Mister Car Wash Inc
NYSE:MCW
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Mister Car Wash Inc
Earnings Call Analysis
Q4-2023 Analysis
Mister Car Wash Inc
This past year, Mister Car Wash showcased resilient performance amidst economic headwinds, posting a 7% increase in sales to $230 million for Q4, while adjusted EBITDA rose by 5% to $69.5 million. The company also saw a modest 0.7% bump in comparable store sales and ended the year with 476 locations. The full year's same-store sales nudged up by a slight 0.3%, with 35 new greenfield locations and 6 acquisitions enhancing the enterprise's footprint.
The firm's strategic emphasis shifted from net member growth by converting retail customers into Unlimited Wash Club (UWC) members towards upselling current members to the newly introduced 'Titanium' premium service. This pivot is expected to yield modest net member growth but will significantly increase revenue per member, marking an evolution in their growth strategy.
Mister Car Wash faced a slowdown in retail volume, impacted by broader economic challenges and increased competition. However, the entry of new market players slowed down in 2023, suggesting a market reset that could lead to stabilization trends in 2024 and beyond.
The company is poised for aggressive expansion with plans to open 40 new locations, simultaneously focusing on inorganic growth through mergers and acquisitions to strengthen its market presence. Additionally, the firm prides itself on an effective leadership development program that has seen 90% of its store managers ascend from hourly wage roles.
The fourth quarter witnessed Mister Car Wash's performance aligning with its guidance, supplemented by strong financial discipline that led to higher-than-anticipated results in adjusted EBITDA and adjusted net income. This financial prudence underscores the company's operational efficiency.
The rollout of the Titanium service was completed ahead of schedule, culminating in nationwide implementation and driving a promising increase in adoption rates. UWC member count increased by 10.3% year-over-year, with 6,000 new members added in Q4 alone, signifying a robust growth trajectory for the company's subscription base.
Q4 marked the opening of a record 14 new greenfield locations, underpinning Mister Car Wash's dedication to investing in high-return assets. The company balanced this expansion by attentively managing operating expenses, which, excluding stock-based compensation, rose to 81.2% of revenue. Increases in expenses were primarily driven by other store operating expenses, partially offset by a drop in labor and chemicals costs.
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Good afternoon, and welcome to Mister Car Wash's conference call to discuss financial results for the fourth quarter and fiscal year ending December 31, 2023. [Operator Instructions] Please note that this call is being recorded, and a reproduction of this call, in whole or in part, is not permitted without written authorization from the company.
Speaking from management on today's call 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 for questions.
During the conference, 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 mistercarwash.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. Please be advised that the statements made today are current only as of this call and are based on the company's present understanding of the market and industry conditions. While the company may choose to update these statements in the future, they are under no obligation to do so unless required by applicable law or regulations. Please review the forward-looking statement disclaimer contained in the company's latest annual 10-K and 10-Q reports as such factors may be updated from time to time in other filings with the Securities and Exchange Commission.
I would now like to turn the call over to Mr. John Lai. Please go ahead, sir.
Good afternoon, and thank you for joining our Q4 earnings call. This past year, we delivered solid results driven by our focus on continuously improving our services, our physical plans and our teams, which resulted in a better overall experience for our customers. Our obsession around delighting our customers begins with delivering a consistently clean, dry and shiny car with exceptional customer service in a super speedy way, all of which takes a team of highly trained and motivated operators who love what they do.
During the fourth quarter, our results were in line with our expectations. Sales grew 7% to $230 million. Adjusted EBITDA increased 5% to $69.5 million. Comp store sales increased 0.7% and we opened 14 new greenfield stores and ended the year with 476 locations.
Reflecting on the year, it was one of the more challenging years, but it was also a year where we demonstrated our [indiscernible] by working through some macro forces such as increased competition, high inflation, high interest rates and an abnormally tight labor market. Despite these pressures, we were able to grow sales by 6% and adjusted EBITDA by 1.5%, same-store sales by 0.3%, and we opened a record 35 new greenfield locations and acquired 6 locations, all while adding 194,000 new UWC members.
What we're most excited about is the introduction of Titanium, our new super premium service, which will act as a nice tailwind to revenues over the next several years, as we trade people up to our new premium membership plan. I'm extremely pleased to report that we were able to compress our rollout time line and convert our entire portfolio ahead of schedule and now have 100% of our stores with Titanium.
We're just now beginning to see the fruits of our labor as introductory promotional offers roll off in select markets. Early-stage adoption rates are exceeding our expectations from a percentage of members in the program standpoint. Jed will share more details in a second about what we're seeing.
As we think about our Unlimited Wash Club and how that's changed every aspect of our business, it's important to note that for many years, our primary focus has been on net member growth that can bring retail customers into members. Over the last 6 months and into 2024, we're going to prioritize trading up existing members into Titanium versus converting retail customers into UWC members. Given our multiple lanes format, we're now positioning our guest services specialist in the membership lane to accomplish this task. As a result of this shifting focus, we're expecting a period of more modest net member growth offset by the tailwind of accelerated growth in revenue per member.
Retail volume has been a headwind for us and appears to be weaker across the sector, driven by a more difficult overall economic environment for consumers and an increase in competitive activity. The good thing is that 2023 was the year when the number of new units coming in the market began to moderate. After years of explosive growth, the market is resetting, which is a good thing and we believe that things will begin to abate in 2024 and dial down in 2025.
While others are pressing pause, we're pushing full steam ahead. The next several years will be a period of opportunity for Mister Car Wash, opportunities for us to advance our position in the market but do it in a disciplined and opportunistic way. With a strong balance sheet, access to capital and a long history of being a best-in-class operator, we're in a great position to play offense while others are playing defense.
Looking ahead into 2024 and moving at a pace that feels right to us, we plan to open approximately 40 new [ Express ] locations and from an M&A standpoint, continue to evaluate good opportunities that help us densify and fortify our leadership position across the country.
And finally, we're on a multiyear path to accelerate our leadership development program, which is our pipeline for [ features ] to our managers. We're very proud of the fact that 90% of our store managers started their careers as hourly employees and building an organization from the ground up, 1 meter at a time has created an amazing team that knows how to process cars efficiently and maximize throughput during peak demand.
When asked about our competitive advantage, I don't even blink when I say it's our operations team and the support infrastructure we have developed that's allowed us to elevate our standards and scale our business to heights no one thought was ever imaginable. In the end, it's all about people, and we're very proud that throughout our journey, we've never lost sight of our guiding principle, which is to take care of our people who take care of our customers who, in turn, will allow us to generate extraordinary shareholder value over the long run.
I will now turn the call over to Jed to provide more commentary on our financial results.
Thank you, John, and good afternoon. Overall, we had a solid fourth quarter. From a top line perspective, sales were within our guidance range, comp trends were strong in the first half of the quarter and moderated as the quarter progressed, primarily on the retail side. From a bottom line perspective, the team exercised strong financial discipline and adjusted EBITDA and adjusted net income came in ahead of our guidance range. We managed expenses well in the quarter and are finding opportunities to operate more efficiently.
As John indicated, we completed the rollout of Titanium ahead of schedule, and we are now focused on driving trial and adoption across all our locations nationwide. As noted on our previous earnings call, our initial penetration target for UWC was at least 10% of UWC subscription mix within a year of implementation. We have already surpassed that goal and Titanium penetration levels are running over 15%.
With that said, let me run you through the fourth quarter numbers. In the fourth quarter, total net revenue increased 7.4% and comparable store sales increased 0.7% versus last year. UWC sales represented nearly 74% of total wash sales, and we added 6,000 net members in the fourth quarter. On a year-over-year basis, the number of UWC members increased 10.3%. The performance of our subscription business remained very stable in the quarter. Core churn rates outside of the Titanium promotional offering remained in line with the historic ranges.
On the development side, we opened 14 new greenfield locations in the fourth quarter, which was a quarterly record. Greenfield returns remain very strong and continue to be the highest and best use of our capital. On the expense side of the business, we remain focused on managing expenses and optimizing the investments we are making to support the long-term growth and development of the business. We are also identifying areas where we can leverage our scale to drive efficiencies and do even more with less.
Excluding stock-based compensation and as a percentage of revenue, total operating expenses increased 170 basis points to 81.2% year-over-year. The main drivers were labor and chemicals decreased 53 basis points to 28.9%, other store operating expense increased 175 basis points to 40.6%. G&A expense was flat at 10.1% and gain and loss on the sale of assets increased 45 basis points to 1.6%.
Breaking this down a little further, the labor and chemicals benefited from better staffing models focused on maximizing throughput and delivering a great customer experience. Our team works with a sense of purpose and it's one of our strengths. This was partially offset by an increase in average hourly wages. Other store operating expenses increased primarily from an increase in rent expense and from the fact that we have 45 more car wash leases compared to the same time last year as a result of the additional sale-leasebacks done over the 12-month period.
In the quarter, cash rent expense increased 13% to $26 million. G&A expenses, excluding stock-based compensation expense as a percentage of revenue were flat year-over-year, and we are starting to leverage the growth investments made over the past few years. In the fourth quarter, interest expense increased to $20 million from $14.9 million last year due to higher interest rates and the expiration of our interest rate hedge in October of 2022.
Our GAAP reported effective tax rate for the fourth quarter was 26.8% compared with 25.1% for the fourth quarter last year. Adjusted net income and adjusted net income per diluted share, which adds back stock-based compensation and certain noncore operating expenses were $24 million and $0.07, respectively, in the quarter. Fourth quarter adjusted EBITDA was $69.5 million, up 5% from the fourth quarter of last year. Adjusted EBITDA margin was 30.2% versus 30.9% in last year's fourth quarter.
Moving on to some balance sheet and cash flow highlights. At the end of the year, cash and cash equivalents were $19 million and outstanding long-term debt was $897 million. Our balance sheet remains healthy, and we continue to self-fund our growth and expansion. We completed 5 sale-leaseback transactions involving 5 car wash locations in the fourth quarter for an aggregate consideration of $23.8 million. We continue to see healthy demand at favorable rates in the sale-leaseback market.
Lastly, let me make a few comments around guidance and some of the factors that help shape our initial outlook for 2024. First, we expect to open approximately 40 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. 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.
Second, we will continue to promote Titanium across various markets to drive trial and adoption, particularly across our base of approximately 2.1 million Unlimited Wash Club members. Once customers experience the speed and convenience of being a member of our Unlimited Wash Club or the shine and efficacy of Titanium, the majority of them recognize the value and continue with the program beyond the promotional pricing period. We tested this to varying degrees last year and we'll be relaunching introductory pricing promotions in certain markets this year to help drive trial and adoption even further. This will drive Titanium penetration rates, but will also put some short-term limits around revenue lift and flow-through from Titanium this year, particularly in the first half.
Third, last year, we grew UWC by just over 10% with 35 new greenfield openings and 6 acquisitions. This year, we are targeting approximately 40 new greenfield openings and focused on driving Titanium conversion and revenue per member.
Fourth, we expect G&A growth to slow a little, 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.
Lastly, we are not anticipating any changes in the macro environment. Many consumers remain challenged, and we have not seen a meaningful consolidation across the industry yet, which we think warrants a certain level of cautiousness in building our initial outlook for this year.
Full list of our initial outlook ranges for 2024 can be found in the table in today's earnings press release.
In closing, I would like to thank the entire Mister team for their work and dedication. We are in a team that cares for one another and our customers. 2023 was another important year in our long-standing history. We came together as a team and delivered strong execution and with solid results and it's a testament to the culture and type of people at Mister. With that, we are happy to open the call to questions.
[Operator Instructions] Our first question comes from Peter Keith with Piper Sandler.
I wanted to follow up on a couple of the comments you made around Titanium 360 rollout. So you mentioned that you've already reached 15% penetration. That was a little bit confusing. So I'm wondering if that was at some of the earliest test stores, if you could clarify. And then secondly, you mentioned the probably limited benefit from T360 in the first half. And I guess is that -- I think it's from promo pricing, but maybe you could just help us understand why promo pricing is driving no benefit, but you're already at 15% penetration in some stores.
Yes. Peter, this is John. Good to hear from you. So we're still in execution mode. And we're going to get -- we're going to continue to get better at upgrading our members over time. We are ahead of where we thought we were going to be at 15%. We expect that number to grow quite frankly. But with respect to the promotions that we have put in place to encourage early adoption, we are now just on the cusp of having those promotions roll off, and we're going to enjoy, I think, a nice tailwind from a revenue standpoint as we get further down the road here as the months progress.
Yes, Peter, just a little bit more color around that and the impact of Titanium in Q4. You had touched on it right. So overall, pleased with Titanium, how it's mixing, right, mixing just north of 15% overall, but the impact during Q4, it was just a little bit muted because of some of the promotional offers that we are using to drive trial amongst our members.
Okay. Very good. And then maybe on the retail side of the house, that a little bit of softness in the back half of Q4, any observations on what's driven that? It seems like the retail side, probably industry-wide, just can't seem to get off the map. And then maybe any commentary with Q1 with some of the erratic weather. Is that something we should keep in mind as we're modeling our Q1 comps?
Yes, Peter. So you touched on it right. So as we've talked about that retail volume, it is a little bit more susceptible to some of those exogenous factors such as gas prices, right, some of the discretionary spending events, gas prices, and also competition is having some impact there on the retail side of the business as well. But retail comparables in the second half of Q4, they did moderate from where we were seeing them at the time of the Q3 call to where we, overall, in the quarter, we saw just a little bit of moderation on the retail side of the business relative to where we were during Q3.
And as we look at how that's translated into Q1, really tricky to say Q1 2024 -- just because of the extreme cold, the weather throughout much of the country. Last year, we talked about the impact of the weather on the business. As we look at the number of precipitation days in those markets where we operate, it's actually higher this year even than it was last year when we looked at it during January. Overall, January comp was still positive, but it did fall short of what we were expecting. So it's really difficult to come to any conclusions just because of the early quarter weather impact that we saw.
I would say for Q1 2024, we do expect positive comps just given how we typically see the months play out, March being the stronger month historically of the first quarter.
The next question comes from Justin Kleber with Baird.
Just a follow-up first on Titanium. The market that got the service, I guess, almost a year ago, kind of where is penetration trending in those areas? And then can you isolate what type of same-store sales uplift you're embedding in that -- in the '24 comp outlook from Titanium?
Yes. So I don't know if we're going to be able to drive -- or you're going to be able to drive much from the early regional launches because, quite frankly, we weren't promotional. We were launching and focused more on product efficacy and making sure that the product profiles were where they needed to be. Once we got those in place and we check the quality and performance box. We then started to look at more effective ways that we could trade people up. So the RPC lift, I think, is, again, something that we're going to enjoy going forward in, I should say, RPC and RPM. But for the early-stage regions, there's really not a lot to draw upon.
And then just on the second part of your question, just the full year 2024 guide of 0.5% to plus 2.5%. So from a Titanium mix, right, we're mixing at about plus 15%. I think the variable there is how quickly we get these markets on a regular way pricing which as John had highlighted, we're moving quickly towards. And then the variable of what happens to how retail sales perform. To get to the high end of the guide, the plus 2.5%, we -- you don't have to model an improvement in the retail trends that we saw in Q4 in order to get to the plus 2.5%.
Got it. Okay. That's very helpful. And then John talked about having a strong balance sheet and access to capital. So the question is around what you're seeing in the M&A environment and how comfortable would you be in taking on additional leverage if there was a transformative M&A opportunity that became available at a reasonable price.
Yes. I'm going to kick that one over to Jed because he's our leverage king with respect to the balance sheet.
Yes, Justin. So I think when you look at this business and just the amount of free cash flow that's generated, right, there's a lot of cash, a lot of that's committed right now for greenfields. When it comes to leverage that we ask ourselves, what are we going to use the leverage for? And if the return profile is where it makes sense, it's an acquisition that's going to fit in with the broader portfolio, we're going to be strategic and opportunistic about M&A. Having said that, we do recognize that we're sitting at the high end of the 2 to 3x target that we've put out there, and it's going to have to be a really good asset for us to lean in.
Yes. And Jed, I would add, though, that we can justify leaning in when we can pro forma out year 2, year 3 growth, which will lower that effective multiple, which will help us get our ratios in line or more in a better place. So if we -- if there wasn't a good opportunity, we certainly would take a hard look at it.
The 1 other point there is I think this is where being the only publicly traded car wash does serve as a little bit of a differentiator where we have equity in theory for the right asset. And if the seller saw the upside and the synergies of a combination between Mister and their platform where potentially equity would serve as a currency on a larger scale acquisition.
Next question comes from John Heinbockel with Guggenheim.
I want to start with question with regard to pricing on Titanium, right? So you talked about promo pricing, regular pricing. So I guess, regular pricing, are you settling in at $39.99, and is the promo pricing sort of roughly half of that? So that's sort of number one. And then as part of that, right, John, when you think about -- you guys have always used retail as sort of the feeder for membership. Is there a good way or a way to not use retail to kind of -- as you densify, just attract members without them being retail first and can that move the needle?
Yes. So let me answer the second part of your question first. So we have actually thought really hard about that particular question. And our belief originally was that someone needed to come in and try us through a retail purchase first and then we would wow them with our excellent service delivery and then we would -- they would be more apt to and receptive to moving into a subscription-based membership plan.
We've actually turned the tables on that. We're actually leading now with membership because what we found was that it was taken -- it was too long of articulation and we were perhaps protracting out that time horizon. So in our new approach, we're finding that it's actually working and its dispelling what was a conventional wisdom inside of our own belief system, which was that we wanted to take this slower boat approach to membership growth. So we're doing just that.
To the first part of your question with respect to promotional pricing, yes, we're still experimenting actually with a couple of different approaches. And we want to actually move away from the price value piece of it. But we also know that it's also a very effective lure/hook to get folks interested in trying it. But we really haven't settled in and established something that we think is going to be the game plan in perpetuity because we're constantly refining, constantly reassessing and determining how can we do it more effectively and quite frankly, shrinking that discount line while achieving the same types of capture rates.
So as Jed alluded to in his opening comments, we're really, really pleased with where we sit today in terms of the percentage of our existing members that are -- have traded into the program. And we've got a lot of momentum, John. There's a lot of untapped potential. And when you have an embedded base of over 2.1 million members, it is really where our focus is right now, which is trading those existing members up into our premium plans. And we're excited about where we sit.
Secondly, if you think about intensifying, what you're doing and some others are too, are we reaching a point where that is acting as an impediment to someone thinking about coming into a market? And when do we get -- I mean it seems so obvious that when you look at other sectors and how they progress, then at some point here, we need to see significant consolidation regionally and -- starting regionally, right? I mean how far away we are from that with people still raising money and with the amount of private equity participation, we -- do you think we're still a couple of years away from that process?
So the market has been consolidating pretty aggressively over the last, I'm going to say, 5 years, but it has cooled and it's cooled primarily due to prices that have gotten a little wonky, folks that have really pushed the envelope with respect to sale-leaseback financing and quite frankly, ran out of growth capital to fund their ambitions. And that cooling effect, I think, is healthy and long overdue. So we're seeing contraction in multiples and as prices come down, that will create more opportunities for us going forward.
But with respect to the competitive moat, if you will, and densifying our existing footprints, we still have a long runway to go inside of the close to 70 MSAs that we're in to get to a point where we think that we've got a strong enough position that would prevent a whole lot of folks thinking about coming into our own backyards. And we are seeing less encroaching than we have over the last several years. Folks have really started to say, "Hey, the AUV profile that was 5 years ago is a little bit different today" because the pie is getting sized up a little bit thinner.
Next question comes from [ Jason Haas ] with Bank of America.
It looks like the guidance, the math implies some margin compression in '24 on a year-over-year basis. Can you just [indiscernible] on anything to be aware of there in terms of margins?
Yes. So listen, Jason, first of all, good to talk to you. Overall, when you look at the guide, overall trends for the most part are in line with 2023. The 2 points where there's a little bit of compression, first is on the store level rent as we've done more sale leasebacks and we plan to do more in 2024. It will create just a little bit of compression to margin. The other piece is on the labor side, particularly with greenfields when we run a full labor load, but the store hasn't fully ramped. The reason we didn't see that as pronounced in 2023 as we had the labor staffing, the optimization of the labor staffing model that really offset that. But we anniversaried that in Q4 of 2023, won't have that benefit -- helping offset it. So creating just a little bit of labor compression.
Got it. That's clear. That's helpful. And then as a follow-up, maybe going back to the competitive environment. I guess a good thing to hear that gone a little bit less competitive for locations and acquisitions. What about on the pricing side? Are you seeing any easing of competition there? Does it mean pretty competitive in terms of pricing, especially on the retail side?
Just to be clear, you're talking about prices of carwashes?
Yes, that's right.
And what we're seeing from a competitive landscape perspective? Just to be clear, are you talking about our own pricing strategy.
What are you seeing from a competitive landscape perspective?
Yes. So I think things have cooled a bit. There were some folks that were -- that have chosen to get -- I can't speak to anyone else's strategy but our own. But when we assess the marketplace, where we sit vis-a-vis the bulk of our competitors, we're kind of right at the median. And again, I think in this kind of consumer environment, it's not the best time to be taking price. And so I think everyone is kind of feeling it. And we're not the only ones that are experiencing some retail softness. So if there's retail softness out there, it really create the type of environment where you think that you can pass through additional price increases.
Yes. And Jason and for the rest of the call, just 1 point of clarification on the guide, the -- our full year 2024 comp store sales guidance is a plus 0.5% to plus 2.5%. There will be a correction to the 8-K that went out earlier with that correction shortly.
Next question comes from Phillip Blee with William Blair.
You spoke about the ongoing shift to focus on the upward migration with existing membership. Should we then expect membership to decline throughout 2024 under the current guide? If so, to what degree?
Yes. We don't expect it to decline. We just think that it's -- the growth is going to moderate because of our focus on upgrading existing members. And as I mentioned in my opening remarks, we're repositioning our guest services specialist to be positioned in the member's lane and that old adage of taking existing customers and increase the value of those customers versus trying to acquire a new customer, that's our primary focus, which is going to result in a slowdown in net member growth. We'll still see some growth, but just not at the same rate.
Okay. And then is there a certain target that I guess you have for upward migration here? Or I guess said another way, is there a certain point where you shift your focus back to new member additions? And how do you determine that balance going forward?
Yes. For us, it's really hard to set targets, particularly for a new product launch. What we don't want to do is underestimate the potential. If we look back at our pre-Titanium mix between our former premium package, which was Platinum in our base, we enjoyed close to a 60-40 shift or mix ratio of premium to base. And so we would love to see that ratio remain the same, but bucketed inside Platinum and Titanium and then perhaps growing over time, but we don't want to limit ourselves. So we're going to continue to focus on member upgrades until we start to see a slowdown. And then from there, we'll shift. But we consistently reassess where we sit. But right now, we are so early in this adoption curve that this is going to be, I think, for the bulk of 2024, our focus.
The next question comes from Michael Lasser with UBS.
Is it fair to say that across the wash industry, the cost of business is going up as a result of higher membership acquisition costs, higher labor rates, higher rental rates, and this is offsetting the benefit from higher revenue per member [indiscernible] this is putting the downward pressure on the profitability of the sector, and this is going to continue for an extended [indiscernible].
Michael, this is John. You broke up just a little bit there, but I think I got the gist of your question. So I think from a business fundamental standpoint, if you can grow your revenue line faster than you can grow your expense line, then that's the name of the game. That's the goal. And that's what we're focused on right now.
So with respect to some rising input costs and I look across the board, and it's the things that -- to your earlier comment, everyone's experiencing, how do we increase our ticket average and how do we increase the lifetime value of our members. And so while you all are focused on near-term performance, and we want to deliver near-term performance, we're looking at this thing through a longer lens, saying lifetime value and Jed, is lifetime value a GAAP measure?
Not quite.
It's not? But it really is what our holy grail is, which is taking a customer that washed relatively and frequently and changing their behavior and having them adopt a super premium plan. And if you think about it, Michael, it's an interesting time for us to be launching a premium offering without really taking any historical price increases on the base side. If I can go down that path for a second, in this somewhat tepid environment from a consumer standpoint, the fact that we still have this value offering at a $10 base retail, $19.99 Unlimited Wash Club, to appeal to that more price-sensitive customer or member while we launched the super premium, which will ultimately -- and I didn't really answer John Heinbockel's question around price point for Titanium. But if it's going to settle in at $39.99, what we're seeing is that even in this environment, people are willing to trade up for good quality. And if you deliver great value, they are more than happy to pay for it. And that's why we're super excited about what we're seeing in this very early stage of our launch.
Yes. And Michael, just to add a little bit more color there. I think first of all, all industries are exposed to the pressure of rising input costs. It may be a little bit more pronounced in this. But I think that's where we're optimistic is because we're in a unique place with this third package roll out that to John's point, is going to help offset some of these rising input costs. So all in all, we're very, very optimistic with Titanium and its ability to help continue to drive the top line longer term.
And so the obvious follow-up is when can we expect Mister Car Wash to generate margin expansion? And what has to happen in order for that to be the case?
Boy, he's putting us on the spot, Jed. He was an exact date.
No hour, no minute. That's okay.
So -- and I'm not trying to [ keep ] here, Mike, I want to say this. So maximizing revenue is our first order of business. We are less focused on margin expansion right now as we make the right investments to deliver the type of experience that we expect to deliver. That said, we're very mindful of making sure that over time, we have 30% net margins, your favorite line, Michael. It's a beautiful thing, right? But we have a really nice margin profile today. But it's our collective goal to show some margin expansion incrementally over time. We hope to do that perhaps in the back half of this year. But right now, we're focused more on top line and driving adoption.
The next question comes from Tristan Thomas-Martin with BMO Capital Markets.
Question around the competitive response to the Titanium 360 and some of the relaunch of your introductory promos. Have they been responding by getting more aggressive on pricing? Or do you think that's something that could happen?
No. If anything, we were -- I'm not going to say late to the dance, but most of our competitors have been offering 3, if not 4 programs already. And we had [ erred ] on the side early in our careers on the simplicity piece where we had a 2-tier program and have it in the good, better, best kind of mindset, having a best package out there to offer, if anything, we relate to the dance.
So we're -- we've launched it. What we have seen from a competitive activity standpoint, and this is going back over the last couple of years is that there's many folks out there that are very aggressive with their promotional strategies, but from a discounting their list prices standpoint, we really haven't seen that.
Okay. Got it. And then just maybe just kind of your general thoughts on the industry in 2024 and 2025. I think you're talking about M&A, but I think you said abating in '24 and then dialing down in '25. So just maybe kind of curious what the difference is there?
Yes. So it's our view that with respect to how hot this category this sector has been over the last several years, that it was ripe for a correction, if you will, in a reset and we started seeing the slowdown happening just this last year. And so pick a worry, but we're using abate for 2024 with -- and when I say abate, it's a slowdown in the number of new units coming into the market. In 2025, a little less new units than there were in 2024. So it's cresting, if you will. And again, I think that, that is healthy because there was a lot of stuff that was being built that perhaps should have been built. And those folks are having to run those operations for a long time.
The next question comes from Christian Carlino with JPMorgan.
Could you talk about how ticket and traffic grew in the quarter and how you're thinking about those components broadly in 2024?
We're not going to give specifics, but we will say that our ticket average is up. And you're speaking specifically to our retail ticket. Is that right?
I think, Christian, I think just the business behaves just a little bit differently than traditional -- a traditional retailer, where over 70% of our sales are subscription. And so really, we look at it in 2 different ways. You've got revenue per member, [indiscernible], obviously, by the number of numbers that you have in the program. That's what we collect as part of the subscription program, proven to be very resilient, consistent, predictable and then the retail side, which performs and looks a little bit more like a traditional retailer where you have average ticket and number of transactions.
We really haven't spoken or disclosed that in that level of detail. I think you can back into and get pretty close to what the average revenue per member with the information that we've provided when you look at a mix of about 55% Platinum priced at roughly $29.99 and then 45% of our base members, which is priced at roughly $19.99. So you can back into a rough revenue per member there.
Got it. That's helpful. And on your comments about the industry slowing unit growth this year, could you talk about how you're thinking about just market growth generally? And what you're baking in, in terms of share gains for your guide and would you expect share gains sort of pick up relative to the past couple of years as a result of slower unit growth in the industry?
Yes, I'll start by saying it's a big market out there, and there's still a lot of growth potential. We have less than 5% market share as the industry leader, put asterisk next to that as a caveat by saying while we're relatively large inside our industry, were actually quite small. In our upside growth potential, we feel as tremendous. We've reset our vision for how many stores we believe is tangible and realistic and attainable and that's 1,500 stores, not 1,000 and so as we will, this year have more than 500 stores in our portfolio, which is for us a really big milestone. But in a lot of ways, we're just getting started, and it feels very early innings.
Our next question comes from Simeon Gutman with Morgan Stanley.
John, the slowing expansion or the moderating expansion. Any sense to quantify how much the industry was seeing new units, supply growth over the last couple of years, what that curve is moderating to in '24, what it looks like in '25 and beyond?
Yes. And this is data that is hard to substantiate. But in talking to various OEMs and trying to triangulate around what we believe to be the total number of new units into the space in the U.S., it's -- it depends on who you talk to you, but kind of around the 800 store range over the last 2 years. And again, we're seeing that top out. And what that new rate of growth is going to look like in 2025, really hard for me to predict. But we feel pretty confident that it's going to be less than what we saw in 2023 and 2024.
Okay. And 1 clarification to a question, I think John asked earlier. When we're talking about opening in existing markets versus new markets, you said you have a lot of pipeline to go in existing, meaning if it doesn't make sense for you to go to new markets because of just the better returns of densifying, how long can you keep opening, call it, let's say, 40 or 40-plus stores a year by sticking with existing markets?
To 10 years.
Simeon, when we've talked about the 1,000 plus and we look at the TAM, that's really looking at the growth within our existing markets. We don't plan to grow exclusively in our existing markets. Over time, we'll start developing adjoining markets. And I think as we look at the anticipated ramp of both, we expect good ramp in both scenarios with the healthy [ cash-on-cash ] returns that we've seen here recently.
If I can sneak 1 more in for you, Jed. The clarification to the new guidance of the comp plus 0.5% to 2.5%, did you suggest that there's no improvement beyond what retail is doing today, meaning getting to that number is the math of what's happening with Titanium rolling into that number?
What we saw -- no improvement from what we saw in Q4.
Okay. Got it. And -- but that second part that I mentioned is no improvement in retail, but it's the conversion element that adds to that comp to get you there?
That's correct.
This concludes our question-and-answer session. I would like to turn the conference back over to John Lai for any closing remarks.
Thanks, operator. I'd like to conclude by saying as a pure-play carwash company, our strategy is laser-focused on growing our Titanium member base, opening up new stores with strength and building the best-in-class team while driving shareholder value. And at this moment, there's never been a more important time for us to live and breathe our culture which is customer centric to the soul. We had a beautiful juncture in our growth trajectory with the challenges that others are facing will create opportunities for us to continue to scale and build a brand with enduring value.
I look forward to checking back with you in our next quarterly call. Thank you, everyone, for joining.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.