European Wax Center, Inc. Q3 FY2025 earnings call

Chris Morris highlighted that in Q3, the company achieved system-wide sales growth and adjusted EBITDA. The company has been focusing on three strategic priorities: driving sales through traffic growth, enhancing franchisee profitability via operational excellence, and pursuing disciplined, profitable expansion. For traffic growth, they optimized marketing tactics, improved guest contactability, launched structured guest lifecycle campaigns, and refocused on referral and influencer programs. In terms of operational excellence, the company aims to enhance in-center operations and provide franchisees with tools and insights. Regarding expansion, the closure range for 2025 has been narrowed to 35-40, with an expected 12 gross openings, leading to 23-28 net center closures, and the company remains on track for positive net center growth by the end of 2026.

In Q3, system-wide sales amounted to $238.2 million with a 20 basis points sales growth, and adjusted EBITDA was $20.2 million. The company concluded Q3 with 1,053 centers, a 1% year-over-year decrease. During the quarter, 3 growth centers were opened and 9 were closed, resulting in 6 net closures. Total revenue stood at $54.2 million, a decrease of approximately 2.2%. Gross margin saw a modest increase to 73.3%. SG&A expenses dropped by $4.5 million. Adjusted EBITDA rose by 9.6% to $20.2 million, with an adjusted EBITDA margin of 37.2%.

The company reaffirmed its 2025 financial guidance. System-wide sales are projected to be between $940 million and $950 million, with same-store sales expected to be flat to up 1%. The adjusted EBITDA outlook remains at $69 million to $71 million. Full-year revenue is within the range of $205 million to $209 million. The closure range for 2025 has been narrowed to 35-40, with 12 gross openings expected, resulting in 23-28 net center closures.

Potential risks include the macro environment impacting new guest acquisition, supply chain cost pressures affecting EBITDA, and the timing of closures and openings not aligning with expectations.

Q: Hey, good morning. This is Josh Young on for Scott. So it sounds like the revamped marketing efforts are showing solid early results in terms of re-engaging some of those less frequent guests. Can you just give us any quantification in terms of the lift that you're seeing there, and how do you think that can look as we move into 26?

A: Hey, Josh. This is Chris. Yeah, here's what I can tell you is... We are seeing, so there are three main things that we're focused on on top line growth. One is marketing tactics aimed right at existing guests. Two is a focused effort on new guest acquisitions. And three is ops execution. So your question is more around existing guests. We have seen quite a bit of ability now that we have developed robust reporting around our guest behavior and we're able to group our guests into a certain set of routines, we have more insight than ever before into how to intercept those guests to drive behavior going forward. Adding to that has been our focused effort partnering directly with our franchisees to grow our contactability number. So when we started the year, we only had the ability to contact about 38% of our guests. Today we have 60%. We have an ability to contact 60% of our guests. And so, as you can imagine, that just gives us so much more opportunity to engage with our guests, and we know when we do that we have a greater chance of being able to drive behavior going forward. And so, through that effort, we have been able to, through a focused effort, to take a non-routine guest and start to drive them into routines. And we are seeing an improvement in our frequency. I don't, you know, I really don't want to get into the habit of disclosing, you know, specific frequency numbers across all those different bands, but I can tell you that we've seen meaningful progress in that ability, and it gives us a lot of confidence as we move forward.

Q: Hi. Good morning, everyone. As you talked about the cadence of the quarter, what did you notice about your core consumer? How is it different? How is it the same? What are you seeing from Wax Pass sales and how is that trending? And regional trends, anything California versus other areas? And then I just have a follow-up.

A: Okay. All right. Good morning, Dana. Yeah, this business just continues to be very stable. Wax path sales, we're seeing a slight uptick on a year-over-year basis in wax path sales. When we look at our total core guest, our core guest, it's very stable. It's been stable throughout the entire year. So, you know, we're not seeing any meaningful movement there. And so that gives us, you know, that stability just reinforces our confidence as we move forward. Our big opportunity is everything that I just walked through with Josh. Our big opportunity going forward is to build on that stability by, one, engaging with our existing guests to drive more frequency, two, partnering with our operators to drive more new guest retention, and three, to continue to build on all the success that we've seen on our marketing tactics around new guest acquisition. So when all that comes together, we believe we're going to be poised for long-term sustainable growth because we're starting from such a strong position of strength. Not many brands have the stability that we have in this brand. In terms of regional differences, we've actually seen throughout the year, we've seen some improvement in California where we continue to see more weakness in is in areas like New York, Philadelphia, DC. But having said that, I'll tell you, it's not a situation where you have three or four markets pulling down the entire company. We see relative consistency across the entire country. But if there's more weakness than one area or the other, it's those three areas, New York, Philadelphia, and DC. But we've seen some improvement in California.

Q: Yes, sure. So we are in the throes right now of building out our business plan for 2026 and partnering directly with our franchisees on what those business priorities are. And so in February, the next time we get in front of all of you, we will provide guidance on exactly how we see 2026 playing out. What I can tell you is we're very pleased that we're now narrowing the range on closures. We started the year saying 40 to 60, and now we're saying 35 to 40. And some of that is timing. So some of those closures are moving into 2026, and some of it is just improving the partnership with our franchisees and starting to make progress on our initiatives. So we do expect closures next year. We're still in the process of sizing that up. What I can tell you is with respect to NCOs, we continue to target that by the end of 2026, we will return to net positive growth from that point forward. So that's consistent. We've been saying that from the beginning of 2025, and we still believe we're on track to do that. So the way that'll play out next year is, There'll be closures in the beginning of the year, but then when we move to the end of the year, we'll be in a positive position. And you have to remember that when we started, basically our NCO development was on pause. So in order to go from something that's on pause to returning to growth, there's a lag time. We're working closely with our franchisees on sizing up what growth looks like next year and We're pleased with that pipeline and how that's shaping up, and I'll share more of that with you in February.

Q: So the units that are closing are low-volume units, and they've been low-volume units from day one. Uh, and the reason they're low volume is just a variety of different reasons. Um, you know, bad real estate, uh, you know, bad market, um, you know, in some cases, you know, uh, franchisees just had, you know, some other, uh, unique circumstances that they were managing through, but, but it's mainly, it's just all low volume units. And, uh, and so we've worked closely with them and to understand, You know, what's the, you know, where is this unit? How is this unit performing? What are the chances that we can get it back up to profitability? And we just had a number of units that when we went through that exercise, we did not feel like that, you know, that it made sense for those units to continue to open. It's ultimately the franchisee's decision, but we're partnering directly with the franchisee to, you know, assess that situation. Um, lease expiration date really plays a big role in this, you know, because obviously the franchisee is still on the hook for the lease if they close before the expiration date. And so we're, um, as we've kind of sorted through our portfolio, we've, uh, first understood the financial performance and then also understood lease expirations. And that's how we've, uh, been able to kind of get our arms around the risk of closure, uh, here in 2025. And as we look for 2026. In terms of, you know, our confidence that, you know, by the end of 2026, you know, we'll be back into NCO positive growth territory is, you know, we've got, you know, we really have our arms around just the overall health of the portfolio, and so we feel confident that we have a good grip on where the communication and partnership with our franchisees just continues to get better and better. And so that gives us confidence that we're not going to be surprised in a material way. And then secondly is we are seeing a lot of green shoots throughout the business. And so as our team has dug in and worked directly with our franchisees, it's becoming very clear where the opportunities are. And what has me excited is Not only do we know where the opportunities are, but there is a shared passion across the network for addressing those opportunities. So we're seeing improvement in our ability to target existing guests to drive frequency. We're seeing improvement in our ability to effectively scale our acquisitions on new guest acquisitions. And we have alignment on what we need to do operationally and improved reporting to highlight where the opportunities are. And I just believe the combination of all that is going to put us in a position to where we can really start seeing some improvement into 2026.

Q: Thanks, Alex. So, what we comment is we still believe in the full-year guidance that holds relative to top line with our comp trajectory and what we're seeing in the system. And then on the bottom line standpoint, as we've guided and reiterated to the EBITDA, that still holds as well, and we're very confident in delivering against that. Now, when you take the two components of top line and bottom line and what that implies, you can see that from a yearly standpoint, the adjusted EBITDA target ranges in that 34% range. When you look at and take a step back and look at the whole year as a whole, and this is what you're calling out. There are some timing situations going on that will play out through the year, but we are very confident as you look through the modeling and you level out through the year to those targets and the bottom line implication, that that's the dynamics that will play out in Q4.

Q: Hey, good morning, everyone. First, I want to ask about new guest acquisition. It seems like it's a big, big piece of the three-pronged approach. Can I ask what your hypothesis is on what is holding it back? If there's anything regionally, it's broader marketing if there are certain markets that are just more mature. So why has that been tougher than you've expected to turn?

A: A combination of factors. One, just having robust data, having the right data analytics to gather the right insights to then know what decisions to make and how to pivot. Our team... I've been with the company now for 10 months, and then I feel very fortunate that I've been able to attract an incredibly talented group of individuals. Those individuals have onboarded and then started to not only develop the reporting, but then to develop the tactics to test and learn to get better and better. And so a lot of it is just knowing exactly how to drive the most effectiveness through marketing dollars. And I think, again, that's one of the reasons why we are so enthusiastic about where we are at this stage in our journey because all that work that we've been doing over the last several months is now really starting to take hold and we feel much smarter and we're seeing the results of that improved intelligence actually making an impact on our ability to scale. So just being able to build all that out has taken some time. I would say our brand, you see us, I mentioned in the prepared remarks that we hired a new brand agency to work with us closely on developing a brand identity that will help us make more progress in high-valued acquisitions. And so we think that there's a big opportunity to just inject new life into the brand. And we're doing that in close partnership with our franchisees as well, just so we can use, leverage all their years of experience with this brand to help guide that. But we're very excited about that work. And that's underway right now. And we will be, you'll start seeing that show up in the market in 2026. So a combination of the right intelligence along with a freshened, lively brand brand aimed at high-valued acquisitions, we think that combination is really going to pay off.

Q: Okay. And thanks for that. And the follow-up is, can you give us a sense of guest count versus ticket in the quarter? And then what is the right model or mode for the business? Is it flat guest count, I'm sure you'd want it up, but can it be flattish and then you can grow with price or it has to be positive guest count with some level of price as well?

A: Our reporting practices are we don't provide that level of granularity, that breakdown. But to answer the second part of your question, ultimately we want to drive traffic into the centers. We believe that is our very sharp focus is to generate long-term sustainable traffic count growth. Uh, I do think in the realities of the business, uh, we can't do that just alone. We have to also be mindful of ticket. And so we're trying to take a really balanced approach. Uh, so this will never be, you know, you're not going to see our team driving traffic, uh, through promotions, um, you know, a deep discount and promotional type of tactic. we're going to be very conscious of attacking both sides of that. So ultimately, we want to get to long-term sustainable traffic count growth along coupled with smart ticket growth. And that ticket growth can come in the form of price increases as well as add-ons. So as we are focusing on building out the reporting, the capabilities to be able to engage with our existing guests, it puts us in a better position to deliver a message to that guest in a way that's going to resonate to drive more incremental spending, either through services or retail product. And so that's, you know, ultimately that would also drive ticket. So it's not just going to be price. It's going to be a combination of all of those.