Soho House (SHCO)

Social club operator Soho House (NYSE:SHCO) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 10.8% year on year to $333.4 million. On the other hand, the company’s full-year revenue guidance of $1.2 billion at the midpoint came in 2.2% below analysts’ estimates. Its GAAP loss of $0 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Boasting fancy locations in hubs such as NYC and Miami, Soho House (NYSE:SHCO) is a global hospitality brand offering exclusive private member clubs, hotels, and restaurants.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Soho House's primary competitors include private companies The Groucho Club, The Hospital Club, Shoreditch House, The Arts Club, and The Ivy Club. Publicly traded competitors with slightly different business models include Marriott (NASDAQ:MAR), Hilton (NYSE:HLT), Hyatt (NYSE:H), and InterContinental Hotels (NYSE:IHG).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Soho House grew its sales at a 12.1% annual rate. Although this growth is solid on an absolute basis, it fell short of our benchmark for the consumer discretionary sector.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Soho House’s annualized revenue growth of 16% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Soho House’s year-on-year revenue growth was 10.8%, and its $333.4 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 10.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Soho House’s operating margin has been trending down over the last 12 months, and it ended up breaking even over the last two years. The company’s performance was inadequate, showing its operating expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, Soho House generated an operating profit margin of 11.4%, up 18.1 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Soho House’s full-year earnings are still negative, it reduced its losses and improved its EPS by 16.2% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability.

In Q3, Soho House reported EPS at $0, up from negative $0.22 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Soho House’s full-year EPS of negative $0.70 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Over the last two years, Soho House’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 2.7%, meaning it lit $2.73 of cash on fire for every $100 in revenue.

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Soho House’s five-year average ROIC was negative 26.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Soho House reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $137.6 million of EBITDA over the last 12 months, we view Soho House’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $89.73 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

The company received an offer from a new third-party consortium to acquire the Company for $9.00 per share, representing a premium of 83% to the closing price as of Wednesday, December 18, 2024. This is driving the stock action. As for the quarter, we were impressed by how Soho House beat analysts’ EPS expectations this quarter. On the other hand, full year revenue guidance was lowered, which is never a good sign. The stock traded up 64% to $8.07 immediately following the results.

Updated: July 10, 2025 at 10:55 PM EDT

Are you wondering whether to buy Soho House or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Soho House’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of members has disappointed. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Soho House’s EV-to-EBITDA ratio based on the next 12 months is 8.1x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $9 on the company (compared to the current share price of $7.45).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.