European Wax Center, Inc. Q2 FY2024 earnings call

• David Berg discussed the second quarter performance, noting system-wide sales growth, same-store sales increase, and adjusted EBITDA results. • Highlighted challenges from the macro environment affecting consumer spending and the need to refocus strategies. • Key priorities include inviting new guests, reactivating lapsed guests, fostering amazing center experiences, and prudently investing in capabilities. • Launched Operation Elevate to elevate four-wall performance, and expanding the laser hair removal pilot with plans to have approximately 30 pilot centers in four states by the end of Q3.

During the second quarter, system-wide sales grew 2.3% to $260 million. Same-store sales increased 1.6%. Total revenue was just under $60 million. Adjusted EBITDA came in at $20.6 million with an adjusted EBITDA margin of 34.5%. The business model remains sound with franchisees engaged and guests loving the brand.

• Revised 2024 guidance: system-wide sales range $930 million to $950 million, adjusted EBITDA between $70 million and $74 million, net new center openings 27 to 32. • Expect gross margin to be approximately 73% for the year. • Full-year interest expense outlook is $26.5 million, effective tax rate around 25%, and adjusted net income between $19 million and $22 million. • Fourth quarter top line and bottom-line dollars expected to be similar to the first quarter.

• Challenging macroeconomic environment affecting consumer spending across categories. • Difficulty in driving sufficient transaction and new guest growth to offset macro challenges. • Higher rents and labor costs in certain geographies, particularly the West Coast, impacting some franchisees' centers.

Q: Good morning, everybody. I guess Stacie, as a point of clarification, when I'm looking at the revised guidance, the EBITDA dollar guide is not all that, it's not down significantly. I think you spoke about some cost saves. Are those as we think about beyond this year and into the coming years, are those cost saves kind of temporary? Are they permanent?

A: Good morning. Thanks, Randy for the question. Yes, so a couple of things. One, as you -- as we've talked about and seen the past couple of quarters, our gross margin, we've seen an improvement there year-over-year and we've talked about that from a cost savings perspective, and we would expect that that would continue. We are expecting to be around that 73% for the full year. And there's no reason for us to anticipate that would go down in future years. And then from an expense perspective, we would expect to leverage that top line. We did have some favorability in the quarter, some of which was timing, and some of it is just trying to be obviously as conscious as we can from an expense standpoint in this very difficult environment.

Q: Good morning, everyone. Nice to hear from you again, David. David, if you think about your two initiatives of driving new guests to the brand and reactivating lapse guests. At this time, is one weaker than the other? Is the cadence of what you expected from new guests, weaker than what you're seeing and reactivating lapse guests?

A: Yes, thanks Dana. Listen, I think if you look at those top two priorities, probably the driving of new guests outweighs the retention. I think, the opportunity for us with lapse guests, given our enhanced capabilities and data analytics, we can really identify those guests that have and haven't been visited us in six months. That's what we define as a lapse guest. So, we can go back and target that guest very specifically, as I mentioned in my opening remarks. How do we get a bit more aggressive in terms of getting that guest back so that we can wow her with an amazing experience when she comes into the center? But if I had to handicap both of those, or prioritize both of those, really drive new guests, continue to drive new guests into the brand, is the top priority? We talked about those initiatives that you called out, that help drive new guests, the national media change, as well as an increase focus on local marketing. We have been very pleased with the results that we've seen there in terms of driving reservations. But remember that those marketing efforts are just one piece of, or one leg of the, maybe a four or five-legged stool in terms of driving new guests in. And we'll continue to invest those dollars that have the highest ROI from a marketing standpoint to drive new guests. So, we're pleased with those, Dana. We'll continue those. And it's our job to think of some other opportunities where we can attract new guests into the brand.