Huazhu: Withstanding Pressure and Displaying the Qualities of an Industry Leader!

On August 17, 2026, before the opening of the US stock market (GMT+8), Huazhu released its Q2 2026 financial report. Overall, Huazhu performed quite well this quarter—revenue beat expectations, the guidance was raised across the board, and a new $2.5 billion three-year shareholder return program was announced. However, there were some shortcomings: the same-store RevPAR for mature hotels turned negative for the first time in three quarters, and overseas operations also shifted from growth to decline.

1. Slower growth in domestic RevPAR, overseas turned negative.Looking at the core operating indicator, Revenue per Available Room (RevPAR), Huazhu China’s RevPAR in Q2 was RMB 238/night, up 1.1% year-on-year. Although this marks the fourth consecutive quarter of positive growth, the pace has slowed significantly compared to 2.9% in Q1.

Breaking it down, ADR rose by 2.6% year-on-year to RMB 298/night, still acting as the main growth driver, mainly due to the continuing release of structural premiums from the increased share of new version products at Hanting and Ji Hotels. OCC reached 79.8%, down 1.2 percentage points year-on-year, similar to Q1’s decline.

For the overseas market, Q2 RevPAR declined 3.8% year-on-year to $98/night. Among them, OCC dropped significantly by 3.5 percentage points to 70.5%, which is the main drag factor. Dolphinjun speculates that one reason is that tensions in the Middle East are negatively impacting local business, while on the other hand, new Southeast Asian markets (Vietnam, Laos, Cambodia) are still at an early stage of ramping up operations, where local room rates are low, thus pulling down the overall numbers.

2. Store opening pace slightly slows quarter-over-quarter, but pipeline thickens.In terms of openings, a net 324 hotels were added in Q2 (501 new openings, 177 closures). Mid-to-upscale brands (Intercity, Orange Crystal, Mercure, Daguan) are still the main drivers for upgrading the portfolio, while more economy hotels are being renovated rather than newly built.

Moreover, amidst an overall cooling of supply and extreme prudence among franchisees, the company’s pipeline at the end of Q2 reached 3,054 hotels, accelerating noticeably compared to Q1—demonstrating Huazhu’s business model continues to attract franchise investors, maintaining its dominance in the industry.

3. Revenue growth accelerates quarter-over-quarter; franchise operations remain the primary engine. In Q2, Huazhu Group’s total revenue was 7.1 billion yuan, up 10.8% year-on-year and speeding up over the previous quarter. Supported by the continued increase in room count, franchise income increased significantly by 25.2% year-on-year to 3.6 billion yuan, the fastest pace in the past four quarters, remaining the core driver. Direct hotel revenues were about 3.2 billion yuan, down 4.9% year-on-year, mainly due to continued closures of old leased properties as well as declines in overseas leased hotel revenue.

4. Cost-side spending strictly controlled, further boosting profitability. Owing to the increased share of franchise operations (50.3% in H1, up +4.9 percentage points year-on-year), gross margin improved by 1.8 percentage points to 43.4%. While aggressively promoting new mid-to-upscale brands and overseas expansions, the company maintained disciplined cost control, with sales & management expense ratio largely unchanged from the prior year, ultimately raising operating profit margin by 3.3 percentage points to 31.1%. Adjusted EBITDA reached 2.73 billion yuan, up 20% year-on-year.

5. Guidance raised across the board, alongside a new round of shareholder return announcements. The company lifted its FY2026 guidance from “Group revenue growth 2%-6%, franchise revenue growth 12%-16%,” to “Group revenue growth 4%-8%, franchise revenue growth 16%-20%.”

6. Review of core financial information

Dolphinjun Overall Opinion:

Both this quarter’s better-than-expected performance and guidance essentially stemmed from Huazhu continuously offsetting industry-wide RevPAR declines by expanding its asset-light franchise network. This means that as long as the ramp-up curve of new hotels remains stable and there is no systematic deterioration in franchisee appetite, Huazhu can keep absorbing the vacancies left by exiting independent hotels during industry shakeout phases—solidifying its market share. This also sets up the company with more earnings elasticity than competitors in the next industry upturn.

Also, from the supply perspective of the lodging and tourism industry, and according to field research, currently, 71% of new hotels have ≤150 rooms (mostly between 80–120), indicating the industry is generally moving toward a “lightweight opening” model and lowering single-store investment thresholds. This highly aligns with Huazhu’s launch of “Hanting Express” and other lightweight products, which also means that competition in lower-tier markets will shift from “who opens faster” to “whose model is lighter and achieves quicker payback.”

But it’s worth noting that “lightweight” here doesn’t mean simply stripping down features, but hinges on back-end industrial supply chain capability (to reduce per-room construction costs) and a revenue management system (similar to how Coca-Cola uses AI to implement differentiated pricing strategies for different channels and audiences), achieving “lighter investment, consistent experience, and stable returns.”

On the demand side, Q2 included both “May Day” and the Dragon Boat Festival. Data from the Ministry of Culture and Tourism shows total domestic travel spending was up 2.9%, while per capita spending dropped 0.6%, indicating “high frequency, low ticket” characteristics stood out more in Q2.

Combining with field studies, in the early summer period (late June to late July), national hotel RevPAR dropped about 2.8% year-on-year, and ADR fell 3.7%. This indicates that with supply still high and per capita spending mild, pricing pressure became evident in the summer peak season; some regions and brands are starting to trade price for volume,

Details in the charts below:

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