10-Q: Soho House Reports Q3 Net Loss Amidst Merger Uncertainty

Soho House & Co Inc. reported a net loss for the 13 weeks ended September 28, 2025, despite revenue growth, as a pending merger faces SEC review delays and operational costs rise.

Summary

• For the 13 weeks ended September 28, 2025, Soho House & Co Inc. reported a consolidated net loss of $17.010 million, compared to a net income of $0.718 million in the prior year period.
• Total revenues for the 13 weeks increased by 11% to $370.750 million, with Membership revenues up 14% to $122.702 million, In-House revenues up 5% to $126.088 million, and Other revenues up 16% to $121.960 million.
• For the 39 weeks ended September 28, 2025, the company achieved a consolidated net income of $14.631 million, a significant improvement from a net loss of $71.345 million in the prior year period.
• Total revenues for the 39 weeks increased by 9% to $983.418 million, driven by a 15% increase in Membership revenues to $354.239 million and a 4% increase in In-House revenues to $371.011 million.
• Adjusted EBITDA for the 13 weeks was $53.774 million (up 11%) and for the 39 weeks was $146.866 million (up 47%).
• The company recognized $22.899 million in business interruption insurance proceeds related to COVID-19 impacts in the UK during the 39 weeks ended September 28, 2025.
• An impairment loss of $2.102 million was recognized on long-lived assets (operating lease assets) related to legacy Chicken Shop Soho Restaurant sites in the UK during the 39 weeks ended September 28, 2025.
• The pending merger with EH Parent LLC (an affiliate of The Yucaipa Companies LLC) for $9.00 per share in cash is subject to shareholder and regulatory approvals, with the SEC review of the Proxy Statement delayed due to a federal government shutdown.
• The company had 213,830 Soho House Members and a total of 269,606 members across all brands as of September 28, 2025, with a global waitlist of over 111,000 applicants.

Sentiment

Score: 6

Explanation: The company shows strong revenue growth and a significant turnaround to net income for the 39-week period, driven by membership and strategic initiatives. However, a net loss in the most recent quarter, ongoing material weaknesses in internal controls, and merger-related uncertainties (including delays and potential termination fees) introduce notable caution. The positive long-term growth narrative is tempered by these short-term operational and strategic challenges.

Positives

• Total revenues increased by 11% for the 13 weeks and 9% for the 39 weeks ended September 28, 2025, demonstrating continued top-line growth.
• Membership revenues showed strong growth, increasing by 14% for the 13 weeks and 15% for the 39 weeks, driven by increased Adult Paying Members and fee increases.
• The company achieved a net income of $14.631 million for the 39 weeks ended September 28, 2025, a significant turnaround from a net loss of $71.345 million in the prior year.
• Adjusted EBITDA increased by 11% for the 13 weeks and 47% for the 39 weeks, indicating improved operational profitability.
• Receipt of $22.899 million in COVID-19 business interruption insurance proceeds positively impacted net income and cash flow for the 39-week period.
• The company's global membership platform continues to grow, with 269,606 total members and a substantial waitlist of over 111,000 applicants, reflecting strong brand demand.
• New Houses opened since the prior year (Soho House Sao Paulo, Soho House Portland, Soho Mews House, Soho Farmhouse Ibiza) contribute to revenue growth.

Negatives

• The company reported a consolidated net loss of $17.010 million for the 13 weeks ended September 28, 2025, compared to a net income in the prior year period.
• Operating expenses increased across several categories, including In-House operating expenses (up 8% for 13 weeks, 7% for 39 weeks) and General and administrative expenses (up 22% for 13 weeks, 11% for 39 weeks).
• A foreign exchange loss of $14.048 million was recorded for the 13 weeks ended September 28, 2025, a significant shift from a gain in the prior year.
• Impairment losses of $2.102 million were recognized on long-lived assets (legacy Chicken Shop Soho Restaurant sites) during the 39 weeks ended September 28, 2025.
• The Americas In-House revenues decreased by 3% for the 13 weeks and 0% for the 39 weeks, impacted by wildfires in Los Angeles and reduced footfall in Miami properties.
• Interest expense, net, increased by 9% for the 13 weeks and 6% for the 39 weeks, primarily due to the compounding of Senior Secured Notes debt.

Risks

• Uncertainties related to the consummation of the Merger, including obtaining Requisite Stockholder Approval and regulatory approvals, and satisfaction of other conditions.
• Potential for unanticipated difficulties or expenditures relating to the Merger.
• Obligation to pay a Termination Fee of $20.0 million and reimburse certain expenses if the Merger Agreement is terminated under specific circumstances.
• Adverse effects on business, relationships, operating results, and stock price due to the announcement or pendency of the Merger, or any delays.
• Provisions in the Merger Agreement that limit the company's ability to pursue alternative acquisition proposals.
• Risk of lawsuits against the company and its directors relating to the Merger, which could delay or prevent the Merger and distract management.
• Failure to obtain the Equity Financing or Debt Financing, or insufficient cash on hand to complete the Merger.
• Risk of a ticking fee for the Debt Financing depending on the Closing date.
• General economic and market developments and conditions, including inflationary pressures on consumables and wages, and consumer confidence.
• Unpredictability and severity of catastrophic events, such as acts of terrorism, pandemics, outbreaks of war or hostilities.
• Material weaknesses in internal control over financial reporting, leading to prior period misstatements and potential for future errors.
• Exposure to foreign exchange risk, particularly in Pound sterling and Euros, which could impact revenue and net profit.
• Liquidity risk if cash flows are insufficient to meet operating, lease, and capital expenditure needs, despite current belief of sufficiency.
• Commodity price risks on specialty foodstuffs, natural gas, and oil, which could increase costs and impact margins if not offset by pricing or efficiency measures.
• Tariff changes affecting trade with the United States could increase the cost of imported goods and disrupt sourcing strategy.

Future Outlook

The company anticipates continued growth in its member base by expanding the number of Soho Houses, scaling existing membership brands, and launching new ones. The pending merger, if completed, will result in the company becoming privately held, with Class A common stock delisted from the NYSE. The company expects to fund the merger through a combination of debt financing, equity financing, and potentially incremental equity financing or cash on hand. The company believes its existing cash and undrawn facilities 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, despite global economic uncertainties and inflationary pressures.

Management Comments

• "We believe the coveted lifestyle brand we have created has significant and proven growth potential."
• "This potential, combined with the stability of our membership base, we believe will enable us to maintain our position as an industry leader in the future."
• "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."
• "The power of our model is driven by the important role we believe that we play in our members lives and the value we consistently provide them for their membership fees."
• "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."
• "The demand for our membership is also demonstrated by our large and growing SHCO global waitlist, which as of September 28, 2025 stands at over 111,000 applicants."
• "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 this will create even greater demand for curated communities that can grow and thrive in thoughtfully designed, purpose-driven spaces."

Industry Context

Soho House & Co Inc. operates within the luxury hospitality and private membership club sector, which is experiencing a secular shift towards curated communities and flexible work/social spaces. The company's model, emphasizing strong member loyalty and high retention rates, positions it favorably against broader consumer subscription trends. Its expansion into new geographies and diversified offerings like Soho Works and Scorpios align with the growing demand for integrated lifestyle experiences. The company's ability to increase membership fees without significantly impacting retention suggests a strong brand and price inelasticity, a key advantage in a competitive market. However, the industry remains susceptible to macroeconomic factors like inflation and geopolitical events, which can impact operating costs and consumer spending patterns.

Comparison to Industry Standards

• The company's Soho House Member Retention rates are stated to compare favorably to leading consumer subscriptions or memberships across music, media, fitness, entertainment, and commerce, despite often higher price points.
• The global waitlist of over 111,000 applicants for Soho House memberships indicates strong demand and brand desirability, potentially outperforming typical growth rates for luxury membership clubs.
• The company's ability to implement high single-digit to low double-digit percentage price increases for memberships in January 2025 without material impact on retention suggests a stronger market position and brand value compared to many competitors in the hospitality or subscription space who might face greater price sensitivity.

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 the ultimate outcome of any currently ongoing legal proceedings to have a material adverse effect on the company's unaudited condensed consolidated financial statements.
• Potential lawsuits may be filed against the company and its directors arising out of the proposed Merger, which could delay or prevent the Merger or adversely affect the business.

Related Party Transactions

• The company has various lease agreements with affiliates of Yucaipa Companies LLC and Raycliff Capital, LLC (controlled by a former director), including properties in New York, Los Angeles, Palm Springs, and Tel Aviv.
• Management fees and cost reimbursements are received from Ned-Soho House, LLP (a joint venture with a Yucaipa affiliate) for operations of The Ned London.
• Management fee income is received from Ned NY 28th, LLC (a Yucaipa affiliate) for operations of The Ned New York.
• Management fees were received from Oryx Corniche Developments QPSC (a Yucaipa affiliate until April 2024) for The Ned Doha.
• Management fees were received for the operation of The LINE and Saguaro hotels from various entities affiliated with Yucaipa, though the LINE LA property transitioned to an equity ownership interest and the LINE DC hotel to a finance lease.
• Fees are received from Soho House Design services provided to affiliates, including Oryx Corniche Developments QPSC and GH123GREENWICH LLC.
• The company acquired an equity method investment in the LINE LA Hotel Joint Venture with CREP LA Hotel Holdings LLC (Corten), contributing initial capital of $15 million and $9 million in outstanding accounts receivable.
• A subsequent event involves Soho House U.S Corp. entering into a contribution and transfer agreement with OA3 LLC (a Yucaipa affiliate) to form a joint venture for The Ned, The LINE, and Saguaro hotel management agreements, where Yucaipa acquired a 51% controlling interest.

Stakeholder Impact

• **Shareholders:** The pending merger offers $9.00 per share in cash for unaffiliated stockholders, but delays and risks associated with the merger could cause stock price fluctuations or prevent completion. Unaffiliated stockholders will not participate in future upside if the merger is completed.
• **Employees:** Management changes (CFO transition) and ongoing strategic reorganization programs (including severance expenses) may impact employee morale and stability. The company is investing in strengthening finance teams and ERP implementation.
• **Customers/Members:** Continued growth in Soho House members and other membership brands indicates strong customer engagement. New House openings and enhanced offerings aim to improve member experience. Wildfires in Los Angeles impacted In-House revenues in LA properties, affecting customer access.
• **Creditors:** The company has significant debt, including Senior Secured Notes and property mortgage loans. The pending merger involves substantial new debt financing, which will alter the company's capital structure and leverage.
• **Suppliers:** Inflationary pressures on consumables and other costs could impact relationships with suppliers and potentially lead to higher prices or changes in sourcing strategy.

Next Steps

• Obtain Requisite Stockholder Approval for the Merger.
• Obtain regulatory approvals for the Merger.
• Complete the Debt Financing and Equity Financing for the Merger.
• Address and resolve material weaknesses in internal control over financial reporting.
• Continue implementation of the new modernized finance Enterprise Resource Planning (ERP) system, with remaining contractual commitments of $17 million expected to be settled over the remainder of 2025 and during 2026.
• Monitor and manage the ongoing business interruption insurance claim of $5 million related to Los Angeles wildfires.
• Continue to 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, ASU 2025-05, ASU 2025-06) on consolidated financial statements and disclosures.
• Integrate the newly formed joint venture for The Ned, The LINE, and Saguaro hotel management agreements, accounted for as an equity accounting transaction under common control.

Key Dates

Recommendation

The company demonstrates strong underlying business fundamentals with robust revenue growth, particularly in membership, and a significant improvement in net income for the 39-week period. The brand's appeal is evident in its growing membership and extensive waitlist. However, the pending merger introduces substantial uncertainty, including potential delays, regulatory hurdles, and the risk of termination. The identified material weaknesses in internal controls also warrant caution. While the merger offers a clear exit for unaffiliated shareholders at $9.00 per share, the current trading price may fluctuate during the pendency. For investors not participating in the merger, the long-term outlook is positive but overshadowed by the immediate strategic transaction and operational control issues. Therefore, a 'hold' recommendation is appropriate, awaiting clarity on the merger's completion and the resolution of internal control deficiencies.

Keywords

Soho House, Membership platform, Luxury hospitality, Private members club, SEC filing, 10-Q, Quarterly report, Financial results, Merger, Acquisition, Yucaipa Companies, Adjusted EBITDA, Revenue growth, Net income, Operating expenses, Risk factors, Corporate governance, Internal controls, Related party transactions, Debt financing, Equity financing, Hospitality industry, Lifestyle brand, Soho Works, Scorpios, The Ned, The LINE, Saguaro