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Social club operator Soho House (NYSE:SHCO) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 5.6% year on year to $305.1 million. The company's outlook for the full year was also close to analysts' estimates with revenue guided to $1.23 billion at the midpoint. It made a GAAP loss of $0.17 per share, down from its loss of $0.01 per share in the same quarter last year.
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Soho House (SHCO) Q2 CY2024 Highlights:
- Revenue: $305.1 million vs analyst estimates of $303.8 million (small beat)
- EPS: -$0.17 vs analyst estimates of -$0.11 (-$0.06 miss)
- The company reconfirmed its revenue guidance for the full year of $1.23 billion at the midpoint
- EBITDA guidance for the full year is $161 million at the midpoint, in line with analyst expectations
- EBITDA Margin: 10.9%, in line with the same quarter last year
- Free Cash Flow of $11.7 million is up from -$13.52 million in the previous quarter
- Market Capitalization: $952.7 million
Boasting fancy locations in hubs such as NYC and Miami, Soho House (NYSE:SHCO) is a global hospitality brand offering exclusive private member clubs, hotels, and restaurants.
Hotels, Resorts and Cruise LinesHotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.
Sales Growth A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Soho House grew its sales at a weak 11.2% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or emerging trend. Soho House's annualized revenue growth of 20.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note that COVID hurt Soho House's business in 2020 and part of 2021, and it bounced back in a big way thereafter.
This quarter, Soho House grew its revenue by 5.6% year on year, and its $305.1 million of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 10.1% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
While Soho House posted positive free cash flow this quarter, the broader story hasn't been so clean. Over the last two years, Soho House's demanding reinvestments to stay relevant have drained its resources. Its free cash flow margin was among the worst in the consumer discretionary sector, averaging negative 2.6%.
Soho House's free cash flow clocked in at $11.7 million in Q2, equivalent to a 3.8% margin. This quarter's result was good as its margin was 4 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.
Over the next year, analysts predict Soho House's cash conversion will improve. Their consensus estimates imply its breakeven free cash flow margin for the last 12 months will increase to 3.9%, giving it more optionality.
Key Takeaways from Soho House's Q2 Results We struggled to find many strong positives in these results. Its revenue was slightly higher than expected, but its EPS fell short of Wall Street's estimates. Overall, this was a mixed but mediocre quarter for Soho House. The stock traded down 1.9% to $4.76 immediately following the results.
