Thomas Allen; CFO; Soho House & Co Inc.
Andrew Carnie; CEO; Soho House & Co Inc.
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 third-quarter 2024 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.
Thank you for joining us today to discuss Soho House & Co’s third-quarter financial results. My name is Thomas Allen, 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 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. We assume no obligation to update any forward-looking statements If our views change. By now, you should have access to our third-quarter earnings release, which can be found at soho houseco.com in the News and Events section. Additionally, we have posted our third-quarter presentation which can also be found in the News and 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 in isolation from our GAAP results. Reconciliations for the most comfortable GAAP measures are available in today’s earnings press release.Now let me hand it over to Andrew.
Thanks, Thomas. And hello, everyone. Before we get into the quarter, I wanted to discuss another press release we published this morning. In July, Yucaipa retained financial advisors to do a strategic review of Soho House & Co to enhance shareholder value as they believe the inherent value of the company is not reflected in its current share price.Earlier this week, the Board of Directors of the company received an offer from a new third-party consortium who has spent substantial time and energy understanding the company including recent internal due diligence and time with management.The group presented an actionable plan with an offer of $9 per share, our executive Chairman would support. A substantial premium to the current share price. The offer is conditional on certain significant shareholders including Yucaipa rolling over their equity interests in the company.As a result, our Board has reformed an independent special committee to evaluate the offer. Remember, our Board and their affiliates are approximately 75% of our common stock.Given that this work is led by independent members of the Board, as management, we are not able to address any questions regarding it on the Q&A. No assurances can be given that the special committee’s assessment will result in any change in strategy or if a transaction is undertaken. Until there is more clarity, we’ll also hold off on confirming a date for our investor day.Now, 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 financial performance, give an update on our balance sheet and our guidance before moving to Q&A.We continue to deliver against our strategic priorities of growing and enhancing membership and operational excellence to deliver greater profitability. Q3 has been another solid quarter with year-on-year and quarter-on-quarter growth in membership revenues and adjusted EBITDA.Membership demand continues to grow nicely. Membership revenues increased 17% versus the same time last year and 5% versus the last quarter. We welcomed 4,000. Soho House members growing to approximately 208,000 members globally, while our waitlist remained at record highs.We now have 27 houses that have opened since 2018 and are still on their ramp up phase. Like recent quarters, these houses drove the majority of our membership growth. With really strong growth in houses such as Sao Paulo, Portland, Mexico City, Rome and Paris this quarter, we expect to see a continuation of this proven maturation curve in 2025 and beyond.Total revenues grew 14% year-on-year to $333 million. We, again, saw a slight sequential improvement in light flight and house trends driven by improved spend per visit with inhouse revenues up 5% year-on-year. We saw light flight sales growth in our house in UK, Europe and the rest of the world, while North America was slightly behind. Scorpios Mykonos had a record breaking season and we opened our second Scorpius in Bodrum.Soho continues to be strong with this quarter’s new collections and our first source book to live in double-digit revenue growth in the quarter. We continue to be excited about the opportunity for Soho.Q3 adjusted EBITDA was $48 million growing 38% year-on-year, just slightly below our expectations. That said, we continue to deliver good growth, lowering strong membership revenue and our progress on operational excellence. This led to increased adjusted EBITDA margins of approximately 14.5% this quarter despite a choppy revenue environment,.Net income was positive in the quarter, up from negative $49 million in the third quarter last year. When it comes to growing and enhancing membership value, we continue to focus on providing our members with the best experience in our houses, which you’ve seen reflected in our continued improving membership satisfaction scores this quarter.We opened Soho Mews House at the end of the quarter in London’s Mayfair area. Our new house, the 11th in London, has three floors in a cobbled courtyard with an outdoor terrace, and a restaurant and club space with a British grill menu. On the top floor, we are providing our members with live performances in such a great space. So far, we’ve hosted Nick K, Jules Holland and Macy Gray, among many others.We continue to deliver unique events in our houses. We, again, hosted food festival at Soho Farmhouse and introduced it to our National House this quarter. These types of events are resulting in more members attending our events and increased spend per member at events they attend. As well as opening great new houses and delivering unique events, We’ll also continue to focus on ensuring our members enjoy the best experience in our existing houses, whether that’s through training, our F&B offering, including our new no and low drinks offer or house improvements.I was recently in LA visiting all our houses and teams and I’m pleased to see our investments in Malibu Holloway House and West Hollywood are delivering an enhanced member experience and also driving revenues.Our focus on operational excellence which leads to greater profit and cash flow continued over the period. We are driving change that both directly benefit our members, as well as changes to simplify our business and transform our back of house systems. In turn, helping us achieve greater efficiencies, improve service and lowering our costs.This is an important strategic unlock for the business and we have made significant progress over the recent months. While this is having a slight drag on our quarter’s results, it will be a significant tailwind in the long run. As part of this transformation, we continue to simplify our business and increase our focus on what matters most to members.Since the second quarter and into this period, this has evolved restructuring of our corporate offices globally, including removal of roles that were not core to our long-term strategy and reflecting our more targeted approach to new houses openings. We have continued to focus on improving cost management through vendor consolidation and also a focus on improving our labor hours within our houses.Together, we’ve seen the initiative drive positive results over the quarter. We increased food and beverage margins again over the period. While our successful accommodations focus helped drive red pile up 5% year-over-year. Q3 house level contribution increased 17% year-on-year with house level margins up approximately 150 basis points despite more new houses having a short-term impact on our growth and margins.Now, let me pass over to Thomas to give you more detail on our numbers and guidance.
Thomas Allen
Thanks, Andrew. Total revenues for the third quarter grew 14% year-on-year to $333 million accelerating from 3% growth in the first quarter and 5% growth in the second. Membership revenue rose 17% year-on-year to $107 million, while inhouse revenues rose 5% and other revenues up 22%.House level contribution was up $9 million or 17% year-on-year. With house level margins of approximately 150 basis points to 28% despite the short-term impact of new house openings. Other contribution was up $5 million or 24% year-on-year, supported by a strong summer for Scorpios Mykonos and continued growth in Soho Home sales.Giving more detail on revenues. Year-on-year revenues were up $40 million driven by increases in recurring membership revenues, inhouse and other revenues. Membership growth and pricing grew a $15 million increase in membership revenues. Inhouse revenues were up $5 million year-on-year, supported by new house openings. While other revenues were $90 million higher driven by very strong growth in Soho Home and Scorpios.Like-for-like inhouse revenues for the quarter were up slightly year-on-year, an improvement from the approximately flat growth year-on-year we saw in the second quarter. Europe that the world saw the strongest like-for-like growth in the quarter, followed by the UK then the Americas which was down slightly. Note we exclude Tel Aviv from our like-for-like calculation.Our third-quarter adjusted EBITDA was $48 million up 38% year-on-year with margins increasing approximately 250 basis points year-over-year. However, while margins increased year-over-year, they weren’t as strong as we hoped.FX had an approximately 2% or $5 ...
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