Q1 2023 Mister Car Wash Inc Earnings Call
Speaker 1: The that.
Speaker 1: And.
Speaker 2: Good afternoon and welcome to Mr. Carwash's conference call to discuss financial results for the first quarter ended March 31, 2023.
Speaker 2: 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 this call is being recorded, and a 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, our Mr. John Lye.
Speaker 2: chairperson and chief executive officer, and Mr. Jed Gold, chief financial officer. After John and Jed have made their formal remarks, we will open the call to questions.
Speaker 2: During this 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 ir.mrcorwash.com.
Speaker 2: As a reminder, comments made on today's call may include forward-looking statements which are subject to significant risk and uncertainties that could cause the company's actual results to differ materially from management's current expectations.
Speaker 2: Please be advised that the statements made today are current only as of this call and are 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.
Speaker 2: Please review the forward-looking statements, disclaimer contained in the company's latest annual 10-K and 10-Q reports, as such factors may be updated from time to time in other filings with the Securities and Exchange Commission. I would now like to turn the call over to Mr. John Lye. Please go ahead, sir. How is
Speaker 3: Good afternoon, everyone, and thank you for joining our 2023 Q1 earnings call.
Speaker 3: The headline for the period is our Unlimited Wash Club program eclipses the 2 million member mark.
Speaker 3: This is a huge milestone for our company and I'd like to give a special thanks to the hardworking Mr. Team that made this possible.
Speaker 3: We feel fortunate that nearly 70% of our revenues are subscription-based, providing a recurring and predictable revenue stream and consistency to our free cash flow.
Speaker 3: And while the first quarter retail sales were a little softer than what we would have liked, primarily due to weather, the subscription side of our business continued to perform well with strong member retention and new member capture rates.
Speaker 3: From a labor standpoint, our stores are fully staffed and in good shape. Wages on a year-over-year basis are up modestly, but that's offset by our reset labor model that's resulted in improved productivity across almost every store. And on the G&A front, given the opportunity to scale our company, we're playing the long game by making smart investments.
Speaker 3: primarily in people, while responsibly managing through near-term margin expectations.
Speaker 3: for the quarter.
Speaker 3: Sales grew 3% to $225 million.
Speaker 3: Adjust CEDIBA, cuming at $71 million, a 5% year-over-year decline.
Speaker 3: Comparable store sales were down 1.6% and we opened four new Greenfield stores.
Speaker 3: Outside of the financial numbers, we remain laser focused on our strategic pillars that will drive growth in the near and long term.
Speaker 3: As a reminder, our strategic pillars are, number one, expanding our footprint by accelerating our greenfield development and pursuing strategic M&A.
Speaker 3: Number two, implementing our new premium position titanium 360 retail and UWC offering. Number three, improving our marketing and ad spend by focusing on acquiring new retail customers.
Speaker 3: Number four, growing and strengthening our UWC member base.
Speaker 3: Number five, improving the performance of our existing portfolio. And number six, investing in people and building our leadership bench.
Speaker 3: We're making progress in each of these key areas, but the one that I'd like to highlight is the launch of our new Titanium 360 product.
Speaker 3: Early stage results have been encouraging.
Speaker 3: We currently offer Titanium 360 in around 30 stores across three markets and are fine-tuning our marketing and launch strategies. We're also taking this opportunity to make material improvements to our rents and drying systems as part of this rollout. Given the significance of this introduction, we want to take our time and get it right.
Speaker 3: I'd like to remind everyone that one of the things that gives us a distinct competitive advantage is our Vertically Integrated Chemical program.
Speaker 3: Titanium 360, like our proprietary Hot Shine Carnauba Shield and Wheel Polish before it, is a truly differentiated extra service that helps us stand out from many of the off-the-shelf products that are out there.
Speaker 3: What's truly remarkable about this game-changing new offering is the level of shine and protection it provides.
Speaker 3: And what's most important is that this gives us the opportunity to introduce a new premium unlimited wash plan Which we feel confident will drive average revenue per member over time.
Speaker 3: Now we know that many of you are chomping at the bit to model this out. We're not going to provide any more details because we're still tweaking certain elements of our launch strategy and it would be irresponsible for us to throw out numbers until we have more data to project the uplift over time.
Speaker 3: We ask that everyone have some patience with us with more to come.
Speaker 3: Finally, we continue to build a world-class team and we're thrilled to publicly announce the appointment of Mary Porter as our new Chief People Officer.
Speaker 3: Mary brings over 30 years of experience from Nordstrom and her background is a perfect fit to lead our people related initiatives.
Speaker 3: I will now turn the call over to Jed to provide more commentary around our financial results for the quarter.
Speaker 4: Thank you, John , and good afternoon, everyone.
Speaker 4: We knew the first quarter was likely to be our most challenging comparison of the year. Last year's first quarter benefited from a strong macro backdrop, favorable weather conditions, and lower store labor costs.
Speaker 4: that the trends heading into this year's first quarter were obviously very different and we knew that growing the top and bottom line was going to be difficult.
Speaker 4: Embedded in the full year guidance that we previously provided was the assumption that first half comparable store sales could be flat to plus or minus a point or two.
Speaker 4: While the headwinds from weather did impact the first quarter more than expected, our results were still within the range of expectations.
Speaker 4: In the first quarter total net revenue increased 3% and comparable store sales decreased 1.6%.
Speaker 4: We don't often talk in much detail about the weather because it's simply not a significant swing factor in most quarters.
Speaker 4: But this was a quarter where it was simply too big to ignore. Many of our markets received excessive amounts of rain and rain hurts our business, particularly on the retail side. In total, we estimate the weather negatively impacted the first quarter comparable store sales by approximately 250 to 300 basis points. Our subscription business remains strong and steady in the quarter.
Speaker 4: course of the past three years we've added one million members and doubled the size of this program.
Speaker 4: This is a significant milestone for our company.
Speaker 4: Once again, we did not see a meaningful change from our historical churn rates, and we did not see club members trading down from the premium package to the base package in any meaningful way.
Speaker 4: On the development side, during the first quarter, we opened four new green field locations, and this was in line with our expectations.
Speaker 4: The performance of our green fields remains strong, ramping toward our mature Express exterior average unit volumes of approximately 2.1 million dollars and four wall EBITDA margins of 45 to 50 percent in under three years. On the expense side of the business we continue to experience cost headwinds and performance of our green fields.
Speaker 4: and inflationary pressures. Including stock-based compensation and as a percentage of revenue, labor and chemicals decreased 40 basis points to 28.7%. Other store operating expense increased 410 basis points to 39.6%.
Speaker 4: and GNA expense increased 10 basis points to 9.2%.
Speaker 4: The labor and chemicals line primarily benefited from better labor scheduling and optimizing regional labor infrastructure. Other store operating expenses increased primarily from higher rents, utility rates, and maintenance service costs. We have 40 more car wash leases compared to the same time last year due to the pandemic.
Speaker 4: to support growth in areas such as construction and development and some leverage against public company costs.
Speaker 4: growth in areas such as construction and development and some leverage against public company costs and other previous investments.
Speaker 4: During the first quarter, interest expense increased to $18 million from $8 million last year, due to higher interest rates and the expiration of our interest rate hedge last quarter.
Speaker 4: Our GAP reported effective tax rate for the first quarter was 24.1% compared to
Speaker 4: to 18.9% for the first quarter of 2022. The increase was primarily due to a smaller benefit related to the employee stock options exercised this year compared to last year.
Speaker 4: Adjusted net income and adjusted net income per deluded share, which add back stock based compensation in certain non-core operating expenses, or $27 million and eight cents respectively in the quarter.
Speaker 4: First quarter adjusted EBITDA with $71 million down 5.2% from the first quarter last year, but up sequentially 7.2%.
Speaker 4: Adjusted EBITDA margins were down on a year over your basis, but increased 50 basis points sequentially from Q4.
Speaker 4: 22 to 31.4%.
Speaker 4: Moving on to some balance sheet and cash flow highlights. At the end of the first quarter, cash and cash equivalents were approximately $69.9 million and outstanding long-term debt was $896 million.
Speaker 4: Importantly, our balance sheet remains strong and we continue to self-fund our growth and expansion. For the quarter, Netcash provided by operating activities with $67 million and gross capital expenditures were $72 million.
Speaker 4: We are still expecting net revenues of 925 to 960 million dollars. Comparable store sales growth of 0 to 3%.
Speaker 4: Adjusted net income of $100 to $115 million and adjusted EBITDA of $277 to $297 million.
Speaker 4: As a reminder, our guidance does not include any benefit from the new titanium 360 offering. While we do expect the new offering to be a creed of to our margins and earnings over time,
Speaker 4: It's still too early to build anything into the model at this point.
Speaker 4: We remain comfortable with our new store target of approximately 35 green fields in 2023, with roughly 40% of the openings in the first half and 60% in the second half. Just a couple of other quick callouts around 2023 guidance.
Speaker 4: Our interest expense assumption remains $73 million, and we are still projecting cell lease back proceeds of between $110 to $130 million. Between the cell lease backs executed last year and the expected cell lease backs to be completed this year along with rant escalators.
Speaker 4: We continue to expect 2023 cash rent expense to increase $12 million to approximately $100 million.
Speaker 4: In the second quarter thus far, we have closed on 13 sell-leaseback locations and expect to close on more before the end of the quarter. As a result, we expect second quarter rent expense to be up approximately $1 million from the first quarter.
Speaker 4: This will impact our other store operating expense line. Capital expenditures are still expected to be 220 to 270 million dollars, and given the longer lead times to open new stores, this includes expenditures for planned greenfield openings.
Speaker 4: in 2023 and 2024, as well as some deferred capital projects in 2022.
Speaker 4: In addition to rolling out our new Titanium 360 offering, we are making significant improvements to our rinse drying and TDS water solution systems throughout the majority of our stores. The full implementation and reconfiguring process across the entire store base is expected to run through the end of next year.
Speaker 4: In closing, we feel good about the progress we are making against our strategic initiatives, but recognize there is still a lot of work to be done, and the macro environment is likely to remain challenging for the foreseeable future. I want to thank the entire Mr. Carwash team for their discipline and dedication to our work. customer.
Speaker 2: Please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster.
Speaker 2: And the first question will come from Michael Lasser with UBS. Please go ahead. Good evening. Thanks a lot for kicking my question. Given the shortfall on the retail side in the first quarter.
Speaker 2: Do you make any changes to your internal assumptions for the rest of the year? What's going to drive an improvement in the business? Is it just the weather getting more favorable?
Speaker 4: Yeah Michael this is this is Chad and um
Speaker 4: First of all, good afternoon and good to hear from you. So as we look at the balance of the year.
Speaker 4: So the weather obviously the factor in the
Speaker 4: We view that as transitory and there was a meaningful impact as we look at that Q1 So as that adverse weather rolls off
Speaker 4: And what we're seeing in April is that these April trends have...
Speaker 4: gone on an overall comp basis, they are positive. So we have seen a little bit of a normalization in the overall comp, which gives us some comfort as we look at the balance of the year and being able to come in to.
Speaker 3: and and hit guidance jettin and hey Michael this is John the only thing i'd add is i can't see it getting any wetter then it did in q1 so we had an unusually wet first quarter the country did particularly in california but other states like michigan salt lake city boys the Idaho
Speaker 3: If I could use the term perfect storm, but it was one of the whitest years on record and it had an impact on our business. So over time though we believe whether normalizes and we should get back to regular patterns.
Speaker 4: And Michael, just one other thing I would jump in and add is when you look at Q1 while it was impacted by the weather, what we had talked about on the last call is first half being at the low end of the range, second half being toward the high end of the range due to the difficult comparable that we have and Q1 we were at the low end of that range.
Speaker 3: You know, Michael, we also internally have a saying that we never use weather as an excuse for missing budget.
Speaker 3: Although this quarter we give ourselves a little bit of a buy on that one because when it's raining out people aren't washing their car.
Speaker 2: Make sense. My follow-up question is understanding you don't want to quantify the impact from the titanium program. What have you already tweaked?
Speaker 2: in the program as a result of what you've learned so far. And once you get the program to the state of where you want it to be, how fast will you be able to deploy it across the entire chain?
Speaker 3: Hey Michael, so we are still tweaking certain elements of our marketing and launch strategy tactics and the 30 odd stores that we have them in right now we're seeing.
Speaker 3: some early stage favorable results. Again, we're not in a position to share any specifics around what the performance looks like other than to say, you know, it's exceeding our expectations and we're very pleased. But at the very core, you know, there's things around pricing, and there's a little bit of an art to ensuring.
Speaker 3: our approach in articulating to existing members. And we have a model that is designed around speed where customers literally will zip through our stores with their windows up. And they become so accustomed to not even interacting in some cases with our team members because we've made it so convenient, getting them to stop them.
Speaker 2: that. Please go ahead.
Speaker 5: Hi, good afternoon. Thanks for thinking our question. We just had two questions. One regarding the retail markets where maybe you didn't see as high a rainfall, how they trended versus maybe the company average. And we're just wondering since the weather was pretty adverse in the west.
Speaker 4: Just was wondering if that's impacted or delayed your greenfield Projects at all or pushed it out a little bit at all Okay, I'll jump in I'll take the first part of the question so when we look at the markets where and there were a small handful Would particularly when you look in the
Speaker 4: in the southeast, southeast in Florida. When you look at the number of days, it was precipitation this year versus the number of days with precipitation last year. And keep in mind, it's not just the number of days with precipitation, it's just the threat of rain. It has an impact, particularly on the retail side of the business.
Speaker 4: Orlando, for example, we saw the number of days with precipitation. It was favorable 44%.
Speaker 4: this year compared to last year and comp store sales were up double digit in that particular market. So in the handful of markets, in the majority of the markets where we saw favorable weather impact, we saw a high correlation with favorable comps as well.
Speaker 3: Yeah, and I'll take the second part. So with respect to any delays in Greenfield, I don't think it's going to have an effect. You know, we are still on track to hit, you know, the 35 that we're projecting to do this year. And we don't see the weather slowing us down.
Speaker 1: Thank you.
Speaker 2: The next question will come from Peter Keese with Piper Sandler. Please go ahead.
Speaker 2: Thanks, good morning everyone. A bit of a short from question, but I think we'd go back a year ago, was when you first started to see some of the retail weakness perhaps in April of 2022. So it sounds like April's getting better. You got some weather noise in there. Does it feel like as you lap?
Speaker 6: these easier retail compares that you're starting to see seven crib in or stabilization on the retail side of the house.
Speaker 4: Yeah, so as we look at April in particular on the retail side and impeter your right that the lap does get just a little bit easier as we move into the second quarter, we are seeing those April retail trends moderate to be more in line with with historic averages. Largely as the weather improves and benefit there.
Speaker 6: Okay, great. Good to hear. And then I wanted to clarify on the, on the titanium 360 rollout, it was just right at the end of the script. Did it, did it, did it, did it, did you said you're going to finish it by the, the end of next year, or are you still sticking to the midpoint of next year? Just thinking if it is ended next year, maybe it's going to push out a little longer.
Speaker 3: Yeah, so you're actually poking both Jed and I simultaneously with that question because my belief is that we can get this thing all wrapped up and launched by the middle of next year. And Jed being the conservative CFO that he is wants to give us a little bit of wiggle room.
Speaker 3: and has suggested that maybe we put in just a little bit of cushion. So we're pushing the internal team as hard as we can. We don't want to rush it. And again, to JEDS earlier, comment that this is a material transformation of our entire Rinse and Indrined system coupled with a new product launch, coupled with a new menu structure and pricing. So to that end, we're going to, as we've stated on multiple occasions, we're going to do it right.
Speaker 3: and take our time, but there's nobody that's more anxious to get this in place. Our stores are chopping it a bit, but to get this in place and then see what we hope to be this lift to revenues over time, then this management team. So, I mean, keep in mind, Peter, because we think about the rollout as we...
Speaker 4: We've gone in this early days. We continue to learn as we go into this, and we're going to leverage the maintenance teams that are going to be there on the ground, not only implementing Titan, but also, we've talked about the rinse improvement technology, blower configuration, just optimizing the overall car wash experience at each of these locations. So you don't know what you don't know, and so while we're pushing the internal team as hard as we can, we want to make sure.
Speaker 6: We're not getting ahead of our excuse. OK, yeah, but appreciate the conservatism and certainly sound like an exciting change. So thank you very much. The next question will come from Randy Coneck with Jeffries. Please go ahead.
Speaker 7: Thanks, guys. I guess that's two questions. My first one, I guess it's going to understand differences or changes that you've seen or expect to see in the deal environment. You know, as interest rates have gone up, I'm sure there's more sellers out there and so on and so forth. So I'm just curious and just give us that perspective.
Speaker 7: on how you think the deal environment really kind of morphs over the next 12 to 24 months. That'd be super helpful to start. Thanks, guys.
Speaker 3: Yeah, hey Randy, so sure the interest rate environment I think is going to have a little bit of a headwind. But I think that there's other forces at play that are also driving what I'm seeing is kind of a cooling effect on multiples. Right now, we're kind of the market, I would say, on averages in the low double digit range for most assets.
Speaker 3: more interested in scaling up and establishing their position early in the market, we're leaning in, but I think rationality has set in now and that's a good thing.
Speaker 7: Got it. And then, Chad, I think he gave us some good perspective on the changes and problems.
Speaker 7: in the unaffected weather market, I believe Orlando, of double digit. We'll give you a similar perspective on how a market like that performed from a new member growth perspective, because you've shown nice strength in that metric, second quarter in a row, is up 14%, I think first quarter, up 13% in this quarter, and up 13% in this quarter.
Speaker 4: is they're more sensitive to the macro headwinds, they're more sensitive to when there's any type of weather across any market. So when you look at how that impacts Orlando specifically, first of all, when you look at overall UWC cells, it's held together very, very nicely. Like we've talked about, we haven't seen it up to you.
Speaker 4: C cells up there, we're up double digit as well, being fueled by that increased retail volume. So on the other end of the spectrum, in California, for example, Modesto, Bakersfield, the Sandwalking Valley,
Speaker 4: California's a whole was about 170 basis point headwind to the overall comp alone. And UWC volume there, or UWC cells in those particular markets were impacted by the lack of retail volume that was coming through due to the weather.
Speaker 4: We expect that to come back as the weather improves there.
Speaker 2: Super helpful. Thanks guys. The next question will come from Simeon Gutman with Morgan Stanley . Please go ahead.
Speaker 7: Hey guys, I'm going to ask two. Hopefully it's not to annoy the first, just the follow-up, Jez. I think you said it twice. The said turn just to clarify. That means the number of additions and subtractions overall hasn't changed or maybe additions picked up.
Speaker 3: and subtractions, I did like what was the mechanic of term basically saying the same, to see if the complexion is different. And the second question is, any updated thoughts on how membership may evolve in a tougher backdrop, recessionary backdrop? I know it's a tough question to answer, but curious if you've kind of done any more thinking on it. Thank you. So the first question, the...
Speaker 3: are out there and with respect to their overall transportation budget is a really tiny fraction of their total cost of getting from point A to point B and for all the things that you spend on getting from point A to point B it's the one feel good in that expenditure bucket. So to that end I think it's a very fair question one that I think a lot of people are wondering out loud in a, let's just say if there's a recession that's looming.
will people start cutting back on discretionary subscriptions, a car wash subscription. The fact that our churn has remained flat throughout this last 12 month period, I think speaks volumes to the stickiness and the loyalty that we've engendered and how much people have valued it. So you know, we're done.
a little bit further. So the way we think about churn, it represents the percentage of the members who were active at the beginning of the month and then those that were fell off by the end of the month and that churn rate.
during the quarter is in line with what we have historically seen to to John's point we didn't see an uptick I mean as we talk about UWC the whole adding 122,000 UWC members with the macro headwinds and then the retail and traffic impacted the way it was I think overall we're we're we always want to see more growth there in UWC membership but
Overall, we're pleased with how the UBC has held together.
particularly we're seeing slide uptick and capture rights as the team becomes just that much more focused and educating the consumer on UWC and the benefits of the program. But then also...
The price differential between retail and UWC helps incense customers to trade into that UWC program. Yeah, Simeon, the only thing I'd add is that internally we say, thank God for UWC. And thank God our UWC member base has remained so loyal and sticky. Because I can only imagine have we not had this program in place and it wasn't close to 70% of our revenues. Yeah.
The next question will come from David Belinger with Roth. Please go ahead. Hey guys, thanks for the question. Another follow up on the churn levels and you mentioned no real change there. That's been steady for some time. If you peel that back and you look at a colored voluntary churn versus involuntary churn and maybe through some type of credit card explorations.
Just anything like that you can expand upon as a read through to your core customers. Anything going on under the surface there? No, there hasn't been any changes. You know, as we've shared previously, roughly half of our churn comes from credit card declines. We have very little control over that. But we do know that once a customer, a member I should say, oftentimes when a member cancels, they will get their house in order, if you will, and come back into the program.
and the opportunities that we have, being more proactive on the engagement front, which has been a real big initiative for us internally, is how can we get out in front of folks where their utilization of our program is starting to tail off. And again, we're still working on fine tuning that business model, if you will.
That's helpful. Appreciate it, John . My follow up on the reconfiguring the rinse and wash systems with titanium. So once those are fully complete, should we expect your stores to handle some kind of different level of volume on a per unit basis? Is there some kind of throughput implication?
Once you finally get through tweaking the store footprint.
No, no throughput implications. It's an interesting question though because the way we're set up to maximize throughput, you know, what we're running very high line speeds right now and we, you know, do process flow optimization, have created this beautiful flow through all of our stores where people can literally get in and out in five minutes.
So we've de-bottlenecked operationally our stores and that's created an unbelievably easy experience for our customers. So from a throughput standpoint we feel really good about where we sit today. The real objective here is to move people into more profitable premium packages.
but do it in a natural way and have them trade up because the value is going to be intense. Great, thank you. The next question will come from Justin Kleber with Bear. Please go ahead. Any good afternoon, guys. Thanks for taking the questions. One of the...
You know pretty dramatically here the past year or so.
So I'll kick it off and talk about the financial environment. But it seems like almost everyone is pushing a density strategy right now and attempting to build up their network of stores. But as the cost of capital goes up, I think folks are having to revisit how much cash they actually have to fund.
future growth and there's an upper limit just in terms of you know if it's funding free cash flow through operations what your high watermark capacity can be. And so to that end I think that there's a number of platforms out there that had very aspirational a vision to to aspirational move into a whole lot of new markets.
to one or two of our stores, but we recover quite nicely because at the end of the day we think that the superior, the operator that delivers the most superior customer experience is going to win and that's kinda what we've been built on, focusing on all the fundamentals quality, speed, customer service I can join on and on about clean, dry and shiny but at the end of the day if you're not delivering
how everyone fares year three, year four in their maturation curve and what do those AUVs look like. Because there's some folks that are more interested in just an aggregate unit number, we're more focused on quality, right, and building really beautiful stores that are set up for a super high volume and they're going to reflect our brand standards in good locations. Okay, have you guys estimated any kind of impact?
the competition may be having on retail sales in some of your markets? Yeah, I mean Chris, as we've looked at this from a competitive perspective, as John had said, not all markets, not all competitors are, and the impact are the same. What we see is...
Just as John had highlighted, the markets where we have more store saturation, more of a market share, the impact is short-lived and then perhaps in the handful of markets where we don't have as big of a store presence that that impact is a little bit measured. But that's really as we've looked at that, there's really one market that we can point to and it's one competitor that we could point to without giving names.
So they have the potential to come out of the gate with much higher UWC memberships than the typical 5,000 members you see? Yeah, that's a great question. And so from a, I guess, technically how we're loading vehicles today, you know, we have three unintended payment stations and the design on the front end is set up where two of those lanes are dedicated to our membership and one lane is to retail. But when you first launch a store, it's actually the opposite where 80% of your business is retail and so you're forcing almost everyone into that retail lane and we're not doing that just to make it less.
So, the utilities, maintenance services, as you break that down, it will...
It is a byproduct of the inflationary environment, while we have seen it moderate just a little bit from where we were a year ago. We do continue to expect some pressure, but coming down ever so, that pressure continuing to lessen as we think about the second half of the year.
And then just on the sale lease back strategy and you know you're paying more in rent. How should we think about what your comp leverage point is? What level of comp growth do you need to reach in order to leverage your operating expenses? Yeah, just just one clarification there. The increase rent is primarily driven by the fact that we have more sell lease backs, not because we've seen pressure on the cap rates. So while we have seen some pressure, it's not as meaningful as the fact that we've got 40 more our wash leases this year compared to last year. So it's the number of leases, not the income and all cap rates. We have seen.
I guess first things first, and this is John , you kind of touched on this a little earlier, but the new green fields are obviously very heavy retail focus. I guess over the last year out of the green field units that have opened, has there kind of been a slower ramp to getting to the normalized unit economics, and how do you kind of think about that within the broader context of...
And I'll just say that they're opening with strength and that, you know, in aggregate, we're very pleased and they are exceeding our expectations. So that is further emboldening us to continue to just double down and see what we can do to accelerate the pace.
of new store openings and for us, it's always a little bit of a juggling act because we want to, we want to push the envelope and grow at a quicker rate, but at the same time, back to my comment about quality.
We don't want to grow too quickly where either we overheat or we build a house of cards and really ultimately all of that manifests in the customer experience and so if we throw up units and then you know they're not executing to the degree that we expect them to you know everything
it kind of gets watered down over time. So we're trying to continuously recalibrate that rate of growth and grow at a quicker clip. And I think that's for any growth company that is scaling very quickly. It's arguably one of the most challenging things from a management standpoint is how fast is too fast or not fast enough. So right now, our goal is to add 35 stores this year. If we can eclipse that, that'd be awesome.
Are there further opportunities there? Do you guys see the work you've done up to this point and you're happy with that We're gonna clap that here maybe in a few quarters or is there is there you know I'm sure you guys are always tweaking and looking for areas to improve is is there anything there we should keep in mind? Yeah, I mean Garrett this is one of those things that is what we've what we built into the guide is
I mean, basically what we've already locked in and realized. So, having said that, we're always going to look for opportunities to become more efficient. How can we...
wash more cars with less labor but not compromise on the consumer experience. And that's always the tightrope that we're having to walk as we think about cost containment and management and making sure that we continue to provide a superior customer experience.
Well said Jed. I think when we look at, I'm surprised there's no margin contraction questions and margin expansion questions, but our margins have been driven by our top line. And when we look at labor, a lot of folks will look at labor through a cost lens. We look at it through a productivity lens and an engagement lens. And so again, we're happy to pay people more and offer them more comprehensive benefits.
for our shareholders over time.
I appreciate that guys. Thanks so much for taking our questions. This concludes our question and answer session. I would like to turn the conference back over to Mr. John Lai for any closing remarks. Please go ahead sir.
Okay, well thanks everyone for joining the call. You know, this was a tougher quarter for us to report on, but as we stated in our opening comments, you know, we expect to weather to normalize. We are extremely optimistic about the future of Mr. Carl Warroshan, where we sit. I want to give a big shout out to all of our team members who are working their tails off. And again, delivering exceptional customer experience. We feel very fortunate.
as an organization to be in a leadership position, with a long history of operational excellence. We've got amazingly strong, you know, level of economics, and most importantly, a culture that values people. So the opportunity in front of us to continue to scale our company and grow to new heights is tangible and real and in our sight lines, and we are very optimistic about that future. Thank you guys. The conference is now concluded. Thank you for...