Earnings call: Soho House reports robust Q4 growth, plans expansion

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Soho House & Co (Ticker: SHC) has reported a strong fourth quarter for 2023, with significant growth in membership and revenues. The company, known for its exclusive members’ clubs and hospitality offerings, announced a 20% increase in net new members, reaching a total of 194,000 members globally.

This growth was attributed to the opening of 24 new houses since 2018 and robust demand in cities without houses, where membership grew by 50% in 2023. Soho House’s total revenues grew by 17% year-on-year, while adjusted EBITDA more than doubled to $128 million. The company also outlined plans for further expansion, including new locations in various global cities.

Key Takeaways

• Soho House’s membership increased by 20%, reaching 194,000 members.
• Strong demand noted in cities without Soho House locations, with membership up by 50%.
• Year-on-year total revenue growth of 17%, with membership revenue comprising 32%.
• Adjusted EBITDA more than doubled to $128 million, with margins improving significantly.
• New house openings planned for Portland, Sao Paolo, Manchester, and London’s Mayfair.
• Revenue growth of 8% in Q4, with membership and in-house revenues up by 24% and 4%, respectively.

Company Outlook

– Guidance for 2024 includes total revenues of $1.2 to $1.25 billion and adjusted EBITDA of $155 to $165 million.

• Soho House aims to enhance membership experiences and drive operational excellence in 2024.
• Plans to open two to four new houses annually in the near term, with an increase in pace expected later.
• Expansion targeted in Australasia, Asia, Europe, and North America.
• Focus on improving EBITDA margins with a long-term goal of over 20%.

Bearish Highlights

• The company is evaluating the benefits and costs of remaining a public entity.
• Fewer new houses will be opened in the next 18 months to two years due to developer challenges.

Bullish Highlights

• Soho House sees significant growth potential in its Soho Home business and plans to expand product assortment.
• The digital-first model for Soho Home is expected to increase profitability.
• Investment in wellness offerings, including gyms and immersive experiences, to drive further growth.

Misses

• Food & Beverage (F&B) spend per visit was slightly lower, although footfall continues to increase.

Q&A Highlights

• Executives discussed cash flow components like G&A growth, cash interest expense, cash rent, and working capital.
• Plans to expand product offerings into furniture, outdoor furnishings, window treatments, and lighting due to high demand.
• Company to continue refurbishment of existing houses alongside new openings.

In summary, Soho House & Co has demonstrated strong financial performance in the fourth quarter of 2023, with a clear strategy for continued growth and expansion in the hospitality and lifestyle sectors. The company’s focus on enhancing the member experience and its investment in digital and wellness offerings positions it well for the future, despite some challenges and a cautious approach to new house openings in the short term.

InvestingPro Insights

Soho House & Co (SHC) has shown robust growth in membership and revenues as per the latest quarterly report, but a deeper look at the company’s financial health through InvestingPro data indicates some challenges ahead. The company’s market capitalization stands at $1 billion, reflecting investor sentiment and market confidence. However, the adjusted P/E ratio as of Q4 2023 is -13.21, suggesting that the market may have concerns about the company’s profitability. The negative P/E ratio aligns with an InvestingPro Tip indicating that analysts do not anticipate the company will be profitable this year.

Revenue growth remains a bright spot, with a 16.83% increase over the last twelve months as of Q4 2023. This demonstrates SHC’s ability to expand its top-line figures, which the company has also highlighted in its positive membership and revenue growth. Yet, the EBITDA growth is an impressive 484.54% for the same period, indicating significant improvement in operational profitability, which is a key metric for investors assessing the company’s financial health.

InvestingPro Tips for SHC suggest caution due to the stock’s significant decline over the last week and month, with a one-week price total return of -16.61% and a one-month return of -13.26%. These figures illustrate the market’s reaction to recent events or disclosures by the company. Additionally, the company is trading at a high EBITDA valuation multiple, which could mean the stock is currently overvalued despite the recent price drops.

For further insights and to access a comprehensive list of InvestingPro Tips for Soho House & Co, including additional metrics and analyst forecasts, readers can visit https://www.investing.com/pro/SHCO. To enhance your investing strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 9 additional InvestingPro Tips available for SHC that could provide valuable guidance for potential investors.

Full transcript – Membership Collective Group (SHCO) Q4 2023:

Operator: 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 Fourth Quarter 2023 Results Conference Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Thomas Allen, Chief Financial Officer. Please go ahead.

Thomas Allen: Thank you for joining us today to discuss Soho House & Co’s fourth 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 Q4 earnings release, which can be found at sohohouseco.com in the News & Events section. Additionally, we have posted our Q4 presentation, which can also be found in the News & 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. Reconciliation for the most comparable GAAP measures are available in today’s earnings press release. Now let me hand it over to Andrew.

Andrew Carnie: Thanks, Thomas. And good morning, everyone. Before I start, I want to acknowledge our continued confidence in how we run our business and our accounting practices. To further counter any misleading statements that have been made about us, our audit committee engaged a large, globally recognized forensic accounting firm and a prominent independent global law firm to review our accounting and accounting practices. Their review was recently completed and the results reported directly to the audit committee. As expected, this has shown no material issues. As part of our year-end audit, we have made two small non-cash revisions to our ongoing financial reporting, which Thomas will cover later. 2023 is my first full year as CEO. I’m proud of our achievements and what our teams have delivered. In the past 12 months, I’ve prioritized visiting our houses around the world and Soho House is still as special as when we opened our first site in 1995. Our houses are full of creative, interesting people from different backgrounds who come together to have a good time and meet fellow members. As the only global private members club of its kind, we operate in more than 20 cities that represent creative, dynamic, and progressive hubs. During our 29-year history, we have never closed a house and the reason for our success and enduring appeal across all ages is that we’re a scaled global membership club with local houses where members create its identity. We’re building on those strong fundamentals with a business that we believe is getting stronger and stronger, a result of the plan we put in place 18 months ago to focus on two strategic priorities, to grow and enhance the membership experience, which leads to increasing recurring revenues and to drive operational excellence leading to greater profitability. Our 2023 results show we are making good progress and I’m excited to share the results with you today. We welcomed more than 30,000 net new Soho House members, an increase of 20% year-on-year, taking us to 194,000 members globally, versus our guidance of above 192,000. Our membership growth last year came primarily from 24 houses we had opened since 2018. For example, Nashville, Austin, Paris, Rome, Balham and Stockholm. These newer houses allow us greater choice in where we grow membership, given their maturity curve, as well as positively enhancing the membership experience for our Every House members, who represent approximately 80% of our total membership. We are particularly pleased with Mexico City. Since we opened back in September, we have more than 2,000 members. This makes us even more excited to continue to expand in Latin America, where we will open Soho House San Paulo soon. Cities without houses, or CWH, membership grew 50% in 2023, demonstrating the strength of our brand in cities where we do not have a physical house, but the demand to be part of our global network of creative members is high. It signals the runway that we have for further growth. Demand for membership was very strong, and our waitlist finished in 2023 at 99,000, up from 86,000 at the beginning of the year, demonstrating the continued appeal of Soho House globally. Annual retention remained high at 91.5% and in line with our expectations, given the recent growth of membership and the expansion of our business into new regions like Asia. Total revenues grew 17% year-on-year, with membership revenues, the cornerstone of our business model, rising 33% year-on-year and representing 32% of total revenues, up from 28% in 2022. In-house revenues grew 13% and other revenues grew 7% in the year. Adjusted EBITDA more than doubled in the year, growing approximately 110% to $128 million, with margins almost doubling from 6% to 11.3%. Finally, net cash flow from operations more than tripled year-on-year to $50 million, from $15 million in 2022 and negative in prior years. Looking at just the fourth quarter itself, we welcome more than 9,000 net new Soho House members. 4Q adjusted EBITDA was $37 million, up approximately 60% year-on-year, supported by 13% margin compared to 9% in 4Q 2022. Total revenues were up 8% over the same period. Membership delivered $96 million of recurring membership revenues, a 24% increase year-on-year. Net cash from operations for the quarter were again positive at $19 million compared to a $15 million loss in 4Q 2022. Now let me give you an update on progress we’re making against our two strategic priorities, growing and enhancing the value of membership and delivering operational excellence to drive profitability and cash flow. As I’ve said before, giving our members the best experience is at the heart of what we do. I want to give you more color on what we’re focused on in 2024. We continue to invest in talent and training across our teams to deliver high quality service to our members. We’re expanding spaces and refurbishing areas our members love, like our pools and rooftops, in our existing houses. For example, in London, we have recently refurbished White City House, roof and pool, and expanded the ground floor to create more member space. In LA, we will open the Luckman Club, an 8,000 square foot new event and member space at Soho House West Hollywood. While we’re also working on a new member space on the roof of Holloway House, and in New York, we’re refurbishing the outside space at Soho House Dumbo to be ready for an exciting summer. We continue to introduce new food concepts and dining options. Our popular Japanese restaurant, Pen Yen, has just opened at Ludlow House in New York. While we’ll open Berenjak, a celebrated Persian restaurant at Soho Farmhouse in the spring. Members have told us how important fitness and wellness is in their lives. We’re investing in new equipment and facilities across all our houses. Some examples include expanding our gym at White City in Chicago, while recently opening a new wellness barn at Farmhouse. Our new weekend wellness retreats at Soho Houses globally have been a real hit with members. Our member satisfaction scores that we are constantly tracking show that our approach is working. This is particularly true in our three most established cities, London, New York and LA, where our demand and retention rates are very high. We have 17 houses in total across these cities, and our plan as of last year is to limit intakes in these cities. This means we will not increase membership in 2024 in our most mature houses – Soho House London, Shoreditch House, Soho House New York and Soho House West Hollywood – as we focus on making sure our houses don’t feel too busy. We have always been very intentional about where we’ve opened new houses and chosen to expand into creative, exciting and progressive cities – introducing new members that make our global community more diverse and interesting. Portland is no exception. With its exciting food culture and thriving arts and film community, we opened Soho House Portland last week in Central East side. Located in a historical building that has been restored by the Soho House design team. It offers members a rooftop terrace, a pool, gym and attractive club spaces. Soho House Sao Paolo will be our first house in South America and will open soon in one of the city’s most ambitious urban redevelopments. The house is situated within a former hospital and features 32 bedrooms, a gym, a rooftop pool and bar and club spaces for members. Soho House Manchester, our first house in the North of England, is set to open later this year across five floors with a gym and health club, bedrooms, rooftop pool and bar, event spaces and two floors of club space. And finally, we will open Soho Mews House in London’s Mayfair area later this year. Turning to our second strategic priority, operational excellence. We have made significant improvements to make Soho House & Co a more profitable business whilst delivering a better experience for members. Initiatives over the past year include operationally streamlining processes and systems, like rotoring [ph], to allow house teams to spend more quality time with members. Further rolling out an F&B ordering system which allows our teams to more frequently tailor menus for members whilst growing margins. Replatforming the technology for online bedroom bookings and simplifying the member journey. Launching personalized event recommendations on the app that are relevant to member interests and introducing a state-of-the-art warehouse for Soho Home to optimize delivery times and service. Initiatives like those are delivering for the business and for our members, helping drive EBITDA to more than double from $61 million in 2022 to $128 million in 2023. Adjusted EBITDA margins in the year almost doubled from 6% to over 11%. We continue to keep a firm grasp on costs with wages as a percentage of revenues for the year improving approximately 200 basis points year-over-year and approximately 100 basis points versus 2019, while F&B margins were flat year-over-year despite very high cost inflation and up approximately 200 basis points versus 2019. Full year RevPAR was up 11% year-on-year and 32% higher than 2019. We’ve seen improved house contribution margins in our mature houses at over 40% across each of London, New York and LA. And we’re seeing strong growth in profitability in our newer houses, in line with expected maturation curves. Now let me pass on to Thomas to give you more detail on the numbers.

Thomas Allen: Thanks, Andrew. Total revenues for the fourth quarter grew 8% year-on-year to $291 million or 5% on a constant currency basis. Membership and in-house revenues was 24% and 4% respectively or 21% and 1% on a constant currency basis. Other revenues fell 4% or 7% on a constant currency basis. House level contribution increased 44% year-on-year, with house level margins up approximately 700 basis points to 31%. House level contribution margins did benefit from a $6 million out-of-period lease adjustment. But even excluding it, margins improved approximately 400 basis points. Note this adjustment did not benefit adjusted EBITDA. Looking at the full year, house contribution margins were 27%. To help you with your understanding of the business, houses that were over five years old had an average contribution margin of 37% compared to housing that first year had average margin of negative 13% and then the second year were roughly breakeven. As our new houses ramp, this signals significant embedded growth in the future. Other contribution was up 9% year-on-year in 4Q with the margin coming approximately 200 basis points to 21%. For the fiscal year, other contribution was up 33% with margins increasing approximately 400 basis points to 21%. Turning to revenues, we saw continued growth year-over-year, increasing revenue by just over $20 million. Membership growth and pricing drove a nearly $19 million increase in membership revenues. In-house revenues were $4.5 million higher year-over-year, driven by a good October and strong trading at the end of December. This was offset by not opening Portland or Sao Paulo by the end of the quarter and weaker trends in November, early December. Like-for-like in-house revenues were approximately 20% higher than 4Q 2019 and roughly even with last year. Other revenues were down $3 million through a mix of lower standalone restaurant revenue, which includes the impact of closures from earlier in the year and lower design fees. Moving to adjusted EBITDA. As a reminder, we only publish one adjusted EBITDA in our earnings release, earnings presentation, or discuss on our earnings falls. This adjusted EBITDA includes the impact of pre-opening costs, deferred registration fees, and non-cash rent. Our fourth quarter adjusted EBITDA was $37 million, up approximately 60% year-on-year as we continue to benefit from the profitability initiatives we have outlined and continued membership and revenue growth. On a fiscal year basis, adjusted EBITDA was $128 million, up approximately 110% year-on-year. Despite this increase, we know our performance here was slightly behind our guidance and I want to call out a few items here. Total revenue came in at the low end of our expectations. We managed expenses well, but we weren’t able to fully offset. We have also made two changes to our accounting policies that are worth talking through. We hired a new chief accounting officer who started in November and have new audit partners at BDO. Together, following a detailed review, we elected to make these changes that were then confirmed by the independent advisors that were retained by our audit committee, as Andrew previously mentioned. We incurred approximately $3 million dollars of additional expense in 2023 related to development that we are expensing rather than capitalizing. Roughly $600,000 of this relates to 4Q that we booked in the quarter and approximately $2.6 million relates to prior periods, including approximately $800,000 for 2022 that are impacting our full year adjusted EBITDA, which is why our full year adjusted EBITDA does not match the sum of the quarters. We incurred approximately $2 million of additional expenses related to taking a larger obsolescence reserve against our inventory. Historically, we haven’t held any major reserves against our inventory, which is mostly related to Soho Home as we have used items in our houses. Given the much larger size of Soho Home today, we have now elected to take a reserve. It’s worth noting that neither of these changes impact cash flow. Moving to our balance sheet, we ended the year with a strong liquidity position of approximately $250 million, a combination of $164 million of cash and cash equivalents and a $90 million undrawn revolving credit facility. Our cash and liquidity positions, in fact, increased slightly quarter-over-quarter. Our net debt to reported adjusted EBITDA position also continues to improve, ending the year at 5 times compared to nine times a year in 2022. We continue to drive the business to reduce these levels even more in 2024 and beyond. We have no significant debt matures until 2027. As it relates to our balance sheet and cash flow, there have been some questions recently around our cash conversion in 2023, which I thought it would be helpful to clarify. On inventory, the majority relates to Soho Home. We have strategically grown our Soho Home business, which is digital first and focused on helping our members decorate their homes. We’re really pleased with the results so far. Home revenues have roughly tripled since 2021, while inventory has been managed well and grown around 150%. We believe that a significant opportunity for Soho Home to grow further. On receivables, prepayments and accrued income, our company as a whole has grown total revenue significantly, approximately $600 million over two years. So receivables have grown as well. In addition, our business mix has shifted more into home, management contracts, design and development, where the revenue that we booked doesn’t convert as quickly to cash as traditional Soho House membership, food and beverage or room revenues. We have built out disclosures in our 10-K to help drive better understanding of our business. For example, we’ve added new detail on inventory supplier advances, as well as giving more detail on our building depreciation. Our 2024 guidance reflects our focus on giving our existing members a great experience while growing membership, driving the bottom line and delivering further operational efficiencies. We are guiding to over 210,000 Soho House members at year-end 2024, more than 8% increase year-on-year. This will be driven principally by maturing houses, but also through new house openings, which welcome new members into our global community. These include Portland, Sao Paulo, Manchester and London Mews House, which we discussed earlier. While we remain confident about house growth with a strong pipeline of more than 20 houses, our focus in the near to medium term will be on membership and profit growth over house growth. As we have discussed throughout the past 18 months, the development market is tough and we have been hit by a number of developer delays, with little we can do, given it’s primarily their capital building our houses. We’re adapting to the current state of the market and avoiding these challenges from burdening our company and cash flow. As a result, we’re planning to open two to four Soho houses a year for the next couple of years before returning to a higher cadence when credit and development markets become more accommodating. Beyond Soho House, Scorpios will open its second site in Bodrum this summer, followed by Scorpios Tulum and Ned DC. We want to remain disciplined around our mostly asset light approach. If you look at our CapEx as a percentage of revenue, it has dropped from 18% in 2021 to 10% in 2022 to 8% in 2023. We expect 2024 CapEx to be in the $90 million to $100 million range, remaining at approximately 8% of revenue. Turning to revenues, we expect total revenues for 2024 of $1.2 billion to $1.25 billion, up 6% to 10% year-on-year. This reflects our expectation of strong membership revenue growth, a 2024 house pipeline, and more conservative growth in in-house and other revenues given macro challenges and soft restaurant trends in year-to-date versus last year. That said, we benefit from still being able to grow revenues because of recurring membership revenue, which we expect to grow to $405 million to $415 million, up 12% to 15% year-on-year, supported by membership growth and pricing gains. It’s worth noting that, in 2023, revenues include approximately $20 million of membership credit revenues, up from approximately $15 million in 2022, most of which is accounted for in our in-house revenues when members spend the credit. This represents approximately 2% of our total revenue and supports footfall into the houses from new members when they first join, which leads to stronger retention. We would expect a slightly smaller amount of revenues related to membership credits in 2024 versus 2023, given lower new member growth. On adjusted EBITDA, we continue to manage our business efficiently, ensuring membership revenue flows down to the bottom line. We are guiding to adjusted EBITDA growing 21% to 29% year-over-year to $155 million to $165 million, with adjusted EBITDA margins rising from 11% to 13% despite persistent cost headwinds. As you can see, we are well on our way to our medium-term target of 15% EBITDA margins and see a longer-term goal of 20% plus. Finally, we expect to continue to improve our management of working capital to support higher cash flows from operating activities. Let me now pass it back to Andrew.

Andrew Carnie: And let me close by reiterating our confidence in the strength of our business, of our membership model and of our future growth. 2023 was a successful year in terms of membership and revenue growth, underpinned by continued appeal of Soho House, which hasn’t wavered in almost 30 years. Meanwhile, our focus on operational excellence is driving better profitability and cash flows. I’d like to personally thank our teams globally and our members for their continued support and loyalty. Before we head into Q&A, I wanted to mention that we announced on February 9 that our board had formed an independent special committee to evaluate certain strategic transactions, some of which may result in the company no longer being a public company. Our board and their affiliates own approximately 74% of our common stock and have received interest in the company on a number of occasions. In line with its fiduciary duties, the board weighs up the benefits and costs of being public versus the potential value that could be created through any transaction. Given that this work is ongoing and is led by independent members of the board and their advisors, as management, we do not have anything to update on it and will not be able to address any questions regarding it on the Q&A. We will have an announcement if and when there is something to announce. Operator, we can now take the first question, please. As a reminder, you can either ask your question on the phone or submit them over the webcast.

Operator: [Operator Instructions]. We’ll take our first question from Steven Zaccone at Citi.

Steven Zaccone: First question I had was just, with the pivot to opening less houses, when you look at the guidance you’re providing this year for top line growth and then EBITDA growth and margin expansion, should we think this is the new kind of growth rate for the business? Like, is the opportunity bigger now for EBITDA to go a bit higher because you’re probably spending less on some of these upfront cost of opening houses?

Thomas Allen: As you can see from our guidance, we’re guiding to EBITDA margins or adjusted EBITDA margins rising about 200 basis points year-over-year in 2024. We’ve talked in the past about how we saw a medium term path to 15%. And then with this earnings call, we highlighted that we saw a 20% plus margin goal. I think it will take a couple of years to reach a 15%, but then I definitely believe that we should continue to see pretty consistent growth beyond that.

Steven Zaccone: Maybe to just focus on the discussion around opening less houses, can you talk through the decision criteria of where are the biggest opportunities for you to continue to scale? I know in the past you talked about going more to the Americas overall. Has that changed? Any color there would be appreciated.

Andrew Carnie: It’s Andrew. So I think we’ve been talking about our new house openings for the last 12 months. And as we’ve mentioned before, we have a pretty fantastic new house pipeline. So we have got 20 houses that are signed, all based off CWH successes globally, all in our attractive terms and asset-like model. I just think what we’re saying today is, look, developers are having a really tough time. The macroenvironment is super challenging for them, supply chain issues, labor availability, inflation materials, expensive financing. So what we see is the impact of having our houses delayed. You’re right, we don’t want to use our own capital to open houses, we don’t want to have any unnecessary pre-opening costs or miss our opening schedules for our members. So we’re just choosing to slow down a wee bit at the moment for the next 18 months to two years. But a lot of the houses that we’ve already mentioned about growing in Australasia, growing in Asia, growing in Europe, growing a lot more in North America, that’s still the case. It’s just going to take a little bit longer given the macroenvironment with our developers.

Operator: We’ll go next to Shaun Kelley at Bank of America.

Shaun Kelley: Maybe just to start off, Andrew and Thomas, could you just give us a sense of the consumer spending side? I think there was some color provided about the trends you saw across the fourth quarter. It sounded like October was strong and maybe the end of the year in December was strong. But just as we look at the broad pattern, and I know you know I focus on this a lot, but just the spending pattern of in-house relative to membership growth continues to be quite a bit below that. So kind of what are you seeing under the hood in terms of mix shift, new member spend relative to existing member spend, and then just kind of broadly as it relates to the consumer?

Andrew Carnie: I always enjoy your macro questions. So I’ll give you some color. If I take Q4, so what we saw was members visitation was up in the quarter pretty much across all houses, across all regions, but there was a slightly low F&B spend per visit with our members. So they kind of balanced out. That’s why we were flat year-on-year and obviously up versus 2019 by about 20%. So if you think about our macroenvironment, it is pretty challenging. Here in the UK, we’re in a technical recession. So what we do is we focus more than ever on giving our members a great experience in the houses, which is working because footfall continues to grow. And that’s what we’re very focused on. We see a similar spend between new members and existing members that hasn’t changed. And I’ll give you a little bit more color on what we’re seeing year-to-date because I think that’s important. So our light flight in-house growth has softened a bit, which is what – and I know you’ve been on lots of calls with other folks, but it’s what you’re hearing from everybody right now, especially in the higher end dining companies. And also, you can see that from Opel’s table stats. January was impacted by a calendar shift. What we also saw in January was a much bigger spike in non-alcoholic beverage consumption, much more than we’ve ever seen before. But positively, results have gotten substantially better each month. So meaning Feb was better than January and the first two weeks were better in March. So we are seeing nice, better growth. And we’re in a better position, as you know, than any other hospitality industry because we’re a membership club and we have recurring membership revenues. So we might be slightly down F&B, but we’re still growing our membership revenues each month.

Shaun Kelley: My second question, so I won’t go macro for two in a row, would be, Thomas, could you give us a little color on some of the cash flow bridge components here? Obviously, it’s a bit more in focus just given some of the questions that are being asked out there. So maybe you could help us break down a few key components. Things I’m looking for would be anticipated G&A growth overall, if we could get a sense across the business, and then cash interest expense, maybe cash rent. And then, if you could help us think about the networking capital investment you need in the business, again, as maybe things start to normalize around Soho Home, you called that out pretty clearly. Those would be some helpful components.

Thomas Allen: I’ll go through these one by one. So on G&A, we expect to see operating leverage on G&A. We do expect it to grow year-over-year as we open new houses and enter new markets, but we expect to see good operating leverage there. On cash interest expense, we expect it to increase slightly. We increased the size of our Miami mortgage a little bit last year. And then, obviously, we have the pick interest on the loan – sorry, that’s non-cash. So we increased the Miami mortgage. On cash rent, some of our loans are – some of our leases are tied to CPI. And so, as you’ve seen significant increases in inflation over recent times, you should see slightly higher cash rent expense on a like-for-like basis. If you typically think kind of 2% to 3% inflation on same store or on leases, I would say this year it’s closer to 5%. And then you’ll obviously have the addition of the new house leases. On working capital, a lot of working capital has to do with timing. If you look at the fourth quarter, for example, our cash position actually went up quarter-over-quarter. We talked a lot about how we’re really focused on working capital. We’ve been managing our inventory balances a lot more when it comes to Soho Home. And so, I’m not going to guide to a specific working capital basis, but we don’t think it will be as big of a drag in 2024 as it was in 2023. And it has potential to actually be a tailwind. If you go back the past few years and you look at our average working capital, there are definitely years when it’s been up. So benefit – last year, it was a drag, and then years at a breakeven. So a lot of it’s just timing related.

Operator: We’ll move next to George Kelly at ROTH MKM.

George Kelly: First on Scorpios, I’m curious, you’re opening those two locations, I think the Bodrum is mid-year and Tulum, I want to say, is later this year. I’m curious, how do you factor those into guidance? And the legacy location is so successful. I’m just curious how you’re thinking about these next two. And then same topic on Scorpios. What is the kind of medium or longer term opportunity for that brand? Do you think beyond these two locations that are soon to open, is there a big pipeline of future locations as well?

Andrew Carnie: Good questions on Scorpios. So we are very happy with Scorpios. In 2023, it had a record year again in Mykonos, which is super exciting. We’ve always said we wanted to grow Scorpios. So this is our first year. We will add new Scorpioses. The Scorpios in Bodrum is incredible. It has its own villas, a new wellness concept, along with all the things that are great at Mykonos. And in Tulum, it’s similar and first time they’ve got bedrooms. So we’ve done a bedroom offer as well in Scorpios. So we’re really happy with two this year. Our founders, Mario and Thomas, are fantastic at doing this. We want to really focus on getting these two right this year. And we then have further growth planned for Scorpios in subsequent years. Given it’s such a great business, it’s such a profitable business, and our Soho House members [indiscernible].

George Kelly: Second question from me. Still on that other revenue line. Thomas, you said in the prepared remarks that you see a lot of future opportunity for Soho Home. And so, I’m curious if you could give more detail, like, what are the plans to continue growing that business? And are you getting to a point now where it has enough scale, where we’re going to start to see margins inflect higher, and that’ll help contribute to the overall profitability?

Andrew Carnie: George, I’ll take that one. So we’re incredibly proud of our Soho Home business. As Thomas mentioned in his prepared remarks, it’s grown threefold. It’s very much aimed at taking the house home and interiors by Soho House. That’s our USP. That’s why it’s been so successful. This year, we will continue to grow. And I’ll give you some examples why we’re excited about the growth. From an assortment basis, we’ve only scratched the surface. So, we’re nowhere near – if you think of restoration hardware assortment choice, we’ve literally just begun. So the growth has been based on a very small assortment. We are going to expand that assortment now into great furniture. We’ve recently, last week, just launched outdoor furniture. We’ll be going into the window furnishings business, expanded lighting, et cetera, because of the appetite for our products is so high. So that’s why we think there’s a lot more opportunity. It’s digital first. So it’s a higher profit model than having lots of big stores. So that’s why we feel there’s more margin. And as Thomas mentioned, in 2023, the margin at Soho House grew substantially. So we feel good about Soho Home.

Operator: Our next question comes from Zach Riddle at William Blair.

Zachary Riddle: Just a couple of questions here on the refurbishments and kind of the cadence of new home openings. I guess, first, with the plan to open two to four homes a year for the next couple of years, is there an expectation that maybe you do more refurbishment of membership spaces? Or were the recent refurbishment more of a run of the mill, standard refreshing of the spaces that you’re doing all the time. I guess somewhat related to that is the gym experiences and the wellness offering and the wellness retreat, is there a big opportunity there, how much of an opportunity is there to add tempo wellness offering at all of the houses?

Andrew Carnie: I will take these questions. So from a refurb perspective, what I articulated for this year is pretty normal for how we do things. We’re always refurbishing our existing houses. We’re always looking to increase member space from the examples that I gave. So that’s not going to change, going to two to four. We’ll always continue to do that. Regarding wellness, wellness is one of our big investments. Our members have told us it’s a big priority in their lives, both from a physical perspective, but also mental well-being. So we are investing in wellness, which, again, I did on my prepared remarks where we’re opening houses with new gyms, we’ve created a complete immersive wellness experience in our Soho Farmhouse. We’re expanding in our cities, our members are looking for new technology, for example, ice baths, infrared saunas, so we’re putting them in our gyms globally. So, yeah, I would say out of everything we’re doing right now in existing houses, wellness is a very, very big focus for us.

Zachary Riddle: Great, thanks. And I know somewhat on the same vein, as far as having fewer new homes in the mix, how could we expect that to impact house level contribution margin? I know more mature houses have significantly higher margins than the ones that are younger on the maturity curve?

Thomas Allen: We don’t guide specifically to house contribution levels, but as you can see from our overall guidance, we expect margins to increase. That will be partially driven by house contribution margin. We are still in an inflationary environment. I think if you listen to other earnings calls, companies talked about continuing to see wage and food and beverage inflation. The positive thing about us is that we have the membership revenue growth, and you can see from our guidance we’re expecting continued really strong growth there, and so that should generate good operating leverage.

Operator: And that does conclude the question-and-answer session and today’s conference call. Thank you for your participation. You may now disconnect.

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