Mister Car Wash, Inc. (NYSE: MCW) is a prominent player in the car wash industry. Recently, the company faced several challenges affecting its financial performance and growth outlook. These challenges include lower consumer spending and churn from the Platinum package.
Recent Financial Performance
In the latest earnings report, MCW achieved total sales of $239.2 million and an adjusted EBITDA of $75.2 million. Comparable store sales grew by 0.9% year-over-year, and the company added around 2.112 million Unlimited Wash Club (UWC) members during the quarter.
For FY24, management has guided sales between $988 to $1.016 billion, comparable sales growth of 0.5%–2.5%, adjusted EBITDA of $291.5 to $308 million, and adjusted EPS of $0.30–0.34.
Impact of Consumer Spending and Subscription Trends
MCW’s earnings growth outlook is tempered by weak retail demand. Retail sales declined by low teens in 1Q24, following a low double-digit decline in 4Q23.
Reduced demand negatively affects MCW’s revenue growth and future subscription growth. The current macroeconomic conditions, with inflation above the Fed’s target and high interest rates, do not favor consumer spending growth.
Fitch Ratings recently reported that consumer spending growth is expected to slow down, particularly in the second half of 2024.
Pricing Strategy and Customer Churn
During the quarter, MCW raised the monthly price of their Platinum offering by 10% to $32.99 from $29.99. While higher prices can support growth, there is a risk of increased churn towards lower-priced packages.
Management noted a slight uptick in churn, which refers to customers leaving MCW’s ecosystem rather than downgrading to the Base Plan. T
his price increase could result in more churn, especially among the existing base of Platinum subscribers, due to the significant price difference between Platinum and Basic packages ($32.99 vs. $19.99).
Performance of Titanium Product
MCW’s Titanium product has performed well, with a penetration rate above 20%, exceeding management’s target of 15%. Some markets ran promotions throughout the quarter, which ended in April or May. It is too early to determine if this penetration rate will be sustained without ongoing promotions.
Valuation and Growth Expectations
Given the weak consumer spending outlook and pricing headwinds from customers churning out of the Platinum package, MCW’s growth is expected to come in at the lower end of management’s guidance for both revenue and adjusted EBITDA.
The loss of volume and pricing has a higher impact on margins due to the fixed cost nature of MCW’s business. If growth meets expectations, the company’s valuation multiples could decrease, potentially trading down to around 10x forward EBITDA, similar to 2H23 when MCW reported approximately 7% growth.
Macroeconomic Conditions Should be Watched Closely
Mister Car Wash, Inc. faces challenges from weak consumer spending and churn due to recent price increases. While the company has seen some success with its Titanium product, the overall growth outlook remains cautious.
The impact of macroeconomic conditions and pricing strategies will be critical in determining MCW’s future performance.
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Dean is a freelance content writer who contributes to various Digital Media Companies and independent websites all over the world. He has over 20 years of financial industry experience, so it’s safe to say he’s well informed.
