Executive Summary / Key Takeaways

• Soho House & Co (SHCO) is a global membership platform leveraging a strong brand and integrated physical-digital spaces to drive resilient recurring revenue.
• Q1 2025 results demonstrated solid top-line growth (8.0% total revenue, 14.0% membership revenue), primarily fueled by membership expansion and pricing power, despite headwinds in in-house spending.
• The company is actively pursuing operational excellence and technological transformation, including a new ERP system, to enhance efficiency, control costs, and improve profitability towards medium-term targets, although these initiatives currently incur costs.
• SHCO operates in a competitive landscape with players like WeWork (WE), IWG (IWG), and Airbnb (ABNB), differentiating through its exclusive, curated community model and integrated physical-digital experience, while facing challenges in achieving consistent profitability and operational efficiency compared to some peers.
• Management maintains confidence in membership growth (targeting over 212k members by end of 2024) and expects continued EBITDA margin expansion, balancing pragmatic new house expansion with a focus on optimizing existing operations and brands like Scorpios and Soho Home.

The Curated World of Soho House: Business and Strategy

Soho House & Co operates a distinctive global membership platform, built over nearly three decades, that seamlessly blends physical and digital spaces to connect a diverse community of creative individuals. At its core is the renowned network of Soho Houses, now numbering 45 globally, serving as the primary physical anchors for member interaction, work, and leisure. This ecosystem extends to include Soho Works co-working spaces, The Ned hotels, The LINE and Saguaro hotels (operated via management agreements), Scorpios Beach Clubs, and the Soho Home retail brand, all integrated through digital channels like the Soho House App and website.

The company's strategic foundation rests on two pillars: growing and enhancing the value of its membership base, and driving operational excellence to improve profitability and cash flow. This strategy is a direct evolution of its history, leveraging the established brand loyalty and community appeal that has demonstrated resilience across various economic cycles. The membership model provides a stable, recurring revenue stream, offering a degree of insulation from the volatility inherent in traditional hospitality. Expansion is intentional, targeting creative and progressive cities globally, often leveraging the Cities Without Houses membership program to gauge demand before establishing a physical presence.

The Technological Backbone: Connecting Physical and Digital

Technology plays a crucial role in both enhancing the member experience and driving operational efficiency at SHCO. The Soho House App and website serve as key digital interfaces, facilitating member engagement, event bookings, and access to services. For instance, the app's personalized event recommendations contributed to a 6% increase in event bookings in Q1 2024, demonstrating the tangible benefit of leveraging member data to drive interaction and utilization of services. The company has also invested in replatforming its bedroom booking technology and introducing a state-of-the-art warehouse for Soho Home to optimize service and delivery times.

Beyond member-facing technology, a significant strategic focus is on transforming the back-of-house systems. The implementation of a new finance Enterprise Resource Planning (ERP) system, led by a newly hired Chief Transformation Officer, is a critical initiative aimed at overhauling core functions like finance, procurement, reporting, compliance, payments, and staffing. The stated goals of this transformation are to enable the company to scale more cost-effectively, improve service and compliance, and lower costs by seamlessly connecting various operational systems. While this investment currently involves costs (e.g., over $1 million in consultant fees in Q3 2024) and has contributed to a temporary drag on profitability, it is viewed as a necessary strategic unlock for long-term efficiency and scalability, particularly as the company expands its global footprint.

Competitive Landscape: Niche Leader in a Crowded Space

SHCO operates within a competitive landscape that includes direct players in the membership-based social and workspace sectors, as well as indirect competitors offering alternative networking or hospitality solutions. Key publicly traded direct competitors include WeWork Inc. (WE), IWG plc (IWG), and Airbnb Inc. (ABNB).

Compared to WeWork (WE), which focuses broadly on flexible coworking, SHCO differentiates through its emphasis on a curated, exclusive community and integrated social experiences. While WeWork (WE) boasts a larger scale network, SHCO's brand fosters higher member loyalty, with retention rates around 95%, potentially exceeding WeWork's (WE) estimated 80-85%. However, SHCO's premium amenities lead to higher operating costs per unit, and WeWork's (WE) revenue growth (8% in 2023) has recently outpaced SHCO's membership revenue growth (14% in Q1 2025, but from a smaller base), although SHCO's operational efficiency is improving.

Against IWG (IWG), a leader in the broader flexible workspace market known for operational efficiency and cost leadership, SHCO competes by offering a more integrated social and experiential component. IWG's (IWG) revenue growth (15% in 2023) significantly outpaced SHCO's total revenue growth (8% in Q1 2025), and IWG (IWG) generally demonstrates stronger profitability and ROIC. SHCO's strength lies in its unique brand and community focus, which allows for pricing power and member engagement that IWG's (IWG) more business-oriented model may not replicate.

Airbnb (ABNB), primarily a digital platform for short-term rentals and experiences, competes indirectly by offering alternative avenues for curated experiences and community building. Airbnb's (ABNB) asset-light model results in vastly superior gross margins (75% in 2023) and profitability compared to SHCO's capital-intensive physical footprint. While Airbnb (ABNB) excels in digital scalability and reach, SHCO's integrated physical-digital model offers a deeper level of in-person interaction and exclusivity that differentiates it.

Overall, SHCO positions itself as a niche leader in the premium membership club segment, leveraging its strong brand, curated community, and integrated physical-digital experience as key competitive advantages. While facing challenges in achieving consistent profitability and operational efficiency compared to some larger, more focused peers, its unique value proposition supports strong member loyalty and recurring revenue, which are critical for navigating the competitive environment.

Recent Performance: Membership Strength Amidst External Headwinds

SHCO reported total revenues of $282.9 million for the 13 weeks ended March 30, 2025, an increase of 8.0% compared to the same period in 2024. This growth was primarily driven by a robust 14.0% increase in Membership revenues, reaching $112.9 million. This reflected both an increase in Adult Paying Members and the impact of membership fee increases implemented at the start of fiscal years 2024 and 2025.

In-House revenues saw a more modest increase of 1.9% year-over-year, totaling $112.4 million. While benefiting from the contribution of three new Houses opened since Q1 2024 and the timing of New Year's Eve events, performance was tempered by external factors, notably the impact of wildfires in Los Angeles which caused temporary closures and weaker trade in early fiscal 2025. Other revenues grew by 9.0% to $57.5 million, predominantly boosted by strong performance in the Soho Home retail segment, although this was partially offset by the termination of The LINE San Francisco management contract and a slight decline in some stand-alone restaurant sales.

Operating expenses increased, with In-House operating expenses rising 9.0%, driven by new House openings, wage and rent inflation, partially mitigated by operational reorganization savings. Other Operating Expenses increased 11.0%, reflecting higher trade volume costs in Soho Home and expenses related to the newly opened Scorpios Bodrum. General and Administrative expenses rose 6.0%, linked to global partnership expansion and new House costs, offset by streamlining initiatives.

House-Level Contribution increased, but the margin slightly declined to 24.0% from 25.0%, as revenue increases, particularly in membership, were offset by higher operating costs and the impact of the LA wildfires. Other Contribution decreased, with the margin falling to 12.0% from 14.0%, partly due to the off-season losses at Scorpios Bodrum and the removal of LINE SF management fees.

Despite these pressures, Adjusted EBITDA saw a significant increase in Q1 2025, reaching $47.0 million compared to $19.8 million in Q1 2024. This improvement was primarily attributable to the strong growth in membership revenues, the increase in In-House and Other revenues, and a notable $22.9 million in business interruption insurance proceeds related to the COVID-19 pandemic in the UK. These gains were partially offset by the aforementioned increases in operating expenses and the impact of the LA wildfires. The company also recognized $2.1 million in impairment losses on operating lease assets related to legacy UK restaurant sites no longer operational.

Recent periods also saw the identification of misstatements in prior period financial statements (2022 through first half 2024), primarily related to manual errors in the North America segment, leading to revisions. These issues are being addressed through investments in the finance team and the ERP system implementation.

Liquidity and Financial Health: Strengthening the Foundation

As of March 30, 2025, SHCO maintained a cash and cash equivalents balance of $150.1 million and restricted cash of $4.6 million. The company generated $22.8 million in net cash from operating activities during the 13 weeks ended March 30, 2025, notably including the $22.9 million in COVID business interruption insurance proceeds. Net cash used in investing activities was $18.3 million, primarily for purchases of property, equipment, and intangible assets, partially offset by property and casualty insurance proceeds. Net cash used in financing activities amounted to $8.5 million, mainly due to the repayment of a credit facility and distributions to non-controlling interests.

The company's Revolving Credit Facility remains undrawn, with $75.0 million ($97.0 million equivalent) available, subject to covenant compliance. Management believes that existing cash balances, coupled with projected cash flows and the availability under the credit facility, provide sufficient liquidity to meet operating and financing obligations, capital expenditures, and working capital needs for at least the next 12 months, supporting the going concern basis of presentation. The net debt to adjusted EBITDA ratio stood at 5 times at the end of Q3 2024, an improvement from 6 times a year prior, reflecting progress in profitability. Capital expenditures as a percentage of revenue have also decreased in recent years, with expected 2024 CapEx in the $90 million to $100 million range.

Outlook and Strategic Trajectory: Balancing Growth and Efficiency

Management remains confident in the core drivers of the business, particularly membership growth. They reiterated guidance for reaching over 212,000 Soho House members by the end of 2024 and expect membership revenue between $410 million and $420 million. This growth is anticipated to be driven primarily by the maturation of houses opened since 2018, which are still ramping up, supplemented by new openings.

However, the outlook for total revenue and adjusted EBITDA for 2024 has been tempered. Total revenue guidance was lowered to the low end of the previous range, around $1.2 billion, reflecting softer-than-hoped demand for in-house and other revenues heading into the end of 2024, aligning with broader trends in consumer discretionary spending. Adjusted EBITDA guidance was cut to approximately $140 million. Approximately half of this reduction is attributed to unique, non-recurring factors (like flooding and fires) and investments in the future (ERP implementation, restructure timing, consulting costs), while the remainder reflects the lower revenue expectations.

The pace of new Soho House openings is being adjusted to two to four per year for the next couple of years. This pragmatic approach is a response to the challenging development market faced by their partners and is not expected to significantly impede membership growth, given the large number of maturing houses. Furthermore, opening fewer new houses could potentially enhance near-term EBITDA margins by reducing upfront pre-opening expenses. Expansion continues for other brands, with new Scorpios locations planned for Bodrum (opened summer 2024) and Tulum, and a Ned in Washington D.C. Management maintains a medium-term target of 15% adjusted EBITDA margins and a longer-term goal of 20% plus, driven by continued operational efficiencies and the leverage from membership revenue growth. The recent term sheet to form a JV for The LINE LA property represents a strategic move to recapitalize and optimize that asset.

Risks and Challenges: External Pressures and Internal Transformation

SHCO faces several risks and challenges that could impact its performance and outlook. Macroeconomic conditions, including inflationary pressures on costs (consumables, wages) and potential shifts in consumer confidence and spending patterns, particularly affecting in-house and other revenues, remain a key concern. The business is also susceptible to operational constraints, such as those that could arise from a re-emergence of restrictions or localized events like the wildfires and flooding experienced recently, which can disrupt operations and impact revenue.

The reliance on developer partners for new House openings exposes the company to risks associated with the challenging development market, including delays due to high interest rates, inflation, supply chain issues, and labor availability. While the company has adjusted its opening pace, these external factors remain outside its direct control. Foreign exchange volatility also presents a risk, particularly given significant operations in the UK and Europe and non-USD debt.

Internally, the ongoing transformation initiatives, particularly the implementation of the new ERP system and related efforts to strengthen internal controls, while strategically important, carry execution risk and are contributing to near-term costs and potential disruptions. The identification of prior period misstatements highlights the challenges associated with legacy systems and manual processes that the ERP aims to address.

Furthermore, competition from both direct and indirect players necessitates continuous innovation and operational efficiency to maintain market position and pricing power. While the company's brand and membership model are strong moats, failure to execute on operational improvements could erode its competitive standing.

Finally, the publicly disclosed strategic review and potential transaction introduce uncertainty regarding the company's future ownership structure, although the evaluation is being led by an independent special committee.

Conclusion

Soho House & Co's investment narrative is fundamentally tied to the strength and resilience of its differentiated global membership platform. The company's ability to consistently grow its membership base and leverage its brand for recurring revenue provides a stable core amidst a dynamic and sometimes challenging external environment. Recent performance in Q1 2025 underscores this, with robust membership revenue growth offsetting headwinds in more discretionary spending areas.

The strategic focus on operational excellence and technological transformation, particularly the ERP implementation, is critical to unlocking future profitability and scalability, positioning the company to expand margins towards its stated long-term goals. While these initiatives and external pressures have led to tempered near-term guidance for total revenue and EBITDA, management's commitment to efficiency and a pragmatic approach to new house expansion signal a focus on sustainable growth. The competitive landscape remains a factor, but SHCO's unique integrated model and strong community brand offer a distinct value proposition. Investors should closely monitor the execution of operational improvements, the progress of the ERP implementation, and the outcome of the strategic review as key indicators of the company's ability to translate its membership momentum into enhanced shareholder value.