Q4 2024 European Wax Center Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by. Welcome to European Wax Wax Cntr's fourth quarter fiscal 2024 earnings call.
At this time, all participants are in a listening mode. After the speakers presentation, there will be a Q&A session. In order to facilitate as many participants as possible, we ask that you please limit yourself to one question and one follow-up during the Q&A session.
Bethany Johns: If you have any additional questions, you may rejoin to Q. On the call today are Chris Morris, Chairman and Chief Executive Officer and Stacie Shirley, Chief Finance Officer. I would now like to turn the conference over to Bethany Johns, Director of Investor Relations. Ma'am, you may be gay.
Speaker Change: Good morning everyone, thank you and welcome to European Wax Cntr's fourth quarter and full fiscal year 2024 earnings call. On today's call, Chris Morris will discuss his first two months with the company and share his initial observations and priorities.
Speaker Change: Then, Stacie will discuss our fourth quarter of fiscal 2024 performance and fiscal 2025 outlook.
Speaker Change: Following a prepared remarks, the team will be available to take questions.
Speaker Change: 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 issue today.
Speaker Change: These forward-looking statements involve a number of risks and uncertainties that could cause actual results to different materially.
Speaker Change: Please refer to our SEC filings as well as our earnings release issue today for a more detailed description of the risk factors that may affect our results.
Speaker Change: Please also note that these forward-looking statements reflect our opinions only as of the date of this call.
Speaker Change: 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 gap results to eliminate the impact of certain items.
Speaker Change: I will now turn the call over to Chris Morris. Chris?
Chris Morris: Okay, thank you, Bethany. Good morning, everyone. I'm thrilled to be with you all today on my first earnings call as chairman and CEO of European Wax Center.
Chris Morris: Before I begin, I want to thank my predecessor David Berg for his passion, dedication, and leadership since joining the company in 2018, and especially after resuming the CEO role last year.
Chris Morris: His efforts to sharpen our focus on our core waxing operations, guest engagement capabilities and organizational structure have better positioned us for long term growth and success. Thank you very much.
Chris Morris: I look forward to continue to work with David through our roles on the board
Chris Morris: With that said, I'd like to start our call today by sharing what initially attracted me to the European Wax Cntr and why I'm so excited about our future.
Chris Morris: First were the industry pioneer with a meaningful white space opportunity [inaudible]
Chris Morris: We believe out-of-home waxing is a $7 billion market opportunity, and yet we're still a fraction of that.
Chris Morris: We professionalize this space and are the only truly national player at about 11 times larger than our closest competitor. [inaudible]
Chris Morris: In other words, we believe we are by far the best position to leverage our scale and grow as a category leader [inaudible]
Chris Morris: Next, we offer an unparalleled guest experience that serves a recurring need with three quarters of ourselves generated by loyal, core guests.
Chris Morris: One thing I've learned in my career is that creating an emotional connection with a customer is critical and that happens when you consistently deliver on your brand promise.
Chris Morris: The confidence the guest feels after one of our services plays a huge role and whether they will come back.
Chris Morris: At EWC, we like to say they walk in and strut out, delivering that feeling builds loyalty and that's exactly why we've seen such stability in our core guest.
Chris Morris: Lastly, I've learned that what makes this brand so unique is that it's comprised of so many talented and passionate people. More than 10,000 associates across the country managed by more than 180 franchisees who are driven to win and determined to reach our full potential. Thank you very much.
Chris Morris: As I wrap up my first 60 days of the organization, I appreciate our strengths even more in my conviction in the future of EWC has only grown.
Chris Morris: We're at a pivotal time in our growth journey with an opportunity to elevate our infrastructure to support both our existing footprint of more than 1,000 centers, as well as our next phase of growth.
Chris Morris: This aligns very well with my career operating, developing and reinvigorating consumer brands over the past 25 years.
Chris Morris: I look forward to leveraging these consumer facing experiences at European Wax Cntr [inaudible]
Chris Morris: Since joining the team, I've been immersing myself in the brand by visiting centers across the country and listening closely to our key stakeholders, to better understand the challenges we're facing and the opportunities ahead. Thank you very much.
Chris Morris: I want to take a moment to focus on the heart of our business and as a franchisee or our primary customers, our franchisees [inaudible]
Their success drives our success.
Chris Morris: We're fortunate to have so many talented and committed operators taking care of our guest every day.
Chris Morris: Strong Franchisee Partnerships, based on mutual trust, respect, and credibility built European Wax Center and what it is today, the undisputed leader and out-of-home waxing, and will be the basis for our growth going forward.
Chris Morris: In my conversations with franchisees, they have repeatedly voiced their confidence in and commitment to the long-term growth potential of this brand. Thank you very much for your time.
Chris Morris: However, they are feeling the pressure of declining transactions and profitability .
Chris Morris: My key takeaways is that our marketing approach and operational infrastructure have not evolved at the pace of our unit growth in recent years.
Chris Morris: At the same time, the macro environment has become more challenging, which has led to pressure to consumer spending, especially among new guests.
As a result, average unit economics is softened.
Chris Morris: While we can't control the environment, we can better adapt to it. [inaudible]
Chris Morris: The good news is we believe we have our arms around our challenges. We've identified our opportunities and the work to reignite our growth as well underway.
Chris Morris: In the near term, many franchisees have paused their new center growth plans as we work to stabilize and re-accelerate the business .
Chris Morris: But we do expect 10 to 12 gross new centers to open this fiscal year.
Chris Morris: At the same time, franchisees are closing underperforming centers due to ongoing profitability pressures, individual franchisee challenges, where we're desired to consolidate centers within the same market.
Chris Morris: We've recently added development resources, conducted a full network review and established a proactive process to better assess franchise the health and closure risk.
Chris Morris: We've analyzed top line performance, ticket trends, market penetration and operational KPIs.
Chris Morris: As a result, we estimate that 40 to 60 centers could close this year [inaudible]
Chris Morris: We are closely managing this situation with franchisees and we've made rapid and substantial progress understanding the key factors that play and more importantly what we should do about it.
Chris Morris: I've been assessing everything from our guest experience to technology systems and pricing models, leaving no stone unturned as we work to resume long term unit growth.
Chris Morris: And while nine weeks isn't enough time to finalize our long term strategic plan, my near term priorities for this business are clear.
Chris Morris: These are number one developing a robust data rich marketing engine that drives traffic to centers.
Chris Morris: 2. Cultivating a more effective service-based infrastructure to enable franchisee success in the future.
Chris Morris: 3. Implementing a more sophisticated development approach focused on thoughtful and profitable expansion
Chris Morris: And lastly, number four, assembling a row-class management team with the skill set and expertise needed to address these opportunities and achieve sustainable long-term growth.
Chris Morris: I cannot emphasize enough that our franchisees and I share the same goal to return the business to sustainable growth, both at the center level and for the network as a whole.
Chris Morris: I believe that if we execute these priorities, four-wall performance will improve, and we will reignite positive unit growth by the end of 2026.
Thank you, Doctor.
Speaker Change: I'll first touch on our efforts to develop a robust marketing engine that drives traffic which should in turn increase revenue and improve borewall profitability.
Speaker Change: The beauty of our model is that we serve a recurring need that generates repeat visits from our retained guests.
Speaker Change: We already deliver an unparalleled guest experience with strong and consistent core gas retention.
Speaker Change: But we need to be better at acquiring new guests and driving frequency from our non-core guest.
Speaker Change: To accomplish this, we need to elevate our Technology Foundation, guest engagement strategies and brand messaging.
Speaker Change: This work was kicked off under David Berg's leadership and we have made substantial progress over the past several months [inaudible]
Speaker Change: We spent the fourth quarter building out the technology needed to link marketing interactions to guest visits and better measure our advertising effectiveness. Thank you very much.
Speaker Change: As a result, we have significantly improved both our access to information and our ability to quickly adjust our engagement strategies based on what we learned. Thank you very much.
with our initial foundation in place.
Speaker Change: We're now getting smarter about the messaging that resonates with both new and existing guests.
Speaker Change: During Q1, we've been actively testing new messages and increasing our ability to directly engage with guests [inaudible]
Speaker Change: Our goal is to bring this all together in Q2, aligning our brand voice with test insights and then leveraging our enhanced data foundation and measurement tools to drive traffic to centers.
Speaker Change: We expect to test, iterate and build upon this foundation over the next 18 months.
Speaker Change: But we are excited about the potential to begin improving center level economics in the back half of 2025.
Speaker Change: My next area of focus is to cultivate a more effective service-based infrastructure at the corporate level to help our franchisees navigate challenges.
Speaker Change: Maximize top line growth and be an unequaled employer resource for highly skilled Wax specialist.
Speaker Change: Throughout my career, I have worked on both the franchise or and franchisee sides, given me a unique perspective on what it means to be and support local operators.
Speaker Change: With the right support structure in place, I believe that operational excellence will continue to be a competitive advantage of European Wax Cntr.
Speaker Change: One that translates to an unparalleled guest experience at every visit, higher guest retention and more top line opportunities.
Speaker Change: I plan to share more in the coming months about how we intend to achieve this, including when I present our strategy at our franchisee conference this May.
Speaker Change: In the meantime, we've launched a focused effort to improve the execution and profitability and are underperforming centers and I've reaffirmed our commitment to providing all franchisees with the support they need to be successful.
Speaker Change: As for my third focus area, we will implement a more sophisticated development approach focused on thoughtful, profitable expansion. We need to enhance our site selection and market planning capabilities to be the best resource for franchisees. Thank you very much.
Speaker Change: As I mentioned earlier, we've already added internal resources and implemented new processes.
Speaker Change: and we are partnering closely with franchisees to evaluate future growth plans.
Speaker Change: Success in this area should enable us to prioritize long-term network health as we thoughtfully pursue our white space for years to come.
Speaker Change: And finally, I've started assembling a team of seasoned leaders who will play key roles in executing these priorities.
Speaker Change: Earlier today, we announced appointments for Tom Kim as CFO , Katie Molen as Chief Commercial Officer, and Chris Andrews as Chief Information and Digital Officer
Speaker Change: Tom is a seasoned financial executive with expertise driving profitable growth at franchise companies.
Speaker Change: Katie and Chris bring significant experience driving marketing and digital transformations that we believe will bolster our infrastructure for future growth.
Speaker Change: To round out our executive team, we are also in the midst of a search for Chief Operating Officer to drive operational excellence.
Speaker Change: I'm confident that we are assembling the right team to position us for long-term success.
Speaker Change: To summarize, 2025 will be a transitional and pivotal year for European wax. And while we have a lot of work to do, we are not starting from scratch.
Speaker Change: We have a solid foundation in a clear direction in place with profitable long-term growth as our top focus [inaudible]
Speaker Change: I'm confident that when we execute on our near term priorities, we will improve four-wall economics and reignite unit growth by the end of 2026.
Speaker Change: as we advance along this journey to drive value for franchisees.
Speaker Change: Associates and shareholders, I'm committed to providing regular transparent communication and progress updates.
Speaker Change: I expect to be able to provide more details in our long-term strategy and tactics on our earnings call in May.
Speaker Change: Before I close, I want to thank our current CFO , Stacie Shirley, who will be leaving European Wax Cntr next month.
Speaker Change: She's played an integral role in supporting the brand through several key milestones that have laid the foundation for our path forward.
Speaker Change: I appreciate her commitment to getting me up to speed since I joined, in addition to staying with us through the end of April to ensure a smooth transition. Thank you very much.
I wish Stacie all the best in her future endeavors.
Speaker Change: So with that, Stacie, we'll review our fiscal 2024 financial performance and our outlook for 2025.
Speaker Change: Thank you, Chris. It has been a pleasure serving as European Wax Cntr CFO . This is a special brand with a strong model in plenty of white space ahead and look forward to working with Tom to ensure a smooth transition. Thank you very much.
Speaker Change: Before I begin, I'd like to remind everyone that fiscal 2023 contained a 53rd week. Therefore, some of my remarks today will focus on the fourth quarter and fiscal year 2024 versus the comparable 13 or 52-week period in fiscal 2023.
Now to our results.
Speaker Change: During the fourth quarter, franchisees opened three net new centers comprised of ten growth openings and seven closures.
Speaker Change: From a financial standpoint, we delivered solid results largely in line with our expectations. Thanks both to our core guests who remain stable and committed to their waxing routines, as well as a strong semi-annual wax past promotional period.
Speaker Change: I want to express our appreciation for the hardworking European Wax Cntr Associates to successfully converted guests into Wax Path Holders in Q4.
Speaker Change: On a 13 week basis, fourth quarter system wide sales increase 1.1% to 229.3 million, and same source sales increase 0.8%.
Speaker Change: Total revenue decreased 4.6% to $49.7 million. While it was within our expectations, revenue has continued to be impacted by softer retail product sales.
Speaker Change: As we've previously discussed, we believe that in a tougher macro environment, our guests are prioritizing our services over products with their discretionary dollars.
Speaker Change: Additionally, we removed a COVID-related surcharge in early 2024 that had previously been a tailwind to host cell product revenue earned from franchisees.
Speaker Change: From a profit standpoint, Q4 gross margin improved 190 basis points to 74.3%, primarily due to continued cost savings.
Speaker Change: As retail products continue to be challenged, the margin rate also benefited from a higher mix of royalty and marketing fees flowing through Gross Margin at 100%.
Speaker Change: 4th quarter, SGNA increased 8.2% to 14.8 million, primarily driven by an adjustment to franchise tax expense recognized during the quarter, which was largely offset below the line by a benefit to state tax expense.
Speaker Change: Q4 advertising expense of $4.3 million with $5 million lower year-over-year [inaudible]
Speaker Change: While advertising as a percent of system sales, let's flat on a full year basis, we allocated more of a spend to the first half of fiscal 2024, compared to 2023.
Speaker Change: 24 adjusted EBITDA of $19 million decreased 1.6% and adjusted EBITDA margin increased 390 basis points.
Speaker Change: to 38.1% as higher growth margin and favorable advertising timing more than offset higher FGNA year-over-year.
Speaker Change: Lastly, we generated an income tax benefit of 1.6 million dollars in Q4 due to lower state income taxes.
Speaker Change: Gap net income decreased 13.1% to $3.1 million while adjusted net income increased 37% to 8.1 million.
Speaker Change: In terms of our four-year results, franchisees opened 23 net new centers, comprised of 43 growth openings and 20 closures [inaudible]
Speaker Change: Resulting in 2.2% net unit growth to 1067 centers across 45 states.
Speaker Change: On a 52-week basis, system-wide sales increase 1.2% to $951 million, and same-store sales increase 0.2%.
Speaker Change: Top line growth was driven by increased spending by guests at our existing centers as well as new centers opened
Speaker Change: Adjusting for the 53rd week, total revenue of $216.9 million was approximately flat to last year.
Speaker Change: Gross margin of 73.6% continued to benefit from cost savings and full year SGNA decrease 1.3% to $58.7 million, primarily due to one less week in fiscal 2024.
Speaker Change: Adjusted EBITDAW of $75.5 million, decreased 0.7% from fiscal 2023, but beat our revised outlook, largely due to lower incentive compensation and lower than expected costs related to our laser-haired removal pilot.
Speaker Change: Improve both margin contributed to a 40 basis point increase in adjusted EBITDA margin year-over-year to 34.8%.
Speaker Change: Higher Interest Income, Benefit Full Year, Net Interest Expense, which decreased 25.5 million from 26.7 million the previous year.
Speaker Change: Lastly, adjusted net income increased 15.2% to 25.6 million due to a combination of higher operating income and lower state income taxes.
Speaker Change: Also, as a housekeeping item, as of March 5th, 2025, there were 43.3 million class A common shares outstanding, and 19.4 million potentially deluda shares related to class B shares and outstanding equity awards.
Speaker Change: Turning now to the balance sheet, our $40 million revolver remains fully undrawn and we ended the quarter with $49.7 million in cash and $390 million outstanding under our senior secured notes.
Speaker Change: Our net leverage ratio at the end of fiscal 24 was 4.5 times.
Speaker Change: Excluding the $40.1 million in stock buybacks we executed during the year, net leverage would have been under four times [inaudible]
Speaker Change: As a fiscal year in, we had approximately $10 million remaining under our current $50 million share repurchase authorization . .
Speaker Change: Netcash provided by operating activities with $56.5 million in fiscal 2024 compared to less than half a million in investing outflows. A staple of our asset light, capital light model, the continues to generate strong free cash flow even in a challenging environment.
Speaker Change: Turning now to our Outlook for 2025. As Chris mentioned, we expect fiscal 2025 to be a transitional year for us as we solidify the foundation for returning European Wax Cntr to sustainable growth.
Speaker Change: Touching first on our unit expectations for the year. As Chris said, we expect 10-12 growth openings in 40-60 center closures or 28-50 net center closures.
Speaker Change: Today, franchisees have opened two and closed five centers and we currently expect six to seven net center closures in Q1.
Speaker Change: As Chris discussed in his remarks, we've made a lot of progress assessing network health in recent months and we are actively working through potential closures with franchisees
Speaker Change: We expect to be able to refine our fiscal 25 closure estimate and provide more clarity as we move through the year.
Speaker Change: From a top line standpoint, we expect system myself between 940 million and 960 million, representing approximately flat year-over-year growth at the midpoint.
Speaker Change: including the impact of expected net-centered closures, same-source sales is expected to be flat to positive 2%.
and we estimate total revenue between $210 and $214 million.
Speaker Change: Giving current business and retail product trends, we expect revenue as a percent of system in my sales to be approximately 22.3% in fiscal 2025.
and David Willis.
Speaker Change: The high end of our outlet assumes that our guest engagement efforts begin to drive traffic more significantly during the second half of fiscal 2025 with trends improving as we move through the balance of the year.
Speaker Change: On the other hand, the low end of our outlook assumes that we will make progress against our strategic priorities, but that those actions do not begin to meaningfully drive the top line until 2026.
Speaker Change: The low end therefore assumes that our mature centers continue to experience modest transaction declines this year as we were to enhance our capabilities to reignite long-term growth.
Speaker Change: In terms of cadence, we expect a seasonality of system-wide sales to be about the same as in fiscal 2024 with two caveats [inaudible]
Speaker Change: First, the Q1 will have one additional sale of day compared to last year due to the Easter calendar shift. And second, that the high end of our outlook assumes more top line benefit in the back half of the year.
Speaker Change: Moving to the bottom line, we expect modest growth margin expansion to approximately 74% for the full year.
Speaker Change: However, our adjusted EBITAL Outlook of $69 million to $71 million reflects headwinds from first, the impact of slightly lower revenue, primarily related to retail product trends.
Speaker Change: Normalize incentive compensation expense, which was a tailwind in fiscal 2024, and increased payroll expenses for personnel to help us achieve our strategic goals.
Speaker Change: We expected just a net income between $16 million and $18 million which reflects an effective tax rate of approximately 23% before discrete items.
Speaker Change: Finally, we estimate our investments in marketing and technology will result in capital expenditures of 9 to $11 million in 2025, of which approximately $6 million is expected to be non-cash.
Speaker Change: We believe these investments will support our efforts to engage guests and drive traffic in fiscal 2025 and beyond.
Chris: Before we open the call for questions, I'd like to turn the call back to Chris for final remark.
Okay, thank you, Stacie.
Chris: Ultimately, we are looking at 2025 as an opportunity to refine the foundation of this business to support profitable long-term growth [inaudible]
Chris: With the help of our engaged and committed franchisee partners, we've identified the marketing infrastructure and development priorities that we believe are critical to re-accelerating our performance.
Chris: We are united in our belief that our challenges are not insurmountable and our ability to capture our long-term potential and the highly fragmented hair removal industry remains in our control. We look forward to updating you on our progress as we take European Wax Cntr to this next days of growth.
Operator, we will now take questions.
Speaker Change: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and away for a name to be announced.
To withdraw your question, please press star one one again.
Speaker Change: We ask that you please limit yourself to one question and one follow-up. You may re-cue for any additional questions.
Please stand by how the Q&A roster.
Speaker Change: Our first question comes from the line of Randal Konik with Jeffries Yolanda Cell Open.
Speaker Change: When you assess that, is that kind of the bottom of the closures, are we going to get like meaning in 2025 when we're going to see net closures? [inaudible]
Speaker Change: Closer Timeline, and then you talked about in some of your remarks, there were some franchisees. [inaudible]
Consultating some centers in St. Markets [inaudible]
Speaker Change: Are there any kind of common threads with the stores or regions that are closing or markets that are kind of closing stores? Be very helpful. And then lastly, any kind of update on performance in California versus the balance of the chain would be super helpful. Thanks.
Speaker Change: Okay, all right, Randy, thanks. There's all great questions, so a lot to unpack there. Starting with closures, so here's what I'll tell you, number one, keep in mind, I've been here 60 days. So my very first priority was getting our arms around.
Speaker Change: The Health of the System, partnering with our franchisees to really understand the status of our overall performance.
Speaker Change: I feel very comfortable with a range that we provided. I can tell you that we've got an enormous amount of effort and energy going into
Speaker Change: So we can, you know, we're doing our best to manage.
Speaker Change: to be at the low end of the range as opposed to the high end of the range. But...
Speaker Change: With all that said, we feel very comfortable with with the range of 40 to 60. We spent a lot of time to assess. Yes.
Speaker Change: where we are, and that's the number that we feel comfortable managing to this year. In terms of 2026 and where we go from here, it really gets down to the things that we're focused on, our priorities.
Speaker Change: and we believe when we execute those priorities that we're going to be in the best possible position to return to growth in 2026.
Speaker Change: So that's everything we're doing and all the conversations we're having is to get the business back to unit count growth in 2026.
Speaker Change: Just given the timeline and where things stand, you should think of that growth as being towards the end of 2026 not to begin into 2026. There's just simply too long of a lead time to manage the business in any other capacity. [inaudible]
Speaker Change: So, the underlying assumptions there are that we deliver on the items that I outlined on the call. You know, the company performs at the level that's within our guidance and if we do those things, you know, that's what we expect the outcome to be.
Speaker Change: I think as we look through, as we think about growth, I think the important thing to understand is this brand is not broken by any stretch of imagination .
I am here because I believe in our future. [inaudible]
Speaker Change: I'm excited that our franchisees also believe in our future but we have work to do and 2025 is a reset year where we've got to shore up the business we need to put the right infrastructure in place in place.
Speaker Change: to be able to manage the business. And when we do that, we still believe there is ample white space left in this brand. But it's going to be smart, thoughtful growth from this point forward. So that's how we're thinking about those.
Thank you.
Speaker Change: Trying to think through the other two questions that you had. So common thread. So really there's no, I want to say that there's one single common thread that links all the closures together. It's just a variety of different things.
It's a combination of...
Speaker Change: Margin performance is a combination of franchisee, their own set of unique challenges.
Speaker Change: It's in some cases these closures are done deliberately so franchisees are just optimizing their own portfolio so it's just a variety of different things. And then your last question with respect to California performance. So let's get to the next question.
Speaker Change: You know, look, what I'll tell you there is California, there has been more inflationary pressure and California than other parts of the country and the franchisees are feeling that pressure and pressure.
Speaker Change: and so the work that we're doing on marketing and building out the right marketing engine to be able to very skillfully target our guests and then more importantly the work we're doing with our franchisees to improve our execution. Thank you very much.
Speaker Change: When all that comes together, we believe we're going to be in a much better position and our franchisees will be in a much better position in California to
and David Willis.
Speaker Change: issues that Chris spoke of that has made that profitability, that four-wire economic much more pressured and we've seen that soften. So if you look at it, if there's any underlying theme, geography-wise, there is a higher proportion of closure in California, but it's not because necessarily related to top line, they're seeing the same thing as other centric interests.
Very helpful color. Thanks guys. Really appreciate it.
Speaker Change: Thank you, Randy. Our next question comes from the line of Scott Ciccarelli with Trulist, your line is now open.
Good morning guys, Ciccarelli
Speaker Change: So you did make multiple references to wanting to improve firewall economics, obviously that makes sense [inaudible]
Speaker Change: But can you provide us a snapshot of where the four wall economics exist today and kind of how you envision it advancing as you make progress on the turnaround? And then secondly, can you provide some more color around the tax impact in SNA and the offset on the other income line? I just don't think I've fully got that. Thanks.
that are north of a million dollars.
Speaker Change: and still get great cash on cash returns on those mature units, right around 40%.
Speaker Change: So it's still the fundamentals of this business are still very strong [inaudible]
Speaker Change: With respect to the rest of the portfolio and the things that were focused on, you know, I really believe, well, number one, I'll have to say I have tremendous respect for
Speaker Change: The previous management team, and we are the leader we are today because of the work, the great work that was done before I stepped foot in this building 60 days ago. So the previous management team has done a phenomenal job managing this business. [inaudible]
Speaker Change: What I can tell you is with the benefit of hindsight, when I look at kind of where we are, one of the things that is very clear that
Speaker Change: We missed in our growth is just building the analytical rigor to be able to work directly with our operators to manage the business, like a blocking and tackling the business. [inaudible]
Speaker Change: I think we were so focused on growth and getting unit expansion that we didn't put the right infrastructure in place.
Speaker Change: to identify where the opportunities were to be able to work, give their operators the tools they need to be able to manage that business, monitor our performance, share best practices, and ultimately execute at a high level.
Speaker Change: And so that is the work we're putting that infrastructure in place today. The first step in that is the executive team that we just hired and all the great investment that we're making and just building on a data analytics platform.
Speaker Change: and so while our unit economics are very strong for our mature units
Speaker Change: You know, our plan is to, you know, continue to with the sharp focus and partnership with our franchisees to improve our overall profitability. So our plan is to improve, you know, where we are today, and we're already starting from a really strong place.
Speaker Change: So, Stacie, you want to take the next part? So, Scott, good morning. There was an adjustment to S-G-N-A related to franchise taxes, which
which is above the line.
Speaker Change: That was largely offset by state taxes that is below the line. The net impact was around $60,000, but that's kind of what happened. It's just a normal due course of reconciliation that's going through our fiscal year end that resulted in those adjustments. [inaudible]
Okay, thank you very much.
Thank you. Thank you.
Speaker Change: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Your line is now open.
Dana Telsey: Hi, good morning, everyone. Chris, is you think about the franchisee bench?
Dana Telsey: What are you seeing that makes this successful franchisey versus not? And with the closing that you're having, last time it was mentioned that perhaps European Wax buys some of those stores [inaudible]
Dana Telsey: Do you have any inclination to do that? And does the franchisee economic agreement need to be retooled in light of what's happening? And then just lastly, any other regional trends to call out? Thank you.
Okay, thank you, Dana. All great questions.
Dana Telsey: So, starting with, the first thing I'll tell you is I'm very pleased with the quality of franchisees that we have in this system. We've got a large group of people who are very passionate about what we do committed.
Dana Telsey: to the brand and the worth that's in front of us.
and all of my conversations have gone very well.
Dana Telsey: I think as a franchise or where we can improve in our partnership is just doing a better job as I mentioned earlier with the analytical rigor and developing the tools necessary to help coach the franchisees on where the opportunities are. [inaudible]
Dana Telsey: in terms of, you know, what it takes to be successful. You know, it's, you know, we need people, I guess.
It takes you know someone who is
Dana Telsey: You know, very committed to the service that we offer, you know, it kind of starts there, it starts with the feeling that our guests have.
Dana Telsey: when they leave our facility and finding somebody who is incredibly passionate and committed. [inaudible]
Dana Telsey: to being in a service-oriented business that is all around a mission of...
Dana Telsey: Improving one self-worth. And so everything that we do has to start there. And so I would say that's number one. You have to have a genuine connection to fulfilling our brand promise. [inaudible]
and a genuine desire to serve. [inaudible]
Dana Telsey: and you know the good news is I believe we have that in large part [inaudible]
Dana Telsey: Secondly, this business, it's all about the details and while on the surface it seems easy when you get in you start executing the details. [inaudible]
Dana Telsey: can be complicated, and so, you know, it takes someone who is committed to managing those details on things like labor scheduling and recruiting and staffing, hiring the right people [inaudible]
and so...
Dana Telsey: and being able to manage those details, you know, you need the right tools. And so, you know, it's, you know, developing those right tools is where that partnership really pays off, the partnership between the franchise and the franchise tour. So, I'm not looking at this as...
Dana Telsey: We have an opportunity to completely reprioritize our franchise base. That's not where we are at all. We've got a very strong base of franchisees [inaudible]
Dana Telsey: Our job is to work directly with them to identify. Bye.
Dana Telsey: to put these building blocks in place and to identify where we have the greatest opportunity to grow our business in 2026 and beyond.
Dana Telsey: We are certainly open to that, and I think it makes a lot of sense for us to...
Dana Telsey: Not only be a world-class franchise or but to be a world-class operator. And I think the best way, being a world-class franchise or [inaudible]
Dana Telsey: You know, many, many centers and developed, you know, the skill set that it takes to be able to execute the highest level.
Dana Telsey: So, we're open to it. At some point in time, we will do that. What I'll tell you is now is not the time. That is not what we're focused on. And, you know, our team is very much focused on the right sequencing and first things first. We're open to it.
Dana Telsey: And that's exactly what you're seeing us do. The first step is to get our arms around, you know, the health of the portfolio. The second step is to partner directly with our franchisees. [inaudible]
Dana Telsey: to manage through that at the highest level. The third step is to redesign our entire approach to real-estate site selection and partner with our franchisees now returning to growth in a very high quality way.
Dana Telsey: That's what we're focused on. That's what we're gonna be executing. We're gonna be executing.
Dana Telsey: and I believe strongly that when we do that, and we do it well...
that that will naturally open the door.
for those types of opportunities, but...
Dana Telsey: That is not something that is a priority for us at this point in time. We just have too many other things that we need to do. We'll be working closely with our franchisees too. If there's a franchisee who is wanting to transact, we will be partnering that franchisee with other franchisees. We'll be working closely with our franchisees.
that's going to be where we focus now.
Speaker Change: And then, what was the last question? Bethany, Bethany is doing a great job of keeping track of these questions. She asked, do the franchisee agreements need to be retooled or think about different things?
Speaker Change: and support, or financial structure. Yes, the short answer is no, not at this point in time, but, again, keep in mind, I'm here 60 days. So I've learned a lot in the last 60 days. I'm going to learn a lot more as we move forward. We're going to be onboarding some very high quality executives. [inaudible]
Speaker Change: and so at this point in time I don't see us making those changes but you know there's still a lot to learn as we move forward
Thank you Thank you [inaudible]
Speaker Change: Our next question comes from the line of Jonathan Komp with Beard. Your line is now open.
Jonathan Kopp: Yeah, good morning. I want to follow up. Can you maybe comment on the state of the pipeline, unopened units and whether or not you've seen any falling out there and maybe just bigger picture? What gives you comfort that? [inaudible]
Speaker Change: You're not seeing a broader external shift in terms of consumer behavior or the competitive environment that's causing some of the pressure on you in the economics here.
Yep, John .
Speaker Change: So, I'm going to go and reverse order. So, you know, it's the same thing you've heard me say now a few times. Keep in mind 60 days on the job. So, learning a lot about this brand.
I've spent a lot of time partnering directly with our franchisees, you know, they have the history and so it's been a tremendous...
Speaker Change: Our opportunity for me to learn, kind of their view on where things are and where we've been. I've also spent a lot of time with our boards, spent time with various members of our management team.
and, you know, I think, you know, [inaudible]
Speaker Change: What I'll tell you is the consumer obviously there's a lot of uncertainty out in the macro environment and it would be a mistake to ignore that.
Speaker Change: So the consumer environment over the past couple of years has been complex and that has certainly not made it easy on us. So we do feel like that there has been some headwinds just created from a very challenging consumer environment.
Speaker Change: The competitive market, it's kind of hit or miss, you know, it's really market by market. I think it depends on your point of reference. If you were to compare where we are now in the competitive landscape to where we were when the brand started 20 years ago, clearly there's more competition. It's a competition.
Speaker Change: Over the last five years, I want to say that there has been a material shift in the competitive landscape. I think the fact...
Speaker Change: that we are 11 times larger than our next closest competitor. We have so much scale and the investments that we're making in this business, we believe strongly that that's just going to continue to give us a competitive point of difference.
Speaker Change: and so I don't really see the competitive landscape as being a significant threat as we move forward. I think we've got a lot of, you know, a lot of defense mechanisms that's going to allow us to out execute. Thank you.
Speaker Change: and I don't see it growing significantly where it's something that we need to be concerned about.
Speaker Change: In terms of the pipeline, we have 10 to 12 new unit openings. Nothing has changed in my last 60 days. We've looked at those. We spent a lot of time on those 10 to 12 openings and we feel very confident that they're the right openings. [inaudible]
Speaker Change: and the franchisees opening those centers feel very good about it. [inaudible] I'm sorry, I'm sorry,
Speaker Change: So there's been no shift there. I think that the greatest shift has been, you know, as we said in our remarks, are collectively our franchisees of just because there has been so many moving pieces here the last couple of years, a lot of people have just hit the pause button.
Speaker Change: and so that's why you see us doing the work that we're doing. I'm very confident that we're on the right path and we're going to put ourselves in a position to return to growth, thoughtful growth, successful growth in 2026 and beyond.
Speaker Change: makes it tough on just to clarify Chris, I think in the past, there was a disclosure, something like 370 licenses in the pipeline, is that number of change significantly, or is that still an opportunity longer term after the pause here to resume openings of that pipeline?
Chris: So that has not changed, those numbers are still valid. What we're doing, and again, we're going to, you have my commitment.
Chris: that as we move forward, we move forward in a very transparent way. And so our next call will be in May and you'll have you'll have I'll be able to provide significantly more detail with how we're thinking about our long-term growth plans.
Chris: So the number of licenses that's still out there, what's different is the work we're doing now is we are really starting to dig in to our real estate site selection model.
So when we return to growth [inaudible]
Chris: We can return to growth in a very smart, thoughtful way. And what I mean by that is I believe, again, with the benefit of hindsight here, I believe what has happened over the last few years is we had mud agreements in place all over the country. Thank you very much.
Chris: and our development team was working closely with our operators in order to get the units open to comply with the months. And so it was more of a bottoms-up approach and it was very much on delivering on the timeline and the muddy agreements.
Chris: What the shift that we are making is taking more of a top-down approach.
Chris: and so looking at the entire universe of market opportunities.
Chris: across the country, identifying the markets where we have the greatest chance to be successful, and then we are working with the right, relining with the right franchisees to capture that growth.
Chris: and so, as we go through that exercise, we will be in a better position to reevaluate our mud agreements. Thank you very much.
Chris: So I believe that that's the right approach. It's a strategic approach. I think it's going to be the best way, where I know it's the best way to return to, you know, urine and urout growth as we move forward. So more to come in May.
Great, thanks again.
Yep, thank you.
Speaker Change: Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler, Yelena Zelpen.
Speaker Change: Hi, good morning. This is Sarah on for Cream. Just wondering how you're thinking about promo strategy and price and then what are the areas of opportunity that you see here. And then also what point would you implement system wide versus keeping these things more optional for the franchisee? Thank you.
and David Willis. Thank you.
Speaker Change: So there's a lot of work going into our entire marketing approach and so that work was kicked off before I got here.
Speaker Change: and I'm very pleased with the quality of work that's been done today. With Katie Mullen coming on to our team, we are so blessed to have someone join our team that is capable of Katie Mullen. She's absolutely outstanding.
Andy, John Heinbockel, John Heinbockel, John Heinbockel,
and so she is- um...
going to just do a phenomenal job of
Speaker Change: Building out the capabilities to be highly effective with our promotional offers
So...
Speaker Change: Where we are is we've improved our data pipelines, so we have a much better ability to be able to evaluate the factiveness of what we're doing. We've improved our ability to buy media, and so we're far more efficient in our media buying today than we were just a few months ago.
Speaker Change: which means that we'll get more out of the dollars that we're spending and we're in the process of testing. We have a number of different tests that we're doing on the creative messaging. We have a number of different tests that we're doing on the creative messaging.
Speaker Change: All of that is just a great backdrop to inform our promotional strategy going forward so really not a whole lot to report right now as we move throughout the year you'll get a lot more details from us.
Speaker Change: All I can tell you is that the infrastructure that we're putting in place around that is very good and is going to put us in the best possible position to grow from here and to learn from what we're doing. Thank you very much.
Speaker Change: on price. Obviously, our franchisees control pricing decisions, but what I can tell you is we do not have throughout the network, we do not have a sophisticated approach to pricing.
Speaker Change: And so that is something that we are working on at this very moment with our franchisees is to develop the capabilities to be smarter about how we price, how they price.
Speaker Change: So that work is being done. That's the foundational work that I referenced in my prepared remarks. And that's exactly the things that we'll be doing this year to position us for growth.
So that's where we are. Thank you
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Simeon Gutman, with Morgan Stanley . Your
Speaker Change: Hi, this is Lorraine on Simeon. Good morning. Our question first is on the core guess. Could you give more collar on maybe how that core guess that European is behaving and maybe how European is thinking about the core guess in 25 if the macro becomes weaker? And our follow-up question is on the cost savings. Could you give more collar on what these cost savings were specifically and if we should expect to continue these in 25. Thank you.
Speaker Change: Good morning, so let me start with the cost savings. It's really just as we look at, you know, from a cost of goods sold, you know, we've continued to have some great success in negotiating cost savings as it relates to some of the products. [inaudible]
that were by.
Speaker Change: As far as growth margin and expectations for 2025, we said that we expect to be somewhere around 74 percent.
Speaker Change: So modest improvement on a gross margin perspective. And from a core guest, I would say that, you know, as we talked about that, which that core guest for us, we define that as our wax pass guest as well as our routine guest.
Speaker Change: But that's been really stable through all of these cycles and so we haven't seen really any changes in their behavior here.
Speaker Change: As it relates to their amount of spend as well as the frequency of their visits in 2024. That's what gives us a lot of confidence as it relates to how that guess is actually continues to be incredibly loyal. [inaudible]
Speaker Change: I'm really where the opportunity for us is re-engaging lapse guests as well as new guests so that we can then bring them into the centers, into the EWC and convert them into this core guest.
Great, thank you.
Thank you.
Speaker Change: Thank you and I'm sure no further questions at this time. I like to hand the call back over to Chris Morse for closing remarks in order to thank you.
Chris Morris: Okay, thank you operator and thank you everyone who participated in the call today. We continue to be excited about our future. This is a reset year, a year that we're very focused on building the right foundation building blocks, partnering with our great franchisees. Thank you very much.
Chris Morris: and then returning the business back to growth in 2026. So we are excited about the opportunity to continue to give you progress updates as we move forward. Have a great day and look forward to continue the dialogue as we move forward. Thank you.
Chris Morris: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you.
[music]
Stacie Shirley, John Heinbockel, John Heinbockel, John Heinbockel
Loving You, David Bowie
Speaker Change: Trade Unions, The Universal Global Network for deiximo, The Universal Social Network.
Stacie Shirley, John Heinbockel, John Heinbockel, John Heinbockel