10-Q: Soho House & Co Returns to Profitability in Q2

Soho House & Co Inc. reported a significant return to profitability in Q2 2025, driven by robust membership growth and increased in-house revenues, despite ongoing internal control weaknesses.

Summary

• Net income reached $24.1 million for the 13 weeks ended June 29, 2025, a substantial improvement from a $30.2 million net loss in the comparative period of 2024.
• Total revenues increased by 9% to $329.8 million in Q2 2025, compared to $302.9 million in Q2 2024.
• Membership revenues grew by 16% to $118.6 million, fueled by a 5% increase in Adult Paying Members and price increases implemented in January 2025.
• Adjusted EBITDA surged by 46% to $46.1 million in Q2 2025, up from $31.5 million in Q2 2024.
• Operating income was $59.7 million in Q2 2025, a significant turnaround from an operating loss of $12.9 million in Q2 2024.
• The company received $22.9 million in business interruption insurance proceeds related to COVID-19 impacts in the UK during the first half of fiscal 2025.
• House-Level Contribution increased by 25% to $71.9 million, with an improved margin of 30%.
• Total members reached 270,297 as of June 29, 2025, including 213,621 Soho House Members.
• The global waitlist for membership stands at over 111,000 applicants as of June 29, 2025.
• Disclosure controls and procedures were deemed not effective as of June 29, 2025, due to material weaknesses in internal control over financial reporting.

Sentiment

Score: 7

Explanation: The company demonstrated a strong financial turnaround with significant increases in revenue, operating income, and Adjusted EBITDA, returning to profitability. Membership growth and strategic expansions are positive indicators. However, persistent material weaknesses in internal controls over financial reporting and ongoing costs related to ERP implementation and strategic transactions temper the overall positive sentiment.

Positives

• Achieved a significant turnaround to net income of $24.1 million in Q2 2025, compared to a $30.2 million net loss in Q2 2024.
• Reported operating income of $59.7 million in Q2 2025, a substantial improvement from an operating loss of $12.9 million in Q2 2024.
• Adjusted EBITDA increased by 46% to $46.1 million in Q2 2025, reflecting strong operational performance.
• Total revenues grew by 9% to $329.8 million in Q2 2025, driven by robust membership and in-house revenue growth.
• Membership revenues increased by 16% to $118.6 million, supported by a 5% increase in Adult Paying Members and successful price adjustments.
• House-Level Contribution rose by 25% to $71.9 million, with an improved margin of 30%.
• Received $22.9 million in business interruption insurance proceeds related to COVID-19, providing a significant cash inflow.
• Strong demand for membership is evidenced by a global waitlist of over 111,000 applicants.
• Pre-opening expenses decreased by 44% to $3.2 million, indicating more efficient new House openings compared to the prior year.
• Share-based compensation expense decreased by 40% to $2.2 million, contributing to improved profitability.
• Experienced a positive foreign exchange gain of $47.4 million in Q2 2025, a significant swing from a loss in the prior year.

Negatives

• Disclosure controls and procedures were not effective as of June 29, 2025, due to material weaknesses in internal control over financial reporting.
• Identified and corrected misstatements in previously issued consolidated financial statements for multiple prior periods, indicating historical accounting issues.
• Other operating expenses increased by 10% to $73.8 million, primarily due to higher costs in Soho Home and Scorpios Bodrum.
• General and administrative expenses increased by 4% to $40.3 million, driven by increased finance team costs for ERP transformation and new House openings.
• Interest expense, net, increased by 8% to $21.7 million, primarily due to the higher principal amount on Senior Secured Notes from compounding debt.
• Incurred $4.6 million in 'Other, net' expenses in Q2 2025, including third-party advisory expenses for strategic transactions and ERP costs.
• A $2 million impairment loss was recognized on operating lease assets related to legacy Chicken Shop Soho Restaurant sites in the UK that are no longer operational.
• In-House revenues in the Americas were only up 0% due to the impact of wildfires in Los Angeles affecting LA properties.
• The number of 'Other Members' decreased from 60,512 to 56,676.

Risks

• Material weaknesses in internal control over financial reporting, specifically a lack of sufficient personnel with appropriate US GAAP and financial reporting experience, and ineffective policies/procedures for review, supervision, and monitoring of accounting and reporting functions, including IT general controls.
• Reliance on the successful implementation and timely deployment of cost containment and reduction measures to mitigate inflationary pressures and consumer confidence impacts.
• Exposure to foreign exchange risk, particularly in Pound sterling and Euros, which could impact revenue and net profit.
• Inflation risk impacting food, utilities, labor, rent, and other costs, potentially affecting profitability if price adjustments are insufficient.
• Commodity price risks on specialty foodstuffs, natural gas, and oil, which are subject to factors outside of the company's control.
• Potential impact of tariff changes on trade with the United States, which could increase the cost of imported goods.
• Uncertainty regarding the ultimate outcome of ongoing legal proceedings, which could have a material adverse effect on the business.
• The company's ability to grow its member base and In-House revenues, which are key drivers of profitability.
• The need to maintain high membership retention and renewals, and members' current spending patterns.
• The ongoing evaluation of the complete scope of property damage and business interruption loss from the UK flood and LA wildfires.
• Contractual obligation to provide additional capital contributions to the LINE LA Hotel Joint Venture up to $37 million if liquidity shortfalls occur.
• Compliance with specified financial covenants under the LINE LA Loan Agreement for US AcquireCo, Inc.
• The results of operations for interim periods are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Future Outlook

The company expects to grow its member base by increasing the number of Soho Houses, scaling existing membership brands, and launching new ones. It anticipates continued strong demand for its curated communities, driven by secular shifts in living and working patterns. Future lease commencements for new properties are expected in fiscal years 2025, 2026, 2027, and 2028. The company believes its existing cash and marketable securities will be sufficient to fund operating and finance lease obligations, capital expenditures, and working capital needs for at least the next 12 months and the foreseeable future.

Management Comments

• We believe the coveted lifestyle brand we have created has significant and proven growth potential.
• We expect to grow our member base by growing the number of Soho Houses, continuing to scale our existing membership brands and launching and growing new membership brands.
• We believe our track record in expanding and growing our platform will position us to achieve significant and sustained growth.
• Our membership has remained resilient through multiple economic cycles and other macroeconomic dislocations, including the recent COVID-19 pandemic.
• We believe our retention compares favorably to leading consumer subscriptions or memberships—across music, media, fitness, entertainment and commerce—despite, in many cases, their significantly lower price points.
• We have observed a secular shift in the ways that people live and work with less time spent in traditional corporate offices and more time in social spaces that encourage creativity and mutual engagement. We believe that these trends will only accelerate, and that the freedom to be able to choose where to live and work will likely have a significant impact on our target market.
• We believe that this calculation provides a more meaningful indication of actual year-over-year performance and eliminates the fluctuations from currency exchange rates.
• We believe our existing cash and marketable securities balances will be sufficient to fund our operating and finance lease obligations, capital expenditures and working capital needs for at least the next 12 months and the foreseeable future.

Industry Context

The company operates within the luxury hospitality and private membership club sector, which is experiencing a secular shift towards more flexible living and working arrangements. Its diversified membership platform, including Soho Houses, Soho Works, and other brands, positions it to capitalize on the growing demand for curated communities and social spaces. The strong membership growth and high retention rates suggest a resilient business model that compares favorably to broader consumer subscription trends, despite higher price points. The expansion into new geographies and complementary concepts like Scorpios Beach Clubs and The Ned hotels aligns with industry trends of brand diversification and experiential offerings.

Comparison to Industry Standards

• The company's membership retention rates are stated to compare favorably to leading consumer subscriptions or memberships across music, media, fitness, entertainment, and commerce, despite their significantly lower price points.
• The company's model of strengthening brand value through global expansion, rather than dilution, contrasts with traditional hospitality companies.
• The company's focus on 'curated communities' and 'social spaces' aligns with a broader industry trend of consumers seeking experiences and community beyond traditional corporate offices.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to any litigation other than litigation in the ordinary course of business.
• Management and legal counsel do not expect that the ultimate outcome of any of its currently ongoing legal proceedings, individually or collectively, will have a material adverse effect on the company's unaudited condensed consolidated financial statements.

Related Party Transactions

• Lease agreements with affiliates of Yucaipa and Raycliff Capital for properties including 875 Washington Street (New York), 9100-9110 West Sunset Boulevard (Los Angeles), 137 Ludlow Street (New York), Little House West Hollywood, Tel Aviv House, Le Vallauris restaurant (Palm Springs), Willows Historic Palm Springs Inn (Palm Springs), and 27984 Highway 189 (Lake Arrowhead).
• Hotel management agreements with Ned-Soho House, LLP (affiliate of Yucaipa) for The Ned London, Ned NY 28th, LLC (affiliate of Yucaipa) for The Ned New York, and Oryx Corniche Developments QPSC (affiliate of Yucaipa until April 2024) for The Ned Doha.
• Management fees received under hotel management contracts for The LINE and Saguaro hotels from affiliates of Yucaipa.
• Design service management agreements with affiliates, including Oryx Corniche Developments QPSC and GH123GREENWICH LLC.
• The company reported a combined related party receivable of $20 million as of June 29, 2025, and $31 million as of December 29, 2024, within Accounts receivable, net.
• $9 million of outstanding accounts receivable related to LINE LA Hotel management services was derecognized upon entry into the LINE LA Hotel Joint Venture.
• Yucaipa, through its participation in the Voting Group, has significant influence over the company, including control over decisions requiring stockholder approval.

Stakeholder Impact

• Shareholders: Positive impact from return to profitability, increased revenues, and Adjusted EBITDA. Potential for future share price appreciation due to strong operational performance and growth strategy. However, material weaknesses in internal controls and ongoing costs could be a concern.
• Members: Benefit from the expansion of Soho Houses and other membership brands, enhancing the value of their membership. Price increases for existing and new members could impact affordability for some.
• Employees: Strategic reorganization initiatives and ERP transformation may lead to changes in roles and responsibilities. Hiring of new personnel with specific expertise indicates investment in talent.
• Customers (non-members): Benefit from expanded offerings through Soho Home, Scorpios, and standalone restaurants.
• Creditors: Improved financial performance and cash flow from operations enhance the company's ability to meet its debt obligations. The undrawn revolving credit facility provides additional liquidity.
• Suppliers: Increased trade volume in Soho Home and new House openings likely lead to increased business for suppliers.

Next Steps

• Continue ERP system implementation, with remaining contractual commitments of $22 million expected to be settled over the remainder of 2025 and 2026.
• Further control expenditure, particularly regarding the timing of capital works and labor costs.
• Monitor compliance with BEPS Pillar Two Minimum Tax legislation for fiscal 2025 and subsequent reporting periods.
• Evaluate the impact of new accounting standards (ASU 2023-06, ASU 2023-09, ASU 2024-01, ASU 2024-02, ASU 2024-03, ASU 2025-03, ASU 2025-04) on consolidated financial statements and disclosures.
• Continue to grow the number of Soho Houses, with new leases signed but not yet commenced expected to open in fiscal years 2025, 2026, 2027, and 2028.
• Expand the Scorpios concept, with an expectation to open a third site in Tulum, Mexico.
• Grow the Cities Without Houses membership brand, leveraging intelligence for future growth in locations like Manchester, UK, and Milan, Italy.
• Continue to grow the Soho Friends membership brand in a measured way.
• Continue to bolster Transformation and Finance teams, including hiring personnel with US GAAP, internal audit, and SOX compliance experience.
• Address and remediate identified material weaknesses in internal control over financial reporting.
• Continue to evaluate the business interruption insurance claim of $5 million for Los Angeles properties impacted by wildfires.

Key Dates

Recommendation

While the company has demonstrated a significant financial turnaround, returning to profitability with strong revenue and EBITDA growth, and has a compelling growth strategy with high demand for its memberships, the persistent material weaknesses in internal controls over financial reporting present a notable risk. The need for ongoing remediation of these control issues, coupled with increased interest expenses and costs related to strategic initiatives, suggests that while the operational trajectory is positive, there are still internal challenges that warrant a cautious 'hold' stance until these governance and control issues are demonstrably resolved. The long-term potential is strong, but current uncertainties advise against an immediate 'buy' or 'sell'.

Keywords

Soho House, SHCO, Membership Platform, Luxury Hospitality, Private Clubs, Hotels, Co-working Spaces, SEC Filing, Quarterly Report, Financial Results, Revenue Growth, Profitability, Internal Controls, Risk Factors, Real Estate, Global Expansion, Lifestyle Brand, Membership Fees, In-House Revenue, Adjusted EBITDA, Capital Expenditures, Debt, Related Party Transactions, Corporate Governance, ERP System, Business Interruption Insurance, The Ned, Scorpios, Soho Works, Soho Home, LINE Hotel