24 Apr Soho House’s Unique Hospitality Strategy: An Invitation to Invest?
Soho House & Co Inc. (NYSE: SHCO), earlier known as Membership Collective Group Inc.(MCG), is a global membership platform of physical and digital spaces that connects a vibrant, diverse, and international group of members. These members use the Soho House & Co platform to work, socialize, connect, create, and flourish worldwide.
Soho House & Co Inc. (NYSE: SHCO)
Market Cap: $1.27B; Current Share Price: $6.48
Data by YCharts
The Company
The first Soho House opened in 1995 and remains the only company to have scaled a private membership network with a global presence.
Over the last 28 years, the Company significantly expanded its membership expertise and diversified its physical and digital offerings. As of January 1, 2023, Soho had approximately 226,800 members (including about 162,000 Soho House members) who engage with the Company through a global portfolio of 40 Soho Houses, 9 Soho Works, Scorpios Beach Club in Mykonos, Soho Home, Soho’s interiors and lifestyle retail brand, and digital channels. The Ned hotels in London, New York, and Doha and the LINE and Saguaro hotels in North America also form part of Soho’s broader portfolio.
Image Source: Company
The Company’s central pillar is Soho House, which drives the majority of membership and revenue. A Soho House membership offers access to a network of distinctive and carefully curated Houses across North America, the United Kingdom, Europe, and Asia, which serve as the cornerstone of the member experience. Additionally, member experience is enhanced through digital channels, including the Soho House App and website.
The Soho House App is the central destination for members to make bookings, invite guests, make payments, and connect. Annually, Soho hosts thousands of member events worldwide, spanning film, fashion, art, food and drink, well-being, work, and music—and helps members forge connections to bring them closer together.
We’ll discuss a few key factors that indicate a promising future for the Company.
- Strategic Business Model
The foundation of Soho’s business model is based on the following pillars –
- membership
- physical and digital spaces
- instantly recognizable design
- services, products, and experiences
- innovation
- house foundation
The Company has put in consistent effort to enhance all of the above. Specifically, in FY22, Soho focused on creating unmatched atmospheres in its spaces while bringing communities together and serving differentiated offerings in Houses in similar geographies to provide more unique member experiences. The Company also made food offerings seasonal and rolled out new service standards.
In FY22, Soho expanded through the opening of Nashville, Brighton Beach, Holloway House, Little House Balham, Copenhagen, Stockholm, and Miami Pool House. The Company also expanded the MCG portfolio to provide diverse options for traveling members. It opened
- The Ned NoMad in June and The Ned Doha in November
- The LINE San Francisco in August, expanding to four locations across the U.S.
In February 2023, the Company opened Soho House Bangkok, on track to deliver an annual target of 5-7 new Soho Houses in 2023.
Due to implementing new initiatives, Soho saw improved performance across Houses. For example, the Company’s Other membership grew 96% YoY, primarily through its attractive Friends platform.
Image Source: Company
Overall, Soho House members reached record highs of ~162,000, an increase of 39,000, or 32% YoY. Meanwhile, total MCG members grew to ~227,000, an increase of 71,000 or 46% YoY. Also, the MCG waitlist ended 2022 at more than 86,000, an increase of 22% vs. the end of 2021.
The Company has already made great strides in offering value to its members – evident from its increasing membership numbers.
Additionally, in fiscal 2022, over one million non-member guests visited the Houses. The management aims to continue to convert these customers into Soho Friends and House members by offering access to bedrooms and discounts.
In addition, members and guests get to experience the design elements of the houses and are often interested in buying them for their homes. In fiscal 2022, Soho Home grew its sales by 97%, and it seems Soho Home has significant potential to continue its strong growth.
Over the long term, the Company’s management aims to leverage data and member insight to operate and scale efficiently, develop a focused approach to expanding In-House margins, and enhance the membership value proposition. As the management works towards these goals, the Company’s reach, popularity, and profits will likely increase even further.
- High Barriers to Entry
Soho seems to be the only company to have pioneered and scaled a private membership club platform with a global presence. This first-mover advantage has created a significant barrier to entry.
The Company faces direct competition from other private members’ clubs close to its Houses (as well as in numerous segments of the restaurant, hotel, co-working spaces, fitness, and beauty care services and products industries). Nevertheless, Soho does not have a direct competitor, given the combination of different sectors in which it operates and its geographical reach.
Some membership clubs use a similar model. However, these have not been able to replicate Soho’s reach across the multiple cities, continents, and spaces in which it operates. Thus, there is a high barrier to entry, as catching up with the size of Soho’s platform would take significant time and investment.
- Stellar Financial Performance
For Q4 FY22, total revenues were $270.4 million, indicating 46.5% YoY growth. Membership revenues of $77.1 million increased by 46.4% YoY, accounting for 28.5% of total revenues. In-House revenues grew to $120.7 million, up 35.6% YoY. Revenue Per Available Room was 21.6% higher YoY on a Like-for-Like basis.
Adjusted EBITDA was $23.2 million, up $20.6 million from Q4 FY21.
Image Source: Company
For FY22, total revenues increased 73.4% YoY to $972.2 million. Membership revenues of $272.8m increased 44.2% YoY, accounting for 28.1% of total revenues. In-House revenues grew to $426.6 million, up 95.7% YoY.
Adjusted EBITDA was $60.7 million, up from a ($24.0) million loss in FY21.
The Company ended FY22 with Cash and cash equivalents and Restricted cash of $190 million. It also repurchased 8,467,120 shares for $50 million during the fiscal year 2022, with the share repurchase program ending in Q4 FY22.
Image Source: Company
For FY23, Soho has provided total revenue guidance between $1.1 – $1.2 billion, membership revenue between $355m – $365m, more than 190,000 Soho House members, and adjusted EBITDA in the range of $120m – $130m.
Given the management’s ongoing efforts to improve membership value and drive profitability, it seems that the Company will succeed in growing resiliently. In other words, because of its outstanding financial performance, unique business strategy, and operation in an industry with high barriers to entry, Soho House is worth watching out for.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://s28.q4cdn.com/455289850/files/doc_financials/2022/q4/MCG.pdf
https://www.sec.gov/ix?doc=/Archives/edgar/data/1846510/000095017023006592/mcg-20230101.htm
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