Travel & Leisure Co. (TNL) September 2026 Conference Transcript

All right. I think we can go ahead and get started. It's right at 9.15. So good morning and thank you so much everyone for joining us here at this next session at the Goldman Sachs Retail and Consumer Conference. So my name is Lizzie Dove. I cover gaming, leisure and lodging here and it is my absolute pleasure to welcome Eric Hogue at CFO of Travel and Leisure and Andrew Burns, Vice President and Investor Relations. So thank you so much for taking the time to be here. We really appreciate it.

Lizzie, thanks for having us.

So let's start off. Of course, there's always the quarterly puts and takes, but just kind of stepping back for a second, T&L has been very consistent, been consistently a mid-single digit EBIT dog grower, EPS has been in the double digits. You have recently done a couple of acquisitions. And so when we kind of step back for a second and think about the next 12 to 24 months, how do you think about the sustainability of that algo? And with these acquisitions, has anything, or anything else, has anything structurally changed at all in that outlook?

Well, thanks for having us, Lizzie. You know, maybe I'd just zoom out a little bit and talk about our performance year-to-date. I think that that's maybe just to ground everyone in terms of how we're doing. In the first quarter, we outperformed our sales above the high end of our guide. In EBITDA, we outperformed the high end of our guide. In our second quarter results, revenue grew 4%, EBITDA grew 8%, earnings per share was up 14%. Again, sales above the high end of our guide, EBITDA above the high end of our guide. And then maybe even more interesting in terms of the first six months of the year, Lizzie, than the P&L, or equally as important is what we've done from a balance sheet and capital allocation perspective. We've increased our dividend by 7% year over year. We've increased share buybacks by 25% first half to first half. We've reduced our leverage by one quarter turn. And to your point, in the month of July, we added in two tuck-in M&A transactions. So we've had a great start to the year. In terms of the algorithm, to your very specific question, we're already living inside the algo. Our algo is sales growth of 6% to 8%, translating into mid-single-digit EBITDA growth and teens EPS, and converting roughly 50% of that EBITDA into free cash flow. So over the next 12 months, we are absolutely focused associated with continuing to execute against the core algo. We want to integrate our M&A transactions.

We've got a heavy focus associated with launching our new brands. all of that under the umbrella of continuing to be thoughtful allocators of capital to our shareholders definitely and there's a lot of interesting points you made there that i certainly want to come back to but maybe before we go into some of the segments i'd love to hear you know we're at the consumer conference we're going to hear from a lot of different you know consumer verticals here i'd love to hear from you from your vantage point what do you think about the health of the consumer right now and as we've you know kind of progressed over the summer there's been some puts and takes this year. Tax refunds, good guy. Higher gas prices, bad guy. You know, what are you seeing? Has there been any kind of divergence between cohorts or anything that you kind of call out as we kind of go into this back to school season?

Yeah, when I think about travel and leisure, our consumer continues to perform pretty well. So, you know, again, zooming out a little bit, whether you go back to Liberation Day during the second quarter, 2025, where again, we sort of outperformed the guide numbers that we had in that period. Whether you go back to the first part of this year when things opened up in the Middle East or look at the summer, we continue to perform on top of a choppy macro, but our consumer continues to be very durable. And then if you look at some of the KPIs sort of under the hood at travel and leisure, whether it's length of stay, our booking window, the distance travel to our resorts, tour flow. We continue to see positive tour flow. We continue to see guests arrive at our properties, tour, and purchase our product.

Yeah, definitely. And I think one of the kind of selling points also of just timeshare generally as an industry has been that it's pretty resilient overall. It's kind of prepaid vacations and so can weather the storm a lot easier usually. Could you maybe talk a little bit about that, of just, A, if the macro does worse than how you think about levers, and B, now there's a lot of talk about rates and timeshare is an industry that maybe is not totally positively correlated with that. And so I would love to hear your kind of thoughts there.

Yeah, so in terms of levers and things that we could do, number one, I would come back and say we continue to perform on top of chopping macro environments. I think the value proposition of our product, where it is a prepaid vacation, where roughly two-thirds of our transactions go to existing owners versus new owners, we create a value proposition for our consumers that's very attractive. And when things do get a little bit more expensive for them, they have the fallback to be able to visit our properties, enjoy vacation, very low cost. And again, what that does for us is it gives us the opportunity to get them on tour and potentially upsell those customers. In terms of levers that we have, if things were to get much more protracted, again, I would look at whether it's Liberation Day or the GFC or COVID, the travel and leisure businesses continue to perform extraordinarily well. But we've got a number of levers that we could pull. We could certainly look at marketing and demand quality. We could look at timing associated with our development projects. We could look at consumer financing in terms of promotions or pricing. And then, obviously, the last thing would be we could look at cost. But those are things that we haven't had to take into our purview because the business has performed so consistently over time.

I was going to say, we're certainly not there yet. And you've been kind of consistently, as you said, growing VOI around 6% to 8%. And, you know, it's interesting because there's been this debate of what's the right level of tool growth versus VPG growth and the kind of puts and takes there. and obviously the result optimization may be slightly complicated things there, but how do you think about that balance longer term going forward?

Yeah, I think you used the right word. It's balance. The VPG, tour flow, both super important metrics for us. At the end of the day, we're looking for qualified tours and we're looking for exceptional sales execution. And in some years, you might see us move new owner transactions up a little bit, which puts a little bit of pressure associated with VPG. And then in other years, you'll see the opposite. But for us, it's really all about having a balanced approach to the business.

And with that 6% to 8% that you have been doing, it sounds like it's still your target. Does tool growth need to accelerate to get there, or can it be more kind of VPG-driven over time?

So I think about the long-term 6% to 8% really is having positive tour flow. You know, positive tour flow with a mix roughly of one-third, two-thirds between new owners and existing owners.

On that topic of the new owners versus existing owners, so you two, I believe your new owners, at least as a percentage of the mix, they accelerated again. And so when you're now here, I think still in the kind of low 30s range, Is that the right place that you want to be, or is there kind of a drive or a need to kind of move higher to that over time?

Yeah, I'll come back and point back to the two-thirds, the one-third, two-thirds. You know, the one-third, let's say low to mid-30s, allows us to continue to sustain the model and feed the top of the funnel with new owners. One of the great things about our business, Lizzie, is that we have found that when we capture a new owner, we will typically upgrade them two and a half times over the first 10 years of their ownership. So two-thirds of our transactions come from existing owners, but continuing to feed the top of the funnel and get that healthy upgrade cycle going on new owners is also very important.

Makes sense. Makes sense. And has anything changed about that over time? And as you think about getting back to right at that one-third, like the real 33%, is that something that we should be watching out for as kind of how we think about how that translates in the mix in terms of VPG, I suppose?

I would say it hasn't really changed over time. I think the one-third, two-third is the right place to be. Again, it feeds the funnel. Again, when you do see us in periods where new owner mix is a little bit higher, new owner transaction purchase price, average purchase price a little bit lower, so it does put a little bit of pressure on VPG. But again, the word of the day associated with VPG and tour flow is really about ensuring that we have balance.

Yeah, makes sense. Makes sense. Let's switch gears and think about result optimization. You announced that kind of earlier in the year, and by all accounts seems to have been incredibly successful. Before we kind of get into what you've done so far there, I'd love to hear, are you done post with this? Was this like kind of a one-and-done situation, or are there other kind of pockets of opportunity of other resorts where you could maybe kind of optimize the portfolio over time?

Yeah, so the resort optimization initiative, for those maybe new to the story, was an opportunity where travel and leisure went in, and we took 17 properties out of the network. These are properties that are a little bit older. you know the occupancy was a little bit lower lower customer satisfaction a little bit or lower and then there was some deferred maintenance that needed to be done you know more than just your typical deferred maintenance but a little bit heavier deferred maintenance so we took them out of the out of the network and it did a couple things to the P&L there were some sales centers there so we expected sales to step back which it really didn't do yeah property management fees went down you know as we didn't have seven so we had 17 less resorts and then we had lower carry costs so these are properties that also had inventory which meant that we were that inventory on our balance sheet and carry costs that ran through the P&L so the 17 resorts coming out top graded the portfolio a little bit and then you mix in 23 properties associated with M&A and I'm sure we'll get to M&A here later on but the portfolio at T&L from the from January to the end of the year has transformed quite a bit. We've taken out the 17 with resort optimization, and then we've done some M&A that's added in 23 resorts. So coming to your question, are we done with it? I think the 17 resorts was a little bit of a catch-up in 2026. I think we'll always be thoughtful around making sure that we've got a very attractive portfolio for our owners top to bottom.

And where are you in that process with the resort optimization? and has there been anything that's kind of surprised you as you've kind of been going through that over the last six or so months?

Yeah, it's predominantly done. We've got the cost out in 2026. I think the one thing that has surprised me is the resiliency of the sales organization. So when we guided to the full year back in February, we had talked specifically about there being roughly a $100 million sales headwind associated with these sales centers that we were taking out of the network. But as I mentioned, you know, in the first quarter, we had sales that were above the top end of the guide, second quarter sales above the top end of the guide. Our sales organization is operating at a very high level right now. And despite those fewer sales centers, we're actually operating inside the long-term algo for sales.

So it sounds like productivity higher, maybe redirection of sales, even without all of those. That's right. Yeah. Okay. Awesome. And then acquisitions. You kind of alluded to it earlier. There's the two, the yes and and the Spinnaker that you announced a couple of months ago. It seems like it's more tuck-in M&A, although it's not small by any means. I think it's increasing your owner base by around 10% or so, if I'm not wrong.

And so could you maybe remind us how to think about or how you thought about the strategic rationale and why these two assets specifically made sense? yeah so it's really the first M&A of consequence since you know spun out from Wyndham in 2018 you know there was a couple things that were important to us as we started to look at M&A number one we were looking for transactions that were going to be immediately accretive immediately incremental to our financials second we were looking for an owner base yeah to your point pre acquisition we had about 800,000 owners the two transactions brought a hundred thousand new owners with them so immediately a creative an owner base that we can upsell and monetize the third thing was locations right one of the transactions brought us Hilton Head Island that we weren't in and the other transaction brought us on the west coast Maui which we weren't in as well so they were a creative to our BAMP the fourth thing that we looked for was transactions that had low risk of integration or maybe even said a little differently Lizzie high confidence in terms of value realization yeah and I think we found those with these two transactions and then the last thing was transactions that had very very little balance sheet intensity yep so these two transactions it's about two-tenths of one turn of leverage so these two transactions, they passed every one of the criteria, accretive approximately 50 million dollars of incremental EBITDA in the first year, a hundred thousand owners, resorts that we did not have footprints in, integration complexity very low, and a roughly two-tenths of a turn of leverage.

Makes sense. And you mentioned the 50 million of incremental EBITDA in year one. I'm curious how you think about both just short, medium term of kind of, you know, the revenue synergies and the cost synergies, but also just longer term. I imagine there's a big kind of owner upsell kind of opportunity there. So could you kind of walk us through how you think about that and how that could phase over time?

Yeah, I think you framed it really well, Lizzie. I think that there's three pieces to it. There's the base case associated with the two companies. We're going to continue to sell the arrivals that come. We're going to continue to try to upgrade the existing owners. The second thing would be the operating expense synergies that we believe we can get out. It's really these first two things that aggregate to the $50 million. Again, high confidence of delivery, let's call that the base case. And then this third piece over here, it's the long tail of owner upgrades. Which, again, I'll come back and say that Travel and Leisure has got a pretty predictable pattern of being able to upgrade a new owner about two and a half times over the first 10 years of ownership. We've now got 100,000 owners that we can begin to sell into the network. And that's really the important point is instead of having a fixed unit in Hilton Head or Las Vegas or Maui, they now have the ability to enter into the network where they can use the entire 300 resort footprint across travel and leisure, and instead of it being a fixed week, they can travel when they want to and effectively where they want to.

Yeah, makes a lot of sense. And as you said, it's been a while since T&L has done kind of M&A like this, and so when you're thinking about that propensity to upgrade and the kind of integration process, like, what gives you the confidence of that? And even since you've announced it, I know it's early, but could you give us an update of kind of where you're at in that cycle?

Yeah, it's gone well. So it's been about six weeks. You know, we are in the process of really ensuring that the employees feel branded under T&L. As we move deeper into the budget season, I think that that third piece around what the incremental upgrade opportunity could look like is going to become more and more in focus. But the reception's been great from an employee perspective. The reception's been great from an owner perspective. And we're certainly excited about it.

Yeah, and we see, you know, you have this kind of multi-brand strategy, and it's been, by all accounts, I think, very successful in what you've been able to do with, you know, Margaritaville, for example, and Accor, and I think it's now, you know, a pretty big piece of your overall business. I think it's around 10% or so. Where can that go over time, and how do you kind of think about that?

Yeah, so Travel and Leisure, we operate under six brands, and, you know, if you think about the six brands, I might break them up into three different categories. We've got two legacy brands, which is Club Wyndham and Worldmark. The majority of our sales come here, continues to perform extraordinarily well. We've got two growth brands that over the last three or four years have continued to perform extraordinarily well. This is Margaritaville and Accor Vacation Club. And then we've got two emerging brands. This is Sports Illustrated and Eddie Bauer. And I think what makes us feel really comfortable and confident in the longer-term algo is that we're going to run the same playbook for Sports Illustrated and Eddie Bauer that we ran with Accor and Margaritaville.

Yeah, yeah.

So we introduced the percent of revenue for those four brands, the four being Accor, Margaritaville, Sports Illustrated, and Eddie Bauer. And I think that as we move deeper into 2027, you're going to see that number grow.

And if you think about the kind of economics or even just the demographics of these different brands, Like, how should we think about that? And is it vastly different, one brand versus another? And when you add a brand, does that kind of really broaden your kind of demographic? And I'm just curious, like, the real key differences and how that kind of shows up in the economics of it all.

You know, what we're trying to do is we're trying to widen the – trying to grow talent. I mean, at the end of the day, we're trying to find brands with affinity, consumer affinity, that we can widen the top of the funnel. So coming back to some comments early on, roughly one-third of our transactions go to new owners. And as we think about Sports Illustrated and Eddie Bauer and Margaritaville, we are trying to attract a new owner, a different demographic, a younger demographic, because we do believe it's a differentiated product. And at the end of the day, what we really want is a wider TAM with more owners.

Yes, makes sense. So maybe we pivot a little bit to provisions for a second, because it feels like that was, you know, it's been a huge topic for the industry. And, you know, what you said at Q1 got a lot of focus, and then things really seem to improve a lot at Q2. And so stepping back of now what you've seen now, you know, nine months into the year, I guess, was Q1 just noise? And how do you kind of feel about where things sit today from a provisioning standpoint?

You know, the first quarter, I would say, was more about transparency than alarm. I think that's what I would say about the first quarter. In the second quarter, we saw our delinquency rate move back to the seasonal curve plus some. So about double the benefit or double the change from 1231 to 630. So we saw that improvement. And, you know, what we've seen over the last two months, the first, you know, the first two months of the third quarter is very consistent with what we said in the second quarter call.

Yeah, perfect. And then, so I think your LLC call is going to be in that kind of 21% range when all is said and done this year. And I think you've been consistent in saying that upper teens is maybe the longer term kind of goal. Is that still true today? And what are the kind of moving pieces that gets you to that kind of upper teens level?

Yeah, so a couple things. So, you know, I mentioned early-stage delinquencies, but if we actually pivot over to the loan loss provision, we guided to be down year-over-year. So we did that in February. In April, we guided to be down year-over-year. In July, we guided to be down year-over-year. Here in September, we're guiding to be down year-over-year. So we've got a very consistent message associated with the provision. You know, we're doing a couple things to help drive it down. Number one, we've got a tremendous amount of focus associated with the credit quality at the point of sale. As you'd expect, we've got average FICOs as of 630 of about 740. We've got an average household income of about $130,000. Maybe that's the first thing. The second thing is we're maniacally focused associated with owner engagement. So when we secure a new owner that we want to get their first vacation booked very quickly most of our purchases come while they're on vacation yeah so it's important that we get them back their next vacation schedule mm-hmm and then the third thing quite quite frankly Lizzie is you know we're trying to improve the servicing and collections processes within within the organization I think that those are the three things credit quality at the front owner engagement and operational like operational excellence and correct correct me if I'm wrong, but I think the recent acquisitions maybe carry like a slightly higher provisioning rate.

And so how do you think about that? Is there a path to kind of as you integrate those brands, then kind of moving them closer to kind of what legacy T&L kind of provisioning rate is? And what is the process for that kind of look like?

That's exactly right. So we will provision at the point of sale based on the demographics of the customer that's sold. And over the next several quarters, as we continue to integrate these businesses into our underwriting, into our servicing, and to our collections environments, we would expect that the provision on the acquired portfolio is to mirror the provision of Holco. Yes, over time.

Of T&L, yes. And then, you know, we've touched a lot on the kind of vacation ownership segment. Maybe we'll just spend a moment on travel and membership, which, you know, not a surprise that anyone has faced some kind of structural challenges for reasons that are very well flagged across the industry. You know, how do you think about that long term? Is the goal to kind of find levers, whether that be cost-wise or anything else, to kind of stabilize that business? Or is there kind of more of a structural, different solution on the table over time?

So maybe even zooming out a little bit. So the travel and membership business has got 3.3 million subscribers. So we've got scale to begin with. we guided the business to be down roughly double digits at the start of the year and that's generally where we've moved in terms of a couple things that we're working on we're trying to create value for those 3.3 million subscribers these are people who have got timeshare points and we want to ensure that we're creating value for them late last year we created a way where these timeshare vacationers could redeem their points for cruise vacations, for example. So trying to increase the selection of things that they could redeem their points on is one thing. And then the second thing, Lizzie, is as this business continues to have headwinds at the top line, we continue to be very focused associated with how much, what we're doing on the cost side and on the investment side, trying to be very thoughtful there.

Yeah, makes sense. So if I kind of, before we get into some of the kind of capital allocation and balance sheet questions, but if I kind of sum up everything I've heard from you, and I don't want to put words in your mouth, but what I'm hearing all sounds very good. We've got M&A that's going to be coming through the system, loan loss provisions that there's space for that to kind of go lower over time. There's the benefit from kind of resort acquisition. And so it feels like that's a lot of tailwinds as we come into 2027. Would you agree with that or the other kind of puts and takes when we kind of think about, again, the drivers of that algo that would be kind of an offset, I suppose?

No, I would agree. I think the business has got a lot of momentum. So whether you look at 25 or you look at 26, some of the macro things that have occurred, the business has continued to perform very well. We continue to add to the owner counts. We continue to focus on thoughtful capital allocation, to your point. We're very focused around the quality of the resort footprint that we have, whether it's through Resort Optimization Initiative or through M&A, I think about 2027 very much like living inside the algo with the benefit of some M&A.

Yeah, totally. What about from a margin perspective? I feel like your margin growth has also been fairly consistent over time. Is there any kind of low-hanging fruit left, or where are there opportunities as you think about where that kind of margin goes over time?

Yeah, we're living in the mid-20s right now. I think that that's a fair place for, you know, as you're thinking about 2027, I think that that's a fair place to be.

And then on the cash flow side, I think that's also somewhere you've been very consistent of the kind of call it mid-50s or so percent range in terms of conversion. You know, as the business mix evolves, maybe there's a benefit of scale. You kind of work through some of this inventory. Is there a reason that couldn't move a little higher over time, or how do you kind of think about that? What are the key kind of swing factors, I suppose?

Yeah, I think, first, I think 50% is a fair place to be. You know, roughly half. Last year we were at 52% free cash flow conversion. I think roughly 50% or half is the right way to be. You know, the swing factors, development spend, working capital, consumer finance. We've got a couple things that swing one way or another. But more than anything else, Lizzie, I don't want to constrain development spend to try to hit an in-period conversion rate. We've got a very disciplined approach to capital allocation, and I think 50% is a fair place to be over the cycle.

And on those swing factors, inventory has been a topic, I think, ever since we've moved through COVID for the industry. Where would you say you're at now? Are you kind of back to the kind of level that you want to be from an inventory perspective?

So I'd say three to four years of inventory right now. I would say aspirationally, maybe closer to two at the brand level.

Yeah, makes sense. So let's kind of tie all this together, and just from a balance sheet and capital allocation perspective. So as you kind of said earlier, this has really been tuck-in M&A, and you've been able to do that without really slowing down the buybacks at all, and you've been able to delever over the last few years. And so sitting here today, I guess, how do you think about that over time? Is this kind of the right algo from a buyback perspective, for example, or is there a room for that to change over time?

Yeah. So from a capital allocation perspective, maintaining a healthy balance sheet is priority number one. We ended 2025 with leverage of right at three times. We want to continue to pay an attractive dividend. We increased our dividend by 7% earlier this year. I think we're yielding right around, we're between 3% and 4% from a dividend yield perspective. And then beyond that, Lizzie, quite frankly, we will allocate our capital to the projects that drive the highest incremental return to us, the highest risk-adjusted return. I do think about the implied return on buybacks as being our current free cash flow yield plus the longer-term EBIT growth rate. So if you think about those two things, you're talking about somewhere in the 16% to 18% implied buyback return. So we've got a pretty high threshold associated with that. And you're seeing that manifest in terms of the concentration of our dollars that are going to buybacks. Our weighted shares outstanding are down 6% year over year. Buybacks are up 25% year over year. So we'll continue to evaluate M&A and alternatives. But right now the buyback, sort of the implied buyback return is very attractive.

Yeah, and I was going to ask about M&A because obviously you've recently just done these acquisitions. Does that kind of put M&A on hold for a while or for the right opportunity would you be willing to do more and maybe even lever up a little bit for something?

We are maniacally focused on ensuring that we get integration right on the M&A. So I would certainly expect us to be focused on that for the next several quarters. And then beyond that, I'll bring it all the way back to we're going to look at risk-adjusted returns for all the alternatives we've got to capital deployment.

Makes sense. So right at the end, I'm going to ask a few kind of rapid-fire questions that we're asking all of our consumer and retail companies here. But before that, maybe just let's tie a bow on all of this great insight that you've given.

And I like to ask this question, like if you and I were sitting here, you know, hopefully a year from now or two years from now what would you say is the kind of goal before you get there and where would you think there's the highest scope for kind of outperformance versus expectations you know what I would say Lizzie is we don't have nor do we need a big bet so if you think back it's just some of the things that we've even covered today I believe the core algo is going to continue right we've lived inside the algo for some time now so the core algo continues, we could potentially have outperformance associated with the M&A. We could get a faster ramp associated with our multi-brand strategy. We could curtail the loan losses on the portfolio. We could stabilize the travel and membership business. We've got an entire suite of potential tailwinds associated with the business right now. So if we're sitting here three years from now and we've wildly outperformed the algo, So I think it could be one or all of those.

Yeah, makes sense. All right, let me hit you with some of these rapid fire, if that's okay. So starting off, health of the consumer. What are your expectations for the environment, both in the second half of 26 and as we move into 27, relative to what you've seen year to date? Would you expect it to be better, worse, same? How do you think about that?

I think it's pretty steady on the T&L side.

Yep, yep. And that's second half and 27 steady for both.

The second half, for sure, we're starting the 27 budget process in earnest right now.

And then AI, how much are you kind of using that, and do you expect your efficiency as related to AI to increase, or it doesn't move the needle for you next year?

No, I think broadly speaking, AI is going to be a tailwind for us. The tailwind composition at 27, probably not as much. But I think that we've got some things in the pipeline right now that will be accretive.

And then last one, as it relates to margins, do you see more margin headwinds or tailwinds as you look into 2027?

I think about margins as relatively stable in 2027 v. 2026. We'll have fully rationalized and taken the benefit of the resort optimization initiative by the time we turn the calendar over, but I think margins are relatively stable.

Okay, great. That's a great place to end it. Thank you so much, Eric and Andrew. really appreciate you you being here and thanks for a great session.

Thanks for having us.

Yes, thank you.