I think they're just kicking it right off. What a better way to kick off our Global Retail and Consumer Conference on Travel Tuesday than with Travel + Leisure. Michael, Eric, thank you for joining us. We were talking this morning about how Travel + Leisure is actually one of the best-performing stocks in my entire coverage. You've almost doubled the performance of the S&P 500 year to date. That's excluding a very healthy dividend. It's also a big dichotomy versus even some of your closest peers. Excited to dig into how you're doing that, how you continue to drive idiosyncratic growth. One of the things that you've talked about are your three priorities. Maybe we can start there in terms of what those priorities are and why they're the right priorities for the company today and how they're going to continue to drive growth.
Sure. Why don't we start with one of the biggest priorities is just staying focused on our core business. Our company is successful when we don't take our eye off the ball, and that is attaching to an addressable market, direct marketing, getting them on tour to buy a vacation product that is part of the macro trend, which is bigger accommodation supported by a brand. We've been very successful in doing that. I believe fundamentally the biggest reason our equity has moved beyond our capital allocation is just consistent and steady execution. We've also been very straightforward in that we want to grow our addressable market, and we believe the best way to grow that addressable market is very simply to start launching new brands.
We are a very strong executor of our core business, as I just mentioned, but that core execution isn't limited to our current Wyndham brand. We believe we can apply the model, not something new, just apply our existing model to brands that bring with them a new addressable market. What do I mean by that? Sports Illustrated, Margaritaville, Accor, and our latest launch, Eddie Bauer, all bring with them incremental TAM, which is what the timeshare space is all about, is getting more addressable market.
Let's dig in there a little bit because we get this question with some of the branded hotel companies. Can you have too many brands? As you expand, is there the potential that you have too many tie-ins? Does it dilute aspects of the existing base, or is it more of 1 + 1 equals 3?
For me, it's one plus one equals three, and I think sometimes the rationale for hotel brands expanding is different than for us. There's all kinds of reasons you would do it in the hotel space. For us, it really comes down to two core elements. The first is the macro travel trend, which is people want to associate their vacation experience to their personal lifestyle. I think Hilton's done a wealth of Graduate, and I think our Sports Illustrated is going to do really well in college towns and in sports towns. We're trying, first of all, to give people a reason to use their vacation time to tie it into their personal time. Just launching Eddie Bauer Adventure Club, which is about outdoor travel. Again, a macro trend.
Like sports, outdoor travel.
Margaritaville, cruises.
Leisure.
Drink in your hand, feet in the sand type of thing. The business imperative is growing our addressable market because we are, unlike the hotel business, a much more direct marketing. To the extent that we can bring with the brand's experience and get with that new marketing opportunities for us that we're not currently hitting, that's incrementality to our business that we don't have to go invent a new mousetrap. We're just going to apply the same mousetrap to a new addressable market and give consumers what they want is the travel that really they desire.
Maybe just to remind those less familiar, what's the typical repurchase or upgrade rate and any initial inklings of how you could assess whether some of these new customers and these new brands will follow that same pattern?
Sure. The simple answer to your question is if someone spends $1 with us today for the first-time purchase, in the next 10 years they will spend $2.60 more. It is a very statistically validated model. As we have gotten into Accor, we have watched very closely if there is any variance to that. So far, we are not seeing any changes, but we are still only two years in. That replication is what we are looking for for our consumers. Beyond the economic side, what I find very interesting and is often lost in that statistic is if you bought $1 of timeshare today, people are buying 20% of their vacation time, 30% of their vacation time max on their first purchase. What they are saying is, "I have learned what this product is. I like how our families vacation or I am vacationing, and I want more." It is the ultimate validation statement.
We love the economic part of it, but more importantly is the consumer affirmation of the product that they own.
One of the things you referenced is the experience that they have, and there's an initiative or a priority that you have is around the guest experience. Can you talk about some of the things you're doing there to improve every aspect of the guest experience as we think about from booking their vacation to even how they go on a tour?
Yeah. I think pre-COVID, I would describe our situation as being in a technology deficit. We were operating the way we always operated, and we made a very conscious decision that we were going to reallocate our internal capital to purely, not purely, but almost the vast majority of our internal capital to the customer experience. You have to build foundations, and you have to stack on top of it before it eventually gets to the consumer. That is from the booking all the way to your consumer finance servicing, ultimately the optionality to not have to deal with another person in the process. That is a multi-year journey that touches marketing, sales, consumer finance, booking your next vacation, maybe booking your marketing tour. We are on that journey. We've launched our Club Wyndham app, which is getting great reception.
We just launched our Walmart app. We're doing digital marketing and trying to develop a digital funnel for our marketing leads being a direct marketing company. It's a journey that we will be on for years to come, but we're deeply committed to it. We've already had tons of learnings here in our first few years of starting to explore the right app, how consumers want to use it, how we can get more of our consumers' maximum utilization of their ownership every single year.
The last priority was around operational discipline. You talked about even just now the data-driven marketing and enabling associates. Maybe you could expand on some of the initiatives there on just operational discipline and how that then scales as you add in these brands.
Just to come back for a second on your question about brands and how many is too many, the way we are looking at that business today is we could add many more brands, I believe, today if we really put our foot to the pedal. Our early work has driven a lot of interest, but we are fully aware that if we don't execute on the brands we have, we won't have those opportunities in the future. Part of your operating discipline question is really about we need to make sure we never lose sight of growing our Wyndham brand. We need to make sure that the brand that we've brought on with Accor, we're great brand stewards, and that is proving to be a growth vehicle. It's reinvigorating Margaritaville, it's Sports Illustrated, it's Eddie Bauer.
If we do not do those right, we do not earn the right for the next brand. The operating discipline that we are all about is, first of all, on our P&L and every aspect of every brand, making sure that we do not take our eye off the ball. Ten brands executed okay is far worse than six executed as best as we can. I think as part of that, we are in an evolution. We have learned a lot in 2025 about how to launch these brands. 2026 will be another learning year, and we will have a lot of successes, and we already are, but we will also have some learnings. I think as we get through 2026, we will be communicating to you and to the market, "This is what is working well in Sports Illustrated.
We want to make sure that by the time we leave 2026, we have dialed into micro changes as opposed to macro changes so that we then will be ready to get to our next brand or our next two brands. If that happens, that's where you can see our growth algorithm just keeps stacking on top of each other as opposed to being cannibalistic.
Right. Let's go back then to the question around data-driven marketing. It sounds like you're going to be changing as you see data come in, but are there things that you're already doing that have changed? Maybe walk us through what marketing looked like five years ago and what that looks like now in terms of the different channels that you have people coming through and maybe where those preferences are going.
Let's talk about our owner base. Our owner base is about 65% of our annual sales. Every marketing outreach, virtually every marketing outreach pre-COVID was face-to-face. It was a conversation. It was a welcome to the resort. Let's learn more about our ownership. With the download of the Club Wyndham app, we now have booking capabilities I've spoken about on our earnings calls. The next opportunity that comes from there is you're going to be at Bonnet Creek in Orlando. You're going to be within a shuttle ride of Disney. Do you want to go ahead and purchase your tickets? Do you want to go ahead and organize your trip to SeaWorld, to Universal? Oh, if you do that, would you like us to pay for your tickets as a premium to go take a tour?
All of a sudden, a highly manual process moves to a percentage of those now being done at the consumer with their hands on the wheel, making the decisions when they want to make it. Walmart's the same way. Walmart owners want different things. That whole booking, itinerary planning, and then ultimately tour booking can all be done. We've just launched 60 days ago an AI customer service agent. Let's say that you're on with our customer service talking AI and you are with an AI agent. It's called Voya with us. You say, "Is this available?" It goes through and checks availability. Okay, if I go to Maui, what is my itinerary? Four-day itinerary. At that point, it'll take you over to the app, and at that point, you can book directly with us. The experience, and I did it.
I think I referenced it on our last earnings call. I did it with Park City, where I've skied several times, and I asked for a four-day itinerary. I went through that four-day itinerary, and I'm like, "This is great. This would be a great itinerary." That evolution of what we're doing, we believe, is really going to raise satisfaction and get more people going to our resorts.
It just needs to add in the predicted snowfall so that you can really time it right. One other consumer shift that's happened is that your FICO scores have moved higher. Maybe elaborate on how you've been able to do that. Is that just underwriting? Is it a change in how people perceive the brand? How much higher could it go?
Let me let Eric talk about the FICO, and maybe I'll hit on some strategies.
Yeah. Thanks for having us today, Stephen. On the backside of COVID, we changed our minimum FICO score from 600 to 640. It did a couple of things. Obviously, it dampened the top line a little bit, but what it really did was drove leverage through the bottom line through a lower provision rate, lower delinquencies, lower defaults. We are targeting customers that have got a higher propensity to purchase.
Yeah. From our standpoint, it's about getting back to your other question about operating discipline. At that point, we were having less churn on the sales and marketing side. Our best salespeople who knew the product best were seeing more clients. The ultimate outcome is that we went into COVID, I'd say with a VPG, $2,300-$2,400. Coming out of COVID, we've not touched below $3,000. What is that, a 60% VPG? That makes managing your business from our standpoint a lot cleaner, a lot more our ability to be focused on the things that really matter as opposed to running a quantity-based business. I think it allows us to refocus a lot of our financial and human resources on fewer things that allow the customer experience to actually improve along the way. At the time, I was a little concerned.
We took a leap of faith, and I think it was absolutely the right move.
Does that mean that you're now saying, "Well, what if we brought it to 650? What if we said the minimum is going to be 670? Why not try to push the envelope further?" Is there kind of an efficient frontier that you think you've reached?
First of all, I don't think there is a silver bullet at 640. We didn't wake up and say, "640 is the promised land." We picked a number based off default curves, and we said, "This is probably a good balance." I think, candidly, the next step of really defining which customers are the right level and the right propensity to pay and can afford the product and all of those factors that are important is less about a finite FICO score and a more sophisticated data gathering, which could be there are 625 FICOs that are in a better position to own our product than 655s. That FICO is a great tool, but it's not the silver bullet. As we go forward, you'll see us continue to fine-tune all of those elements.
Eric, I want to bring you back in because I think you've been six months roughly in the seat. Maybe talk to us about initial learnings. What surprised you in those first six months? Where have you been spending your time?
Yes, it's been a great two quarters, couple of quarters. I think the first thing I'd say, Stephen, is surprised by the overarching durability of the core business. Mike started this conversation associated with the strength of the core business. Despite really a choppy macro, the consistency of that core business to generate positive tour flow, to generate strong VPGs, to have consistent close rates has been a bit of an aha. I think it really demonstrates the strength of the model. I think the second thing would be the overarching strength of the existing owner base. As Mike said, roughly 65% of our sales are coming from existing owners. I knew that the existing owner base was foundational to T&L's success, but I do think that propensity to upgrade, existing owner satisfaction, I think it really speaks to the product.
I think the third thing I'd say, initial learnings for six months, is maybe a little bit opportunistic, the ability for us to sharpen our focus around resource allocation. Maybe broader than capital allocation, but resource allocation. The level of investment in legacy brands versus new brands, greenfield development versus conversions, the level of investment that we put into our travel and membership business. I think that there's a lot of value connected to resource allocation or capital allocation, and we want to sharpen our focus to see what additional shareholder value we can unlock.
Did they make you buy into a certain amount of timeshare when you first started? Are you now a happy customer who's going to be spending $2.60 for every dollar you spent?
I am an owner.
There you go. Got to eat what you're cooking. Maybe on the health of the consumer, talk to us about what you see in the portfolio. You talked about the durability, but are there other things that you're watching for when you're trying to assess the health of your owner base and potential owners?
Why do not we share this one together? Let Eric speak about the portfolio. Broadly, the last time we checked in was, I believe the date was October 22, our earnings call. We shared that we saw a consumer that was doing well, a consumer that, with our demographic, continued to buy. Volume per guest was strong at the time, had a really good third quarter. Six weeks later, the communication we had at the end of Q3, as we saw for the first 22 days in October, has continued into early December. That has been very encouraging. This is a second half quarter with Thanksgiving having just passed and Christmas, the holiday seasons where the gifts are given, so to speak. We also look at forward bookings. Again, when we checked in in Q3, our forward bookings into Q4 were very strong.
We're modestly ahead of 2024. Six weeks later, we're now into booking for Q1. There's been no real change to that pattern. It's a little difficult. It's been a little difficult this year because between Liberation Day, the K-shaped economy, macro issues, geopolitical issues, the one thread for us that's been super consistent has been the performance of our consumer. As we sit here entering the 12th month of the year, six weeks after our earnings call, I'd say virtually all of the messaging we delivered on that day, I would cut and paste it and put it to the beginning of December. It's got 30 days to go.
You got to play to the last whistle, but we're very pleased with how we've continued to execute the business, how our consumer has held up very nicely, and looking forward to stepping into 2026 definitely on our front foot.
So.
I'm sorry. Can we just touch on the portfolio real quick?
Sure. Yeah. Sure.
Yeah.
I'm going to pile on Mike's word on the word consistency. Early in the year, full year, we guided 20% full year loan loss provision. In the run-up to Liberation Day, we saw some elevated delinquencies, changed the full year to 21%. Second quarter call reaffirmed the 21%. Third quarter call reaffirmed the full year at 21%. Again, six weeks post earnings call, I think the message remains roughly the same. We continue to generally fall our historical default curve, a little bit up here, a little bit down there. We feel like we've got line of sight to finish the year at that 21% provision rate.
A couple of follow-ups just on the provision and the portfolio, the financing receivables portfolio. Just remind us how that process works in terms of the default curve. Is it more about delinquencies ahead of the losses, and you're trying to generally match what's going to happen in the future? Is it about what we're seeing in delinquencies right now? There's been, I think, a lot of concern that, at least in the auto space, that subprime delinquencies are going up. You're not really going after that customer per your minimum FICO scores. Anything to read into in terms of what you're seeing in delinquencies?
They are very connected to your point, delinquencies and the provision, obviously. Travel and leisure are not immune from the broader macro associated with delinquencies and losses. I think, broadly speaking, when you zoom out on our consumer finance process, it is very, very much interconnected with our VO business. As we sit here today, I think, as I mentioned, we feel pretty good about the 21%. We have not seen anything notable associated with the delinquency curve that would change the loss curve and the overall loan loss provision rate that we are forecasting.
This might be more of a dated question, but in the past, there was third-party default noise, things like that that were coming up. Is that still out there as something that drives defaults? In general, I think when a typical financials analyst, maybe not a traditional gaming, lodging, leisure analyst, but financials analyst might look at, "Hey, 21% is a pretty big number for a FICO score that's over 700." Maybe talk to us a little bit about that dynamic. Why is the provision where it is, and what are some of the other drivers that are at play?
Let's take your first question. If you're in any of the metro markets and you turn on the radio, there's always advertisements of, "Get out of your timeshare." That megaphone is still out there. Let me share some things. It's created a perception that I think is easily dispelled with just simple facts. Here are a few simple facts as it relates to our company. Seven out of eight of our consumers have fully paid off their loan. Seven out of eight. Of that group, the retention rate on an annual basis from one year to the next is roughly 98%. Those are people who are vacationing for the price of their maintenance fees. That's a very high retention rate because there's natural life circumstances that would cause people to leave.
In the one-eighth of people who actually have a loan with us, you heard what Eric said around our portfolio. We're a direct marketing business. We're not a passive marketing business, which is two sides of the same coin. The first is that we can really drive demand. Coming out of the GFC, coming out of COVID, people that were on vacation in those times were people we could market to. It's a different dynamic than it is in many passive marketing businesses. I think it really lowers our risk profile from what people think around our business. That's the huge positive. In a direct marketing business and sales, you do have elevation of delinquencies and defaults. Although it is that roughly 20% historically that we've been at, the reality of the entire space, it's similar. It's sort of the nature of the business.
We know that once people get in, the seven out of eight, they use it, they love it, and they buy more to that 2.6 times. There is that window where between not having used it very much, taking on a loan, that there is a slightly higher fallout rate. That is the nature of the business. With the nature of that business, we're driving mid-20% margins. We're driving 50% cash flow to EBITDA. You can quote the EPS stats, and we're returning a pretty dramatic amount to our shareholders. It is a component of our business that.
With that all said, it sounds like historically, I think that that 21% would still be elevated versus history. If we end up with a more normal environment, the general expectation is that that should come down.
Yeah. So.
That's structural that's changed. Right.
That's right. During the third quarter call, we talked about the fourth quarter being lower than the third quarter and 2026 being lower than 2025. We do believe that we're on a downward trajectory and that over the medium term, we'll settle back into the high teens. Maybe the one other component that I might mention, Stephen, associated with defaults is we have the ability to recycle that inventory back onto our balance sheet, resell it at today's prices. I think that ultimately manifests itself as a very low cost of sales to the organization as well.
Right. And the cost of that is effectively the maintenance cost, right, until you resell it.
These are properties that had already been in a maintenance cycle. We are taking back inventory that is in good shape that we can resell at today's prices, low cost of sales. I think if you look at cost of sales and provision in conjunction together, you will see that all three of us operate in a pretty narrow band.
There has been lots of chatter about the trajectory of rates as well. If I look at your stock versus rates, there was a window of time where it seemed like it was very, very correlated, inversely correlated to the trajectory of rates. Where are we in terms of should we be rooting for lower rates? Are you at a point where rates at this point are neutral to both the financing business and the corporate borrowing, or is there opportunity there?
I think there's two elements to rates. First, on the ABS side, we've generally got flat rates that we sell our product at. As rates continue, as we move into a declining rate environment, we have the ability to transact ABS deals at favorable rates. In 2025, we've seen sequential decreases in our ABS pricing through the year. We're widening the spread on the portfolio. There were several years where it was a headwind to T&L as rates were increasing. As we head into a declining rate environment, we would expect to see some favorability in the P&L through the spread. The second thing on interest rates is roughly 30% of our corporate debt is variable-based as well.
We've got the top side of the P&L associated with widening spreads and then below the line favorability associated with favorable rates against our corporate debt.
Maybe if we work down the P&L, the other thing to think through is margins. You referenced kind of healthy margin structure, but what are some of the puts and takes that we should be thinking about in the year ahead, but also as we look longer term that will impact the margins? I realize most of this is maybe focused on the VOI business, but you could tie in the travel and membership side as well.
I think you're appropriate to focus on the VOI business because when you look at our brand strategy, there's not a lot to see in our core Wyndham brand, which is the vast majority of our sales and will continue to be with growth over the next few years. Our ability to look forward between take back of inventory, what we have existing on our balance sheet, there's not a lot of need to go build a lot of new projects. Sales and marketing is highly consistent, and then you have provision. The predictability and our ability to manage our VOI business as long as the top line continues to deliver is, I'd say, highly predictable. As we layer in growth, Sports Illustrated, Eddie Bauer, these are new projects. We're not taking back low-cost inventory.
There is a higher COGS, cost of goods sold, product cost for those new brands, but I view that as investment in the business and not material to the overall margin as we go forward. It will be a slight margin drag, but the emphasis is on slight, not drag, just because if you're doing $2.5 billion of VOI sales on an annual basis and you add in $100 million of sales, that margin differential is not going to be significant enough to change the overall narrative of our business. I think the one other component to consider, two components to consider for next year, Eric was talking about interest rates. For the last three years, we've been talking about a headwind of compressed interest rate to our ABS markets. That's now expanding and will unfold over time.
It's turning an interest rate headwind into an interest rate tailwind going forward. That's important to look at some in 2026, but even more so in 2027. Number two, and we talked about it on our last call, and I think Eric said it really well, is we're looking at sharpening the pencil on what we do internally. We've consistently announced new projects, but next year we've identified there are some projects that have been with us for 40 years and are in less demanded location, and we're just carrying those costs on our balance sheet on behalf of our owners and ourselves. We're getting to this sort of special assessment point, and we view it better to extract them from the system.
We're doing a little bit of a catch-up next year, but that will ultimately, as we get into early next year, there will be some dynamics about some KPIs, but the bottom line to all that is we'll end up with a better system, better locations for our consumers to go to, avoid what would be special assessments, and neutral to better to our bottom line.
Maybe we can dig in there real quick. That's effectively on the HOA/club management side, right? You're effectively saying normally you collect a percentage above whatever your HOA fee effectively is for managing the club.
Correct. Cost plus, yes.
Cost plus. One, remind us how big that business is, but also you were describing it as you were maybe carrying some of those costs. Is that under-earning in some capacity?
Yes, but there are a few pieces of the puzzle you have to put on the table. Let me just put the pieces on there, and then we'll talk about them as time goes on because we're in the process right now. There is the carry cost of that inventory. We're the biggest owner of our own timeshare.
Right. So, if you have an older club that people don't want to book into, you're carrying the cost there.
Or it's unsold but contributed to the club. That is the biggest carry of this piece of the equation of constantly hygiening resorts. That will take our inventory on hand maybe from four to three years, rough. We do not know yet, but we will find to that. Piece of the puzzle number one is carry cost of the inventory, big expense. When those units come out, a few things also come out. If you have any sales locations, which the ones we are looking at, we could be two or three sales locations that will impact sales to a degree. Number three is you lose some management fees because that inventory comes out. Then rental income, which is a very small piece. Those are the four pieces.
Come back to my original answer that was the summary, which is this will all modestly change our KPIs, and we'll communicate that upfront, but the net effect is going to be should be neutral to positive to the company and definitely positive for the consumer.
I mean, it sounds kind of like what you did with, this may be a bad analogy, but the FICO scores. You're raising the FICO minimum there, and ultimately this is improving the overall health of the portfolio.
It's a great analogy. We kept doing press releases. We're in Austin. We're in Atlanta. We just announced Chicago and Nashville and Tuscaloosa. We constantly do press releases on that, but it is normal course of business in the hospitality industry that flags come in and out, and you should constantly be evaluating which flags meet what is best for your consumers. They are run by HOAs. It's ultimately the HOA's decision as to what's the right path for these resorts. We have been in very transparent conversations with the HOAs. Once they've come to understand it, they're sort of excited about it, and they can choose to exit their ownership or they transfer it to a different club. Something we probably should have done a few years ago, but better late than never.
Yeah. I've got other questions there, but I want to make sure that we touch on capital allocation since that's a big part of the story. Remind us capital allocation priorities and any changes that you'd expect as maybe you're both evaluating some of these new brands coming in, but I think you also referenced potentially opportunities within conversion properties versus new builds. Anything to call out there?
Sure. Capital allocation, first and foremost, we want to make sure that we continue to invest in the business, right, through CapEx, through development. We want to make sure that we're caring for the business, and we're positioning the business for growth. Beyond that, we're committed to our dividend. We've increased our dividend double digits over the last several years and expect that to continue to grow with earnings. Beyond that, absent something with a more favorable return, we will continue to buy back shares. We'll continue to evaluate M&A. Through the first three quarters of 2025, we've repurchased $210 million worth of shares very programmatically this year. Our dividend yield is between 3% and 4%. Our buyback yield is roughly 6%. Total shareholder yield right now, roughly double digits. Free cash flow yield at current market cap, 11%-12%.
I would expect us to continue to lean in on buybacks. We're very committed to the dividend, and we'll continue to run everything through a return on incremental invested capital lens.
That's great. On the CapEx side and investing in the business, do you generally expect that? Where is that going? Is that going predominantly into technology to serve the guests? Would you think that the technology aspect in Tennessee is going up?
Our total internal spend, capital spend is modestly up, but the share of the pie toward technology is way up. As it relates to inventory, our inventory spend will be up as well, but that's just to support locations like Chicago and Nashville that are supporting the new brand incrementality.
Great. We're right at time, so please join me in thanking Travel + Leisure with Michael and Eric. Thank you both for joining us. Thanks, everyone.
Thank you.