Soho House & Co Inc (SHCO) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thanks for joining the Membership Collective Group Second Quarter Earnings Conference Call. (Operator Instructions)

And I would now like to turn the conference over to Rebecca Elena. Please go ahead.

Thank you for joining us for the Membership Collective Group's second quarter 2021 financial results. Before we begin, I'd like to remind everyone that certain statements may be made on this call today that are forward-looking statements.

These forward-looking statements are subject to various risks and uncertainties and reflects our current expectations based on our beliefs, assumptions and information currently available to us. Although, we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call.

Descriptions of these factors and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC. 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 in isolation from our GAAP results.

Reconciliations to most comparable GAAP measures are available in today's earnings press release, which is available on our Investor Relations section of our website at www.membershipcollectivegroup.com.

Hello, everyone, and thank you for joining us. I'm delighted to welcome you all to the second quarter earnings call of the Membership Collective Group. I'm Nick, CEO and Founder of the MCG, and I'm joined by Andrew, Group President; and Humera, CFO. I'm looking to take you through some of the highlights of the last quarter before handing over to Andrew and Humera, who will take you through the operational and financial results.

The last few months have been incredibly exciting for the MCG. Our successful IPO in the New York marked the beginning of a new really exciting chapter for MCG, and I'm hugely grateful for the support and contribution of our members, the people who work for us and all our investors.

We believe that the MCG is a unique and special business with significant wide space and huge potential for growth. Our listing means, we are extremely well positioned to continue growing our business and to focus on making Membership even better. That's what has driven us on for the last 26 years.

Over the last few months, we have been able to reopen our houses, restaurants and workspaces as restrictions have eased. We have loved welcoming members back to Soho Houses around the world to The Ned in London and to the Scorpios Beach Club in Mykonos. And one of the most challenging periods of our history, we are happy to get back to doing what we do best.

Obviously, as we sit here today, the world is still living with COVID-19 and ongoing restrictions are still having an impact on our industry's recovery, including the recent mask and vaccine mandates in North America and other restrictions across Europe. That said, we have seen over the last few months gives me confidence that when COVID restrictions fully and finally lift, our business will be back to full strength.

In fact, against the challenging backdrop of the last quarter, we've opened 2 houses, one here in London and one in Austin, Texas. And today, we opened the doors of Soho House Tel Aviv in Jaffa District. Originally built as a convent, we have retained and restored many of the original features and designed interiors that are inspired by the city's cultures, colors and influences. It's a beautiful house that I know our members will love.

Looking ahead, I'm excited that by the end of the year, we will have opened 7 new houses, including 3 hugely anticipated locations in Paris, Rome and Brighton in England. Soho House Paris sits in one of the city's most vibrant neighborhoods and is a beautiful former 19th Century Townhouse spread over 5 floors with 36 bedrooms due to open next month. The anticipation in the city of Paris is enormous, and our membership demand, I've never seen anything quite like it. It's hugely exciting for us.

Opening after that, in the heart of San Lorenzo is Soho House Rome, our first house in Italy. Set in a 10-story building, the house features a rooftop pool, 49 bedrooms and 20 long-stay apartments, again, very exciting. I've been looking forward to opening houses in France and Italy for many years. So this is going to be a really exciting period for us.

Again, this is all about making Membership better. Every day, I continue to be overwhelmed by the loyalty of our members. Our membership retention has remained exceptionally strong, and I've been amazed by the increase in applications for Soho House membership during the quarter, a 40% increase versus pre-pandemic levels. I've never seen anything like it in the 26 years I've been running Soho House. Our membership waiting list now stands at a record high of 64,000.

During this quarter, we have also relaunched the SH.APP, the Soho House app, our digital platform that allows members to bring Soho House into their pocket. More on that from Andrew later. Beyond Soho House, we have seen robust growth of our newer membership brands, adding over 8,000 members across Soho Friends members, Soho Works Lounge members and Soho Home+, which gives me real confidence in the future success of these new tailored memberships, and we've only just begun.

Now let me hand over to Andrew, who'll take you through some more of the detail.

Thanks, Nick. I will now focus on how we reopened and performed in the quarter, talk more about membership, provide insight into how we're delivering our growth plans and then hand over to Humera for our financial performance.

In terms of key performance highlights, we finished the quarter with 128,000 members, an 8,000 increase from Q1 2021. Total revenues grew to $124 million versus Q2 in 2020. Membership accounted for 36% of our revenue, which is recurring subscription revenue. House contribution rebounded up 34% to $25 million, and our in-house revenue grew by 188% to $46 million. As Nick mentioned, we welcomed our members back. EBITDA, a number that is fully burdened for growth that includes all our preopening costs, was a loss of $13 million and Humera will unpack this later.

As Nick mentioned, Q2 was our first quarter as a publicly traded company. We started the quarter with full or in partial closures or some form of restrictions across all our houses. By the end of the quarter, our teams have successfully reopened our houses, whilst improving all aspects of member experience. Although, some of our European houses still have restrictions, we were able to welcome all our members back, and our members were desperate to come back so much so that the booking slots we released on a daily basis were often sold out within minutes.

Encouragingly, the weekly rate of food and beverage sales showed momentum throughout the quarter, and our members started staying with us again, leading to an average 58% occupancy increasing to 63% by the end of June and we had 93% occupancy levels for June in our destination properties within Soho House, Soho Farmhouse, Babington House and Soho Beach House, Miami. These are all booked by our own platforms, and we saw strong daily rate increases across all our properties.

So now let me focus on our unique membership subscription performance at MCG. As I said, over a third of our revenue is achieved by recurring membership subscription fees. Our members continue to show incredible loyalty in the quarter with membership retention rates remaining very strong. Soho House applications increased by 40% versus a comparable pre-pandemic period. With applications spread across all houses and regions and with the weaker rate of applications accelerating through June. This plus the demand for other membership types resulted in an increase in the MCG waitlist of an all-time high of 64,000. It is particularly notable that demand remains strong, even while houses were closed and restrictions were in place. This gives us a high level of confidence for future growth.

We saw a high rate of members globally unfreeze their memberships during the quarter, shrinking the number of frozen members to 11,000, and we expect this trend to continue. We took a cautious approach to accepting new Soho House members to prioritize existing members enjoyment of the houses as they reopen. We have now resumed normal member intakes in the third quarter.

Now let me talk more about members. We were delighted to welcome over 1,400 new members across our 2 new houses that Nick mentioned, 180 House in London and Soho House, Austin in North America. We also welcomed over 8,000 new members across our other membership brands.

Soho Friends membership delivered a strong quarter in terms of growth. Soho Works continues to progress nicely. We are benefiting from the structural trend towards flexible working and our unique offer. Membership additions have been very strong and office occupancy increased to over 80% in the quarter and continues to grow. We reopened the Ned in May and launched the first Ned Friends membership program, offering members access to exclusive spaces within the Ned, and we already have over 1,000 Ned members.

So let's move now on to our physical openings at MCG. We were pleased to open two houses in the quarter, bringing our total to 30 houses globally. 180 House is our ninth house here in London, which opened in mid-April. The House features 1970-style interiors, a rooftop pool and a club space, and currently has just under 600 members with a large and growing waitlist. Soho House, Austin, our first house in Texas, features a rooftop pool, 46 bedrooms, a screening room and restaurants, and the house has over 850 members with also a strong waitlist, which will enable us to grow membership base quickly in the year.

We have opened 4 Soho Houses so far in 2021 with a further 3 on track, as Nick mentioned, to open by the end of the year, bringing our total to 7, which is well in line with the growth outlined in our S-1. In 2022, we are on track to open a further 6 Soho Houses in West Hollywood, Cabo, Manchester, Mexico City, Nashville and Stockholm as well as 5 other sites, which will include Ned, New York, Scorpios, Tulum, Soho Works Berlin and The Line San Francisco and a third Ned site. We are really pleased with this year's house growth and the openings in 2022 that we're very confident in our execution.

Now I'd like to update you on our progress of MCG digital initiatives. One thing we are most proud of and how the team has worked through COVID disruptions to create new features for members and accelerate our digital platforms in innovation while delivering on our strategic road map. We relaunched the Soho House app in May, redesigning and introducing new features to improve member experience and help them connect digitally wherever they are in the world.

This includes House Connect, our new connect platform improvements in booking features and updates to our proprietary payment service house pay. We are seeing positive trends in member engagement. Unique daily member usage is up significantly at plus 25%. The time spent on our app is increasing significantly, and table bookings had a successful launch with 62% of all global table bookings taken by the Soho House app in Q2. Our members started to connect with each other through the House Connect feature.

Finally, House Guest continues to be used across all our houses globally. We had over 230,000 guest register on our app, providing us with invaluable data about the people visit our houses but are not yet members. Long term, this data will be a key differentiator for us.

Now to retail. Soho Home is our retail segment, which allows members to bring Soho House Home. Home delivered another strong second quarter with revenues increasing over 100% versus the previous year, 99% of those sales were full price with little or no markdowns, which shows the strength of execution within the team. Gross margin at IMU increased in the quarter leading to a higher profit growth in sales. We added new product which are unique to Soho House inspired by our houses in which you can only find at Soho Home. DTC accounted for 95% of sales with conversion and UPT, both increasing nicely versus the previous quarter.

We introduced interior design services only available for our members, which has proven extremely popular. In the quarter, we gained over 700 new Soho Home+ members, and Soho House members account for 55% of revenue, which contributed to a big increase in AOV. We continue to be very excited about the significant opportunity and prospects for Soho Home.

We completed the purchase of The Line in Saguaro. In June, we further enhanced our membership platform as we entered into 6 hotel management agreements related to The Line in Saguaro Hotels. Based in Los Angeles, Washington D.C., Austin, Scottsdale and Palm Springs. The hotels offer a variety of food and beverage as well of over 1,400 hotel bedrooms. We are very excited about this acquisition, not only will it broaden our geographical reach, it will also continue to enhance the experience for our members on our platform.

I'll now pass over to Humera, who will take you through our financial performance.

Thanks, Andrew. I'll now take you through the financial highlights for the second quarter of 2021. Firstly, our total revenue of $124 million increased compared with the second quarter of 2020. In the quarter, membership revenue of $45 million represented 36% of total revenue. And this was driven by the resilience in the retention rate of our existing Soho House members as well as the addition of new members across the MCG brands.

As Andrew has already mentioned, we made the strategic decision to limit Soho House membership intakes in the last 12 months. However, the fall in Soho House members versus the second quarter of 2020 was offset by the increase in new membership brands, including Friends, Works and Home+. In addition to the ongoing unfreeze of Soho House members throughout the quarter. In-house revenue in the second quarter rebounded strongly, increasing to $46 million versus $3 million in 2020. The increase was driven by the reopening of our houses and the gradual removing of social distancing restrictions across all of our regions.

Although, it is important to note that our sites were still impacted by local regulations for much of the quarter. And if we think about the exit rates out of the quarter at the end of June, North America market was trading at around 20% to 30% below comparative levels in June 2019, with the U.K. at 10% below and Europe still lagging at around 40% below. Other revenues of $33 million also showed a strong recovery versus $9 million in Q2 2020.

In the quarter, we reopened our public restaurants in the U.K. and North America in line with the easing of local restrictions. Overall, these sites delivered strong results driven by pent-up consumer demand as well as additional seating in outdoor areas.

Additionally, we acquired the remaining 50% share of the Mandolin, a public restaurant in Miami, which further boosted our other revenues. Soho Home also delivered another strong quarter, growing revenues by 104% year-on-year.

Finally, other revenue growth also includes the benefit from the reopening of Scorpios as well as the management fees from the Ned as the London property reopened. We made good progress in our cost savings program, which resulted in our houses operating at significantly improved cost ratios versus the comparative period in 2019.

Our global procurement program continues to deliver purchasing savings through contract renegotiation and vendor consolidation. And the program also continues to identify new savings opportunities and we believe there is significant opportunity in North American market where we have only just started.

At the site level, we delivered improvements in our stock and waste management. And this, combined with procurement savings contributed in June to a 3% improvement in our food cost of sales ratio at another 2% improvement in the beverage cost of sales ratio in June versus the pre-COVID comparative period in 2019.

As I'm sure you're aware, the hospitality industry has seen increasing inflationary wage pressures in the last few months, and we were not immune. To help retain our valued employees as well as attract new employees, we increased our hourly wages in the quarter ensuring that we continue to pay the most competitive rates.

However, we were able to manage the inflationary pressures through careful hours and rotor management at the site level. We also closely controlled support office costs as we reopened recognizing the uncertainty of the environment that we operate in and the need to tightly control costs.

Moving on to our profitability measures. House level contribution margin was 19%, which was lower than 2020 due to the increase in expenses as we reopened our houses and lower house membership revenues. Other contribution, which we define as other revenues plus non-house membership revenue less other operating expenses was a loss of $4 million as compared to a loss of $10 million for second quarter 2020.

This improvement year-on-year was predominantly driven by the recovery of our public restaurants as well as the growth in Soho Home versus the comparative period in the prior year and also the opening of Scorpios in May 2021, which remained fully closed in the comparative period. Adjusted EBITDA was a loss of $13 million impacted by factors including the partial opening of our business in the quarter, G&A of $20 million as well as preopening expenses of $6 million.

It's important to rehighlight here that when we report our adjusted EBITDA, we reported fully burdened for growth, meaning that we include expenses that are associated with the growth of our business. These items include preopening expenses which are operational expenses that we incur before opening a new house, and these totaled $6 million in the quarter and they related primarily to the opening of both 180 House in London, Soho House, Austin as well as the preopening costs associated with the new European houses due to open in Q3.

Other items that we add back represent noncash rents, which is the difference between the rental costs in accordance with GAAP and the actual cash cost. For management purposes, we add back noncash rent to assess the performance of our houses. Noncash rent represents the difference between the rental costs in accordance with GAAP and the actual cash cost. In the second quarter, noncash rent totaled a credit of $5 million due to a restructure of our Hong Kong lease.

The table on the recent development slide shows our capitalization adjusted for the IPO proceeds. We received $402 million proceeds net of fees from the transaction, which has provided us with significantly strengthened balance sheet as well as funding to support our growth initiatives. Given the uncertainty in the current environment and in order to preserve liquidity and access to funding, we have decided to preserve our senior secured notes facility and instead paid off our RCF totaling $98 million.

As previously disclosed, we have also repaid preference shares totaling $20 million. Cash usage in the second quarter related to the reduced levels of in-house revenue in addition to capital expenditure on our digital platform, the extension of Soho Farmhouse as well as capital contributions related to Soho House, Austin and Soho House, Paris.

I'll now hand back to Nick for an update on House Foundation as well as our outlook.

Thanks, Humera. We have made strong progress on our ESG program House Foundations, which is at the core of what we do every day. It is central to our DNA and our members care deeply about these initiatives. In the last quarter, we formed our first Inclusivity Board a group of 30 individuals from around the world who work with our teams to increase diversity and representation within the houses. We've set an annual energy reduction targets to help reach our 50% goal by 2030 and have introduced sustainability training into supplier onboarding.

I've been particularly excited to launch Soho Chance, a program to support anyone who is just starting out or starting again in growing their business, for which we have already received over 500 applications many of which have been truly brilliant innovative ideas.

Our members love helping other people and giving them an opportunity to succeed in achieving their passions. Our Soho mentorship program, which pairs members with young people from marginalized backgrounds pursuing careers in the creative industries continues to go from strength to strength, launching in new cities, including L.A. and Chicago. The pent-up demand we have seen so far from our members, as we have reopened gives me great confidence in the recovery of our business.

In the near term, understandably, the rise of COVID cases does create some uncertainty and the exact timing and profile of a recovery is conditional on this as well as associated restrictions. We have seen stronger momentum in the U.K. compared to Europe where our houses are impacted by capacity and international travel restrictions and are in turn, preventing our global members from visiting.

North America is seeing some impact from the mask and vaccine mandates, but we have confidence its recovery will follow the shape of the U.K. But clearly, it's too early to call the time of that recovery. Our development pipeline remains on track, and we expect to open 3 new Soho Houses in the third quarter of 2021 and Soho House Brighton in the fourth quarter 2021.

The strong waitlist and high number of applications also positions us well for the future membership growth. Longer term, our ambitions remain unchanged. We have a very attractive financial model and plan to open 5 to 7 houses a year. We aim to grow membership revenue by 20% per year, and we're looking to achieve a 15% EBITDA margin.

And finally, we aim to grow adjusted EBITDA at between 20% to 25% each year. It's been a strong start to life as a listed company, and we are very excited for the future.

I'd like to finish by thanking all of our members, our team and our investors for all their support in the last quarter and in the quarters ahead.

(Operator Instructions) The first question comes from the line of Steven Zaccone with Citigroup.

I had a -- I wanted to focus a bit more on margin performance because you cited some metrics on the exit rate of the summer of June, how does that look thus far in the third quarter? And then you alluded to a different shape of recovery. I guess just could you walk a little bit more through your expectations for the second half of the year, presumably, membership revenue should be okay, but how are you thinking about the trajectory of house revenues?

Steven, it's Nick here. I'll start with that and then Andrew and Humera will add to it. We're here in England, U.K. and we're seeing a very strong recovery. We're seeing our numbers exceeding 2019 figures now. Our houses -- because we've been living with the Delta variant here. There are no restrictions in the U.K., people can go to soccer matches, sports matches. People can go to restaurants. There's no mask mandate and the U.K. is 40% of our business. So we're seeing very, very strong growth. Our members love coming back to the houses. They are aiming a lot more people are aiming to be working from the office from September in the fall. So the U.K. is in pretty good shape.

Europe is in good shape as far as the local members. I think the great thing about Soho House is the fact that it relies locally on its local members, but also the fact is that our local members aren't able to necessarily travel globally. It means that they use the houses more and that sort of gives a bit of a buffer and the fact that not so many people are using the hotel rooms because it's difficult to get into the particular cities.

So Europe is in a much better position than it was, say, a couple of months ago, and the vaccine programs in Europe are going very well and people are opening up. And I got to say that the strength of the membership in Paris and Rome is really encouraging.

And North America, again, the house is back open. They're all back open. We see Miami has had a phenomenal front of it because we know what's been happening in Florida. But New York is good. It's busy, but it's not that to quite 2019 figures nor is the West Coast, but very encouraging signs.

And also encouraging signs in Mumbai in India where restrictions are nearly all gone and also in Hong Kong. So I'd like to -- Humera, you can add to that.

Yes. The only thing I'd add to that is in terms of membership, what we're seeing as members are continuing to unfreeze in fact, the membership unfreezing is outpacing what our original expectations were. So I think we'll continue to see that. But also in terms of performance, there are levers that we have in our list that we would continue to call should the Delta variant continue to be effective.

And in some of those levers are tight cost control and cash and shift management in terms of our labor management and our procurement programs that continue to be effective, and there's more tools to work through towards -- up towards specifically in North America.

Yes. So I'd add a little bit more on membership. So I think we're super confident on membership growth in the second half, and it's accelerating both in our new houses, that Nick mentioned in his opening remarks, and in existing houses as we resume pre-COVID levels of intakes. Also our new membership types are those super excited about. We've got that high waitlist. So we have a high level of predictability coming into half 2. And the 60% of our revenue is the membership and it's recurring. So I think we feel really strong about our members being back to the houses.

And also, Andrew, the Soho Friends membership, which we introduced at the end of last year, remarkable amount of applications every week for that. It's for people who can't go into our houses, but who like staying in our bedrooms, who like using our workspaces, who have access to our studio space. And this is going incredibly well. And we've only just launched it in North America and in Europe. We're seeing a really healthy amount of applications that we read.

So I think the world is just waiting for those last restrictions to go away, and I think we're very well poised. Does answer your question, Steven?

Yes. Best of luck in the back half.

The next question comes from the line of Thomas Allen with Morgan Stanley.

So the other revenue strength really stood out. Can you just elaborate on that a little bit? It sounds like the Soho Home business did very well. But just historically, I think about half of that came from restaurants and townhouses. So can you just give us a little bit more color on there?

Yes. So in terms of other revenue, yes, certainly a very, very strong comeback. We're seeing. So if I take it down, breakdown by region, specifically in North America, we acquired the additional 60% of restaurant regional , which we already had an interest in. So that has been a much future in this quarter.

In the United Kingdom, U.K., we expect we saw in public restaurants is far better than we expected. And part of that was actually having additional capacity to outdoor dining. And so that's also outpace where our expectations are.

And then in Europe, we will be opened for the Siemens so that typically around this time of year, and that also performed much better despite the restrictions that were in place across the Europe. And then, of course, we have our also Home business, which I'll pass back to Andrew to talk a little bit more about how that performed this quarter.

Yes, sure. Thanks, Humera. So our Soho Home business is all about allowing our members to bring the House, Home. I think as I mentioned, 55% of our sales from our members, where Soho Home is a membership business. We have our Soho Home+ members, which is growing really nicely. And we're very confident in half 2 that our sales will continue that high level of trajectory and our profits will actually go ahead of sales. And it's super exciting. We've got a business it's very unique. That's built all around our membership. And we're very confident in growing that business quite rapidly over the next 2 to 3 years. So we'll continue to talk about it each quarter. Nick, do you want to add on anything?

Well, from a creative point of view, and I know cool is not about creativeness, but your autumn -- in your autumn collection is fantastic that as we've ever seen full.

Full connect. .

But it really is fantastic. And I just -- since Andrew has come onboard in the last 2 years, our Home business is really rocketing. And we have huge ambitions to sell a home in the future. Thank you, Thomas. Does that answer your questions?

It does. And then just as my follow-up, there were 3 things I heard that I thought were incremental and new. One in Rome, you opening up long-stay apartments. Is that new to MCG? Second thing, you announced that you're going to open up the Ned at the Nomad and Midtown. Are you still opening up another Ned in New York? And what happened there? And then the Soho Home Studios, can you just elaborate on those a little bit?

I'll take the first couple of those and then Andrew will talk about the last one. But long stay, yes, we have got little house apartments here in Mayfair. They're doing incredibly well. They're always full. We chose that route in Rome because it's the area we're in is a very local area. There's a big film industry. It's next to film studios. There's lots of people who want long stay -- long apartment stay. So that's why we created that. And they are really beautiful, and I think they will sell incredibly well.

As far as the Ned, we have -- we are moving the Ned, I'm super exciting because -- let me just talk about The Ned here in London because it's a big piece to the Ned. And before lockdown, it was doing 40,000 customers a week on the ground floor and then lockdown came. And we've introduced different membership types and we've introduced Ned Friends. We've enhanced the Ned membership offering as well. But the -- that the return of footfall on the ground floor is very, very encouraging as is the occupancy in the hotel. I mean, it is really encouraging for a large 200-bedroom hotel.

So the Ned is right to expand the membership and the hotel. So the opportunity came with the Nomad. It's a really beautiful building in New York, and it's going to be transferred over to a Ned. We're going to keep a lot of the lovely things that people loved about the Nomad before, but we're going to be including our membership within it. So super exciting of that.

And then the other building, and you're right, and it is signed, and we are under construction at the moment, is in the Amex building, the old stock exchange building, where it's going to be low on bedrooms, but it's got a huge amount of experience of F&B and membership opportunities. Andrew, maybe you want to add about Home Studios.

Yes, sure, Nick. So our Home business is a digital-first business, but we felt there was a big opportunity to create a space for our members that would allow our members have Ned Studios, so to actually showcase their own product. But also to have a gallery style from a retail space with our interior design service, which we recently launched has been incredibly popular to our members, and it's only available for our members.

So we've got London and coming in the next couple of months and also New York in the Meatpacking District. And they're going to be super unique spaces, all based around our members. We're going to have unique events, unique spaces for them, and it's just another way of enhancing our membership.

And great opportunity now because there are so many opportunities out there because of where retail is. And the whole thing about community pushing commerce is super excited because as soon as the community is in there, then they go often and buy, whatever less they go on and buy, whatever they're doing. So we're pleased about that. Does that answer, Thomas?

Yes, that's great.

Your next question comes from the line of Stephen Grambling with Goldman Sachs.

I guess, I'd love to hear your latest thoughts on the pricing strategy, both as it relates to the membership. And as you think about kind of in-house given your -- what you're seeing in terms of labor inflation?

I'm going to start, Stephen, and then I'm going to pass to Humera. Pricing, we've always been reasonable price, which always means that there is capability of raising our prices. Our members are super smart about they know, but the cost of goods are going up everywhere. They understand labor costs are going up. They're not -- they expect to see increases in their [SMB] prices and their room prices. But we're always very sensitive and very responsible on how we go around delivering that.

And as far as the labor market is concerned, we -- I'm not saying we have a crystal ball here. But we certainly in the U.K. realized that staffing was going to be a challenge when we reopened because not because of COVID necessarily and people thinking of changing their careers, but because of Brexit.

And so we work very hard before the pandemic on how we were going to be dealing with our staffing, and we've looked at all our -- we have everyone's on new contracts, subcontracts people are -- we've reviewed all the hourly rates, and I think we're best-in-town on that now. And we've done exactly the same in America.

And we always use it different ways of recruiting. In the past, we would go directly to source, we'd have recruitment centers in Italy and France and Portugal. And now we are massively looking at retraining people. People who are good with people and are passionate about what they do. So people from retail, people from airlines, so we're really retraining and encouraging them to come into the business. Humera?

Yes. Just to add to some color to that. In terms of the increase in hourly rates, so we did increase the retail hourly rates between GBP 150 and we also increased U.S. hourly rate between $2 and $5. And to your point, yes, we are seeing rate inflation. We're also seeing inflationary pressure in other areas such as freight, laundry and in a contract cleaning and how we're managing that, we still believe we have significant pricing power. We've increased prices in the past without having seen a reduction in volume and I think we would continue to look to that other future strategy.

And perhaps maybe one other follow-up to an earlier question. On the outlook, is there any one time or other expenses that we should be thinking through in the second half of the year, either as a it relates (inaudible) or even just ramping back up coming out of the recent restrictions?

None that we currently forecast and there may be some advisory costs related to the IPO that are still coming through, but that's barring that. I can't see anything that be a one-off shops to us.

And Stephen, we are seeing really good improvements on our margins compared to when we were in 2019, and that was all through us during the pandemic, looking on how to make our business smarter and more efficient. And there was low-hanging fruit, and there was a lot of opportunity, and we're beginning to see that, and we'll continue to see that in the coming months and years ahead.

And maybe one quick follow-up on that. I guess, as you've seen these very, very strong in-house trends. I mean, typically, I think if you look over the past several years that you typically have in-house revenues less in-house expenses kind of running at a loss and you make up all of that with the membership fee. Are you actually seeing the in-house revenue less expensive turn profitable in some of these locations, given how strong the revenues are?

Yes, it's a good follow-up question. So we are -- we've set a significant improvement at half level margins through the cost changes that we've made, both on improving F&B margins, restructuring, and streamlining the teams and supply base. So we -- our midterm goal is actually to move from what you're describing as a loss made breakeven because ultimately, our long-term goal is that membership revenue is our EBITDA. So it's a huge focus of ours. And we're making -- as Nick said, we're making really good progress on it. And if you want to add anything on that, Humera?

Yes, look, we're already seeing some improvements coming through. We talked about 3% improvement in the food cost of sales ratio, 2% improvement on the beverage cost of sales ratio. We'll continue to work on that. Wages, whilst we talked about inflationary pressure on wages, we think better scheduling, better management of our team and use of technology, we'll really see to charge those initiatives as well. So I think there is a more to save as well.

Next question comes from the line of Shaun Kelley with Bank of America.

Wondering, if you could just comment a little bit more on the customer behavior or the member behavior that you're seeing in the houses. So specifically, just thinking about those exit rates that you gave us. Could you help us think about just what are the visitation or usage levels relative to kind of the spend per member levels and not specifics, but maybe directional color would be interesting or helpful?

Yes, I mean, Shaun our members are delighted to be back. They've been -- they love socializing, they love talking, they love connecting, they love -- they love to be able to be in a room where there's other people, they love laughter. So we are seeing a return to old, old 2019 habits. Our places, whenever we put on members' events, which we do all the time, constantly, we are really seeing members coming out and enjoying that.

Now to be specific on member spend, et cetera, et cetera, it's as good, if not better than before. And our members of the farm here in that having to -- all our places where people can relax are doing the demand is -- if both got another e-mail that someone asking me for rent a cabin at the farm, I would be -- if we're going into the hundreds of thousands.

But the member behavior is really -- it's good to see it back. And also the other thing that I've been really positive is that we did a big shift on trying to make our Soho Houses during the day, less working, less [laptoping]. And with our Soho Work offering, we have been encouraging them to take a large membership out in our workspace and use laptops less in the houses, which will give us more capacity in our houses and give them more of a social soul rather than as a work soul. And we are seeing the response to that very positive. So the work -- the Soho Works here in London is -- the office space is 100% full, and the Soho Lounge membership is really increasing week by week. And we really are seeing -- one thing we are really seeing, Shaun, is members really love the hybrid way of living.

They love a bit of digital. They love a bit of physical and because we've really ramped up the shaft, and we launched Connect on the shaft with put content under the shaft. We have taken a lot of friction as a being a member with on the shaft ] as far as payment and bookings are concerned. They really feel that they got their Soho House membership 24 hours a day. And as you can tell from my voice, it is great to see. It's great to see people back in our houses. It's great to see our members engage in our shaft. And it's great to see the demand on the applications that's coming in.

And to add to that, Shaun, because of the things that we're also seeing is that we're seeing an uptick in average spend. I think there's been a pent-up demand. People haven't had much to do, not many places to go. And so we are seeing a slight uptick in average spend. We're also seeing -- and Nick, so alluding to this, is the occupancy rate at our exponential houses, so if we look at Babington and Farmhouse and actually Miami, we have high 90% occupancy rates, and I can't get it myself, frankly. So it's continuing to be consistently high. And I mean the only sort of other thing I'd add is it 50 houses are still slightly lagging because not 100% people are back into the offices. But I think we'll see that coming back as people to go back in a split.

And then I'll finish with something -- Shaun, I'll just finish with something that hasn't changed, which is our retention rates are extraordinarily high still and at historical levels. And that just goes to show to all our teams globally are continually focused on giving the best member experience in every house, which leads to those really high retention rate.

And just as a short follow-up, Nick, I think you mentioned in the prepared remarks that Works was progressing nicely. And obviously, you just talked about that trade-off relative to the behavior a little bit. Could you just comment a little bit more specifically on how you expect Works to be impacted by sort of return to office cadence? Is it actually a bit of a tailwind right now that people aren't going back to normal behavior? Or do you need some of the urban markets to fill up a little bit more before you see the Works piece take off a little bit longer (inaudible)

Very good follow-up, Shaun. Works in sort of it's like designed for this period of time. It's sort of designed for post pandemic. Companies are looking at losing their leases on their buildings and they're looking for the people who work for them to have a hybrid style of working and Soho Works is perfect for that. So we're seeing a huge demand of smaller office requests, which we can't -- we can't do anything about it in the U.K. at the moment because we're 100% full. We're still working through it in the U.S. And the Lounge membership works very well. So a company could take small offers and then for their company, they could take say 50 lounge memberships, which they have a sort of hybrid approach on working from home and working in the city.

They can go into different locations in the city. We're not just in one location. We're in five locations in London. So we're seeing that the Soho Works. And this is through more luck than judgment, Shaun. I'm not trying to be some sort of 10:00 there. It really is dovetailing well into the new way that people want to do.

The next question comes from the line of Daniel Adam with Loop Capital Markets.

Congratulations. Just one for me. It looks like cities without houses memberships declined by about 500 members sequentially, was the reason for that decline related to the partial opening of Austin, Texas in the quarter? And then I guess -- Just looking ahead, what do you expect (inaudible) membership should that grow or do you expect to gradual decline (inaudible) in your open houses?

Daniel. Great question. So yes, you are correct. So when we have a city that house in city, for example, Paris and Austin, when those houses open, we transfer the C2B range membership into house membership. So that's something that we've always done. We have got actually a huge ambitious plans for CWH because it's wonderful for us. It helps us find our next physical locations, it expands our membership into newer regions like Latin America, Africa and Asia. So this year, we'll expand to 60 cities. And by early next year, we'll actually be in 80 cities.

So actually, we are expanding CWH because it's proven to be so successful. It adds to the diversity and inclusivity of our membership. It helps us grow both by membership and also physically. So there's actually a lot more to come on CWH, and it's incredibly exciting.

Next question comes from the line of Sharon Zackfia with William Blair.

I hope everyone is doing well. So I guess I'm thinking through what sounds like a really reengaged membership group at the houses, particularly in the U.K. And as you're seeing those visitation patterns really accelerate, how does that inform your willingness to start to do what I think was quoted as normal member intake.

So and I'm thinking if the existing numbers are actually more like new members because they're so excited to come back. Does that mean or translate to more cautious cadence even in the third quarter and continuing to winnow down that wait list.

Let me take that, and I'm sure Andrew and Humera might want to add to that, Sharon. So we have been cautious in Q2 because of the reasons you said we didn't know how our members were going to come back. And we say to our members, we're not having overcrowded clubs. They don't like it. They don't want to -- they want busy clubs. They don't like walking into an empty club.

And so we've sort of used Q2. Q2 is a sort of testing to see restrictions move to and fall away and see how our members return. And you're right, that they have come back a bit like new members. But as every new member does, it's like kid getting a Christmas present. They use it -- they play with our Christmas present dramatically in January and February, and then it goes back into the cupboard and they come down and let the doctor. So we will definitely be able to resume our membership intake in Q3, which we have.

And obviously, we got a huge demand on the waiting list, but never to overcrowd our clubs, never to make -- never to have a situation where members will -- they can't see, when they want to see or they can't get in when they want to get in. So there is capacity.

Sharon, I think I would just add a little bit more color on that for Nick. We're incredibly excited about our new houses. If you think we've got seven new houses this year with all -- there are new members, which adds to our global membership and makes our membership again, more interesting, diverse and inclusive.

And then we've also got our new membership types, which Nick mentioned, it's getting fantastic traction from Soho Work, Soho Friends and Home+. So we're obviously always focused on Soho House members in existing houses that we do have a lot of new house a lot of new memberships to grow at the same time. So Nick, do you want to add anything else to that?

No. I'm good.

Great. Did I answer your question, Sharon.

Yes, that's perfect.

Next question comes from the line of Joe Greff with JPMorgan.

Just on the topic of new Soho House member intake and resuming to normal levels here in the 3Q, how even is that resumption across geographies, the U.K., the U.S. and the rest of Europe?

I'll take that and then Nick can answer it. It's pretty even, Joe. We -- our waitlist is pretty evenly spread across all our houses and all our regions globally. So our intakes are done based off that. So I would say at the moment in Q3 that it will be a nice even spread across most of our houses. And then obviously, you have the new houses and even our new houses have large waitlist. So it's a pretty even spread going forward.

And just to add to that, Joe. There is capacity. We didn't want to knee jerk in Q2 and see there is capacity. I was earlier today, I was on a call with all our Membership teams in Hong Kong and Mumbai. And they -- we're talking to our Membership teams all the time and really understanding how our members are coming back and how excited they are to be back and how excited they are to come to members' events.

And -- but there is this opportunity to add more. And also our members have always said concerned to get through -- I mean I'm getting more and more than ever or the team, the Membership teams are just people just really wanted to get into the houses because it is a safe space as well. People know -- they know who's around them. So I hope that answers that, Joe.

And there are no further questions registered online. I would like to hand back to Nick Jones for closing comments.

Well, this is my -- I was a bit nervous doing this, in fact, because I've never done an earnings call before. And I've -- I got to say I've really enjoyed being public. I really enjoyed meeting everyone and sort of the more -- sort of the focus we have on doing what we've been doing for 25 years, 26 years. And we are so determined to achieve our plan.

We are -- we're never more determined. We're never more -- the leadership team, we've got a brilliant leadership team who are absolutely focused on making lives for our members better, which means more houses, better experience within the house and more interesting members. And we are really delivering on a good level. I'm super excited about retail and the expansion of retail and all the different membership types, which we have been working on for a number of years, but have only recently launched, and it gives me great faith in that.

And also the digital, which is you people and you talk to companies all the time, taking a very physical company and making it a hybrid company has its challenges. And I think during the lockdown, we've been able to really get everyone on board on the fact that we are now going to be hybrid. Our members are really loving the fact that their membership has turned from just physical to a hybrid membership.

So -- yes, I look forward to many more of these calls in the future as restrictions disappear, and our members return big time. Thank you.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for joining, and have a pleasant day. Goodbye.