European Wax Center(EWCZ) - 2024 Q4 - Annual Report

Part I Business European Wax Center, Inc. is the largest U.S. franchisor of out-of-home waxing services, operating a highly-franchised, asset-light model - The company operates 1,044 locations across 45 states as of January 6, 2024, with 99% (1,038) being franchised centers and six being corporate-owned[11] System-Wide Sales and Center Growth (2021-2023) | Metric | Fiscal Year 2023 | Fiscal Year 2022 | Fiscal Year 2021 | | :--- | :--- | :--- | :--- | | System-Wide Sales | $955 million | $899 million | $797 million | | Total Centers | 1,044 | 944 | 853 | | Total Revenue | $221 million | $207 million | $179 million | | Net Income | $12 million | $14 million | $4 million | | Adjusted EBITDA | $76 million | $72 million | $64 million | - The company believes its total addressable domestic market is over $18 billion, with its current market share at approximately 5%; the market is highly fragmented, with over 10,000 independent operators[18][19] - Key growth strategies include expanding the national footprint, increasing brand awareness through performance and brand marketing, driving system-wide sales via Wax Pass adoption and data analytics, and expanding profit margins through its scalable infrastructure[30][33][36] Risk Factors The company's operations are subject to numerous risks, primarily stemming from its heavy reliance on the financial success and operational compliance of its franchisees - Franchisee Dependence: Nearly all centers are franchisee-owned, making the company highly dependent on their operational and financial success; franchisee failure, non-compliance, or inability to grow could harm the brand and revenue[80][174] - Cybersecurity and Data Privacy: The business is heavily dependent on IT systems for operations and payment processing; a failure, interruption, or security breach could impair operations, damage the company's reputation, and lead to significant costs and litigation, especially concerning guest data and PII[112][116][119] - Competition: The company faces high levels of competition from over 10,000 independent waxing operators, nearly 100,000 beauty salons, and various alternative hair removal solutions, which could impact market share and profitability[104] - Organizational Structure & TRA: As a holding company, its principal asset is its interest in EWC Ventures; it is dependent on distributions from EWC Ventures to pay taxes and make significant payments under the Tax Receivable Agreement (TRA) to pre-IPO members, which could amount to an estimated $269.0 million over 18 years[211][221][223] - Supply Chain: The company depends on a limited number of key international suppliers for its proprietary Comfort Wax and branded retail products; any disruption, price increase, or quality issue could adversely affect operations and results[192][193] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[251] Properties As of January 6, 2024, the company's network consisted of 1,044 centers; the company holds leases for its six corporate-owned centers and its corporate headquarters in Plano, Texas - As of January 6, 2024, there were 1,044 franchised and corporate-owned centers; the company leases six actively operating corporate-owned centers and its corporate headquarters in Plano, Texas[257] Legal Proceedings The company is subject to litigation from time to time in the ordinary course of business - The company may be a defendant in litigation arising from the ordinary course of business but does not expect any material impact from the resolution of these proceedings[258] Mine Safety Disclosures This item is not applicable to the company - None[259] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on the Nasdaq under the symbol "EWCZ"; in April 2022, a special cash dividend of $3.30 per share was declared - The company's Class A common stock is traded on the Nasdaq Stock Market LLC under the symbol "EWCZ"[262] - On April 11, 2022, the Board declared a special cash dividend of $122.2 million, or $3.30 per share of Class A common stock[263] - During the fourth quarter of 2023, the company repurchased 1,690,896 shares of Class A common stock for approximately $23.6 million, completing its $40.0 million share repurchase plan authorized in November 2022[271] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2023, total revenue grew 6.6% to $221.0 million, driven by 100 net new center openings and a 2.9% increase in same-store sales Key Business Metrics (Fiscal Year 2023 vs. 2022) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | System-wide centers (end of period) | 1,044 | 944 | | System-wide sales | $955.0M | $898.6M | | Same-store sales growth | 2.9% | 10.4% | | New center openings (net) | 100 | 91 | | Average Unit Volume (AUV) | $961K | $1,000K | Consolidated Results of Operations (Fiscal Year 2023 vs. 2022) (in thousands) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total revenue | $221,024 | $207,351 | | Income from operations | $44,856 | $40,276 | | Net income | $12,346 | $13,613 | | Adjusted EBITDA | $76,014 | $71,611 | - Total revenue increased by $13.7 million (6.6%) in FY2023, primarily due to 100 net new center openings and an additional offering of medical products[316] - The company's primary sources of liquidity are cash from operations and its securitized financing facility; as of January 6, 2024, cash and cash equivalents were $52.7 million[334] - As of January 6, 2024, the company recorded a liability of $206.6 million for expected future payments under the Tax Receivable Agreement (TRA)[380] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate changes, as its Variable Funding Notes bear a variable rate, although they were undrawn as of January 6, 2024 - The primary market risk is interest rate sensitivity related to the Variable Funding Notes, which bear a variable interest rate; however, these notes were undrawn as of January 6, 2024[384][385] - The company is exposed to commodity price risk, as the pricing of wax from significant suppliers can be adjusted based on raw material costs[387] Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal years ended January 6, 2024, December 31, 2022, and December 25, 2021, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Cash Flows, Statements of Equity, and the accompanying notes Consolidated Balance Sheet Highlights (as of Jan 6, 2024) (in thousands) | Metric | Amount | | :--- | :--- | | Assets | | | Cash and cash equivalents | $52,735 | | Total current assets | $95,497 | | Goodwill | $328,551 | | Total assets | $735,726 | | Liabilities & Equity | | | Long-term debt, net | $372,000 | | Tax receivable agreement liability | $206,636 | | Total liabilities | $619,114 | | Total stockholders' equity | $116,612 | Consolidated Statement of Operations Highlights (Year ended Jan 6, 2024) (in thousands) | Metric | Amount | | :--- | :--- | | Total revenue | $221,024 | | Income from operations | $44,856 | | Net income | $12,346 | | Net income attributable to European Wax Center, Inc. | $8,931 | Consolidated Statement of Cash Flows Highlights (Year ended Jan 6, 2024) (in thousands) | Metric | Amount | | :--- | :--- | | Net cash provided by operating activities | $55,602 | | Net cash used in investing activities | ($785) | | Net cash used in financing activities | ($46,383) | | Net increase in cash | $8,434 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[563] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of January 6, 2024 - Based on an evaluation, the CEO and CFO concluded that as of January 6, 2024, the company's disclosure controls and procedures were effective[565] - Management concluded that as of January 6, 2024, the company's internal control over financial reporting is effective based on the COSO framework[568] Other Information The company reports no other information - None[571] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[572] Part III Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees The information required for Items 10 through 14 is incorporated by reference from the company's Definitive Proxy Statement for its 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days after the end of the fiscal year - Information for Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the company's forthcoming proxy statement[574][575][576] Part IV Exhibits, Financial Statement Schedules This section lists the exhibits filed with or incorporated by reference into the Form 10-K, including organizational documents, material contracts, and certifications - This item lists all exhibits filed as part of the annual report, including the Reorganization Agreement, Certificate of Incorporation, debt agreements, and various incentive plans[582] Form 10-K Summary The company provides no Form 10-K summary - None[584]