Soho House & Co Inc (SHCO) reported its Q3 2024 earnings, missing EPS expectations but witnessing a remarkable stock surge in premarket trading. The company posted an EPS of -$0.0222, falling short of the forecasted -$0.01. Despite this, the stock price jumped 64.97% to $8.10 in premarket trading, buoyed by strong revenue growth and optimistic forward guidance.
Key Takeaways
- Soho House's revenue grew 6% year-on-year to $305 million.
- Membership revenue increased by 16%, reaching $104 million.
- The stock price surged 64.97% in premarket trading, despite an EPS miss.
- The company raised its year-end membership guidance to over 212,000.
- Strong strategic expansion with new house openings and innovative offerings.
Company Performance
Soho House demonstrated solid performance in Q3 2024, with total revenues rising by 6% year-on-year. The company’s focus on expanding its membership base and enhancing member experiences contributed to this growth. Despite the EPS miss, the company’s strategic initiatives and positive revenue trends have positioned it favorably compared to competitors.
Financial Highlights
- Revenue: $305 million, up 6% year-on-year
- Membership revenue: $104 million, a 16% increase
- Adjusted EBITDA: $33.3 million, up by $2 million from the previous year
- Cash: $154 million
- Net debt: $665 million
Earnings vs. Forecast
Soho House reported an EPS of -$0.0222, missing the forecasted EPS of -$0.01 by $0.0122. This miss contrasts with a positive revenue surprise, as actual revenue slightly exceeded forecasts at $333.4 million versus $332.86 million. This mixed result reflects challenges in profitability despite strong revenue performance.
Market Reaction
Following the earnings release, Soho House’s stock experienced a dramatic increase of 64.97% in premarket trading, reaching $8.10. This surge indicates strong investor confidence, possibly driven by the company's growth prospects and strategic outlook, despite the EPS miss.
Company Outlook
Looking forward, Soho House has raised its year-end membership guidance to over 212,000 and expects membership revenue to range between $410 million and $420 million. The company plans to open 2-4 new houses and continues to focus on long-term growth and profitability.
Executive Commentary
CEO Andrew Kearney remarked, "Q2 has been another strong quarter with year-on-year and quarter-on-quarter growth in membership, revenues, and EBITDA." He emphasized the company’s commitment to providing exceptional member experiences and operational excellence.
Q&A
During the earnings call, analysts inquired about regional performance and the impact of new house openings on financials. Management highlighted a turnaround in Hong Kong and Downtown LA markets and confirmed consistent member retention rates.
Risks and Challenges
- High net debt levels could pose financial risks.
- Flat like-for-like in-house revenues suggest potential stagnation.
- Macroeconomic pressures and market saturation may impact future growth.
- Supply chain issues could affect operational efficiency.
- Maintaining high member satisfaction amidst rapid expansion remains a challenge.
Full transcript - Soho House & Co Inc (SHCO) Q2 2024:
Conference Operator: Hello, everyone, and welcome to the SOHO House Energy Co Incorporated Second Quarter 2024 Results Conference Call. Please note that this call is being recorded. Everyone is on listen only mode to avoid any background noise. Thank you. I'd now like to hand over to Thomas Allen, Solow House Incorporated Chief Financial Officer.
You may now begin.
Thomas Allen, Chief Financial Officer, Soho House: Thank you for joining us today to discuss Sohuhaus and Co's 2nd quarter financial results. My name is Thomas Allen, and I'm the Chief Financial Officer. I'm here with Andrew Kearney, 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 soahouseco.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 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.
Andrew Kearney, CEO, Soho House: Thanks, Thomas, and hello, everyone.
Andrew Kearney, CEO, Soho House: I'm going to update you on
Andrew Kearney, CEO, Soho House: 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 and 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 SIRHAUS members growing to 204,000 members globally. Sohu (NASDAQ:SOHU) House member growth was driven by the strong opening of Sohu 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 L.
A, Dumbo, White City, Hong Kong and Rome this quarter. As we think about the future, we also announced our plans to open new Sur Houses in Madrid, Milan, Barcelona and Tokyo over the coming years, helping to further strengthen membership demand. Q2 adjusted EBITDA grew $2,000,000 year over year to $33,000,000 It's worth noting that excluding our planned investments in growth with the initial losses at new houses, which this year includes Portland, San Paulo and Bodrum that had a $4,000,000 greater impact in the quarter, EBITDA would have grown closer to 20%. Total (EPA:TTEF) revenues grew 6% year on year to 305,000,000 dollars 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 and improving throughout the quarter. We are really pleased with the membership demand we are 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 a great experience in service and our houses, which we have seen reflected in improved member satisfaction scores again 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 of spend per member at events attended. Finally, we continue to provide members with the unique experiences they can't find anywhere else.
We delivered our 1st backstage Sohuhaus pop up at Glastonbury Festival and a sellout house festival in London. We continue to focus on operational excellence, which leads to great profits and 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 for 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 growth and margins. Now let me pass over to Thomas to give you more detail on the numbers and our guidance.
Thomas Allen, Chief Financial Officer, Soho House: Thanks, Andrew. Total revenues for the Q1 grew 6% year on year to $305,000,000 Membership revenue rose 16% year on year to 104,000,000 dollars while in house revenue was up 2% and other revenues were down 1%. House level contribution was up $6,000,000 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 $3,000,000 or 16% year on year due to the initial impact from Scorpius Bodrum, the timing of design development fees and lower standalone restaurant and townhouse sales. Giving more details on revenue, year on year revenues were up more than $16,000,000 driven by the increase in recurring membership revenues.
Membership growth and pricing drove a $14,000,000 increase in membership revenues. In house revenues were up $3,000,000 year on year, while other revenues were $1,000,000 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 EuropeRest of World. Our 2nd quarter adjusted EBITDA was $33,300,000
Andrew Kearney, CEO, Soho House: up
Thomas Allen, Chief Financial Officer, Soho House: $2,000,000 year over year. Higher membership revenues was offset by opening SoHoPass Portland at the end of the Q1 and SoHoPass Sao Paulo and Scorpius Bodrum in the 2nd quarter compared to last year when we only opened SoHaas Bangkok in the first half of the year. As you know from our maturation curves, we are confident all will drive long term profitability. Within the quarter, these new openings had a year over year impact on our EBITDA growth of approximately $4,000,000 Now discussing our balance sheet. We ended the quarter with $154,000,000 of cash and cash equivalents, dollars 10,000,000 higher than the end of the Q1 and $665,000,000 of net debt.
We had positive cash flow from operating activities during the quarter, our 5th 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 $90,000,000 to $100,000,000 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 Q2 of 2023. We announced in February, the Board had approved a new $50,000,000 share repurchase authorization.
Following the dissolution of the special committee in late May, we began repurchasing stock and bought back $5,000,000 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 $410,000,000 to $420,000,000 from $405,000,000 to 415,000,000 We are reiterating guidance for other key financial metrics, total revenue and adjusted EBITDA. With that, let me hand back to Andrew.
Andrew Kearney, CEO, Soho House: In closing, it's 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 their 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.
Conference Operator: We are now opening the floor for question and answer session. Our first question comes from Steven Zaccone from Citi. Your line is now open.
Steven Zaccone, Analyst, Citi: Great. Good morning. Thanks very much for taking the question.
Steven Zaccone, Analyst, Citi: I wanted to focus on the house revenue improvement. Could you talk about any callouts 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?
Unidentified Speaker, Soho House: Hi, Steven.
Andrew Kearney, CEO, Soho House: 1st 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, it shows that our members are consistently using our houses. So it was nice to see that our football trends improved 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.
Steven Zaccone, Analyst, Citi: Okay, great. And then my follow-up question is just with the increase in the membership count guidance, Thomas, how should we think about preliminary planning for 2025? Is this a good run rate for us to think about on a go forward basis in terms of membership count growth?
Unidentified Speaker, Soho House: Thanks, Stephen. 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 then about our long term plans. So if you don't mind waiting until then.
Steven Zaccone, Analyst, Citi: Okay. No problem. Thanks very much guys.
Conference Operator: Question comes from Sharon Zackfia from William Blair. Your line is now open.
Sharon Zackfia, Analyst, William Blair: Hi, thanks for taking the question. I guess in terms of new house openings, are there any more plans for this year? And you cited a handful that you've announced. Are any of those coming in 'twenty five? I'm just trying to figure out what we should think about for new house openings.
Hi, Sharon.
Andrew Kearney, CEO, Soho House: So we said at the beginning of the year, we anticipate to open 2 to 4. So we've already opened 2 great houses, big houses important in Sao Paulo. Next (LON:NXT) up is at Soho Mews House in London, which is our first Mews concept and it's a beautiful unique house which is going to be very much aimed at our longer tenure members. So we're very excited about that for this year. We have Manchester opening early next year.
And then we 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, NewsHouse.
Sharon Zackfia, Analyst, William Blair: Okay. And then on here in the Q3, 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?
Andrew Kearney, CEO, Soho House: Yes. Good that's a good question. I wouldn't say it's the impact is totally gone right now. There's a lot of folks still in the entertainment industry that aren't back at 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.
Conference Operator: Okay. Thank you. Your next question comes from Shaun Kelley of Bank of America (NYSE:BAC). Your line is now open.
Shaun Kelley, Analyst, Bank of America: Hi, good morning, everyone. Thanks for taking my question. Andrew or Thomas, just wanted to ask about what you're seeing like as it relates to cross border travel. Obviously, it's been a big theme. A lot of U.
S. And domestic hotel companies are talking a bit about outbound travel weighing on some of their domestic brand. 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? Thanks.
Andrew Kearney, CEO, Soho House: Good question. And hello, Sean. We have had a good season in Europe and that's the region that we see most across border travel. We've as you saw on occupancy in ADR broadly in line with last year, occupancy slightly up actually. So we have had a good season.
We've had a fantastic last 3 weeks in Paris because of the Olympics. So for the most part, we've continued to see really good cross border traveling with our members across the world into the house that we have bedrooms.
Shaun Kelley, Analyst, Bank of America: Great. Thanks for that. And then, Andrew, I noticed in the beginning of 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 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?
Andrew Kearney, CEO, Soho House: That's a great question, Sean. 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 with, 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 fall as well and the city has bounced back. And then with Downtown L. A, we've got really good programming in Downtown L. A.
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 that's another house that we're really proud of this year.
Shaun Kelley, Analyst, Bank of America: Great. Last question for me would just be, Thomas, you mentioned, I think, a $4,000,000 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 the first half? And just kind of how should we think about any incremental drag from those? Obviously, it's undoubtedly contemplated the guidance, but just trying to kind of think about the out years and modeling there going forward?
Thanks.
Unidentified Speaker, Soho House: Yes. So Sean, 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 3 sites that we highlighted Portland, Sao 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 a that almost $4,000,000 that we talked about in the call was really impact was really the 2nd 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.
Shaun Kelley, Analyst, Bank of America: Thanks so much.
Conference Operator: Our next question comes from George Kelly of Roth Capital. Your line is now open.
Steven Zaccone, Analyst, Citi: Hey, everybody. Thanks for taking my questions. First on Scorpius, 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 Tulum at some point if that's still later this year? And then how do you expect the Bodrum given that you've seen it for a little while since it's been open, how do you expect it to perform as compared to the location in Mykonos?
Andrew Kearney, CEO, Soho House: Hi, George. Good question. Firstly, Scorpius Mykonos has gone off to another strong season. I think it's going to be one of our best. So that shows the strength of the Scorpius brand.
Bodrum opened in June. It's I was there recently. It's a beautiful property. We've got our 1st private bungalows, which is the 1st accommodation Scorpius has delivered. And we're confident it will be another success story.
And we'll next year it will build just like Skorpus Mykonos has done. And we're confident in the future it will get to the same levels as Mykonos. With Tulum, 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.
Steven Zaccone, Analyst, Citi: Okay. Okay. And that location will probably open, is it next year?
Andrew Kearney, CEO, Soho House: Most likely.
Steven Zaccone, Analyst, Citi: 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 checking on those things. I guess, 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?
Andrew Kearney, CEO, Soho House: So we measure we obviously do our surveys where we ask our MIMS questions. Then we have our weekly survey which measures our success on service, food, atmosphere experiences. While members continue to have more of these unique experiences and be in houses 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 when they're in their houses. And I think I quoted those things on my prerecorded remarks, that's what we're very, very focused on.
What was the second part of your question?
Steven Zaccone, Analyst, Citi: Whether or not you seen any changes to member retention?
Andrew Kearney, CEO, Soho House: No, it's consistent. So we're not seeing any changes.
Steven Zaccone, Analyst, Citi: Okay. Thank you.
Conference Operator: We have reached the end of our Q and A session. Thank you everyone for joining today's call and we hope you have a wonderful day. Stay safe and you may now disconnect.
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