8-K/A: European Wax Center Reports Mixed Q3 Results, Revises New Center Outlook

European Wax Center's third quarter results were in line with revised expectations, but the company has updated its outlook for net new center openings for fiscal year 2024.

Summary

• European Wax Center reported its financial results for the third quarter of fiscal year 2024, which ended on October 5, 2024.
• The company's system-wide sales decreased slightly by 0.2% to $240.2 million compared to the same period last year.
• Total revenue also saw a minor decrease of 0.5%, reaching $55.4 million.
• Same-store sales experienced a decrease of 0.5%.
• GAAP net income decreased significantly by 50.7% to $2.0 million, while adjusted net income decreased by 8.2% to $5.5 million.
• Adjusted EBITDA decreased by 4.4% to $18.4 million.
• The company ended the quarter with 1,064 centers, a 3.7% increase year-over-year.
• For the year-to-date, system-wide sales increased by 1.2% to $721.7 million, and total revenue increased by 1.5% to $167.2 million.
• The company has reiterated its financial outlook for fiscal year 2024, but has lowered its outlook for net new center openings from 27-32 to 17-22.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company reiterated its financial outlook, the decrease in profitability and the reduction in new center openings are concerning. The management's focus on improving the business is a positive sign, but the current results are mixed.

Positives

• The company's third quarter results were in line with revised expectations provided in August.
• The company's core guests remain committed to the brand.
• Year-to-date net income increased by 36.4% to $11.6 million.
• Year-to-date adjusted net income increased by 7.3% to $17.5 million.
• The company has reiterated its fiscal 2024 financial outlook.
• The company repurchased $20.1 million of its Class A Common Stock during the period.

Negatives

• System-wide sales decreased slightly by 0.2% in the third quarter.
• Total revenue decreased slightly by 0.5% in the third quarter.
• Same-store sales decreased by 0.5% in the third quarter.
• GAAP net income decreased significantly by 50.7% in the third quarter.
• Adjusted net income decreased by 8.2% in the third quarter.
• Adjusted EBITDA decreased by 4.4% in the third quarter.
• The company has lowered its outlook for net new center openings for fiscal year 2024.
• Selling, general and administrative expenses (SG&A) increased 21.6% in the third quarter.

Risks

• The company faces risks related to the operational and financial results of its franchisees.
• There are risks associated with the ability of franchisees to enter new markets and open new centers.
• The company's performance is dependent on the effectiveness of its marketing and advertising programs.
• The company is exposed to risks related to its franchisees' compliance with agreements and policies.
• The company's ability to attract and retain guests is a key risk.
• The company faces competition from other industry participants.
• The company's growth could strain its management, employees, and information systems.
• The company is exposed to risks related to the loss of key executives.
• The company is exposed to risks related to security breaches of its computer systems.
• The company is exposed to risks related to the availability and cost of labor.
• The company is exposed to risks related to its substantial indebtedness.
• The company is exposed to risks related to changes in general economic and business conditions.
• The company is exposed to risks related to compliance with governmental regulations.
• The company is exposed to risks related to complaints or litigation.
• The company is exposed to risks related to the seasonality of its business.
• The company is exposed to risks related to the impact of global crises.
• The company is exposed to risks related to inflation and rising interest rates.
• The company is exposed to risks related to its access to sources of liquidity and capital.

Future Outlook

The company has reiterated its fiscal 2024 financial outlook, projecting system-wide sales of $930 million to $950 million, total revenue of $216 million to $221 million, same-store sales of -1.5% to 0.5%, adjusted net income of $19 million to $22 million, and adjusted EBITDA of $70 million to $74 million. However, the company has lowered its outlook for net new center openings to 17 to 22.

Management Comments

• David Berg, Executive Chairman and CEO, stated that the third quarter results were in line with revised expectations.
• Mr. Berg mentioned that he has been immersing himself in the business, refining key focus areas, and developing an action plan focused on driving new guests and ticket growth.
• Mr. Berg expressed confidence in the strength of the European Wax Center business model and its ability to generate strong cash flow and sustained growth over the long-term.

Industry Context

The results reflect a challenging environment for the personal care and franchise industry, with slight decreases in sales and profitability. The company's focus on refining its business model and driving new guest growth is a common strategy in the current market. The reduction in new center openings suggests a more cautious approach to expansion in the face of current market dynamics.

Comparison to Industry Standards

• European Wax Center's same-store sales decrease of 0.5% is below the average for the personal care services industry, which has seen modest growth in some segments.
• Companies like Regis Corporation (RGS) and Ulta Beauty (ULTA) have reported varying same-store sales results, with some showing positive growth and others facing similar challenges.
• The adjusted EBITDA margin of 33.2% for European Wax Center is within the range of other franchise businesses, but the decrease of 140 basis points indicates some pressure on profitability.
• The reduction in new center openings is a trend seen across some franchise businesses, as companies become more selective about expansion in the current economic climate.
• Compared to other franchise models, European Wax Center's focus on a specific service niche (waxing) may provide some resilience, but also makes it more vulnerable to changes in consumer preferences within that niche.

Stakeholder Impact

• Shareholders may be concerned about the decrease in profitability and the reduced outlook for new center openings.
• Franchisees may be impacted by the revised outlook for new center openings and the company's focus on improving unit economics.
• Employees may be affected by the company's return-to-office mandate and any potential changes in staffing.
• Customers may be impacted by any changes in the company's services or pricing.

Next Steps

• The company will continue to focus on driving new guests and ticket growth.
• The company will continue to refine its key focus areas.
• The company will continue to assess near-term development plans.
• The company will host a conference call to discuss the third quarter results.

Key Dates

Keywords

waxing services, franchise, financial results, same-store sales, EBITDA, net income, revenue, center openings, stock repurchase