European Wax Center(EWCZ) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - System wide sales for Q1 2025 reached $225.9 million, a 2.1% increase from $221.4 million in Q1 2024, driven by the shift in the Easter holiday and payment timing [23][6] - Same store sales grew by 70 basis points, but adjusting for the Easter shift, it would have been approximately flat [23][6] - Adjusted EBITDA increased by 7.2% to $18.8 million from $17.5 million in the prior year, with an adjusted EBITDA margin rising to 36.5% from 33.7% [25][26] - Adjusted net income rose by 10.3% to $9.5 million from $8.6 million in the previous year [26] Business Line Data and Key Metrics Changes - Total revenue decreased by approximately $400,000 or 90 basis points to $51.4 million, primarily due to lower retail and wholesale product revenue [24] - SG&A expenses increased by $1.9 million to $15.3 million, driven by higher stock-based compensation and executive severance costs [25] - Advertising expenses decreased by $1.4 million due to the timing of spend within the fiscal year [25] Market Data and Key Metrics Changes - The company ended Q1 with 1,062 centers, representing a 1% growth year over year, with five gross openings and ten closures resulting in five net center closures [22] - The company expects 10 to 12 gross openings and 40 to 60 center closures for the year, leading to 28 to 50 net center closures [29] Company Strategy and Development Direction - The company aims to focus on driving sales, improving four wall profitability, and reigniting unit growth as critical components for revitalizing long-term growth [10][19] - A data-rich digital-first marketing engine is being developed to enhance guest engagement and drive new guest acquisition [11][12] - The company is implementing a more sophisticated development approach focused on thoughtful, profitable expansion, identifying underpenetrated trade areas for future growth [17][18] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertain consumer backdrop and supply chain environment but emphasizes strong fundamentals and proactive management [7][6] - The outlook for 2025 is reiterated, assuming a stable consumer environment, with expectations for system wide sales between $940 million and $960 million [28][30] - Management is confident in their ability to manage tariff impacts and maintain guidance despite macroeconomic challenges [31][34] Other Important Information - The company has made substantial progress in assembling a team of seasoned leaders to execute strategic priorities for 2025 and beyond [19][20] - The company is actively exploring alternative sourcing options to mitigate tariff impacts on product costs [31][44] Q&A Session Summary Question: Can you talk about the game plan going forward and the potential tariff impact? - Management is pleased with progress and sees stability in the business, with no material changes in promotional activity expected [39][41] - They are actively exploring all options to manage tariff exposure, including alternative sourcing [44] Question: What are you hearing from franchisees regarding center closures? - Franchisees are passionate about the brand, but the past few years have been tough, leading to underperforming centers [48][50] Question: Can you provide insight into the cost to build and return to net unit growth? - The increase in capital investment is attributed to inflationary pressures, with a focus on optimizing costs and operations [57] Question: What are the key themes for the upcoming franchise convention? - The convention will cover a full situation assessment, opportunities, and a plan to maximize potential [60] Question: How do you prioritize marketing, franchisee execution, and other factors? - The primary focus is on the marketing funnel and franchisee execution, followed by waxer consistency and consumer value [96][98] Question: What is the performance of underperforming stores versus healthy stores? - Underperforming stores are primarily an AUV issue, with various factors contributing to their performance [65][100]