7 Days Group Holdings Limited continues to pursue an aggressive asset-light strategy. During the first quarter, the economy hotel chain opened 82 hotels, including eight leased-and-operated properties and 74 managed hotels.

　　GUANGZHOU, China—7 Days Group Holdings Limited continues to pursue an aggressive asset-light strategy that emphasizes the addition of managed properties over leased hotels. During the first quarter, the economy hotel chain opened 82 hotels, including eight leased-and-operated properties and 74 managed hotels, company executives said during its earnings call Tuesday morning in China.

　　“The adoption of an asset-light approach with a focus on managed hotels allows us to shift to a model in which (net income) growth is driven by higher operating margins,” said CEO Yuezhou Lin. “This shift is in line with the development trends of the entire economy hotel industry, which enables us to optimize our revenue composition and improve overall profitability.”

　　At the end of the quarter, 7 Days had 1,427 hotels in 223 cities in China. The portfolio included 500 leased hotels and 927 managed properties. In addition, 223 properties (14 leased and 209 managed) are in the process of converting to the 7 Days flag.

　　“We plan to add 360 hotels to our hotel portfolio during the fiscal year 2013, which we believe will make 7 Days the single largest hotel brand in China’s economy hotel industry,” Yuezhou said.

　　While the company intends to remain in the economy segment for now, CFO Eric Haibing Wu said the company has established an internal team to work on developing a high-end brand concept.

　　“Right now, it’s still in the preparation stage, and when the brand is ready for launch we will make the necessary announcement,” Wu said. “But at this point, there is nothing we can disclose.”

　　The company relies heavily on its loyalty program and e-commerce efforts to drive business. As of 31 March, the company had enrolled 56.3 million members into its 7 Days Club, an increase of 46% from the same time last year. The chain’s ecommerce platform resulted in approximately 70% of roomnights booked directly through its online system during the quarter.

　　While net revenues for the company increased 17.5% in the first quarter to 640.5 million renminbis ($104.2 million), net income decreased 71.5% to 5.4 million renminbis ($879,000). Company executives said higher hotel operating, sales and marketing, and general and administrative expenses contributed to the decline in net income.

　　“Cost pressures in certain areas remain, and there will continue to be some pressure,” said Wu. “An example is labor costs. Last year, we increased the base salaries for hotel employees effective 1 April, so the result is a 5% labor cost increase. We anticipate that labor costs will continue to cause some pressure to our margins.”

　　Occupancies in the quarter slipped for the company’s leased hotels (75% compared with 79.5% last year) and managed properties (75.5% in 2013 versus 76.3% last year). At the same time, average daily rates for both classes of properties increased slightly (up 2.2% for leased hotels and up 2% for managed properties).

　　“This was based on our judgment of market trends,” said Yuezhou. “We didn’t do any major promotions in Q1, while our competitors like Home Inns and China Lodging have actually done quite a bit of promotions in the Q1 period. The reason is we still foresee in 2013, especially the remainder of the year, some stable growth in this industry.”