Soho House & Co Inc
NYSE:SHCO
Earnings Call Analysis
Q4-2023 Analysis
Soho House & Co Inc
The company has undertaken significant initiatives to streamline operations and improve technological systems, directly impacting overall company performance. This includes enhancements to food and beverage ordering systems, which simultaneously improve menu personalization and margin growth. Additionally, the implementation of a new platform for online bedroom bookings and personalized event recommendations has simplified the member journey, contributing to a substantial increase in earnings. Specifically, EBITDA more than doubled from $61 million in 2022 to $128 million in 2023, while adjusted EBITDA margins nearly doubled from 6% to over 11%. This operational efficiency is further demonstrated by improved cost management, with wages as a percentage of revenues improved by 200 basis points year-over-year and Full-Year Revenue per Available Room (RevPAR) increasing by 11% from the prior year.
Thomas Allen provided a comprehensive overview of the financial metrics, highlighting a year-on-year 8% growth in revenues for the fourth quarter to $291 million and a 24% rise in membership revenues. House level gross profit increased significantly due to operational improvements and margin expansion, resulting in a 44% year-on-year increase in house level contribution. The company also acknowledged a slight lag in adjusted EBITDA performance relative to guidance due to lower total revenue and policy changes that resulted in additional expenses. Nonetheless, the profitability of mature houses stands robust with over 40% contribution margins in key locations like London, New York, and Los Angeles. It's also important to note that new policy changes did not impact cash flow.
Looking forward, the company's 2024 guidance emphasizes a balanced approach, focusing on enhancing member experience, growing membership, and improving operational efficiencies. They project an influx of over 210,000 members by year-end 2024, an increase of over 8%, with growth driven by both maturing and new house openings in various locations. However, the company is adjusting its growth strategy in response to challenges in the development market, planning to open fewer new houses annually in the short term to protect cash flow. Capital expenditure (CapEx) relative to revenue is expected to be steady, demonstrating a disciplined asset-light approach. Lastly, the revenue projections for 2024 are set to be between $1.2 billion to $1.25 billion, with membership revenue expected to experience a significant increase of up to 15% due to growth and pricing strategies.
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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. [Operator Instructions].At this time, I would like to turn the conference over to Thomas Allen, Chief Financial Officer. Please go ahead.
Thank you for joining us today to discuss Soho House & Co's fourth quarter financial results. My name is Thomas Allen and I'm the Chief Financial Officer. I'm here with Andrew Carnie, our CEO.Today's discussion contains forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause the 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 sohohouseco.com in the News & Events section. Additionally, we have posted our Q4 presentation, which can also be found in the News & 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 for the most comparable GAAP measures are available in today's earnings press release.Now let me hand it over to Andrew.
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. To further counter any misleading statements that have been made about us, our audit committee engaged in a large, globally recognized forensic accounting firm and a prominent, independent global law firm to review our accounting and accounting practices. Their review was as expected, this has shown no material issues. As part of our year-end audit, we have made 2 small non-cash revisions to our ongoing financial reporting, which Thomas will cover later.2023 is my first full year as CEO. I'm proud of our achievements in what our teams have delivered. In the past 12 months, I prioritized visiting our houses around the world, and Soho House is still as special as when we opened our first site in 1995. Our houses are full of creative, interesting people from different backgrounds who come together to have a good time and meet fellow members. As the only global private members club of its kind, we operate in more than 20 cities that represent creative, dynamic and progressive hubs. During our 29 year history, we have never closed a 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 where members create its identity. We're building on those strong fundamentals with a business that we believe is getting stronger and stronger, 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.Our 2023 results show we are making good progress and I'm excited to share the results with you today. We welcome 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. Our membership growth last year came primarily from 24 houses we had opened since 2018. For example, Nashville, Austin, Paris, Rome, Brighton and Stockholm. These newer houses allow us greater choice in where we grow membership, given their maturity curve, as well as positively enhancing the membership experience for our 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 2,000 members. This makes us even more excited to continue to expand in Latin America, where we will open Soho House Sao Paulo soon. Cities Without Houses or CWH membership grew 50% in 2023, demonstrating the strength of our brand in cities where we do not have a physical house, but 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, and our waitlist finished in 2023 at 99,000, up from 86,000 at the beginning of the year, demonstrating the continued appeal of Soho 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. In-house 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%. 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 Soho 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.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 want 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, like our pools and rooftops in our existing houses. For example, in London, we have recently refurbished White City House roof and pool and expanded the ground floor to create more member space. In LA, we will open the Luckman Club, an 8,000 square foot new event and member space at Soho House West Hollywood. While we're also working on a new member space on the roof of Holloway House and in New York, we're refurbishing the outside space at Soho House DUMBO to be ready for an exciting summer.We continue to introduce new food concepts and dining options. Our popular Japanese restaurant Pen Yen has just opened at Ludlow House in New York while we'll open Berenjak, a celebrated Persian restaurant at 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 at White City and Chicago while recently opening a new wellness barn at Farmhouse. Our new weekend wellness retreats at Soho House globally have been a real hit with members. Our member satisfaction scores that we are constantly tracking show that our approach is working. This is particularly true in our 3 most established cities; London, New York and LA, where 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, Soho House London, Shoreditch House, Soho House New York and Soho 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 its exciting food culture and thriving arts and film community, we opened Soho House Portland last week in Central East Side. Located in an historical building that has been restored by the Soho House design team, it offers members a rooftop terrace, a pool, gym and an attractive club spaces. Soho House Sao Paulo will be our first house in South America and will open soon in one of the city's most ambitious urban redevelopments. The house is situated within the former hospital and features 32 bedrooms, a gym, a rooftop pool and bar, and club spaces for members. Soho House Manchester, our first house in the North of England, is set to open later this year across 5 floors with a gym and health club, bedrooms, rooftop pool and bar, event spaces and 2 floors of club space. And finally, we will open Soho Muse House in London's Mayfair area later this year.Turning to our second strategic priority, operational excellence. We have made significant improvements to make Soho House & Co a more profitable business whilst delivering a better experience for members. Initiatives over the past year include, operationally streamlining processes and systems like [indiscernible] to allow house teams to 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. Re-platforming the technology for online bedroom bookings and simplifying the member journey, launching personalized event recommendations on the app that are relevant to member interests and introducing a state of the art warehouse for Soho Home to optimize delivery times and service. Initiatives like this, are 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 continue 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. Full year 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.
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%. House level contribution margins did benefit from a $6 million out of period lease adjustments, but even excluding it, margins improved approximately 400 basis points. Note, this adjustment did not benefit adjusted EBITDA.Looking at the full year, house contribution margins were 27%. To help you with your understanding of the business, houses that were over 5 years old had an average contribution margin of 37% compared to houses in that first year had average margin of negative 13% and in their second year were roughly break-even. As our newer houses ramp, this signaled significant embedded growth in the future. Other Contribution was up 9% year-on-year in 4Q with the margins coming approximately 200 base points to 21%. For the fiscal year, Other Contribution was up 33%, with margins 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. In-house revenues were $4.5 million higher year-over-year, driven by a good October and strong trading at the end of December. This was offset by not opening Portland or 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. Other 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 published one adjusted EBITDA in our earnings release, earnings presentation or discussed on our earnings calls. This adjusted EBITDA includes the impact of pre-opening 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. At 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 and I want to call out a few items here. Total revenue came in at the low end of our expectations. We managed expenses well, but we weren't able to fully offset. We have also made 2 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 at BDO. Together, following a detailed review, we elected to make these changes that were then confirmed by the independent advisors that were obtained by our audit committee, as Andrew previously mentioned.We incurred approximately $3 million of additional expense in 2023 related 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 in 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 Soho Home as we have used items in our houses. Given the much larger size of Soho 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 5 times compared to 9 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 have strategically grown our Soho Home business, which is digital first, and focused 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 there is significant opportunity for Soho Home to grow further.On receivables, prepayments and accrued income, our company as a whole has grown total revenue significantly, approximately $600 million over 2 years. So receivables have grown as well. In addition, our business mix has shifted more into home, management contracts, 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 10-K 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 Soho House members at year-end '24 more than an 8% increase year-on-year. This will be driven principally by maturing houses, but also through new house openings which welcome new members into our global community. These include Portland, Sao Paulo, Manchester and London Mews House, 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've 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 avoiding these challenges from burdening our company and cash flow. As a result, we're planning to open 2 to 4 Soho Houses a year for the next couple of years before returning to a higher cadence when credit and development markets become more accommodating.Beyond Soho House, Scorpios will open its second site in Bodrum this summer, followed by Scorpios salon and Ned DC. We want to remain disciplined around our mostly asset-light approach. If you look at our CapEx as a percentage of revenue, it 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 billion to 1.25 billion, up 6% to 10% year-on-year. This reflects our expectation of strong membership revenue growth, a 2024 house pipeline and more conservative growth in 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 because of 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 gain. It's worth noting that, in 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 the credits. This represents approximately 2% of our total revenue and supports footfall into the houses from new members when they first join, which leads to stronger retention. We would expect a slightly smaller amount of revenues related to 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.
Now 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 Soho 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 9 that our Board has 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 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 through any transaction. Given that this work is ongoing and is led by independent members of the Board and their advisors, 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. As a reminder, you can either ask your question on the phone or submit them over the webcast.
Thank you. [Operator Instructions] We'll take our first question from Steven Zaccone at Citi.
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, should we think this is the new kind of growth rate for the business, like, is 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.
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. We've talked in the past about how we saw a medium term path to 15%. And then with this earnings call we highlighted that we saw a 20% plus margin goal. I think it'll take a couple of years to reach a 15%, but then I definitely believe that we should continue to see pretty consistent growth beyond that.
And then maybe to just focus on the discussion around opening less houses. Can you talk through the decision criteria of like where are the biggest opportunities for you to continue to scale? I know in the past you talked about going more to the Americas overall. Has that changed? Any color there would be appreciated.
So I think we've been talking about our new house openings 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 are signed all based off CWH successes globally, all on our attractive terms and asset-light model. I just think what we're saying today is, look, developers are having a really tough time. The market environment is super challenging for them, supply chain issues, labor availability, inflation materials, expensive financing. So what we see is the impact of having our houses delayed. So as you're right, we don't want to use our own capital to open houses. We don't want to have any unnecessarily pre-opening costs or miss our opening schedules for our members. So we're just choosing to slow down a little bit at the moment for the next 18 months to 2 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.
We'll go next to Shaun Kelley at Bank of America.
So maybe just to start-off, Andrew, Thomas, could you just give us a sense of the consumer spending side? I think there was some color provided about the trend you saw across the fourth quarter. Sounded 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 know 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 the consumer.
I always enjoy your macro questions. So I'll give you some color. So what we saw, if I take Q4, so what we saw was members visitation was up in the quarter pretty much across all houses, across all regions, but there was a slightly low F&B spend per 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 because I think that's important. So our like-for-like in-house growth has softened a bit, which is what -- and I know you've been on lots of calls with other folks, but it's what you're hearing from everybody right now, especially in the higher end dining companies and also you can see that from Opal's table stats. January was impacted by a calendar shift. What we also saw in January was a much bigger spike in non-alcoholic beverage consumption, much more than we've ever seen before. But positively results have got sequentially better each month. So meaning Feb was better than January and the first two weeks are better in March. So we are seeing better growth. And we're in a better position, as you know, than any other hospitality industry because we're a membership club and we have recurring membership revenues. So we might be slightly down F&B, but we're still growing our membership revenues each month.
My second question, so I won't go macro for two in a row, would be, Thomas, could you give us a little color on some of the cash flow bridge components here? Obviously, it's 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 anticipated G&A growth overall if we could get a sense across the business and then cash interest expense, maybe cash rent. And then if you could help us think about the networking capital investment you need in the business, again, as maybe things start to normalize around Soho Home, you called that out pretty clearly. Those would some helpful components.
Yeah. 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. We increased the size of our Miami mortgage a little bit last year and then obviously we have the PIK interest on the loan -- sorry, that's non-cash. So we increased the Miami mortgage. On cash rent, some of our leases are tied to CPI and so as you've seen significant increases in inflation over recent times, that you should see slightly higher cash rent expense on a like-for-like basis. If you typically think kind of 2% to 3% inflation on same store, on leases, I would say this year it's close to the 5%. And then you obviously have the addition of the new house leases.On working capital, a lot of working capital has to do with timing. I mean if you look at the fourth quarter, for example, quarter-over-quarter. We talked a lot about how we're really focused on working capital. We've been managing our inventory balances a lot more when it comes to Soho Home and so I'm not going to guide to a specific working capital basis, but we don't think it'll be as big of a drag in '24 as it was in '23 and it has potential to actually be a tailwind. If you go back the past few years and you look at our average working capital, there are definitely years when it's been up. So benefit, last year it was a drag and then this year it's at a breakeven. So a lot of it's just timing related.
We'll move next to George Kelly at Roth MKM.
So first on Scorpios, I'm curious you're opening those 2 locations. I think the Bodrum is mid year and Tulum, I want to say is later this year. I'm curious, how do you factor those into guidance? The legacy location is so successful. I'm just curious how you're thinking about these next 2? And then same topic on Scorpios. What is the kind of medium or longer term opportunity for that brand? Do you think beyond these two locations that are soon to open, is there a big pipeline of future locations as well?
So we are very happy with Scorpios. In 2023, it had a record year again in Mykonos, which is super exciting. We've always said we wanted to grow Scorpios, so this is our first year, we will add new Scorpios. The Scorpios in Bodrum is incredible. It has its own villas, a new wellness concept along with all the things that are great at Mykonos. And in Tulum it's similar and first time it has got bedrooms. So we've done a bedroom offer as well in Scorpios. So we're really happy with 2 this year. Our founders, Mario and Thomas are fantastic at doing this. We want to really focus on getting these 2 right this year and we then have further growth planned for Scorpios in sequential years. Given it's such a great business, it's such a profitable business and our Soho House members also love Scorpios a lot.
And then second question from 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 you could 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 where we're going to start to see margins inflect higher and that'll help contribute to overall profitability?
Yeah George, I'll take that one. So we're incredibly proud of our Soho Home business. As Thomas mentioned in his prepared remarks, it's grown three-fold. It's very much aimed at taking the house home and interiors by Soho 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 basis, we've only scratched the surface, so we're nowhere near. If you think of 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 greater furniture. We've recently last week just launched outdoor furniture. We'll be going into the window furnishing business, expanded lighting, et cetera, because of the appetite for our products is so high. So that's why we think there's a lot more opportunity. It's digital first, so it's a higher profit model than having lots of big stores. So that's why we feel there's more margin. And as Thomas mentioned in 2023, the margins in Soho House grew substantially. So we feel good about Soho Home.
Our next question comes from Zach Riddle at William Blair.
Just a couple of questions here on the refurbishments and kind of the cadence of new home openings. So, I guess first, with the plan to open 2 to 4 homes a year for the next couple of years, is there an expectation that maybe you do more refurbishments of membership spaces or were the recent refurbishments, refreshing of the spaces that you're doing all of the time?And then I guess somewhat related to that is, the gym experiences and the wellness offerings and the wellness retreats. I mean, is there a big opportunity there? How much of an opportunity is there to add kind of a wellness offering at all of the houses? And then I have 1 follow-up.
I will take these questions. So, from a refurb perspective, what I articulated for this year is pretty normal, how we do things. We're always refurbishing our existing houses. We're always looking to increase member space from the examples that I gave. So that's not going to change, going to 2 to 4. We'll always continue to do that.Regarding wellness, wellness is 1 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. We're opening houses with new gyms. We've created a complete immersive wellness experience in our Soho Farmhouse. We're expanding in our cities. Our members are looking for new technology in our gyms globally. So yeah, I would say out of everything we're doing right now in existing houses, wellness is a very, very big focus for us.
And I know somewhat on the same vein as far as having fewer new homes in the mix, how could we expect that to impact house level contribution margin. I know the more mature houses have significantly higher margins than the ones that are younger on the maturity curve.
So look, I mean, we don't guide specifically to house contribution levels, but as you can see from our overall guidance, we expect margins to increase. That will be partially driven by house contribution margin. We are still in an inflationary environment. I think if you listen to other earnings calls, companies talked about continuing to see wage and food and beverage inflation. The positive thing about us is that we have the membership revenue growth, and you can see from our guidance, we're expecting continued really strong growth there and so that should generate good operating leverage.
And that does conclude the question-and-answer session, and today's conference call. Thank you for your participation. You may now disconnect.