European Wax Center Inc (EWCZ) (Q1 2024) Earnings Call Transcript Highlights: Strategic Growth ...
Net New Center Openings: Grew center count by 7.5% to 1,051 centers.
System-wide Sales: Increased by 1.3% to $221.4 million.
Total Revenue: Rose by 4% to $51.9 million.
Same-Store Sales: Decreased by 1.2%.
Gross Margin: Improved by approximately 290 basis points to 73.9%.
Net Income: GAAP net income was $3.7 million; adjusted net income grew 41.3% to $4.8 million.
Free Cash Flow: Net cash provided by operating activities was $10.7 million.
Share Repurchase Program: New $50 million authorization approved.
Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
European Wax Center Inc (NASDAQ:EWCZ) reported a 1.3% growth in system-wide sales and a 4% increase in total revenue.
The company successfully opened seven new centers, contributing to a 7.5% growth in center count, demonstrating strong franchisee relationships and commitment.
European Wax Center Inc (NASDAQ:EWCZ) maintained strong profit margins and increased its cash position significantly, highlighting an effective, asset-light franchise model.
The company was recognized as a Great Place To Work for the second consecutive year, underscoring its strong company culture and associate satisfaction.
European Wax Center Inc (NASDAQ:EWCZ) launched several strategic initiatives aimed at driving in-center sales and enhancing guest acquisition, showing early positive results.
Negative Points
Same-store sales were down by 1.2%, impacted by weather conditions and Easter-related center closures.
The company faces challenges in attracting first-time guests, a critical area for growth, especially in a discerning macroeconomic environment.
While European Wax Center Inc (NASDAQ:EWCZ) is making progress with its media and marketing initiatives, it is still too early to see the full benefits, indicating potential risks if these efforts do not yield expected results.
The company's laser hair removal pilot, although promising, requires further testing and validation, especially in more regulated environments like Florida.
European Wax Center Inc (NASDAQ:EWCZ) is experiencing increased costs related to the expansion of its laser hair removal services, which could impact short-term profitability.
Q & A Highlights
Q: Can you clarify the impact of weather and Easter on Q1 same-store sales and how it would have been slightly positive without these factors? A: Stacie Shirley, CFO, explained that the combination of weather impacts and the shift in Easter timing led to the estimate of slightly positive same-store sales, though specific figures like 0.1% or 1% were not provided. The guidance for Q2 and Q3 was about system-wide sales, expected to be more similar due to the ramp of initiatives, differing from past trends where Q2 was usually the heaviest.
Q: How do you view the levers of price versus frequency of guests versus service-per-visit growth in driving revenue, and what are the guest behaviors in the laser test units? A: David Willis, CEO, emphasized driving more tickets and dollars per ticket, focusing on wax pass conversion, retail attachment, and better retention rates without relying solely on price increases. Regarding the laser pilot, the hypothesis was that it would attract more new guests and increase share of wallet from existing wax guests, with early results confirming minimal cannibalization of core waxing services.
Q: What are the current trends and expectations for same-store sales growth throughout the year? A: Stacie Shirley indicated that the assumptions about the growth slope for the year are reasonable, expecting a steady and consistent growth due to the initiatives in place, with the growth being more back-end loaded.
Q: Can you discuss regional performance variations, particularly in California, and any changes in pricing and labor costs? A: Stacie Shirley noted no significant regional top-line differences but mentioned ongoing challenges with increasing labor and construction costs. David Willis added that labor costs were stable except in markets with elevated minimum wage rates, where some franchisees adjusted prices. Andrea Wasserman, CCO, mentioned that while there were price increases in 2021 and 2022, no system-wide increase is planned for this year, although they continue to evaluate the situation.
Q: What has been the feedback from franchisees on the New Center Opening (NCO) program, and how does it impact the profitability ramp of future centers? A: David Willis highlighted that franchisees who launched with the NCO playbook fully endorse it, seeing good early results. The company has also addressed franchisees' concerns about market oversaturation by agreeing on market impact guidelines with the Franchise Advisory Council.
Q: Could you provide more details on the impact of Easter and weather on Q1 performance and how the comp performance progressed through the quarter? A: Stacie Shirley clarified that nearly 300 store days were affected by weather in January across 12 states, significantly impacting the month. However, specific monthly performance metrics or further quantification beyond acknowledging the impact on January and the Easter shift were not provided.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
