Earnings call transcript: Mister Car Wash Q4 2024 beats EPS forecast, stock surges

Mister Car Wash Inc. (NYSE:MCW), with a market capitalization of $2.45 billion, reported its fourth-quarter 2024 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.09 compared to a forecasted $0.07. This performance sent its stock price soaring by 8.03% in after-hours trading. The company reported a 9% increase in net revenues for the quarter, driven by strategic innovations and expansion efforts, positioning itself strongly in the competitive car wash industry.

InvestingPro analysis reveals several key insights about MCW’s position in the market. Subscribers can access 7+ additional exclusive ProTips and comprehensive financial metrics to better understand the company’s market position.

Key Takeaways

• Mister Car Wash’s EPS exceeded expectations by 28.6%.
• Stock price increased by 8.03% in aftermarket trading.
• Revenue for Q4 2024 rose by 9% to $251 million.
• The company opened 40 new locations, surpassing the 500-store milestone.
• Launched a new Titanium membership service, contributing to revenue growth.

Company Performance

Mister Car Wash demonstrated robust performance in the fourth quarter of 2024, with net revenues increasing by 9% to $251 million. This growth was supported by the successful launch of the Titanium membership service, which now accounts for 23% of the membership mix. The company’s strategic focus on technology and digital innovations, including the appointment of its first Chief Technology Officer, Carlos Chavez, has bolstered its competitive edge. Mister Car Wash’s expansion strategy saw the opening of 40 new locations, bringing its total to over 500 stores.

Financial Highlights

• Revenue: $251 million, up 9% year-over-year.
• Full-year revenue: $1 billion, an increase of 7% from the previous year.
• Adjusted EBITDA: $78 million for Q4, up 13%; $321 million for the full year, up 12%.
• Net income for Q4: $31 million ($0.09 per share).

Earnings vs. Forecast

Mister Car Wash reported an EPS of $0.09, beating the forecast of $0.07 by 28.6%. The revenue of $251.2 million also surpassed expectations of $248.44 million. This marks a positive deviation from previous quarters, indicating improved operational efficiency and strategic execution.

Market Reaction

In response to the earnings beat, Mister Car Wash’s stock surged by 8.03% in after-hours trading, closing at $8.21. This rise contrasts with a slight decline of 1.17% during regular trading hours. With a beta of 1.63, the stock shows higher volatility than the market average. The stock’s performance remains within its 52-week range, with a high of $9.05 and a low of $5.84, reflecting investor confidence in the company’s growth trajectory. The stock has shown resilience with a 20.16% price return over the past six months.

Outlook & Guidance

For 2025, Mister Car Wash anticipates net revenues between $1.038 billion and $1.064 billion, with comparable store sales growth projected at 1-3%. The company expects adjusted EBITDA to range from $334 million to $346 million, with adjusted net income per share forecasted at $0.43-$0.45. Capital expenditures are projected between $275 million and $350 million, supporting further expansion and operational improvements.

InvestingPro rates MCW’s overall financial health as "FAIR" with particular strength in profit metrics. For detailed analysis including growth prospects and risk factors, investors can access the comprehensive Pro Research Report, part of InvestingPro’s coverage of 1,400+ US stocks.

Executive Commentary

CEO John Lai expressed confidence in the company’s brand strength, stating, "We’re building what we believe to be a beloved brand, a legendary brand, an enduring brand." He also emphasized the company’s strategic reevaluation of its market position and pricing strategies, highlighting the importance of maintaining a strong value proposition.

Risks and Challenges

• Market Saturation: The retail car wash market shows signs of stabilization, with potential mid-single-digit declines expected in 2025.
• Economic Pressures: Macroeconomic factors could impact consumer spending and membership growth.
• Competition: The industry is poised for consolidation, with a few dominant regional players expected to emerge.

Q&A

During the earnings call, analysts inquired about the potential for mergers and acquisitions and the impact of weather on retail performance. The management addressed these concerns by outlining their marketing investment strategy and membership growth expectations, reinforcing their commitment to long-term value creation.

Full transcript - Mister Car Wash Inc (MCW) Q4 2024:

Conference Operator: Good afternoon and welcome to the Mr. Car Wash Fourth Quarter twenty twenty four 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. 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. Klein.

Pardon me, it seems that we are experiencing some technical difficulties. Please hold while we reconnect.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Okay. Okay. Okay.

Conference Operator: Pardon me, this is the conference operator. We have reconnected our speakers. The floor is yours.

Eddie Plink, Vice President of Investor Relations, Mr. Car Wash: Good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year twenty twenty four 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. 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.

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. 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. 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. Thanks, Eddie.

Good afternoon, everyone, and thanks for joining our Q4 twenty twenty four earnings call.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: We ended the year with quarterly results that exceeded our expectations led by strong comp store sales growth of 6%. Q4 marked the seventh consecutive quarter of comp growth for Mr. Including the first positive retail comp since Q1 of twenty twenty two. 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%. 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.

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. 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.

Over the next few years, we expect the industry to rationalize and we are confident Mistral will be well positioned to capitalize as market share and consolidation opportunities present themselves. Disciplined 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. 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. 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. 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. 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. With respect to M and A transactions, we remain opportunistic and will continually evaluate opportunities that make make strategic sense.

Moving to number two, increase our innovative solutions. Our culture of innovation across product service and operations also sets Mistra apart. 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. That requires agility and a commitment to innovate across all segments of the company, whether reducing friction at point of sale, developing creative new marketing campaigns or pushing forward with industry leading technology and R and D. The end game is the same to consistently wow and delight our customers while increasing our competitive advantage. 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.

To that end, in Q4, we tested new media channels to expand our reach and launch digital promotions in select markets to drive retail traffic and we’re generally pleased with customer response. Moving forward, we remain customer obsessed evaluating and improving each customer interaction and and returning our attention towards driving stronger brand awareness and membership growth. This includes developing more robust segmented and targeted marketing aimed at increasing awareness and driving traffic. 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 of years.

The most recent being our first ever Chief Technology Officer Carlos Chavez who joined us at the beginning of the year. 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. 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.

As a 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. When I reflect on where our company was ten years ago with 136 stores and $250,000,000 in revenue to where we stand today at over 500 stores and nearly $1,000,000,000 in revenue, I couldn’t be more energized about our future. 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 MiSTer special. 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. 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. 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. 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. 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. 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. The favorable weather trends and retail improvement translated to more at bats and slightly more opportunities to trade customers into membership.

In addition, our subscription business remained resilient providing us with a significant and stable reoccurring revenue base. 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. 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. Titanium far exceeded our expectations for the year and we are pleased with how the team has executed the launch. 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, one relocation opening and two closures. 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. The full reconciliation of adjusted figures can be found in our eight K filing and earnings press release. Net revenues increased 9% driven by a combination of 6% comparable store sales growth and the contribution of incremental revenue from our new store openings.

UWC sales represented 75% of total WASH sales and we ended the quarter with more than 2,100,000 UWC members. On a year over year basis, the number of UWC members increased by 46,000 members or roughly 2%. At the end of the quarter, the membership split among base platinum and titanium was approximately 41%, thirty six % and twenty three % respectively. The average express revenue per member in Q4 increased 10% to $28.65 versus $26.14 in the fourth quarter last year. Total (EPA:TTEF) operating costs and expenses were $173,000,000 in the quarter.

As a percentage of net revenue, total operating expenses decreased 100 basis points to 68.8%. 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 scale in purchasing and shipping of chemicals. This was partially offset by increased labor rates. 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. Other store operating expenses increased 50 basis points to 33.1%, 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.

G and A expense decreased 40 basis points to 7.9% driven primarily by better expense management, partially offset by an increase in marketing expense. EBITDA increased 13% to $78,000,000 and EBITDA margin increased 100 basis points to 31.2%. Looking at the full year, EBITDA was $321,000,000 representing a 12% year over year increase. To echo John’s sentiment of how far we’ve come over the last decade, our 2024 EBITDA reflects a ten year compounded annual growth rate of 22%. Fourth quarter interest expense decreased by 7% to $19,000,000 primarily due to lower average interest rates year over year despite modestly higher borrowings compared to last year.

Finally, fourth quarter net income and net income per diluted share were $31,000,000 and $0.09 respectively. Moving on to some balance sheet and cash flow highlights at the end of the quarter. Cash and cash equivalents were $67,000,000 largely driven by proceeds from our sale leasebacks. Outstanding long term debt was $920,000,000 a $22,000,000 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.

Our balance sheet remains healthy and flexible and we continue to self fund our growth and expansion via sell leasebacks. 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 $98,000,000 Now I’ll provide some color around our initial 2025 outlook. With respect to sales, we are encouraged by the momentum we’ve seen build over the last two quarters. 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. As such, we are anticipating continued headwinds in retail though to a lesser extent than 2024.

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. This is largely due to lapping the full price rollout of Titanium in late Q2 and then more challenging comparisons in the back half. 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. 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.

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. In addition to greenfield expansion, we continue to look at other ways to drive the business. 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, but as we evaluate additional markets, we see opportunity to optimize the base UWC pricing more broadly over the course of the year. Looking at adjusted EBITDA, the high end of our range assumes a roughly 30 basis point uptick in margin compared to last year.

I’d like to note that this is despite the incremental rent expense resulting from the record number of sale leasebacks we executed in 2024. When looking at profitability on an EBITDAR basis, which excludes rent and the impact of sale leasebacks, we are anticipating even greater year over year margin expansion of 80 basis points at the high end. On the cost side, we expect to continue to leverage our G and A and slightly decrease G and A expense as a percentage of sales. 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. These efficiencies will be slightly offset by a modest uptick in our marketing investments.

We expect to remain active in the sell leaseback market during 2025. Sell leasebacks remain the most attractive source of capital for MiSTer. We are targeting proceeds of $40,000,000 to $50,000,000 during the year with a focus on leveraging the influx of buyer demand to further improve deal economics. In November, we took the opportunity to reprice our term loan and our revolving credit facility. We were able to reduce the spread on our term loan to SOFR plus two fifty basis points.

The reprice and recent pay down of our revolver coupled with a slightly more favorable rate outlook will help drive an estimated 20% reduction in interest expense compared to 2024. The full list of our initial outlook ranges for 2025 can be found in the table in today’s earnings release. But to recap the key items, we expect net revenue of $1,038,000,000 dollars to $1,064,000,000 dollars comparable store sales growth of 1% to 3% adjusted EBITDA of $334,000,000 to $346,000,000 representing approximately 4% to 8% growth year over year and representing a margin of 32.2% to 32.5%. We expect adjusted net income per diluted share of $0.43 to $0.45 per share representing growth of 15% to 22%. Finally, we plan for capital expenditures of $275,000,000 to $3.00 $5,000,000 during the year.

In closing, I would also like to thank the entire MiSTer team for their hard work and dedication. In a multi unit business, how the entire team takes ownership of their piece of MiSTer is what enables us to deliver great results. While 2024 was not without challenges, our team faced them head on executed strong and delivered where it counted most. Moving forward, we are well positioned and I look forward to continuing to unlock our potential. That concludes our prepared remarks and we will now open the call for your questions.

Conference Operator: We’ll now begin the question and answer session. And the first question will come from John Heinbockel with Guggenheim Securities. Please go ahead. 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? And then maybe John from a marketing standpoint, what’s the right level for you guys to spend that over the longer term? And how much do you when do you want to get there? Is that a multiyear journey or you get there this year?

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Hey, John. Thanks for the question. So with respect to our base pricing, which as we’ve shared previously, we’ve held the line since inception, which is over fifteen years ago. But when we assess the competitive landscape and compare where we sit vis a vis where the median market price is for base, We’re underpriced actually in a lot of markets. So we anticipate over the course of 2025 taking price in those markets where we see those opportunities.

We haven’t put together the specific schedule yet, but it is in play right now. And what we can tell you is that in markets where we did test to see what the impact would be with respect to elasticity and attrition and churn, we were very encouraged by the results. So that has given us confidence that we can pass this through relatively easily and see a nice flow through as a result. 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 off the knob as appropriately.

Conference Operator: And then maybe the follow-up. Maybe talk about your pipeline, right, the ’30 to ’35, what’s the greenfield pipeline look like? 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?

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Yes. So it’s actually a tricky question, John. You wove in a little bit of an M and A question into your greenfield growth strategy. So, yes, we are agnostic with respect to new unit growth. 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 be at the table and then strike when the iron is hot. I want to take a second to say 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 grow at all costs and scale just to scale. We’re building what we believe to be a beloved brand, a legendary brand, an enduring brand. And to that end, the businesses that we are looking at have to check those boxes. We’re definitely not bottom feeders. So on the greenfield pacing, again that’s somewhat of a judgment call.

Right now the 30% to 35% we think is a prudent number given internal bandwidth and making sure that we don’t get in over our skis. And right now that’s the number we feel comfortable with.

Conference Operator: The next question will come from David Bellinger with Mizuho (NYSE:MFG). Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Hey, everyone. Thanks for the questions. So comps up 6% this quarter. You’re guiding to the 1% to 3% next year. And 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 have you seen Q1 to date? And just any type of slowdown in the business or anything that give us more credence to that 1% to 3%? Yes, David. It’s Jed here.

Good to talk to you. Listen, as we look at Q4, we had a really strong October. It was just the strongest month of the quarter. We saw really strong growth both UWC and retail. Retail was up in the positive teens during October.

Total comp in October was low double digit growth. And there’s a correlation between really positive weather trends when we look at October and the results that we saw. November was the most difficult month of the quarter, little softer retail volume. Comps were up in the low single digit range. December bounced back with slightly positive retail trends and total comp in December in the mid single digit range, rounding us out to the plus six for the quarter.

The January 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 weather during the week and then the sun’s out in the weekend. I think so it’s a testament to the team that we have, the layout of our operations that we’re very well positioned when the weather cooperates. There’s nobody better positioned to process and wash vehicles than MISTER. 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 are you starting to see that penetration rate begin to top out in any way?

And what are your assumptions within the 2025 guide for Q3 sixty? Yes. Listen, so as we said in our prepared remarks, really happy with how Titanium performed. It’s exceeded our expectations. Focus has been helping drive trial and adoption.

We utilized some promotions to help drive it to that 25% penetration level that we saw in Q3. We believe some of those members who signed up at the promo price have churned out and often out of the promotion once the promotional period ended. We see this as an opportunity. We did not build in a lot of upside into the model in continuing to drive those penetration levels. So longer term we see some opportunities to longer term to drive this.

Although it will be at a much slower rate obviously than what we’ve seen launch to date. Yes, Jade, I just want to add the 60% as we look at it, 60% of our membership is premium in both platinum and titanium and that is a beautiful percentage. Got it. Thank you, both.

Conference Operator: The next question will come from Simeon Gutman with Morgan Stanley (NYSE:MS). Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Hey, guys. Good quarter. My first question, it’s back to this comp and the difference between the quarter and then the guidance. 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 the discretionary customer, the retail customer is less bad.

So I assume that’s flat or negative. So, yes, if you can put all of that together, would December be the proper run rate that’s unencumbered by weather? Yes. So what we’ve built into the guidance, Simeon, is that so in this type of 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, 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 twenty twenty four.

And that’s because the weather provided a significant uptick to our retail traffic in October. January, we saw we believe we saw that same weather benefit helping that retail traffic. 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 by the way and we’ve talked about in the past, has 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 the three, five, ten year average that we’ve seen in more normal times. Yes.

Sumit, I would just add. So to summarize what Jud just said, retail is improving, but we’re also wanting to keep both feet on the ground. We’re not here to say the retail customer is back, but we are seeing some encouraging signs that show that what we have experienced the last couple of 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.

Yes. 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 capacity needing competition that was the biggest holdback? And then the question I wanted to ask is a competitor private who declared bankruptcy, Curious about location overlap, the asset quality and then there’s other assets for sale out there and I heard how you’re approaching asset either acquisition or growth. I guess, I mean, the dominoes seem to be starting to fall and I think that’s what your model was prepped to benefit from.

Are any of these initial ones should help the business next year? Is that in the guidance range? I don’t know what happens with these assets, but should there be a benefit to that as well? Thanks. Yes.

So to answer the second part of your question first, there’s not a lot of overlap with the company that you’re referring to in our existing portfolio. So we don’t expect there to be a positive impact to our business as a result. That said, as the industry rationalizes and there’s some folks that are under some distress right now, where we do have some overlap that should help us in theory. But I think it’s going to take a while for all of that to flush out. And as a result, we don’t see any boost to the business in the near term, but over time in theory again it should.

The first part of the question was retail. You have retail and competition? Oh, yes. So Jed and I can both chime in on this one, but it’s really a combination of both, right? And if I were to wait one versus the other with respect to just the retail consumer under pressure due to inflation and or competition, it’s probably more slightly heavily weighted towards the competition and competitive intrusion than the consumer pressure as interest rates start 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, those stores that have a competitor that open within a three mile radius, we see an impact that lasts about eighteen 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 where those stores where the competition is greater than two years old are comping much stronger than the plus six that we recorded on the quarter.

Jed, can I add some color to that, Sue? When I talk to GMs that have been impacted during that first eighteen month period and then I say, what are you hearing from customers as they have come back? They will say, we missed the wave and the smile. We missed the appreciation that your front line team members gave us. And at the end of the day, there’s this 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.

Conference Operator: The next question will come from Justin Kleber with Baird. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Hey, good afternoon, everyone. Thanks for taking the question. John or just a follow-up on the M and 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 to take on additional leverage just given the current rate backdrop?

Yes. I think again when we look at some of the multiples that are starting to contract and really through the lens of where we see the upside potential and how we can lower that effective multiple, If we have to take on some additional levers, but then we can delever over time as we grow the bottom line and we have a clear path to growing, it starts with top line and then bottom line. We’re willing to lean in a little bit on leverage. And I think, Justin, I mean, that’s where the healthy debate, right, that comes in is it’s so 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 spoke to? 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 leverage is what are we actually purchasing which is a key part of that as well. Yes. 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 is 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 that will take a long time to hurdle business. Okay. Yes.

That makes sense. Thanks for that both of you. Just unrelated follow-up on as we kind of decompose the revenue growth for 2025, just any color how you’re thinking about or how you’re modeling UWC member growth this year? Yes. So on a comp store basis, as we think about membership growth slightly positive membership growth, Justin, is what we’ve assumed in the high end of the guidance the plus 3%.

All right. Thanks guys. Best of luck.

Conference Operator: Your next question will come from Michael Lasser with UBS. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Good evening. Thanks so much for taking my question. John, are you seeing evidence that the consumer’s attitude towards signing up for a wash subscription is changing particularly versus a couple of years ago when the novelty of this innovation and introduction in the industry was newer. And the reason why I ask is, while retail trends are better, the business does seem to be becoming more weather sensitive and member per location has been under pressure probably in part by some of the locations newer locations that you have added and those are still ramping up. 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 some degradation in numbers at the low end of the comp range. Thank you. Hey, Michael, thanks for the question. So at the very core, we believe that the subscription TAM is under subscribed. In that when we zoom out and look at The U.

S. Car park and the number of folks that we’re estimating had subscription planned today, we see room for growth. When we look at and so more nuanced to your specific question around have we seen any customers less willing to sign up? The short answer is no. 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 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. So we’re going to continue on this path and we’re uncertain how high the trees will grow. But listen, we have a whole bunch of stores in our portfolio that are north of 10,000 members per store. And once you convert a customer into membership and they keep their car clean all the time, it’s really hard to revert back to having a dirty car. And Michael just to add to that a little bit.

One of the data points that we’ll look at right as a barometer as to whether consumer behavior has changed and how they feel about signing up is that capture rate. Capture rates have been consistent at about that kind of 9% to 10% level fairly consistently for the last few quarters. And then just one clarification for everybody on the call. 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.

Thank you for that. My follow-up question is, as you laid out your one to three comp expectation for the year with stronger trends in the first half and softer trends in the back half, in the comment that you have heard it 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 twenty twenty five? And why would that be the case? 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 and listen, what we’ve seen in February is those retail volumes and comp store sales growth has moderated to be more in line with our expectations to where we believe our Q1 plan and forecast is close to in line with what we’ve got built into the guidance.

Conference Operator: Okay.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Thank you very much and good luck. Thank you.

Conference Operator: The next question will come from Chris O’Cull with Stifel. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Thanks. First, I had a follow-up question, Jed, on regards to the recent comp trend. And how should we think about the impact of weather and its impact on the subsequent period? For example, I think you said October was strong because of the weather, but November was a sharp pullback. Is that the type of dynamic we should think about when a period is impacted by strong weather?

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. 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.

Yes. Chris, I will say though, I’m getting a little reminiscent right now going back in time where you literally would start every morning by looking at the weather report. 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. And when you have 75% of your business that’s recurring and predictable, we’re really talking about that other 25% which is really the basis of your question.

But we thank our lucky stars every single day that we’ve built this really, really strong river base that makes us a lot more stable for the long haul. Yeah. That’s helpful. And then I know you have several marketing tests and programs underway, but what do you believe will be the key drivers for retail sales growth this year? 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 the value of our brand is really, really important to us. And when we think about how we’re positioned in the marketplace, we have 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. So to that end, 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 we will this will be an ongoing effort for us. Okay. Great.

Thanks guys.

Conference Operator: The next question will come from Philip Blee with William Blair. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Tom, Jeff, 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 you’ve talked about? And then how we should think about any potential for incremental margin fall through on sales upside here? Yes.

So I think, Philip, as we think about the expense and particularly as we look at EBITDA, I think our confidence is I mean, 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 that we start to anniversary in January of twenty twenty five and then also the tailwind of the optimization of our interior clean labor, which we start to anniversary late Q1 early Q2. 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. But I mean, I think this is this really is where and I shared it in my prepared remarks, it’s the team thinking like owners.

And what we’ll see is different savings initiatives a few hundred thousand in savings here and there across the P and L just given the fragmented nature of some of the expense management across the team. So from an EBITDA margin perspective kind of 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. So we expect the tailwind of titanium helping drive the top line 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, both of which flow through very nicely and help drive modest margin expansion. Yes. 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. And that comes in investment cost. Okay, great. Excellent color. And then I just wanted to ask a quick question then going back to kind of the competitive space.

Spoke a bit about it, 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 answer is no, but 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 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 the value of that business. But there’s really just there’s a mixed bag.

And then there’s some really good stuff out there that may command a premium and we want to look at those as well. So there’s some good, there’s some marginal, there’s some under deep distress. And we from a competitive intelligence standpoint have a pretty good finger on the pulse through kind of a traditional SWOT analysis of what their strengths are, where the opportunities lie. And really strategically the why behind why it makes sense for us to lean in and through two different lenses. One would be strengthening our position in existing markets.

So if we have a stronghold, we’re able to double down and increase our market share through a I guess technically a bolt on, but where it would materially improve our position in a market. That strategic why 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 that helps us also fulfill our more global ambition, which is to continue to expand and become America’s Car Wash. And then just to build on the second part of the question, we don’t build any M and A into our guidance, into our outlook.

It’s timing perspective and how this rationalization plays out. It’s difficult to predict, it starts to become fairly speculative. So we choose not to build that in as an input into the model. Okay. Great.

Thank you, guys. Appreciate it.

Conference Operator: Your next question will come from Peter Keith with Piper Sandler. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: 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?

Well, Peter, you might have better intelligence than I do given how active you’ve been in the space and I’m saying that with a smile on my face, because I know you’re talking to a lot of folks. And I think there’s probably I’ll 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 ask me to throw out a number, I would say $20.24 was perhaps in the $5.50 range of units. And there’s a margin of error inside of our estimate.

Okay. Very good. And I’ll try to get back to you on 2025 myself. Moving to pivot to Jed. So the sale leaseback proceeds are stepping down quite a bit year on year.

I don’t think it’s going to have an impact. I did want to ask about the 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 can 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?

Yes, Peter. We feel good about the trends right now in the sell leaseback market. 21 closure closed on 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. We’ve had an influx of calls if anything since the announcement of our competitor and some of their financial struggles particularly early in that 10/31 market people wanting to buy these. Our focus this year as we look ahead to 2025 is really how do we drive cap rates even lower given this outsized demand from buyers that are interested in purchasing misters. So feel good about our ability to earn the 40 to 50, purely strategic and just given the amount of cash that we currently have on the balance sheet now and our ability to fund our growth and expansion plans for 2025 and 2026. Chad, the only thing I would add is that when I talk to some of the REITs, so certainly there’s the economics around the business and how that pencils out in terms of the coverage ratios and rent as a percentage of sales.

But what I’m also hearing is that they’re putting more weight against the quality of the tenant and having a best in class operator with solid balance sheet is super important to them. And so it’s hard to paint a broad brush when they look at Mr. Car Wash and how well we perform, how responsible we’ve been with respect to not settling the super high rents and pushing the proceeds line. And just seeing how one, we pay our rent consistently on time. But if you’re going to pick a car wash operator to partner up with, you want someone that has a long track record.

And so we think we check that box. Okay. Very good. Thanks so much.

Conference Operator: The next question will come from Tristan Thomas Martin with BMO Capital Markets. Please go ahead.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Good afternoon. Just one question for me. The base price increases, could this maybe be a leading indicator of a more normalized cadence of price increases, I. E. We will see one before another fifteen years?

Yes. So our cadence is once every fifteen years. I don’t know if your spreadsheet goes out that far. It is not. It is my attempt at spreadsheet humor, which which is anything behind our spreadsheet.

But no, listen, Costco (NASDAQ:COST) 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 reevaluate our position in the market. We want to look at our price to value relationship and then really understand where the market sits and then cautiously take pricing when those opportunities arise. But as corny as it sounds, we believe we need to earn the price increase.

We need to look consistently deliver great value to the customer. And our business is unique in that it’s repeatable business. So you have to earn their business every single day, every single visit. And people could be very particular, very finicky when it comes to their car. And if we’re not getting a clean dry shiny car, we’re not doing it in an efficient speedy way.

And if our people aren’t showing our customers the respect and the love if you will that they are looking for, we don’t feel that we have a lock on anything. So we have to earn their business every single day. Okay. Thank

Conference Operator: you. Your next question will come from Robbie O’Mearns with Bank of America. Please go ahead. 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 $275,000,000 to $3.00 $5,000,000 I think it’s been running more like $330,000,000 the last couple of years. Can you just remind me what the change is this year versus the last couple of years?

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Yes, Ravi. 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 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.

Conference Operator: Terrific. Thanks. That clarifies for me. Thanks so much. The last question of today will come from Christian Carlino with JPMorgan.

Please go ahead.

Jed Gold, Chief Financial Officer, Mr. Car Wash: Hi, good afternoon. Thanks for taking my question. You had previously talked about opening more than 40 locations this year and understanding you’re being more surgical about your opening plans. 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 refresh approach to greenfield openings mean for your long term unit growth expectations beyond ’25?

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Yes. I’ll start and then Jed you can chime in. But as we reassessed our entire pipeline against this more competitive backdrop, 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 an advantage.

If there is 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 architecture work etcetera, we find that there’s a new car wash within a two to three mile radius. We need to reevaluate what we believe that store’s potential to be and again remain disciplined. If we don’t think it’s going to get to what our minimum expectations are, then we need to make a decision on whether or not we want to move forward. So to that end, we’ve skinned it down a little bit and tightened it, if you will, to ensure a greater success rate. And we think that that’s prudent as we continue this March.

So it’s not about hitting any set number per se. And for us, we want to be very intentional with respect to how we grow. 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 earning process.

So to John’s point, we had a handful that fell out of the pipeline because of the as we rescored these before we really started to incur larger development costs. We also had a handful that were delayed just as we go into certain markets the permitting and approval process taking a little bit longer and that’s just going to be a timing thing. Those will open in 2026 now instead of 2025. And I I mean given the long lead times to open new stores, we weren’t in a position to 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 their our greenfield expansion and the ability to fields and how their our greenfield expansion and the ability to develop in our target markets. We see several sites in the pipeline and we continue to search out new sites that meet our strict criteria.

Jed Gold, Chief Financial Officer, Mr. Car Wash: Got it. That’s helpful. And as a follow-up, I guess, that’s my

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: to follow-up on some of

Jed Gold, Chief Financial Officer, Mr. Car Wash: the earlier questions. I know you said there’s no near term impact from the competitor bankruptcy. But in that context and the fact that the industry is slowing openings significantly relative to the past few years, what does this mean at a high level for the industry? Like is this recent competitor unique or are there other big platforms in a similar position? And sort of a tangent is does that steep deceleration in openings for the industry have any implications for your own growth plans with respect to your equipment suppliers’ financial position?

Thank you.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: Yes. I can’t speak to their position. I think they’re doing quite well though even with the slight decel in new unit growth. But listen, long term, we look at it through kind of a regional lens versus a national lens and then a regional basis. Over time, this is our prediction that there will be in market three maybe on the high end five dominant players in any one region.

There will never be one person that owns 100% 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 our prediction is that there’s going to be more consolidation over time and that some of the folks that were in this not to build an enduring brand, but to hopefully monetize at some point. 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.

Jed Gold, Chief Financial Officer, Mr. Car Wash: Got it. Thank you very much. Best of luck.

Conference Operator: 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.

John Lai, Chairman and Chief Executive Officer, Mr. Car Wash: 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 Mahal’s. But for me, it’s really the litmus test of how well we’re performing. So this morning, I went to a store that has over forty years on the odometer here in Tucson called Broadway and Euclid.

And I was pleased to see the wave and 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.

Car Wash is. So across now north of 500 plus stores, we’re only as good as our weakest link. 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 twenty twenty five. We’re very optimistic about this upcoming year and we can’t wait to share our results in the next earnings call. Thanks, guys.

Conference Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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