Q4 2023 Soho House & Co Inc Earnings Call

Participants

Thomas Allen; CFO; Soho House & Co Inc

Andrew Carnie; CEO & Director; Soho House & Co Inc

Steven Zaccone; Analyst; Citigroup Inc

Shaun Kelley; Analyst; Bank of America

George Kelly; Analyst; ROTH MKM

Sharon Zackfia; Analyst; William Blair & Company

Presentation

Operator

Yes, good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Soho House & Co Fourth Quarter 2023 results conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Thomas Allen, Chief Financial Officer. Please go ahead.

Thomas Allen

Thank you for joining us today to discuss our House & Co's fourth quarter financial results. My name is Thomas Allen, and I'm the Chief Financial Officer. I'm here with Andrew Carney, our CEO, today's discussion contains forward-looking statements that represent our beliefs or expectations about future events are forward looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements some of the factors that may cause such differences are described in our SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change by now, you should have access to our Q4 earnings release, which can be found at Soho House co.com in the News and Events section. Additionally, we have posted our Q4 presentation, which can also be found in the News and Events section on our site. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release. Now let me hand it over to Andrew.

Andrew Carnie

Thanks, Thomas, and good morning, everyone. Before I start, I want to acknowledge our continued confidence in how we run our business and our accounting practices deferred account to any misleading statements that have been made about us by audit committee engaged a large globally recognized forensic accounting firm and a prominent independent global law firm to review our accounting and accounting practices. The review was recently completed and the results reported directly to the Audit Committee. As expected, this has shown no material issues. As part of our year end audit, we have made two small non-cash revisions to our ongoing financial reporting, which Thomas will cover later 2023 is my first full year as CEO. I am proud of our achievements and what our teams have delivered in the past 12 months. I prioritize there's no houses around the world. And so house is still as special as when we opened our first site in 1995. It has a full of creative, interesting people, different backgrounds. You come together to have a good time meet fellow members as the only global private members club of this kind, we operate in more than 20 cities that represent creative, dynamic and progressive hubs during our 29 year history. We have never closed the house. And the reason for our success and enduring appeal across all ages is that we're a scaled global membership club with local houses were members create its identity. We're building on those strong fundamentals with a business that we believe is getting stronger and stronger as a result of the plan we put in place 18 months ago to focus on two strategic priorities to grow and enhance the membership experience, which leads to increasing recurring revenues and to drive operational excellence, leading to greater profitability by 2023, we will show we are making good progress, and I'm excited to share the results with you today. We welcomed more than 30,000 net new Soho House members an increase of 20% year on year, taking us to 194,000 members globally versus our guidance of above 192,000 on membership growth last year came primarily from 24 houses we had opened since 2018, for example, Nashville, Austin, Paris, Rome, Brighton and Stockholm. These new houses allows greater choice in where we grow membership given their maturity curve as well as positively enhancing the membership experience for every house members who represent approximately 80% of our total membership. We are particularly pleased with Mexico City. Since we opened back in September, we have more than 2000 members. This makes us even more excited to continue to expand in Latin America where we will open several house at Sao Paulo soon. This is that houses or CWH. membership grew 50% in 2023, demonstrating the strength of our brand in cities where we do not have a physical house for the demand to be part of our global network of creative members is high. It signals the runway that we have for further growth demand for membership was very strong on our waitlist finished in 2023 at 99,000, up from 86,000 at the beginning of the year, demonstrating the continued appeal of sell house globally, annual retention remained high at 91.5% and in line with our expectations, given the recent growth of membership and the expansion of our business into new regions like Asia, total revenues grew 17% year on year with membership revenues. The cornerstone of our business model rising 33% year-on-year and representing 32% of total revenues, up from 28% in 2022. Inhouse revenues grew 13% and other revenues grew 7% in the year. Adjusted EBITDA more than doubled in the year growing approximately 110% to $128 million, with margins almost doubling from 6% to 11.3%. And finally, net cash flow from operations more than tripled year on year to $50 million from [$15 million] in 2022 and negative in prior years.
Looking at just the fourth quarter itself we welcomed more than 9,000 net new. So House members, 4Q adjusted EBITDA was $37 million, up approximately 60% year on year, supported by 13% margin compared to 9% in 4Q 2022, total revenues were up 8% over the same period. Membership delivered $96 million of recurring membership revenues, a 24% increase year on year. Net cash from operations for the quarter were again positive at $19 million compared to a $15 million loss in 4Q '22.
To Now let me give you an update on progress we're making against our two strategic priorities, growing and enhancing the value of membership and delivering operational excellence to drive profitability and cash flow.
As I've said before, giving our members. The best experience is at the heart of what we do. I wanted to give you more color on what we're focused on in 2024. We continue to invest in talent and training across our teams to deliver high quality service to our members. We're expanding spaces and refurbishing areas. Our members love by car pools and rooftops in our existing houses. For example, in London, we have recently refurbished White City house roof ampoule and expanded the ground-floor to create more managed space. In L.A. We will open the Lending Club an 8,000 square foot, new event and member space, et cetera, house West Hollywood, while we're also working on a new members based on the roof or Holloway house and in New York, where refurbishing the outside space. So Houston by to be ready for an exciting summer.
We continue to introduce new food concepts and dining options by popular Japanese restaurant. Penneast has just opened at the house in New York. While we'll open bearing Jack, I celebrated Puragen restaurant, a Soho Farmhouse in the spring members have told us how important fitness and wellness is in their lives. We're investing in new equipment and facilities across all our houses. Some examples include expanding our gym of White City and Chicago, while recently opening a new wellness Bonnet Farmhouse, our new weekend wellness Retreat at Serra houses globally have been a real hit with members on member satisfaction scores that we are constantly tracking show that our approach is working. This is particularly true in our three most established cities, London, New York and L.A. While our demand and retention rates are very high, we have 17 houses in total across these cities and our plan as of last year is to limit intakes in these cities. This means we will not increase membership in 2024 in our most mature houses so house, London shortage house to house New York and so house West Hollywood as we focus on making sure our houses don't feel too busy. We have always been very intentional about where we've opened new houses and chosen to expand into creative, exciting and progressive cities, introducing new members that make our global community more diverse and interesting Portland is no exception with this exciting food culture, thriving arts and film community. We have been so house Portland last week in central the site located in a historical building that has been restored by the cell house design team. It offers members a rooftop terrace, a pool, Jim and an attractive clip spaces. So have Sao Paulo will be our first house in South America and will open soon in one of the city's most ambitious urban redevelopment, how to situated within the former hospital and feature search two bedrooms, a gym, a rooftop pool bar and club spaces for members, so has Manchester. Our first house in the north of England is set to open later this year across five floors with a gym and health club bedrooms, rooftop pool them by bench spaces and two floors of club space. And finally, we will open so Hermès House in London Mayfair area later this year.
Turning to our second strategic priority operational excellence, we have made significant improvements to make their house and a more profitable business whilst delivering a better experience for members. Initiatives over the past year include operational, streamlining processes and systems like rotary tool, our house teams spend more quality time with members further rolling out an F&B ordering system, which allows our teams to more frequently tailor menus for members whilst growing margins, replatforming the technology for online bedroom bookings and simplifying the member journey, launching personalized recommendations on the app that are relevant to member interests and introducing a state of the art warehouse for So home to optimize delivery times and service initiatives like those and delivering for the business and for our members, helping drive EBITDA to more than double from $61 million in 2022 to $128 million in 2023. Adjusted EBITDA margins in the year almost doubled from 6% to over 11%. We continued to keep a firm grasp on costs with wages as a percentage of revenues for the year improving approximately 200 basis points year over year and approximately 100 basis points versus 2019. While F&B margins were flat year-over-year. Despite very high cost inflation and up approximately 200 basis points versus 2019, we RevPAR was up 11% year on year and 32% higher than 2019. We've seen improved house contribution margins in our mature houses at over 40% across each of London New York and LA, and we're seeing strong growth in profitability in our newer houses in line with expected maturation curves.
Now let me pass on to Thomas to give you more detail on the numbers.

Thomas Allen

Thanks, Andrew. Total revenues for the fourth quarter grew 8% year on year to $291 million or 5% on a constant currency basis, membership and in-house revenues rose 24% and 4% respectively, or 21% and 1% on a constant currency basis. Other revenues fell 4% or 7%. On a constant currency basis, house level contribution increased 44% year on year, with house level margins up approximately 700 basis points to 31%. However, contribution margin did benefit from a $6 million out of period lease adjustment, but even excluding at margin, improved approximately 400 basis points. Note, this adjustment did not benefit adjusted EBITDA looking into full year contribution margins were 27%. To help you with your understanding business houses that were over five years old had an average contribution margin of 37% compared to housing that first year had an average margin of negative 13%. And then the second year were roughly breakeven as our newer houses ramp. This signal significant embedded growth in the future by their contribution was up 9% year on year in 4Q, with the margin coming approximately 200 basis points to 21% for the fiscal year. Other contribution was up 33% with margin increasing approximately 400 basis points to 21%.
Turning to revenues, we saw continued growth year over year, increasing revenue by just over $20 million. Membership growth and pricing drove a nearly $19 million increase in membership revenues as revenues were $4.5 million higher year over year, driven by good October and strong trading at the end of December. This was offset by not opening Portland, new Sao Paulo by the end of the quarter and weaker trends in November early December, like-for-like in-house revenues were approximately 20% higher than 4Q '19 and roughly even with last year, although revenues were down $3 million through a mix of lower standalone restaurant revenue, which includes the impact of closures from earlier in the year and lower design fees.
Moving to adjusted EBITDA. As a reminder, we only publish one adjusted EBITDA in our earnings release earnings presentation or discussed on our earnings calls. This adjusted EBITDA includes the impact of preopening costs, deferred registration fees and non-cash rent. Our fourth quarter adjusted EBITDA was $37 million, up approximately 60% year on year as we continue to benefit from the profitability initiatives we have outlined and continued membership and revenue growth for fiscal year basis, adjusted EBITDA was $128 million, up approximately 110% year on year. Despite this increase, we know our performance here was slightly behind our guidance. I want to highlight a few items here. Total revenue came in at the low end of our expectations. We managed expenses while weren't able to fully offset. We have also made two changes to our accounting policies that are worth talking through. We hired a new chief accounting officer who started in November and have new audit partners of video together following a detailed review we elected to make these changes that were being confirmed by the independent advisors that were retained by our audit committee. As Andrew previously mentioned, we incurred approximately $3 million of additional expense in 2023 lead to development that we are expensing rather than capitalizing roughly $600,000 of this relates to 4Q that we booked in the quarter and approximately $2.6 million relates to prior periods, including approximately $800,000 for 2022 that are impacting our full year adjusted EBITDA, which is why our full year adjusted EBITDA does not match some of the quarters. We incurred approximately $2 million of additional expenses related to taking a larger obsolescence reserve against our inventory. Historically, we haven't held any major reserves against our inventory, which is mostly related to So home. As we have used items in our houses, given the much larger size of solar home today, we have now elected to take a reserve. It's worth noting that neither of these changes impact cash flow.
Moving to our balance sheet. We ended the year with a strong liquidity position of approximately $250 million, a combination of $164 million of cash and cash equivalents and a $90 million undrawn revolving credit facility. Our cash and liquidity positions in fact, increased slightly quarter over quarter. Our net debt to reported adjusted EBITDA position also continues to improve ending the year at five times compared to nine times at year end 22. We continue to drive the business to reduce these levels even more in 2024 and beyond. We have no significant debt maturities until 2027 as it relates to our balance sheet and cash flow. There have been some questions recently around our cash conversion in 2023, which I thought it would be helpful to clarify on inventory. The majority relates to Soho Home. We are strategically growing our Soho Home business, which is digital first and focus on helping our members decorate their homes. We are really pleased with the results so far, Home revenues have roughly tripled since 2021, while our inventory has been managed well and grown around 150%, we believe the significant opportunity for Soho Home to grow further fund receivables, prepayments and accrued income. Our Company as a whole has grown total revenues significantly approximately $600 million over two years the receivables have grown as well. In addition, our business mix has shifted more into home management, contract design and development where the revenue that we book doesn't convert as quickly to cash as traditional Soho House membership, food and beverage or room revenues, we have built out disclosures in our 10K to help drive better understanding of our business. For example, we have added new detail on inventory supplier advances, as well as giving more detail on our buildings depreciation. Our 2024 guidance reflects our focus on giving our existing members a great experience while growing membership, driving the bottom line and delivering further operational efficiencies. We are guiding to over 210,000 so US members at year end 24 more than 8% increase year on year. This will be driven principally by maturing houses, but also through new house openings, which welcomed new members into our global community. These include Portland, São Paulo, Manchester and London, New South, which we discussed earlier. While we remain confident about house growth with a strong pipeline of more than 20 houses, our focus in the near to medium term will be on membership and profit growth over house growth. As we have discussed throughout the past 18 months, the development market is tough and we have been hit by a number of developer delays with little we can do given it's primarily their capital building our houses. We're adapting to the current state of the market and onboarding these challenges from burdening our company and cash flow. As a result, we plan to open two to four so houses a year for the next couple of years before returning to a higher Cadence when credit and development markets become more accommodating beyond solar house, Scorpion will open a second site in Bodrum this summer, followed by scoreboards loom and net DC. We want to remain disciplined around our mostly asset-light approach. If you look at our CapEx as a percentage of revenue has dropped from 18% in 2021 to 10% in 2022 to 8% in 2023. We expect 2024 CapEx to be in the $90 million to $100 million range, remaining at approximately 8% of revenue.
Turning to revenues, we expect total revenues for 2024 of $1.2 million to $1.25 billion, up 6% to 10% year on year. This reflects our expectation of strong membership revenue growth by 2024 house pipeline and more conservative growth in house and other revenues. Given macro challenges and soft restaurant trends year to date versus last year. That said, we benefit from still being able to grow revenues to the recurring membership revenue, which we expect to grow to $405 million to $415 million, up 12% to 15% year on year, supported by membership growth and pricing gains. It's worth noting that 2023 revenues include approximately 20 million of membership credit revenues up from approximately $15 million in 2022, most of which is accounted for in our in-house revenues when members spend their credits. This represents approximately 2% of our total revenue and supports footfall into the houses from new members. When they first joined, which leads to stronger retention, we would expect a slightly smaller amount of revenues rate of membership credits in 2024 versus 2023, given lower new member growth on adjusted EBITDA, we continue to manage our business efficiently, ensuring membership revenue flows down to the bottom line, we are guiding to adjusted EBITDA growing 21% to 29% year over year to $155 million to $165 million, with adjusted EBITDA margins rising from 11% to 13% despite persistent cost headwinds. As you can see, we are well on our way to our medium-term target of 15% EBITDA margins and see a longer-term goal of 20% plus.
Finally, we expect to continue to improve our management of working capital to support higher cash flows from operating activities Let me now pass it back to Andrew.

Andrew Carnie

And let me close by reiterating our confidence in the strength of our business of our membership model and of our future growth. 2023 was a successful year in terms of membership and revenue growth, underpinned by continued appeal of sour house, which hasn't wavered in almost 30 years. Meanwhile, our focus on operational excellence is driving better profitability and cash flows. I'd like to personally thank our teams globally and our members for their continued support and loyalty.
Before we head into Q&A, I wanted to mention that we announced on February ninth that our Board had formed an independent special committee to evaluate certain strategic transactions, some of which may result in the Company no longer being a public company. Our Board and their affiliates own approximately 74% of our common stock. And I have received interest in the Company on a number of occasions in line with its fiduciary duties, the Board weighs up the benefits and costs of being public versus the potential value that could be created to any transaction. Given that this work is paying and is led by an independent members of the Board and their advisers as management. We do not have anything to update on it and will not be able to address any questions regarding it on the Q&A. We will have an announcement if and when there is something to announce.
Operator, we can now take the first question, please.

Question and Answer Session

Operator

As a reminder, you can either ask your question on the phone or submit them over the webcast.
Thank you. At this time I would like to remind everyone in order to ask a question press star, then the number one on your telephone keypad.
We'll take our first question from Steven Zaccone at Citi.

Steven Zaccone

Thank you very much for taking my question on first question, I had was just with the pivot to opening less houses. When you look at the guidance you're providing this year for top line growth and then EBITDA growth and margin expansion, do you should we think this is the new kind of growth rate for the business? Like does the opportunity bigger now for EBITDA to go a bit higher because you're probably spending less on some of these upfront cost opening houses.

Thomas Allen

Hey, Steve, how are you?
So as you can see from our guidance, we're guiding to EBITDA margins or adjusted EBITDA margins rising about 200 basis points year over year in 2024. And we've talked in the past about how we saw a medium term path to 15%. And then on with the with this earnings call, we highlighted that we saw a 20% plus margin goal. And I think it will take I think it'll take a couple of years to reach a 15%. And then but then I definitely believe that we should continue to see pretty consistent growth beyond that.

Steven Zaccone

Okay. Okay. Great. And then, Tom, maybe to just focus on the discussion around opening less houses. Can you talk through the decision criteria where are the biggest opportunities for you to continue to scale? I know in the past you've talked about going more to the Americas overall. Has that changed? And any color there would be appreciated.

Andrew Carnie

Hey, David, it's Andrew. So I think we've been talking about on our new housings for the last 12 months. And as we've mentioned before, we have a pretty fantastic new house pipeline. So we have got 20 houses that assigned all based on CWH. successes globally or that are attractive terms an asset-light model. I just think what we're saying today is that developers are having a really tough time.
The macro-environment supercharged in for them you know, supply chain issues, labor availability, inflation, materials, expensive financing. So what we see is the impact of having a house is delayed. So as you're right, we don't want to use our own capital to open houses. We don't have any unnecessary preopening costs or missed our opening schedules for our members.
So we're just choosing to slow down a wee bit at the moment for the next 18 months to two years. But a lot of the houses that we've already mentioned about growing in Australasia, growing in Asia, growing in Europe, growing a lot more in North America. That's still the case. It's just going to take a little bit longer given the macro environment with our developers.

Steven Zaccone

Okay. Thanks for the detail.

Operator

Basil We'll go next to Shaun Kelley of Bank of America.

Shaun Kelley

Hi, good morning and afternoon, everyone. Thanks for taking my question. So maybe just to start off on Andrew Thomas, could you just give us a sense of, you know, the consumer spending side. I think there were some color provided about the trends you saw across the fourth quarter. It sounds like October was strong and maybe the end of the year in December was strong. But just as we look at the broad pattern and I know you know, I focus on this a lot, but just the spending pattern of in-house relative to membership growth continues to be quite a bit below that. So kind of what are you seeing under the hood in terms of mix shift, new member spend relative to existing member spend? And then just kind of broadly as it relates to consumer.

Andrew Carnie

Thanks, Sean. I always enjoy macro questions. So I'll give you some color on what we saw if I take Q4. And so what we saw was member's visitation was up in the quarter, pretty much across all houses across all regions. But there was a slightly low F&B spend I'd visit with our members. So they kind of balanced out. That's why we were flat year on year and obviously up versus 2019 by about 20%. So if you think about our macro environment, it is pretty challenging here in the UK, we're in a technical recession.
So what we do is we focus more than ever on giving our members a great experience in the houses, which is working because footfall continues to grow, and that's what we're very focused on. We see a similar spend between new members and existing members. That hasn't changed, and I'll give you a little bit more color on what we're seeing year to date.
I think as important on so our like-for-like in-house growth has softened a bit and which is what an antenna you bid on lots, of course, with the folks base, what you're hearing from everybody right now especially in high end dining companies. And also you can see that from people's table stats, January was impacted by a calendar shift.
What we also saw in January was a much bigger spike in nonalcoholic beverage consumption much more than I've ever seen before, but positively results have gotten sequentially better. Each month, meaning Fed was better than January. And the first two weeks of better in March. So we are seeing nice, better growth and we're in a better position, as you know, than any of the hospitality industry because we're a membership club and we have recurring membership revenues. So we might be slightly down SMB, but we're still growing our membership revenues each month.

Shaun Kelley

Great. Very clear. On my second question, so I won't go macro for Q4, how would be your Tomas, could you give us a little color on some of the cash flow bridge components? You're obviously a bit more in focus just given some of the questions that are being asked out there. So maybe you could help us break down a few key components. Things I'm looking for would be your anticipated G&A growth overall, if we could get a sense on across the business and then cash interest expense, any cash rent? And then on if you could help us think about your net working capital investment you need in the business on again, as maybe things start to normalize around Soho Home, you called it out pretty clearly. Those would be some helpful components.

Andrew Carnie

Thanks. Thanks, Sean. Yes. So I'll go through these one by one. So on G&A, we expect to see operating leverage on G&A. We do expect it to grow year over year as we open new houses and enter new markets, but we expect to see good operating leverage there.
On cash interest expense, we expect it to increase slightly as we increase the size of our Miami mortgage a little bit last year. And so and then obviously, we have the pick interest on the loan side that's non-cash. So just we increased the Miami Miami mortgage on cash rent and you know what some of our loans are as high as some of our leases are tied to CPI. And so as you've seen significant increases in inflation over or over recent times that you should see slightly higher cash rent expense on a like-for-like basis, if you typically think you are kind of 2% to 3% inflation on on on same-store on leases, I would say this year is closer to 5%. And then you also obviously have the addition of the new house leases on working capital you know, a lot of working capital has to do with timing. I mean, if you look at the fourth quarter, for example, and you know, our cash position actually went went up quarter over quarter. And I we talked a lot about how we're really focused on working capital. We've amount managing our inventory balances a lot more ways when it comes to several home. And so I'm not going to guide to assist your working capital basis, but we don't think it will be as big of a drag in 24 as it was in 23 and has potential to actually be a tailwind if you go back the past few years and you look at our our average working capital definitely years when it's been up so benefit last year, it was a drag and then 10 years at a breakeven. So a lot of it's just timing related.

Shaun Kelley

Thank you very much.

Operator

We'll move next to George KELLY at Ross MK., everybody.

George Kelly

Thanks for taking my questions. So first on Scorpion, I'm curious you're opening those two locations. I think the boardroom is midyear into LUMINA one assays later this year. I'm curious how do you factor those into guidance in that that the legacy location is so successful? I'm just curious how you're thinking about these next two. And then same topic on Scorpion. What is the kind of medium or longer-term opportunity for that brand? You think beyond these two locations that are soon to open is there a big pipeline of future locations as well.

Andrew Carnie

George, good questions on Scorpion. So we are very happy with Scopus in 2023, a had a record year, again in making us, which is super exciting. We've always said we wanted to grow Scorpio. So this is our 1st year we will add new school buses. The scope is in Quadrem is incredible and it has its own villas, a new wellness concept, along with all the things that are great at making us and into lung a similar. And first time I've got bedrooms.
So we've done a bedroom offer as well as Corpus. So we're really happy with two this year. And by founders, Mario and Thomas are fantastic at doing this. We want to really focus on getting these to ride this year. And we then have further growth planned for Scorpio since subsequential years on given it's such a great business, such a profitable business and also House members also the scope is a lot.

George Kelly

Okay, thank you. And then second question for me still on that other revenue line. I'm curious, Thomas, you said in the prepared remarks that you see a lot of future opportunity for Soho Home. And so I'm curious if, but if you can give more detail like what are the plans to continue growing that business and are you getting to a point now where it has enough scale, we're going to start to see margins inflect higher, and that will help contribute to the gross profitability?

Andrew Carnie

Yes, Joe, I'll take that one. So we're incredibly proud of also home business. As Thomas mentioned in his prepared remarks, it's growing threefold on. It's very much aimed at taking the house home and interior Spicer house. That's our USP. That's why it's been so successful this year. We will continue to grow and I'll give you some examples why we're very excited about the growth from an assortment at basis. We've only scratched the surface.
So we're nowhere near a if you think home restoration, hardware, assortment choice, we've literally just begun. So the growth has been based on a very small assortment. We are going to expand that assortment now into a great furniture. We've recently last week just launched outdoor furniture will be going into the window furnishings business and expanded lighting, et cetera, because of the appetite for our products is so high. And so that's why we think there's a lot more opportunity. It's digital first. So we did. So it's a higher profit model than having lots of big stores. And so that's why we feel there's more margin. And as Thomas mentioned in 2023, the margin. So house grew substantially. So we feel good about So half. So how Thank you.

George Kelly

Thank you.

Operator

And question comes from [Sharon Zackfia at William Blair].

Sharon Zackfia

Hi, good morning and thanks for taking my question. Just a couple of questions here on the refurbishments and kind of the cadence of new home openings for, I guess first now with the plan to open two to four homes a year for the next couple of years. Is there an expectation that maybe you do more refurbishment of membership spaces? Or I mean where the recent refurbishments more of a run of the mill.
Yes, standard refreshing of the spaces that you're doing all the time.
And then I guess somewhat related to that or the German experience, there's in the wellness offering and the wellness retreat. I mean, is there a big opportunity there? How much of an opportunity is there to add tempo wellness offering at all of the houses.
And I have one follow-up.

Thomas Allen

Thanks, Clay. I would take these questions. So from a refurb perspective, what I articulated and for this year is pretty normal of how we how we do. Things were always refurbishing our existing houses. We're always looking to increase our member space from the examples that I gave. So that's not going to change and go into two to four will always continue to do that.
And regarding wellness, wellness is one of our big investments. Our members have told us it's a big priority in their lives, both from a physical perspective, but also mental well-being. So we are investing in wellness, which again, I did on my prepared remarks, were roaming houses with new gyms We've created a complete immersive wellness experience in our Soho Farmhouse, and we're expanding in our cities. And our members are looking for new technology, for example, ice baths, infrared, Sonos. So we're putting them in our gyms globally. And so yes, I would say that everything we're doing right now in existing and wellness is a very, very big focus for us.

Sharon Zackfia

Great thanks. And I know I'm somewhat on the same vein as far as having fewer new homes in the mix, how could we that's that too impact plus level contribution margin? I know the more mature houses have significantly higher margins than the ones that are younger on the maturity curve?
Thanks.

Andrew Carnie

Thanks, Zach. And so look, I mean, we don't guide specifically to how contribution levels. But as you can see from our overall guidance, we expect margins to increase. That will be partially driven by and by that will be partially driven by house contribution margin and that we are still in an inflationary environment. I think if you listened to other earnings calls, companies talked about, say, continue to see wage and food and food and beverage inflation. The positive thing about us is that we have the membership revenue growth and you and you can see from our guidance, we're expecting continued really strong growth there and that should generate good operating leverage.

Sharon Zackfia

Great. Thanks. I'll jump back in the queue.

Operator

Yes, and that does conclude the question and answer session and today's conference call. Thank you for your participation you may now disconnect