European Wax Center, Inc. Q3 FY2024 earnings call

• David Berg emphasized focusing on core out-of-home waxing business, pausing laser hair removal pilot and reallocating resources. - Made personnel changes to align teams with priorities, with direct responsibility for development and operations. - Partnered with Dolabra to enhance guest acquisition and engagement strategies, focusing on in-sourcing marketing activities and refining technology capabilities. - Focused on attracting new guests, increasing tickets through CRM and personalized content, and improving productivity of underperforming centers with a dedicated cross-functional team. - Listened to franchisees and aligned on challenges and opportunities, with a focus on long-term sustainable growth.

The company had 1,064 centers with a 3.7% year-over-year growth. System-wide sales were relatively flat at $240.2 million compared to $240.7 million in the same quarter last year. Total revenue was $55.4 million, down 0.5% primarily due to retail product pullback. Gross margin increased 110 basis points to 72.9% due to cost savings. SG&A expenses were $17.5 million, up 21.6% year-over-year, driven by nonroutine expenses. Advertising expenses were $8.4 million, up $300,000. Adjusted EBITDA was $18.4 million, down 4.4% from the prior year.

• Fiscal 2024 guidance: system-wide sales $930M-$950M, revenue $216M-$221M, same-store sales -1.5% to +0.5%, gross margin ~73%, adjusted EBITDA $70M-$74M, adjusted net income $19M-$22M. - Expect 43 gross new openings in 2024, with 17-22 net new openings. - 2025 guidance is directional, with potential for net negative growth due to closures potentially offsetting gross openings, details to be provided in Q4 earnings call.

• Macro-economic challenges impacting franchisees, including higher rent and wage costs. - Lease and license expirations leading to potential closures. - Difficulty in attracting new guests and increasing tickets in a challenging environment.

Q: Any common reasons for underperforming units and if related to real estate?

A: David Berg stated it's not a real estate issue but due to macroeconomic conditions like higher costs, lease/license expirations, portfolio optimization.

Q: Thoughts on unit growth in 2025?

A: David Berg said 2025 expected to have gross new openings, but closures could exceed gross openings, net negative possible, details in Q4 call.

Q: Criteria for closing units and using cash to buy units?

A: Korinne Wolfmeyer asked, David Berg said they work with franchisees, monitor at-risk units, and may use cash to buy units thoughtfully.

Q: Enhancements to unit economics?

A: David Berg mentioned partnership with Dolabra to drive new guests, smarter media buying and messaging to enhance four-wall productivity.

Q: Core guests and lapsed guests?

A: Stacie Shirley said core guests are ~75% of system sales, pleased with loyalty, but challenge is bringing in new guests.

Q: New promotional efforts?

A: David Berg said they're pleased with Wax Pass sales, working on 2025 promotional calendar with franchisee input, using LTOs in product.

Q: Long-term TAM and growth?

A: David Berg stated business model is solid, TAM is robust, still leader in fragmented industry, focused on thoughtful growth.