Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales increased by 8% to $255 million, with comparable store sales up 2.4%.
- Adjusted EBITDA rose by 20% to $89 million, with an adjusted EBITDA margin increase of 360 basis points to nearly 35%.
- The Titanium membership adoption reached 20% of the member base, contributing to a higher revenue per member.
- Opened nine new stores in Q2, bringing the total to 491 locations, with plans to reach 500 stores soon.
- Strong employee engagement with 85% of team members recommending Mister Car Wash Inc (MCW, Financial) as a great place to work.
Negative Points
- Retail traffic remains soft, impacting overall sales growth.
- Hurricane Beryl caused the temporary closure of 42 stores in Houston, affecting Q2 performance.
- Downward pressure on retail transactions continues, with retail sales down in low double digits year-over-year.
- Greenfield pipeline delays have pushed the timing of new store openings to later in the year or early next year.
- Increased interest expense to $20 million from $18 million last year due to higher interest rates and slightly higher net debt.
Q & A Highlights
Q: Just on the comments around the downward pressure on retail transactions, can you speak to what appears like an improving trend line? Was it weather or are you starting to see any success with some of the tactics around retail customer acquisition?
A: Retail sales did moderate compared to Q1. Retail sales were down low double digits in the second quarter, which was slightly better than expected. Retail transactions were lower than expected, but retail average ticket was higher than expected. We are seeing a nice lift in average ticket for retail to Titanium.
Q: Can you comment on how UWC member accounts are trending in your more mature locations? Are they stable, increasing, or declining?
A: We have prioritized focusing on upgrading existing members to our premium programs, Platinum and Titanium. This has acted as downward pressure on new member growth. The top of the funnel for us is retail traffic, so with pressure on the retail side, net member growth has been modest, and we expect that trend to continue through the back half.
Q: Can you speak a little bit about the penetration cadence for Titanium-360 during the quarter?
A: We are very happy with the progression of Titanium, sitting at 20% titanium mix, consistent with the end of Q1. At the end of Q1, many members were still on promotion, but by the end of Q2, most were off promotion, driving a nice lift in revenue per member. We still see opportunities in select stores and markets to continue driving Titanium memberships.
Q: Can you help us understand where your conversion rates are today compared to where they maybe ran historically?
A: Our membership conversion rates are at an all-time high. We are executing well once we get customers in the store. Conversion rates have held consistent with recent quarters, hovering at about 9% to 11%, as has core churn.
Q: Can you speak to the cadence of comps over the quarter and how things are trending quarter-to-date?
A: Comp trends were fairly consistent throughout the quarter, although April slightly outperformed the other months. We did see a moderation in comps during July, but there was some noise from Hurricane Beryl impacting the comp.
Q: Can you quantify the expense benefit that you expect to shift into the back half for some of the marketing and store openings?
A: The marketing expense load will increase in the second half as our new Head of Marketing deploys more targeted consumer media. There is also timing with some IT systems and new hires. We expect margins to moderate during the second half to approximately the low 30% range.
Q: Can you help us with the thinking behind the Titanium promotions and the roll-off?
A: We had been pushing trial offers during the introduction over the last year. Now, we are resetting and reevaluating at 20% penetration. We will continue to drive premium member adoption on a store-specific basis without shrinking revenues.
Q: What do you expect you need to see for an inflection back to growth in retail traffic?
A: We are hopeful that the state of the U.S. consumer, particularly the lower-end cohort, will improve over time. We also expect a reduction in new units coming into the category, which will put less pressure on our stores.
Q: What are you seeing in terms of M&A multiples in the space?
A: It has been very quiet on the M&A front due to the cost of capital and debt loads specific to many PE-backed platforms. Most operators are looking inward and focusing on executing core fundamentals.
Q: Can you provide more detail on the reactivation opportunity for expired customers?
A: We have identified over 800,000 lapsed members and are designing tailored messages and offers to win them back into the program. The most effective way right now is through email campaigns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
