Earnings Call Transcript - MCW Q1 2024

Operator, Operator

Good afternoon, and welcome to Mister Car Wash's conference call to discuss financial results for the first quarter ending March 31, 2024. 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 to questions. During this conference call, 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 statements 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 will now turn the call over to Mr. John Lai. Please go ahead.

John Lai, CEO

Good afternoon, and thank you for joining our first quarter earnings call. Our overall performance in the first quarter was in line with our expectations, and the trends were a continuation of what we saw in the previous quarter. In the first quarter, sales increased 6% to $239 million. Adjusted EBITDA increased 6% to $75 million. Comp store sales increased 1%. And we opened 6 new greenfield stores and ended the quarter with 482 locations. We added 35,000 UWC members and ended the quarter with over 2.1 million members. Our subscription business, which accounted for about 74% of sales in the first quarter, remains incredibly resilient. However, this has been offset by a softer retail environment, which has been driven by a combination of increased competition, intentional greenfield growth, cannibalization, and a lower income customer cohort that's been under more pressure. The reason we enjoy industry-leading AUVs is that we offer tremendous value, execute with efficiency, and get you in and out fast. Our value proposition begins with delivering a clean, dry, shiny car, and the cherry on top is the elevated customer service delivered from our amazing team members. The headline from Mister Car Wash is the ongoing progression and momentum we're experiencing after the rollout of Titanium and the incredible response we're seeing from our customers. Penetration levels are continuing to grow, and I'm happy to report that we're above the 20% level at the end of the first quarter. As promotions are now rolling off, we're beginning to see a healthy lift to revenue per member and expect that to continue throughout the remainder of the year. After testing various Titanium price points, we've settled in on $39.99 and are in the process of standardizing this across all regions in a deliberate and measured way so that we don't unnecessarily rattle our customers. With the launch of Titanium, we have taken a step back and looked at our service and price offerings. We know that there is a large and growing market for premium products, and our Titanium and Platinum wash packages offer a level of shine and protection that are superior to anything in the market today. As a result, we believe we have some room to migrate our Platinum program to $32.99 from $29.99 in most markets. Raising Platinum pricing to $32.99 not only reinforces the premium nature of our Platinum package, but it simultaneously decreases the gap between the two programs, which will help incent customers to trade up to Titanium. When we tested the elasticity of $32.99, even after a slight uptick in churn, we found it to be highly accretive. When you factor in our Platinum and Titanium mix, our premium penetration is now north of 60% with about 5% of our lift coming from base members. Our Unlimited Wash Club program continues to perform nicely with capture rates at historic highs, relatively flat core churn, and wash frequency of existing members remaining consistent. As previously noted, we've elected to prioritize upgrading existing members over focusing on growing our member base, which will result in more modest net member growth this year. However, the lifetime value improvements we've seen in revenue per member has got us very excited. Zooming out, we still believe the market for subscription plans is underpenetrated, and our opportunity to grow our member base is strong. From a unit growth standpoint, we're on a good path and a healthy cadence with 6 new greenfields in Q1, which is a record for any Q1. We remain confident that we can open approximately 40 this year. Our stores are opening with strength and helping us to densify existing markets. With each new store we open, we continue to create a network effect and offer more options for our members, strengthening our value proposition and extending our competitive moat while simultaneously growing our market share. On the people front, I'm thrilled to announce the appointment of our new Vice President of Marketing, Matt Marakovitz, who fills a critical seat for Mister as we look to advance our efforts across customer acquisition, engagement, loyalty, and subscription. Matt's background in General Mills, Walgreens, and Target brings a wealth of experience and knowledge around digital strategy, customer insights, and omnichannel program development. As we look to double and then triple our footprint, we'll need to double and triple our field leadership team, which will create a number of amazing career opportunities for so many of our talented team members who are hungry for more. We're proud of the fact that every general manager of each of our stores receives equity in the form of restricted stock units, which strengthens our ownership-like mentality and entrepreneurial spirit while allowing them to participate in the financial success of the company. We continue to change lives for the better. I'm extremely proud of what we have built and excited about our future ahead. I'd also like to take this opportunity to give a big high five to all the men and women who are representing us so well and working hard as we fulfill our mission of becoming the preeminent carwash operator in the world. With that, I'll now turn the call over to Jed to provide more commentary around our financial results.

Jedidiah Gold, CFO

Thank you, John, and good afternoon, everybody. As John indicated, our results in the first quarter were in line with expectations, and the trends were relatively consistent with what we saw in the previous quarter. Let me touch on a few highlights before we run through the numbers. Our subscription business remained strong, and core churn levels remained within our historic range. We are very pleased with the performance of our new Titanium package. Customers traded into Titanium faster than we expected in the first quarter, and we are confident in meeting or exceeding our penetration target of 15% going forward. The Titanium promotions that we ran in the first quarter are rolling off in April and May, and we expect to be largely promotion-free by the end of the second quarter. Similar to prior periods, we continued to see pressure on the retail side of the business, and the pressure was slightly more pronounced in stores that are in lower-income areas where consumers may be more constrained. Our 2024 greenfield pipeline is solid, and we are encouraged by the results we are experiencing in the ability to open approximately 40 locations during the year. Each of our greenfield locations ramps a little differently depending on the market, but we continue to see solid year 2 cash-on-cash returns of about 50% and seeing paybacks of under 3 years. Greenfield development, densifying, and expansion into adjoining markets continue to be the highest and best use of our capital. Finally, we tightly managed our expenses during the quarter, which allowed us to leverage SG&A and drive strong cash flow and adjusted EBITDA levels. With that said, let me run you through the first quarter numbers. During the first quarter, net revenues increased 6%, and comparable store sales increased 1% compared to last year. UWC sales represented nearly 74% of total wash sales, and we added 35,000 net new UWC members in the first quarter. On a year-over-year basis, the number of UWC members increased by 106,000 members or 5%. Adjusted net income and adjusted net income per diluted share, which add back stock-based compensation and certain non-core operating expenses, were $27 million and $0.08, respectively, in the quarter. Adjusted EBITDA was $75 million, up 6% from the first quarter of last year. Adjusted EBITDA margin remained flat at 31.4%. On the expense side of the business, we remain focused on finding efficiencies and optimizing the investments we are making to support the long-term growth and development of the business. Total costs and expenses were $197 million in the quarter and included $7 million in stock-based compensation and related taxes and $5 million of one-time professional fees. Excluding these items, total operating expenses as a percentage of revenue was flat at 77.4%. The main drivers were labor and chemicals, which increased 20 basis points to 28.9%, other store operating expense increased 90 basis points to 40.5%, and G&A expense decreased 50 basis points to 8.7%. The increase in labor and chemicals was primarily driven by the increase in the stores we operate and higher average hourly wages, which was partially offset by efficiencies and sourcing of our proprietary chemical program. The increase in other store operating expenses was primarily from an increase in rent expense related to our store growth and sale leasebacks. We ended the first quarter with 47 more carwash leases compared to the same time last year, and cash rent expense increased 12% to $26.5 million. The decrease in G&A expense was driven by our increased focus on doing more with less, tightly managing expenses, and optimizing the G&A structure of the business. In the first quarter, interest expense increased to $20 million from $18 million last year due to higher interest rates. Moving on to some of the balance sheet and cash flow highlights. At the end of the quarter, cash and cash equivalents were $11 million, and outstanding long-term debt was $920 million. Our balance sheet remains healthy, and we continue to self-fund our growth and expansion. Late during the first quarter, we completed the refinance of our credit agreement, which consisted of upsizing, amending, and extending the maturity of our first lien term loan and revolving commitment to $925 million due in 2031 and $300 million due in 2029, respectively. Both amendments removed a 10-basis point credit adjustment spread. Under the newly refinanced credit agreement and at our current leverage levels, our $925 million term loan will be priced at SOFR plus 300 basis points, and our revolving credit facility will be priced at SOFR plus 250 basis points. The transactions extend Mister's debt maturities and increase liquidity in line with company growth. We do not expect any increase in interest expense as a result of the refinance. We completed one sale leaseback transaction involving one car wash location in the first quarter for an aggregate consideration of $5 million. We continue to see healthy demand at favorable rates in the sale leaseback market. In conclusion, we are reiterating the full-year guidance ranges previously provided for fiscal 2024, which is included in today's earnings press release. We are optimistic about the business' long-term outlook. We have the best operations and management team in the industry, with more collective experience operating car washes than anybody else. The combination of our great brand, our great team, subscription business model, and strong unit economics will enable us to deliver growth and shareholder value creation for years to come. With that, operator, we're ready to take any questions.

Operator, Operator

And our first question will come from David Bellinger of Mizuho.

David Bellinger, Analyst

Can you give us some more detail on trends through the quarter? Any quantification on how much the adverse weather shaved off the comp number? And then just second, any changes you've seen into April as more of the initial Titanium promos roll off and even with some of the noise from that lower-end customer?

John Lai, CEO

David, thanks for joining. So we have a saying internally that we never blame missing budget or not hitting our numbers on the weather. That said, it was a soft winter across the board. Our Northern climate stores really got one maybe two big dumps. That was followed quickly by rain that washed all the snow away. So for us, snow is like liquid gold, and it really blankets the vehicles. So without that, there was some effect, but we're not blaming it on the weather.

Jedidiah Gold, CFO

I think, David, just a little bit of color around the comp, right? So comp store sales were fairly consistent when you look at it by month throughout the first quarter. March was slightly above the average that we saw through the quarter. It was the highest month during the quarter. But we did see momentum carry into April, and we saw a sequential improvement in the comp when we look at April versus March and then March compared to the quarter's balance. That's being driven largely by the Titanium. As the promotions roll off, we're seeing that revenue per member continue to pick up momentum throughout the quarter.

David Bellinger, Analyst

Got it. That's very helpful. And then just a follow-up on the membership count. So up 5% year-over-year this quarter. I know there's been a change in the strategy on going after this higher-return T-360 customer. Taking that into account, is a mid-single-digit type run rate a good growth number we should look for over the balance of the year? Or is there something different as trends move through Q2 and Q3 as we get further out?

Jedidiah Gold, CFO

Yes, David, I think that's right. There's a little bit more focus around trading members up into Titanium. Last year, we grew membership by low double digits. We would expect this year to be less than that. The way we've modeled it and the way we're thinking about it is that mid-single-digit range.

Operator, Operator

The next question comes from John Heinbockel of Guggenheim.

John Heinbockel, Analyst

John, I wanted to start with a philosophical question. You guys have always used retail as a feeder for membership. Is there a thought now, given softness in that cohort, that maybe you go a different route and try to market directly to a different demographic that might be receptive to the premium offering? And if so, how do you think you execute that? And when do you do that?

John Lai, CEO

Yes. John, good question. This time last year, we were really looking at building out our brand, focusing on broader brand awareness campaigns. But we realized midway through that we really couldn't justify the return on ad spend. Given the size of our footprint and the amount of dollars involved, we pivoted and shifted our action plan towards more targeted approaches to driving customer acquisition. To your point, we've done such a great job converting retail customers into members. The real focus now is bringing less frequent users into our mix by offering a promotion that has tremendous value and getting them in the door. When we get them in the door, though, we still have a goal of trading them into membership. We have a number of promising initiatives that we are in the early stages of but are hoping to share with you guys on the next call.

John Heinbockel, Analyst

Maybe as a follow-up to that, what's the timing on migrating to $32.99 as a premium? Would you consider $19.99 sacred? If so, is there any room between $19.99 and $32.99 or is that being too cute?

John Lai, CEO

In this kind of environment, we're going to hold sacred the $19.99 for now. Never say never, my mom used to tell me. But offering that value in our membership plan mix is important. To the $32.99, we are now in all markets at that price point. The promotions have all run off, and we expect to see a lift as we move forward.

Jedidiah Gold, CFO

Yes. John, just a little more nuance around that. About 40% of the stores went to $32.99 as of April 1. The other 60%, they had taken Platinum up to $32.99 at the time that Titanium was launched in those particular markets.

Operator, Operator

The next question comes from Peter Keith of Piper Sandler.

Peter Keith, Analyst

I guess I just want to understand the timing on T-360. You're comping about 1% right now. It doesn't seem like there's been that much acceleration. T-360 has been out for a while. It's a pricing on Platinum. Is there something that's holding up the T-360 lift at this point? And how many stores in April are still under the promo pricing?

John Lai, CEO

Yes. Peter, good to hear from you. We were holding with respect to keeping the promotions in play until we got to the mix levels that we desired to achieve. Now that we're hitting the numbers and exceeding those numbers, quite frankly, we pulled the plug on those promotional offers. As of today, there's no more of that discount effect acting as downward pressure on our comps. That is behind us, and we're expecting to see lift going forward.

Jedidiah Gold, CFO

Peter, I think one other piece of context is that we've been really pleased with how Titanium's performing. It's mixing even better than what we had expected. However, retail softness during Q1 was more than what we anticipated. Initially, we had modeled in the same negative double-digit trend that we saw in Q4 for the balance of the year. It actually slightly decreased in Q1, so that retail softness is offsetting the upside we're seeing from Titanium.

Peter Keith, Analyst

Okay. Yes, that makes some sense. Do you feel like you're comping below a lot of your peers right now? Or are you being disproportionately impacted by retail? What we hear is that a lot of operators are comping a little higher than 1% right now.

John Lai, CEO

I can't speak to who you're talking to. We enjoy a very large network of stores, close to 500 by the end of the year. If you're speaking to a platform that is earlier stage and has many greenfields in the mix, they will naturally have higher comps. We have this blended number of stores that have been around for a while, which means that 40% isn't as pronounced as some other operators that may be seeing a really strong comp lift on their recent new builds on a significantly smaller store base. We don't believe we're underperforming; we feel good about our performance relative to the competition.

Jedidiah Gold, CFO

Yes. If we look at our comp store performance within our portfolio by vintages, just picking the 2022 vintage, 28 greenfield stores are comping at 40%. So that’s 40%, but we have a larger store base. So we don’t believe we're underperforming. We actually feel good about how we're performing relative to the competition.

Operator, Operator

The next question comes from Chris O'Cull of Stifel.

Christopher O'Cull, Analyst

John, the members added from the fourth quarter to the first quarter period in the UWC program has traditionally been a high-water mark each year. Do you think the lower net additions are the result of slower retail sales over the past several quarters? Or is it the weather? Or just help me understand other factors that may be causing that.

John Lai, CEO

Yes. It's a combination of lower retail traffic, which gave us fewer opportunities. Our capture rates, though, are at historic highs. When we get customers in the door, the team is doing an amazing job of trading them into membership. Due to previous planning, we prioritized upgrading existing members into premium over driving new member growth. There will be a point when we refocus on net member growth, but it's tough to have dual priorities at the store level simultaneously.

Christopher O'Cull, Analyst

What are some tools you could use to help target less frequent retail users?

John Lai, CEO

We're pulling out all the stops right now, and there's really nothing off the table. We're doing a blend of social, targeted e-mail, some paid digital, all within a 10-mile radius of our existing stores to attract new customers. So much of our year-over-year growth has been word-of-mouth, lifting the lifetime value of our members. With new leadership in marketing, we expect to see incremental growth in retail traffic again over time.

Christopher O'Cull, Analyst

Great. Lastly, how long did you test the pricing changes? How many markets and locations was that new pricing structure tested in?

John Lai, CEO

Oh, gosh. Jed, you can correct me here. It was about 70 locations during the initial launch where we looked at elasticity. We knew that there would be elevated churn, which we expected, but that was offset by the incremental revenue that resulted from those who accepted it. It was highly accretive, which gave us great confidence to extend this plan across the entire network.

Jedidiah Gold, CFO

Yes. Part of this was when we launched Titanium, we tried raising Platinum to $32.99 and gauged how Titanium performed in those markets. The analysis showed that both Platinum and Titanium were accretive, which led us to extend the pricing adjustment in those markets.

Operator, Operator

The next question comes from Simeon Gutman of Morgan Stanley.

Jacquelyn Sussman, Analyst

This is Jackie on for Simeon. Just building on that earlier question on Titanium, can you talk about the decision to reiterate the comp guide? What would be the scenario in which comps don't meaningfully exceed guidance in the back half of the year?

John Lai, CEO

Don't meaningfully exceed.

Jedidiah Gold, CFO

So Jackie, when we looked at the guide and our quarterly comp expectations, we netted it out — the plus 1 was in line with expectations. The increase in UWC sales was driven by Titanium and the Platinum price adjustment. But it was offset by a lower-than-expected retail result. Net-net, the comp came in line. As we progress through the year, we expect sequential improvement in Q2 versus Q1.

Jacquelyn Sussman, Analyst

Got it. And just one quick follow-up, are there any signs of competitors that have entered the carwash space that are already exiting or where capacity is coming out of the market?

John Lai, CEO

We haven't seen any exits. We have seen a cresting of new units, and we expect this to flatten into 2025. There's been a bit of rationalization occurring where folks digest what they've taken on. Those who were expanding quickly are now focusing on improving their operations. This slowdown is overdue and healthy for the space, as things have been somewhat chaotic over the last several years.

Operator, Operator

The next question comes from Justin Kleber of Baird.

Justin Kleber, Analyst

Just a follow-up on the price increases for Platinum. In instances where the customer pushes back, are they leaving the UWC ecosystem, or are they trading down to the base plan?

John Lai, CEO

We believe the bulk are trading down to the more affordable plan. There have been some who chose to leave, but it's a small number. Historical churn data shows many former members return after canceling because once they get used to having their car cleaned regularly and have to pay as they go, they really miss it. This is why we have a large percentage of member growth through former members rejoining.

Jedidiah Gold, CFO

Even though we see a slight increase in churn, it's relatively elastic when looking at this price adjustment on Platinum, especially when done alongside the rollout of Titanium.

Justin Kleber, Analyst

Okay. That makes sense. Maybe an unrelated follow-up on the new store economics. You talked about the '22 vintage growing 40% in that first comp year. Where are those year 1 AUVs shaking out for new stores today? How long before those stores hit the $2 million chain average?

Jedidiah Gold, CFO

Yes. Just to remind everyone, net investments on a greenfield are about $2 million, consisting of about $6.3 million of gross investment, offset by a sale leaseback of $4.3 to $4.5 million. If you look at the revenue build, it will grow from about $1 million to $1.3 million in year 1, and increase to about $2 million to $2.3 million by year 3.

John Lai, CEO

We had a back half-weighted approach to our new builds as well.

Operator, Operator

The next question comes from Phillip Blee of William Blair.

Phillip Blee, Analyst

There's been a lot of discussion around lower-income consumers starting to show signs of distress. Can you provide an updated view on the composition or demographics of your membership base? Any thoughts on the stickiness of the subscription, especially during periods of volatility?

John Lai, CEO

We feel fortunate to be in a space with universal appeal across all demographics. Everyone loves a car wash and likes to keep their car clean. In some cases, our stores in lower demographic areas enjoy high ticket averages and capture rates. However, they are also the ones facing more pressure when budgets are tight. We have seen elevated churn in that bottom quartile cohort and more of an impact on retail volume, which we believe is cyclical. As the economy improves and consumer confidence rises, we expect to get them back, as they are quick to return once their financial situation stabilizes.

Jedidiah Gold, CFO

When we look at the stores in the lower income demographics, they are among our lowest-performing segments across the portfolio. We believe that this is why there’s macro pressure on the consumer right now, particularly for the lower-income segment.

Phillip Blee, Analyst

Okay. That's very helpful. With the retail customer, is this quarter's decline reflective of what we can expect for the rest of the year? Or could we see an inflection here if you go the other way on pricing or elevate promotional offerings?

John Lai, CEO

We're turning up the dial on promotional offers for retail customer acquisition. While I can't disclose specifics, part of our action plan includes being more aggressive with offers. Given the margin profile of our services, we can afford to do this without too much dilution.

Jedidiah Gold, CFO

We are grateful that roughly 75% of our sales are subscription-based, which is more predictable and easier to forecast. That retail side is tougher to predict. What we've modeled is we took that Q1 trend and extrapolated it out for the rest of the year. If retail improves from what we saw in Q1 and everything else remains constant, we would expect improved comp performance.

Operator, Operator

The next question comes from Michael Lasser of UBS.

Michael Lasser, Analyst

How did you consider the risk of raising prices? Will that provide a competitive umbrella for your competitors? As you raise prices, are you providing more opportunities for competitors to maintain their longevity in this space?

John Lai, CEO

Our pricing strategy has always been conservative. We're deliberate and sensitive to the demand and elasticity curve. Our $19.99 plan hasn't increased in almost 20 years. We view the retail pricing at a median level in most markets as tremendous value for motorists. We're not looking to raise the base price. The moves we've made have been on the upper end of our menu, where we believe consumers are less price-sensitive.

Michael Lasser, Analyst

There are many moving pieces on pricing changes between Titanium and the now-deployed Platinum pricing. Can you quantify the expected aggregate contribution from these changes over the next couple of quarters? How much worse did retail decelerate from Q4 to Q1?

Jedidiah Gold, CFO

As we look at the balance of the year, most of the comp growth will come from Titanium and trading our existing members up to that package. Keep in mind that 60% of the stores had already implemented the $32.99 price adjustment before the end of last year. So, most of the benefits will stem from Titanium along with the increase in revenue per member. Regarding retail, we were seeing low double-digit negative retail comps in Q4. In Q1, we saw low negative teens.

Operator, Operator

The next question comes from Tristan Thomas-Martin of BMO Capital Markets.

Tristan Thomas-Martin, Analyst

Looking further out, I think you said the increase in Platinum was to drive people to Titanium. Would the plan be to raise the base price in a year or two to theoretically push people into Platinum or higher? Is that the longer-term vision?

John Lai, CEO

Again, we don't want to telegraph any pricing moves given the broad nature of this conference call. But returning to my earlier comment, never say never. It would be prudent for us to test and evaluate this in select markets. We are currently navigating rising input costs, and while margin expansion is a goal, we will take price increases at the appropriate time. It’s a judgment call from the team.

Jedidiah Gold, CFO

Price is just one input in our customer value proposition. Speed, quality, customer service—there are many variables we consider when deciding if to implement a price increase. All of these factors will be considered when determining the right time.

John Lai, CEO

Depends on the asset. Things are trading today in the range of 10 to 12-ish multiple. Some investors have leaned in heavier due to what they think they can grow the business into, which has lowered that effect on the multiple. There has also been multiple compression over the last year.

Operator, Operator

The next question comes from Christian Carlino of JPMorgan.

Christian Carlino, Analyst

When you speak about Titanium penetration, is that as a percentage of members or revenues? What does that 20% penetration represent? How many have tried it out so far, and what has the retention been like?

John Lai, CEO

When we share those numbers, they're members, not revenue. The numbers we convey are net after churn. We would never be the company that reports a promotional number and celebrates it, so we are cautious.

Jedidiah Gold, CFO

Currently, we see just north of 20% Titanium member mix today. We expect that to pull back slightly as these promotions roll off. Our goal is at least 15%, and longer-term, north of 20% is reasonable.

John Lai, CEO

There hasn't been one market with excessive competitive intensity; it's been pervasive across the country. Competition is not new to us. We've had competition within a 3-mile radius of over half of our portfolio for years. The best operator delivering the most value will ultimately prevail. Our focus is on what we can control—speed, quality, service, and surprising customers. A new store might attract initial visits, but we have seen customers returning to businesses that deliver on their value propositions.

Jedidiah Gold, CFO

While we expect growth in the market to slow, it's still at a rate higher than where it was 5 or 10 years ago. We have good visibility on unit growth for 2025, which will match our current pace.

Operator, Operator

The next question comes from David Lantz of Wells Fargo.

David Lantz, Analyst

Can you talk about the drivers of cost of labor and chemicals deleverage? Considering rising input costs, how are you thinking about this line item over the balance of the year?

Jedidiah Gold, CFO

When looking at labor and chemicals, about 90% of that line is labor expense. During Q1, we observed about 3.5% wage inflation for our frontline members, primarily driven by the annual merit cycle. We expect this to hold steady. On the chemicals side, we identified efficiencies in sourcing, which helped reduce chemical costs per car. While we realized leverage in G&A, we don’t expect this to last into the second half of the year.

David Lantz, Analyst

How did retail comps in lower-income demographics compare to the chain average?

Jedidiah Gold, CFO

In terms of retail comps for lower-income demographics, they remained flat to negative across both segments.

Operator, Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to John Lai for any closing remarks.

John Lai, CEO

Thanks, operator, and thanks, everyone, for joining our call today. At Mister Car Wash, we have a massive growth opportunity in front of us, and we're in the early innings of our lifecycle. We're being deliberate and focused as we execute against our plan, and we're very optimistic about what lies ahead as we build for the long term. We look forward to talking to you again in 90 days. Thank you so much.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.