Phillip Blee: Okay. Great. Thank you guys so much. Appreciate it.
Operator: The next question comes from Michael Lasser of UBS. Please go ahead.
Michael Lasser: Good evening. Thank you so much for taking my question. John, how did you think about the risk of raising prices such that you provide a more comfortable umbrella for your competitors to operate? Meaning as you raise prices, that is also going to provide more opportunity for your competitors to operate under higher prices, which could sustain their longevity in this marketplace versus if you should had put more pressure on some of your competitors, it might have forced more consolidation in the marketplace? Thank you.
John Lai: Hey, Michael. So as you know, our pricing strategy, our pricing philosophy has always been somewhat conservative and we’re very careful and I think deliberate and thoughtful and sensitive to just this demand and elasticity curve. I think it’s important just to highlight that for our membership plan, our $19.99 plan, we have not taken a price increase on that base membership in almost 20 years. This is where I dropped the mic, Michael, and I can’t see your face, I don’t know if you’re smiling or not, but I’m smiling, because we’ve chosen to not touch, at $19.99, that offers tremendous value. On our retail pricing, again, we’re relatively conservative, we are right at the market median in most markets with a $10 retail-based price point and we think that that’s a tremendous value for almost all motorists, but we’re not looking to take price on that.
So the moves that we’ve made have been on the upper end of our menu portfolio, where we think that the consumer is less price sensitive. There’s a saying, we have one of our sales rock stars internally called Courtney Stephenson, and she has a saying internally that says, package buyers buy. And there’s just a very large segment of our customer base where when they come in, they want the best. And so up until now, we have had a good, better, but we haven’t had the best. And in the good, better, our hot shine Carnauba Shield has been just a home run for us. Now we have Titanium. And so being able to offer them two premium offerings and the success that we’re enjoying in that, it’s basically, Michael, a price increase without a price increase.
Michael Lasser: Thank you. My follow-up question is two parts. One, there are a lot of moving pieces on the changes in pricing between Titanium, and now that you have that, with things like fully deployed and off, mostly off promotional pricing, and then the increase to the Platinum program. So can you quantify what you expect the aggregate contribution from those changes to be over the next couple of quarters and can you also give us a greater sense how much worse retail decelerated from 4Q to 1Q? Thank you so much.
Jed Gold: Yeah. Michael, so when we look at the balance of the year and what our expectations are, the majority of the comp growth is going to come from Titanium and taking our existing members, trading them up into Titanium package. Keep in mind that 60% of the stores had already seen this $32.99, this price adjustment on the Platinum side going into Q, either the end of last year or the end of last year or during Q1 of this year. So there’ll be some benefit from that price adjustment, but most of it’s going to come from Titanium and then the increase in revenue per a member there. The retail, when you look at Q1 versus Q4, we were low double-digit negative retail comps in Q4 and when we look at Q1, we were low negative teens.
Michael Lasser: Thank you.
Operator: The next question comes from Tristan Thomas-Martin of BMO Capital Markets. Please go ahead.
Tristan Thomas-Martin: Hey. Good afternoon.
John Lai: Hi.
Tristan Thomas-Martin: Just looking a little further out, I think, you said the increase in Platinum has been driving people to Titanium. If we go out a year or two, would the plan be to then raise the price of base, which should then theoretically push people into Platinum or higher? Is that kind of the longer term vision?
John Lai: Again, we don’t want to telegraph any pricey moves, given the broad nature of this conference call. But back to my earlier comment, never say never. I think it would be prudent for us to test and evaluate in a select market what that impact would be measured against what would perhaps be some elevated churn offset by incremental growth and how that affects net member growth over time and the demand for that service. So we will always reserve the right to make select moves at the appropriate time and really that’s a judgment call on this team’s part. I think given just the rising input costs that we’re experiencing and if margin expansion is one of our objectives, then clearly, at a certain point, we will have to take a price up. But we’re holding the line for now.
Jed Gold: Yeah. Tristan, the one thing I would, I mean, price is one input in that customer value proposition. But speed, quality, customer service, there’s so many different variables that we look at when we’re thinking about whether to take a price increase. It’s not just looking at the delta between our packages and so all those factors are going to come into play when we think about the appropriate time to take pricing.
Tristan Thomas-Martin: Got it. And then just one more. What do you see in M&A multiple-wise? Thank you.
John Lai: Depends on the asset. Depends on, well, so just the short answer to your question, things are trading today in the 10 to 12-ish range. There’s been some folks that have leaned in a little heavier through the lens of what they think they can grow the business to, to lower that effect of multiple. But there’s been some multiple compression. It’s been pretty precipitous over the last year.
Tristan Thomas-Martin: Got it. Thank you.
Operator: The next question comes from Christian Carlino of JPMorgan. Please go ahead.
Christian Carlino: Hi. Good afternoon. Thanks for taking our question. One point of clarification. When you speak to Titanium penetration, is that as a percentage of members or revenues? And when you speak to that 20% penetration, is it 25% to 30% of members have tried it and 5% to 10% have either churned or traded back down to Platinum? Just help us understand maybe how many have actually tried it out so far and what the retention has been like?
John Lai: Yeah. So when we share those numbers, those are members, not revenue, and the numbers that we’re sharing with you are net after churn. And so we would never be that company that reports a promotional number and celebrates that, which is why we’re so cautious, and I think, responsible.
Jed Gold: And I think, Christian, just a little bit more color there, right? So we’re seeing just north of 20% Titanium member mix today. We do expect that to come back, pull back just a little bit as these promotions have recently rolled off. We feel good about — we feel real good about our at least 15% that we communicated on the last call. We actually believe longer term and exactly when, whether that’s the end of this year or middle of next year, we believe that north of 20%, it’s a reasonable goal that we’re going to work toward.
Christian Carlino: Got it. That’s helpful. And then in terms of the competitive backdrop, in some of the markets where you really saw the most competitive intrusion the past couple of years, are you starting to see things turn back into your favor? And then to clarify an earlier question, did you say that 2025 unit growth should actually continue to slow relative to 2024? Just any reads there, just given the length of the development pipeline?
John Lai: Yes. I would say there’s no one market where we’ve seen more competitive intensity than any other. It’s been pervasive across the country. And then to the second part of your question, and by the way, competition is not new to us. We’ve had competition within a 3-mile radius in over half of our portfolio for years. And we believe, it’s our belief, that the best operator, the one that’s delivering the most value and the best customer experience will ultimately prevail. And so what we focus on, we don’t obsess over the competition, we focus on what we can control, which is speed, quality, as Jed mentioned, customer experience, and then wowing them. We’ve got to earn that business every single day. And so you can build a brand-new shiny box, and it could look really sexy and cool.
You may go try it, but we’ve seen time and time again customers coming back to that business that actually delivers upon that value prop. And again, where we elevate and where we hear time and time again is that it’s our people and the customer service that they deliver. And we are in the hospitality business and we’re service providers providing great customer service and that’s what we do really, really well. The second part of your question was on 2025, and again, just to reiterate, we expect the rate of growth to decline in terms of new units coming into the market, but it’s still at a high rate compared to where it was five years ago, 10 years ago.
Jed Gold: And I think just so while we — that’s kind of the macro picture. As we look at our pipeline and what we expect with our pipeline, obviously, it’s about a 20-month development cycle. We’ve got pretty good visibility into 2025 and we expect our unit growth to continue at a similar pace to what we’re seeing here. We do not expect us to slow down on the greenfield side of things.
Christian Carlino: Got it. Thank you very much. Best of luck.
Operator: The next question comes from David Lantz of Wells Fargo. Please go ahead.
David Lantz: Hey, guys. Thanks for taking my question. Can you talk about the drivers of cost of labor and chemicals to leverage in a bit more detail? And considering rising input costs, how are you thinking about this line item over the balance of the year?
Jed Gold: Yeah. So when you look at that cost of labor and chemicals, about 90% of that line is the labor expense. And during the quarter — during the first quarter, we saw about 3.5% wage inflation on our frontline team members. Most of that is driven by the annual merit cycle where general managers and team members are given an annual adjustment as part of our merit process. So we would expect that to hold relatively consistent with what we saw in Q1. On the chemical side, we had some pretty good efficiencies there just from a sourcing side of things, but then also being able to identify some efficiencies in our chemical usage. And we were able to help drive some savings on our chemical to where — when we look at our chemical cost per car, during the quarter it’s lower than what it’s historically been and we would expect that to continue through the balance of the year.
Where we really got the leverage on the cost side was on the G&A side of the business. When you look at the G&A improvement year-over-year, some of that was timing so we don’t expect all of that to continue into the second half of the year. The one other little nuance that I think, David, is worth noting as we look at first half, second half, and that store-level labor is just the cadence of our greenfields. About 35% of our greenfields we expect to be in the first half, 65% we expect to be in the second half. And just having to staff those greenfields with a full labor load, but they haven’t fully ramped, it creates just a little bit of a margin pinch the more new greenfields that you have coming online.
David Lantz: Got it. That’s helpful. And then just last one for me, how did retail comps in lower income demographics compare to that chain average of down low teens?
Jed Gold: Yeah. The lower income demographics, the 80 stores that I referenced earlier, they were…
David Lantz: Yeah.
Jed Gold: They were — yeah. So flat to negative for both of those quadrants or those segments.
David Lantz: Great. Thanks.
Operator: The next question comes from Vicky Liu of Bank of America. Please go ahead.
Vicky Liu: Good afternoon. Thank you for taking our questions. This is Vicky on for Jason Haas [ph]. So my first question is, you mentioned that premium penetration is now above 60%. Over the long-term, just curious, what is your target split between all three types of membership?
John Lai: Yeah. Again, I don’t want to dodge that question. Today, we feel really, really fortunate to have a mix of about 40% in our base plan, 20% in our Titanium, and then another, call it 40% in our Platinum program, and those are just rounded numbers. We think that that’s a really healthy mix, and the fact we’ve got 60% of our 2.1 million members now in the premium plans, that if I can just say our high margin is awesome. How high can the trees grow? How many more customers we can trade into that? We’re still kind of in the early stages of this launch. And so we’re not done continuing to try and grow that side of the business. But we feel really good with where we sit.
