European Wax Center, Inc. Q2 FY2025 earnings call

• The company has 3 strategic objectives: driving sales through traffic growth; improving 4-wall profitability for franchisees through operational excellence; and implementing a more sophisticated development approach for profitable expansion.
• Added Angela Jaskolski as Chief Operating Officer and Kurt Smith as Chief Development Officer. Angela will oversee franchise operations, training, etc., and Kurt will focus on sophisticated development.
• In marketing, made progress in data-informed marketing, saw uptick in performance driven by transaction growth, improved contactability rate, and launched Champion ad test. Also working on reshaping brand identity to engage high-value audiences.
• In franchise support, worked closely with franchisees, delivered over 2,000 touch points, saw margin improvements in engaged centers, and hosted franchisee brand conference with positive feedback.

In Q2, European Wax Center delivered $257.6 million in system-wide sales, with 30 basis points of same-store sales growth and $21.6 million in adjusted EBITDA. System-wide sales decreased 1% to $257.6 million, driven by a decrease in same-day services and retail sales, partially offset by an increase in cash collected from Wax Pass sales. Total revenue of $55.9 million decreased approximately $4 million or 6.6%, primarily driven by lower contributions from wholesale product and retail revenue as a percent of system-wide sales. Gross margin increased modestly to 74.6%, and adjusted EBITDA margin increased 420 basis points to 38.7%. The company ended Q2 with 1,059 centers, flat year-over-year, having opened 2 growth centers and closed 5, resulting in 3 net center closures.

• System-wide sales expected to be between $940 million and $950 million for 2025, same-store sales flat to up 1% for full year.
• Adjusted EBITDA guidance remains unchanged at $69 million to $71 million.
• Full year revenue expected between $205 million and $209 million, reflecting conservative view on timing of initiatives.
• Expect adjusted net income between $31 million and $33 million, net of approximately 23% effective tax rate before discrete items.

• Macro-economic environment could impact performance.
• Progress of new customer acquisition initiatives taking longer than expected could affect top line.
• Potential challenges in certain regions like California that have been soft.

Q: Randal J. Konik asked about the overarching changes in the grand opening playbook and closure pace.

A: Chris Morris said the new grand opening playbook refines tactics from previous work, and initiatives help minimize negative impact from closures, with goal to return to net unit growth by end of 2026.

Q: Scot Ciccarelli inquired about store level changes and customer cohort performance.

A: Chris Morris said it's a combination of marketing and operational tactics, and the brand has a resilient guest base, with improvement in engaging downtrend guests.

Q: Dana Lauren Telsey asked about data, regional performance, new product launch, and Wax Pass.

A: Chris Morris said California has challenges, data helps identify guest routines, new product deodorant performance is okay, and Wax Pass sales were up almost 2% year-over-year.

Q: Jonathan Robert Komp asked about barriers to net unit growth and franchisee system.

A: Chris Morris said first barrier is going from pause to accelerated development, focusing on building foundation blocks, and existing franchisees have potential with right support.

Q: John Edward Heinbockel asked about 4-wall profit and labor model.

A: Chris Morris said labor is the biggest cost, focus is on driving volume for labor margin improvement through marketing engine and technology investments.