Huazhu trades scale for growth, but profit concerns emerge.

```

On May 15th, Huazhu Group released its unaudited financial results for the first quarter of 2026.

Against the backdrop of rational tourism consumption and increasingly refined industry competition, Huazhu delivered a report card that shows accelerated scale expansion and steady revenue growth, but a year-on-year decline in net profit attributable to shareholders.

Data shows that Huazhu's first quarter revenue reached 6 billion yuan, up 11.1% year-on-year; hotel turnover reached 26.4 billion yuan, up 17.4% year-on-year. However, net profit attributable to the company was 817 million yuan, down about 8.6% from 894 million yuan in the same period last year.

This situation of increasing revenue without increasing profits reveals Huazhu's structural challenges amidst the dual pressures of rapid market penetration and international consolidation.

Specifically, Huazhu China remains the anchor of its performance. In the first quarter, Huazhu China's hotel turnover increased by 18.0% year-on-year, significantly outpacing revenue growth.

This was mainly thanks to its aggressive store opening strategy.

By the end of March 2026, Huazhu's total number of operating hotels reached 13,215, with the total number of rooms exceeding 1.3 million. In just one quarter, the number of newly opened stores remained high. Guided by the goal of “Every county has a Huazhu,” Hanting 4.0 and Hanting Express acted as “light cavalry” penetrating deeply into tier-three and tier-four cities, and even remote counties.

Looking at operating indicators, Huazhu China’s first quarter average revenue per available room (RevPAR) was 214 yuan, with a slight year-on-year increase. Notably, although average daily room rate (ADR) growth slowed and occupancy rate fell slightly year-on-year, RevPAR growth was mainly driven by ADR.

This reflects that in the current environment, Huazhu is maintaining high occupancy rates by controlling room rate increases, with a clear intent of boosting volumes to compensate for prices.

Why did net profit decline by 8.6% despite steady growth in revenue and EBITDA?

First is the rigid pressure on the cost side.

The financial report shows that hotel operating costs rose to 3.7 billion yuan in the first quarter. As Huazhu China rolled out extensively in lower-tier markets, the amortization of upfront construction, labor, and rental costs began to show.

The second drag is Huazhu International.

Although Huazhu International’s first quarter revenue increased by 5.1% year-on-year, its adjusted EBITDA still recorded a loss of 56 million yuan. Overseas operations, constrained by macroeconomic fluctuations in Europe and brand integration costs, have not yet contributed substantial net profit to the group.

Despite the pressure on net profits, Huazhu’s business model is undergoing a deep transformation. In the first quarter, management and franchise fee income increased by 20.3% year-on-year to 3 billion yuan, accounting for about 50% of total revenue.

This signifies that Huazhu has basically completed its transition from heavy asset leasing to light asset management. Compared to self-run stores, franchise income has higher gross profits and risk resistance. In this model, Huazhu increasingly resembles a hotel software + supply chain company.

At present, the issue Huazhu faces is, after the number of stores exceeds 13,000, how to avoid internal brand “infighting” and prevent marginal decline in franchisee profitability.

A key signal hidden in the financial report is that Huazhu is accelerating store closures while speeding up openings. It is understood that in 2026, Huazhu plans to close 600-700 low-efficiency stores. This “walking fast while pruning branches” approach reflects management’s alertness to the quality of expansion.

Overall, Huazhu’s Q1 2026 financial report is a typical scale-first answer sheet. The short-term fluctuations in net profit seem more like the price it must pay to capture territory in lower-tier markets and transform its international business.

For this hotel giant, 1.3 million rooms is just the foundation. How to convert these existing assets into higher value-added service offerings is its true challenge in the second half of the age of inventory.

Risk Disclosure and DisclaimerThe market has risks, and investment should be made with caution. This article does not constitute personal investment advice, nor does it take into account individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Invest at your own risk. ```