European Wax Center, Inc. Q4 FY2024 earnings call

• Chris Morris joined as CEO, thanked predecessor, highlighted the company's position as industry pioneer, strong guest experience, and focus on franchisees. Identified challenges with declining transactions and profitability, near-term priorities include developing a marketing engine, cultivating a service-based infrastructure, implementing a sophisticated development approach, and assembling a management team.
• Stacie Shirley discussed fiscal 2024 financial results, unit counts, and provided the 2025 outlook, including unit expectations, top-line projections, bottom-line estimates, and capital expenditure plans.

During the fourth quarter, system-wide sales increased 1.1% to $229.3 million with same-store sales up 0.8%. Total revenue decreased 4.6% to $49.7 million. Gross margin improved 190 basis points to 74.3%. SG&A increased 8.2% to $14.8 million. Adjusted EBITDA was $19 million, down 1.6%, with a margin of 38.1%. For the full year, franchisees opened 23 net new centers, resulting in 2.2% net unit growth to 1,067 centers. System-wide sales increased 1.2% to $951 million with same-store sales up 0.2%. Total revenue was approximately flat at $216.9 million. Gross margin was 73.6%. Adjusted EBITDA was $75.5 million, down 0.7% but beat the revised outlook.

• Fiscal 2025 unit expectations: 10-12 gross new centers, 40-60 closures (28-50 net closures). System-wide sales expected to be between $940 million and $960 million. Same-store sales flat to positive 2%. Total revenue between $210 million and $214 million. Adjusted EBITDA outlook $69 million to $71 million. Adjusted net income $16 million to $18 million. Capital expenditures $9 million to $11 million, with ~$6 million non-cash.

• Macro environment challenges leading to pressured consumer spending. Declining transactions and profitability for franchisees. Underperforming centers due to various factors. Need to adapt marketing and operational infrastructure to keep pace with unit growth.

Q: When you think about the store closure guidance for 2025, is that the bottom of closures? Any common threads with closing stores? Update on California performance?

A: Chris Morris said 40-60 closures are the range for 2025, with no single common thread for closures. California has more inflationary pressure, and franchisees are feeling it, but marketing efforts aim to help.

Q: Can you provide a snapshot of where the four-wall economics exist today and how you envision it advancing? Also, color on tax impact in SG&A?

A: Chris Morris noted mature units have strong AUVs and cash-on-cash returns. Stacie Shirley explained the SG&A adjustment related to franchise taxes was offset by state tax benefits.

Q: What are successful franchisees vs non-successful? Any inclination to buy stores? Need to retool franchise agreements?

A: Successful franchisees are passionate about service and committed. No immediate inclination to buy stores. No immediate plan to retool franchise agreements but ongoing learning.

Q: State of pipeline of unopened units? Comfort with not seeing broader external shift affecting unit economics?

A: Pipeline numbers still valid. Chris Morris said competitive landscape isn't a significant threat, and focus is on strategic site selection.

Q: Thinking about promo strategy and price? Areas of opportunity? System-wide vs optional for franchisee?

A: Work ongoing on marketing approach, data pipeline, media buying, and pricing strategy. More details to come.

Q: Color on core guest behavior and cost savings in 2025?

A: Stacie Shirley said core guests are stable. Cost savings relate to product cost negotiations, with modest gross margin improvement expected in 2025.