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REUTERS
Cleveland, Ohio, Nov 10: Economy lodging chain Red Roof Inns Inc. said on Monday that surging franchise fees boosted earnings to record levels in the third quarter, but forecast a fourth-quarter charge of up to $5 million for computer upgrades and severance packages.
Red Roof said shifting its focus from developing company-owned hotels and toward franchise and fee-based income has put the lodging chain on track to meet forecasts for 12-percent earnings per share growth in 1999.
The Columbus, Ohio-based company said its fourth-quarter earnings will include special charges for upgrading its accounting software for the year 2000, and for severance expenses from a reorganization. It also said it expected to report a one-time loss from writing off fees related to a buyback of senior unsecured notes in that quarter.
"We have already exceeded our 1998 goal of opening 20 franchised properties, with 24 openings to date for a total of 29 franchised Inns currently open," Francis "Butch" Cash, chairman and Chiefexecutive, said in a statement.
"We also have a strong pipeline of 91 franchise projects, including 20 under construction or conversion and 20 executed agreements. This pipeline will generate additional openings this year and should allow us to exceed our target of adding 50 franchised properties in 1999," he said.
The company's stock fell on Monday after getting a boost on Friday when Business Week magazine reported that Red Roof was quietly looking for a buyer. Cash said he was aware of the story during a conference call with analysts on Monday, but he would not confirm it.
"It is not our policy to comment on rumour or speculation," said Cash, who also serves as chairman and president.
With nothing materialising on the takeover front and news of the upcoming fourth-quarter charges, Red Roof Inns was quoted off 15/16 at 19-3/16 in New York Stock Exchange trading.
During the conference call Cash said he agreed with analysts forecasts that Red Roof Inns would see an earning growth rate of 12 percentin 1999.
According to consensus estimates compiled by First Call, analysts look for Red Roof Inns to earn $1.39 a share in 1998 and $1.56 a share in 1999. It earned $1.26 a share in 1997.
He noted that the industry remains very competitive and the Red Roof Inns is looking for promotions- such as those aimed at attracting senior citizens and Automobile Association of America clients- to help generate business.
He said a key to the company's growth would be developing franchised inns and fee-based income, rather than the company-owned Inns. He said he expected fee income of around $4.0 million in 1998 to double in 1999.
Red Roof Inns said third-quarter net income rose to $16.9 million, or 61 cents per diluted share, from $16.4 million, or 58 cents per share, a year earlier.
Revenues rose 3 percent to $103 million.
The third-quarter results excluded pretax special charges of $100,000 for implementing a Year 2000-compliant accounting system, and $400,000 related to the termination of a pension plan.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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