10-Q: European Wax Center Q3 2025: Net Income Soars Amidst Revenue Dip

European Wax Center, Inc. reported a significant increase in net income for the third quarter and first nine months of fiscal 2025, despite a slight decline in total revenue and net center closures.

Summary

• Total revenue decreased by 2.2% to $54.2 million for the 13 weeks ended October 4, 2025, compared to $55.4 million in the prior year period.
• Net income increased by 164.4% to $5.4 million for the 13 weeks ended October 4, 2025, up from $2.0 million in the prior year period.
• Net income attributable to European Wax Center, Inc. rose by 155.5% to $3.8 million for the 13 weeks, compared to $1.5 million previously.
• Basic and diluted earnings per share (EPS) for Class A Common Stock were $0.09 for the 13 weeks, up from $0.03 in the prior year.
• System-wide sales decreased by 0.8% to $238.2 million for the 13 weeks, from $240.2 million in the prior year.
• Same-store sales turned positive at 0.2% for the 13 weeks, compared to -0.5% in the prior year.
• The company experienced net center closures of 6 locations during the 13 weeks, compared to 5 net openings in the prior year.
• For the 39 weeks ended October 4, 2025, total revenue decreased by 3.4% to $161.5 million, from $167.2 million in the prior year period.
• Net income for the 39 weeks increased by 14.8% to $13.3 million, up from $11.6 million in the prior year period.
• Net income attributable to European Wax Center, Inc. for the 39 weeks increased by 9.1% to $9.3 million, compared to $8.5 million previously.
• Basic and diluted EPS for Class A Common Stock were $0.22 for the 39 weeks, up from $0.18 in the prior year.
• System-wide sales for the 39 weeks were flat at $721.7 million, compared to $721.7 million in the prior year.
• Same-store sales for the 39 weeks were 0.4%, compared to 0.0% in the prior year.
• The company had net center closures of 14 locations during the 39 weeks, compared to 20 net openings in the prior year.
• Cash and cash equivalents increased to $73.6 million as of October 4, 2025, from $49.7 million as of January 4, 2025.
• The company repurchased 1,188,255 shares of Class A common stock for $4.6 million during the 13 weeks ended October 4, 2025, and 1,428,828 shares for $5.7 million during the 39 weeks ended October 4, 2025.

Sentiment

Score: 6

Explanation: While revenue and center count declined, profitability metrics (net income, EPS, operating income, Adjusted EBITDA) showed strong improvement, driven by cost control and positive same-store sales. The company is in a 'transitional year' with acknowledged challenges (closures, uncertain consumer environment) but has a clear strategy and new leadership to drive future growth, aiming for positive net center growth by end of 2026. The significant increase in net income and positive same-store sales are strong indicators, but the overall revenue decline and net closures temper the enthusiasm.

Positives

• Net income attributable to European Wax Center, Inc. increased significantly by 155.5% for the 13 weeks and 9.1% for the 39 weeks ended October 4, 2025.
• Basic and diluted EPS for Class A Common Stock rose from $0.03 to $0.09 for the 13 weeks and from $0.18 to $0.22 for the 39 weeks.
• Same-store sales turned positive, reaching 0.2% for the 13 weeks and 0.4% for the 39 weeks, indicating improved performance from existing centers.
• Income from operations increased by 46.7% to $13.9 million for the 13 weeks and by 10.3% to $38.5 million for the 39 weeks.
• Adjusted EBITDA increased by 9.6% to $20.2 million for the 13 weeks and by 7.1% to $60.6 million for the 39 weeks.
• Selling, general and administrative expenses decreased by 25.4% for the 13 weeks and 2.2% for the 39 weeks, reflecting effective cost management.
• Advertising expenses decreased by 9.5% for the 13 weeks and 19.7% for the 39 weeks, indicating optimized spending.
• Cash and cash equivalents increased by $23.8 million to $73.6 million as of October 4, 2025, demonstrating strong liquidity.
• The company has expanded its leadership team by hiring a Chief Operating Officer and a Chief Development Officer.
• The company believes it is on track to return to positive net center growth by the end of 2026.

Negatives

• Total revenue decreased by 2.2% for the 13 weeks and 3.4% for the 39 weeks ended October 4, 2025.
• Product sales decreased by 3.4% for the 13 weeks and 5.4% for the 39 weeks, primarily due to decreased transactions at existing centers and the removal of a COVID-related surcharge.
• Royalty fees decreased by 1.6% for the 13 weeks and 1.0% for the 39 weeks, impacted by center closures and lower fees from existing centers.
• The company experienced net center closures of 6 locations for the 13 weeks and 14 locations for the 39 weeks, indicating a contraction in the network.
• System-wide sales decreased by 0.8% for the 13 weeks and were flat for the 39 weeks, primarily due to decreased same-day services and retail sales.
• The outlook on the consumer environment remains uncertain, with many centers experiencing declining transactions and profitability.
• More center closures are anticipated in 2025 than new center openings.
• A class-action lawsuit was filed on July 1, 2025, asserting privacy-related claims, with an estimated $250,000 deductible impact to the statement of operations.

Risks

• Operational and financial results of the company's franchisees.
• The ability of franchisees to enter new markets, select appropriate sites for new centers, or open new centers.
• The effectiveness of marketing and advertising programs and the active participation of franchisees in enhancing brand value.
• The failure of franchisees to participate in and comply with agreements, business model, and policies.
• The company's and its franchisees' ability to attract and retain guests.
• The effect of social media on the company's reputation.
• The company's ability to compete with other industry participants and respond to market trends and changes in consumer preferences.
• The effect of planned growth on management, employees, information systems, and internal controls.
• The company's ability to retain and effectively respond to a loss of key executives.
• Recruitment efforts for wax specialists and managers.
• A significant failure, interruption, or security breach of the company's computer systems or information technology.
• The company and its franchisees' ability to attract, train, and retain talented wax specialists and managers.
• Changes in the availability or cost of labor.
• The company's ability to retain its franchisees and to maintain the quality of existing franchisees.
• Failure of franchisees to implement business development plans.
• The ability of the company's limited key suppliers, including international suppliers, and distribution centers to deliver products.
• Changes in supply costs and decreases in product sourcing revenue, including changes due to the imposition of tariffs.
• The company's ability to adequately protect its intellectual property.
• The company's substantial indebtedness.
• The impact of paying pre-IPO owners for certain tax benefits the company may claim under the Tax Receivable Agreement (TRA), which could be significant.
• Changes in general economic and business conditions, including changes due to tariff policy and geopolitical tensions.
• The company's and its franchisees' ability to comply with existing and future health, employment, and other governmental regulations.
• Complaints or litigation that may adversely affect the company's business and reputation.
• The seasonality of the company's business resulting in fluctuations in its results of operations.
• The impact of global crises on the company's operations and financial performance.
• The impact of inflation and rising interest rates on the company's business.
• The company's access to sources of liquidity and capital to finance its continued operations and growth strategy.
• Exposure to market risk related to changes in interest rates, particularly concerning Variable Funding Notes.
• Exposure to market risk related to changes in commodity prices, specifically the pricing of wax from significant suppliers.

Future Outlook

The company plans to grow its business long-term by opening new franchised centers and increasing system-wide sales in existing centers, identifying a meaningful whitespace opportunity across the United States. However, the near-term consumer environment remains uncertain, leading to declining transactions and profitability at many centers. Franchisees have paused new center growth plans, and 2025 is expected to see more center closures than new openings. The company is in a transitional year, implementing new tools, investing in capabilities, and refining its strategic approach to drive traffic, improve franchisee profitability, and pursue thoughtful expansion, with an aim to return to positive net center growth by the end of 2026.

Management Comments

• "We are in the early stages of our transformation to further strengthen the foundation of the business and position the Company for sustainable growth."
• "During this transitional year, we are implementing new tools, investing in our capabilities and refining our strategic approach to the market."
• "With this expanded leadership team in place, we believe we are better positioned to advance our strategic objectives including (1) driving traffic and sales growth; (2) improving four-wall profitability for our franchisees; and (3) pursuing thoughtful, profitable expansion."
• "We believe we are on track to return to positive net center growth by the end of 2026."
• "Looking forward, we continue to invest in flexible, high-performing advertising channels and optimize our advertising spending to drive revenue growth and guest engagement."

Industry Context

The company operates as the leading franchisor and operator of out-of-home (OOH) waxing services in the United States, a market characterized by recurring demand for personal-care and beauty regimens. It emphasizes its trusted brand, superior guest experience, and asset-light franchise platform for capital-efficient growth. While the industry faces macroeconomic uncertainties, inflation, and rising interest rates impacting consumer spending, the company believes its services are largely non-discretionary, potentially mitigating some of these broader economic pressures compared to other discretionary spending sectors.

Management Changes

Corporate Governance

Legal Proceedings

• A class-action lawsuit, 'Sydney Dunn v. European Wax Center, Inc.', was filed on July 1, 2025, in the United States District Court for the Northern District of California.
• The lawsuit asserts various privacy-related claims stemming from the company's purported use of digital tracking technologies on its website.
• The company anticipates a probable loss in this matter but also a probable insurance loss recovery, net of the policy's deductible.
• An estimated loss and a corresponding insurance receivable have been accrued.
• The actual loss could vary from the current estimate but is not believed to exceed the insurance policy's $5.0 million coverage limits.
• The impact to the Condensed Consolidated Statement of Operations is not expected to exceed the policy's $250,000 deductible, which has been recorded in Selling, general and administrative expenses.

Related Party Transactions

• Future payments under the Tax Receivable Agreement (TRA) are expected to be $204.4 million as of October 4, 2025, representing 85% of applicable cash tax savings realized by the company due to attributes obtained from exchanges by pre-IPO members.
• Distributions to EWC Ventures LLC members totaled $3.391 million for the 39 weeks ended October 4, 2025.
• Dividend equivalents paid to holders of EWC Ventures units totaled $10,000 for the 39 weeks ended October 4, 2025.

Stakeholder Impact

• **Shareholders**: Experienced increased net income and EPS, positive same-store sales, and ongoing share repurchases, which are generally positive. However, revenue decline, net center closures, and an uncertain consumer environment present potential headwinds. The substantial Tax Receivable Agreement liability and potential acceleration clauses could impact future liquidity and shareholder value.
• **Franchisees**: Many are currently experiencing declining transactions and profitability, leading to a pause in new center growth plans. The company's strategic objectives are focused on improving their 'four-wall profitability' and driving traffic.
• **Employees**: The company has increased headcount in its corporate office and continues to grant equity-based compensation under incentive plans, indicating investment in its workforce. Executive severance was a factor in the prior year's payroll expenses.
• **Customers (Guests)**: The company is prioritizing enhancing the guest experience, driving traffic, and maintaining consistent service quality across its network. The Wax Pass program aims to foster loyalty and repeat visits.
• **Suppliers**: The company relies on limited key suppliers, including international ones, for its products, exposing it to supply chain constraints, changes in supply costs, and tariffs. More than half of product cost is subject to global tariffs.
• **Creditors**: The company has substantial long-term debt ($374.4 million, net) under a securitized financing facility, which includes covenants and rapid amortization events tied to debt service coverage ratios and system-wide sales, posing risks if these metrics are not maintained.

Next Steps

• Implement new tools and refine strategic approach during the transitional year.
• Drive traffic and sales growth.
• Improve four-wall profitability for franchisees.
• Pursue thoughtful, profitable expansion.
• Return to positive net center growth by the end of 2026.
• Continue to invest in flexible, high-performing advertising channels and optimize advertising spending.
• Evaluate the impact of new accounting standards (ASU 2024-03, ASU 2025-01, ASU 2025-05, ASU 2025-06).

Key Dates

Recommendation

The company demonstrates improved profitability and positive same-store sales, indicating effective cost management and resilience in existing operations. However, the decline in overall revenue and net center closures, coupled with an uncertain consumer environment and a 'transitional year' outlook, suggest that significant growth may be tempered in the near term. The strategic focus on improving franchisee profitability and a projected return to net center growth by late 2026 provides a path forward, but the current headwinds warrant a cautious 'hold' position until more consistent revenue growth and center expansion are evident.

Keywords

European Wax Center, EWCZ, Quarterly Report, SEC Filing, Financial Results, Franchising, Waxing Services, Personal Care, Beauty Industry, System-Wide Sales, Same-Store Sales, Net Income, Stock Repurchase, Corporate Governance, Litigation, Tax Receivable Agreement, Franchisee Performance