Executive Summary / Key Takeaways

• Soho House & Co. operates a unique global membership platform centered on exclusive physical and digital spaces, demonstrating resilience with growing membership and a substantial waitlist exceeding 112,000.
• The core investment thesis is underpinned by the strength of recurring membership revenue, which continues to see double-digit growth and provides a stable base offsetting volatility in other segments.
• Recent financial performance shows progress towards profitability, with Adjusted EBITDA increasing significantly year-over-year in Q1 2025, driven by membership growth, operational efficiencies, and unique factors like business interruption proceeds.
• The company is undergoing a significant back-of-house transformation, including implementing a new ERP system, aimed at improving operational excellence, cost efficiency, and scalability, despite near-term costs.
• While facing macroeconomic headwinds impacting in-house and other revenues, development delays, and internal control remediation, SHCO is strategically focused on enhancing member experience and driving margin expansion towards stated medium-term targets.

A Global Community's Foundation: Building Exclusivity and Resilience

Soho House & Co. (SHCO) has cultivated a distinctive position in the global lifestyle and hospitality landscape since its inception in 1995. What began as a single private members club has evolved into a sprawling global platform encompassing 45 Soho Houses, 8 Soho Works locations, The Ned hotel sites, The LINE and Saguaro hotels (operated under management agreements), Scorpios Beach Clubs, and the Soho Home retail brand. At its heart lies a curated community of creative professionals, connected through both physical and digital spaces, a model SHCO asserts is unique globally. This foundation of exclusivity and community has proven remarkably resilient, demonstrated by consistent membership growth and a burgeoning global waitlist that stood at over 112,000 applicants as of March 30, 2025.

The company's strategic journey has been marked by intentional expansion into creative hubs worldwide, often leveraging the success of its Cities Without Houses (CWH) membership program to identify potential new locations. This asset-light approach, relying heavily on developer partnerships for new physical spaces, has allowed for rapid geographic reach. However, it also exposes the company to external market dynamics, as highlighted by recent development delays stemming from macroeconomic challenges like high interest rates, inflation, and supply chain issues impacting partners. In response, SHCO has strategically adjusted its near-term new House opening cadence to 2-4 per year for the next couple of years, prioritizing membership and profit growth while maintaining discipline around its capital expenditures, which have decreased significantly as a percentage of revenue from 18% in 2021 to an expected ~8% in 2024 ($90M-$100M).

SHCO operates primarily across three geographic reportable segments: The Americas, United Kingdom, and Europe & Rest of the World, alongside an "All Other" category encompassing its diverse non-House businesses like Retail and Soho Works. This structure allows management to focus on regional performance while leveraging the global brand and network effects.

A critical, though less visible, aspect of SHCO's strategy involves its technological infrastructure and data leverage. While not a tech company in the traditional sense, SHCO utilizes digital channels like its app and website as integral parts of the member experience and operational efficiency drive. The app facilitates bookings, event recommendations (personalized using member data, contributing to a 6% increase in event bookings in Q1 2024), and communication. More significantly, the company is undertaking a major back-of-house transformation, replacing legacy systems with a new cloud-based ERP system. Led by a Chief Transformation Officer hired in late 2024, this initiative aims to overhaul finance, procurement, reporting, compliance, payments, and staffing, connecting these functions more seamlessly to membership and operations. The stated goal is to enable more cost-effective scaling and improve overall efficiencies, positioning the company for long-term growth, despite incurring associated costs in the near term. Other technological improvements include a new HR system for better labor management and an F&B ordering system to tailor menus and improve margins. The strategic intent behind these investments is clear: to build a scalable operational foundation that can support global expansion and enhance profitability, leveraging data to refine both member-facing services and internal processes.

In the competitive landscape, SHCO stands apart as the "only global private members club of its kind." While it competes indirectly with players in luxury hospitality (Marriott International (MAR)), flexible workspaces (WeWork (WE)), and digital experience platforms (Airbnb (ABNB)), its core differentiation lies in its curated community, exclusive physical spaces, and integrated social-professional network. Compared to Marriott, SHCO offers a more intimate, member-centric experience, though it lacks Marriott's vast scale and operational efficiency in traditional hospitality. Against WeWork, SHCO's focus on creative professionals and social networking provides a distinct value proposition beyond just workspace, although WeWork has faced significant financial challenges including bankruptcy. Compared to digital-native platforms like Airbnb, SHCO's strength is its high member retention (91.5% in 2023, slightly improving, vs. Airbnb's lower retention in a more transactional model) and the tangible value of its physical network, though it lags in digital scalability and profitability margins. SHCO's competitive advantages stem from its powerful brand, network effects driving loyalty and demand (evidenced by the waitlist), and the ability to command premium pricing for its membership. However, it faces disadvantages related to its real estate-heavy model (high fixed costs), historical operational inefficiencies (including manual processes leading to prior period accounting misstatements now being remediated), and higher debt levels compared to asset-light models like Airbnb. The ongoing back-office transformation and ERP implementation are strategic responses aimed at addressing these operational inefficiencies and improving scalability to better compete in the long run.

Performance Reflecting Strategy and Externalities

SHCO's recent financial performance underscores the impact of its strategic focus on membership growth and operational excellence, alongside the influence of external factors and internal transformation efforts. For the 13 weeks ended March 30, 2025, total revenues grew 8% year-over-year to $282.9 million. This growth was primarily fueled by a robust 14% increase in Membership revenues to $112.9 million, driven by an 8% increase in Adult Paying Members and the impact of membership fee increases implemented in early 2024 and 2025. In-House revenues saw a more modest 2% increase to $112.4 million, supported by new House openings and timing of events, while Other revenues grew 9% to $57.5 million, predominantly driven by strong performance in the Soho Home retail business.

Operational efficiency initiatives continue to yield results, though not without challenges. House-Level Contribution increased 6% to $52.3 million in Q1 2025, reflecting higher revenues offset by increased In-House operating expenses (up 9%) due to new openings, wage/rent inflation, and the impact of the Los Angeles wildfires in early 2025 which caused closures and impacted revenue more than expenses. The House-Level Contribution Margin slightly decreased to 24% from 25% in the prior year period, illustrating the pressure from cost inflation and specific operational disruptions. Other Contribution decreased 5% to $8.1 million, impacted by losses at the new Scorpios Bodrum during its off-season and the divestment of The LINE San Francisco management fees.

General and Administrative expenses increased 6% to $36.4 million, reflecting costs associated with global expansion and new Houses, partially offset by savings from operational restructuring. Pre-opening expenses decreased significantly by 65% to $2.0 million, reflecting the planned slower pace of new House openings in Q1 2025 compared to the prior year. Depreciation and amortization also decreased 6% to $24.0 million, partly due to prior impairments and fully depreciated assets.

Adjusted EBITDA saw a substantial increase, reaching $47.0 million in Q1 2025, up significantly from $19.8 million in Q1 2024. This improvement was driven by higher membership and In-House revenues, strong Other revenue growth (especially Soho Home), and notably, the inclusion of $22.9 million in business interruption proceeds related to COVID-19 impacts in the UK. Excluding this unique item, underlying EBITDA performance still showed improvement, albeit impacted by higher operating expenses and costs associated with the ongoing ERP implementation and restructuring efforts, which management notes are having a near-term drag but are expected to be long-term tailwinds. The company also recognized a $2.1 million impairment loss on operating lease assets related to legacy, non-operational Chicken Shop sites in the UK.

Financially, SHCO ended Q1 2025 with $150.1 million in cash and cash equivalents and $4.6 million in restricted cash. Net cash provided by operating activities was $22.8 million, significantly improved from $6.2 million in Q1 2024, largely due to the business interruption proceeds. Net cash used in investing activities was $18.3 million, primarily for capital expenditures. Net cash used in financing activities was $8.5 million, including debt repayments. The company maintains access to a $75 million ($97 million equivalent) undrawn Revolving Credit Facility, providing additional liquidity. While the company has historically carried significant debt, the net debt to Adjusted EBITDA ratio has shown improvement, reaching approximately 5x at the end of Q1 2024 and FY 2023, down from 9x in 2022, and management aims to reduce this further. There are no significant debt maturities until 2027.

Outlook and Strategic Trajectory

Looking ahead, SHCO's guidance reflects confidence in its core membership model while acknowledging ongoing external pressures. The company reiterated its guidance for reaching over 212,000 Soho House members by year-end 2024 and delivering Membership revenue between $410 million and $420 million. This confidence is rooted in the continued strong demand, high retention rates, and the maturation of Houses opened since 2018.

However, total revenue guidance for 2024 was lowered to the low end of the previous range, now expected to be around $1.2 billion, down approximately $25 million from the prior midpoint. This adjustment reflects tempered expectations for In-House and Other revenues due to softer consumer discretionary spending trends observed heading into the end of 2024, aligning with broader industry commentary.

Adjusted EBITDA guidance for 2024 was also cut to approximately $140 million, down about $21 million from the prior midpoint. Management attributed this reduction to Q3 2024 margins being slightly below expectations, the costs associated with the ERP implementation and restructuring efforts, and unique factors like the impact of flooding and wildfires. They noted that roughly half of this EBITDA reduction is due to these unique and investment-related costs not expected to recur, suggesting a potential rebound in profitability trajectory once the transformation is complete and external disruptions subside.

The strategic focus remains firmly on operational excellence and enhancing member value. The back-office transformation, though costly in the short term, is seen as crucial for long-term scalability and margin expansion. Management reiterated their medium-term target of 15% Adjusted EBITDA margins and a longer-term goal of 20%+, signaling significant expected profitability improvements as newer Houses mature, operational efficiencies from the ERP and restructuring take hold, and the higher-margin membership revenue base continues to grow. Expansion plans for the profitable Scorpios brand (Bodrum opened, Tulum planned) and The Ned (DC planned) also contribute to the future growth narrative.

Key risks to this outlook include the potential for continued macroeconomic weakness impacting member spending on In-House services and retail, further delays in the development pipeline affecting future House openings, successful execution of the complex ERP implementation and restructuring, and managing inflationary pressures. The company is also subject to foreign exchange risk and potential impacts from litigation and related party transactions. The ongoing evaluation of strategic transactions by the independent special committee, including a recent $9.00 per share offer, adds a layer of potential uncertainty regarding the company's future ownership structure, though management is not commenting on the process.

Conclusion

Soho House & Co. presents a compelling, albeit complex, investment narrative centered on the power of its exclusive global membership platform. The company's ability to consistently grow its high-margin membership revenue, supported by strong brand loyalty and a significant waitlist, provides a resilient core in a challenging macroeconomic environment. While recent performance has been impacted by external disruptions and the costs associated with a critical back-office transformation, management's strategic focus on operational excellence and enhancing member value is driving tangible improvements in underlying profitability and cash flow generation. The planned slower pace of new House openings, while delaying future geographic reach, strategically prioritizes margin expansion and financial discipline. As the ERP implementation concludes and operational efficiencies are realized, coupled with the maturation of newer Houses and continued membership growth, SHCO appears positioned to expand margins towards its stated targets. Investors should weigh the demonstrated resilience of the membership model and the potential for significant profitability improvements against the near-term headwinds from macro uncertainty, execution risks related to the transformation, and the inherent volatility in its non-membership segments. The long-term value proposition hinges on SHCO's ability to successfully leverage its unique brand and community to drive both membership scale and operational efficiency in a competitive global landscape.