Executive Summary / Key Takeaways

• Resilient Membership Model: Soho House & Co (SHCO) leverages a unique, exclusive membership platform, demonstrating consistent growth in its global member base and recurring membership revenues, which provides a stable financial foundation amidst broader macroeconomic volatility.
• Operational Excellence Driving Margins: Strategic initiatives focused on operational efficiency, cost control, and an extensive ERP system transformation are poised to significantly enhance profitability, targeting a medium-term Adjusted EBITDA margin of 15% and a long-term goal exceeding 20%.
• Differentiated Digital Integration: SHCO's proprietary technology, including its member app and digital-first Soho Home retail, fosters deep engagement and offers scalable revenue streams, providing a competitive edge in personalized luxury experiences.
• Strategic Growth Rebalancing: The company is prudently adjusting its new house opening cadence to 2-4 per year in the near term, prioritizing membership and profit growth over rapid physical expansion, while maintaining a strong pipeline for future development.
• Take-Private Offer & Governance Scrutiny: A recent $9 per share take-private offer from an MCR-led consortium, supported by significant shareholders, introduces immediate valuation considerations and is currently under investigation by a shareholder rights firm for potential conflicts of interest.

Introduction: The Curated World of SHCO – A Differentiated Model in Luxury Hospitality

Soho House & Co, founded in 1995, has meticulously crafted a global membership platform that transcends traditional hospitality. It connects a vibrant, diverse community through an exclusive network of physical and digital spaces designed for work, socialization, and creative pursuits. This unique model, encompassing 46 Soho Houses, 8 Soho Works Clubs, The Ned, The LINE, and Saguaro hotels, Scorpios Beach Clubs, and the Soho Home retail brand, positions SHCO as a leader in experiential luxury. The company's journey has been marked by strategic expansion since 2018, opening 24 new houses by 2023 in key creative hubs globally, and diversifying its offerings through acquisitions like The LINE and Saguaro hotels in 2021.

SHCO's overarching strategy centers on two pillars: growing and enhancing membership value, and delivering operational excellence to drive profitability and free cash flow. This approach has become particularly pertinent given broader industry trends. The company observes a secular shift in how people live and work, with less time in traditional offices and more demand for curated social spaces. This trend is expected to accelerate, creating a greater need for communities that foster creativity and engagement. SHCO's membership loyalty and growth have consistently met or exceeded expectations, even as the wider consumer discretionary market, particularly in food and beverage and accommodation, has faced headwinds.

Technological Differentiation and Innovation: The Digital Thread of Exclusivity

SHCO's integrated physical-digital platform is a core differentiator, enhancing member experience and operational efficiency. The Soho House App, for instance, leverages member data to provide personalized event recommendations, which drove 6% higher event bookings in Q1 2024. This digital engagement extends to online bedroom bookings and an F&B ordering system, allowing for more tailored menus and improved service.

The digital-first Soho Home retail brand exemplifies SHCO's technological moat. It has tripled revenues since 2021 by offering members the ability to "take the house home," with plans to significantly expand its assortment into furniture, outdoor items, and lighting. This model, being digital-first, inherently offers a higher profit potential compared to traditional brick-and-mortar retail.

Crucially, SHCO is undergoing a significant Enterprise Resource Planning (ERP) system transformation. This investment, led by a new Chief Transformation Officer, aims to overhaul finance, procurement, reporting, compliance, payments, and staffing. The new cloud-based system is designed to seamlessly connect membership and operations, enabling more cost-effective scaling across the company's presence in over 20 countries. While this transformation will incur costs through 2025, it is expected to be a substantial tailwind, delivering significant "phase two efficiencies" and improved profitability thereafter.

Competitive Landscape: Carving a Niche in the Luxury Experience Economy

SHCO operates in a competitive landscape that includes traditional hospitality giants, flexible workspace providers, and digital accommodation platforms. Direct competitors such as Marriott International Inc. and Hilton Worldwide Holdings Inc. offer vast scale and diversified portfolios but lack SHCO's exclusive, community-centric model. WeWork Inc. (WE) competes in co-working, but SHCO's Soho Works offers a more curated, design-led environment aimed at creative professionals, often leveraging existing Soho House memberships. Airbnb Inc. (ABNB) provides digital accessibility and variety in accommodations, but SHCO's integrated physical-digital platform offers a deeper, more personalized, and community-driven experience.

SHCO's competitive advantages, or "moats," are primarily its strong brand, global network effects, and integrated physical-digital platform. The brand fosters exclusivity and loyalty, translating into pricing power and robust recurring membership revenues. The network effect, where members attract more members, creates a self-reinforcing ecosystem. The integrated technology platform, from the app to the ERP system, enhances member engagement and operational efficiency, allowing SHCO to compete effectively in its premium niche.

However, SHCO faces vulnerabilities. Its physical footprint inherently leads to higher operational costs compared to asset-light models like Airbnb. Historically, internal control weaknesses and manual accounting processes, particularly in North America, have led to misstatements in prior financial periods, highlighting a need for the ongoing ERP transformation. While SHCO's gross profit margin (TTM 39.71%) is notably higher than Marriott's (20%) or Hilton's (27%), its operating profit margin (TTM 4.94%) and net profit margin (TTM -4.67%) lag behind these larger, more established players, indicating the impact of its operational structure and ongoing investments. In contrast, asset-light Airbnb boasts significantly higher margins (GPM 83%, OPM 23%, NPM 24%). This underscores SHCO's challenge in translating strong top-line growth and gross profitability into robust bottom-line performance, a key focus of its operational excellence initiatives.

Financial Performance: Resilience Amidst Macroeconomic Currents

SHCO's recent financial performance reflects a business in transition, balancing growth with a concerted effort towards operational efficiency. For the 26 weeks ended June 29, 2025, total revenues grew 8.0% year-over-year to $612.7 million. Membership revenues, the bedrock of the business, increased 15.0% to $231.5 million, driven by a 5% increase in Adult Paying Members and strategic fee adjustments (high single-digit for existing, low double-digit for new members in January 2025). This recurring revenue stream provides significant stability.
In-House revenues for the same period rose 3.2% to $244.9 million, supported by new house openings but impacted by regional challenges such as wildfires in Los Angeles in early fiscal 2025. Other revenues saw a robust 8.0% increase to $136.2 million, predominantly fueled by strong demand for Soho Home products. However, Other Contribution faced pressure from a reduction in the in-house design and build business and the termination of The LINE San Francisco management fees.

Profitability metrics show a positive trend. Adjusted EBITDA for the 26 weeks ended June 29, 2025, surged 81.0% year-over-year to $93.1 million. This improvement was attributed to higher revenues across all segments, a $22.9 million benefit from COVID-19 business interruption insurance proceeds, and a $3.0 million inventory global policy alignment. House-Level Contribution for the 26 weeks ended June 29, 2025, increased 16.0% to $124.2 million, with margins expanding by 200 basis points to 27.0%, despite the short-term impact of new house openings. This demonstrates effective cost management even in an inflationary environment.

The company's liquidity position remains manageable. As of June 29, 2025, SHCO held $150 million in cash and cash equivalents and $5 million in restricted cash. Net cash provided by operating activities for the 26 weeks ended June 29, 2025, was $64 million. An undrawn revolving credit facility of $75 million ($103 million equivalent) provides additional financial flexibility. Net debt to Adjusted EBITDA stood at 5 times as of Q3 2024, an improvement from 6 times in Q3 2023, reflecting a concerted effort to reduce leverage. Cash outflows from investing activities primarily funded property and equipment, intangible assets, and an initial capital contribution to the LINE LA Hotel Joint Venture.

Strategic Outlook: Building for Long-Term Value

SHCO's forward-looking strategy is deeply intertwined with its operational excellence initiatives and a disciplined approach to growth. The company reiterates its guidance for reaching over 212,000 Soho House members by year-end 2024, with membership revenue projected between $410 million and $420 million. This growth is expected to be driven by the maturation of its 27 houses opened since 2018, which are still ramping up, alongside new openings like Soho Mews House in London and Soho Farmhouse Ibiza.

Total revenue guidance for 2024 has been adjusted to the low end of the previous range, around $1.2 billion, reflecting tempered expectations for in-house and other revenues due to macroeconomic softness and unique operational disruptions such as flooding at Soho Farmhouse and Malibu fires. Adjusted EBITDA guidance for 2024 has also been revised to approximately $140 million, a $21 million reduction from the prior midpoint. Management attributes about half of this reduction to unique, non-recurring factors and ongoing investments in the ERP transformation and restructuring.

The ERP system implementation is a critical strategic investment, expected to be a multi-year transformation through 2025. While incurring short-term costs, it is projected to deliver significant savings and efficiencies in a "phase two," leading to improved profitability. This aligns with SHCO's medium-term target of 15% Adjusted EBITDA margins and a longer-term goal exceeding 20%. The company's capital expenditure as a percentage of revenue has steadily decreased from 18% in 2021 to 8% in 2023, with 2024 CapEx expected to remain in the $90 million to $100 million range, underscoring an asset-light approach.

Competitive Edge and Operational Execution

SHCO's competitive edge is rooted in its ability to cultivate an exclusive, global community that offers a unique blend of physical and digital experiences. This differentiates it from the broader, more transactional offerings of traditional hotel chains like Marriott (MAR) and Hilton (HLT), or the purely digital marketplace of Airbnb (ABNB). While these larger players benefit from scale and diversified revenue streams, SHCO's focus on curated environments and personalized member services fosters strong loyalty and higher perceived value.

Operationally, SHCO is actively enhancing its member experience and driving efficiencies. Initiatives include talent and training investments to improve service, refurbishments of popular spaces like pools and rooftops, and the introduction of new food concepts and wellness facilities (e.g., new gyms, ice baths, infrared saunas). These efforts are reflected in improving member satisfaction scores, particularly in North America following leadership changes. The company is also strategically limiting new member intake in mature markets like London, New York, and LA to prevent overcrowding and maintain exclusivity.

The ongoing operational excellence program extends to the back-of-house. Improvements in F&B margins, better labor hour management, and vendor consolidation are contributing to profitability. The ERP system implementation is a foundational step to address historical internal control weaknesses and manual processes, particularly in the North America segment, which handles a high volume of invoices and payments. The company has increased its accounting team by 50% and appointed a new North America Corporate Controller to remediate these issues, aiming for more robust financial reporting and scalable operations.

Key Risks and The Take-Private Saga

Despite its strategic progress, SHCO faces several risks. Macroeconomic headwinds, including inflationary pressures on wages and consumables, and general consumer caution, particularly in the UK's technical recession, could impact in-house spending. Operational disruptions, such as adverse weather (e.g., heavy rains in the UK, wildfires in LA) and geopolitical events (e.g., Tel Aviv house closure), have demonstrated their capacity to affect revenues. Foreign exchange risk, commodity price volatility, and potential tariff changes also pose challenges.

A significant, immediate development is the proposed take-private acquisition of SHCO. In July 2024, Yucaipa initiated a strategic review to enhance shareholder value, believing the company's inherent value was not reflected in its share price. This led to an offer of $9 per share from a new third-party consortium led by MCR and its Chairman and CEO Tyler Morse, which SHCO Executive Chairman Ron Burkle and Yucaipa would support by rolling over their equity. An independent special committee of the Board has been formed to evaluate this offer. However, this transaction is already facing scrutiny, with a shareholder rights firm investigating for potential conflicts of interest and asserting that the $9 per share deal price is too low. This situation introduces uncertainty regarding the company's future ownership and valuation.

Further adding to the corporate developments, SHCO announced the appointment of Neil Thomson as its new Chief Financial Officer, effective August 18, 2025, succeeding Thomas Allen. This transition occurs amidst the ongoing strategic review and ERP implementation, underscoring a period of significant change for the company's leadership and financial infrastructure.

Conclusion

Soho House & Co stands at a pivotal juncture, leveraging its deeply differentiated membership model and integrated physical-digital platform to drive long-term value. The company's consistent membership growth and recurring revenue streams provide a robust foundation, while aggressive operational excellence initiatives, including a transformative ERP system, are designed to unlock significant profitability and enhance scalability. This strategic focus on efficiency and member experience, rather than just rapid physical expansion, positions SHCO to capitalize on evolving consumer trends in luxury hospitality and community building.

While macroeconomic headwinds and the complexities of a take-private offer introduce near-term uncertainties, SHCO's commitment to its core value proposition and its technological roadmap suggest a compelling path forward. The successful execution of its operational transformation and the resolution of the take-private offer will be critical determinants of its ability to achieve its ambitious margin targets and solidify its unique position in the global luxury lifestyle market.