Mister Car Wash Inc
NYSE:MCW
Earnings Call Analysis
Q3-2023 Analysis
Mister Car Wash Inc
Mister Car Wash exhibited solid performance in the third quarter, with sales climbing 8% to reach $234 million. The company has shown steady growth with comparable store sales increasing by 1.7% and consistent momentum in the development of new locations. This growth trajectory has been partly underpinned by its Unlimited Wash Club (UWC) members, representing a significant 72% of total revenues. The third quarter also saw the addition of 6,000 net new members to the UWC program, registering an 11.3% year-over-year increase in membership.
The company's Adjusted EBITDA moved in tandem with sales, also up by 8% to $72 million. This profitability has been bolstered by the strong performance of new Greenfield stores which are ramping up towards mature unit volumes and solid margins. On a granular level, Mister Car Wash managed to reduce labor and chemical expenses marginally, while other operating expenses saw a slight uptick. This careful cost management allowed the company to strategically reinvest and support long-term growth.
Mister Car Wash has launched its new Titanium product successfully, with positive initial feedback and 317 stores already featuring the offering. This new service line is poised to drive long-term value, aiming for at least a 10% mix in UWC subscriptions within its first year. The complete rollout is anticipated to be finished by mid first quarter of next year. While the company acknowledges a potential rise in churn rates from the promotional activities around Titanium, it is expected to be counterbalanced by increased membership levels.
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Good afternoon, and welcome to Mister Car Wash's conference call to discuss financial results for the Third Quarter ending September 30, 2023. [Operator Instructions] Please note, this call is being recorded, and the reproduction of this call in whole or in part is not permitted without written authorization from the company.
Speaking from management on today's call are John Lai, Chairperson and Chief Executive Officer; and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we will open the call to questions.
The finance conference call references to non-GAAP financial measures will be made. A complete reconciliation of these measures to the most comparable GAAP measures have been included in the company's earnings press release issued earlier today and posted to the Investor Relations section of the company's website at mistercarwash.com. As a reminder, comments made on today's call may include forward-looking statements that are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from the company's current expectations. These advised statements made today are currently as of this call and based on the company's present understanding of the market and industry conditions. While the company may choose to update these statements in the future, they are under no obligation to do so unless required by applicable law or regulations. Please review the forward-looking statements disclaimer contained in the company's latest annual 10-K and 10-Q reports such as factors may be updated from time to time in other filings with the Securities and Exchange Commission.
I will now turn the call over to Mr. John Lai. Please go ahead, sir.
Good afternoon, everyone, and thank you for joining our Q3 earnings call. We had a solid third quarter and feel good about the upward momentum in our business. Comp store sales were positive and continue to grow quarter-over-quarter. New build openings are on schedule and performing nicely. Our Titanium launch is moving full steam ahead, and we're encouraged by the early results. Our Unlimited Wash Club members who represent over 70% of our revenues, continue to remain our most loyal and steadfast customers, and we continue to manage our expenses while simultaneously investing for the future.
For the quarter, sales grew 8% to $234 million. Adjusted EBITDA increased 8% to $72 million. Comp store sales increased 1.7%. We opened 8 new greenfield stores and are on track to hit our full year target of approximately 35, and we ended the quarter with 462 locations. As we continue to build a company that has enduring value, at the end of the day, it's all about the people that you strive yourself with. From our field operations to our Tucson headquarter staff, it truly takes an army and the strength of Mister Car Wash is due to the strength of our team.
Our Titanium launch is a perfect example of how awesome our teams are. I want to recognize 2 groups in particular, our Facility Maintenance Group and our Tucson distribution center who worked around the clock, building, reconfiguring and installing our new rents improvement, lower reconfiguration and titanium solution. When it comes to differentiation, Titanium is just the latest in a long list of proprietary innovations that we have developed in-house. Over the last several decades, our research and development team staffed with very talented engineers and chemists have developed truly unique products like HotShine, Wheel Polish, Repel Shield and now Titanium, which offer exceptional performance and tremendous value.
At the very core, we are operators who take great pride in putting out a clean dry shiny car at pace. The efficiency of our stores starts with technology and our ability to leverage mechanization, chemistry of water quality. We not only scientifically balance our in-house chemical program, but we're able to process cars in a speedy fashion, which our customers have come to expect. Part of the Mister's experience is not just the efficiency in which we operate, but the level of customer service we provide to our frontline staff. This is where we really excel and it's what we hear about most often.
Last week, we hosted our national leadership conference where we brought in over 200 leaders from around the country to discuss our vision, go deep on our strategy and drill down into how we're going to execute and win the war in an increasingly competitive environment. The depth of talent in the room and the energy throughout the conference was impressive and contagious. As we round the bend in the fourth quarter and look ahead to 2024, this team is laser-focused on growing and continuously improving our business to further our competitive advantage. There has been a lot of talk recently about competition. And as we mentioned on our last call, competition is nothing new to us and something we've been facing for many years. We believe that when customers are given a choice, the best operators will ultimately prevail and to that end, we are keenly intent on managing what we can control, which is the customer experience.
We still believe the market is underpenetrated with additional white space in every market we're in. We also believe there's more tailwind to our category as new users adopt express car wash format and join our unlimited wash car plan. The carwash landscape remains dynamic and continues to evolve. The battle for regional dominance continues, albeit at a more rational and thoughtful pace, which we believe is healthy and good for our industry.
When we're asked questions about how consumers are currently behaving, our answer is that we feel very fortunate to be in a space that acts more like a stable than the discretionary with demand for our service remains steady and strong. As we continue to densify in existing markets and look for new markets to move into, we will stay disciplined in our approach to scaling at a pace that's manageable, and we'll deploy capital where we think we can generate the highest and best return while managing expenses thoughtfully. We currently are focused on building out greenfield locations, but we'll continue to evaluate acquisitions and other uses of capital.
I'd like to end my prepared remarks with a note of gratitude to the men and women of Mister who show up every day, with smiles on their faces and skipping their step, delivering happiness to the millions of customers we serve.
I will now turn the call over to Jed to provide more commentary around our financial results for the quarter.
Thank you, John, and good afternoon, everyone. Overall, we had a solid third quarter. We continue to manage our expenses, execute against our strategic priorities and move the business forward.
Before I review the financial details of our third quarter results, let me give you a brief update on our new Titanium offering. We remain optimistic about Titanium and the positive impact it is going to have on the business and results. The early Titanium results are encouraging and running in line with our expectations, as of today, we have implemented our new Titanium offering, rent improvement technology and reconfigured blowers in 317 stores. We continue to pick up momentum and installations are slightly ahead of our implementation plan. We now expect all stores to be reconfigured by mid-Q1 next year.
We continue to refine and test various promotional offers to help drive Titanium trial and adoption. As we have said previously, this is likely to result in slightly higher churn rates during the implementation period. We expect this to be more than offset by higher early membership levels. We believe Titanium could represent a meaningful portion of our UWC and retail business over time and remain very comfortable with the initial target of at least 10% of UWC subscription mix within a year of implementation. As previously mentioned, the revenue and EBITDA impact will likely be minimal this year due to the timing of the rollouts and the promotional offerings and strategy but we believe it will be meaningfully accretive to next year and should have a multiyear impact.
Now turning to the third quarter results. During the quarter, total net revenue increased 7.6% and comparable store sales increased 1.7% compared to last year. UWC sales represented nearly 72% of total wash sales and we added 6,000 net members in the third quarter. On a year-over-year basis, the number of UWC members increased 11.3%. The performance of the subscription business remained very stable in the quarter. Core churn rates remained in line with historic ranges, and we did not see customers trade down to lower-priced packages.
On the development side, we opened 8 new greenfield locations and acquired 5 existing stores in the third quarter. The performance of our greenfields remains strong, ramping toward our mature express exterior average unit volumes of approximately $2.1 million and 4-wall EBITDA margins of approximately 45% in under 3 years.
On the expense side of the business, we remain focused on managing expenses where we can in optimizing the investments we are making to support the long-term growth and health of the business. Excluding stock-based compensation as a percentage of revenue, total operating expenses increased 110 basis points to 78.9% year-over-year. The main drivers were Labor and chemicals decreased 20 basis points to 30.1%. Other store operating expense increased 90 basis points to 38.7%. G&A expense decreased 30 basis points to 9.6% and gain/loss on sale of assets increased 90 basis points to 0.6%. [indiscernible] and optimizing regional labor infrastructure, which was partially offset by an increase in average hourly wages. Other store operating expenses increased primarily from an increase in rent expense from the fact that we have 50 more car wash leases compared to the same time last year as a result of the additional sale leasebacks completed during the last year. In the quarter, cash rent expense increased 16% to $27 million.
G&A expenses, excluding stock-based compensation expense, increased 4% and was driven by continued investments to support growth in areas such as marketing, construction and development and other support functions, which were partially offset by lower corporate insurances and other previous investments. During the third quarter, interest expense increased to $19.1 million from $10.1 million last year due to higher interest rates and the expiration of our interest rate hedge in October of last year. Interest expense was slightly favorable compared to plan due to the higher cash balance, resulting from the faster pace of closing on sale leasebacks and the timing of reinvesting the proceeds back into the business.
Our GAAP reported effective tax rate for the third quarter was 18.7% compared with 26.9% for the third quarter of 2022. The decrease was primarily due to the benefit related to the employee stock awards exercised in the period and the benefit related to a change in our estimated state tax expense this year compared to last year. Adjusted net income and adjusted net income per diluted share, which adds back stock-based compensation and certain noncore operating expenses were $25.5 million and $0.08, respectively, in the quarter. Third quarter adjusted EBITDA was $71.6 million, up from 8.3% from the third quarter last year, adjusted EBITDA margin was a healthy 30.6% an increased 20 basis points from the third quarter of last year.
Moving on to some balance sheet and cash flow highlights. At the end of the third quarter, cash and cash equivalents were approximately $62.1 million, an outstanding long-term debt was $897 million, Importantly, our balance sheet remains healthy, and we continue to self-fund our growth and expansion. Despite the rising interest rate environment, demand for sale leasebacks remains healthy and we completed 2 sale-leaseback transactions in the third quarter for an aggregate consideration of $10.5 million. The sale-leaseback market continues to remain open for us, and we are seeing favorable rates.
Lastly, let me make a few comments around guidance and how we are thinking about the rest of the year. Our third quarter results were ahead of our expectations, and we are pleased with the directional trends in our business. Early Titanium results are in line with our plan, and we continue to tightly manage expenses and execute the business.
The macro environment for the consumer remains challenging, and we think this dictates a certain level of cautiousness for the remainder of the year. As a result, we are leaving our full year guidance unchanged and reiterating our previously provided net revenue and adjusted EBITDA ranges of $913 million to $936 million and $270 million to $283 million, respectively.
In closing, we are pleased with our third quarter results, and we remain focused on delivering our growth strategies. I'm very proud of the team's best-in-class execution as well as their enthusiasm for capitalizing on the opportunity ahead of us as we continue to position ourselves to win the long game.
With that, we're happy to take your questions.
[Operator Instructions] And the first question comes from Simeon Gutman with Morgan Stanley.
This is actually Michael Kessler on for Simeon. First, guys, I wanted to ask about how retail customers behave through Q3? If you notice anything relative to Q2 earlier in the year as far as some of the weakness that we've seen in the last year or so? And then any differences in how that customer behaves versus how your core UWC member behaved?
Yes, I'll kick it off. So retail volume and revenues are moderating quarter-over-quarter. We're seeing improvements in a nice healthy growth in our ticket averages as well without having to resort to price increases. And so we've been very careful as an organization not to be overly promotional specifically from a discount standpoint. And so we believe that the trends that we're currently seeing are healthy and with all the knock on wood sustainable, but we're also staying on soft ground.
Yes. And Michael, just to put a little bit finer point on that. So going back last call, we talked about a retail being down double digits in Q1, moderating to a high single-digit negative in Q2. It further moderated during Q3, still kind of that high mid-single digit, but it was -- Q3 was an improvement on a year-over-year basis compared to Q3. So encouraged by the trends that we're seeing here on the retail side.
And Jed, your famous line is up is good, right?
We'll take it.
Maybe one follow-up, Jed, on CapEx guidance, which is coming up a bit, I think, about $50 million, $55 million or 20%. So it's a pretty -- it's a notable step up given that, I guess, unit growth is still on track for how you've previously been thinking about it. So just any color on what's changing there and where you're maybe seeing some inflation in the CapEx line?
Yes. There's really 3 factors there, Michael. So the first, as we shared in the prepared remarks, we've been accelerating the rollout of Titanium. What was full rollout as of the end of Q1, we're now targeting to have it all done by the middle of Q1. So getting more of these stores equipped with Titanium at a faster rate than what we had originally projected. Also, a little bit of a timing with just the spend against our 2024, 2025 pipeline, as we've talked about, it's an 18- to 20-month build out for one of these car washes and when the spend starts. While most of that spend is in the last 8 months of the construction cycle, there's a little bit of a timing piece there. And then we are seeing some construction inflationary pressure, construction costs are up just a little bit. But also our ability to get more in proceeds on a sale leaseback is also up. So the net investment on that construction and development is still approximately $2 million keeping our cash on cash -- year 2 cash-on-cash returns at about 50% and under a 3-year payback.
And the next question comes from Justin Kleber with Baird.
Just want to start on the guidance, Jed. Obviously, holding the full year implies a pretty wide range for 4Q. Just any color on maybe how the business is tracking here quarter-to-date and whether you would anticipate some acceleration, as I believe the comparison [indiscernible] quite notably in November and December versus October?
Yes. As we've talked about earlier in the year, we expect the lap just to get a little bit easier in Q4. Also as the greenfields that we opened in 2022 come online, that will provide a little bit of a tailwind as they move into the [indiscernible] more year. And then also with Titanium picking up a little bit faster, that will be a nice tailwind. So in order to hit the full year, the high end of the range, the plus 1, it will require a little bit of an acceleration compared to Q3, when we look at October. October -- September and October last year were -- some of our strongest months, October, we're lapping a plus 9.3. And so really looking at the 2-year stack, and we saw a slight improvement in October on a 2-year stack compared to Q3 on a 2-year stack.
That's very helpful color. And then just on the -- much of the costs with Titanium flowing through CapEx. I'm just wondering if there's been some, I guess, excess operating expense that the business is absorbing this year that obviously won't repeat next year as you finish the rollout early in 1Q?
Yes. Certainly, I think particularly the first half of the year, a lot of pressure on the labor front. When you look at less -- for the quarter, labor rates were up just over 3% compared to -- I believe it was -- last quarter, we were about 5% labor rates up. So we're starting to see just a little bit of relief on that side. Utilities, we're also seeing some favorability during Q3 and expect that to continue into Q4, whereas there was a lot of pressure on utilities, particularly in the first half of the year. And then also, finally, and called this out in the prepared remarks, corporate insurance. We're seeing some favorability on our insurance in the second half compared to where we were in the first half.
Yes. Jed, I would just add when we take on a project of this magnitude, and it really is what I'd describe as a fundamental transformation of our tunnel and the tunnel experience and we added, as we've noted before, this [indiscernible] reconfiguration and rents improvement. And this is not scope creep, but there's other things that come with these projects. And so when I look at our repairs and maintenance line and the things that we have to expense upfront, that's also, I think, come at a certain cost, but we're happy to make those investments because, again, we're setting up our stores for the long haul.
And the next question comes from John Heinbockel with Guggenheim.
Let me start, John, sort of 2 parts. Your thought on pricing of membership architecture, right? So I think in some markets, there might be a $7 gap between premium and titanium and others, maybe $10. And then how that impacts membership qualities? So is there a thought that maybe you want more of a $7 [ gap ] and encourage people to move towards Titanium. So a little less membership but a little higher price, a little higher quality. How do you think about that?
Yes. I think you're spot on, John. And so directionally, as we look to kind of compress that delta between our platinum and our Titanium to make it more within reach and it's easier for folks to upgrade that's going to be part of our overall design. Again, we want to be very clear in how we transition existing members into a new price point. And there are certain rules and things that we need to do from a communication standpoint so that they are given ample notice. So we're working through the mechanics of that as we speak. But you nailed it. At the end of the day, as we're settling in on what we believe the Titanium price to be, anything we can do to make that more attractive and more within reach that would help us achieve our goals. But we are balancing to your comment, this mutual objectives behind increasing the number of members in each of our premium packages while maximizing profitability.
All right. And then I guess a second topic, right? The idea of buy versus build, right? And how close the cost of buy has to be to build, to make that more attractive to you? Or are we -- it seems like we're getting closer. Your thought on that? And are we within reach where the economics are more compelling or competitive on the buy side?
Yes, it's -- we're getting there. So prices on [ M&A ] are definitely coming down. The cost of build is going up. And so there will be a point where both become equally attractive. I think it's important to note that, as a company, we're agnostic at the end of the day between greenfield and acquisitions, and we will deploy capital where we can generate the highest return. There's pros and cons to both sides of that equation. Greenfields, we can -- not going to say, control our own destiny, but really set up the stores to our specifications and design in the way we want. But [ M&A ] is also an attractive path for us, particularly as we look to move into new markets and accelerate that path into a new market. So that, coupled with bolt-ons, which will always be part of the equation. So we're not quite there yet in terms of that equilibrium point, but it's moving in that direction.
[Operator Instructions] The next question comes from Michael Lasser with UBS.
John, the outset of your remarks, you mentioned an increasingly competitive environment, while Mister Car Wash has operated in a competitive environment for a long time, are the dynamics changing where it's just more difficult to attract new members to your club, given that the 6,000 net additions is 1 of the smallest increases that you've reported since you've been a publicly traded company?
Well, there's kind of 3 questions inside that question, Michael. What's you're famous for. So to answer the middle part of your question, we haven't seen a slowdown in member growth through our greenfield locations. Q3, though, was relatively flat from a UWC net member growth standpoint. And that was somewhat intentional. We prioritized converting existing members into our Titanium program in Q3 as we're launching and rolling this out. And it's really hard when you get down to the store level to have multiple objectives happening simultaneously. So we [indiscernible] on the side of -- let's take existing members and introduce them to Titanium rather than focusing what had been our primary focus, which is on converting retail customers into membership. And so that will be -- we're in execution mode on Titanium right now, and that's going to be our primary focus over the next several quarters. But equally, both sides of that are equally important to us over time. And so with respect to your question about competition, we have not felt any meaningful impact to our growth trajectory due to the current competitive environment.
Michael, one other point, I think, is worth highlighting. When you look at the seasonality of UWC growth, it's [ 65% ] to 70% of our UWC sign-ups have typically been in the first half of the year. And when you look at the more recent years, that's been even more pronounced. But that's -- to John's point, that's where we're really optimistic and excited about titanium is because we now have these 2.1 million existing UWC members that are at [indiscernible] and driving the top line through trading them into Titanium.
And Jed, in your comments, you had noted that core churn is stable? Does that mean you're -- I think you alluded to experiencing some higher churn, which would be consistent with John's comments around focusing on the conversions rather than the new customers. Can you explain and frame how we should think about churn into 2024? And then how does that impact overall membership growth in the next year especially on the heels of the retail business being softer for the last several quarters and that being a source of new member growth?
Yes. So when we talk about core churn, previous calls, we've shared that we've been testing various marketing initiatives, promotions. And what we have found that really works is introductory and trial price offers, where we're trying to get new customers to try Titanium and really accelerate that trial and drive mix to those more premium packages. What happens is it comes at the price of slightly higher churn. And we talked about it in the prepared remarks in Q2, also talked about in Q3, where when we roll to the regular pricing, we see a slight uptick in churn. For Q3, it was about [ 0.2 ] of an uptick in our churn with promotional UWC members rolling back to regular. So it's not outsized or anything to be overly concerned about at this point, but something that we're keeping a close eye on and making sure the end objective though is to drive that mix and get as many members in our premium package as we can.
Jed, if I could just add too. I think we've been very responsible and smart, quite frankly, and not getting too aggressive in some of those introductory trial offers. We've seen some silly stuff out there where folks are, I call it [indiscernible], but $0.99 offers, $0.01 offers for the first month. And that could be a slippery slope. And there's an old adage, the way in which you acquire a member is the way in which you need to keep a member -- but if you're leaning really heavily in on the price side of the equation, which we haven't that is going to have -- it's going to come at a cost, and that cost is a higher churn.
One other point, Michael, I think it's really important for folks to hear and kind of the proverbial yellow canary is UWC usage. Obviously, a customer is more inclined to cancel out of a subscription if they're not using. When we look at usage of UWC during the quarter, we did not see any downtick there. Customers -- we see customers are washing as much as they have in past quarters.
And the next question comes from Randy Konik with Jefferies.
Yes. I guess a question for you, Jed. You talked about the -- back to the retail side of the business. I think you said double-digit negative comps in the first quarter, down high single in the second quarter and the third quarter was a little bit better. Based on what you're seeing across the different regions, do you think that -- based on the business and as it stands today in retail, as we kind of get towards the first quarter and go up against that negative double-digit type of compare, is that -- can we kind of think through that the retail side of the ledger should start to kind of get towards flattish or slightly positive as we go up against that comparison based on what you're seeing right now? I just want to just get a feel for that trend line.
Yes, Randy, when we look at the last -- when you go back and you look at this over the last 5, even 10 years, our goal is to trade our retail customers into the Unlimited Wash Club program. And so historically, that has run negative mid-single digits. Retail has run negative mid-single digits. And perhaps we really haven't been framing this like we should, but essentially, it's mix shift trading that retail customer into the higher-priced predictive reoccurring UWC offering. But the price of that, and we're willingly accepting it as you lose a retail customer. So it's been -- historically, it's been down about mid-single digits. And I think that's a fair assumption as we think about on a baseline for go forward.
Understood. And then just how should we be thinking about over the next couple of years, when you're thinking about Titanium mixing in and just how you're thinking about core pricing? I'm just trying to get a sense of how we should be thinking about over a multiyear period of how pricing should shift. What should it actually grow at on a multiyear basis for the next few years? Like should we be thinking low single-digit price growth because of mix plus some taking of the core up? Just give us a little sense of how we should be thinking about that from framing it up.
Yes, Randy, that's a trickier one. It's still what I would consider relatively early days as we look at Titanium and how it's testing. We are very encouraged and optimistic in being able to put emphasis on that at least 10% mix. And so by the end of year 1. But it's really hard to say how that plays out in 2024 and then into 2025 as well. But we believe internally that it's going to continue to provide a natural tailwind because just the consumer -- educating the consumer on the benefits of titanium, it's not just going to happen on the first visit. This is going to continue to happen over time. I do think, and it's worth pointing out is there's -- you've got the UWC side of it that we talk about and the at least 10%, but also the Titanium retail side as well, which we're seeing encouraging results. We're not doing any discounting or promotions there, just natural customers wanting to try on a retail basis and seeing the retail ticket mix in the mid-teens from a mix perspective.
Yes, Randy, I'd just add what gives us great confidence and why we're so excited about Titanium is that when we look at pre-titanium, what our member mix look like, and where we were more heavily weighted towards our premium platinum package naturally without a concerted effort internally to drive premium membership. It was really a natural customers gravitating towards the value that we had put into that program. And now with this additional value stack that's in the titanium program, we're very optimistic that we're going to continue to enjoy a stronger premium member mix over time. But we're going to do it again in a way that is not trying to spike member mix. We want folks to naturally gravitate towards it because they see the value in it. And that's how we've had such a sticky and strong member base throughout the years.
[Operator Instructions] And the next question comes from Chris O'Cull with Stifel.
I was wondering how the company is thinking about capital allocation for next year? Is the plan to develop a kind of a similar number of washes or do you think there's opportunities for more acquisitions? And I'm just wondering, Jed, if is there a similar level of gross CapEx, is that a reasonable expectation for next year as you have this year?
Yes. Right now, I mean, we'll provide more specifics on 2024 as we get into our next call. But what I would say, kind of at a high level from a capital allocation perspective, the current plan right now is to self-fund our growth into our investments that we plan to make next year. But it's really kind of 4 main variables as we think about that capital allocation. Just what happens on the acquisition front. What happens in the broader interest rate environment where our existing debt load is 100% floating at this point. That's a variable in the capital allocation strategy. [indiscernible] leasebacks and cap rates and what happens there, but then also just the existing human capital within this team and what we're able to fight off. I would say that as we think about 2020 for greenfields, so this year, we feel good about the approximate 35 that will develop more greenfields in 2024 than what we plan to do here in 2023.
Yes. Chris, if I can add, too, that we are committed to not sweating the assets, if you will. And when we look at our core portfolio, again, we're very proud of the year-over-year investments that we've been making in those stores. That said, given the size of our portfolio, there are a number of stores that we've identified that are in need of some additional love, if you will, in reinvestment. And so we're going to be chipping away that pile too. So while Jed is famous, he's the capital allocations are internally and wield a lot of power as a result. But if we use as our sole measure, the highest return of invested capital, obviously, greenfield is a really strong case. That said, if we neglect some of those older stores over time, that's going to ultimately show up in reduced [ AUVs ]. So we're going to be chipping away at that pile as well, again, at a pace that we can handle. But I'm happy to report that it's a very small sliver of our overall store count because the bulk of our stores are in great shape.
That's helpful. Jed, are you seeing any changes in the cap rate given the falloff in bonus depreciation and just overall yield environment?
Not at this point, Chris. I mean we're still getting deals done. We've got another number of stores that are at market -- that are out to market right now, and we're signing LOIs and getting good favorable cap rates on those. Part of the analysis that we do when we're looking at sale leaseback versus funding through external debt as we'll look at what is most accretive to EPS and calculating cap breakeven from a sale leaseback cap rate perspective relative to what the interest rate is, prevailing interest rate is at the time. So we believe there's still a lot of cushion there, but we continue to see very favorable economics. I think it's a testament to having been doing sale leasebacks for longer than anybody in this space. We've got a great track record of paying our rent and great operations team, great relationships with our brokers and with our -- the national REITs that are out there, and that's something that's important to us, and we pride ourselves and we continue to invest time to make sure that we're nurturing those relationships and keeping that market open for us.
Yes. Jed, if you're going to underwrite a project, you're going to underwrite a project with a company that has a strong track record, a great management team and a long history of doing it right. And I think we check those boxes.
Yes, that makes sense. Okay. Just also, I mean, the company has seen declining retail traffic for several consecutive quarters now. And I'm just wondering if you guys have completed any consumer research to try to understand the root causes of the softness -- and I know that the -- I believe the industry has been soft as well. And I'm just wondering if there's any kind of discussion with any other companies? And just in terms of what's driving or what do you guys think is driving this retail softness?
Yes. So Chris, this is John. We don't have a consumer study that we can point to. There's a lot of theories. One of my beliefs is that as an industry, there's been a lot of folks have been pushing the pricing [indiscernible] relatively aggressively. And at certain points, this is not clearly an elastic service that you could at $12 or higher for a base wash, it's going to have an impact on retail frequency. And again, I think we have been very prudent in our approach and relatively conservative and not being overly aggressive in pushing that pricing [indiscernible]. And as a result, we're happy with that but I think that has had some effect. And that's just my theory.
And the next question comes from Tristan Thomas-Martin with BMO Capital Markets.
Just two questions. There's been a lot of -- obviously talk about the competitive landscape more competitive, it's gotten. But now the people are starting to pull back, does that create any specific opportunities for you?
Absolutely, 100%. So I would say that right now, people are being much more calculated and measured and really focusing on growing their existing footprints than expanding into new markets. We're definitely seeing less [indiscernible] than we have in the last couple of years, which is good and healthy. So we anticipate new unit growth to moderate and we're actually seeing some platforms [indiscernible] back on their growth plans for a variety of reasons, but primarily it's access to capital.
So in the end, as we look at multiples that are starting to come down, and it feels like the market right now is reset to about a 10x number, which literally 2 years ago, things were trading at north of 15x. And there's also more of a focus, which has been our focus from the get-go on quality versus quantity because for a while during the craziness over the last several years, there were certain platforms that were all about scaling just to scale and buying whatever they could, and the chicken is coming home to roost, if you will. So we, like others, are being cautious and measured, and this will create a number of opportunities for us as an organization. But we're going to be very disciplined and highly selective in choosing when and where to pull the trigger on M&A.
Okay. And then just -- you mentioned the macro softer. If it continues to get worse, what is the Mister Car Wash recession playbook?
Well, I'd start with -- we have super strong AUVs right now, really healthy margins. We run a tight ship. We have a staffing model that we're really proud of. But we do err on the side of -- and there's a -- right, there's the idea around right staffing, running lean and running too [indiscernible], and higher-volume stores, it's actually easier to operate a higher volume store than it is a lower volume store. But what we're doing is making material investments in people and the human capital front. And we have over 150 [ MITs ] in our pipeline that are part of our operating expense line and we're happy to make that investment because it's going to be the future for our organization is these high-potential future leaders [indiscernible] the stores that we have in our pipeline. So if stuff hit the fan and things got really tight. We could pull back on some of those levers. And it may mean a temporary slowdown for us, but I think we'd be able to weather the storm.
So last thing I'd just add on that, we have managed -- so we've been around for 25 years. We have managed through multiple economic cycles and have emerged stronger, quite frankly, from each one. And so we don't anticipate -- we believe that we'll be able to manage through this one as well as we're managing through it, and we're going to emerge just fine.
And this concludes the question-and-answer session. I would like to turn the floor to management for any closing comments.
Well, thank you, everybody. As car wash operators, we love what we do. We love who we serve, and we feel very fortunate to be a leader in the space that's growing year-over-year. We look forward to checking back with you guys on the next quarterly call. Thanks, everyone, for joining.
Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.