Atour Lifestyle Holdings Ltd

NASDAQ:ATAT

Earnings Call Analysis

Overview of Atour's Performance

In the third quarter of 2024, Atour Lifestyle Holdings showcased a remarkable year-over-year revenue growth of 46.7%, reaching RMB 1,899 million. This surge is attributed to an upturn in both hotel and retail divisions following a rebound in domestic travel demand. The average daily rate (ADR) for hotel rooms faced pressure due to a high comparative base from the previous year, while occupancy rates saw a slight year-on-year decline, primarily influenced by shifting consumer preferences towards outbound travel.

Hotel Business Insights

Atour reported a RevPAR (Revenue Per Available Room) of RMB 380 for the third quarter of 2024, which is 89.5% of 2023's figures. Notably, mature hotels—those operational for over 18 months—outperformed the group's average with a RevPAR of 91.6% of last year's levels. Overall, the new hotels significantly bolstered the growth of the company's hotel network, with 140 new hotel openings in the quarter, a 72.8% increase year-over-year, totaling 1,533 hotels operational as of September 30, 2024.

Revenue Growth and Expansion

The company's hotel revenues rose to RMB 1,179 million, marking a 51.0% increase from the previous year. The total number of hotels under development reached 732, reinforcing Atour's commitment to expanding its footprint in key locations across China. Additionally, the strong confidence of franchisees was evident, with a repurchase rate exceeding 50% during the quarter, reflecting robust brand recognition.

Retail Business Performance

Atour's retail segment experienced explosive growth with revenues reaching RMB 408 million, doubling year-over-year. The success of the retail business aligns with Atour's strategic introduction of deep sleep products, reflecting a significant market demand within the health and wellness sector. For the upcoming year, the company anticipates revenue growth from its retail line to continue, maintaining a growth trajectory outpacing its hotel business.

Guidance and Future Prospects

Looking ahead, Atour has maintained its full-year revenue growth guidance of 48% to 52% compared to 2023, navigating through the anticipated fluctuations in RevPAR, which is expected to decline by mid- to high single digits year-on-year. The company sees promising opportunities in adapting to shifting consumer preferences for healthier sleep products, solidifying its competitive edge in the retail sector.

Strategic Focus and Innovations

The launch of the premium SAVHE hotel brand signals Atour's strategic entry into the upscale market, which is anticipated to follow a long-term development approach focusing on quality rather than sheer volume. The targeted RevPAR for SAVHE hotels is set between RMB 550 to RMB 650, with a projected return on investment period of around 4.1 years, showcasing the potential for significant market impact.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Atour Lifestyle Holdings Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. [ Lu Hong ], Senior IR Manager.

[Hong Lu, executive]

Thank you, operator. Good morning and good evening, everyone. Welcome to our third quarter 2024 earnings conference call. Today, you will hear from our Founder, Chairman and CEO, Mr. Wang Haijun; and our Co-CFO, Mr. Wu Jianfeng.

Before we continue, please be aware that today's discussion will include forward-looking statements under federal securities laws. These statements are subject to various risks and uncertainties and the actual results may differ significantly from what is stated or implied in our comments today. The company is not obligated to update any forward-looking statements except as required by applicable laws. Additionally, during this call, our management will discuss certain non-GAAP financial measures solely for comparison purposes. For a clear understanding of these measures and a reconciliation of GAAP to non-GAAP financial results, please refer to the earnings release issued earlier today. Furthermore, a webcast replay of this conference call will be accessible on our website at ir.yaduo.com where a copy of the results presentation is also available.

Now I will turn the call over to Mr. Wang, our CEO.

[Haijun Wang, executive]

Thank you, [ Luke ]. Hello, everyone, and thank you for joining Atour's third quarter 2024 earnings call today. In the third quarter of 2024, domestic travel demand demonstrated steady growth, leisure tourism remained highly active highlighting the strong resilience of the service consumption market. Following last year's search in pent-up travel demand, consumer behavior returned to a more rational pace this summer with a more diverse array of tourism hotspots emerging.

In response to a fluctuating market environment and evolving consumer demands, as a leading lifestyle brand, we will continue to innovate and elevate our hotel offerings while strengthening our service advantages to deliver a superior customer experience. Additionally, we will drive high-quality growth in our retail business, centered around our deep sleep products to reinforce towards distinctive competitive edge.

Now I would like to provide more details on our performance for the third quarter of 2024. Let's begin with our hotel business. Please turn to Slide 4 of our 3Q '24 results presentation. Our RevPAR reached RMB 380 in the third quarter of 2024, representing 89.5% of its level for the same period of 2023 with OCC and ADR achieving 97.5% and a 92% of their levels for the same period in 2023, respectively. Due to the high comparison base effect, ADR faced a certain pressure this summer, while OCC also experienced a year-over-year decline amidst the shift to outbound tourism.

Please turn to Slide 5. In the third quarter, our mature hotels in operation for more than 18 months continued to deliver solid operational performance. Excluding structural impacts such as the ramp-up of new hotels same hotel RevPAR in the third quarter of 2024 reached 91.6% of 2023 level for the same period, outperforming the group's blended performance by 2.1 percentage points. Specifically, OCC and ADR stood at 98.3% and 93.4% of their levels for the same period in 2023, respectively.

Please turn to Slide 6. Travel and accommodation demand surged during the National Day holiday this year, driving steady growth in OCC, which achieved 105% of its level during the 2023 Mid-Autumn Festival and the National Day holiday, ADR was 92.1% of its level in the same period of 2023, while RevPAR reached 96.1% of this level in the same period of 2023.

Please turn to Slide 7. Driven by our growing brand influence, our hotel network expansion continued to gain traction. In the third quarter, we accelerated our hotel network expansion with 140 new hotel openings, up 72.8% year-over-year once again setting a record quarterly pace in new openings. As of the end of the third quarter, we had a total of 1,533 hotels in operation representing a 37.9% year-over-year increase.

Please turn to Slide 8. franchisees' confidence remained resolute in the third quarter. further affirming our strong competitive edge and brand recognition. The number of hotels under development reached 732 as of the end of the third quarter. underpinned by a significant portfolio of high-quality projects, generating sustained momentum support towards driving brand [ vitality ].

Next, I would like to share the latest developments for the Atour and Atour Life brands. Please turn to Slide 9. As our elevated upper mid-scale offering, Atour 4.0 continues to gain favor among both consumers and franchisees, driven by its exceptional experience and outstanding operational model to date, Atour 4.0 has over 60 projects in pipeline with 6 hotels in operation. Product innovations embodied in Atour 4.0 continued to set the standard for experience upgrades in the upper mid-scale hotel market driving rapid growth in occupancy rate for Atour 4.0 hotels in operation and highlighting the brand's robust competitive advantages.

Please turn to Slide 10. Atour Life 3.0 also continued to perform strongly this quarter, further solidifying its competitive edge in the midscale market. During the third quarter, Atour Life 3.0 signed 38 new projects, continuing to account for more than 20% of our total new signings. By the end of September, the number of Atour Life 3.0 hotels in operation reached 76 primarily located in key business districts of second-tier cities and above.

Atour Life 3.0 success stems from our keen ability to capitalize on strategic property upgrade opportunities in core business districts, along with our continued focus on and swift response to the evolving business travel market. Since the launch of Atour Life 3.0, we have consistently achieved brand signature innovations and breakthroughs across various dimensions, including operations management and customer experience. Moving forward, Atour Life 3.0 will continue to uphold our ethos of life at ease, delivering a more diverse, elevated travel experience for a wide range of customers, including younger business travelers.

Please turn to Slide 11. Now I'd like to introduce our recently launched upscale lifestyle brand, SAVHE Hotel. SAVHE means brief in the [indiscernible] language, symbolizing the power of life. Inspired by this concept, we have meticulously crafted a hotel product rooted in Eastern Aesthetics. The launch of SAVHE hotel not only presents a powerful product model that seamlessly integrates Eastern aesthetics, high-end experiences and superior operational efficiency but also pioneers a new form of upscale hospitality, transforming the industry's structural challenges into opportunities. Looking ahead, we will continue to employ a long-term approach to the upscale market, providing the new generation of consumers with a tranquil retreat that prioritizes emotional connection and immersive experiences.

Moving now to our retail business. Please turn to Slide 12. Our retail business sustained its strong momentum in the third quarter with robust GMV growth of 107.7% year-over-year reaching RMB 566 million, and sales from online channels accounting for more than 90% of the total GMV. Notably, we delivered another remarkable performance during this year's [ Double 11 ] shopping festival as we topped the pillow and comforter sales chart across various third-party e-commerce platforms. This impressive performance clearly reflects aTOUR PLANET's continuously strengthening brand awareness.

Please turn to Slide 13. I am proud to share that we revisited [indiscernible] province this fall in October and successfully held our first Deep Sleep conference centered around the concept of natural deep sleep. At the conference, we addressed the widespread issue of sleep disorders in today's society and presented a detailed overview of aTOUR PLANET's effective and systematic deep sleep ideas. We spotlighted several blockbuster products at the conference, including the innovative aTOUR PLANET deep sleep memory foam pillow Pro 2.0. The launch of this product not only enhances the tours signature deep sleep experience, but also showcases our advanced and efficient new product development mechanism. The updated pillow features a patented spring memory foam material and a 3-layer design with forms of varying firmness and curvature. Its unique [ R-shaped to partition ] structure and ergonomic angle design significantly enhanced its rebound and support promoting greater relaxation of the shoulders and the neck to help users naturally achieve deep sleep. As a result, the aTOUR PLANET deep sleep memory foam pillow Pro 2.0 has received widespread acclaim since its release in July this year, with total sales exceeding 800,000 units.

Meanwhile, in tune with the changing seasons and our ongoing exploration of natural deep sleep, we officially launched the deep sleep thermal regulating Comforter Pro winter season. Another breakthrough in our Comforter product line, following our best-selling deep sleep lightweight comforter and the deep sleep thermal regulating comforter Pro all season. The winter comforter adopts elements of the deep sleep thermal regulating comforter pro's highly praised design, such as its dual layer temperature control system, coverless design and machine washable, dryer-friendly materials while offering an enhanced the heat storage layer providing improved breathability and extended heat preservation for a more comfortable and closer deep sleep experience during the cold winter. Notably, the aTOUR PLANET Deep Sleep Thermal regulated Comforter Pro series has accumulated sales of 200,000 units since its launch. Our Deep Sleep conference transcended a mere product showcase, embodying our deep understanding of sleep science and customer needs. We are confident that through relentless innovation and groundbreaking advancements, aTOUR PLANET will continue to set benchmarks in the deep sleep segment, providing a natural and comfortable deep sleep experience to everyone.

Please turn to Slide 14. Moving to our membership business and the channel development progress, bolstered by our ongoing enhancement of Atour's membership program and overall member experience, our membership base has expanded rapidly. As of the end of the third quarter, our registered individual members exceeded 83 million, marking a 53.7% increase year-over-year. Meanwhile, despite the structural impact of holiday travel demand, our core CRS channel remain healthy and efficient, accounting for 61% of total room nights sold during the third quarter. The contribution of room nights sold to corporate members was 18.6% during the third quarter.

Please turn to Slide 15. Next, I'm pleased to share the progress we have made in developing our A-Card membership ecosystem. We recently unified the membership systems and the point benefits of our hotels and aTOUR PLANET across various platforms for a seamless member experience. To enhance this integration, we also revamped the Atour Mini program to deliver a consistent experience for both hotel and retail members. As we move forward, we will continue to promote the synergistic growth of our hotel and retail businesses, deepen the integration of our membership system and its operational pathways and optimize membership benefits. Ultimately, we aim to create a smooth consumption experience across diverse scenarios, boosting member loyalty and reinforcing our brand's competitive advantage.

Last but not least, a brief overview of Atour's accomplishments across our ESG initiatives during the third quarter. Please turn to Slide 16. As a dynamic spiritual Oasis and gateway to human connection within our hotels, the [ Bambook ] library has evolved beyond a traditional library to become a platform for cultural communication and connection. We aim to advance this evolution integrating additional local cultural elements to transform each [ Bambook ] library into a cultural interaction space that uniquely reflects the character of its city. To that end, we recently launched the Bambook library One City, One library initiative with the first opening at the [ Xian Lanman ] Atour 4.0 hotels. Through partnerships with renowned cultural brands, we've introduced a series of themed events such as book for book exchanges and cultural salons using books as a medium to connect customers with the rich culture of [ Xian ]. To date, Atour has established over 1,500 [ Bambook ] libraries in more than 200 cities across China. Moving forward, Atour plans to expand this initiative to more cities fostering deeper connections among customers, local communities and regional cultures and contributing positively to cultural exchange and community engagement.

Now I will turn the call over to our co-CFO, Mr. Wu Jianfeng to discuss our financial results.

[Jianfeng Wu, executive]

Thank you, Haijun. Now I would like to present the company's financial performance for the third quarter of 2024. Please turn to Slide 18 for the results presentation. Our net revenues for the third quarter of 2024 grew by 46.7% year-over-year and 5.7% quarter-over-quarter to RMB 1,899 million. The year-over-year increase was driven by robust growth in the [indiscernible] hotel and retail businesses. The quarter-over-quarter increase was mainly attributable to an increase in RevPAR which reached RMB 380 for the third quarter of 2024 compared with RMB 359 for the previous quarter.

Revenues from our [indiscernible] hotels for the third quarter of 2024 were RMB 1,179 million, up by 51.0% year-over-year and 14.8% quarter-over-quarter. The year-over-year increase was primarily fueled by our ongoing hotel network expansion and the rapid growth of our supply chain business.

The total number of [indiscernible] hotels increased to 1,504 as of September 30, 2024, up by 39.3% year-over-year. The quarter-over-quarter increase was mainly due to an increase in RevPAR. RevPAR of our miniaturized hotels was RMB 376 for the third quarter of 2024 compared with RMB 355 for the previous quarter.

Revenues contributed by our leased hotels for the third quarter of 2024 were RMB 190 million, reflecting a 20.4% year-over-year decline by 5.1% quarter-over-quarter increase. The year-over-year decline was primarily due to a decrease in the number of these hotels as a result of our product mix optimization as well as a decrease in RevPAR. The quarter-over-quarter increase was driven by an increase in RevPAR. [indiscernible] hotels, RevPAR was RMB 527 for the third quarter of 2024 compared with RMB 503 for the previous quarter.

Revenues from our retail business for the third quarter of 2024 were RMB 408 million, reflecting 104% year-over-year increase [ by ] 10.6% quarter-over-quarter decline. The year-over-year increase was driven by widespread recognition of our retail brands and effective product innovation and development as we successfully broadened our range of product offerings. The quarter-over-quarter decline was primarily attributable to the seasonality of our retail business.

Revenues from others for the third quarter of 2024 were RMB 50 million, up 26.4% year-over-year and down 5.4% quarter-over-quarter. The year-over-year increase was driven by our fast-growing membership business.

Now let's move to cost and expenses. Please turn to Slide 19. Operating costs and expenses for the third quarter of 2024 totaled RMB 1,442 million, including RMB 3 million share-based compensation expenses compared with RMB 959 million, including RMB 10 million share-based compensation expenses for the same period of 2024. Hotel operating costs for the third quarter of 2024 increased by 42.1% year-over-year and 12.9% quarter-over-quarter to RMB 876 million, these increases were primarily due to an increase in variable costs, such as supply chain costs associated with our ongoing hotel network expansion.

The gross margin of our hotel business was 36.0% for the third quarter of 2024 compared with 39.5% for the same period of 2023 due to a decrease in RevPAR attributable to the high base effect in the same period of 2023 as well as an increased share of revenue generated by the lower-margin supply chain business.

Retail costs for the third quarter of 2024 rose by 102.3% year-over-year, and decreased by 14.3% quarter-over-quarter to RMB 227 million. The year-over-year increase was associated with rapid growth of our retail business. The gross margin of our retail business was 52.7% for the third quarter of 2024 compared with 52.3% for the same period of 2023.

Now please turn to Slide 20. Selling and marketing expenses for the third quarter of 2024 were RMB 218 million, compared with RMB 112 million for the same period of 2023. This increase was mainly due to our enhanced investments in brand recognition and the effective development of online channels aligned with the growth of our retail business. Selling and marketing expenses accounted for 11.5% of net revenues for the third quarter of 2024 compared with 8.7% for the same period of 2023.

General and administrative expenses for the third quarter of 2024 were RMB 82 million, including RMB 3 million share-based compensation expenses, compared with RMB 79 million, including RMB 9 million share-based compensation expenses for the same period of 2023. Excluding share-based compensation expenses, the increase was primarily due to an increase in labor cost. General and administrative expenses, excluding share-based compensation expenses accounted for 4.2% of net revenue for the third quarter of 2024 compared with 5.4% for the same period of 2023.

Technology and development expenses for the third quarter of 2024 were RMB 30 million compared with RMB 20 million for the same period of 2023. This increase was mainly due to increased investment in technology systems and [indiscernible] structure to support our expanding hotel network and retail business and improved customer experience. Technology and development expenses accounted for 1.6% of net revenue for both the third quarters of 2024 and the same period of 2023.

Now please turn to Slide 21. Adjusted net income for the third quarter of 2024 was RMB 384 million, representing a 41.2% increase year-over-year. Adjusted net profit margin for the third quarter of 2024 was 20.2%, representing a decrease of 0.8 percentage points year-over-year. Adjusted EBITDA for the third quarter of 2024 was RMB 532 million, up by 40% year-over-year, with an adjusted EBITDA margin of 28.0% which decreased 1.4 percentage points year-over-year. These decreases in both margins were primarily due to a decline in RevPAR and an increased revenue contribution from lower-margin supply chain business, along with organic growth in selling and marketing expenses amidst our retail business expansion.

Please turn to Slide 22 and 23. Operating cash inflow for the third quarter of 2024 was RMB 333 million. Investing cash outflow for the third quarter of 2024 was RMB 572 million. Financing cash outflow for the third quarter of 2024 was RMB 421 million. We also maintained a healthy cash position with stable growth momentum. As of September 30, 2024, our cash and cash equivalents totaled RMB 2,741 million with net cash of approximately RMB 2,649 million.

Now please turn to Slide 24. For the full year of 2024, we currently expect the company's total net revenue to increase by 48% to 52% compared with full year 2023. That concludes our financial highlights for the third quarter of 2024. Now let's open for Q&A.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Ronald Leung of Bank of America.

[Ronald Leung, analyst]

Could you provide more color on the third quarter Q4 and also October RevPAR performances? Also, could you advise on the RevPAR guidance for [ 2024 ] would there be any change to the full year revenue growth guidance as well?

[Haijun Wang, executive]

Let me answer your question, Ronald. When we split the 3Q RevPAR into details, we can find that it was influenced by not just the high base from last summer, but also from multiple factors, including the two typhoons we faced in September, the multiple new hotels that got opened near the end of the month and that the public holidays were rearranged. So those were the main reasons for September's RevPAR performance to be under pressure and impeding the overall 3Q performance.

However, we do see that the high base effect has eased since October, especially during the National Day holiday. We saw the traffic growth driven by leisure travel has led to an increase in OCC year-over-year. Although there is still some pressure on prices, but the decline in RevPAR has shown a narrowing trend.

And as for the full year RevPAR forecast, Well, due to the influence of multiple factors, we believe there are still uncertainties. We will prioritize stabilizing our OCC and capture the core revenue opportunities ahead of us. The full year RevPAR is expected to decline by a mid- to high single digit year-on-year.

For financial outlook, although our RevPAR faces some volatility, but thanks to our rapidly expanding hotel network and our strong retail growth we maintained our previous revenue guidance of growth for 48% to 52%.

[Operator]

Next question comes from [indiscernible] from CICC.

[Unknown Analyst]

My question is since this year, we have achieved rapid hotel opening, we maintain the 400 hotel opening guidance or adjust again? And the new signings are also strong, considering the RevPAR decline led by high base and supply growth, will there be any changes in new funding momentum going forward?

[Haijun Wang, executive]

While, this year, our overall rhythm of new opening and a new [ signings ] had both maintained quite good momentum. As for new openings this year, we have the positive trends, which got continued in our third quarter with a total of 140 new openings, and that once again broke our quarterly record So, so far this year, we have opened 360 hotels, and we are confident enough to raise our full year new openings guidance from the original 400 to 450.

In terms of new signings, although our RevPAR has fluctuated, but the franchising demand is still very active with franchisees investing will stay very strong. In the third quarter, the repurchase rate of our franchisees exceeded 50%, and this number reflected their sufficient confidence and the recognition of our Atour brand. Meanwhile, we will also strengthen our control over the quality of our new signings. We're going to be selecting the contracted property conditions with stricter standards. Despite our accelerated new openings this year, we still have a very sufficient reserve in our pipeline of hotels to steadily carry forward our strategy of 2,000 premier hotels by next year.

[Operator]

Next question comes from the line of [ Dan Chee ] from Morgan Stanley.

[Xianda Xu, analyst]

We noticed the company recently launched an upscale brand, SAVHE. Congrats on the new breakthrough. Can you share more details on the unit economics of SAVHE such as it's target ADR, RevPAR, CapEx or typical payback, et cetera. Going forward, what's the management strategy on upscale segment, which is currently still small compared to the company's portfolio.

[Haijun Wang, executive]

Thank you, Dan. Let me address your question on the high-end market thinkings first. Nowadays, we see traditional upscale hotels are facing many structural challenges such as their relatively aged facilities, outdated product design and stagnant services as many of those as we see in the market have a history of more than 10 years. And in order to control the cost, they've got the increasingly prominent operational pressure, not only that undermine the confidence of investors would also lead to many of those hotels compromising on service qualities, and that further affected their consumer experiences. We believe that the meaning of an upscale brand lies in its unique brand value and deep understanding of user experiences. So our [ SAVHE Hotel ] is positioned as a premium end hotel with selected services. We expected to benchmark international standardized 5-star brands. And on top of that basis with its inner core of Chinese experience and its oriental serenity brand style. We believe it can inject a new vitality into the upscale hotel market in China.

And as we all know, upscale hotel market is not a segment for some short or faster speculations but a market which requires a long-term mentality from us to grow alongside it. The layout strategy of our first batch of SAVHE hotels will accurately anchor to the very central core business districts in 11 major cities in China and creates a number of benchmark projects with priorities on quality. Therefore, for us, the number of openings will not be our primary objective of developing the upscale hotel market, but the brand and the quality, those are the things that really matter.

And let me try to add some on the single hotel financial model. In terms of its -- SAVHE's single hotel financial model, we expect a mature SAVHE hotel to have a RevPAR target in between RMB 550 to RMB 650. Meanwhile, with the breakthrough of design style and upgrade of soft and hard installations, the cost of a single room shall be controlled around RMB 200,000. By using a large proportion of modular design and fine supply chain management. We could not only ensure the quality of the project delivery, but also to effectively control the cost and project progress Overall, the return on investment period, including renovation period for SAVHE is expected to be 4.1 years, which is expected to lead the upscale hotel market.

[Operator]

Next question comes from the line of Lydia Ling of Citi.

[Lydia Ling, analyst]

So I want to follow up the questions on the Atour 4.0 and also Atour Life 3.0 so could you share some light on the latest [ signing ] momentum and also your opening plan for these two products? And particularly, like for the mid-end brand Atour Life 3.0 given the rising mix. So could you evaluate the pressure on your blended RevPAR next year?

[Haijun Wang, executive]

Our progress of Atour 4.0 has been good all along, with 6 stores in operation now and expected to exceed 10 within this year. As of now, we have more than 60 Atour 4.0 among our pipeline of hotels. Atour 4.0 is a very forward-looking product. We hope to provide business travelers with an experience of relaxation. And Atour 4.0 hotels in operation also achieved outstanding performance through experienced upgrade and product innovation. Therefore, their overall performance aligns with our expectations. And we believe that those Atour 4.0 can size and a natural style will have a longer product life cycle.

As for Atour Life 3.0 hotels, 38 were signed in the third quarter, continuing to account for more than 20% of total new signings. As of September 30, the number of Atour Life 3.0 hotels in operation reached 76. Next, based on our differentiated product power and profound insights into multiple customer types in the mid-scale market, we will carry forward the breakthroughs of Atour Life 3.0. It is expected that by the end of this year, the number of Atour Life 3.0 in operation will exceed 100.

As for your concern, the RevPAR, although our group RevPAR will be affected by structural factors, such as accelerated new openings, high proportion of new hotels and the gradually increasing proportion of Atour Life but we will continue to upgrade home products and hotel renovation program to continuously improve product competitiveness and drive healthy growth of RevPAR.

Taking Atour Life 3.0 as an example, since its launch in February last year, we have been continuously improving its model based upon our operating status and user feedback not just bringing better experience to users but also sustainable and stable returns to franchisees. With that, we consolidated the product competitiveness in the midscale markets. We believe that it is necessary to normalize product update iterations at this time when consumer trends are constantly changing. So we will continue to focus on product innovation to meet users constantly changing needs for accommodation.

[Operator]

Next question from the line of [indiscernible] from UBS.

[Unknown Analyst]

I have two questions. The first question is that we have seen an increase in your hotel closure this year. Would you mind sharing your next year closure plan? Second question is that we noticed that the number of leased hotels also decreased maybe know the reason?

[Haijun Wang, executive]

Regarding our closures, a total of 37 hotels were closed in the first three quarters of this year and our full year closures are expected to reach around 50. This decision is based on intensive evaluations of the property quality and operational performance of our group's hotels in operation. We are always committed to providing consistent, high-quality Atour services so for those hotels that still do not meet expectations even after rectification, we will terminate the contract according to agreed terms. We believe that through this screening mechanism, we can ensure the continuous improvement of the overall quality of our hotels. We will maintain a similar pace of closures next year, and this decision shall be helpful to achieve our strategic goal of 2,000 premier hotels by next year.

Termination of leased hotels, while in the second and the third quarter this year, the total number of leased hotels was reduced by two. For the one hotel among them, we had smooth communication with the owner after the expiration of previous leasing contracts and converted the hotel into Atour franchise hotels. In the future, our hotel network expansion will still mainly be in the form of asset-light franchise model with no plans to open lease the hotels for the time being. We will negotiate with the owner of leased hotels before their contracts expire, taking into account branded display location within the core business districts and other factors to decide whether to renew or to terminate our cooperation with them.

[Operator]

Next question comes from the line of [ Wei Liu ] from [ Citic ].

[Wei Liu, analyst]

Regarding retail, we observed the company recently conducted Atour Deep Sleep product launch [ coverage ] indicating the company's strategic support for the retail segment, I'd like to inquire how the management perceived growth potential and the category planning of the retail business, what are the revenue projections for next year?

[Haijun Wang, executive]

Thank you, [indiscernible]. Let me address your questions. As for our prospects in retail business, we believe that people have critical demand for healthy sleep, and that brings us for a massive sleep economy market and this has great room for growth. With aTOUR PLANET, we leveraged our scientific and systematic deep sleep solutions, and that help us to accurately meet consumers' need for healthy and comfortable sleep. Therefore, we can see this year, we have the highlighted retail performance apart from our deep sleep pellet being an absolute hot sale, our quilts also made significant breakthroughs this year. We efficiently launched the three new quilts, continuing to elevate our brand influence in the sleep economy.

As we advocate our concept of natural deep sleep in the Deep Sleep conference, in the future, we will focus on and deepen the field of sleep, continue to expand the sleep and the pan-sleep categories and we will continue to deepen our advantaged categories to cover a wider range of consumer groups.

And as for revenue forecast for this year, we maintain our previous guidance of doubling year-on-year. And as for next year's growth forecast, we are now still in progress of making our annual budget for the next year. So generally speaking, our retail business will continue to contribute with our year-over-year growth faster than our hotel business in the near term to achieve normalized healthy growth.

[Hong Lu, executive]

Thank you for joining us today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you again next quarter. Thank you, and goodbye.