Global Expansion And Operational Improvements Will Drive Future Performance

Key Takeaways

• Consistent membership growth and new house openings are expected to drive future revenue increases for Soho House & Co.
  
• Operational and strategic enhancements, including ERP systems and premium memberships, aim to boost profitability and improve net margins.
  
• Financial misstatements and strategic uncertainty may undermine investor confidence, impact strategic decisions, and pose risks to stable future revenue growth.

Catalysts

Operates a global membership platform of physical and digital spaces that connects a group of members.

• Soho House & Co. is experiencing consistent membership growth, with a 17% increase in membership revenues year-on-year, which is expected to continue given the influx of new houses like those in Sao Paulo, Portland, Mexico City, Rome, and Paris. This growth is likely to drive future revenue increases.
  
• The company is focusing on enhancing operational excellence, aiming for greater profit and cash flow. This includes simplifying business processes, transforming back-of-house systems for efficiencies, and improved service, which should positively impact net margins over time.
  
• New initiatives such as the launch of an industry-leading ERP system are designed to streamline finance operations, procurement, and staffing across their global presence, which is expected to lead to cost efficiencies and improved earnings in the future.
  
• Strategic efforts like the restructuring of corporate offices and focus on improving cost management through vendor consolidation and labor hour improvements are aimed at enhancing adjusted EBITDA margins and overall earnings capabilities.
  
• The rollout of new elevated membership tiers, exemplified by the successful opening of Meuse House in London's Mayfair area, suggests a strategy to diversify and enhance revenue streams through premium membership options, potentially increasing net margins through higher spending per member.

Soho House & Co Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Soho House & Co's revenue will grow by 8.3% annually over the next 3 years.
• Analysts are not forecasting that Soho House & Co will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Soho House & Co's profit margin will increase from -13.5% to the average US Hospitality industry of 7.2% in 3 years.
• If Soho House & Co's profit margin were to converge on the industry average, you could expect earnings to reach $110.5 million (and earnings per share of $0.59) by about April 2028, up from $-163.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, up from -6.1x today. This future PE is lower than the current PE for the US Hospitality industry at 22.4x.
• Analysts expect the number of shares outstanding to decline by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.01%, as per the Simply Wall St company report.

Soho House & Co Future Earnings Per Share Growth

Risks

• The uncertainty surrounding the potential takeover and strategic alternatives might create instability and distract management focus, potentially affecting strategic decisions and impacting future revenue growth.
  
• The reported financial misstatements and required revisions to prior periods could indicate underlying issues with financial controls, potentially affecting investor confidence and long-term earnings stability.
  
• Ongoing investments in ERP systems and increased staffing for the finance team indicate higher operational costs in the short term, which could negatively impact net margins and earnings.
  
• Continued macroeconomic challenges in the U.S. and U.K., and the observed volatility in like-for-like sales growth, may pose risks to stable revenue growth moving forward.
  
• The adjustments to adjusted EBITDA guidance and weaker October in-house revenue demonstrate potential vulnerability to consumer discretionary trends, posing a risk to meeting financial projections and affecting net income.

Valuation

• The analysts have a consensus price target of $9.0 for Soho House & Co based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $110.5 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 13.0%.
• Given the current share price of $5.09, the analyst price target of $9.0 is 43.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.