Thomas Allen: I’ll go through these one by one. So on G&A, we expect to see operating leverage on G&A. We do expect it to grow year-over-year as we open new houses and enter new markets, but we expect to see good operating leverage there. On cash interest expense, we expect it to increase slightly. We increased the size of our Miami mortgage a little bit last year. And then, obviously, we have the pick interest on the loan – sorry, that’s non-cash. So we increased the Miami mortgage. On cash rent, some of our loans are – some of our leases are tied to CPI. And so, as you’ve seen significant increases in inflation over recent times, you should see slightly higher cash rent expense on a like-for-like basis. If you typically think kind of 2% to 3% inflation on same store or on leases, I would say this year it’s closer to 5%.
And then you’ll obviously have the addition of the new house leases. On working capital, a lot of working capital has to do with timing. If you look at the fourth quarter, for example, our cash position actually went up quarter-over-quarter. We talked a lot about how we’re really focused on working capital. We’ve been managing our inventory balances a lot more when it comes to Soho Home. And so, I’m not going to guide to a specific working capital basis, but we don’t think it will be as big of a drag in 2024 as it was in 2023. And it has potential to actually be a tailwind. If you go back the past few years and you look at our average working capital, there are definitely years when it’s been up. So benefit – last year, it was a drag, and then years at a breakeven.
So a lot of it’s just timing related.
Operator: We’ll move next to George Kelly at ROTH MKM.
George Kelly: First on Scorpios, I’m curious, you’re opening those two locations, I think the Bodrum is mid-year and Tulum, I want to say, is later this year. I’m curious, how do you factor those into guidance? And the legacy location is so successful. I’m just curious how you’re thinking about these next two. And then same topic on Scorpios. What is the kind of medium or longer term opportunity for that brand? Do you think beyond these two locations that are soon to open, is there a big pipeline of future locations as well?
Andrew Carnie: Good questions on Scorpios. So we are very happy with Scorpios. In 2023, it had a record year again in Mykonos, which is super exciting. We’ve always said we wanted to grow Scorpios. So this is our first year. We will add new Scorpioses. The Scorpios in Bodrum is incredible. It has its own villas, a new wellness concept, along with all the things that are great at Mykonos. And in Tulum, it’s similar and first time they’ve got bedrooms. So we’ve done a bedroom offer as well in Scorpios. So we’re really happy with two this year. Our founders, Mario and Thomas, are fantastic at doing this. We want to really focus on getting these two right this year. And we then have further growth planned for Scorpios in subsequent years. Given it’s such a great business, it’s such a profitable business, and our Soho House members [indiscernible].
George Kelly: Second question from me. Still on that other revenue line. Thomas, you said in the prepared remarks that you see a lot of future opportunity for Soho Home. And so, I’m curious if you could give more detail, like, what are the plans to continue growing that business? And are you getting to a point now where it has enough scale, where we’re going to start to see margins inflect higher, and that’ll help contribute to the overall profitability?
Andrew Carnie: George, I’ll take that one. So we’re incredibly proud of our Soho Home business. As Thomas mentioned in his prepared remarks, it’s grown threefold. It’s very much aimed at taking the house home and interiors by Soho House. That’s our USP. That’s why it’s been so successful. This year, we will continue to grow. And I’ll give you some examples why we’re excited about the growth. From an assortment basis, we’ve only scratched the surface. So, we’re nowhere near – if you think of restoration hardware assortment choice, we’ve literally just begun. So the growth has been based on a very small assortment. We are going to expand that assortment now into great furniture. We’ve recently, last week, just launched outdoor furniture.
We’ll be going into the window furnishings business, expanded lighting, et cetera, because of the appetite for our products is so high. So that’s why we think there’s a lot more opportunity. It’s digital first. So it’s a higher profit model than having lots of big stores. So that’s why we feel there’s more margin. And as Thomas mentioned, in 2023, the margin at Soho House grew substantially. So we feel good about Soho Home.
Operator: Our next question comes from Zach Riddle at William Blair.
Zachary Riddle: Just a couple of questions here on the refurbishments and kind of the cadence of new home openings. I guess, first, with the plan to open two to four homes a year for the next couple of years, is there an expectation that maybe you do more refurbishment of membership spaces? Or were the recent refurbishment more of a run of the mill, standard refreshing of the spaces that you’re doing all the time. I guess somewhat related to that is the gym experiences and the wellness offering and the wellness retreat, is there a big opportunity there, how much of an opportunity is there to add tempo wellness offering at all of the houses?
Andrew Carnie: I will take these questions. So from a refurb perspective, what I articulated for this year is pretty normal for how we do things. We’re always refurbishing our existing houses. We’re always looking to increase member space from the examples that I gave. So that’s not going to change, going to two to four. We’ll always continue to do that. Regarding wellness, wellness is one of our big investments. Our members have told us it’s a big priority in their lives, both from a physical perspective, but also mental well-being. So we are investing in wellness, which, again, I did on my prepared remarks where we’re opening houses with new gyms, we’ve created a complete immersive wellness experience in our Soho Farmhouse.