European Wax Center Inc. Q1 2023 Earnings Call
Thank you for standing by and welcome to the European WAC centers first quarter 2023 earnings results. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone if you.
That has been answered and you'd like to remove yourself from the queue. Please press the pound Oh, sorry, it once again, if you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Bethany Johns Director of Investor Relations. Please go ahead.
Thank you and welcome to European WAC Centers' first quarter fiscal 2023 earnings call with me today are David Burke, Chief Executive Officer, David Willis, President and Chief operating Officer, and Stacie, Shirley Chief Financial Officer for today's call, David Burke, and David Willis, who will provide a brief overview of our first quarter performer.
And discuss our priorities for fiscal 2023, and Stacey will provide additional details regarding our first quarter financial performance and our fiscal 2023 outlook. Following our prepared remarks, David safety and David will be available to take questions. Before we start I would like to remind you of our legal disclaimer, we will make certain statements today, which are.
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 filings 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'll find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release.
Live broadcast of this call is also available on the Investor Relations section of our website at investors Dot WAC Center Dot com.
I will now turn the call over to David Burke. Thank you Bethany and good morning, everyone. Thank you for joining US today, we're pleased to deliver solid Q1 performance in line with our expectations as our phase induced match for the eighth consecutive quarter. Since we became a public company in 2021.
We generated $218 million in system wide sales $50 million in total revenue and $16 3 million in adjusted EBITDA, representing 6%, 10% and 8% growth respectively. We.
We delivered four 5% same store sales growth and opened 34 net new centers. The most centers ever opened in a single quarter. Since the brand was founded in 2004.
We continue to drive both of our key growth vectors unit growth driven by our franchisees excited about the strong return on invested capital and in center sales growth.
Our focus on these vectors remains steadfast as we look ahead and I would like to extend our sincere thanks to our associates.
And our franchisee partners for their commitment to our ongoing success and for living our values every day.
European WAC Center created the category of Professionalized art, if I'm waxing and continues to be the undisputed leader in a highly fragmented space are.
Our model is fueled by the recurring nature of hair growth and our loyal guests, who consider waxing too be a non discretionary part of their personal care routines.
Our highly trained wax fresh looks deliver consistent efficient and professional services with our unique comfort wax at a reasonable price and clean hygienic centers.
These qualities and our relentless focus on delighting our guests sexy.
<unk> European WAC centre apart from others and our scale is truly unmatched with almost 1000 centers nationwide offering a high quality inclusive experience European WAC center is uniquely positioned to provide out of home waxing to every body and our tech enabled scheduling.
An efficient waxing regimen allow our guests to get in and get out as part of their busy days.
Our new advertising campaign launched earlier this month.
<unk> distinctive creative visual that leverage our brand authority to invite all customers to wax with us and reinforces our status as the category expert.
Our wax pass program also continues to be a key differentiator wax passes to provide our guests with a discount for pre purchasing a body parts specific package for instance, 12 eyebrow waxes for the price of line during our semiannual promo periods.
<unk> pass holders are our most loyal guests.
They make up about 40% of our customers, but generate two thirds of our visits and network sales.
With the recent implementation of our enterprise data warehouse and enhanced CRM capabilities, we've been able to identify an additional cohort of routine guests who also visit European wax and are regularly an average of eight times per year, but who do not currently have a wax path.
Together, both wax pass holders and routine guests drive more than 75% of total visits and network sales.
Both cohorts have remained incredibly consistent and are waxing and routines in terms of both their frequency and their spend they.
They continue to view our services as non discretionary.
Even in an uncertain macroeconomic environment.
In addition, we remain focused on our less frequent episodic guests, where we see an opportunity to improve visit frequency and spend.
Our strategic pillars are unchanged and we are deploying additional levers to drive transactions and basket size in 2023 that gives us confidence in reiterating our full year guidance.
David Wallace will cover these in more depth in a moment.
We expect these efforts coupled with our unit expansion to enable us to generate long term revenue growth.
Leverage our fixed cost profile for EBITDA margin expansion and generate significant free cash flow over time.
All of which translates to significant value creation for European WAC centers franchisees.
And our shareholders.
With that I'd like to turn the call over to our President and COO, David Willis to discuss recent trends and our two key growth vectors, expanding our footprint through new center growth and driving in center sales David over to you.
Thank you David and good morning, everyone.
Turning first to our unit growth vector as David shared earlier, we opened 34 net new centers in Q1.
<unk> defined markets in key states, like California, Florida, and Illinois.
We have incredible momentum as we approach 1000 centers across 45 states demonstrating that the European Wax Center brand resonate everywhere.
Franchisee demand, especially among multi unit developers remains robust.
More than 90% of our pipeline is comprised of existing franchisees, who are largely focused on densify the top 20 markets nationwide.
We are also welcoming new franchisees and expanding our reach in tertiary markets by.
By way of example in Q1, we signed an agreement with a small family office to develop nearly 20 centers in southern Georgia and Alabama.
The development personnel, we invested in this year are helping structure multi unit development agreements for our larger franchisees.
In addressing pent up demand from smaller operators, who want to add one two or three centers to their existing portfolios.
As a reminder, our centers have a relatively modest initial investment of approximately 350 to $400000.
We are confident that our franchisees remain well capitalized.
This rising interest rate environment with sufficient funding to continue growing the European WAC Center footprint.
Continued demand is also helping us reach our targeted long term franchisee mix sooner than expected.
At IPO, we communicated a long term expectation that one third of our centers would be owned by each of three groups.
Smaller independent operators self funded multi unit developers and private equity backed operators.
While our current location mix is 50% independent, 30% self funded and 20% private equity backed.
Opening the approximately 400 centers in our existing license pipeline will bring that mix close to one third each within the next few years.
Each of these groups is tremendously valuable to the brand and continues to demonstrate their steadfast commitment to our long term growth.
In addition to delivering significant unit growth our field and operations teams are dedicated to improving four wall performance.
We are focused on preparing new centers for opening.
Diving faster achievement of breakeven and building the pipeline of current and future WAC specialists as.
As we've shared before new centers opened in 2020, and 2021 are generating above average sales volume in their first few years.
Therefore, we are developing a new center marketing toolkit, leveraging best practices from these cohorts to help replicate those trends across the network with the goal of delivering breakeven profitability even faster.
In April we rolled out a new reporting tool to our network that offers better access to real time benchmarking analytics and performance data.
Lastly, we are reaping the rewards of our efforts to deepen the WAC specialist pipeline.
Our beauty school partnership program continues to expand with positive recommendation ratings from 97% of participants.
Our careers website generated double the number of wax specialist applications year over year.
As a result, the average number of whack specialists per center has increased versus 2022.
Through these initiatives, we are widening the gap as the undisputed leader in a highly fragmented category.
As a reminder, we remain the only nationwide brand in Idaho Waxing, we're six times larger than the nearest competitor by number of units and 11 times larger by network sales.
With the unmatched demand from our franchisees the strength of our development strategy.
And the effectiveness of our operational efforts, we control our destiny as we work towards tripling our current footprint to an estimated 3000 centers over the long term.
Now turning to our second growth vector driving in center sales, which benefits both system wide and same store sales growth.
We achieved this by strengthening guest engagement through our three pillared attract more buy more and visit more strategies.
As always the attract more pillar focuses on bringing new guests to European wax Center.
Our comprehensive media strategy has generated a significant increase in brand awareness year over year.
We're seeing a lot of traction and we believe that our bold new advertising campaign every body smooth will help us continue to grow awareness in 2023.
For the balance of the year, we're adjusting our media mix shifting a portion of our media spend out of awareness driving activities and into very targeted action driving performance media channels that have previously worked well to convert guest awareness into guest visits.
We also recently partnered with a messaging platform to increased guest reviews on Google.
Online reviews are critical as they drive Seo optimization and help potential new guests understand the value of out of home waxing, particularly for Internet services.
Because of our highly trained WAC specialists are one of our key differentiators and the drivers of en suite unit economics are.
Online reviews, highlighting these experts offer a great opportunity to drive new guest acquisition.
Existing franchisees piloting the platform last year saw a lift in transactions. So we're excited to implement this initiative across the network.
Our second pillar by more focus is on increasing the average ticket in centers.
Ticket size is primarily driven by the type of service performed.
The number of services per transaction or SPT and retail attachment.
While our service mix stays relatively consistent.
Increasing SPT and retail attachment can.
It can be a very impactful driver of ticket value.
We are currently testing bundles and service pairings, which make booking multiple and incremental services easier for guests.
Additionally, offering a small discount on a service bundle will benefit cost conscious guests, while generating more total dollars for the brand.
Our third pillar visit more is designed to increased visit frequency among existing guests.
We are currently focused on enhancing guest frequency through waxed pass holders in part by deepening our existing incentives for centers to drive incremental wax pass sales.
This is a tried and true tactic we have used during our semiannual promo periods.
As a reminder, wax pass holders visit more than twice as often as episodic guests.
As David mentioned, our wax pass holders in routine guests our core customers are driving over three quarters of network sales and have not changed their waxing routines.
Not unexpectedly and validated by recent guest survey work episodic guests are more sensitive to economic pressures and have lowered their beauty related spend as a result of the current macro environment. Unlike.
Unlike our wax pass holders in routine guests, who remains strong our episodic cohort has softened in recent weeks drill.
Driven by this change in trend, we have leveraged our new data environment to identify lapsed episodic guests and we are using our CRM tools to incentivize them with specific targeted offers for both services and retail products.
Our CRM capabilities are unmatched among our highly fragmented competitive set and the most effective tool for driving visit frequency and average ticket.
We're in the early innings of delivering personalized E mails and text messages to those guests, which are already generating higher transactions versus control groups.
Ultimately we are confident that we have the right initiatives in place to deliver additional engagement across our guest database, including our episodic cohorts.
As we execute on our attract more buy more and visit more initiatives, we expect to attract new guests to the brand and convert them into repeat guests and drive valuable wax pass adoption.
With that I'd like to hand, the call over to Stacie Shirley to review, our financial performance and our guidance for the remainder of fiscal 2023.
As a reminder, Stacy joined the European Wax Entertainment at the end of March and she has already made an incredibly positive impact on the organization.
We're thrilled to have her on board and look forward to partnering with her to drive long term growth and success spacing.
Thanks, David and good morning, everyone I'm excited to be on my first earnings call as part of the European Wax Center team before I begin my remarks, I'd like to remind everyone that in some instances I will speak to adjusted metrics on this call.
You can find reconciliation tables to the most comparable GAAP figures in our press release and 8-K filed with the SEC today, turning to our financial performance. We delivered solid first quarter results in line with our expectations Q1 system wide sales increased five 5% to $218 4 million.
And total revenue increased nine 8% to $49 9 million.
Topline growth was driven by our two growth vectors, including 11, 9% unit growth.
As David mentioned, our 34 net new centers, where the most we've ever opened in a single quarter.
Both are ramping immature centers contributed to our four 5% same store sales increase driven by price increases implemented in early 2022.
From a profit standpoint first quarter gross margin of 71% was in line with our full year guidance.
Q1, adjusted EBITDA of $16 $3 million increased seven 5% over last year and adjusted EBITDA margin was 32, 7% exceeding our expectations of approximately 30%.
SG&A expense timing, particularly for advertising professional fees and payroll generated approximately $1 million in favor ability for Q1.
Adjusted EBITDA margin decreased 70 basis points year over year, primarily due to the addition of the medical supplies. We now sell to franchisees, which are accretive to gross profit, but have a lower margin rate than the wax and proprietary retail products that drive the majority of our product revenue.
Below the line adjusted net income of $3 4 million differs from adjusted EBITDA of $16 3 million for the three primary reasons.
First interest expense was $6 9 million, an increase of $5 4 million year over year as a result of the whole business securitization. We completed in April 2022 that locked in a fixed five 5% rate on all of our long term debt.
Depreciation and amortization were $5 1 million for the quarter.
Majority of this $4 7 million relates to the noncash amortization of intangible assets, such as franchisee relationships and area representative right that were established prior to our IPO.
And third the income tax component in Q1, we recognized a GAAP income tax benefit of half a million dollars versus non cap income tax expense of approximately $1 million.
We released our valuation allowance on deferred tax assets in Q4 of 2022 and as a result, we expect to recognize tax expense annually compared to the negligible amounts incurred during the period covered by the valuation allowance.
As a reminder, exchanges from class B shares to class a shares will impact our effective tax rate over time. So we will provide quarterly rate updates for modeling purposes.
In terms of the balance sheet, we ended the quarter with $45 $9 million in cash and $397 million outstanding under our senior secured notes.
Our $40 million revolver remains fully undrawn.
Net leverage continued to decrease and was four eight times adjusted EBITDA at the end of Q1 compared to five six times in Q2 2022. After the securitization was completed.
We continue to expect to Delever approximately a full turn from 2022 to 2023.
Operating activities generated $4 2 million in cash during the first quarter and investing outflows totaled $360000.
We did not repurchase any stock during the quarter and have approximately $30 million remaining under our current authorization.
Our industry, leading free cash flow profile gives us continued optionality to deploy cash to the benefit of our model our network and our shareholders.
Okay.
Turning now to our outlook for 2023 as David described the wax pass in routine gas driving more than 75% of our system wide sales have continued to demonstrate resilience and consistency.
Their visits are not wavering demonstrating that European wax center provides a non discretionary service to these cohorts do they value as part of their personal care regimen.
As mentioned earlier, we have launched several initiatives to drive transactions and ticket size across all of our guest database and particularly targeting our episodic guests.
As I will describe shortly while these efforts will slightly impact the cadence of the year. We expect this data driven targeted re engagement to support our previously communicated full year guidance.
In terms of our unit growth, we have incredible momentum as a reminder, we delivered more than 10% unit growth in 2022 and expect to deliver another 10% in 2023.
A handful of Q1, new centers opened a few weeks earlier than expected and 80% of our 2023, new centers are open or under construction as of the date of this call.
As a result, we now expect to open slightly more than half of our 95 to 100 projected openings in the first half of 2023.
New centers continue to generate a strong maturity curve and there were sales ramps in years two through five will drive same store sales in 2023.
We remain very confident in our long term goal of delivering at least 3000 European wax centers nationwide.
Our expectations remain unchanged for 2023 system wide sales of between 965 and $990 million and total revenue between 222 and $229 million implying.
Implying 7% to 10% growth for both metrics.
With our increased focus on driving wax pass sales in our semi annual promo periods of May June and November and December we believe that Q2, and Q4 will be 75 to 100 basis points higher as a percentage of full year systemwide sales than they were in 2022.
As a reminder system wide sales are recognized as payments for wax passes are received while same store sales reflect the wax pass visits they are redeemed.
As I just mentioned the new initiatives, we are rolling out to drive guest engagement are expected to impact our top line cadence.
For Q2, we expect comps to be in the low single digits as the impact of our new initiatives ramp up and then return to mid single digits in the back half as guests respond to our targeted outreach and Q2 wax pass sales generate future return visits.
We remain focused on our two key growth vectors and are confident in our mid single digit full year comp guidance.
Turning to profit.
We continue to expect adjusted EBITDA in a range of <unk> $77 million to $80 million from.
From a cadence standpoint, we expect the timing dynamics I mentioned earlier to shift approximately $1 million of Q1, SG&A expense favorability into Q3 with mid <unk> adjusted EBITDA margins, resulting for Q2 and Q4.
Our 2023 interest expense outlook remains approximately $28 million.
Related in Q4, given a 50 <unk> week in 2023.
Due to additional exchanges from class age class a shares our expectations for 2020 Three's blended statutory tax rate has increased to 20% from 18%.
While we continue to expect adjusted net income within our existing range of 22 to $24 $5 million the rate increase will drive approximately half a million dollars of.
Of incremental tax expense this year.
On a final note as we look ahead, we expect to return to meaningful EBITDA margin expansion in fiscal 2024 as our efforts efforts are designed to generate long term revenue growth, enabling margin expansion as well as significant free cash flow over time.
With that I'd like to turn the call back to David Byrne to wrap up our prepared remarks and open it up for Q&A.
Got it.
Thank you Stacy in summary, we remain pleased with our continued top line growth the resilience of our wax pass in routine guests and their enthusiasm for the brand.
The recurring predictable visits gives us incredible confidence in the health of our business model over the long term we recognized in an uncertain consumer environment has impacted a smaller segment of our guests who are more economically sensitive. We believe we're focused on the right initiatives to support our continued performance.
In 2023, and we look forward to updating you next quarter on our progress in the meantime, our franchisee base is stronger than ever and continuing to invest in European WAC centers nationwide.
We remain the undisputed leader in out of home <unk> and believe that our efforts are only widening the gap between us and competitors in this highly fragmented category.
We now like to open up the call for questions operator.
Certainly and ladies and gentlemen, we'd like to ask you. Please to limit yourself to one question and one follow up you may give it back in the queue as time allows one moment for our first question.
And our first question comes from the line of Randy <unk> from Jefferies. Your question. Please.
Yes, Thanks, a lot guys and good morning, everybody.
I guess first question is I'm, just maybe expand a little bit upon.
Some of the early learnings from the service bundled tests that Youre going after and then as it relates to you talked about on the call some incentives.
To drive a wax pass.
Lastpass focus at the center level can you just take us through the process, there and how thats going.
<unk> may have changed from prior prior iterations. Thanks.
Hey, Randy Thanks for the questions. This is David Willis So the service bundles literally launched yesterday and our corporate centers. So I don't think we've got a fair dataset.
And early read maybe perhaps ironically, the very first ticket. It was rung up was a was a pilot bundle that was an ingrown hair service in and grow here.
Brazilian service Ingrown hairs serum purchased from our customer that Hasnt transacted with the brand since 2018, so something cut there.
So we will be glad to but to report progress on that in terms of the incentives. These are the same.
<unk> past contests, we run every promo period, the network associates really get incentivized to drive wax pass sales through these content. So for perspective. These are fairly small dollars that the brand is investing 50 to $75000 that we make the top $50 to 75 performers in the wax past promo some.
<unk> is available for them. So same tried and true tactic we've used in prior periods and Thats, what we mean by incentives Randy.
Got you and then my last question my follow up is.
It seems like you talked about strong enthusiasm from these different grew.
Groups, the independents with self funded and the P/e.
Entities to continue to want to buy into the system. So maybe can you just give us some perspectives.
What how those conversations have changed.
Among those different groups over the last few months.
Recognizing the higher interest rates et cetera, So just curious on understanding their level of.
Demand going forward for units given changes in the <unk>.
The economy and interest rate environment. Thanks, guys.
Sure Randy So our network, our franchisees are very well capitalized and in fact, the institutional players in our network have over <unk> their investments.
In the non institutional players really have cash flow from existing locations to fund further development.
Over 90% of our development comes from our existing franchisee base I did say in our prepared remarks, we're pleased we've recruited a new family office Investor.
Into the network that has agreed to develop is a sizable number of centers in the southeast and we stay in touch with our with our franchise Advisory Council and our franchisees. We pulled them what are you seeing in terms of regional lenders.
And we've got about a half a dozen lenders that have a lot of activity with our network every one of those lenders remains active.
And kind of as a reminder were relatively modest upfront investment compared to some other concepts. So directionally 350000, and $400000 upfront, we're really not seeing.
The interest rate environment have any impact on our franchisees' desire to add more centers to their portfolios.
Super helpful. Thanks, guys.
Thanks Randy.
Thank you one moment for our next question.
And our next question comes from the line of Lorraine Hutchinson from Bank of America. Your question. Please.
Thanks, Good morning, I, just wanted to follow up on the comment with some of your episodic customers that the trends have weakened in recent weeks can you talk about the magnitude of the slowdown and what you think the catalyst.
For that slowdown.
Hey, Laurie and good morning, Let me, let me just double click a little bit on transaction trends kind of across the <unk>.
Cohorts that we've talked about so that wax passenger routine guess their frequency has continued to be strong and consistent view us as non discretionary and as we mentioned drive over 75% of our our network sales that episodic guest.
Through our guest survey work has shown that they are a bit more economic sensitive more sensitive to the economic pressure that we're under particularly as we exited Q1 and into the early early days of Q2. So what we've done is deployed some additional levers to drive transactions and ticket size and what what's really important I think for everybody.
To recall is that we're focused on things that we know how to do that we've done before to drive behavior and we've got some proof points. So let me let me go through kind of a guest initiatives and what we're doing in because your question went to episodic guests Lorraine I'll start there.
We've really enhanced our CRM capability with our with our new data warehouse that we've spoken about over the last couple of quarters gives us confidence that we can specifically identify those guests that may have fallen off or soften their behavior, a little bit in the past recently, so we've done a couple of things using targeted.
CRM via text and E. Mails, we identified a portion of the 2021 cohort, where we incentivize them with very small offers that we've seen drive transaction lift versus the control group early on and in our in our test.
Thus far.
The other thing we've done with that episodic guest and this is this if you think about the episodic yes, it's really a subset of the episodic guests that we've seen the change in behavior on and we've looked at them to say hey, what's the opportunity to get them to buy a wax past you may recall the rain that last.
Late last summer, we saw the similar behavior and we offered a $3 one wax pass or more economical bundle than the nine plus three and we saw a very nice lift from an incremental standpoint, we've offered that again to that very specific episodic guests that we've identified and our data warehouse and through CRM that we think will be receptive to that so we believe.
With that small portion small subset of the episodic guests. The change your behavior. This is going to be a great incentive with respect to wax path as David just mentioned, we continue to just drive what are what are the network knows how to do incredibly well the gamification the contest that we run amongst our centers and the incentives that we provided.
Have really been a tried and true method for us to drive <unk> sales. If we go back to our most recent promotional period, which was November December one of our two in the year, we saw a 16% lift in and growth in <unk> sales. So we continue to think that thats the right thing to do.
In helping our centers at a hyper focus on driving <unk> as we've always talked about really the best leading indicator of our business as we go forward and then finally with respect to new guests.
You saw in our comments that we've reallocated and really are optimizing our media mix to shift some of our spend out of high level awareness driving spend in a more targeted action driving media channels, the lower funnel channels to really drive guests into the into the system. So all of these things we've done have high degree of confidence that we were.
We're going to be successful.
Doing these and really what really gives us that confidence in reiterating our guidance for the balance of the year.
Thank you.
Thank you one moment for our next question.
Yeah.
Okay.
And our next question comes from line of Dana Telsey from Telsey Advisory Group. Your question. Please.
Good morning, everyone. Just as you think about the change in cadence what are you seeing by region is California different than any other regions of the country and how would you frame. It and then just coming out of the quarter was there a difference in cadence.
Going into the quarter and ending the quarter and then you had you've always talked about higher Trs detection to drive greater productivity, where are we on that journey of statistics through their greater level of productivity. Thank you.
Dana let me start with the institutions in terms of our WAC specialist pipeline. So we're really continuing to build on the momentum we generated last year with regard to the WAC specialist pipeline. The beauty School partnership program has expanded now to 25 schools in five states.
We've had several hundred attendees and 97% rating approval rating that I think we addressed in our prepared remarks.
And our careers page has generated more than doubled the WAC specialist applications in the first quarter. So I think from a staffing level, we feel pretty good very similar to our last call. I think if you were to pull our average franchisee. They would say I've got enough waxes I'm still focused on leveling.
Leveling up waxes to get more red and Orange levels as are our most proficient waxes and I'd say overall, our franchisees are making solid progress with respect to that in terms of the change in cadence of your question as to geography, I don't think we saw it isolated to one state or one region. This episodic.
Guest for context, what we're seeing in terms of the recent ticket trends. It's about one in 10 episodic guest is where we're seeing the opportunity David touched on the incentives that we are that we are using to get that one in 10 episodic guests back into our centers on a more regular basis, but not.
Seeing it isolated to one part of the country or another Dana.
Thank you and then just on the expense on the store openings. This year. Obviously, you opened a lot in the first quarter any cadence through the balance of the year that we should be mindful of.
Well, we did we opened a few more earlier in Q1 than we had anticipated, but we are expecting with 80% of our full year guidance now either open or under construction, we're expecting slightly more than half will actually opened in the first half of 2023, if thats helpful.
Thank you.
Okay.
Thank you one moment for our next question.
<unk>.
Yes.
And our next question comes from the line of Scot Ciccarelli from two Securities. Your question. Please.
Good morning, guys.
So I guess I have another follow up on your comments about the episodic customers. I know you guys cited some weakness with its customer cohort last year as well.
So what is it you're seeing today in terms of the incremental changes at some customers just kind of like dropping off totally less frequency is buying less all of the above any kind of color there would be helpful.
Yes, Scott maybe.
Trying to get this appropriate context, we have talked about the episodic guests that informed our guide.
That we provided in March what we're seeing.
This one in 10 episodic guests translates to less than 5% system wide sales on an annualized basis. So I just want to make sure. We're clear want to absolutely be transparent address any questions, but in the context of what we're talking about we see the opportunity here is less than 5% of <unk>.
Total system wide sales specific to this guest.
The programs that we have deployed recently to target. This guest we're pleased with the initial feedback and response rate from these guest so we are confident in reiterating our full year guide for the year.
And Scott to your point, we had that we talked about that last year and that's why as we.
We went to the toolbox, we saw something that drove incremental spend by that guests. It was more economically against and that's why we brought back the three plus one offer for that guest.
<unk> last year, where we offered that across the board with our with our more enhanced data warehouse and better CRM. We've targeted specifically those guests that episodic guests that has softened and the behavior and to David's point. This is a very small subset of that episodic guests and have offered that specifically to that gas rather than across the board.
We expect to see the same sort of lift.
And take up rate that we saw when we offer that last summer.
Got it thanks, guys and then one quick follow ups can you talk to a physician retention rates at the franchisee level I just know that there is still hearing from a lot of our other retailers now theres ongoing pressures on wages et cetera, and I'm wondering if there's any kind of issue in terms of retention or let's call. It wage pressures that the franchisees are under.
Thank you.
Sure. So in terms of I'll focus really on the wax specialists.
You may recall, Scott that historically, we've seen the greatest amount of turnover in that position in the first 90 days.
And I think Thats really driven from from two things either the widespread list decides this is not the career for her or.
<unk> center managers can't get them leveled up to a certain level within 90 days, it's going to be very difficult for them to ultimately get to orange and red level status, we're actually seeing turnover in that first 90 days decrease a bit over the last 90 days. So we're encouraged by that.
Our operations teams have been focused now for two or three quarters on leveling up strategies and retention strategies.
We like to think that we're seeing a positive impact with turnover slightly declining in the first 90 days. So we're going to keep keep after it Scott.
Got it thanks, a lot guys.
Sure. Thanks, Scott.
Thank you one moment for our next question.
And our next question comes from the line of Jonathan Komp from Baird. Your question. Please.
Hi, This is Alex <unk> on for John This morning.
I just wanted to ask you.
Any details around the comp guidance for the full year kind of what are the ins and outs.
There with Q2 being a little lower.
Then also if there is any pricing impact do you expect for the rest of the year.
Sure Hi, this is stacie Shirley.
As we think about the comp for the remainder of the year, one we've reiterated our guidance.
Guidance.
So as you think of the cadence Q2 because of the impact of this episodic guests that we've been talking about and pulling back we've guided to low single digit, but as we think about the balance of the year.
We expect to be in the mid single digits, and that's going to be really driven by again the success and continued consistency of our wax past guests as well as these particular targeted events and promotions towards that episodic, yes, it's going to take a little time for those to kind of take route and so that gives us confidence that we will achieve the mid single.
<unk> guidance that we had given previously.
Alright.
All right.
One of the other part of your question. We at this time don't anticipate any pricing increases for this year, but we'll continue to monitor that.
Yes. Thank you and then following up with a more targeted marketing spend that you talked about shifting the loss from brand awareness kind of why was now the right time to do that.
Is it something that you've done in the past or is this really the first time.
Taking more away from brand awareness to more targeted marketing.
Alex we always take a look at kind of how we allocate the funds and the marketing.
Funds that we get from from franchisees.
A lot of that is driven.
To help build brand awareness and to make sure that we're driving reservations into our our franchisees centers.
We had a nice lift in terms of our.
Growth in awareness levels in the past couple of quarters, and we just thought it made sense given sort of a call to action and really getting folks in incentivizing folks to come into the into the centers that it made sense to make that shift a little bit more deliberately in this quarter and it's something we look at it on a quarter to quarter basis as we as we allocate those dollars.
Okay.
Absolutely. Thank you for all the color.
Alright. Thanks.
Thank you one moment for our next question.
And our next question comes from the line of John John <unk> from Guggenheim Partners. Your question. Please.
Curious about the routine.
First opportunity right.
Probably a mid single digit percent of your customers.
You would think of very substantial percentage could be converted to <unk> do you think thats the case.
And then when I think about bringing on new guests.
What percent right would come on as wax pass guests as opposed to routine or episodic.
Is that a very significant percentage.
Hey, John so on the routine you're spot on in terms of the percentage of the guests file. It is mid single digits in terms of.
That particular cohort.
It's about 11% of our ticket volume and system wide sales they.
They are coming with the same frequency candidly about half a visit more frequently than our wax past guests on average.
They may be an opportunity to convert them on wax past candidly, they're giving the brand a bit more money by not being on a wax pass.
And their behavior their behavior has not changed a bit over the last several quarters. So clearly a very very valuable.
Guests cohort to the brand in terms of percent that ultimately find their way into access it's about 20%. So if I have to say if we recruited a new guests into the brand.
Follow the guest journey Directionally, 20% of those new guests will find their way into our most valuable wholly grilled wax past guests.
Okay and then.
I know the journey to a third a third a third of.
Of ownership.
If you look at the centers will open this year or at the 95 to 100.
With that breakdown right, so and maybe if you think about your Europe .
Pipeline out to 'twenty four.
Is do you think private equity is as much as 40 or 50% of that.
We're not that high.
Yes, I think so when I look at our license pipeline, specifically our growth partners. They today represent just under.
40% of total units in the system, but almost 70% of that license pipeline.
I think we had talked John unless.
Last few years, we've kind of over indexed on the NCS with our smaller operators.
Now as we brought institutional capital players into the brand now.
We've kind of found entry points through acquisition, we've worked through mud agreements with them and so now they are starting to find their stride in terms of NCO. So.
I think we had said in our prepared remarks todays existing asset base from our smaller operators about 50% of open units that if I fast forward two three years out we're getting to that third a third a third because of the development that's coming over the next few years is.
By volume largely driven from the self funded multi unit developers and the private equity backed operators.
Okay. Thank you.
Thanks, John .
Thank you one moment for our next question.
And our next question comes from the line of Kelly Crago from Citi. Your question. Please.
Hi, Thank you just curious on ticket and transaction in the quarter.
And then how that looks quarter to date and how we should expect that to trend in the back half of the year, just given and do you believe you begin to lap in the knee.
And the slowdown from that to sort of guess.
Last year.
Yes. So hi, this is Stacy again, so as we look at Q1 right both of our ramping and mature centers and did comp, but that was really driven by and utilization of our price increase that we did in last year. So I think as we've said in the first half we would have a tailwind of a price increase in the second half as we're kind of again circle.
Going back around some of the challenges that we had in the back half of last year.
Will it be a tailwind.
Second half.
Anything to add.
Alright.
Got it. Thank you and then just secondly, just a follow up on.
The specific episodic guest and Youre speaking he just curious.
What's unique about that guests in terms of income age any sorry.
Color you can provide.
Whether this is kind of indicate where Africa broadening.
<unk>.
The weakness.
Weakening macro environment that the consumer just anything you're hearing from your franchisees that would be great. Thank you.
Yes, Kelly, we're probably best informed by the guest survey work that we do and again just as David will as mentioned a very small subset of that episodic guests.
And it's probably not not surprisingly.
Guests that has a little bit lower income that is feeling the pinch of from <unk>.
Inflationary pressures and as David sort of quantify that lessen sort of a 5% impact on our topline annual system wide sales. So we think the incentives that we have offered to that.
Episodic guests are the right ones that give them an economical bundle, we get them back into the brand in a way that they can afford.
But it's it's really largely driven by the macroeconomic situation that we find ourselves in right now.
Alright, thank you.
Thank you and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephones one moment for our next question.
And our next question comes from the line of Simeon Gutman from Morgan Stanley . Your question. Please.
Hi, Thanks for taking the question. This is Hannah <unk> on for Simeon Gutman I wanted to ask on retail products I know theres been some newness there I'm wondering how attachment rate is trending.
Any kind of change in the services versus retail mix of system wide sales, specifically product sales as a percent of systemwide sales looked like they steps down sequentially. So im wondering if mix was a part of that.
Hey, good morning.
Our retail products as you know are really a small portion of our our system wide sales that we utilize retail products really to help convey that authority position that we have to our guests youre right in back in fiscal year 2021, we redesign and relaunched our entire product lineup.
Catchment rates have.
Hope fairly consistently in that kind of.
Mid teens range, we've seen that consistent over the past the past few years I think we're excited about is that we're going to utilize our limited time offers.
And we've done this successfully in the history of the brand to generate excitement to purpose, we make sure that we run out of product. So that our guests are invited into a new a new product line. We just launched our a mist product that has gone incredibly well in the first weeks that we started to sell that we are not in the discounting world generally speaking.
In retail we always see that there is an opportunity to continue to to driving attachment one of the things that David alluded to in answering one of the questions is a bundling opportunity where we will bundle.
Services together, but also a product a retail product where the service goes just as a reminder, our products really are there to enhance the efficacy of the service make it last longer making more comfortable so we getting our guests understanding that it's an integral part of their overall waxing experience. It's something we think there's opportunity to do.
In terms of our bundling as we go forward.
Makes sense, that's very helpful and maybe as a follow up you mentioned that the newer cohorts.
Store openings are tending to ramp a little bit faster than that historical cohorts had does that change the way. We should think about the comp algorithm if kind of growth is being pulled into in year, one versus year. Two it's factored into the com or at this point is that such a small part of the next set it doesn't really move the needle.
And I would say today, it's a fairly small part of the mix. We had talked I think on prior calls we were very pleased that the last couple of years cohorts are ramping faster out of the gate in year, one and for those that are two years and older have maintained that momentum through their second year of operation, we do want to Mark.
Later this candidly through maturity before I think we're ready to say hey is it consistent across the board B can we replicated it we had touched on at least in the prepared remarks, the NCO playbook that we're focused on this year. We're candidly just trying to leverage best practices that these great operators.
<unk> have executed against across the board. So for now I wouldn't change the comp as a result of kind of the early success. We've seen from these recent cohorts. We just want to monitor these through maturity.
Yeah.
Got it thank you.
Thank you Shannon.
This does conclude the question and answer session of today's program I'd like to hand, the program back to David Burke for any further remarks.
Jonathan Thanks, everybody for joining our call. This morning, and we will look forward to speaking with you and chatting in August about Q2.
Appreciate everybody taking the time this morning have a great day.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
Okay.
Yes.