Q4 2024 Mister Car Wash Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Mr. Car Wash 4th quarter 2024 conference call. At this time all participants will be in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time.
Speaker Change: Please note that today's call is being recorded and a 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 call over to Mr. Eddie Plink, Vice President of Investor Relations. Please go ahead, sir.
Perhaps you're muted, Mr. Plank.
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Speaker Change: Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year 2024 financial results. With me on the call today are John Lai, Chairman and Chief Executive Officer, and Jed Gold, Chief Financial Officer. After John and Jed have made their formal remarks, we will open the call to questions.
Speaker Change: 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 mrcarwash.com.
Speaker Change: As a reminder, comments made on today's call 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.
Speaker Change: While the company may choose to update these statements in the future, it is under no obligation to do so, unless required by applicable law or regulation.
Speaker Change: Please review the forward-looking statement disclaimer contained in the company's SEC filings, including its most recent 10-K and 10-Q reports, as such factors may be updated from time to time with the Securities and Exchange Commission. I'll now turn the call over to John.
John Lai: Thanks, Eddie. Good afternoon, everyone, and thanks for joining our Q4 2024 earnings call.
John Lai: We ended the year with quarterly results that exceeded our expectations, led by strong comp store sales growth of 6%.
John Lai: Q4 marked the 7th consecutive quarter of comp growth for Mr. including the first positive retail comp since Q1 of 2022.
John Lai: Looking at the full year, fueled by the introduction of our premium titanium service, we delivered record revenues and EBITDA with sales up 7% and adjusted EBITDA growing by 12%.
John Lai: We also continue to make great strides with our Greenfield program, opening 40 new locations in 2024, including one relocation and surpassing the 500 store milestone.
John Lai: While we're encouraged by our performance, we are hesitant to extrapolate current trends through the upcoming year. Consumer behavior remains difficult to predict, and our non-subscription business is more sensitive to weather. So we're retaining a cautiously optimistic view for retail trends in the months ahead, which Jed will discuss in more detail when he outlines our guidance for the year later in the call.
John Lai: As we turn our focus to 2025, I'd like to briefly comment on the competitive environment. Although the landscape remains crowded, we expect the influx of new entrants into the market to continue to decelerate from the highs we saw in 2023.
Jed Gold: Over the next few years, we expect the industry to rationalize, and we are confident MISTER will be well positioned to capitalize as market share and consolidation opportunities present themselves.
Jed Gold: Discipline growth, solid execution, and operational excellence to deliver an exceptional customer experience is what motivates us and drives our success, not growth at all costs.
Jed Gold: Now I'd like to spend a little time on our four strategic pillars and the progress we're making to drive productive and profitable growth over the long term.
Starting with number one, expand our footprint.
Jed Gold: We will continue to drive unit growth in 2025 through our Greenfield Program. This year we plan to add 30 to 35 new stores in key metro areas as we continue to densify and strengthen our position.
Jed Gold: The Greenfield program has proven successful for us. Since inception, we have constructed 140 car wash locations accounting for more than 27% of our platform.
Jed Gold: As the program evolves, we are continuing to refine our proprietary site selection model and are becoming more surgical with our analysis of both core and new markets, which we expect will improve our success rate.
Jed Gold: With respect to M&A transactions, we remain opportunistic and will continually evaluate opportunities that make strategic sense.
Jed Gold: Moving to number two, increase our innovative solutions. Our culture of innovation across product service and operations also sets MR. apart.
Jed Gold: When we innovate, we win. Our titanium launch is a great example of this. At 23% of UWC membership penetration overall, titanium outperformed our expectations in 2024.
Our overarching goal is to continuously improve the customer experience.
Jed Gold: that requires agility and a commitment to innovate across all segments of the company.
Jed Gold: whether reducing friction at point-of-sale, developing creative new marketing campaigns, or pushing forward with industry-leading technology and R&D. The endgame is the same, to consistently wow and delight our customers while increasing our competitive advantage.
Jed Gold: Moving to number three, drive traffic and grow membership. As I mentioned we're increasing our investments in marketing to enhance our brand messaging to engage with customers in new ways.
Jed Gold: To that end, in Q4 we tested new media channels to expand our reach and launched digital promotions in select markets to drive retail traffic and were generally pleased with customer response.
Jed Gold: Moving forward, we remain customer-obsessed, evaluating and improving each customer interaction, and we're turning our attention towards driving stronger brand awareness and membership growth. This includes developing more robust, segmented, and targeted marketing aimed at increasing our awareness and driving traffic.
Jed Gold: Finally number four, build a best-in-class team. This has been an ongoing effort evidenced by the material investments in our leadership team over the past couple years. The most recent being our first ever chief technology officer Carlos Chavez who joined us at the beginning of the year.
Jed Gold: With his strong retail and digital background and wealth of experience in technology leadership roles, Carlos will develop our vision for how technology can serve as a competitive differentiator. I look forward to his partnership as we take the business and industry beyond where it is today.
Jed Gold: Looking to 2025 and beyond, I remain optimistic on our growth prospects. Our industry has seen a lot of change over the past few years, but over time we believe the best operators will win.
Jed Gold: As the leading car wash company in the nation, we'll continue to play offense by expanding our footprint, connecting with our consumer, driving membership, and ultimately shareholder value.
Jed Gold: When I reflect on where our company was 10 years ago with 136 stores and 250 million in revenue, to where we stand today at over 500 stores and nearly a billion in revenue, I couldn't be more energized about our future.
Jed Gold: None of this would have been possible without our incredible, talented team. Our people, our culture, and our ability to continuously improve is what makes Mr. Special.
Jed Gold: I'd like to thank all of our great team members for your tremendous effort. I'll now turn the call over to Jed to provide more commentary around our financial results.
Thank you, John, and good afternoon, everyone.
Jed Gold: In summary, Mr. had another record-breaking year, marked by 7% revenue growth, 12% adjusted EBITDA growth, and 16% growth in adjusted earnings per share.
Jed Gold: And, we ended the year on a high note, with a really strong fourth quarter fueled by the successful rollout of our new titanium offering earlier during the year.
Jed Gold: Overall, we are pleased with our Q4 performance. From a top-line perspective, sales were at the high end of our guidance range and comp trends were the strongest we've seen in over two years, led by high single-digit growth at UWC and a slightly positive retail comp.
Jed Gold: From a bottom-line perspective, the team maintained strong cost discipline, resulting in adjusted EBITDA and adjusted net income that was better than our guidance range.
Jed Gold: Fourth quarter sales demonstrated the power of our predominantly subscription model. Sales benefited from a particularly strong October that included a significant uptick in retail volume as our teams capitalized on more favorable weather conditions.
Jed Gold: The favorable weather trends and retail improvement translated to more at-bats and slightly more opportunities to trade customers into membership.
Jed Gold: In addition, our subscription business remained resilient, providing us with a significant and stable reoccurring revenue base.
Jed Gold: Member utilization held constant in Q4, which is a key indicator of member satisfaction, and we didn't see any material changes in our core churn levels from previous quarters.
Jed Gold: Our titanium membership also continued to perform well, accounting for 23% of our membership mix and helping to drive a 10% increase in express revenue per member during the quarter.
Jed Gold: Titanium far exceeded our expectations for the year and we are pleased with how the team has executed the launch.
Jed Gold: Finally, we opened 13 net new Express Exterior car washes in the quarter, totaling a record 38 net greenfield openings for the full year. This equated to 39 new stores, 1 relocation opening, and 2 closures.
Jed Gold: Now, I'll provide some more detail on fourth quarter results. For simplicity, I'll be referring to adjusted numbers only, which exclude items such as stock-based compensation and loss from the disposition of assets.
Jed Gold: The full reconciliation of adjusted figures can be found in our 8K filing and earnings press release.
Jed Gold: Net revenues increased 9% driven by the combination of 6% comparable store sales growth and the contribution of incremental revenue from our new store openings.
Jed Gold: UWC cells represented 75% of total wash cells, and we ended the quarter with more than 2.1 million UWC members.
Jed Gold: On a year-over-year basis, the number of UWC members increased by 46,000 members, or roughly 2%.
Jed Gold: At the end of the quarter, the membership split among base, platinum, and titanium was approximately 41%, 36%, and 23%, respectively.
Jed Gold: The average express revenue per member in Q4 increased 10% to $28.65 versus $26.14 in the fourth quarter last year.
Jed Gold: Total operating costs and expenses were $173 million in the quarter. As a percentage of net revenue, total operating expenses decreased 100 basis points to 68.8 percent.
Jed Gold: Labor and Chemicals decreased 110 basis points to 27.8%, driven primarily by work the team completed earlier in the year to optimize our labor model at our interior clean locations and leveraging our skill in purchasing and shipping of chemicals.
This was partially offset by increased labor rates.
Jed Gold: As we now begin to anniversary those savings in chemical costs and interior clean labor, we don't expect to realize incremental gains in 2025.
Jed Gold: Other store operating expenses increased 50 basis points to 33.1 percent, primarily driven by higher rent expense related to our new store growth and sell leasebacks, as well as higher utilities, equipment and facilities and maintenance costs.
Jed Gold: driven primarily by better expense management, partially offset by an increase in marketing expense.
Jed Gold: EBITDA increased 13% to $78 million and EBITDA margin increased 100 basis points to 31.2%.
Jed Gold: Looking at the full year EBITDA was 321 million dollars representing a 12% year-over-year increase.
Jed Gold: To echo John's sentiment of how far we've come over the last decade, our 2024 EBITDA reflects a 10-year compounded annual growth rate of 22%.
Jed Gold: Fourth quarter interest expense decreased by 7% to $19 million, primarily due to lower average interest rates year over year, despite modestly higher borrowings compared to last year.
Jed Gold: Finally, fourth quarter net income and net income per diluted share were $31 million and 9 cents, respectively.
Jed Gold: Moving on to some balance sheet and cash flow highlights at the end of the quarter. Cash and cash equivalents.
We're 67 million dollars.
largely driven by proceeds from our cell lease backs.
Outstanding long-term debt was nine hundred and twenty million dollars
Jed Gold: A $22 million sequential decrease as we paid down our revolver balance during the quarter. This reduction in net long-term debt, coupled with our strong full-year performance and increased cash balance, resulted in a three-tenths reduction
in our net leverage ratio to 2.7 times.
Jed Gold: Our balance sheet remains healthy and flexible, and we continue to self-fund our growth and expansion via Sell These Backs.
Jed Gold: In the fourth quarter, we were very active in the sell-leaseback market, completing 21 sell-leaseback transactions involving 21 car wash locations for an aggregate consideration of $98 million.
Now I'll provide some color around our initial 2025 outlook.
Jed Gold: With respect to cells, we are encouraged by the momentum we've seen build over the last two quarters.
Jed Gold: However, with many factors such as inflation still impacting discretionary spend and the outsized benefit of weather on recent results, it's too early to say whether consumer patterns will improve.
Jed Gold: As such, we are anticipating continued headwinds in retail, though to a lesser extent than 2024.
Jed Gold: As we think about the progression of the year and total comparable store sales, we expect the front half to be slightly stronger than the back half.
Jed Gold: This is largely due to lapping the full price rollout of titanium in late Q2 and then more challenging comparisons in the back half.
Jed Gold: With respect to store growth, we expect to open approximately 30 to 35 new greenfields this year. The majority of these will be in existing markets where we have opportunities to densify, fortify, and grow our market share.
Jed Gold: As John mentioned, we are becoming more data-driven on site selection and are more rigorously evaluating and scoring sites in our pipeline to drive the highest returns on our capital.
Jed Gold: The timing of these openings will be back half-weighted with an estimated 30% in the first half and approximately 70% in the second half.
Jed Gold: In addition to Greenfield expansion, we continue to look at other ways to drive the business.
Jed Gold: To that end, we are taking a base membership price increase in select markets where we believe we've earned it through our distinct value proposition and superior customer experience.
We will never compete solely on price.
Jed Gold: But as we evaluate additional markets, we see opportunity to optimize the base UWC pricing more broadly over the course of the year.
Jed Gold: Looking at adjusted Ipatah, the high-end of our range assumes a roughly 30 basis point uptick in margin compared to last year.
Jed Gold: I'd like to note that this is despite the incremental rent expense resulting from the record number of cell leasebacks we executed in 2024.
Jed Gold: When looking at profitability on an EBITDAR basis, which excludes rent and the impact of sell leasebacks, we are anticipating even greater year-over-year margin expansion of 80 basis points at the high end.
Jed Gold: On the cost side, we expect to continue to leverage our GNA and slightly decrease GNA expense as a percentage of cells.
Jed Gold: And we should be in a position to leverage certain expenses this year due to various productivity initiatives and an even greater focus on doing more with less.
Jed Gold: These efficiencies will be slightly offset by a modest uptick in our marketing investments.
Jed Gold: We expect to remain active in the sell-leaseback market during 2025.
Jed Gold: Sell these SPACs remain the most attractive source of capital for MR.
Jed Gold: We are targeting proceeds of $40 to $50 million during the year with a focus on leveraging the influx of buyer demand to further improve deal economics.
Jed Gold: In November, we took the opportunity to reprice our term loan and revolving credit facility.
Jed Gold: we were able to reduce the spread on our term loan to SOFR plus 250 basis points.
Jed Gold: The reprice and recent pay down of our revolver, coupled with a slightly more favorable rate outlook,
Jed Gold: will help drive an estimated 20% reduction in interest expense compared to 2024.
Jed Gold: The full list of our initial Outlook ranges for 2025 can be found in the table in today's earnings release.
Jed Gold: But to recap the key items, we expect net revenue of $1,038,000,000 to $1,064,000,000.
Comparable store sales growth of 1% to 3%
Jed Gold: Adjusted EBITDA of $334 million to $346 million, representing approximately 4 to 8 percent growth year over year, and representing a margin of 32.2 percent to 32.5 percent.
Jed Gold: We expect adjusted net income per diluted share of $0.43 to $0.45 per share, representing growth of 15% to 22%.
Jed Gold: Finally, we plan for capital expenditures of $275 million to $305 million during the year.
Jed Gold: In closing, I would also like to thank the entire MR Team for their hard work and dedication.
Jed Gold: In a multi-unit business, how the entire team takes ownership of their piece of mystery is what enables us to deliver great results.
Jed Gold: While 2024 was not without challenges, our team faced them head-on, executed strong, and delivered where it counted most.
Jed Gold: Moving forward, we are well positioned and I look forward to continuing to unlock our potential.
Jed Gold: That concludes our prepared remarks, and we will now open the call for your questions.
We will now begin the question and answer session.
Jed Gold: To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.
Jed Gold: If at any time your question has been addressed, and you would like to withdraw your question, please press star, then two. And at this time, we'll pause momentarily to assemble our roster.
Jed Gold: And the first question will come from John Heinbockel with Guggenheim Securities. Please go ahead.
John Heinbockel: Hey guys, I wanted to start with pricing and marketing. So, what percent of the car wash base are you taking the base pricing up in? And I think, is it $22.99 is the right number to think about?
Speaker Change: And then maybe, John, from a marketing standpoint, what's the right level for you guys to spend at, you know, over the longer term, and when do you want to get there? Is that a multi-year journey or do you get there this year?
Thank you.
and see a nice flow through as a result.
Speaker Change: To your question on marketing, so we have not been a very advertising, marketing driven company, as you know. We expect to triple our investments in 2025 versus where we were a year ago. And that's based on some encouraging results we're seeing in Q4 and some of the tests we've done. And so as we continue to see good results, we will turn up the knob appropriately.
Speaker Change: And then maybe the follow-up, you know, maybe talk about your pipeline, right, the 30 to 35. What's the Greenfield pipeline look like?
Speaker Change: And is the idea that finally we're seeing some separation between the leaders and some others, is the idea to keep some room there, some financial firepower to buy assets that might shake free over the next year or so?
yes
Speaker Change: It's actually a tricky question, John. You wove in a little bit of an M&A question into your greenfield growth strategy. So yeah, we are agnostic with respect to new unit growth.
Speaker Change: We do anticipate there being a number of good opportunities coming to market over the next several years and we want to be well positioned to capitalize on those opportunities when they present themselves. But again, we'll stick to our disciplines with respect to quality asset, clear upside potential, and most importantly, reasonably priced, emphasis on reasonably priced. And so, when those come available, we will do everything in our power to, you know,
Speaker Change: I want to take a second to say that that buying a business is easy it's what you do with it afterwards and one of the things that we have a really long track record on is post-acquisition integration and buying good businesses and making them better so this thing has never been about you know grow at all costs and
Speaker Change: scale just to scale. You know, we're building what we believe to be a beloved brand, a legendary brand, an enduring brand. And to that end, you know, the businesses that we are looking at have to check those boxes. We're definitely not bottom feeders. So
Speaker Change: on the greenfield pacing. Again, that's somewhat of a judgment call.
Speaker Change: right now the 30 to 35 we think is a prudent number given you know internal bandwidth and making sure that that we don't get in over our skis and right now you know that that's number we feel comfortable with
Speaker Change: The next question will come from David Bellinger with Mizuho. Please go ahead.
David Bellinger: Hey everyone, thanks for the questions. So comps up 6% this quarter if you're guiding to the 1 to 3 next year.
Speaker Change: Understanding your conservative approach here, just help us bridge that delta. Is there anything in Q4 that was one-time-like, whether it was weather or the positive retail comp? And just to frame this up, can you talk about what you've seen in Q1 to date? And just, you know, any type of slowdown in the business or anything that...
Give us more credence to that 1-2-3.
Jed Gold: Yeah, David, it's Jed here. Good to talk to you. Listen, as we look at Q4, we had a really strong October. It was the strongest month of the quarter.
Jed Gold: We saw really strong growth both in UWC and retail. Retail was up in the positive teens during October. Total comp in October was low double-digit growth.
Jed Gold: And there's a correlation between really positive weather trends when we look at October and the results that we saw. November, it was the most difficult month of the quarter, a little softer retail volume. Comps were up in the low single-digit range. December bounced back.
Jed Gold: with slightly positive retail trends and total comp in December in the mid-single-digit range, rounding us out to the plus.
Jed Gold: for the quarter. The January is similar to October but even a little bit stronger and it was some positive weather when we look at the precipitation levels of the markets that we operate in and it's a
Jed Gold: weathered during the week, and then the sun's out on the weekend, I think, though, it's a testament.
Jed Gold: To the team that we have, the layout of our operations, we're very well positioned when the weather cooperates. There's nobody better positioned to process and wash vehicles than Mr.
Speaker Change: Great. Thanks for all that detail. Good to hear the Q1 start. And then my follow-up on the titanium mix, I think it was 23% this quarter. That's a slight step back versus Q3, I think at 24%. So you're starting to see that penetration rate begin to top out in any way. And what are your assumptions within the 2025 guide for T360?
Jed Gold: Yeah, listen, so as we said in our prepared remarks, really happy with how titanium performed. It's exceeded our expectations.
Jed Gold: penetration level that we saw in Q3. We believe some of those members who signed up at the promo price have
Jed Gold: Churned out and opted out of the promotion once once the promotional period ended We see this as an opportunity. We did not build in a lot of upside into the model and in
Jed Gold: continuing to drive those penetration levels. So longer term, we see some opportunities to longer term to drive this. Although it'll be at a much slower rate, obviously, than what we've seen launch to date.
Speaker Change: Jay, I just want to add, you know, as we look at it, 60% of our membership is premium in both platinum and titanium, and that is a beautiful percentage.
Speaker Change: The next question will come from Simeon Gutman with Morgan Stanley. Please go ahead.
Simeon Gutman: Hey guys, good quarter. My first question, it's back to this comp.
and the difference between the quarter and then the guidance.
Speaker Change: Would you say then, I don't know Jed or John, if maybe December is representative, you say it bounced back, was it also helped by weather? And I'm trying to reconcile, I guess, the midpoint of two, because I think that implies, the way you said it Jed, is that
Speaker Change: The Discretionary Customer, the Retail Customer, is less bad, so I assume that's flat or negative.
Speaker Change: So yeah, if you can put all of that together, would December be the proper run rate that's unencumbered by weather?
Simeon Gutman: Yes, so what we've built into the guidance, Simeon, is that, so in this time retail, as we've talked about in the past, it's the most difficult of the lines to forecast.
We're currently anticipating a mid-single-digit decline in 2025.
Simeon Gutman: which is a slight improvement from what we saw full year 2024 but it is a step down from what we saw in Q4 of 2024 and that's because the weather provided a significant uptick
to our retail traffic in October.
Simeon Gutman: January we saw we believe we saw same that same weather benefit helping that that retail traffic
Simeon Gutman: So we believe that we've adequately captured what we believe the full-year longer-term trend of that mid single-digit negative decline in retail which which by the way and we've talked about in the past
Simeon Gutman: We've historically always had a little bit of a headwind to retail as we trade retail customers into subscription and it's run in about that mid single digit level so we're getting back to those more normal levels.
Simeon Gutman: The three, five, ten year average that we've seen in more normal times. Yes, Simeon, I would just add, so to summarize what Chad just said, retail is improving.
Simeon Gutman: But we're also wanting to keep both feet on the ground. We're not here to say that the retail customer is back, but we are seeing some encouraging signs that show that they are.
Simeon Gutman: What we have experienced the last couple years, we hope that it will get better, but we don't want to get in over our skis and call that we've hit bottom. So there's us just being cautious.
Speaker Change: A follow-up, and I'm going to make it two parts because of that response, John. The retail customer coming back, do you think it's inflation or was it capacity, meaning competition?
Simeon Gutman: that was the biggest hold back. And then the question I wanted to ask is a competitor private who declared bankruptcy.
Speaker Change: Curious about location overlap, the asset quality, and then there's other assets for sale out there and I heard you know how you're approaching...
Goldstein, Profile Investment Solutions, Ltd.
Speaker Change: Now, the guidance range, I don't know what happens with these assets, but should there be a benefit to that as well? Thanks.
Speaker Change: Yeah, so to answer the second part of overlap with the company that you're referring to in our existing portfolio, so we don't expect there to be a...
The first part of the question was retail.
Peace out.
Simeon Gutman: It just really started to come down. So, Simeon, I think to build on that, and you wrote about this after our Q3 post-earnings group call that you hosted. When we look at the performance of stores with competition within a three-mile radius and the age of that competition,
Simeon Gutman: Those stores that have a competitor that open within a three-mile radius, we see...
Simeon Gutman: an impact that lasts about 18 months to two years, and then those customers begin to come back. And that's been a consistent theme. We've been watching this trend for the last about eight quarters, and in Q4 it was even more pronounced.
Jed Gold: that we re-recorded on the quarter. Jed, can I add some color to that too? You know, when I talk to GMs that have been impacted during that first 18-month period, and then I say, what are you hearing from customers?
Jed Gold: as they have come back, they will say, we missed the wave and the smile, we missed the appreciation that your frontline team members gave us and at the end of the day there's this
Jed Gold: relationship and there's this human connection that we have established with our customers and it's not a transaction purely right it's there's an emotional connection and that's really our secret sauce.
Thank you both.
Speaker Change: The next question will come from Justin Kleber with Beard. Please go ahead.
Justin Kleber: Hey, good afternoon everyone. Thanks for taking the question. John or Jed, just a follow-up on the M&A front. You guys obviously are in a good spot to take a leading role in consolidating the industry. Just curious what your appetite is.
Speaker Change: to take on additional leverage, just given the current rate backdrop.
Speaker Change: Yeah, I think again when we look at some of the multiples that that are starting to contract And really through the lens of what where we see the upside potential and how we can lower that effective multiple If we have to take on some additional leverage, but then we can de-lever over time as we grow the bottom line we have a clear path to To growing starts with top line and then bottom line We're willing to lean in a little bit on leverage
Speaker Change: And I think just I mean that's where the healthy debate right that comes in is It's so
Speaker Change: What asset are we acquiring and taking leverage up, and is there a path to bring that leverage back down? And how high is our confidence in being able to bring the leverage back down within that two to three range that we've spoke to?
Speaker Change: We always talk about this as to how high are we willing to go to leverage just as important as How high are we willing to take leverages? What are we actually purchasing?
Speaker Change: which is a key part of that as well. Yeah, and we take it a step further. We look at lease-adjusted leverage, and so we're really looking hard at some of the rents that have been assigned to these stores. And quite frankly, there's so many folks that have pushed the envelope and saddled the stores with another form of leverage, high rents through sale-leaseback financing. And it makes it even that much more difficult for us to get comfortable with the business if you have just a big rent nut
long time to hurtle with business.
Speaker Change: Okay, yeah, that makes sense. Thanks for that, both of you. Then just an unrelated follow-up on, as we kind of decompose the revenue growth for 25, just any color how you're thinking about or how you're modeling UWC member growth this year.
Speaker Change: Yes, so on a comp store basis, as we think about membership growth, slightly positive membership growth.
Justin Kleber: Justin is what we've assumed in the high end of the the guidance, the plus 3%.
Thanks, guys. Best of luck.
Speaker Change: The next question will come from Michael Lasser with UBS. Please go ahead.
Michael Lasser: Good evening. Thanks so much for taking my question. John, are you seeing evidence that the consumers...
Michael Lasser: Attitude towards signing up for a WASH subscription is changing, particularly versus a couple of years ago when the novelty...
Michael Lasser: and member per location has been under pressure probably in part by some of the newer locations that you have added and those are still ramping up.
Michael Lasser: But it does seem like member growth is subdued. And Jed just mentioned that you only expect modest growth in total members or same store members at the high end. So presumably you are expecting.
Michael Lasser: Some degradation in members at the low end of the comp range. Thank you
Michael Lasser: Hey Michael, thanks for the question. So at the very core, we believe that the subscription TAM is undersubscribed in that when we zoom out and look at the U.S. car park and the number of folks that we're estimating have a subscription plan today, we see room for growth.
Michael Lasser: When we look at, and so more nuanced to your specific question around have we seen
Michael Lasser: Any customers less willing to sign up? The short answer is no.
Michael Lasser: Our capture rates have remained very consistent, which again tells us that there's a whole lot of people that, quite frankly, are new to the express exterior category, but they're also unaware and they didn't realize that we have a, you know, wash as often as you like for one flat monthly fee membership plan, and when we introduce that to them, they're signing up in historical ways.
Gold, John Lai, www.johnlai.com
Michael Lasser: And Michael, just to add to that a little bit, one of the data points that we'll look at as a barometer as to whether consumer behavior has changed and how they feel about signing up is that capture rate.
Michael Lasser: Capture rates have been consistent at about that 9% to 10% level.
Michael Lasser: Fairly consistently for the last few quarters. And then just one clarification for everybody on the call.
Michael Lasser: The slight membership growth, that's on a comp store basis. As we think about total member growth, we expect about a mid-single digit. Obviously, the Greenfields coming online being the biggest driver of that total membership growth.
Speaker Change: Thank you for that. My follow-up question is as you laid out your one to three calm expectations for the year with stronger trends in the first half,
and Dr. Coons in the back half.
Michael Lasser: And the comment that you have started off January with double-digit retail comps, would you expect at the low end of the range for comps to be negative in the second half of 2025, and why would that be the case?
Speaker Change: Michael, no, we're assuming positive comps in each quarter throughout the year, just slightly stronger in the first half than in the second half, and just slight.
Speaker Change: What we've seen in February is those retail volumes and cop store sales growth is moderated to be more in line with our expectations to where we believe our Q1 plan and forecast is.
Speaker Change: close to in line with what we've got built into the guidance.
Thank you very much and good luck.
Thank you.
Speaker Change: The next question will come from Chris O'Coole with Spiefel. Please go ahead.
Speaker Change: Chris, it's a good question. I don't think we've done enough analysis around that for me to say definitively on a call like this. I think it'd just be conjecture. Anecdotally, I mean that's what we saw in Q4.
Speaker Change: It tends to be what we're seeing in Q1, but I'd want to go back and look at this even closer before I said anything definitively. Yeah, Chris, I will say, though, I'm getting a little reminiscent right now, going back in time where we literally would start every morning by looking at the weather report.
Speaker Change: And I don't look at the weather report anymore, and not to sound cocky, but we've made our business less weather-dependent with subscription. When you have 75% of your business that's recurring and predictable, we're really talking about that other 25%, which is really...
Speaker Change: the basis of your question. We thank our lucky stars every single day that we've built this really really strong number base that makes us a lot more stable for the long haul.
John Heinbockel: Yeah, that's helpful. And then, I know you have several marketing tests and programs underway, but John, what do you believe will be the key drivers for retail sales growth this year?
John Heinbockel: Yes, so I think we overshare on this one, but our version of discounting and making sure that we don't give away the farm and dilute...
Speaker Change: The value of our brand is really, really important to us. And when we think about how we're positioned in the marketplace, we're delivering a premium experience. We think that the customers get premium value, and it's really what makes us special. So to be honest with you, we're more focused, at least right now, on brand building versus discounting and talking about the unique and special attributes of our business versus just looking at price, price, price.
Speaker Change: So, to that end, you know, we've talked about some of the different channels that we've been experimenting with and some of the different offers, and we want to start small and again measure and then iterate from what we see. And again, there's been some neat things, but nothing that has materially moved the needle as of yet, but that's not going to stop us from continuing to test, and we have a number of pilots going on right now, and this will be an ongoing effort for us.
Okay, great. Thanks, guys.
Speaker Change: The next question will come from Philip Blee with William Blear. Please go ahead.
Speaker Change: John, thanks for the question. Your 2025 earnings outlook has been higher than expected under this kind of comp sales scenario. Can you talk about your confidence there, generally around expense control versus some of these pressures from labor costs that you've talked about, and then how we should think about any potential for incremental margin fall through on sales outside here?
Speaker Change: Yes, I think, Philip, as we think about the expense, and particularly as we look at EBITDA, I think our confidence is...
Speaker Change: It represents our best thinking at this point in time. Just as a reminder, as you recall, in 2024, we had two big tailwinds.
with the chemical optimization.
Speaker Change: that we start to anniversary in January of 2025 and then also the tailwind of the optimization of our interior clean labor, which we start to anniversary late q1 early q2
Speaker Change: So we have a little bit of a tailwind that we'll see in Q1 from that labor optimization. Right now, nothing that we're going to speak to as far as other optimization programs.
Speaker Change: I think this really is where, and I shared it in my prepared remarks, it's the team thinking like owners.
Speaker Change: and what we'll see is different savings initiatives, a few hundred thousand in savings here and there across the P&L, just given the fragmented nature of some of the expense management across the team.
So,
Bye.
Speaker Change: From a EBITDA margin perspective, first half, second half, it's actually relatively consistent throughout the year, just given the top line and how the top line flows throughout the year.
Speaker Change: We expect the tailwind of titanium helping drive the top line.
Speaker Change: in the first half and then the base price increase that we talked about in our prepared remarks helping drive the second half of the year.
Speaker Change: both of which flow through very nicely and help drive modest margin expansion.
Speaker Change: Yeah, can I just, I always got to do this with Jed just to make sure that we're on the same page, that margin expansion has not been our highest priority. We know that it's important. We definitely don't want it to go backwards. But the investments that we continue to make in our business, particularly on the human capital side, are meaningful and they're front-end loaded. And for us, it's absolutely critical to our long-term success. So we don't want to pull back on that throttle. We want to keep our foot on the gas with respect to investing in the future.
comes in at an investment cost.
Speaker Change: Okay, great. Excellent caller. And then I just wanted to ask a quick question, then going back to kind of the competitive space.
Speaker Change: spoke a bit about it, you know, your expectation for this to be rationalizing over the next few years. Can you maybe double click on that with more of a focus on 2025? Have you started to see some of these share gains materialize with some of this early rationalization? Is any sort of that embedded in your current outlook? Thank you.
So short short answer is no, but
Speaker Change: We're right on the precipice of things starting to happen and Again, what is out there in the news? There's some distressed assets that that are under a lot of pressure right now and Again for us. It's more about the quality of the asset. It's less about you know the value of that business But there's really just there's a mixed bag and then there's some some really good stuff out there that
Speaker Change: They command a premium and we want to look at those as well.
Speaker Change: There's some good, there's some marginal, there's some under deep distress.
Speaker Change: but we were able to double down and increase our market share
Speaker Change: I guess technically a bolt-on, but where it would materially improve our position in a market That strategic why you know is is is answered for us The other one is if there's a new geography that we find attractive that allows us to continue to expand our footprint Ideally adjacent, but that's not always the case Then you know that helps us also fulfill our more global ambition To continue to expand and become you know America's car
Speaker Change: And then just to build on the second part of the question, we don't build any M&A into our guidance, into our outlook.
Speaker Change: Timing perspective and how this rationalization plays out, it's difficult to predict.
Speaker Change: starts to become fairly speculative so we choose not to build that in as an input into into the model.
Great. Thank you, guys. Appreciate it.
Speaker Change: The next question will come from Peter Keith with Piper Sandler. Please go ahead.
Peter Keith: Hey, good afternoon. Nice quarter, guys. John, I think you have a really good view of the industry, and I'm wondering if you could frame up what you believe the number of new openings industry-wide were in 2024, and then if you have an estimate on where that could land for 2025.
Peter Keith: Well, Peter, you might have better intelligence than I do, given how active you've been in this space, and I'm saying that with a smile on my face, because I know you're talking to a lot of folks.
Peter Keith: There's probably, I'd be naive not to think of, there's a couple of OEMs on the call listening as well who have a really good finger on the pulse of that, so mine is less informed. But if you asked me to throw out a number, I would say 2024 was perhaps.
Peter Keith: in the 550 range of units and there's a margin of error inside of our estimate.
Thank you.
Peter Keith: Okay, very good. And I'll try to get back to you on 2025 myself. Maybe you can pivot to Jed. So, you know, the sale leaseback proceeds are stepping down quite a bit year on year.
Speaker Change: I don't think it's going to have an impact, but I did want to ask about that large bankruptcy and if that's caused any volatility in the sale-leaseback market. That's always been a concern amongst a lot of operators that it could kind of drive up or dry up sale-leaseback proceeds. Is that an impact for you this year, or is it just more of a timing dynamic with the pace of openings in recent years?
Speaker Change: Yeah, Peter, we feel good about the trends right now in the sell-lease-back market.
Speaker Change: They closed around 21 transactions in Q4. The whisperings and rumblings of some of our competitors that were struggling were already fully baked and out there publicly. High quality assets, they're being sold at better cap rates. There's a market for them.
and John Lai.
Speaker Change: We've had an influx of calls, if anything, since the announcement of our competitor and some of their financial struggles, particularly in that 1031 market, people wanting to buy these. Our focus this year...
Speaker Change: As we look ahead to 2025 is really how do we how do we drive cap rates even lower? Given this outsized demand from buyers that are interested in purchasing
Speaker Change: Misters. So feel good about our ability there in the 40 to 50 purely strategic and just given the amount of cash that we...
Speaker Change: We currently have on the balance sheet now and our ability to fund our growth and expansion plans for 2025 and 2026. Jed, the only thing I would add is that when I talk to some of the READS,
Speaker Change: So certainly there's the economics around the business and how that pencils out in terms of the carbon ratios and rents as a percentage of sales. But what I'm also hearing is that they're putting more weight against the quality of the tenant.
Speaker Change: and having a best-in-class operator with a solid balance sheet is super important to them.
Speaker Change: And so it's hard to paint a broad brush when they look at Mr. Carwash and how well we perform.
Speaker Change: How responsible we've been with respect to not saddling super high rents and pushing the proceeds line and and just seeing how one we pay our rent consistently on time, but but You know if you're going to pick a car wash operator to partner up with you you want someone that has a long track record And so we think we check that box
Okay, very good. Thanks so much.
Speaker Change: The next question will come from Tristan Thomas Martin with BMO Capital Markets. Please go ahead.
Hi, good afternoon.
Speaker Change: Just one question for me, the base price increases, could this be a leading indicator of a more normalized cadence of price increases?
Hi, we all see one before another 15 minutes.
Speaker Change: Yeah, so for our cases once every 15 years, I don't know if your spreadsheet goes out that far.
Speaker Change: That was my attempt at spreadsheet humor, which is, is there anything funny about a spreadsheet? But no, listen, you know, Costco is one of our North Stars, is a once every five years, right? And for us to be even more conservative than Costco, so we continuously, you know, reevaluate our position in the market. We want to look at our price to value relationship and then really understand where the market
the lawyers.
Okay, thank you.
Speaker Change: The next question will come from Robbie Omas with Bank of America. Please go ahead.
Robbie Omas: Oh, hey guys. Thanks for taking my question. Actually, just one question. I apologize if I missed this, but I saw that you guys put in the guidance CapEx of $275 to $305 million. I think it's been running more like $330 the last couple of years. Can you just remind me what the change is this year versus the last couple of years?
Speaker Change: Yeah, Robbie, it's pretty straightforward, so largely it's due to fewer number of new greenfields planned for this year and we are seeing a slightly higher mix of ground leases.
Speaker Change: in some of our new openings this year versus next year. Obviously, you don't have the land purchase, so it's a reduction to the total CapEx. But as we look at the core store CapEx, it's consistent with what we've seen over the last three, four, five years at about $100,000 per store.
Thank you.
Terrific. Thanks. That clarifies it for me. Thanks so much.
Speaker Change: The last question of today will come from Christian Carlino with J.P. Morgan. Please go ahead.
Hi, good afternoon. Thanks for taking our question.
Speaker Change: You had previously talked about opening more than 40 locations this year and understanding you're being more surgical about your opening plans
Speaker Change: Could you, so could you just speak to what was it about these stores that don't fit the updated rubric and given the timeline to open a store, are these sites where you're just delaying construction and they'll open next year? And then just to wrap that up, I guess, what does this, what does this refreshed approach to Greenfield openings mean for your long-term unit growth expectations beyond 25?
Speaker Change: Yeah, I'll start and then Jed, you can chime in, but as we reassessed our entire pipeline against this, you know, more competitive backdrop,
Speaker Change: We needed to be even more selective with respect to what we believe the impact will be with those competitors. And we've learned a lot over the last several years. So if someone is first to market, they will have an advantage. If we get caught by surprise, where as much diligence as we do, we determine post going hard on a deal, and then beginning the process of all the engineering work and the architecture work.
Speaker Change: about hitting any, you know, set number per se, and for us we want to be very intentional with respect to how we grow.
Speaker Change: I mean, at this point, we've opened 140 greenfields. We've learned a lot. We're taking these learnings, and we're really adopting them to the future owning process. So to John's point, we had a handful that fell out of the pipeline as we re-scored these.
Just as we go into certain markets.
Speaker Change: The permitting and approval process take a little bit longer and that's just going to be a timing.
those will open in 2026 now instead of 2025.
Speaker Change: refill the pipeline, so to speak, to get us back to that plus 40. But our fundamental view on greenfields is it's unchanged. We remain confident in our greenfields and how they're our greenfield expansion and the ability to develop in our target markets.
Speaker Change: We see several sites in the pipeline and we continue to search out new sites that meet our strict criteria.
Speaker Change: God is it that's helpful and as a follow-up I get my
Speaker Change: to follow up on some of the earlier questions. I know you said there's no near-term impact from, you know, the competitor bankruptcy, but in that context and the fact that the industry is slowing openings, you know, significantly relative to the past few years, what does this mean at a high level for the industry? Like, is.
Speaker Change: Is this recent competitor unique or are there other big platforms in a similar position? And sort of a tangent is, you know, does that steep deceleration and openings for the industry have any implications for your own growth plans with respect to, you know, your equipment supplier's financial position?
Thank you.
Speaker Change: I can't speak to their position. I think they're doing quite well, though, even with a slight decel in new unit growth. But listen, long term, if we look at it through kind of a regional lens versus a national lens and then a regional basis, over time, and this is our prediction that there will be...
You know in market three
Speaker Change: maybe on the high-end five, you know, dominant players in any one region. There will never be one person that owns a hundred percent market share that's not realistic. And so just hanging on the three number, if there's three strong players in every region, in some cases more, some cases less, they will continue, and we will expect to be part of that, continue to strengthen and fortify their platforms in market and continue to grow. So there will be, you know, our
All good to go.
Speaker Change: They're now starting to ask themselves, when is the right time to monetize? And again, so it's going to be a really interesting next several years. And we think we're perfectly positioned, again, to capitalize on some of the opportunities that will present themselves.
Got it. Thank you very much.
Speaker Change: 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.
Speaker Change: Well, thanks everyone for joining the call. Whenever I go into any one of our markets, I always start with the smallest store in our portfolio and work our way up. Some of our team members like to go to the big dogs and the Taj Mahals. But for me, it's really the litmus test of how well we're performing. So this morning,
Speaker Change: I went to a store that has over 40 years on the odometer here in Tucson Called Broadway and Euclid and I was pleased to see the wave in the smile We were I was whisked through the tunnel my car came out virtually spotless and in under five minutes I was on my way, and I was feeling great and to me this really epitomizes who mr. Carwash is so across now north of 500 plus stores We're only as good as our weakest link
Speaker Change: and every single store is critical to our equation. We built a really strong weave, a really strong infrastructure, and we're executing day in and day out. So I'm super proud of the team. We're really looking forward to 2025. We're very optimistic about this upcoming year, and we can't wait to share our results in the next earnings call.
Thanks guys.