Stock Story -
Timeshare vacation company Hilton Grand Vacations (NYSE:HGV) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 23.8% year on year to $1.16 billion. It made a non-GAAP profit of $0.95 per share, improving from its profit of $0.64 per share in the same quarter last year.
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Hilton Grand Vacations (HGV) Q1 CY2024 Highlights:
- Revenue: $1.16 billion vs analyst estimates of $1.12 billion (2.8% beat)
- Adjusted EBITDA: $273 million vs analyst estimates of $253.8 million (7.6% beat)
- EPS (non-GAAP): $0.95 vs analyst estimates of $0.74 (28.6% beat)
- Reiterated adjusted EBITDA guidance for 2024 of $1.23 billion at the midpoint (in line)
- Gross Margin (GAAP): 41.5%, up from 35.9% in the same quarter last year
- Free Cash Flow was -$19 million, down from $255 million in the previous quarter
- Members: 718,000
- Market Capitalization: $4.55 billion
Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.
Hotels, Resorts and Cruise LinesHotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Hilton Grand Vacations's annualized revenue growth rate of 15.1% over the last five years was decent for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new property or emerging trend. That's why we also follow short-term performance. Hilton Grand Vacations's annualized revenue growth of 20.8% over the last two years is above its five-year trend, suggesting some bright spots.
We can better understand the company's revenue dynamics by analyzing its number of members, which reached 718,000 in the latest quarter. Over the last two years, Hilton Grand Vacations's members averaged 14.8% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company's monetization of its consumers has risen.
This quarter, Hilton Grand Vacations reported remarkable year-on-year revenue growth of 23.8%, and its $1.16 billion of revenue topped Wall Street estimates by 2.8%. Looking ahead, Wall Street expects sales to grow 21.9% over the next 12 months, a deceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Over the last two years, Hilton Grand Vacations has shown decent cash profitability, giving it some reinvestment opportunities. The company's free cash flow margin has averaged 11.2%, slightly better than the broader consumer discretionary sector.
Hilton Grand Vacations burned through $19 million of cash in Q1, equivalent to a negative 1.6% margin. This caught our eye as the company shifted from cash flow positive in the same quarter last year to cash flow negative this quarter.
Key Takeaways from Hilton Grand Vacations's Q1 ResultsWe were impressed by how significantly Hilton Grand Vacations blew past analysts' operating margin expectations this quarter. We were also glad its number of members outperformed Wall Street's estimates. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The stock is flat after reporting and currently trades at $43.41 per share.