Q3 2021 Mister Car Wash Inc Earnings Call
Good afternoon, and welcome to Mister car Wash its conference call to discuss financial results for the third quarter fiscal 2021.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
Please note that 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.
I would now like to turn the conference call over to Megan ever Senior Director of Communications. Please go ahead ma'am.
Thank you good afternoon, everyone and thank you for joining us today for Mister car wash as third quarter of fiscal 2021 earnings call.
From management today on the call are John Ely, Chairperson, and Chief Executive Officer, and Doug God, Chief Finance Officer.
After John and Dan have made their formal remarks, we will open the call to questions.
Let me begin I do need to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and except as may be required by law. The company does not have any.
And then to update or revise such statements as circumstances change. Please review the cautionary statements and risk factors contained in the company's second quarter 10-Q, and such factors may be updated from time to time and in its other filings with the SEC.
During the call today, we will also refer certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release issued earlier today, and which is posted to the Investor Relations section of Mister car wash as web site at IR Dot Mister car wash dot com.
With that I'll turn the call over to John.
Thanks, Megan good afternoon, and thank you for joining us for our third quarter earnings call I'd like to begin by briefly recapping, our third quarter results and then discuss our strategic growth initiatives that will help drive long term shareholder value.
<unk>, our CFO will then discuss our financial results and we'll conclude with a Q&A session.
From both an operational and financial perspective, we're very pleased with the underlying trends of our business.
As many of you know Mister car wash is the largest operator car washes in the U S and we believe there's significant opportunity to continue building, our brand and growing our market share.
As a result, we've been focused on expanding our footprint and investing in our people to continue scaling our company.
In the third quarter revenue increased 24, 7%.
Third quarter of last year $294 million that was driven by strong comp store sales and unit growth.
Adjusted EBITDA increased more than 44% from the third quarter last year to $62 5 million and reflects both increased operating efficiencies as well as investments, we're making to drive long term sustainable growth, which I'll discuss more in a moment.
We opened nine new locations in the quarter, bringing our total store count to 360 as of September 30th we added over 30000, new members to our unlimited watch club and ended the quarter with over $1 5 million unique members.
All of this helped us deliver another strong quarter of top and bottom line results.
Continuing our track record of delivering consistent growth.
This consistency in the business is a testament to the operational excellence that our teams deliver day in and day out something that we're very proud of and I'd like to thank all of our team members, who create a magical experience for our customers.
Putting all the numbers aside is the people that have made Mr. The number one national brand in America and together, we're building a culture and brand that is truly unique in the marketplace.
In August our senior management team had our first in person strategic off site since the pandemic began.
And this meetings are time to think big go along and not be encumbered by the day to day.
Often the best conversations you had around the campfire and this meeting was no different we started off by looking inward around our brand promise and reconfirming, our commitment to continuously increasing our level of professionalism convenience and efficiency.
In addition to fine tuning our growth strategy, we collectively came away with a determined sense of purpose going forward.
At the operations level, which is one of our strongest muscles. After over 18 months of social distancing, we bought our entire regional management team together for our first in person National Ops me or.
Over 100 of our fully vaccinated feeling just got together to discuss how to accelerate our growth while simultaneously elevating our already Super high standards.
Stories were shared across the company.
Families, whose lives were forever changed as a result of us going public.
It was a very uplifting feeling to be able to finally raise our glasses and recognized not only what we just did.
To get geared up for what's ahead.
I'm thrilled to say that coming out of the meeting our culture and discrete or core as a mission driven organization has never been stronger.
We have a long history of developing our people and creating career opportunities for those with the drive and ambition to take on more responsibility.
We're proud that over 90% of our operations team started off as hourly employees and they're now the ones who are developing a next generation leaders to fulfill our vision.
We recently introduced an accredited certified trainer program that Turbocharges, our digital learning platform called Mr alone.
We now have 112 certified fuel traders alongside our 75 regional managers and 25 regional training specialist who will provide a true mentorship programs to help us accelerate our leadership pipeline and prepare for even more unit growth.
Probably the biggest headline for our team coming out of the IPO was our new long term incentive plan, which gives a piece of the pie to over 800 team members, including all of our general managers by awarding them meaningful restricted stock units.
For the first time in our company's history every single one of our 350 store managers are now owners in the company.
They have been and always will be the most important position in our company and we're thrilled to be able to finally reward them in a way that sets them up for a lifelong career with Mister car wash and true financial independence.
And we didn't just stop with or Gms. We also want to recognize some of our amazing frontline team members who've been with us for more than 15 years. Some even 20 years, who in a lot of ways are the heart and soul of our company.
We awarded over 200 <unk> grants.
And the tears of Joy the spread throughout the ranks was a tangible and meaningful symbol of our love and appreciation for their hard work and commitment.
Now, let me shift to our strategic growth initiatives.
First is driving comp store growth through increasing our unlimited <unk> club member base.
We operate the world's largest car wash membership program and the predictable recurring subscription based revenue is transformed every aspect of our business.
We believe we can continue to grow our member base by introducing the benefits of Pwc to more of our estimated seven to 9 million retail customers that are coming in for a single wash.
Getting retail customers to adopt our services part of the rate of the purchasing pattern is the Holy Grail for any consumer services business. So consequently, we're working on new ways to engage convert and retain our members through a much more sophisticated digital ecosystem.
Digitally. Additionally, as we increase store density, we're enabling our members to access a larger network of stores, which increases the customer value proposition, which is embolden us to increase our density in every market that we're in.
Which leads me to our second gross growth initiative unit growth.
We continue to see significant white space for future growth in our existing markets. The majority of our Greenfield developments have materially outperformed plan and we're on pace to have the single biggest de novo year ever with.
We've opened 11, new stores. So far this year and are on target to open 16 to 18, new Greenfield locations for the year.
Given the success of our Greenfield program, we're aggressively building out our new store development and construction teams have quadrupled our infrastructure in the last 12 months, which will allow us to increase the number of new stores, we can develop.
Working alongside some of our installed partners. We've also elected to build out our own vertically integrated install teams to increase our project capacity as we continue to ramp our Greenfield program with the opportunity for us to double or triple our footprint in existing markets.
As we look ahead, we believe we have an opportunity to accelerate unit level growth through strategic M&A acquisition opportunities and Greenfield development in existing markets.
That leads me to our third growth initiative, the training and development of our people as I've shared before our people are our biggest competitive advantage and human capital is one of the most important factors to growing Mr.
Our commitment to being the best in class employer began years ago and over time, we've developed what we believe is the most comprehensive and competitive pay and benefits package in the industry.
We've also been focused on raising the bar and bringing in the best talent across the company.
With current unemployment levels at a 19 month low today's labor market is extremely competitive.
Well, our express Carwash model, which represents the majority of our portfolio is relatively low labor, we're working harder than ever to retain and attract the best talent.
To get ahead of the curve in August we began increasing our starting hourly wages will also increase wages for existing top performers to make sure that we don't lose them.
In the face of higher wages. We've also been focused on improving productivity and I'm happy to report that the number of cars that we process on a per employee basis is up 51% with cost per car down 21% and total number of labor hours used per location down 29% compared to Q3 of 2019.
I'd like to take this opportunity to thank every single one of our site managers have done a terrific job of improving productivity elevating the customer experience and most importantly caring for their teams.
Finally, I am happy to welcome two new directors to our board Veronica Rogers Senior Vice President head of global sales and business operations at Sony and Ron Kirk former Mayor Mayor of Dallas and member of the Obama cabinet.
The diversity of our board demonstrates our commitment to creating a company and culture that is inclusive and brings to the table with voices that have depth and breadth of experience that will ultimately make us a stronger and better organization.
In summary, it was a strong third quarter I'm proud of the operational and financial performance our teams delivered.
We're very optimistic about how we're going to finish 2021 and are even more optimistic about 2022.
I'd like to now turn it over to Jed Jed.
Thank you John and good afternoon, everyone.
We're pleased with our third quarter results and the underlying trends in our business. Our teams are executing well against our strategic growth initiatives and we continue investing in our future.
Before we get into the numbers, let me make some high level commentary on what we're seeing in the business.
First the fundamentals of our business are strong as evidenced by our top and bottom line results.
Second we're seeing strong member retention levels, and our unlimited wash club and the big gains we experienced in the first half of the year are holding nicely thus far in the back half of the year.
Third like many other companies we are seeing some continued inflationary input pressures primarily in store level labor and chemicals.
We're offsetting these with selective pricing increases in the retail wash side of the business.
Pork and maybe most importantly.
We continue to invest heavily in our people.
As John mentioned, we have a significant opportunity to accelerate our growth and capture market share both through acquisitions and greenfield openings and we have stepped up our management training and investments in people to better position us to take advantage of the opportunities in the marketplace.
Now, let me review our third quarter results My comments will focus on our adjusted non-GAAP results.
Please refer to today's press release, if you would like more details on our financial performance and our methodology in calculating non-GAAP financial metrics.
In the third quarter revenue increased 24, 7% compared to the third quarter of last year to $194 $3 million.
Driven by comparable comparable store sales growth of 21% and unit growth of six 5% on.
On a two year basis, our comparable store sales grew 14.5% versus 2019 during the quarter.
It is important to note that the third quarter last year included $6 $8 million of revenue from the quick lube oil change business that was subsequently divested in December of last year.
Excluding this from the comparison revenue increased more than 30%.
Our subscription.
No body Wash club program remains it remains a key driver of growth in Q3, you WC memberships increased 31.5%.
To 1.564 million from 1.18 million as of September 32020, and accounted for 66% of total washes and.
In Q3, compared with 62% of total washes in the prior year period.
With respect to unit growth, we added two stores through acquisitions and seven newbuild locations for a total of nine locations added in Q3 this year.
As a result, we ended the quarter with a total of 360 locations versus 338 as of the end of last year's third quarter.
We continue to see strong performance and returns out of both our acquired and Greenfield locations and we believe there is an opportunity to potentially accelerate our unit growth over the next 12 to 18 months as we continue scaling our operations and look to solidify our market share in certain key markets.
Now to provide perspective on the balance of the P&L.
This year's third quarter cost of labor and chemicals increased 26, 3% to $63 4 million.
Compared to $52 million last year, the increase in the cost of labor and chemicals was primarily driven by the recognition of stock based compensation for store level employees.
I have $2 8 million increase.
Increased labor and benefits of $8 $3 million in connection with the increase in wash volume as well as increases in crew wage rates and investments in developing bench to support continued growth. These increases were partially offset by decreases in labor and chemical costs as a result of improvement.
And labor productivity levels and the sale of our quick lube facilities in December of 2020.
Excluding the stock compensation expense and when looking at the cost of store level labor and chemicals as a percentage of revenue.
Cost of the store level labor and chemicals was 31, 2% of total revenue compared to 32, 3% of total revenue in last year's third quarter. However.
However, during the middle of the quarter, we made the decision to step up our investments in labor to better position us for future growth more specifically, we expanded our management training program adjusted wages in certain areas and stepped up our hiring efforts to strengthen our competitive positioning and labor bench.
And you've heard us say before our people are both the key to our success and the biggest limiting factor to drive even more growth.
The investments we are making today should position physician as well as we look at new incremental growth opportunities into next year.
Other store operating expenses were $68 4 million in this year's third quarter or 35, 2% of revenue compared with $56 1 million or 36% of revenue last year.
The increase was primarily driven by the increases in wash volume with comparable store sales growth and year over year addition of 22 locations, partially offset by a decrease in other store operating expenses from the sale of our quick lube facilities.
General and administrative expenses in this year's third quarter were $22 2 million or 11, 4% of revenue compared with $10 5 million or six 7% of revenue last year. The increase was driven by a $4 $6 million increase in salaries and benefits.
Three and a half million dollars increase in stock based compensation expenses.
Incremental public company costs as well as comparisons against the temporary staffing and pay reductions related to our COVID-19 expense cuts in the third quarter of last year.
Yeah.
Interest expense decreased to $5 7 million from $15 $9 million of last year due to the reduced debt levels. After using the majority of the proceeds from the IPO to pay down debt.
Our effective tax rate for this year's third quarter was 19% compared with 27, 3% last year. The decrease was primarily driven by discrete tax benefits are originating from stock options exercised during the quarter.
Adjusted net income increased more than threefold to.
To $34 8 million in the third quarter. This year from $11 $4 million of last year and adjusted net income per diluted share was <unk> 11 in the third quarter of 2021 compared with <unk> in the prior year period.
Adjusted EBITDA, which adds back stock based compensation and certain nonrecurring or nonoperating expenses.
Increased 43, 9% to $62 5 million in the third quarter this year versus $43 4 million in the third quarter of last year.
Now moving onto the balance sheet.
Cash and cash equivalents as of September 32021 was $162 2 million compared with $58 3 million as of September 32020, and $114 6 million.
As of December 31, 2020.
Our total debt as of September 30th 2021 was $610 1 million.
Gross capital expenditures totaled $89 million in the first nine months of fiscal 2021, compared with $43 million in the prior year period.
Net of sale leaseback proceeds capex through the first nine months was $66 million.
Versus $33 million of last year, an increase of $33 million largely largely due to many capex projects put on hold during the heart of the pandemic.
Maintenance Capex was $14 million in the first nine months of fiscal 2021, compared with $4 million in the first nine months of fiscal 2020.
Let me now turn to our outlook for the full year 2021.
We are raising our previously provided 2021 revenue and adjusted EBITDA outlook to the following.
Revenue of between $751 million to $756 million or.
Our growth up 36% to 31, 5%.
Comparable store sales growth of 31% to 33%.
Our GAAP net loss of $45 million to $40 million.
Adjusted net income of $125 million to $130 million.
Adjusted EBITDA of 251% to $253 million.
Adjusted net income per diluted share of 40 to 44.
We still expect to open 16 to 18, new Greenfield locations in capital expenditures net of sale leasebacks, we expect to be about $76 million for the year.
My high level commentary around guidance is that our fundamental outlook for the business has not changed.
We're flowing through the upside in the third quarter and leaving our outlook for the fourth quarter adjusted EBITDA relatively unchanged.
We're driving strong revenue growth, we're offsetting higher labor and chemical costs with higher retail wash pricing and we are continuing to invest in people to better position us for future growth.
In conclusion, it was a strong Q3 from both a financial and operational perspective, and I would like to reiterate our recognition and appreciation for our outstanding teams is.
Especially our frontline team members that drive our performance day in and day out with focused priorities across the organization and continued disciplined execution by our teams. We believe that Mr is well positioned to capitalize on the significant significant opportunities for growth.
That lie ahead.
And with that I'll turn it over to Chad to begin the Q&A session Chad.
Thank you Sir we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Elizabeth Suzuki from Bank of America. Please go ahead.
Great. Thank you just one question on the quick lube business that you divested one of your competitors is co branding their car wash with quick lube and so I'm wondering why that wasn't successful for you or why you would choose to.
And out of the quick lube business.
Yes. So this is John.
We subscribe to the theory of doing fewer things well and focusing on our core competencies.
So at the risk of sounding somewhat myopic, we've got our hands full in delivering a clean dry shiny car consistently across our entire <unk>.
Beautiful portfolio of 360 stores. So we like that we're a pure play Carwash company and we're very very focused on that.
Back in the day, there was a whole bunch of ancillary profit centers that people would attach their car washes.
Convenience store gas lube shops et cetera.
In the early days, we manage many of those businesses that we have been strategically shutting them.
Jed mentioned and today.
Lake up.
Thinking.
Living and breathing Carwash and we're happy that we're doing that.
Great and then just one other question on on growth.
<unk> done a combination of M&A and.
And also greenfield expansion, historically, and you're still planning to do that going forward I would assume that I mean, what are the merits of that.
And presumably if you do an acquisition Youre also taking out a competitor at the same time, but then theres more work to convert all the signage and changeover they experience to your brand, but with Greenfields you could potentially run up on the issue of having not enough space to advantage or running out of locations. Just how are you thinking about that.
Both avenues of growth.
Yeah. So.
The latter part of your question first and that is we see an unbelievable amount of white space and runway for new unit growth in our industry and we believe that the industry can almost double in size before it hits any point of maturation.
And Thats embolden us to again double down triple down on our Greenfield initiatives.
The pros and cons between M&A and Greenfield I think the widely understood you are paying up for M&A acquisition opportunity to.
To scale your business quicker, but sometimes the economics aren't as attractive depending upon how much you are having to pay for that business versus a greenfield so in our world.
We're looking at both as we enter into new markets typically it's done through a strategic M&A platform acquisition.
And then we will build out that market with bolt on acquisitions. So.
Onesie Twosies as well as now building out with Greenfield.
So we like having a kind of a dual path to growth.
In more recent years, we're really really excited about greenfield, but we remain highly acquisitive and hungry as we continue to look for new opportunities.
Great. Thank you.
And the next question will come from Michael Lasser from UBS. Please go ahead.
Good evening, Thanks, a lot for taking my question.
In the script, you talked several times about accelerating growth.
Specifically are you referring to.
The global supply chain challenge impacted the timing of any of your of the opening of any of your new Greenfield locations wouldn't be surprising if it's just more difficult to get supplies to build some of these new car washes from the ground.
Yes, great Michael I'll take the growth question and Jed you can maybe handle the supply supply side.
So we were speaking specifically to unit growth.
And the opportunity that we have in front of us as I previously mentioned to continue to scale our company and take what is a 360 store chain strong business.
And continue on this trajectory so that's our path.
That's our ambition and that's our vision and we are.
On that track and the only thing that's holding us back is.
Our ability to build out the teams to support that growth and so.
And the scenes, we're feverishly working too.
Not just double the triple our construction and development teams are real estate sourcing teams.
While we're also simultaneously building out our leadership development pipeline to be able to run the stores. So you can build them, but you've got to run them and we are on that parallel path to building out the teams on both fronts.
So we can achieve our vision.
Yes, Michael and we'll provide our outlook for 2022 on our Q4 call but.
We do see a little bit of upside to the 23 number that we had provided earlier.
As you look at the supply chain there.
It's hard to find a company in today's environment that is completely insulated from the supply chain.
Pressures that are being expensed.
We have factored that in to the 16 to 18 between now and the end of the year and it's being factored in as we think about 2022 and ahead.
Okay.
If I could get a follow up question.
You mentioned.
Retail prices have gone up.
How much have you how much pricing you've taken and there'd been an elastic response on.
On the retail retail side I know you haven't changed the price.
The EWC program, but what's the history of raising prices on retail and then as part of that you had maybe you can offer some perspective.
Cost of labor and chemical margin.
It's up about 44 basis point, you did a similar number.
Sales dollars this quarter versus last quarter, but the margin was much higher is that all because of increases in labor costs and increases in.
Chemical costs. Thank you.
So Michael a couple of things there so.
<unk>.
Price increase that we took it was just on the retail side of the business.
Which makes up about 35% of our of our total sales.
And it was phased in.
In early November so just recently.
Roughly 80% of the stores received some type of a retail pricing increase.
With retail obviously being the smaller part of the business it impacted about 25% of our business.
As we think about the.
Labor side and the cost of labor.
The driver there this year's margin versus last year, there's a little bit of noise. When you start looking at it that way because of prior year. Some some COVID-19 noise in there, but as said in the prepared remarks, the investments that we're making on the labor front, which can really be categorized into two buckets. The inflationary pressures that we're experiencing.
And the investments, we're making to offset those but then also the investments that we're making to build out that team to continue to drive even more future unit growth Hey, Jed can I just add to that I think historically taken a very key.
Conservative approach to leveraging our pricing power and where we sit today vis vis our competitors. We still think that we have additional room should we elect to use it next year.
And that we can pass it through relatively easily.
With all the knock on wood so.
We're keeping some gas in our tank, we don't want to.
Again any moves that we make are very measured and very conservative.
And to your comment we have not touched on unlimited watch club pricing because we still are very much in member growth mode.
Understood. Thank you so much and good luck.
Thank you.
And the next question will come from Greg <unk> from Wolfe Research. Please go ahead.
Hey, this is David Bellinger on for Greg Thanks for taking the questions.
So I'll start on the WC member growth slowed sequentially from an average of about 150000, new members in each of the first two quarters of the year to about 30000. This quarter. So is there anything you can highlight on that net change maybe having to do with seasonality of the business or even labor at the store level and if you think there was some type of.
Pull forward into the earlier part of the year.
Yes, David So listen when you look at the year to date growth on an unlimited wash club, we're very pleased with the growth that we've seen we've added.
330000 members year to date, we've grown it by just over 30% versus Q3 of last year.
There is just a little bit of seasonality when you look at member sign ups first half versus second half.
Historically when you look at this from 2015 through 2019 about 75, roughly 75% of those sign ups occur during the first half of the year.
This year with the macro trends that we highlighted on our earlier call. We did see a little bit of a spike in Q2 relative to previous quarters.
That's been really really difficult to say, whether we pulled members.
Forward or whether we.
Chuck members for previous year and pushed them into this year, but as an overall, we're happy we're sitting at over one and a half million members in the wash club and we're holding on and retaining those members fine, yes, Jed and I would just add to that the first half of this year was.
Unusual in a lot of ways in a beautiful way and that we grew our member base so significantly but when you look at Q3, we are actually in line with historical trends from a growth standpoint, and we've always taken approach of having this kind of steady as she goes we call. It a slow burn approach.
Not deploy any promotional gimmicks or tactics to train their folks into the program, we educate and inform.
We allow our customers to in a very relaxed way sign up for the program.
And we're going to continue on that path.
That's helpful and just as a follow up.
<unk> sales from EWC members that stepped up about four percentage points sequentially to 66% of sales.
Help us understand that improvement.
Just to clarify is pricing it impactful at all there and also should we should we expect the price gap between retail customer in EWC to remain relatively consistent from here.
Yes, so the <unk>.
<unk> increases that we took.
David were.
Just recently taken in the earlier parts of November So as you look at the 66% mix right. The EWC sales mix. There is also the retail side of that as well so.
It was a step up as you had highlighted of compared to last quarter of 62%. That's just a function of the movement of.
Growing EWC, a little bit, but then also the retail trailing just a little bit as you recall on our Q2.
Q2 call, we had that that retail sales were a little bit more pronounced in helping drive the beat that we saw in Q2, yes, and just to clarify the gap is going to increase is going to shrink between retail on EWC and so as we shrink that gap.
<unk> theory.
<unk> should have a positive impact on.
Value that our members will see.
And we hope that that helps us drive more member growth.
Got it thanks, so much.
And the next question will come from Simeon Siegel from BMO capital markets. Please go ahead.
Thanks, Hey, guys hope, you're all doing well John sorry, I think I would ask drove some quick ones over to Jed if that's alright.
Can you talk about your gross margin trajectory I guess next quarter into next year, just considering the inflationary point you referenced so just anything there anything changed in your underlying incremental margin as you think about that flow through and then just quickly on the full year Guide change I think you said you raised revenue, where it was $4 million to $9 million that brought the high end of net <unk>.
Come down about $5 million or just any help there is there is there something below the line that we need to keep in mind and then just sorry, if I missed it did you comment on what looked like the lower Capex guide for the year. So is that lower gross capex higher leasebacks, both something else. Thanks.
Hey, Jay before you before you answer Simeon I'm waiting for that and maybe this is not in the financial analysts playbook, but are waiting for the data that you're asking me a question about culture that can feel that the hardball questions about specific metrics and handled.
That's my follow up so you just preempted.
[laughter] okay.
So assuming as we think about gross margin, particularly that quarter over quarter cadence right. There is some timing where we've made the investments on the labor front in early August pricing goes into effect in early November so.
Youll see things move around just a little bit less.
And at the end of the day, we Q2 was an anomaly with the 37% margins. We see this coming down with the investments that we're making more in line with what we expect we're very happy with margins in that 30% level.
At the end of the day, we're looking at this at a full year basis over a longer term not just quarter to quarter.
And then on the Capex side of your question.
<unk>.
It is it is slightly lower don't don't read into that it's really just a timing thing.
And some of the sale leasebacks and versus when the actual capex spend is occurring keep in mind on the Capex front. It's about an 18 month lead time on the development cycle. So were the spend that you are seeing is really going into 2022 2023 newbuild at this point.
We will see our physical plants are in the best shape they've ever been in and they are set up for peak performance and so the way we've embraced technology across every aspects of our business and as a result, we can process 150 to 180 cars very easily in some cases 200 cars per hour depending upon the store.
Perfect. Thank you and then just a quick follow up John I was just wondering are you pro or against having a positive culture.
[laughter].
Total luck for the rest of the year to.
Culture eats strategy for lunch.
Right.
Okay.
Thank you. Thank you and the next question will be from Peter Keith from Piper Sandler. Please go ahead.
Hey, Thanks for taking my questions.
I wanted to maybe circle back on the pricing and Jonathan I'm just checking back in my notes I don't think you guys have raised prices for a long time.
If you have at any point in your tenure I guess I'm curious historically, what you have seen a recall seeing with demand trends and then to your point around the pricing gap with member.
Membership shrinking have you historically seen an uptick in membership penetration when you've raised retail prices.
Yeah, so back to our conservative approach every time, we go into a pricing discussion, which is as you can imagine are probably the most intensely internally debated conversations with respect to strategic moves.
Theres always a little bit of stress around it what kind of impact that's going to have on volume and every time. We've made the move over the last 20 years, we haven't seen any material impact to our volume and so it has been.
Relatively easy to pass it through.
But again, we're going to stay true to our core which has remained conservative.
And only take pricing when we think we need to.
So the most recent move in November, which again is lagging some of the moves we've made from a wage standpoint in August.
That puts them at an initial near term pressure on margins.
But really I think the question is in one of the things that we're still.
I think Americas trying to figure out is what is the future labor market looks like.
The one thing I would add there Peter is that.
We're always looking at retail pricing and there have been historic retail pricing actions to John's point right. It doesn't have an impact on volume.
With a subscription business right. This is where its unique from <unk> or other broader retail that actually helps serve as a hedge.
And drive Uw's historically has helped drive <unk> sign ups.
Yes, Okay makes sense.
And.
The other.
The question I wanted to ask was around the point you made I think it is.
Labor hours by.
By 29% I think going back two years, if I got that right. So just operationally can you talk about how youre doing that.
And are you in the early stages of this effort or Conversely are you kind of about to annualize some of these initiatives.
No I think it's important to note that our approach to staffing as we staff up we don't staff down and this whole notion of right staffing and what we're doing is delivering a beautiful customer experience, where we have <unk>.
Literally an attendant that is helping in a self serve kiosk mode get folks through the line even quicker so.
Some folks will run lean and mean, we're happy with our approach.
That said inside of our portfolio.
Some of our top quartile stores were probably running heavier than they needed to so we rightsize that kind of midway through the pandemic and where.
Enjoying that I think the other thing thats from a macro standpoint, that's affecting the optimization of our labor is the fact that we have been converting some of our stores that were interior claims slash full serve locations to express exterior models, which.
As you know is a fundamentally different lower labor model than a traditional full serve.
Yeah makes sense, okay. Thanks, so much and good luck.
Yeah.
Again, if you have a question. Please press Star then one.
The next question will come from Simeon Gutman from Morgan Stanley. Please go ahead.
Hey, guys. First question is short term on the fourth quarter can you help us what's implied in terms of the comp.
I know theres, some puts and takes in from the prior year and I wanted to make sure.
We are interpreting it right it looks on the surface.
And then quiet acceleration, but China.
Did that clarify.
Yes, I mean, so when you look at the just the cadence going into Q4 right.
Okay.
July we're plus 31% August plus 21 September plus 23.
So we're seeing good momentum going into the quarter.
Keep in mind.
From a comp perspective, it does get progressively more difficult towards the backend of this year because of the reopening of our interior clean locations last year, so when youre looking purely at that.
Comparable store sales percentage.
They did lap just becomes a little bit more difficult as those everything came back online fully back online.
Okay.
And then the second question I think this was touched on but.
Two parts to it.
Is there any competitive response in the markets in which you compete in terms of the cost of either competitive launch Express watch or memberships and then the changes that you've made to the full service or the way you might use.
The jet.
Are we at.
In a good place now and.
Not going to see price increases going forward or if the situation evolves you may have to make a move meaning how sacred is the price points right now and the membership clubs.
Okay. So that was a three part question I'll break it into three pieces, so from a pricing standpoint, and vis vis our competitors.
Yeah.
We've seen many of our competitors take price ahead of where we have made our recent moves but.
But on average if you look at our base Express retail price point across our 360 stores will roughly $8. While many of our competitors are at 10, so they've taken pricing earlier than we did but our big moves just got us to eight.
So again, we think we've got more gas in the tank.
You did touch on something that is very sensitive to us, which is our unlimited wash club price pricing strategy, which we are electing not to touch.
Again, as we've mentioned repeatedly we're in member growth mode, and we want to continue down that path as we build our member base and get more folks.
I forgot the third question.
Okay.
And somebody you know I think you touched on it meaning the changes that you've made that gets you to a good place.
Trying to understand if you know if this inflationary environment persist.
Is there a breaking point, but I don't know so I don't know how you think about that yes.
And on the interior clean I just remember there was a third part so what is the future of the today I think is roughly 75 intuitive clean stores, we probably have another dozen or so opportunities that we're looking at right now to optimize and perhaps convert to express exterior.
But when we boiled it down to the 50 that will remain.
They are high performance engines that generate a whole bunch of revenue and EBITDA and we're very happy with the performance of those stores and as we've shared in the past it actually creates this huge pipeline of talent because some of our best operations guys have come up through the interior clean full serve ranks and we're able to take those guys and put them into new market.
So new stores and they absolutely crush it so we love the interiors clean side of our business, but our growth strategy from a unit growth standpoint going forward is almost 100% pure express.
Hey, Simeon just just one other point I want to add on there is so.
As John had mentioned, we're always going to be looking at opportunities to take price. We believe that we still have some opportunities. If we were pressed and we had to as we think about the near term and going forward and the impact of the pricing actions that we just took here recently in November right. So.
It's going to impact that.
A portion of the business about 25% of our business and on a go forward basis, we anticipate this having.
Barely minimal impact to comp in the low single digits.
So you mean, the operator do you have any further questions.
No sorry.
Thank you very much.
Thanks Damian.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to John Lai for any closing remarks.
So we've had a great year, so far with strength in all around performance and as we look ahead, our focus will remain on continuously elevating the customer experience as we grow our network of stores and customers all while maintaining the operational excellence and people first culture that has come to define us.
Thank you for joining us on the call today.
We look forward to having a solid Q4 and finishing the year strong thanks everybody.
And thank you Sir.
Vince has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yes.
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