Mister Car Wash, Inc. (MCW) Q3 2021 Earnings Call Transcript

Mister Car Wash, Inc. (MCW -1.14%)
Q3 2021 Earnings Call
Nov 11, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Mister Car Wash's conference call to discuss financial results from the third quarter fiscal 2021. [Operator instructions] Later, we will conduct a question-and-answer session, and instructions will follow at that time. Please note that this call is being recorded. Any reproduction of this call in whole or in part is not permitted without written authorization from the company.

I would now like to turn the conference call over to Megan Everett, senior director of communications. Please go ahead, ma'am.

Megan Everett -- Senior Director, Communications

Thank you. Good afternoon, everyone, and thank you for joining us today for Mister Car Wash's third quarter fiscal 2021 earnings call. Speaking for management today on the call are John Lai, chairperson 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.

Before we begin, I do need to remind everyone that comments made today 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. These statements speak as of today, and except as may be required by law, the company does not have any obligation to update or revise such statements as circumstances change. Please review the cautionary statements and risk factors contained in the company's second quarter 10-Q as such factors may be updated from time to time and in its others filings with the SEC. During the call today, we will also refer to certain non-GAAP financial measures.

A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release issued earlier today and which is posted to the investor relations section of Mister Car Wash's website at ir.mistercarwash.com. With that, I'll turn the call over to John.

John Lai -- Chairperson and Chief Executive Officer

Thanks, Megan. Good afternoon, and thank you for joining us for our third quarter earnings call. I'd like to begin by briefly recapping our third quarter results and then discuss our strategic growth initiatives that will help drive long-term shareholder value. Jed Gold, our CFO, will then discuss our financial results, and we'll conclude with a Q&A session.

From both an operational and financial perspective, we are very pleased with the underlying trends in our business. As many of you know, Mister Car Wash is the largest operator of car washes in the U.S., and we believe there is significant opportunity to continue building our brand and growing our market share. As a result, we've been focused on expanding our [Inaudible] and investing in our people to continue scaling our company. In the third quarter, revenue increased 24.7% from the third quarter last year to 194 million.

That was driven by strong comp store sales and unit growth. Adjusted EBITDA increased more than 44% from the third quarter last year to 62.5 million and reflects both increased operating efficiencies, as well as investments we're making to drive long-term sustainable growth, which I'll discuss more in a moment. We opened nine new locations in the quarter, bringing our total store count to 360 as of September 30. You know, we added over 30,000 new members to our Unlimited Wash Club and ended the quarter with over 1.5 million unique members.

All of this helped us deliver another strong quarter of top and bottom-line results, continuing our track record of delivering consistent growth. This consistency in the business is a testament to the operational excellence that our teams delivered day in and day out, something that we're very proud of. And I'd like to thank all of our team members who create a magical experience for our customers. Putting all the numbers aside, it's the people that have made Mister the No.

1 national brand in America, and together, we're building a culture and brand that is truly unique in the marketplace. In August, our senior management team had our first in-person strategic offsite since the pandemic began. And this meeting is our time to think big and go long, and not be encumbered by the day-to-day. Often, the best conversations are had around the campfire, and this meeting was no different.

We started off by looking inward around our brand promise and reconfirming our commitment to continuously increasing our level of professionalism, convenience, and efficiency. In addition to fine-tuning our growth strategy, we collectively came away with a determined sense of purpose going forward. At the operations level, which is one of our strongest muscles, after over 18 months of social distancing, we brought our entire regional management team together for our first in-person national ops meeting. Over 100 of our fully vaccinated field leaders got together to discuss how to accelerate our growth while simultaneously elevating our already super high standards.

Stories were shared across the company of families whose lives were forever changed as a result of us going public. It was a very uplifting feeling to be able to finally raise our glasses and recognize not only what we just did but get geared up for what's ahead. I'm thrilled to say that coming out of the meeting, our culture and esprit de corps as a mission-driven organization has never been stronger. We have a long history of developing our people and creating career opportunities for those with the drive and ambition to take on more responsibility.

We're proud that over 90% of our operations team started off as hourly employees, and they're now the ones who are developing our next generation of leaders to fulfill our vision. We recently introduced an accredited certified trainer program that turbocharges our digital learning platform called MisterLearn. We now have 112 certified field trainers, alongside our 75 regional managers and 25 regional trainee specialists, who are providing true mentorship programs to help us accelerate our leadership pipeline and prepare for even more unit growth. Probably the biggest headline for our team coming out of the IPO was our new long-term incentive plan, which gives a piece of the pie to over 800 team members, including all of our general managers, by awarding them meaningful restricted stock units.

For the first time in our company's history, every single one of our 350 store managers are now owners in the company. They have been and always will be the most important position in our company, and we're thrilled to be able to finally reward them in a way that sets them up for a lifelong career at Mister Car Wash and true financial independence. And we didn't just stop at our GMs. We also want to recognize some of our amazing front-line team members who've been with us for more than 15 years, some even 20 years, who, in a lot of ways, are the heart and soul of our company.

We awarded over 200 RSU grants, and the tears of joy that spread throughout the ranks was a tangible and meaningful symbol of our love and appreciation for their hard work and commitment. Now, let me shift to our strategic growth initiatives. First is driving comp store growth through increasing our Unlimited Wash Club member base. We operate the world's largest carwash membership program; and the predictable, recurring, subscription-based revenue has transformed every aspect of our business.

We believe we can continue to grow our member base by introducing the benefits of UWC to more of our estimated 7 million to 9 million retail customers that are coming in for a single wash. Getting retail customers to adopt our service as part of the regular purchasing pattern is a holy grail for any consumer services business. So, consequently, we're working on new ways to engage, convert, and retain our members through a much more sophisticated digital ecosystem digital. Additionally, as we increase store density, we're enabling our members to access a larger network of stores, which increases the customer value proposition, which has emboldened us to increase our density in every market that we're in.

Which leads me to our second growth initiative, unit growth. We continue to see significant whitespace for future growth in our existing markets. The majority of our greenfield developments have materially outperformed plan, and we're on pace to have the single biggest de novo year ever. We've opened 11 new stores so far this year and are on target to open 16 to 18 new greenfield locations for the year.

Given the success of our greenfield program, we are aggressively building out our new store development and construction teams and have quadrupled our infrastructure in the last 12 months, which will allow us to increase the number of new stores we can develop. Working alongside some of our install partners, we've also elected to build out our own vertically integrated install teams to increase our project capacity as we continue to ramp our greenfield program, with the opportunity for us to double or triple our footprint in existing markets. As we look ahead, we believe we have an opportunity to accelerate unit-level growth through strategic M&A, acquisition opportunities, and greenfield development in existing markets. That leads me to our third growth initiative, the training development of our people.

As I've shared before, our people are our biggest competitive advantage, and human capital is one of the most important factors to growing Mister. Our commitment to being the best-in-class employer began years ago. And over time, we've developed what we believe is the most comprehensive and competitive pay and benefits package in the industry. We've also been focused on raising the bar and bringing in the best talent across the company.

With current unemployment levels at a 19-month low, today's labor market is extremely competitive. While our express car carwash model, which represents the majority of our portfolio, is relatively low labor, we're working harder than ever to retain and attract the best talent. To get ahead of the curve, in August, we began increasing our starting hourly wages. We're also increasing wages for existing top performers to make sure that we don't lose them.

In the face of higher wages, we've also been focused on improving productivity. And I'm happy to report that number of cars being processed on a per-employee basis is up 51%, with cost per car down 21%, and total number of labor hours used per location is down 29% compared to Q3 of 2019. I'd like to take this opportunity to thank every single one of our site managers. You've done a terrific job of improving productivity, elevating the customer experience, and most importantly, caring for their teams.

Finally, I'm happy to welcome two new directors to our board: Veronica Rogers, senior vice president and head of global sales and business operations at Sony; and Ron Kirk, former mayor of Dallas and member of the Obama cabinet. The diversity of our board demonstrates our commitment to creating a company and culture that is inclusive and brings to the table voices that have depth and breadth of experience that will ultimately make us a stronger and better organization. In summary, it was a strong third quarter, and I'm proud of the operational and financial performance our teams delivered. We're very optimistic about how we're going to finish 2021 and are even more optimistic about 2022.

I'd like to now turn it over to Jed. Jed.

Jed Gold -- Chief Financial Officer

Thank you, John, and good afternoon, everyone. We're pleased with our third quarter results and the underlying trends in our business. Our teams are executing well against our strategic growth initiatives, and we continue investing in our future. Before we get into the numbers, let me make some high-level commentary on what we're seeing in the business.

First, the fundamentals of our business are strong as evidenced by our top and bottom-line results. Second, we're seeing strong member retention levels in our Unlimited Wash Club, and the big gains we experienced in the first half of the year are forming nicely thus far in the back half of the year. Third, like many other companies, we are seeing some continued inflationary input pressures, primarily in store-level labor and chemicals. We're offsetting these with selective pricing increases in the retail wash side of the business.

Fourth, and maybe most importantly, we continue to invest heavily in our people. As John mentioned, we have a significant opportunity to accelerate our growth and capture market share, both through acquisitions and greenfield openings. And we have stepped up our management training and investments in people to better position us to take advantage of the opportunities in the marketplace. Now, let me review our third quarter results.

My comments will focus on our adjusted non-GAAP results. Please refer to today's press release if you would like more details on our financial performance and our methodology in calculating non-GAAP financial metrics. In the third quarter, revenue increased 24.7% compared to the third quarter of last year to $194.3 million, driven by comparable store sales growth of 21% and unit growth of 6.5%. On a two-year basis, our comparable store sales grew 14.5% versus 2019 during the quarter.

It is important to note that the third quarter last year included $6.8 million of revenue from the quick lube oil change business that was subsequently divested in December of last year. Excluding this from the comparison, revenue increased more than 30%. Our subscription for Unlimited Wash Club program remains a key driver of growth. In Q3, UWC memberships increased 31.5% to 1.564 million from 1.18 million as of September 30, 2020, and accounted for 66% of total washes in Q3, compared with 62% of total washes in the prior-year period.

With respect to unit growth, we added two stores through acquisitions and seven newbuild locations for a total of nine locations added in Q3 this year. As a result, we ended the quarter with a total of 360 locations versus 338 as of the end of last year's third quarter. We continue to see strong performance and returns out of both our acquired and greenfield locations. And we believe there is an opportunity to potentially accelerate our unit growth over the next 12 to 18 months as we continue scaling our operations and look to solidify our market share in certain key markets.

Now, to provide perspective on the balance of the P&L. This year's third quarter cost of labor and chemicals increased 26.3% to $63.4 million, compared to $50.2 million last year. The increase in the cost of labor and chemicals was primarily driven by the recognition of stock-based compensation for store-level employees of $2.8 million, increased labor and benefits of $8.3 million in connection with the increase in wash volume, as well as increases in crew wage rates and investments in developing bench to support continued growth. These increases were partially offset by decreases in labor and chemical costs as a result of improvements in labor productivity levels and the sale of our quick lube facilities in December of 2020.

Excluding the stock compensation expense and when looking at the cost of store-level labor and chemicals as a percentage of revenue, cost of the store-level labor and chemicals was 31.2% of total revenue, compared to 32.3% of total revenue in last year's third quarter. However, during the middle of the quarter, we made the decision to step up our investments in labor to better position us for future growth. More specifically, we expanded our management training program, adjusted wages in certain areas, and stepped up our hiring efforts to strengthen our competitive positioning and labor bench. As you've heard us say before, our people are both the key to our success and the biggest limiting factor to drive even more growth.

The investments we are making today should position us well as we look at new incremental growth opportunities into next year. Other store operating expenses were $68.4 million in this year's third quarter, or 35.2% of revenue, compared with $56.1 million or 36% of revenue last year. The increase was primarily driven by the increases in wash volume, with comparable store sales growth and year-over-year addition of 22 locations, partially offset by a decrease in other store operating expenses from the sale of our quick lube facilities. General and administrative expenses in this year's third quarter were $22.2 million, or 11.4% of revenue, compared with 10.5 million or 6.7% of revenue last year.

The increase was driven by a $4.6 million increase in salaries and benefits, $3.5 million increase in stock-based compensation expenses, incremental public company costs, as well as comparisons against the temporary staffing and pay reductions related to our COVID-19 expense cuts in the third quarter of last year. Interest expense decreased to $5.7 million, from $15.9 million of last year due to the reduced debt levels after using the majority of the proceeds from the IPO to pay down debt. Our effective tax rate for this year's third quarter was 19%, compared with 27.3% last year. The decrease was primarily driven by discrete tax benefits originating from stock options exercised during the quarter.

Adjusted net income increased more than threefold to $34.8 million in the third quarter this year, from $11.4 million last year; and adjusted net income per diluted share was $0.11 in the third quarter of 2021, compared with $0.04 in the prior-year period. Adjusted EBITDA, which adds back stock-based compensation and a certain nonrecurring or nonoperating expenses, increased 43.9% to $62.5 million in the third quarter this year, versus $43.4 million in the third quarter of last year. Now, moving on to the balance sheet. Cash and cash equivalents as of September 30, 2021, was $162.2 million, compared with $58.3 million as of September 30, 2020, and $114.6 million as of December 31, 2020.

Our total debt as of September 30, 2021, was $610.1 million. Gross capital expenditures totaled $89 million in the first nine months of fiscal 2021, compared with $43 million in the prior-year period. Net of sale-leaseback proceeds, capex through the first nine months was $66 million, versus $33 million of last year, an increase of $33 million largely due to many capex projects put on hold during the heart of the pandemic. Maintenance capex was $14 million in the first nine months of fiscal 2021, compared with 4 million in the first nine months of fiscal 2020.

Let me now turn to our outlook for the full year 2021. We are raising our previously provided 2021 revenue and adjusted EBITDA outlook to the following: revenue of between $751 million to $756 million, or growth of 30.6% to 31.5%; comparable store sales growth of 31% to 33%; a GAAP net loss of $45 million to $40 million; adjusted net income of $125 million to $130 million; adjusted EBITDA of $251 million to $253 million; adjusted net income per diluted share of $0.40 to $0.44. We still expect to open 16 to 18 new greenfield locations. And capital expenditures, net of sale leasebacks, we expect to be about $76 million for the year.

My high-level commentary around guidance is that our fundamental outlook for the business has not changed. We're flowing through the upside in the third quarter and leaving our outlook for the fourth quarter, adjusted EBITDA relatively unchanged. We're driving strong revenue growth. We're offsetting higher labor and chemical costs with higher retail wash pricing.

And we are continuing to invest in people to better position as for future growth. In conclusion, it was a strong Q3 from both a financial and operational perspective, and I would like to reiterate our recognition and appreciation for our outstanding teams, especially our front-line team members that drive our performance day in and day out. With focused priorities across the organization and continued disciplined execution by our teams, we believe that Mister is well-positioned to capitalize on the significant opportunities for growth that lie ahead. And with that, I'll turn it over to Chad to begin the Q&A session.

Chad.

Questions & Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator instructions] And the first question will come from Elizabeth Suzuki from Bank of America. Please go ahead.

Elizabeth Suzuki -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. Just one question on the quick lube business that you divested. One of your competitors is, you know, is thinking of co-branding, you know, their carwash with quick lube.

And so, I'm wondering why that wasn't successful for you or why you would choose to have gotten out of the quick lube business?

John Lai -- Chairperson and Chief Executive Officer

Yeah. So, this is John. You know, we subscribed to the theory of doing fewer things well and focusing on our core competencies. And so, at the risk of sounding somewhat myopic, you know, we've got our hands full on delivering a clean, dry, shiny car consistently across our entire beautiful portfolio of 360 stores.

So, we like that we're a pure-play carwash company, and we're very, very focused on that. You know, back in the day, there was a whole bunch of ancillary profit centers that people would attach their car washes, be it convenience store, you know, gas, lube shops, etc. And in the early days, we managed many of those businesses, but we have been strategically shutting them as Jed mentioned. And today, you know, we wake up thinking, living, and breathing car wash, and we're happy that we're doing that.

Elizabeth Suzuki -- Bank of America Merrill Lynch -- Analyst

Great. And then just one other question on growth. You know, you've done a combination of M&A and, you know, and also greenfield expansion historically, and you're still planning to do that going forward I would assume. But, I mean, what are the merits of both? I mean, presumably, if you do an acquisition, you're also taking out a competitor at the same time, but then there's more work to, you know, convert all the signage and change over the experience to your brand.

But, you know, if you -- with greenfields, you could potentially run up on the issue of having, you know, not enough space to expand into or running out of locations. Just how are you thinking about the -- both avenues of growth?

John Lai -- Chairperson and Chief Executive Officer

Yeah, so I'll tackle the latter part of your question first, and that is we see an unbelievable amount of whitespace and runway for new unit growth in our industry, and we believe that the industry can almost double in size before it hits any point of maturation. And that's emboldened us to, again, double down, triple down on our greenfield initiatives. You know, the pros and cons between M&A and greenfield, I think, they're widely understood. You know, you're paying up for an M&A acquisition opportunity to scale your business quicker.

But sometimes, the economics aren't as attractive, depending upon how much you're having to pay for that business versus a greenfield. So, in our world, you know, we're looking at both. As we enter into new markets, typically, it's done through a strategic M&A platform acquisition. And then we will, you know, build out that market with bolt-on acquisitions, so onesie-twosies, as well as now building out with greenfield.

So, we like having a kind of a dual path to growth. In more recent years, we're really, really excited about greenfield, but we remained highly acquisitive and hungry as we continue to look for new opportunities.

Elizabeth Suzuki -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

And the next question will come from Michael Lasser from UBS. Please go ahead.

Michael Lasser -- UBS -- Analyst

Good evening. Thanks for taking my question. During the script, you talked several times about accelerating growth. What specifically are you referring to, and has the global supply chain challenge impacted the timing of any of your -- of the opening of any of your new greenfield locations? Wouldn't be surprising if it's just more difficult to get supplies to build some of these new car washes from the ground. 

John Lai -- Chairperson and Chief Executive Officer

Yeah. Great, Michael. I'll take the growth question, and, Jed, you can maybe handle the supply side. So, we were speaking specifically to unit growth and the opportunity that we have in front of us, as I previously mentioned, to continue to scale our company and take what is a 360 store chain strong business and continue on this trajectory.

So, that's our path. That's our ambition. And that's our vision. And we're on that track.

And the only thing that's holding us back is our ability to build out the teams to support that growth. And so, you know, behind the scenes, we're feverishly working to, you know, not just double but triple our construction and development teams, our real estate sourcing teams while we're also simultaneously building out our leadership development pipeline to be able to run the store. So, you can build them, but you got to run them. And we are on that parallel path to building our the teams on both fronts so we can achieve our vision.

Jed Gold -- Chief Financial Officer

Yeah, Michael, and we'll provide our outlook for 2022 on our Q4 call. But we do see a little bit of upside to the 23 number that we had provided earlier. And as you look at the supply chain, that there -- it's hard to find a company in today's environment that is completely insulated from the supply chain pressures that are being -- we have factored that in to the 16 to 18 between now and the end of the year. And it's being factored in as we think about 2022 and ahead.

Michael Lasser -- UBS -- Analyst

OK. And if I could get a follow-up question. You mentioned retail prices have gone up. How much have you -- how much price have you taken, and is there been an elastic response on the retail side? I know you haven't changed the price of the UWC program, but what's the history of raising prices on retail? And then as part of that, Jed, maybe you can offer some perspective, the cost of labor and chemical margin was up about 44 basis points.

You did a similar number of sales dollars this quarter versus last quarter, but the margin was much higher. Is that all because of the increases in labor costs and increases in chemical costs? Thank you.

Jed Gold -- Chief Financial Officer

So, Michael, a couple of things there. So, the price increase that we took, it was just on the retail side of the business, which makes up about 35% of our total sales, and it was phased in early November. So, just recently. Roughly 80% of the stores received some type of a retail pricing increase.

With retail obviously being the smaller part of the business, it impacted about 25% of our business. As we think about the labor side and the cost of labor, it's -- the driver there, this year's margin versus last year, there's a little bit of noise when you start looking at it that way because of prior year, some COVID noise in there. But as I said in the prepared remarks, the investments that we're making on the labor front, which can really be categorized into two buckets, the inflationary pressures that we're experiencing and the investments we're making to offset those. But then also, the investments that we're making to build out that team to continue to drive even more future unit growth.

John Lai -- Chairperson and Chief Executive Officer

Hey, Jed, can I just add to that? I think, you know, historically, you know, very conservative approach to leveraging our pricing power. And where we sit today vis-a-vis our competitors, you know, we still think that we have additional room should we elect to use it next year. And that we can pass it through relatively easily, with all the knock on wood. So, we're keeping some gas in our tank.

We don't want to, you know -- again, any moves that we make are very measured and very conservative. And to your comment, you know, we have not touched our Unlimited Wash Club pricing because we still are very much in member growth mode.

Michael Lasser -- UBS -- Analyst

Understood. Thank you so much and good luck.

John Lai -- Chairperson and Chief Executive Officer

Thank you.

Operator

And the next question will come from Greg Badishkanian from Wolfe Research. Please go ahead.

David Bellinger -- Wolfe Research -- Analyst

Hey, this is David Bellinger on for Greg. Thanks for taking the questions. So, I'll start on the UWC member growth. That slowed sequentially from an average of about 150,000 new members in each of the first two quarters of the year to about 30,000 this quarter.

So, is there anything you can highlight on that net change, maybe having to do with seasonality in the business or even labor at the store level? And if you think there was some type of pull forward into the earlier part of the year? 

Jed Gold -- Chief Financial Officer

Yeah, David. So, listen, when you look at the year-to-date growth on Unlimited Wash Club, we're very pleased with the growth that we've seen. We've added 330,000 members year to date. We've grown it by just over 30% versus Q3 of last year.

There is just a little bit of seasonality when you look at member sign-ups first half versus second half. Historically, when you look at this from 2015 through 2019, about 75 -- roughly 75% of those sign-ups occur during the first half of the year. This year, with the macro trends that we highlighted on our earlier call, we did see a little bit of a spike in Q2 relative to previous quarters. Listen, really difficult to say whether we pulled members forward or whether we took members from previous year and pushed them into this year.

But, listen, overall, we're happy we're sitting at over 1.5 million members in the Unlimited Wash Club, and we're holding on and retaining those members fine.

John Lai -- Chairperson and Chief Executive Officer

Yeah, Jed, and I would just add to that, you know, the first half of this year was unusual in a lot of ways, in a beautiful way, in that we grew our member base so significantly. But when you look at Q3, we're actually in line with historical trends from a growth standpoint, and we've always taken an approach to -- of having this kind of steady as she goes. We call it the slow burn approach. You know, we don't deploy any promotional gimmicks or tactics to try and lure folks into the program.

We educate and we inform and we allow our customers to, in a very relaxed way, sign up for the program. And we'll going to continue on that path.

David Bellinger -- Wolfe Research -- Analyst

That's helpful. And just as a follow-up. The percentage of sales from UWC members, that stepped up at about 4 percentage points sequentially to 66% of sales. So, help us understand that improvement.

Just to clarify, is pricing impacted at all there? And also, should we expect the price gap between your retail customer and the UWC to remain relatively consistent from here? 

Jed Gold -- Chief Financial Officer

Yeah, so the pricing increases that we took, David, were just recently taken in the earlier parts of November. So, as you look at the 66% mix, right, the UWC sales mix, there's also the retail side of that as well. So, it was a step up, as you had highlighted, of -- compared to last quarter of 62%. That's just a function of the movement of, right, growing UWC a little bit, but then also the retail trailing just a little bit.

As you recall on our Q2 call, we had that retail sales were a little bit more pronounced and helping drive the beat that we saw in Q2.

John Lai -- Chairperson and Chief Executive Officer

Yeah. And just to clarify, the gap isn't going to increase, it's going to shrink between retail and UWC. And so, as we shrink that gap, you know, in theory, you know, that will -- should have a positive impact on the value that our members will see. And we hope that that helps us drive more member growth.

David Bellinger -- Wolfe Research -- Analyst

Got it. Thanks so much.

Operator

And the next question will come from Simeon Siegel from BMO Capital Markets. Please go ahead.

Simeon Siegel -- BMO Capital Markets -- Analyst

Thanks. Hey, guys. Hope you're all doing well. John, sorry, I think I'm going to have throw some quick ones over to Jed if that's all right.

Jed, can you talk about your gross margin trajectory, I guess, next quarter, it's next year, just considering the inflationary point you referenced? So, just anything there, anything changed in your underlying incremental margin as you think about that flow through. And then just quickly on the full year guide change, I think you -- so the reason that you raised revs where it was 49 million but brought the high end of net income down about 5 million. Just any help there. Is there something below the line that we need to keep in mind? And then just sorry if I missed it, did you comment on what looked like the lower capex guide for the year? So, is that lower gross capex, higher leasebacks, both, something else? Thanks.

John Lai -- Chairperson and Chief Executive Officer

Hey, Jed, before you answer. Simeon, I'm waiting for the -- and maybe this is not in the financial analyst playbook, but I'm waiting for the day that you asked me a question about culture because I can fill that. But the hardball questions about specific measures [inaudible] handle.

Simeon Siegel -- BMO Capital Markets -- Analyst

That's my follow-up. So, you just pre-empt it.

Jed Gold -- Chief Financial Officer

So, Simeon, as we think about gross margin, particularly that quarter-over-quarter cadence, right, there's some timing where we made the investments on the labor front in early August. Pricing goes into effect in early November. So, you'll see things move around just a little bit. Listen, at the end of the day, we -- Q2 was an anomaly with the 37% margins.

We see this coming down with the investments that we're making more in line with what we expect. We're very happy with margins in that 30% level. At the end of the day, we're looking at this at a full-year basis over a longer-term, not just quarter to quarter. And then on the capex side of your question, it is slightly lower.

Don't read into that. It's really just a timing thing. And some of the sale leasebacks and versus when the actual capex spend is occurring. Keep in mind, on the capex front, it's about an 18-month lead time on the development cycle.

So, what we're -- the spend that you're seeing is really going into 2022, 2023 new builds at this point.

John Lai -- Chairperson and Chief Executive Officer

And I will say, our physical plants are in the best shape they've ever been in, and they're set up for peak performance. And so, the way, you know, we've embraced technology across every aspect of our business. And as a result, you know, we can process 150 to 180 cars very easily, in some cases, 200 cars power, depending upon the store.

Simeon Siegel -- BMO Capital Markets -- Analyst

Perfect. Thank you. And just a quick follow-up. John, I'm just wondering, are you pro or against having a positive culture? [inaudible] a little ahead for the rest of the year.

John Lai -- Chairperson and Chief Executive Officer

That culture eats strategy for lunch. Thank you.

Operator

Thank you. And the next question will be from Peter Keith from Piper Sandler. Please go ahead.

Peter Keith -- Piper Sandler -- Analyst

Hey, thanks for taking my questions. I wonder, maybe circle back on the pricing. And, John, I'm just checking back my notes. I don't think you guys have raised prices for a long time.

If you have at any point in your tenure, I guess I'm curious, historically, what you've seen or recall seeing with demand trends? And then to your point around the pricing gap with membership shrinking, have you historically seen an uptick in membership penetration when you've raised retail prices?

John Lai -- Chairperson and Chief Executive Officer

Yeah. So, back to our conservative approach. You know, every time we go into a pricing discussion, which is, as you can imagine, are probably the most intensely, internally debated conversations with respect to strategic moves. You know, there's always a little bit of stress around what kind of impact that's going to have on volume.

And every time we've made the move over the last 20 years, we haven't seen any material impact to our volume. And so, it's been relatively easy to pass it through. But again, we're going to stay true to our core, which is remain conservative, you know, and only take pricing when we think we need to. And so, the most recent move in November, which, again, is lagging some of the moves we made from a wage standpoint in August, has put some initial near-term pressure on margins.

But really, I think the question is and one of the things that we're still -- I think America is trying to figure out is what is the future labor market look like.

Jed Gold -- Chief Financial Officer

Yeah, listen, the one thing I would add there, Peter, is that we're always looking at retail pricing and there have been historic retail pricing actions. To John's point, right, it doesn't have an impact on volume. With the subscription business, right, this is where it's unique from a QSR or other broader retail that actually helps serve as -- and drive UWC -- historically has helped drive UWC sign-ups.

Peter Keith -- Piper Sandler -- Analyst

Yup, OK. It makes sense. And the other question when asked was around the point you made, I think you've reduced labor hours by 29% I think going back two years if I got that right. So, just operationally, can you talk about how you're doing that, and are you in the early stages of this effort, or conversely, are you kind of about to annualize some of these initiatives?

John Lai -- Chairperson and Chief Executive Officer

No, I think it's important to note that our approach to staffing is we staff up. We don't staff down. And this whole notion of right staffing. And what we're doing is delivering a beautiful customer experience where we have literally an attendant that is helping in a self-service kiosk mode, get folks through the line even quicker.

So, you know, where some folks will run lean and mean, you know, we're happy with our approach. That said, inside of our portfolio, some of our top quartile stores will probably run in heavier than they needed to. So, we rightsize that kind of midway through the pandemic, and we're enjoying that. I think the other thing that's from a macro standpoint that's affecting, you know, the optimization of our labor is the fact that we have been converting some of our stores that were interior claims slash full serve locations to express exterior models, which, as you know, is a fundamentally different lower labor model than a traditional full serve. 

Peter Keith -- Piper Sandler -- Analyst

Yup, makes sense. OK. Thanks so much and good luck.

Operator

[Operator instructions] The next question will come from Simeon Gutman from Morgan Stanley. Please go ahead.

Simeon Gutman -- Morgan Stanley -- Analyst

Hey, guys. First question is a short-term on the fourth quarter. Can you help us what's implied in terms of the comp, the -- I know there are some puts and takes from the prior year, and I wanted to make sure we were interpreting right. It looks on the surface as an implied acceleration but trying to get that clarified.

Jed Gold -- Chief Financial Officer

Yeah, Simeon, so when you look at the -- just the cadence going into Q4, right? It's July, we are plus 31%; August, plus 21; September, plus 23. So, we're seeing good momentum going into the quarter. Keep in mind, from a comp perspective, it does get progressively more difficult toward the back end of this year because of the reopening of our interior clean locations last year. So, when you're looking purely at that comparable store sales percentage, they'd lap, just becomes a little bit more difficult as those -- everything came back online, fully back online.

Simeon Gutman -- Morgan Stanley -- Analyst

OK. And then the second question. I think this was touched on, but I'll make two parts to it. One, is there any competitive response in the markets in which you compete in terms of the cost of either, you know, competitive wash, express wash, or memberships? And then the changes that you've made to the full service or the way you expressed it, Jed, is that -- are we, you know, at a good place now, and, you know, we're not going to see price increases going forward? Or if the situation evolves, you may have to make a move? Meaning, how sacred is the price points right now in the membership club?

John Lai -- Chairperson and Chief Executive Officer

OK. So, that was a three-part question. I'll break it into three pieces. So, from a pricing standpoint and vis-a-vis our competitors, we've seen many of our competitors take price ahead of where we have made our recent moves.

But on average, if you look at our base express retail price point across our 360 stores, we're roughly $8 while many of our competitors are at 10. So, they've taken pricing earlier than we did. But, you know, our big moves just got us to eight. So, again, we think we've got more gas in the tank.

You did touch on something that is very sensitive to us, which is our Unlimited Wash Club pricing strategy, which we are electing not to touch. Again, as we've mentioned repeatedly, we're in member growth mode, and we want to continue down that path as we build our member base and get more folks into fold. I forgot the third question. Can you -- can somebody --

Simeon Gutman -- Morgan Stanley -- Analyst

No, I think you touched on it, meaning, you know, the changes that you've made, you know, get you to a good place. And I was trying to understand if, you know, if this inflationary environment persists, you know, is there a breaking point? But I don't know. So, I don't know how you think about that.

John Lai -- Chairperson and Chief Executive Officer

Yeah. And on the interior clean, I just remembered it was the third part. So, what is the future of the -- today, I think it's roughly 75 interior clean stores. We probably have another dozen or so opportunities that we're looking at right now to optimize and perhaps convert to express exterior.

But when we boil it down to the 50 that will remain, they are high performance engines that generate a whole bunch of revenue and EBITDA, and we're very happy with the performance of those stores. And as we've shared in the past, it actually creates this huge pipeline of talent because some of our best operations guys have come up through the interior clean full serve ranks, and we're able to take those guys and put them into new markets or new stores. And they absolutely crush it. So, we love the interiors clean side of our business, but our growth strategy from a unit growth standpoint going forward is almost 100% pure express.

Jed Gold -- Chief Financial Officer

Hey, Simeon, just one other point I want to add on there is -- so as John had mentioned, we're always going to be looking at opportunities to take price. We believe that we still have some opportunities if we were pressed and we had to. As we think about the near term and going forward and the impact of the pricing actions that we just took here recently in November, right, so it's going to impact a small portion of the business, about 25% of our business. And on a go-forward basis, we anticipate this having a fairly minimal impact to comp in the low single digits.

Operator

Simeon, this is the operator, do you have any further questions?

Simeon Gutman -- Morgan Stanley -- Analyst

No, sorry. Thank you very much.

Jed Gold -- Chief Financial Officer

Thanks, Simeon.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to John Lai for any closing remarks.

John Lai -- Chairperson and Chief Executive Officer

So, we've had a great year so far, with strength in all-around performance. And as we look ahead, our focus will remain on continuously elevating the customer experience as we grow our network of stores and customers, all while maintaining the operational excellence and people-first culture that has come to define us. Thank you for joining us on the call today. We look forward to having a solid Q4 and finishing the year strong.

Thanks, everybody. 

Operator

And thank you, sir. [Operator signoff]

Duration: 65 minutes

Call participants:

Megan Everett -- Senior Director, Communications

John Lai -- Chairperson and Chief Executive Officer

Jed Gold -- Chief Financial Officer

Elizabeth Suzuki -- Bank of America Merrill Lynch -- Analyst

Michael Lasser -- UBS -- Analyst

David Bellinger -- Wolfe Research -- Analyst

Simeon Siegel -- BMO Capital Markets -- Analyst

Peter Keith -- Piper Sandler -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

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