European Wax Center, Inc. Q1 FY2025 earnings call

Key Points from Chris Morris - Spent first 100 days visiting centers across large markets, interfacing with franchise partners, etc., and believes in the potential of EWC. - Focus areas include driving sales through traffic growth by building a data-rich digital-first marketing engine, cultivating a more effective corporate infrastructure to support franchisees for higher 4-wall profitability, and implementing a more sophisticated development approach for thoughtful, profitable expansion. - Tom Kim discussed Q1 financial results: ended Q1 with 1,062 centers (1% growth YOY), system-wide sales increased 2.1% to $225.9 million, same-store sales grew 70 basis points, total revenue decreased due to lower retail and wholesale product revenue, gross margin increased, SG&A expenses increased, adjusted EBITDA increased to $18.8 million.

System-wide sales for the first quarter of fiscal 2025 were $225.9 million. Same-store sales grew by 70 basis points. Adjusted EBITDA was $18.8 million. Total revenue was $51.4 million, a decrease of approximately $400,000 or 90 basis points, primarily due to lower retail and wholesale product revenue. Gross margin increased modestly to 74.2% primarily due to a higher mix of royalty and marketing fees. SG&A expenses increased $1.9 million to $15.3 million, primarily driven by higher stock-based compensation and executive severance costs.

Guidance - System-wide sales expected between $940 million and $960 million, approximately flat year-over-year growth at midpoint. Same-store sales expected to be flat to positive 2%. - Full year revenue outlook remains between $210 million and $214 million, approximately 22.3% of system-wide sales. - Unit expectations unchanged: 10 to 12 gross openings and 40 to 60 center closures or 28 to 50 net center closures. Q2 expected 7 to 8 net closures. - Adjusted EBITDA outlook at $69 million to $71 million, adjusted net income between $31 million and $33 million.

Risks - Consumer backdrop and supply chain environment remain uncertain. - Approximately half of product cost subject to 10% global tariff, with potential cost increase risks from sourcing overseas, though team is working to mitigate.

Q: Dana Telsey asked about Wax Pass customers, Q2 outlook, promotional rates, tariff impact, and franchisee ordering patterns.

A: Chris Morris responded that progress is being made, Q2 outlook is in line with expectations, no material change in promotional activity, team is managing tariff exposure, and franchisees shifted product purchases due to tariff announcement and retail promotion.

Q: Jonathan Komp asked about increased cost to build and drivers of inflation, and what drives return to net unit growth.

A: Chris Morris said returning to net unit growth focuses on markets with density and working with franchisees to ensure return on investment, and inflation is driving the increased cost to build.

Q: John Heinbockel asked about characteristics of high-value guests and if there are untapped high-value guests.

A: Chris Morris said they've identified and are testing new high-value guest segments.

Q: Korinne Wolfmeyer asked about market conditions, guidance ranges, and advertising spend cadence.

A: Chris Morris said core guests are resilient, guidance high end assumes marketing initiatives build in latter half, and advertising spend is more leveled this year.

Q: Kelly Crago asked about underperforming stores' impact on comps, sales transfer, and Wax Pass guest percentage.

A: Chris Morris said underperforming centers' impacts are factored into guidance, sales transfer varies by center, and about 75% of sales are from Wax Pass holders.

Q: Simeon Gutman asked about priorities including waxer consistency and value conveyance.

A: Chris Morris said priorities are marketing funnel and franchisee execution first, then waxer consistency and value.

Q: Scot Ciccarelli asked about marketing changes for new customer acquisition and tariff strategy.

A: Chris Morris said they're using technology to improve paid media efficiency and testing creative messages, and are evaluating all options for tariffs to manage through while delivering on guidance.