European Wax Center(EWCZ) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - System-wide sales for Q3 2025 were $238.2 million, a decrease of 0.8% year-over-year, primarily due to closed centers [20][22] - Same-store sales grew by 20 basis points year-over-year [20] - Adjusted EBITDA increased by 9.6% to $20.2 million from $18.4 million in the prior year, with an adjusted EBITDA margin increase of 400 basis points to 37.2% [23] - Total revenue decreased by approximately $1.2 million, or 2.2%, primarily driven by lower contributions from wholesale product and retail revenue [22] - SG&A expenses decreased by $4.5 million to $13 million, reflecting timing of payroll and benefits, professional fees, and marketing spend [23] Business Line Data and Key Metrics Changes - The company opened three growth centers during the quarter and closed nine, resulting in six net closures, which was better than the expected closure range of 15-16 [22] - Wax Pass sales saw a slight year-over-year uptick, indicating stability in core guest engagement [39] Market Data and Key Metrics Changes - Com trends were strong through July and mid-August before softening in the latter half of August and September [21] - Regional performance showed improvement in California, while areas like New York, Philadelphia, and D.C. experienced more weakness [39] Company Strategy and Development Direction - The company is focused on three strategic priorities: driving sales through traffic growth, improving four-wall profitability for franchisees through operational excellence, and pursuing disciplined, profitable expansion [7][15] - A new brand agency has been brought on to refine brand identity and connect with high-value audiences, with initiatives expected to scale meaningfully in 2026 [12][56] - The company is narrowing its closure range to between 35 and 40 for the year, reflecting improved franchisee partnerships and strategic initiatives [25][41] Management's Comments on Operating Environment and Future Outlook - Management reaffirmed full-year financial guidance, expecting system-wide sales of $940-$950 million and same-store sales to be flat to up 1% for the full year [26][27] - The company anticipates continued pressure on new guest acquisition but expects improvement in 2026 [26][28] - Management expressed confidence in the strategic groundwork established, which is beginning to take hold and position the company for sustainable long-term growth [28][29] Other Important Information - The company ended Q3 with 1,053 centers, down 1% year-over-year, and had $73.6 million in cash with a net leverage ratio of 3.9 times [22][24] - The company continues to expect adjusted net income between $31 million and $33 million, reflecting an approximately 23% effective tax rate before discrete items [27] Q&A Session Summary Question: Can you quantify the lift from revamped marketing efforts? - Management noted that they have improved contactability from 38% to 60% of guests, which has enhanced engagement and driven frequency improvements [32][33] Question: What trends are observed in Wax Pass sales and regional performance? - Wax Pass sales have seen a slight uptick year-over-year, with stability in the core guest base, while California has shown improvement compared to New York, Philadelphia, and D.C. [39] Question: What are the expectations for center openings and closures moving forward? - Management indicated that they are pleased to narrow the closure range and expect closures in early 2026 but anticipate returning to net positive growth by the end of 2026 [41][42] Question: What factors are contributing to the confidence in alleviating pressures on closures? - The closures are primarily low-volume units due to various factors, and management has a good grip on the overall health of the portfolio, which gives them confidence moving forward [46][48] Question: What is the approach to balancing guest count and ticket growth? - Management emphasized a balanced approach to driving traffic and ticket growth, focusing on both increasing guest count and smart pricing strategies [59][60]