Soho House & Co Inc (SHCO) 2024 Q2 法說會逐字稿

Hello, everyone, and welcome to the Soho House & Co. Incorporated second-quarter 2024 results conference call. Please note that this call is being recorded. (Operator Instructions) Thank you.

I'd now like to hand over to Thomas Allen, Soho House & Co. Incorporated Chief Financial Officer. You may now begins.

Thank you for joining us today to discuss Soho House & Co. second-quarter financial results. My name is Thomas Allen, and I'm the Chief Financial Officer. I'm 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 the 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 Q2 earnings release, which can be found at Soho House co.com in the News and Events section. Additionally, we have posted our Q2 presentation, which can also be found in the News and Events section on our site.

During the call, we will 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 from the most comparable GAAP measures are available in today's earnings press release.

Now, let me hand it over to Andrew.

Thanks, Thomas, and hello, everyone. I'm going to update you on the quarter's highlights and provide an update on the 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.

Q2 has been another strong quarter with year-on-year and quarter-on-quarter growth in membership, revenues, and EBITDA, as we continue to deliver against our strategic priorities of growing enhancing membership and operational excellence to drive greater profitability. Membership demand continues to be very strong. Membership revenues increased 16% versus the same period last year and 3% versus the last quarter. Our global wait list continues to grow, finishing the quarter at 111,000, and we welcome 6,000 Soho House members going into 204,000 members globally.

Soho House member growth was driven by the strong opening of Soho House in Sao Paulo, our first house in South America, and other new openings such as Mexico City and Portland. We now have 26 houses that have opened since 2018 and are still in the ramp-up phase. We saw strong growth in houses such as Austin, Nashville, Downtown LA, Dumbo, White City, Hong Kong, and Rome this quarter. As we think about the future, we also announced our plans to open new Soho Houses in Madrid, Milan, Barcelona, and Tokyo over the coming years, helping to further strengthen membership demand.

Q2 adjusted EBITDA grew $2 million year over year to $33 million. It's worth noting that excluding our planned investments in growth with the initial losses in new houses, which this year includes Portland, Sao Paolo, and Bodrum that had a $4 million greater impact in the quarter, EBITDA would have grown closer to 20%. Total revenues grew 6% year on year to $305 million. We saw a sequential improvement in in-house trends driven by better footfall and spend per visit, with in-house revenues up 2% year on year, improving throughout the quarter.

We are really pleased with the membership demand we're seeing in our new markets and ramp-up houses, which gives us the confidence to raise our financial guidance today on total membership and membership revenue, while reiterating guidance on total revenue and adjusted EBITDA. Our goal is to provide our members with great experience and service in our houses, which we have seen reflected in improved member satisfaction scores began this quarter. We introduced more dining choices across all our houses including new menus, new pop-ups, and one night only experiences.

We continued our focus on service, rolling out further training, increasing the speed of service, and enhanced member recognition when members check-in and eat with us. We increased the quality and variety of member events, which combined with the personalized event recommendations on the app, resulted in almost 20% more members attending events year on year and an increase in spend per member at events attended.

Finally, we continue to provide members with unique experiences they can't find anywhere else. We delivered our first backstage Soho House pop-up at Glastonbury Festival and a sell-out house festival in London. We continue to focus on operational excellence which leads to great progress in cash flow. Through our new Global Beverages deal, we've improved the quality and choice of drinks for our members and have grown margins at the same time.

We continue to transform our back of house systems to help us achieve greater efficiencies, improving member service and lowering our costs. And we have further streamlined our corporate office to reflect the current operating environment and our plans of fewer new openings over the next couple of years. These strategic initiatives contributed to house level contribution increasing 12% year on year, with house level margins up approximately 100 basis points despite more new houses having a short-term impact on our gross margins.

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

Thanks, Andrew. Total revenues for the first quarter grew 6% year on year to $305 million. Membership revenue rose 16% year on year to $104 million, while in-house revenue was up 2%, and other revenues were down 1%. House level contribution was up $6 million or 12% year on year, with house level margins up almost 100 basis points to 27% despite the short-term impact of new house openings. Other contribution was down $3 million or 16% year on year due to the initial impact from Scorpios Bodrum, the timing of design development fees, and lower stand-alone restaurant and townhouse sales.

Giving more details on revenue. Year-on-year revenues were up more than $16 million driven by the increase in recurring membership revenues. Membership growth and pricing drove a $14 million increase in membership revenues. In-house revenues were up $3 million year on year, while other revenues were $1 million lower. Like-for-like in-house revenues for the quarter were approximately flat year on year, an improvement from the mid single digit year-on-year decline we saw in Q1. And trends were relatively consistent across our major geographic regions, the Americas, UK, and Europe/rest of world.

Our second-quarter adjusted EBITDA was $33.3 million, up $2 million year over year. Higher membership revenues was offset by opening Soho House Portland at the end of the first quarter and Soho House Sao Paulo and Scorpios Bodrum in the second quarter compared to last year when we only opened Soho House Bangkok in the first half of the year. As you know, from our maturation curves, we are confident all will drive long-term profitability. But in the quarter, these new openings had a year-over-year impact on our EBITDA growth of approximately $4 million.

Now discussing our balance sheet. We ended the quarter with $154 million of cash and cash equivalents, $10 million higher than the end of the first quarter and $665 million of net debt. We had positive cash flow from operating activities during the quarter, our fifth quarter in a row, and up approximately 80% from last year. While we incurred sequentially higher CapEx in the quarter related to all our openings, our cash flow from operating and investing activities was still net positive. We continue to expect to spend $90 million to $100 million of CapEx in the year in line with our prior guidance.

We ended the quarter at 5 times net debt to adjusted EBITDA, down from 6 times at the end of the second quarter of 2023. We announced in February, the Board approved a new $50 million share repurchase authorization. Following the dissolution of the special committee in late May, we began repurchasing stock and bought back $5 million of shares in the quarter.

Finally, after a quarter of strong delivery cost of business and particularly good membership metrics, we are raising our year-end membership guidance to over 212,000 and increasing our membership revenue range to $410 million to $420 million from $405 million to $415 million. We are reiterating guidance for other key financial metrics, total revenue, and adjusted EBITDA.

With that, let me hand back to Andrew.

In closing, it has been a solid quarter for the business as we deliver against the goals we've set ourselves this year. I would like to thank our teams globally for the hard work and passion and our members for their continued support and loyalty. I also want to mention that we plan on holding Investor Day in New York on December 5. We look forward to sharing with you our plans around long-term growth and profitability and bringing to life our excitement about the significant opportunities ahead.

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.

(Operator Instructions) Steven Zaccone, Citi.

I wanted to focus on the house revenue improvement. Could you talk about any call-outs by region where things are progressing a little bit better than the overall trend? And then the broader restaurant backdrop has seen some weakness. So how do you feel about your competitive positioning just given some of the macro data points?

First and foremost, as you know, we're a membership club, so we're really pleased to see the strength of our demand in our membership, and it shows that our members are consistently using our houses. So it was nice to see the footfall trends improve sequentially in the quarter. But more importantly, I think as I mentioned, we saw spend per member improve in the last quarter. And I said in my prepared remarks that we have a lot of initiatives to improve these, which are really delivering results.

Regarding any regional variance, the trends have been relatively similar across all our major geographies across America, UK, and Europe, rest of world, and including Latin America. So we're not seeing any real difference. We're seeing an improvement across the board from when we reported in Q1.

Okay. Great. And then my follow-up question is just with the increase in the membership guidance, Thomas, how should we think about preliminary planning for 2025? Is this a good run rate for us to think about on a on a go-forward basis in terms of membership count growth?

So I think it's early to give guidance for 2025. As we said, we'll host an Investor Day in December, and we're going to talk a lot about our long-term plans. So if you don't mind waiting until then.

Sharon Zackfia, William Blair.

I guess, in terms of new house openings, are there any more planned for this year? And you cited a handful that you've announced, are any of those coming in '25? I'm just trying to figure out what we should think about for new house openings.

So we said at the beginning of the year, we anticipate to open two to four. So we've already opened two great houses, big houses in Portland and Sao Paulo. Next up is at Soho [Muse] House in London, which is our first muse concept. And it's a beautiful unique house which is going to be very much aimed at our long tenured members, so we're very excited about that for this year.

We have Manchester opening early next year, and then we've recently announced upcoming openings with Barcelona for next year. And then following that, we have in the future Madrid, Milan, and Tokyo. So regarding the end of this year, we were very focused on opening muse house.

Okay. And then on -- here in the third quarter, I think we're lapping now that kind of Hollywood strike last year, which I think impacted your business in several areas. Can you talk about kind of how we should think about in-house revenues as we go into the back half of the year as we're lapping that impact?

Yeah, that's a good question. I wouldn't say the impact totally gone right now. There's a lot of folks still in the entertainment industry that aren't back to work, and there's a lot of -- there's a transition going in Hollywood as well. So I wouldn't say that it's completely over. But what I would say and I'd reiterate that across pretty much all our houses in the quarter, we saw an improvement in member spend, and we're confident on that continuing through Q3.

Shaun Kelley, Bank of America.

Andrew, Thomas, just wanted to ask about what you're seeing as it relates to cross-border travel? Obviously, it has been a big theme. A lot of US domestic hotel companies are talking a bit about outbound travel weighing on some of their domestic. And so just kind of curious on -- you have a unique lens into that. What are you seeing pattern wise and kind of any way you can track or give a little insight there?

Good question. We have had a good season in Europe, and that's the region that we see most of cross-border travel. As you saw, our occupancy and ADRs are broadly in line with last year. Occupancy is slightly up actually. So we have had a good season.

We've had a fantastic last three weeks in Paris because of the Olympics. So for the most part, we've continued see really good cross border traveling with our members across the world into the house that we have bedrooms.

And then Andrew, I noticed in the beginning at the prepared remarks, you mentioned some houses that I think we would expect are doing well, Austin, Nashville. But you also mentioned downtown LA and Hong Kong, and those have been names that in the past, I think have not been top of the kind of funnel or ramp. So are you starting to see either broadening out. I mean, some of those may be a little idiosyncratic with the kind of timing and timing of openings. But curious on both those two markets in particular given you have several houses in LA, and obviously, Hong Kong is a bit of a unique gateway in Asia.

That's a great question, Shaun. We couldn't be more pleased with Hong Kong. We've got a fantastic new team in there from the beginning of the year. They've done a terrific job in Hong Kong, and we've seen terrific growth there throughout the year.

So one of the things we're most pleased, complete turnaround in Hong Kong, and it's all down to delivering what the member really wanted in that city. Obviously, a big comeback in footfall as well, and their city has bounced back.

And then with Downtown LA, we've got really good programming in Downtown LA, and we've seen a real good ramp-up in our members. We feel really good about the service and the food that we're delivering now in Downtown LA, so it's another house that we're really proud of this year.

Great. Last question for me would just be on, Thomas, you mentioned I think a $4 million drag from the new openings at least relative to last year. Can you just remind us like either was that all isolated to this quarter and/or in the first half? And just kind of how should we think about any incremental drag from those houses? Obviously, undoubtedly contemplated in the guidance, but just trying to kind of think about the out years and modeling there going forward.

Yeah. So Shaun, if you think about what we opened last year versus this year, so last year, we opened Bangkok in the first half of the year and Mexico City in the second half of the year. And then this year, we've opened the three sites that we highlighted, Portland, São Paulo, and Bodrum in the first half of the year. And then as Andrew said, we're likely only going to open up Soho Muse House in the second half of the year.

And so this year, we've seen that almost $4 million that we talked about on the call was really impact -- was really the second quarter impact. First quarter, we saw a bit of a drag, too, and then second half of the year which actually flipped a bit of a tailwind given the impact of openings last year.

George Kelly, Roth Capital.

First, on Scorpios, and I apologize, I missed part of your prepared remarks, but can you talk about how the new the Bodrum location is performing and your plans for opening in [Toulouse] at some point if that's still later this year? And then how do you expect the Bodrum given that you've seen it grow a little while since it has been open? How do you expect it to perform as compared to the location and weakness?

Hi, George. Good question. Firstly, Scorpios has gotten off to another strong season. I think it's going to be one of our best. So that shows the strength of the Scorpios brand. Bodrum opened in June. I was there recently. It's a beautiful property.

We've got our first private bungalows which are the first accommodations Scorpios delivered, and we're confident it will be another success story on. And next year, it will build just like Scorpios Mykonos has done. And we're confident in the future, we'll get the same levels as Mykonos. With Toulouse, it's still under construction. As reported, there was a hurricane in that region, so the developers had to pause construction. And in that property, we'll also have accommodation component, and we're excited to see the performance when it opens.

Okay, okay. And that location will probably open, is it next year?

Most likely.

Okay. And then second topic I wanted to cover is just, you speak about member surveys and satisfaction. I know you're kind of regularly from checking on those things. So two questions. The first one is, what are you hearing that members are still maybe complaining about or wanting more of? And then secondly, have you seen any kind of changes to attrition this year in recent quarters?

So we measure -- we obviously do our surveys where we have (inaudible) questions. Then we have a weekly survey which measures our success on service, food, atmosphere, experiences. Well, our members continue to want more of these unique experiences and be in house that are fantastic experiences for them, and we've seen our scores improve on that.

What members want us to continue to focus on is great service, friendly service, and member recognition whether in the houses. I think I quoted those things on my pre-recorded remarks. That's what we're very, very focused on.

What was the second part of the question?

Whether or not you've seen any changes to member retention.

No, it's consistent. So we're not seeing any changes.

We have reached the end of our Q&A session. Thank you everyone for joining today's call, and we hope you have a wonderful day. You may now disconnect.