Q4 2021 European Wax Center Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and thank you for standing by welcome to the European work centers fourth quarter and fiscal year 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session in order to facilitate as many participants as possible. We ask that you. Please limit yourself to one.
And one follow up during the Q&A. If you have additional questions you may rejoin the queue. At this time I would like to turn the conference over to Amir you are Gonna do senior Vice President of financial planning and Investor Relations. Sir you may begin.
Thank you and welcome to the European Watson, our fourth quarter and fiscal year 'twenty. One earnings call with me today are David Burke, Chief Executive Officer, David Willis, Chief Financial and Chief Operating Officer for today's call. David Berg will begin with a brief review of our fourth quarter and.
Full year performance, our fiscal 'twenty, one accomplishments and discuss our priorities. We are focused on as we begin fiscal 'twenty two.
And then David Willis will provide additional details regarding our financial performance, our capital allocation priorities, including the recapitalization announced today and our guidance.
Following our prepared remarks, David Burke, David Willis and I will be available to take questions you have for us today.
Before we start I would like to remind you of our legal disclaimer, we will make certain statements today, which are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially please refer to our SEC filing.
<unk> as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results.
Please also note that these forward looking statements reflect our opinions only as of the date of this call and we take no obligation to revise or publicly release the results of any revision to our forward looking statements in light of new information or future events also during this call we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional information.
<unk> regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release, a live broadcast of this call is also available at Investor Relations section of our website at investors Dock Waxen, our dot Com I will now turn the call over to David Burke.
Yes.
Thank you Amir and good afternoon, everyone. Thank you for joining us today, the positive momentum in our business exiting in the fourth quarter marked a strong finish to an outstanding year of growth for European WAC Center, even with the uptick of Covid cases, beginning in late November that temporarily constrained labor in certain centers, we exceeded key financial objectives for the past.
Year and advanced our growth initiatives in turn driving record total revenue and profitability.
As the leader in out of home waxing, we attribute our ongoing strength to the power of our business model the recurring nature of our services and the agility of our network in successfully executing our strategy.
I would like to thank all of our associates across the organization as well as our franchisee partners for their contributions to our success in fiscal 2021 and for their steadfast commitment to living our values every day.
Given 2021 strengthen the momentum we've already seen in 2022, we remain confident in our ability to deliver robust top and bottom line growth, including low 20% same store sales growth in Q1.
More and more consumers nationwide no entrust European WAC center to consistently provide excellent service and a clean environment at accessible price points. The non discretionary nature of our category also provides a clear path to capitalize on the substantial market share opportunity, we have and growing.
The $18 billion hair removal market here in the United States. We are proud of our accomplishments yet equally focused on delivering on our long term growth objectives, and continuing to generate significant cash flow from our high margin asset light business model.
Beginning with the highlights of our fiscal year versus fiscal year 2019.
System wide sales and total revenue each increased nearly 16% to $796 5 million and $178 7 million respectively.
<unk> store sales increased six 7%, reflecting sequential acceleration each quarter and adjusted EBITDA of $64 $1 million increased $31 million.
Looking back on the fourth quarter and the full year, we saw a tremendous progress advancing our key strategic priorities to deliver on our two growth vectors first opening new centers and second driving same store sales growth.
In terms of center development, we opened 20 net new centers in the fourth quarter and 57% during fiscal 2021, bringing our total to 853 centers and achieving our new center opening target, which we increased when we reported third quarter 2021 results. We are incredibly pleased that.
Nearly all new centers in fiscal 2021 were opened by our existing franchisees EBIT.
Even more exciting is that we ended the year with more than 330 signed New center licenses, which is our deepest pipeline to date and gives us confidence in delivering our target of high single digit center growth over the next several years.
As it relates to same store sales growth versus 2019, or 13, 6% fourth quarter increase was a sequential acceleration of 300 basis points from Q3 <unk>.
As expected all cohorts, including mature centers Comped positively for Q4, and 2021, excluding California, where we've been addressing concentrated labor tightness, excluding California Q4 same store sales growth would have been 18, 1%.
As I mentioned on our Q3 call we have implemented several actions to support our recruitment efforts. We saw continued improvement in California staffing during Q4, which has accelerated further in 2022 as we help our California franchisees achieve optimal staffing levels.
The drivers of our Q4 same store sales growth included strong retention of existing guests as well as significant new guest acquisition in fact for the full year, New guest acquisition was up nearly 30% versus 2019, yes.
Yes surveys demonstrate that we're not only attracting first time <unk>, but also capturing market share from independents salons, we believe that our strong performance with both existing and new guests is proof of our highly effective marketing strategy combined with excellent service and operational execution.
Consistent with Q3 fourth quarter wax past sales were approximately 20% higher versus 2019.
We believe this is a great leading indicator of future performance given that wax passes are included in same store sales only win redeemed over half of our transactions include wax past redemptions, which is encouraging given that wax past customers visit more frequently spend more and have a higher retention.
Right the non wax past guests.
Service mix also contributed to same store sales growth as we continue to see a shift towards higher priced body services over time, we continue to believe that sideline customers will add facial services back into their routines as guests feel more comfortable without masks overall.
Overall, our compelling fourth quarter performance leaves us well positioned to continue our favorable momentum in fiscal 2022.
Moving to our 2022 priorities they are centered around the following.
One expanding our footprint through new centers to capitalizing on our enhanced marketing and loyalty programs three increasing the pipeline of wax specialist.
Leveraging our scale to benefit our supply chain and finally, optimizing our capital structure.
First regarding new center expansion the investments we've made in our development team in the last 18 months have given us a strong platform for delivering long term unit growth.
Due to our demonstrated track record of growth and profitability, our existing franchisees are making commitments through multi unit development agreements to strategically densify markets private equity firms and family offices are also quickly seeing the value potential of our consistent center performance and attractive margin profile.
In fact, both self funded and private equity backed unit operators represented over half of our fiscal 2021 openings.
Over time, we expect to develop a balanced mix of franchisees in the network approximately one third of the centers owned by small independent groups. One third owned by self funded regional operators and one third owned and operated by private equity backed operators.
Turning to our second priority, our marketing and loyalty programs. The success of our brand with both new and existing guests in fiscal 2021 demonstrates that our comprehensive marketing approach and media mix are driving great results in fiscal 2022, we will focus on continued optimization and expanding <unk>.
Media partners to reach key opportunity segments, especially men and guests with coarse ore textured hair during peak seasons.
With a significant increase in new guests in 2021, we will be particularly focused on retention. This year through our CRM efforts, we continue to see increasing guest engagement as well as higher revenue per guest and increasing increasing frequency among our best guests. We expect that the October 2021 law.
<unk> of our new loyalty program EWC rewards will enable us to further grow these metrics.
While EWC rewards is still in early stages, we are already seeing encouraging data about its potential to be a meaningful basket driver over time.
First EWC rewards has higher guest awareness.
Compared to our previous loyalty program guests are also telling us that it's easier to earn and redeem points through EWC rewards, which should lead to higher program engagement.
Finally guests who have redeemed rewards in the program's first few months are spending more particularly on our proprietary retail products to enhance and extend the life of their services.
We are still in the programs early innings, but we will analyze and adapt as we gain a deeper understanding of guest behavior. This year.
Moving on to our third priority, increasing the pipeline of wax specialists in California, where the government mandated shutdowns and delays in issuing cosmetology and as petition licenses have had the biggest impact on our network. We are starting to see license issuance accelerate.
Our recent brand level initiatives in California are attracting more whack specialists as well we.
We are partnering with recruitment platforms to provide franchisees with resources educational content and savings on their recruitment efforts are.
Our brand remains the number one employer based on engagement for both the <unk> and cosmetologist rules in California on indeed Dot Com. We also launched a direct E mail campaign to students and industry professionals, which generated exceptional engagement well above industry standards. Finally, we recently completed.
<unk> the pilot phase of our Beauty School partnership program, which had more than 500 participants at the end of January .
Given this success, we are launching the program nationally to grow our database.
Reach more potential associates as a result of these efforts whack specialist staffing in California has improved 30% since the end of Q3, and we expect to see continued improvement. We believe we've developed a playbook that can be rolled out nationally to drive interest in our franchise centers as the employer of choice.
Yeah.
Our fourth priority is to continue leveraging our scale to enhance the efficiency of our.
Our sales and support infrastructure as the category leader in the largest provider of auto home Waxing services European WAC centers scale is a competitive advantage compared to the independent players that comprise the majority of our industry.
We are always looking for opportunities to better leverage that scale to benefit our franchisees. For example earlier. This year, we began buying wax related supplies, such as latex gloves and wax applicators previously we negotiated rates on behalf of our network, but the ordering process and financial transaction.
<unk> occurred directly between franchisees and a third party supplier our new program is optimize the procurement process by enabling a seamless platform for franchisees to order supplies as well as EWC is wax and retail products. This program helps ensure the critical supplies remain.
In stock and makes the order process more efficient for franchisees, giving them more time to focus on generating revenue and providing a best in class guest experience also on the supply chain front. We believe we are well positioned to navigate current disruption and inflationary pressures. We are proud of our great relationship with our <unk>.
<unk> and have invested in additional supply of our wax.
While we are not immune to cost pressures, we are able to pass along higher costs to our network if needed as the category leader. We also have the ability to recommend periodic service price increases, enabling our franchisees to protect their four wall profitability.
Lastly, our fifth priority for fiscal 2022 is to optimize our capital structure. We are extremely proud of European wax centers asset light business model that delivers strong free cash flow with less operating risk.
Given our relatively modest capital expenditures and high cash flow generation, we believe that we can sustain higher leverage than other business models, while lowering our overall cost of capital and therefore, we are pursuing a recapitalization of our balance sheet through a whole business securitization.
This structure is uniquely best in class for high quality franchise ores and provides us significant capital allocation flexibility as we grow the business.
After repaying our existing term loan we plan to use the net proceeds from the new senior notes to return value to our shareholders through a one time special dividend.
We believe that this whole business securitization will be a component of our long term shareholder value creation for years to come as our business grows we look forward to growing our securitization with it.
Before I turn the call over to David Willis I'd like to briefly touch on our guidance for fiscal 2022.
We expect to deliver another year of strong top line growth, including 70 to 72 net new center openings and same store sales growth in line with our high single digit long term targets.
We expect fiscal 2022 system wide sales consistent with and total revenue growth above our low double digit long term targets.
Keep in mind that fiscal 2022 is our first full year as a public company and therefore adjusted EBITDA will include a full year of public company costs on a pro forma basis, assuming we were a public company for all of fiscal 2021, we expect fiscal year 2022 adjusted <unk>.
EBITDA growth of 13% to 18% in line with our long term growth targets of low to mid teens growth.
In summary, we are excited about our business prospects in both the near and long term as we begin 2022, our positive momentum has continued which is reflected in our Q1 same store sales outlook of low twenty's growth versus 2021, this underlying business performance coupled with our robust.
New center pipeline has poised us to deliver on another year of strong financial growth and significant accomplishments towards our long term goals and now I'd like to turn the call over to David to review, our fourth quarter and full year performance provide more detail on our outlook and give color on the refinancing we announced earlier.
Today.
Thanks, David and good afternoon, everyone. While I have met many of you over the past year, it's nice to speak with you today in my joint role as CFO and COO.
On today's call I will compare certain fourth quarter and fiscal 2021 results for both fiscal year, 2020, which was significantly impacted by temporary pandemic related closures in fiscal 2019, which represented a more normalized year of operations for us.
My remarks will also focus on our adjusted results, which exclude costs related to our initial public offering and other onetime costs.
Finally, I will introduce our fiscal 2022 outlook before opening the call for Q&A.
Can find reconciliation tables to the most comparable GAAP figures in our press release and 8-K filed with the SEC today.
Fiscal 2021 was a remarkable year of significant growth and margin expansion powered.
Powered by our compelling asset like business model and the talent dedication and discipline of our teams.
In terms of a record fourth quarter results. We are pleased to report strong performance highlighted by significant growth in revenue and adjusted EBITDA compared to both the fiscal 2020 and 2019.
Q4 system wide sales were $201 9 million, increasing 51, 2% from 2020 and 23, 2% from 2019.
Our unit expansion, including 20 net new centers during the fourth quarter, coupled with a strong 13, 6% same store sales increase drove the revenue growth.
Relative to 2019, we acquired a significant number of new guests and generated higher average tickets as our guests continue to favor higher priced body services versus special services.
As David mentioned in his remarks, our California centers continue to steadily recover.
In the fourth quarter of 2021, California same store sales improved 20 basis points from Q3 to be a 450 basis point drag on network same store sales performance.
Excluding California are same store sales were 18, 1% versus Q4 2019.
In all cohorts, including mature centers Comped positively.
We are encouraged with the recent uptick we've seen in California staffing and we continue to focus on initiatives to improve the supply of wax specialists as David discussed.
Total revenue in the fourth quarter Rose 53, 8% from 2020, and 35% from 2019 to $45 $1 million driven once again by robust product sales to our network, including both our unique comfort wax and retail products royalty and marketing fees.
All of which benefited from our net new center growth over the past year.
Adjusted EBITDA, which excludes the impact of noncash items, one time charges and other costs such as share based compensation expense increased by $9 $5 million year over year to $15 $2 million in Q4.
Consistent with Q3 2021, our fourth quarter adjusted EBITDA margin was 33, 8% up significantly from 2020 and 2019.
Fourth quarter adjusted net income increased to $8 5 million from adjusted net losses of $3 $8 million in 2020, and $8 $4 million in 2019.
Q4 income tax expense was $100000.
For the full year, we're incredibly pleased with the growth we achieved versus a more normalized fiscal 2019.
System wide sales and total revenue each increased 15, 9% from 2019 to $796 $5 million and $178 7 million respectively.
Same store sales of six 7% versus 2019 accelerated each quarter during the year.
Adjusted net income increased nearly $27 million to $29 $7 million.
Finally, adjusted EBITDA increased more than $30 million to $64 1 million and.
In full year adjusted EBITDA margin was 35, 9%.
Turning to the balance sheet at the end of fiscal 'twenty, one we had cash and cash equivalents of $43 3 million compared to $36 7 million at the end of fiscal 'twenty.
$180 million in borrowings outstanding under our term loan and no amounts outstanding under our revolver.
Now onto our outlook for fiscal 2022, and a comment on the first quarter.
We are planning to open 70 to 72 net new centers for the year versus 57 in fiscal 2021, representing an acceleration from our 2021 unit count to more than 8%.
As David mentioned earlier, we have the deepest new center pipeline in our history more than 330 licenses, which reflects both the confidence our franchisees have in the model and several years of growth at a high single digit rate.
We expect more incremental openings year over year in the first half of 2022 versus 2021, as we put more rigor and discipline into our development process.
Approximately two third of our expected fiscal 2022 openings.
<unk> already opened or under construction, giving us tremendous confidence in delivering our full year plans.
We expect the network to generate system wide sales between $870 million and $910 million.
Although we are encouraged by our recent progress our guidance does not assume a full recovery of the ongoing labor constraints in California.
Despite this headwind our expectation for same store sales growth versus fiscal 2021 is that the upper end of our high single digit long term target.
We are also planning for total revenues of $198 million to $208 million in fiscal 2022, representing 13, 5% growth rate year over year at the midpoint of the range and exceeding our long term revenue growth target of low double digit growth.
Total revenue growth continues to be driven by new center growth and the strong ramp of new and existing cohorts.
Including significant new guest acquisition and retention.
Earlier this month, we implemented a small price increase on our wack solta franchisees to offset the supplier led cost pressures.
To help protect four wall profitability in light of this increase and other cost inflation in January our franchisees implemented an average 5% price increase on body services, which represent a majority of services performed in our centers.
As a reminder, periodic service price increases were always contemplated in our long term growth algorithm.
And historically, we have not seen a material impact on transactions when taking price.
As David mentioned earlier on the call total revenue in 2022 will also include an incremental opportunity that leverages, our scale to buy supplies using our services on behalf of franchisees at a corporate level. This move will generate incremental revenue and gross profit dollars, but at a significantly.
Lower gross margin rate than our comfort wax and proprietary retail products Inc.
<unk> this mix shift we expect full year gross margin in the range of 71 to 71, 5%.
From a profit standpoint, we expect fiscal 2022, adjusted EBITDA of $69 million to $72 million.
Representing a 10% annual growth at the midpoint.
As a reminder, fiscal 2022 is our first year fully burdened with public company costs, which constrains, our one year growth rate.
Assuming we were public for all of fiscal 'twenty, one our fiscal 'twenty, two adjusted EBITDA guidance of $69 million to $72 million would represent 13% to 818% annual growth in line with our long term target of low to mid teens growth.
Given our asset light model, we expect approximately $2 5 million in capital expenditures as we continue to invest in our technological capabilities and only a slight uptick in annual depreciation and amortization from fiscal 2021.
Finally, we expect adjusted net income of 35% to $39 million up almost 25% from 2021 adjusted net income at the midpoint of the range.
Our guidance assumes a 15% effective tax rate for fiscal 'twenty, two but does not contemplate the impact of our expected refinancing, which I will discuss shortly.
Our guidance includes a 50 <unk> week in the fourth quarter of fiscal 2022, however, due to its timing between Christmas and new year's we estimate its contribution to both top and bottom line will only be worth about half of an average fourth quarter week.
We don't expect to give quarterly guidance on an ongoing basis, but keep in mind, we had COVID-19 related center closures impacting both 2020 and early 2021.
So fiscal 2022 seasonality will look different from prior years.
Therefore, we would like to provide some quarterly context on this call.
From a volume standpoint, Q1 is typically our lowest volume quarter and should account for approximately 21% of fiscal 'twenty to total revenue.
Q2, and Q3 typically generate the largest volume and we expect each to comprise about 26, 5% of annual revenue this year.
Due to center closures in early 2021, particularly in California, We expect that Q1 sales growth will be the highest of the year with same store sales growth in the low twenties.
On the bottom line, we expect Q1 adjusted EBITDA margin of approximately 31% with Q2 through Q4 expanding to the mid <unk> as a higher volume generates more fixed cost leverage.
As David noted earlier, we plan to lean in during our peak summer season to target core audiences. As a result, we expect advertising expense to be the heaviest in Q2 and Q3.
From a long term standpoint, we remain confident in our previously communicated growth algorithm over the next three to five years of compounding annual growth in high single digits for new centers Hi.
High single digits for same store sales.
Low double digits for total revenue and low to mid teens for adjusted EBITDA.
Finally, I'd like to close with a few words about the debt refinancing we announced this afternoon.
Since IPO, we have acknowledged and opportunity to optimize our capital structure to give it the flexibility to create long term shareholder value.
We ended fiscal 2021 with a net debt to adjusted EBITDA ratio of two one times.
But we believe our business has the capacity to support additional leverage due to its recurring revenue model asset light nature and ability to generate significant free cash flow.
We believe that our whole business securitization, which is best in class among a high quality peers is the most optimal capital structure for us.
We intend to replace our existing debt with $400 million of fixed rate term notes and $40 million of variable funding notes.
While the transaction will be adjusted EBITDA neutral in fiscal 'twenty. Two we do expect incremental interest expense in the second through fourth quarters due to the higher level of debt our model can maintain.
As David mentioned, we've evaluated our near term opportunities and expect to use the proceeds from the senior notes along with excess existing cash to pay off our current term loan fund the transaction expenses and issue a onetime special dividend to shareholders.
More importantly, putting this structure in place establishes the foundation from which we can raise funds in the future for strategic investments or capital returns to shareholders.
The closing of this transaction, which we anticipate will be in a few weeks is subject to market and other conditions.
Since we have not yet finalized the offering size and pricing terms.
We plan to issue updated adjusted net income guidance upon closing.
We look forward to the next stage of our growth and we view the whole business securitization as a first step in a multi year journey of generating significant long term shareholder value.
In summary, we're pleased with our momentum to start 2022 and excited about the profitable growth opportunity ahead of us.
We look forward to continuing to provide a non discretionary recurring service to our loyal guests that deliver strong and consistent results in a variety of environments.
And we remain focused on extending our leadership position in this large and growing addressable market.
I will now turn the call back over to the operator for questions operator.
Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to move yourself from the queue. Please press the pound key.
First question comes from the line of Randy <unk> from Jefferies. Your question. Please.
Yes, good evening guys. Thanks for taking my questions. My first question I just wanted to unpack the.
The recapitalization, a special intended special dividend.
That you are going to be kind of.
Given what you think is a great signal around the recurring revenue nature of the business and the flywheel.
The business itself. So I just wanted to understand just what type of.
Leverage ratio are you comfortable going to.
How do you think about I guess, maybe.
Without giving you on the board of Planet fitness, how do you kind of think about where similarities of what you get there from a couple of dividend personnel.
With this particular business, maybe compare and contrast, your how you're thinking about that or the board's thinking about that with the special dividend recapitalization.
Hey, Randy Thanks, Thanks for the thanks for the question, let me, let me just sort of address how we're thinking about that at a high level and then ask David Willis to maybe do the do the unpacking I think listen we as you all know this is a.
The asset light nature of our business model really allows us to sort of balancing the investing.
Our long term growth for long term growth of the business with returning capital to shareholders. We have a high confidence in the low volatility and risk of the business.
And we think that we have.
The comfort level.
Leverage ratio of five to six times is very very comfortable very doable in given the recurring nature of our revenue streams.
We looked at investment opportunities and how best to sort of maximize shareholder return.
And a number of the more blue Sky growth initiatives that we've talked about are quite capital light in nature as well so.
As David <unk>.
We ended up Randy was that it made sense at this time.
<unk>.
The net proceeds returned to shareholders as a special onetime dividend and I think what is important is that.
While we intend to use these initial proceeds to fund that special dividend, we do believe that the whole business securitization will become a component of our long term shareholder value creation for years to come and I think it is a good a good vehicle for us to have in place.
DW, maybe just a little bit more details you would you bet. So Randy as you know right now at the end of the year at two one times net leverage we just think the model is under leverage relative to our best in class peers. So as we think about it. This is obviously subject to market conditions and our closing, but we plan to if we can secure that.
400 that we're targeting we payback the $180 million term down transaction costs and use a little bit of cash on our balance sheet keep a little bit of cash on our balance sheet, but other than that the goal of this objective that this is to use the bulk of the proceeds or the net of the proceeds to fund the one time special dividend.
Super helpful and my last question.
It helps it helps very much.
And then my last question is I just wanted to get some more clarity on how you think about.
California, playing out you gave us some really good color around that.
The continued impact which seems to be around 500 basis points or 450, 460 basis points whatever it seems to be.
Impacting total company comps.
So when you think about the annual comp guidance for 2022, and you go to your first quarter.
I think you said don't assume much.
Movement in trend.
From California in terms of the impact just want or I, just want to clarify that and just get your perspective on what the financial impact you see and then how you see that that California improvement ramping.
Throughout the year and how we think about 2023, because it almost seems like California to be a real spring border spring loaded type of region for you maybe not in the beginning of 2022, but perhaps in the back half of 'twenty, two 'twenty three 2023 and beyond.
Randy.
Thank you you hit it on the head in terms of how we're thinking about our overall guidance just simply we wanted to call out does not it does not assume that the California centers are at a full recovery relative to all other states. We are seeing positive trends. We saw these in the fourth quarter.
In our California centers, we're continuing to see.
Further recovery in the first quarter, thus far in 2022. So when you really kind of think about what are our quarterly comp it's going to make our comp set look really good in the first quarter, because we are lapping a quarter, where the California centers were just starting to reopen last year. So I think our highest quarterly comps that will be in the first quarter, but overall.
I don't want to send signals that we're discouraged actually we're encouraged where California is trending we just wanted to be prudent and not assume a full recovery until that comes into.
Full visibility for us.
Great. Thanks, guys.
Thanks Randy.
Thank you. Our next question comes from the line of John Hind Buckle from Guggenheim. Your question. Please.
Hey, guys.
There is an opportunity to for new.
New centers to outperform the store the center model right year, one year or two.
Do you think we see that in 'twenty two.
Then as you get the network effect by how much do you think you can outperform the store model and mature faster.
So John we have seen the 'twenty 'twenty into 'twenty, 'twenty, one cohorts ramp better and faster than our historical.
Maturation curves.
We want to see candidly more data before we our guidance does not assume that every center that opened ramps at the same rate and pace.
The most recent cohort have opened wed like to see an updated to ensure they actually continue to ramp at that pace and candidly exceed the maturation targeted.
Our our historical maturation has been around that $1 billion Mark. So we see the opportunity we have seen centers ramp a bit faster, but we've not baked that into our guidance because it's candidly really early days for these youngest centers.
Okay, and then maybe secondly, right when you think about supply demand of tax specialists.
Opening.
Only 10% a year and then factoring in right turnover, how many do you think you'll need a year.
And then as you do this do these partnerships with beauty schools does that does that then open the.
The potential for at least modestly exceeding the high end of that targeted range.
Yes, John listen I think.
The average center Thats about 1500 square feet and six WAC suites, where they were.
We're getting kind of between eight and 12 whack specialist per center. So you multiply that by kind of the 70 to 80 centers and we're going to open in the coming years and you can do the math you take some attrition rates in there. So we need to it's the reason we're continuing to drive our Waxer pipeline, we've talked about the industry relations team that we have here internally that works with our franchisees.
<unk> works with our beauty schools worked with the online platforms to attract the best talent and we feel great about some of the things that we've done in California.
To work with our franchisees at the end of the day as you know that these folks are employed by our franchisees, but these are programs that we can rollout to assist franchisees across the nation. So we feel good about it we've talked with you all before about if theres any governor and why we're very thoughtful and prudent about our growth rate is that we want to make sure that anytime we open up <unk>.
It's with high quality wax specialists, so that that amazing experience that you get is consistent across the entire network.
Okay. Thank you.
John Thank you.
Thank you once again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes from the line of Simeon Gutman from Morgan Stanley . Your question. Please.
Hey, good afternoon, everyone Hope everyones. Good my first question is hey.
So.
The consensus sales number what was printed at least so far looks in line and it looks like EBITDA may be a little bit below I know, David Willis talked about public costs existing throughout the year I just want to clarify if I don't know if you could have seen that in consensus or not but is there something else about the flow through.
<unk>, that's a little bit at the margin worse or is it. This gross margin issue that you were calling out I just want to reconcile maybe the EBITDA being a little bit lower than the midpoint.
The sales range if that makes sense.
Thanks, Tim in its primarily the wraparound impact of public company costs and the head count that we hired last year and support I've taken the company public and maintaining public company compliance I think it's more in the wraparound impact of that and then it really is in the margin yeah, and one thing to add Simeon.
We talked about the black supplies vendor that we added right the strategic decision to optimize our procurement process that had a impact to sales right EWC revenue and that flow through was less than what you would expect on our general product line and so that is factored in as well. So why you see an outsized beats.
On the.
EWC revenue by not flowing through entirely through EBITDA.
Okay, and I guess I'll ask the.
Follow up with two parts to your point about the buying some of the suppliers on their behalf. It makes sense you should be buying it because your scale is better but you're doing it also to take some of the heat off the franchisee because it gives them a benefit as well and then the other question I was going to ask just on Q1, because effectively the quarter's done and you know how you perform.
Can you talk about maybe the cadence by month more just to highlight I think the resilient even in the earlier part where there may have been some omicron.
Impact and just I don't know if you can talk about how it how it improved throughout the quarter.
Yes.
Youre right on the suppliers, we're trying to get our franchisees just focus on delighting our guests and this was an ease of.
Seamless way for them to utilize our platform to purchases of supply. So that was a lot of work went into our thinking and that I think in the quarter.
We <unk> really we probably saw the impact in towards the tail end of Q4.
In November and we saw that honestly more on the labor issue.
The consumer demand remained quite strong robust as we went into the quarter.
In fiscal year, 2022, and we've continued to see really assuming a consistent ramping of traffic.
Very very pleased with kind of our traffic rates as we as we come to the close of Q1.
Okay. Thank you.
Yes.
Yeah.
Thank you. Our next question comes from the line of Jonathan <unk> from Baird. Your question. Please.
Yes.
Yes, hi, thank you.
I ask more about the service price increase you took just any feedback or reception from the results you've seen from that so far and then when you think about the same store sales guidance for the year.
Just maybe walk through how you're thinking about building the glide path and how we should expect same store sales to trend going forward here.
Yes, John This is David on the service price increase we really wanted to protect franchisee four wall profitability. So you may recall, we took a modest price increase last February and most recently, we took another modest price increase only on body services.
In January of this year, we have not really seen ticket attrition I think for guidance purposes. It was responsible to assume a modest amount of attrition, but in terms of the we don't have enough data for the service price increase taken in January of this year to measure that we do have enough data to measure tickets from.
From the service price last year, and we really didn't see much in the way of attrition. So we feel good about that in terms of four wall profitability look like we rolled up our 2021 P&L and the average center remains slightly more profitable in 2021 than it did in 2019. So we think that really speaks to the resilience of the <unk>.
Four wall model kind of through these some of these uncertain times Mary do you want to touch on the same store sales sure. So hey, John we talked about Q1 being in the low <unk> in terms of same store sales just given the nature of one returning to the guests returning back and seeing the volume impact in Q1, but the same.
Time Q1 of 'twenty, one is the centers, we're ramping and some were closed so.
As we look at the full year, we talked about at the high end of the high single digits and so what that means for Q2, Q3, and Q4, which were a lot of.
We're lapping.
<unk> last year's.
Return, we would say on the low end of that high single digits to two to achieve that.
Okay. That's very helpful. And then one other separate question just related to the unit outlook could you maybe share any of your latest thoughts on some of the tests either.
Around the smaller market model or I don't know if this is a test but current thoughts on the opportunity for a shop in shops or alternative formats. Thank you.
John It's David Thanks, Thanks for the question listen we remain hyper focused on rolling out our standard box that 13% to 15 on a square foot six WAC suites, it's tried and true it's proven and that's what that's what we're doing we've got a couple of experiments with some smaller formats really too early to tell.
But the go forward game plan is to continue to rollout what we've been doing over the years and know how to do very well. We will continue to look at sort of other opportunities what we call kind of wondering outside the bullseye whether that store within a store moving our product into some retailers but.
Right now given kind of coming out of the pandemic and getting the momentum that we have we really want to stay focused on what we know how to execute extremely well.
Okay, great. Thanks again.
John Thank you.
Thank you. Our next question comes from the line of Kelly Crago from Citi. Your question. Please.
Hi, there.
I'm curious if you could elaborate on your BD School partnership program seems interesting and seems to be working to help you attract more watches so just curious.
What youre doing now that you werent doing prior and how quickly you could roll this out nationwide.
Yes, we're doing a couple of things there Kelly so.
We're sponsoring so we actually are putting kind of EWC branded content in some of our beauty schools. Our franchisees have shared some of their WAC specialists to teach some courses. So we're trying to get more engaged with the beauty skills and we're keenly seeing.
Some of the virtual recruiting fairs that we conducted with franchisees to be quite successful.
And received really good engagement. We're also separately from that doing more of a direct E mail outreach to licensed Destitutions in Cosmetologist. We started first in the state of California. We had good reception to that that's another program we plan to do direct outreach.
To share with prospective candidates once a day in the life at EWC like and how you can make a career here so.
And just the BD skills, we probably spend most of our time talking about that but we're but we're also doing other programs to drive the candidate pool for our franchisees.
Okay.
And just.
Separately.
Curious if you could talk a little bit more but the P&L impact from.
The optimizing procure and then for your franchisees that were expected to see this year. So like how much of a top line contribution.
Are you expecting and then will that show up in product sales.
Any color on the margin differential between those sales and what you're capable of products.
Sales margins look like thank you Sir sure Kelly so in terms of.
Your question on that will it show up in product sales. It will it will be part of our wholesale which is a component of product sales.
We will see a.
A decline in overall margin.
But that is driven by.
This product line being at a lower margin than our overall wholesale that's around 230 to 180 basis points, we do see some upside on royalty and marketing funds since those just from a mix standpoint, as we grow our sales.
This change is a strategic change for us and it's also accretive from a margin dollar standpoint, but we do see some some rate declined as we look at the overall margin what what you heard from David Willis 71 to 71, 5% as our overall gross margin for the year. Another driver for this so I would say.
In the scheme of things this is not a super material thing to our P&L, but.
It avoided higher costs, our franchise would have had to bear had we not made the change. So the market was going up with some of the other suppliers said this was in <unk>.
And not just to make ordering a little easier for them more efficient, which is the case, but it is also a bit of cost avoidance strategy for our network.
Great. Thanks best of luck.
Thanks Kelly.
Thank you. Our next question comes from the line of Dana Telsey from Telsey Advisory group.
Your question please.
Good afternoon.
I missed the first part of the Q&A session.
Ken as you think about 2022 .
What are you seeing in terms of the openings of new stores are they opening on the timeframe that you want given the supply chain headwinds of getting equipment and then on the employee base.
Where are you in terms of.
California.
Areas and finding enough justification.
Lastly, I thought it was interesting.
Okay.
Other parts of the body in terms of waxing anything youre doing to try to drive attachment sales.
Increased average transaction. Thank you.
Dana This is David so on on the New center openings. Our guidance is 70 to 72 net new centers for fiscal 2022.
As it relates to supply chain, we have seen costs come down from their peaks I think we spoke on our last call that lumber is down from where it was kind of second and third quarter last year.
I would say contractor rates are a little all over the board in some markets. They are still elevated in other markets they've tempered a bit.
We made investments in our development team last year, and we put in place more rigor around our development process. We also built in more cushion into the overall development timeline, because we continue to see in some markets permitting.
Getting better in some markets, but it is still unpredictable and slow in other markets. So that's a long winded way of saying given what we've done in the overall development process, where we're seeing supply chain and construction costs. We are quite confident in our ability to deliver the guidance that we have provided we also continue to believe that this kind of.
Thoughtful prudent approach will enable our franchisees to recruit sufficient staff. So they can open.
Open and start driving tickets with new guests.
I think Dana on your face question as we've talked about before that compared to 2019, our 2021 service mix certainly did skew more towards buy services.
And we do continue to believe that there are some sideline guests that will return when they get back in their full personal care routines.
As restrictions ease and spheres. These that the face will come back into it. So we still think about phases in and you know that those those services are typically.
At a much lower price point, but we do have things in mind in terms of promotions to.
To bundle those body and face services to drive that business back back into the into the centers coming months.
Thank you.
Thanks Dana.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to David Berg for any further remarks.
Well. Thank you thanks to everybody for joining us today, obviously, we're incredibly proud of what the team accomplished in a huge thank you to all of our associates and our franchisee partners and we certainly are excited about the momentum that we have as we enter 2022 and we will look forward to speaking with you all in early may when we announce our Q1 results.
Have a great rest of the day, thank you for joining us.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
Sure.
Okay.
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