Swift Marriott expansion swims against recession tide
Marriott Corporation seems to thrive during inauspicious times.
The company was founded in the depths of the Great Depression, when J. Willard Marriott Sr. opened the first Hot Shoppe - a nine-seat lunch stand that proved a quick hit with Washington workers.
Today, the Maryland-based hotel, restaurant, and contract food-service company does $2 billion worth of business a year. Despite the recession, chief executive officer J. W. Marriott Jr. is blasting ahead with ambitious expansion plans, while Wall Street waits to see whether aggressive management can pull the company, relatively unscathed, past the current economic downturn.
''They're doing the right things in a bad environment,'' says Daniel Lee, vice-president of research at Drexel Burnham Lambert Inc. ''But the hotel business in general is bad. I'm wondering how long they can buck the trend.''
Most of Marriott's revenue comes from travel-oriented business. Poor economic prospects and the air-traffic-controller's strike hit this sector hard last year , yet Marriott's overall earnings jumped 20 percent in 1981, to $86 million. In 1982 first-quarter earnings were up 18 percent over the same period last year. But in the second quarter of this year, net income stumbled, increasing only 3 percent - in part because Braniff's bankruptcy stuck Marriott's catering division with $5.7 million in unpaid bills.
''We thought we had another six months,'' J. W. Marriott Jr. sighs. ''We were in the process of working out with Braniff a way to get that receivable reduced. We were about two weeks away from getting it cut in half.''
The laconic Mr. Marriott - who succeeded his father as head of the company in 1972 - admits that earnings growth will remain slow this year. But he confidently predicts company income will increase 20 percent annually throughout the rest of the 1980s.
To reach this goal, Marriott is plotting rapid expansion. It added 23 hotels last year, and will open 18 more in 1982. A combination of new inn construction, expansion of existing hotels, and acquisitions will add 30,000 rooms to the Marriott system by 1985 - a 75 percent increase over current capacity.
Much of the cost for these new rooms will not come from Marriott's corporate pocket. To avoid a crushing burden of long-term debt, the company favors selling its hotels off to investors, while retaining long-term management contracts. Seventy-five percent of the rooms now carrying the Marriott label are actually owned by someone else.
The most innovative and controversial element of Marriot's sell-off strategy has been a tax-shelter partnership plan, designed to raise $18 million in seed money for an 11-hotel development project. Five states disallowed the plan as too risky for individual investors. The partnerships finally sold out late this month, over a month behind schedule.
''They were going ahead and starting construction before the financing was really in place,'' says Mr. Lee of Drexel Burnham. ''Wall Street was worried the deal might not go through.''
Lee and other analysts admire the plan as ''creative,'' however, and expect more such offerings by Marriott in the future.
Along with its hotel growth, Marriott is planning rapid expansion of its Roy Rogers restaurants.
Last February, the company acquired Gino's Inc. Marriott says 180 choice Gino's outlets will be converted into Roy Rogers restaurants. The rest will be sold.
''This means rapid expansion at lower cost for Roy Rogers,'' says William Trainer, a Merrill Lynch vice-president. ''Marriott got more favorable locations than they could have developed on their own.''
And Roy Rogers, with a menu that is broad by fast-food standards, is well positioned in the marketplace, Marriott says.
''There are more people 25 to 44 years old than ever before,'' he says. ''The demographics work for the Roy Rogers concept, as opposed to just a straight hamburger. The roast beef sandwich and chicken make a big difference.''
Marriott's other major corporate divison - Contract Food Services - received its big boost in March with the purchase of Host International, an airline food specialist.
The Host and Gino's acquisitions fit so well they were ''made in heaven,'' claims Roy Burry, a vice-president of Kidder, Peabody & Co. Wall Street is mostly bullish on Marriott. William Trainer of Merrill Lynch predicts 1982 earnings per share of $3.45, rising to $4.55 in 1983. He gives the company's stock an ''aggressive buy'' rating - though other analysts aren't quite so enthusiastic.
But Marriott's short-term prospects, analysts say, will depend heavily on the fortunes of its hotel division, which contributed over 50 percent of the company's $219 million in 1981 operating income. Since the average Marriott room is newer and better located than that of the competition, occupancy rates have stayed relatively high in the face of recession, says Mr. Burry of Kidder, Peabody. A prolonged, deepening business slump could change that.
''Well, we've been hanging on. I tell you it doesn't get any easier,'' says Marriott, who adds that without a recession earnings would have been ''up 30 percent, easy.''