 50% and this number reflected their sufficient confidence and the recognition of our Atour brand. Meanwhile, we will also strengthen our control over the quality of our new signings. We're going to be selecting the contracted property conditions with stricter standards. Despite our accelerated new openings this year, we still have a very sufficient reserve in our pipeline of hotels to steadily carry forward our strategy of 2,000 premier hotels by next year.

Okay, thank you.

Thank you, Sijie. Next question, please.

Next question comes from the line of Dan Chi from Morgan Stanley. Please go ahead.

This is Dan from Morgan Stanley. We noticed the company recently launched an upscale brand, SAVHE. Congrats on the new breakthrough. Can you share more details on the unit economics of SAVHE, such as its target ADR, RevPAR, CapEx or typical payback, et cetera? Going forward, what's the management strategy on upscale segment, which is currently still small compared to the company's portfolio? Thank you.

Thank you, Dan. Let me address your question on the high-end market thinkings first. Nowadays we see traditional upscale hotels are facing many structural challenges such as their relatively aged facilities, outdated product design, and stagnant services as many of those as we see in the market have a history of more than 10 years. And in order to control the cost, they've got the increasingly prominent operational pressure, not only that undermines the confidence of investors, but also leads to many of those hotels compromising on service qualities and that further affected their consumer experiences. We believe that the meaning of an upscale brand lies in its unique brand value and deep understanding of user experiences. So our SAVHE or SAVHE Hotel is positioned as a premium-end hotel with selected services. We expect it to benchmark international standardized five star brands and on top of that basis, with its inner core of Chinese experience and its oriental serenity brand style, we believe it can inject new vitality into the upscale hotel market in China. And as we all know, upscale hotel market is not a segment for some short or fastest speculations, but a market which requires a long-term mentality from us to grow alongside it. The layout strategy of our first batch of SAVHE Hotels will accurately anchor to the very central core business districts in 11 major cities in China and create a number of benchmark projects with priorities on quality. Therefore, for us, the number of openings will not be our primary objective of developing the upscale hotel market, but the brand and the quality, those are the things that really matter. And let me try to add some on the single hotel financial model. In terms of its SAVHE's single hotel financial model, we expect a mature SAVHE Hotel to have a RevPAR target in between RMB550 to RMB650. Meanwhile, with the breakthrough of design style and upgrade of soft and hard installations, the cost of a single room shall be controlled around RMB200,000. By using a large proportion of modular design and fine supply chain management, we could not only ensure the quality of the project delivery but also to effectively control the cost and project progress. Overall, the return on investment period, including renovation period for SAVHE is expected to be 4.1 years, which is expected to lead the upscale hotel market.

Thank you, Dan. Next question, please.

Thank you. Next question comes from the line of Lydia Ling of Citi. Please go ahead.

Hi, management. I'm Lydia from Citi. So I want to follow up the questions on the Atour 4.0 and also Atour Light 3.0. So could you share like the latest signing momentum and also that your opening plan for these two products? And particularly lighter for the mid-end brand Atour Light 3.0, given the rising mix, so could you evaluate the pressure on your blended RevPAR next year? Yeah, thank you.

Thanks, Lydia. Our progress of Atour 4.0 has been good all along, with six stores in operation now and expected to exceed 10 within this year. As of now, we have more than 60 Atour 4.0 among our pipeline of hotels. Atour 4.0 is a very forward-looking product. We hope to provide business travelers with an experience of relaxation and Atour 4.0 hotels in operation also achieved outstanding performance through experience upgrade and product innovation. Therefore, their overall performance aligns with our expectations and we believe that those Atour 4.0s concise and the natural style will have a longer product life cycle. As for Atour Light 3.0 hotels, 38 were signed in this quarter -- in the third quarter, I mean, continuing to account for more than 20% of total new signings. As of September the 30th, the number of Atour Light 3.0 hotels in operation reached 76. Next, based on our differentiated product power and profound insight into multiple customer types in the mid-scale market, we will carry forward the breakthroughs of Atour Light 3.0. It is expected that by the end of this year, the number of Atour Light 3.0 in operation will exceed 100. As for your concerned RevPAR, although our group RevPAR will be affected by structural factors such as accelerated new openings, high proportion of new hotels, and the gradually increasing proportion of Atour Light, but we will continue to upgrade Hope products and hotel renovation program to continuously improve product competitiveness and drive healthy growth of RevPAR. Taking Atour Light 3.0 as an example, since its launch in February last year, we have been continuously improving its model based upon our operating status and user feedback, not just bringing better experience to users, but also sustainable and stable returns to franchisees. With that, we consolidated the product competitiveness in the mid-scale markets. We believe that it is necessary to normalize product update iterations at this time when consumer trends are constantly changing. So we will continue to focus on product innovation to meet users' constantly changing needs for accommodation.

Thank you.

Thank you, Lydia. Next question, please.

Thank you. Next question comes from the line of Chen Xin from UBS. Please go ahead.

This is Xin Chen from UBS. I have two questions. The first question is that we have seen an increase in hotel closure this year. Would you mind sharing your next year closure plan? The second question is that we noticed that the number of leased hotels also decreased. May I know the reason? Thanks.

Thank you, Xin Chen. Regarding our closures, a total of 37 hotels were closed in the first three quarters of this year and our full-year closures are expected to reach around 50. This decision is based on intensive evaluations of the property quality and operational performance of our group's hotels in operation. We are always committed to providing consistent high-quality Atour services. So for those hotels that still do not meet expectations, even after rectification, we will terminate the contract according to agreed terms. We believe that through this screening mechanism, we can ensure our continuous improvement of the overall quality of our hotels We will maintain a similar pace of closures next year and this decision shall be helpful to achieve our strategic goal of 2,000 premier hotels by next year. Termination of leased hotels, well, in the second and third quarter this year, the total number of leased hotels was reduced by two. For the one hotel among them, we had smooth communication with the owner after the expiration of previous leasing contracts and converted the hotel into Atour franchise hotels. In the future, our hotel network expansion will still mainly be in the form of asset-light franchise model with no plans to open leased hotels for the time being. We will negotiate with the owner of leased hotels before their contracts expire, taking into account their brand display location within the core business districts and other factors to decide whether to renew, or to terminate our cooperation with them.

Thank you.

Thank you, Xin Chen. Next question, please.

Thank you. The next question comes from the line of Ji Wei Liu from CITIC. Please go ahead.

I translate my question. Regarding retail, we observed the company recently conducted Atour Deep Sleep product launch conference indicating the company's strategic support for the retail segment. I'd like to inquire how the management perceived growth potential and the category planning of the retail business. What are the revenue projections for next year? Thanks.

Thank you, Ji Wei. Let me address your questions. As for our prospects in retail business, we believe that people have critical demand for healthy sleep and that braces for a massive sleep economy market and this has great room for growth. With Atour Planet, we leveraged our scientific and systematic deep sleep solutions, and that help us to accurately meet consumers' need for healthy and comfortable sleep. Therefore, we can see this year we have the highlighted retail performance. Apart from our deep sleep pillow being an absolute hot sale, our Quilts also made significant breakthroughs this year. We efficiently launched the three new Quilts, continuing to elevate our brand influence in the sleep economy. As we advocate our concept of natural deep sleep in the Deep Sleep Conference, in the future, we will focus on and deepen the field of sleep, continue to expand the sleep and pan sleep categories and we will continue to deepen our advantage categories to cover a wider range of consumer groups. And as for revenue forecast for this year, we maintain our previous guidance of doubling year-on-year. And as for next year's growth forecast, we are now still in progress of making our annual budget for next year. So generally speaking, our retail business will continue to contribute with a year-over-year growth faster than our hotel business in the near term to achieve normalized healthy growth.

Thank you.

Thank you for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you again next quarter. Thank you and goodbye.