Soho House & Co Inc.:
Dear Shareholders
This is my first note to shareholders since we bought control of
the company over a decade ago.
With all that’s gone on recently and my understanding that there
has been leaked confidential information from the special committee
process, I thought I’d proactively share my thoughts with you
directly in the event confidential information is indeed
leaked.
I’ve made hundreds of investments in my life, but none with a
business model I like better than Soho House.
It’s hard to read that we aren’t profitable when our Houses are
very profitable and create tremendous long-term value as an
in-place network.
I feel the real focus should be on mature Houses that are in
their second 5-year period of their growth curve, when the
profitability and durability of the units really kicks into
gear.
With approximately half our Houses still less than five years
old, we have substantial embedded value that will grow as those
Houses mature, even before adding a single new House.
Our post five-year Houses contribute on average 35% plus
House-Level margin, with some of our oldest Houses well above that,
making the network more valuable with time. This a unique and
really compelling feature of the business model.
Public companies always have a tug of war over short term vs.
long term profits. I’d again emphasize that this (to me) should be
about value creation more than anything.
Today Soho House is a public company. The Board and its
affiliates alone controls approximately 75% of the stock, there
aren’t many shares in the public’s hands.
We have bought back so much of the small float that at today’s
stock price the company can almost go private without any of us
writing a check.
When we went public I believed the market would reward growth,
but it seemed to quickly switch to rewarding free cash flow and
profit over our top-line growth.
So at this point in time we have all the costs of being a public
company with few benefits.
The recent negative write up caused the company to have an
outside audit firm be hired by an independent law firm.
It’s expensive to be a public company, this year it will be even
more for a forensic audit that confirmed there are absolutely no
issues and took critical management time away from the
business.
It’s important to note that this wasn’t anyone with knowledge of
some non-public fact.
On top of all this, management already spends a huge amount of
time on public company issues that could be better spent growing
and managing the business.
I’ve debated for some time whether Soho House should be a public
company.
To be honest the biggest argument I have with myself (it’s not
solely my decision and many other opinions matter) is that I’ve
never had shareholders lose money with me from an IPO of a company
I control.
My personal belief in the value being created at Soho House is
so strong that I’d rather just be patient, but my investing style
shouldn’t be imposed onto others.
Over time we’ve had inquiries about taking the company private.
As we reported, the Board formed a special committee to review any
transaction that would require me to be part of the future of the
company.
To be clear, I want to and intend to be an owner for the long
haul, but at this time I’m not part of a group and haven’t made a
bid (although I’m not prohibited).
We were shocked Friday when it came to my attention that certain
information from the special committee process had been leaked.
Neither the broader Board nor management have been part of the
special committee process, making this potential leak particularly
concerning to us, and warranted this statement.
To be clear, I’m not part of any bid at this time, but any
proposal that may be on the table requires me to roll my shares.
Hence the current need for a special committee.
In layman’s terms, the process is that the independent special
committee is advised by their bankers and lawyers as to the
appropriateness and the fairness of any proposal. Then I have to
agree to contribute my shares at that value. Then the independent
Board votes and then the minority shareholders vote, requiring a
“majority of the minority.”
In summary there are a lot of checks and balances.
There has always been a lot of investor interest in Soho House,
and now is no exception. It is one-of-a-kind. It’s not a hotel
company and it’s not a food and beverage company. It’s a membership
company with a lot of demand and very low attrition (which provides
a large and growing base of recurring revenues in the multiple
hundreds of millions).
The public market doesn’t seem to understand or fully appreciate
the value of Soho House, and the interest from the special
committee process has shown private buyers may be willing to
step-up and close the gap. However, it’s not for me to opine on the
fairness or the appropriate value of the company’s stock,
especially if I am not intending to be a seller.
In closing, given the mere potential of leaked information
involving the special committee process, I wanted to go the extra
step to share with you directly how I see the Company, any proposal
and the process.
Sincerely,
/s/ Ron Burkle
Ron Burkle
Executive Chairman of the Board, Soho House & Co Inc.
Forward Looking
Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this release that do not relate
to matters of historical fact should be considered forward-looking
statements, including, without limitation, statements regarding our
expected financial performance and operational performance in
Fiscal 2024, as well as statements that include the words “expect,”
“intend,” “plan,” “believe,” “project,” “forecast,” “estimate,”
“may,” “should,” “anticipate” and similar statements of a future or
forward-looking nature. These forward-looking statements are based
on management’s current expectations. These statements are neither
promises nor guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements, including important
factors discussed under the caption “Risk Factors” in our annual
report on form 10-K for the fiscal year ended December 31, 2023 and
as such factors may be updated from time to time in our other
filings with the SEC, which are accessible on the SEC’s website at
www.sec.gov. In addition, we operate in rapidly changing
environment. New risks emerge from time to time. It is not possible
for our management to predict all risks, nor can we assess the
impact of all factors on its business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements that we may make. In light of these risks, uncertainties
and assumptions, the forward-looking events and circumstances
discussed in this release are inherently uncertain and may not
occur, and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking
statements. Accordingly, you should not rely upon forward-looking
statements as predictions of future events. In addition, the
forward-looking statements made in this release relate only to
events or information as of the date on which the statements are
made in this release. Except as required by law, we undertake no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events
or otherwise, after the date on which the statements are made or to
reflect the occurrence of unanticipated events.
Non-GAAP Financial
Information
This press release contains Non-GAAP financial information. For
definitions of Non-GAAP Financial Information, refer to “Non-GAAP
Financial Measures” in our annual report on form 10-K for the
fiscal year ended December 31, 2023, which is accessible on the
SEC’s website at www.sec.gov. Reconciliations to the most directly
comparable GAAP financial measure cannot be provided without
unreasonable efforts and is not provided herein because of the
inherent difficulty in quantifying and allocating certain amounts
to Houses that have been open for five years or longer that are
necessary for such reconciliations, including adjustments that are
made for future changes in foreign exchange and the other
adjustments reflected in our reconciliation of such non-GAAP
financial measures, the amounts of which, could be material.
About Soho House & Co:
Soho House & Co (SHCO) is a global membership platform of
physical and digital spaces that connects a vibrant, diverse and
global group of members. These members use the Soho House & Co
platform to work, socialize, connect, create and flourish all over
the world. We began with the opening of the first Soho House in
1995 and remain the only company to have scaled a private
membership network with a global presence. Members around the world
engage with Soho House & Co through our global collection, as
at December 31, 2023, of 43 Soho Houses, 9 Soho Works, Scorpios
Beach Club in Mykonos, Soho Home – our interiors and lifestyle
retail brand – and our digital channels. The Ned in London, New
York and Doha, The LINE and Saguaro hotels in North America also
form part of Soho House & Co's wider portfolio.
For more information, please visit www.sohohouseco.com.
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