Ladies and gentleman, thank you for standing by and welcome to the Atour Lifestyle Holdings Limited First Quarter 2023 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers' presentation there will be a Q&A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Queenie Chen [ph]. Senior Manager of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good morning, and good evening, everyone. Welcome to our first quarter 2023 earnings call. Joining us today are Founder, Chairman and CEO, Mr. Wang Haijun and our CO-CFOs, Mr. Rui and Mr. Wang Shoudong. Before we start, please note, the discussion today will include forward-looking statements made under Federal Security Laws that are subject to numerous risks and uncertainties. Actual results may differ materially from those stated or implied by our comments today. The company does not undertake any obligations to update any forward-looking statements except as required by applicable laws. During today's call management, will also discuss certain non-GAAP financial measures for comparison purpose only. For definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.yaduo.com. Now I will turn the call over to Mr. Wang, our CEO.

Thank you Queenie. Hello everyone and thank you for joining Atour's first quarter 2023 earnings call today. I'm pleased to share with you that Atour commenced the year 2023 on a strong note, achieving solid results in both our hotel and scenario based retail businesses. Our core value proposition to serve people with exceptional experience continues to guide our steps as we refine and polish our hotel services and lifestyle products to deliver Atour experiences to every customer. These uncompromising efforts, combined with our dedication to excellence, drove a robust recovery in both the hotel and retail businesses during the first quarter. We continue to execute our three year development plan to open 2,000 premier hotels, while establishing the Chinese experience as the industry benchmark, which we believe will solidify our leading position in the upper midscale hotel industry post-pandemic. Now let me go through our performance details across our business lines. First, our hotel business development. As we enter into the post-pandemic era, we are seeing a rapid market recovery driven by surge in travel and accommodation demand. Embodying our three pronged mantra, high quality, high value and high efficiency, Atour responded quickly to the first quarter's rising market opportunities and achieve parallel growth in ADR and OCC. Our RevPAR for the first quarter rebounded significantly to 118% of 2019's level for the same period, while both ADR and occupancy rates exceeded 2019's level, demonstrating our exceptional recovery capability. Looking at the first quarter in greater detail, our RevPAR recovery rate was 102%, 136% and 119% of 2019's level for January, February and March respectively. Furthermore, same hotel RevPAR for mature hotels in operation for more than 18 months recovered to 118% of 2019's level in the first quarter, showcasing a vigorous rebound of our business at the operational…

Thank you Mr. Wang. Now I would like to present the company's financial performance for the first quarter of 2023. Our net revenues for the first quarter of 2023 grew by 71.2% year-over-year to RMB774 million. The strong increase in the first quarter was driven by growth in both the hotel business and the scenario-based retail business. Revenues from our manachised hotels for the first quarter of 2023 were RMB447 million, up by 63.2% year-over-year. This increase was primarily driven by the ongoing expansion of our hotel network and the recovery of RevPAR. As of the end of March this year, the total number of our manachised hotels increased to 935, up by 24.3% year-over-year, while RevPAR of our manachised hotels surpassed the pre-pandemic level in 2019, increasing to RMB331 for the first quarter of 2023. Revenues contributed by our leased hotels for the first quarter of 2023 were RMB187 million, representing an increase of 67.9% year-over-year. The increase was primarily due to the recovery of RevPAR, driven by increased customer traffic and stronger consumption sentiment since the beginning of 2023. RevPAR of our leased hotels surpassed the pre-pandemic level in 2019, increasing to RMB464 for the first quarter of 2023. Revenues from retail and others for the first quarter of 2023 increased by 109.5% year-over-year to RMB140 million with scenario-based retail revenue growing by 174.3% year-over-year to RMB113 million. The increase was attributable to the growing recognition of our retail brand and enhanced product capabilities. Our hotel operating costs for the first quarter of 2023 increased by 18.1% to RMB382 million year-over-year, mainly due to the increase in variable costs associated with the ongoing expansion of our hotel network and recovery of RevPAR. Hotel operating costs accounted for 49.3% of net revenues for the first quarter of 2023 compared…

Thank you. [Operator Instructions]. Thank you. We'll now take our first question. Please standby, is from the line of Sijie Lin from CICC. Please go ahead.

Thank you management, and congrats on the strong results. So I have one question about RevPAR. Our Q1 RevPAR recovery reached 118%. So how's the RevPAR recovery in Q2, and for the full year of high recovery will we adjust our guidance? Thanks.

Thank you very much Sijie for that question. In Q1, there were some partially due to the retaliatory rebound factors. And we were not sure whether that trend was going to be long term. So we needed to observe. That's why on last quarterly earnings call we gave a cautiously optimistic guidance which is single-digit positive growth for the whole year. We Atour always position ourselves in the upper midscale segment in which there are no structural factors benefiting our recovery. As I said in the report in the first quarter of this year, our RevPAR recovery rate for all of our hotels, as well as for those mature hotels in operation for more than 18 months were both 118%, showcasing a vigorous rebound of our business at our operational level and that was a high quality growth. As for Q2, now that we see in April and the Labor Day holidays in May the RevPAR recovery trend were both quite good. So we are confident to reach 110% recovery rate for the whole year. Thank you.

Operator, next question please.

Thank you. We'll now take our next question. Please standby. This is from the line of Ronald Leung from Bank of America. Please go ahead.

Okay, let me ask the question in English. So management how to think about the franchisees and even now, do you think there is a good improvement in 2023? And also if the RevPAR can continue to improve and be better than expectations? Do you think there is any chance that the 280 hotels opening, do you think the overall openings can be better than the 280 number of guidance this year? Thank you very much.

Thank you very much for that question, Ronald. In first quarter, in terms of signings, we made some rapid progress reaching 94 signings, which is the highest level of a single quarter signings in history. Among those new signings, we found that over 40% of them are actually repurchases from our existing franchisees, and that really gave us a lot of encouragement. We do believe that with the recovery of the market, and together considering our pipeline reserves, we have already 413 in pipeline in first quarter. And together with the chain hotel opportunities brought by the industry consolidation going on, we will be able to support the new hotel opening target of 280 this year. We, Atour always prioritize quality over quantity. We believe that quality is a prerequisite for long term healthy development. Also just now you have heard that today marks the landing of our 1,000 hotels in operation that was in Lanzhou, and that marks we officially have entered 1,000 hotel era and we will maintain this expansion speed while ensuring the quality of our products and those hotels and try to be robust and develop with more new hotels of that higher quality.

Next question please?

Okay. We'll now take our next question. Please standby, is from the line of Lydia Ling from Citi. Please go ahead

Hi management. Lydia from Citi. And I have a question regarding the competitive landscape in mid to upscale hotel. So as the hotel industry gradually recovers, many hotel companies shift their model [ph] and invest more in that mid to upscale segment. And with more hotel supply into the mid to upscale segment, do you face more intense competition and how do you purpose to further enhance your competitiveness in this segment. Thank you.

The hotel industry has two paths, either cost-oriented or experience-driven. We Atour focus on experience. Since our establishment, our strategy of focusing on exceptional experience has accumulated good reputation among our customers that has enhanced their satisfaction and repurchase. Our three mantra -- three high mantras, namely high quality, high value, high efficiency has helped us to ensure the long term and stable returns for our franchisees. And that also have enabled us to gradually accumulate recognition and market share among our franchisee partners. According to [indiscernible] Industry Research, in terms of the number of rooms we Atour had been maintaining the first position in the market share of the largest upper midscale hotel chains in China and our leading is still expanding. Sure, there are competitions. While with the general trend is increasing hotel chain penetration, this industry the hotel industry does not develop as a zero sum game. For those players in this industry, whoever's got strong branding, operational capabilities, better customer experiences as well as better model innovations, they can achieve high quality and sustainable development. Only when every player in this industry, they do what they want to the extreme and also start to form differentiated products and experiences, that's the time when our industry will develop with more diversification and then a healthy competition pattern shall take place.

Okay, operator. Next question please?

Thank you. Now take our next question. Please standby. This is from the line of Andy Fu from Blue Lotus. Please go ahead.

Thank management for taking my question. Congrats on the good earnings performance at the net income in the first quarter. Can management breakdown the reasons behind outperforming earnings? Also consider the quick recovery in the channel, travel consumption, do we have an update on the expectation on earnings for the second quarter and the full year 2023? Thanks.

Thank you for that question. I'll be taking this question. So indeed our company in first quarter did achieve a good performance. Our adjusted net profit was RMB160 million and the adjusted net profit margin was 20%. First of all in terms of gross margin, our Q1 gross margin was 41%, which was 20% higher compared with Q1 of 2022. Mainly there were two reasons. The first is that with our light asset mode, we benefited from the rapid recovery of RevPAR and economy of scale effect brought by the expensive expansion of our hotel network. The second reason was due to the continuous development of our relatively higher gross margin retail business. The revenue contribution from our retail business have continued to increase and its gross margin by itself also has increased. And those two reasons also have drove our overall gross margin higher. In terms of expenses, our three expenses accounted for 16% of revenue in the first quarter this year, down by 3% year-on-year in which marketing expenses accounted for 7% of revenue. That was up by 2% because we increased the investment in branding initiatives and developing distribution channels for our scenario-based retail business. The rest 9% of revenue were administrative and R&D expenses, down by 5% than last year, since we improved on our management efficiency. The increase of -- the increasing of the management and R&D expenses were much smaller than the growth speed of our revenue. In the future with our continuous expansion of our hotel network, along with the gradual kicking in of the economy of scale effects, plus the continuous development of our retail business, we expect that our overall profitability will maintain a stable growth in the longer term. Thank you.

Next question, please?

Thank you. We'll now take our next question. Please standby, and this is on the line of Xin Chen from UBS. Please go ahead.

I'd like to ask the question regarding the revenue [indiscernible]. How does management perceive the growth potential of this scenario with your business? What can we expect from this future divestment, and this will impact Atour's financials? Thanks.

So thank you for that question, Mr. Xin Chen. I'll talk about the business condition of our retail business and then we'd like to ask Mr. Wang Shoudong dome to supplement on the financial side. We as a lodging-centric lifestyle brand, our retail business is a very natural extension of our expertise in hospitality, reaching beyond accommodation to harmoniously complement our value proposition to serve people who have diverse lifestyles. Our offline hotels scenes can provide a natural experience space, which also brings a lot of natural traffic to our retail businesses. Retail on the other hand, can also help to bring our Atour experience back to customers' homes, help to improve their perception of Atour and also bring some back to our hotels for more space in the future. Retail Business and hotel business as you see in this way can form a very nice loop with that kind of synergy. Product wise, we currently focus on a pan-sleep category, taking Atour Planet as our core product. In first quarter, our Atour Planet contributed nearly 80% to our overall GMV of the retail sales, pillows, mattresses, quilts and four piece sets all sold very well. We are very optimistic about China's sleep product market with massive potential and we believe there are quite a lot of development opportunities. We also believe we Atour will also stand a place in China's sleep economy in the future. Channelize apart from leveraging our expanding hotel network as both the consumption themes and customer traffic sources we also have been developing online third party channels so that driven from both offline and online these two channels have both been growing very fast. In the future, we'll continue to strengthen our investments on customer insight and product development to create more high quality sleep product to offer first class sleep experiences for our customers and so that we can make more people sleep better. Now let me hand it over to Mr. Wang Shoudong to talk about scenario-based retails financials.

Our scenario-based retail business in last year have already reached a revenue of $254 million and already achieved a positive bottom line. And for the first quarter of this year, our scenario-based retail revenue have already reached a milestone of 100 million. And we expect our whole year revenue will reach above RMB400 and a RMB1 million with an increase of more than 80% year on year and a profitability will also increase accordingly. Meanwhile, on the basis of stringent requirements on ROI and reasonable profit, we also will increase the investment in branding initiatives and distribution channel expansions to make sure that our scenario-based retail's contribution to the group's overall profit will increase year-by-year.

Okay. Operator, next question maybe.

Thank you. That does conclude the question-and-answer session. I would like to turn the conference back over to Queenie Chen for any additional or closing comments.

Thank you, Operator. Thank you everyone once again for joining us today. If you have any further questions, please feel free to contact us. Have a great day. Goodbye.

Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect.