Mister Car Wash, Inc. Q3 FY2024 earnings call

• Marketing efforts: Implemented full funnel media strategy, experimenting in new channels like digital out-of-home and increasing investments in existing channels. Plan to test different offers in Q4 and fine-tune messaging. - Titanium introduction: Exceeding expectations, with membership mix near 24%. - UWC member engagement: Strong, with member utilization constant and churn levels stable. - Retail traffic: Reaccelerating, with favorable weather post-hurricanes creating pent-up demand. - Expense management: Team managed expenses well, with labor and chemicals optimized. - Store openings: Opened 10 new stores, including 500th location. - Customer feedback: Net Promoter Scores strong, with focus on 'wow zones' and training teams to greet customers. Addressing vacuum efficacy issues by improving facilities maintenance. - Employee engagement: At record levels, indicating strong company culture.

Sales increased 7% to $249 million. Comparable store sales increased 2.9%, marking six successive quarters of positive comp store sales growth. Adjusted EBITDA increased 10% to $79 million. UWC sales represented 74% of total wash sales, with membership split: Base 39%, Platinum 37%, and Titanium 24% at the end of the quarter. Average Express revenue per member increased over 9% to $28.33 from $25.88 in the prior year. 10 new stores were opened, including the 500th location.

• Net revenue expected to be $988 million to $995 million. - Comparable store sales growth 2% to 2.5%, with 2% to 4% growth in Q4. - Adjusted net income $114 million to $117 million. - Adjusted EBITDA $313 million to $318 million, margin 31.7% to 32%. - Adjusted earnings per diluted share $0.35 to $0.36. - Interest expense approximately $81 million; rent expense approximately $110 million. - CapEx $330 million to $350 million; sale leaseback proceeds $120 million to $135 million. - Approximately 40 new greenfield locations. - Increased media spend in Q4, impacting operating income and adjusted EBITDA margins.

• Weather disruptions: Hurricanes caused store closures and impacted business, though subscription accounting for 74% of wash sales provided some insulation. - Competition: Potential impact on membership growth and market share. - Wage inflation: Affecting labor costs, though Q3 wage inflation was lower than modeled.

Q: Justin Kleber asked about the cadence of comps, including impact of hurricanes and October tracking.

A: Jed Gold responded that there was impact from the hurricane in July, but sequential improvement each month during the quarter continued into October, with mid-single-digit range in August, September, and further improvement in October, and guidance reflects the trend.

Q: Simeon Gutman asked about stickiness of Titanium and comp spread by market share.

A: John Lai said Titanium has been amazingly sticky with no degradation post-promotional closure, and comp spread has been even across market share cohorts, with universal demand for services.

Q: John Heinbockel asked about marketing initiatives and retail improvement.

A: John Lai discussed marketing initiatives including new mediums like digital out-of-home, and Jed Gold mentioned retail sales improved in back half of quarter with sequential improvement, impacted by pent-up demand post-hurricanes but quantifying market initiatives' impact is difficult currently.

Q: David Bellinger asked about CapEx reconciliation and retail improvement drivers.

A: Jed Gold said CapEx range reduction is due to timing of spend relative to store openings, and John Lai mentioned retail improvement influenced by pent-up demand post-hurricanes but jury out on retail macro consumer bottoming out.

Q: Michael Lasser asked about membership stabilization and 2025 drivers.

A: John Lai and Jed Gold discussed less competitive encroachment, focus on driving retail traffic, seasonality in membership growth, and focus on fundamentals including churn reduction and conversion rates.

Q: Christian Carlino asked about wage growth sustainability.

A: Jed Gold said Q3 wage inflation was lower than modeled, with Q4 expected to be in line with Q3, and importance of competitive wages for frontline talent.

Q: Robby Ohmes' related question about greenfield store preference and split.

A: John Lai stated focus on Express exterior locations due to strong demand, convenience, and stronger margin profile compared to interior cleaning locations.