Soho House & Co Inc. (NYSE:SHCO) Q1 2024 Earnings Call Transcript

Soho House & Co Inc. (NYSE:SHCO) Q1 2024 Earnings Call Transcript May 10, 2024

Soho House & Co Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the Soho House & Co Inc First Quarter 2024 Results Conference Call. Today’s conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Thomas Allen, Chief Financial Officer. Please go ahead.

Thomas Allen: Thank you for joining us today to discuss Soho House & Co’s first quarter financial results. My name is Thomas Allen. I am the Chief Financial Officer. I am here with Andrew Carnie, our CEO. Today’s discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in our SEC filings. Any forward-looking statements represent our views only as of today and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our Q1 earnings release, which can be found at sohohouseco.com in the News & Events section.

Additionally, we have posted our Q1 presentation, which can be found in the News & Events section on our site. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or an isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in today’s earnings press release. Now, let me hand it over to Andrew.

Andrew Carnie: Thanks, Thomas and hello everyone. I am going to start by talking through the quarter’s highlights, then provide an update on progress we’ve made against our strategic priorities. I’ll then hand over to Thomas to talk through the financial performance, give an update on our balance sheet, and our guidance before moving on to Q&A. It’s been a solid start to 2024 with year-on-year growth in membership and revenues as we continue to deliver against our strategic priorities. We welcomed more than 4,000 members in the quarter, growing to 198,000 Soho House members overall, a year-on-year increase of 17%, which leaves us well on track to meet our full year target. The vast majority of the growth in the quarter came from the 25 houses that we have opened since 2018.

Total Soho House & Co membership was also up, growing 10% year-on-year. And our waitlist continued to grow, pushing through the 100,000 mark for the first time and ending the quarter at 102,000. That’s up from 99,000 in the fourth quarter and a 15% increase year-on-year, demonstrating the continuing strong appeal of our Soho House membership globally. Total revenues grew 3% year-on-year to $263 million, supported by continued growth in our recurring membership revenues, which were up 20% year-on-year and 5% up quarter-on-quarter. While overall revenue in the quarter was solid, in-house revenues were lower given macro conditions and in line with the commentary and guidance we gave you on our Q4 earnings. However, throughout the quarter, we saw sequentially stronger in-house revenue performance and that trend has continued into April, strengthening our confidence in the year ahead.

Q1 adjusted EBITDA was ahead of market expectations at $19.3 million. As we move more into our seasonally stronger quarters, we expect EBITDA to be higher year-over-year for the remainder of the year. We continue to control costs well. And so I’ve raised the midpoint of our adjusted EBITDA guidance for the year and reiterated guidance for all of the metrics. We have made significant progress against our two strategic priorities in the first quarter and we will continue to focus on these areas: growing and enhancing the value of membership and delivering operational excellence to drive profitability and free cash flow, ensuring we deliver the best member experiences at the heart of what we do. We are improving service in our houses and we are seeing a positive impact with member satisfaction scores increasing quarter-over-quarter.

We continue to execute on initiatives that make our member experience more personalized. We recently launched event recommendations on our app using reliable member data, which helped drive 6% higher event bookings in the quarter. We are continuing to invest in our existing houses, including carrying out refreshes at houses in London, L.A., and New York. Soho House is known for our rooftops and pools. Our members love to spend the warmer months there, which is why we recently re-launched the rooftop of White City House and we are about to do the same at Soho House Holloway in Los Angeles and Dunbar House in New York. We have continued to introduce new menus, restaurants, pop-ups and wellness facilities that have all been very well received.

We recently announced that we are working towards opening a gym within 180 House in London later this year. Our new openings are growing from strength to strength. Soho House Portland has had a strong start since we opened in March and we have capitalized on 6 years in the city through our White City House’s membership by already adding more than 1,000 members. I am also really excited about the upcoming opening in Sunpower [ph] where we have seen high demand for membership of our first house in South America and follows a strong performance of our other house in Latin America, Soho House Mexico City, which opened last September. Turning to our second strategic priority, operational excellence. As you know, our strategy here is centered on three key areas: first, leveraging data and member insight to operate and scale efficiently; second, expanding in-house margins; and third, having operational discipline as we grow.

We have made further progress over the quarter, again achieving positive cash flow from operating activities. Both in-house food and beverage margins improved year-over-year despite continued cost inflation. Over the quarter, we set ourselves to go further in this area by conducting a full review of our beverage range, which we expect to deliver even stronger profitability in the future. As part of improving service and becoming more efficient, we launched a new best-in-class HR system in the UK that will rollout globally. This will allow managers to spend more time with our members and our teams whilst also allowing to better manage their hours. Given the strength of our membership revenue, our house level margins continue to improve in the quarter.

Now, let me pass over to Thomas to give you more detail on the numbers and our updated guidance.

A student using the company's membership-based content subscription services.

Thomas Allen: Thanks, Andrew. Total revenues for the first quarter grew 3% year-on-year to $263 million. Membership revenues rose 20% year-on-year, while in-house and other revenues dropped 5% and 6%, respectively. House level contribution was up 6% year-on-year, with house level margins up to 25%. Other contribution was flat year-on-year both on an absolute and margin basis. Giving more detail on revenue, year-on-year revenues were up $8 million, driven by the increase in recurring membership revenues, which were 38% of total revenue in the quarter. Membership growth and pricing drove a $17 million increase in membership revenues. In-house revenues were down $6 million year-on-year to $110 million, while other revenues were $3 million lower at $53 million.

Like-for-like in-house revenue for the quarter were down mid-single digits year-on-year. We outperformed the market in terms of footfall, but saw a lower sales per visit. This was partially driven by a shift away from alcohol sales in the quarter, most notably in January. RevPAR declined 3% in the quarter with occupancy up slightly offset by lower ADR. U.S. leisure RevPAR was estimated to be down approximately 4% in the quarter, so our performance follows that trend. It’s also worth noting that our first quarter RevPAR is still up 24% versus the same period in 2019. On other revenues, we saw growth of our Soho House and SOHO Works year-on-year, offset by lower sales in our stand-alone restaurants and townhouses and reduced design and development fees.

Our first quarter adjusted EBITDA was $19.3 million slightly lower year-over-year. Higher house level contribution was more than offset by higher run rate G&A expenses, partially driven by our recent and upcoming growth in new markets. We expect EBITDA to grow again as revenue has accelerated, and we move into seasonally higher revenue quarters. Now discussing our balance sheet. We ended the quarter with $145 million of cash and cash equivalents and $664 million of net debt. We had positive cash flow from operating activities again in the quarter, our fourth quarter in a row and a $20 million improvement from first quarter 2023. This was helped by having $6 million of positive working capital. However, our cash position fell $19 million quarter-over-quarter.

Two key things to point out here. First, this is typically our seasonally lowest quarter in terms of cash flow from operations, and we would expect it to ramp up meaningfully in the next three quarters. And second, we had higher CapEx in the quarter given the recent opening of Portland and upcoming Sao Paulo and Scorpios properties. We continue to expect $90 million to $100 million of CapEx this year. We ended the quarter at roughly 5x net debt to EBITDA, down from approximately 7x at the end of the first quarter 2023. Moving to guidance. Given good cost controls, we are raising the low end of our EBITDA guidance with a range now at $157 million to $165 million from $155 million to $165 million. We last gave guidance roughly 8 weeks ago, so we are reaffirming guidance on the rest of our metrics.

I won’t run through each of them in detail, but I think it’s just worth reiterating the sequential improvement we’ve seen in in-house revenue over the course of the first quarter and into April.

Andrew Carnie: Thanks, Thomas. Today, we published our 2023 ESG report, which shows the progress Soho House is making in these areas. Two key highlights I’d like to mention, a unique sustainability measure where we are recycling out of use to produce paper for our houses. In terms of social impact, we’re proud to have now supported more than 2,000 people through our creative access programs, Soho membership and Soho fellowship, which helps move barriers for creators on lower social economic and underrepresented backgrounds. In closing, it’s been a solid quarter for the business with strong demand in membership and high growth in membership revenues. Meanwhile, our operational excellence initiatives continue to support profitability and adjusted EBITDA was ahead of market expectations.

We remain focused on delivering for our members and further driving membership value. We remain as confident as ever in the growth opportunities ahead for the business. I would like to thank all our teams globally and our members for their continued support and loyalty. With that, we will now open up to questions. Operator, we can take the first question, please. As a reminder, you can either ask your questions over the phone or submit them over the webcast.

See also

Largest Insider Buys: Top 10 Stocks and

Insiders are Buying These 10 Undervalued Bank Stocks.

To continue reading the Q&A session, please click here.