Q1 2025 European Wax Center Inc Earnings Call
Yeah.
Speaker Change: Good morning, ladies and gentlemen, and thank you for standing by welcome to European Wax Centers' first quarter of fiscal 2025 earnings call.
At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: 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.
Speaker Change: You have additional questions you may rejoin the queue.
Chris Morris: On the call today are Chris Morris, Chairman, and Chief Executive Officer, and Tom Kim Chief Financial Officer.
Chris Morris: I would now like to turn the conference over to Bethany Johns Director of Investor Relations Ma'am you may begin.
Speaker Change: Good morning, everyone. Thank you and welcome to European WAC Centers' first quarter fiscal year 2025 earnings call.
Speaker Change: On today's call, Chris Morris will provide an update on its first full quarter with the company and discuss additional details regarding the progress made on our priorities then Tom will discuss our first quarter performance in fiscal 2025 outlook. Following the prepared remarks, the team will be available to take questions. Before we start I would like to remind you of our legal disclaimer, we will make certain.
Speaker Change: Statements today, which are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the <unk>.
Speaker Change: Factors that may affect our results.
Speaker Change: Also note that these forward looking statements reflect our opinions only as of the date of this call and we take no obligation to revise or publicly release the results of any revision to our forward looking statements in light of new information or future events also during this call we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items you will find additional.
Speaker Change: Information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release, a live broadcast of this call is also available on the Investor Relations section of our website at investors don't WAC Center Dot Com I will now turn the call over to Chris Morris Chris.
Chris Morris: Okay. Thank you Bethany and good morning, everyone. Thank you for joining us to discuss European wax centers first quarter 2025 financial performance.
I am pleased to share that we delivered solid first quarter results of $225 9 million of system wide sales 70 basis points of positive same store sales growth and $18 8 million and adjusted EBITDA.
Chris Morris: These results demonstrate that our guests value our unparalleled waxing services and our business is on the right track, enabling us to reiterate our outlook today.
Chris Morris: At the same time, we recognize the consumer backdrop in supply chain environment remain uncertain.
Chris Morris: I wanted to emphasize that the fundamentals of our model remains strong and we are actively managing these dynamics, which Tom will speak to in the second half of today's call.
Speaker Change: But first I'd like to take a moment to share a few reflections for my first 100 days with EWC.
Speaker Change: Over the past few months I've spent a lot of time visiting centers across some of our largest markets coast to coast from New York, and New Jersey to Florida, and California in several states in between.
I've been interfacing heavily with our franchise partners associates guests and stakeholders with the goal of understanding our competitive advantages and setting the priorities for sustainable growth.
Speaker Change: As a result, my belief in Ewc's potential has never been stronger.
Speaker Change: I am invigorated by the passion, we all share for this iconic brand and the incredible work, our talented franchisees and associates do each day to deliver the unparalleled guest experience unique to European WAC Center.
Speaker Change: My first 100 days haven't just been a period of listening and learning.
Speaker Change: They've also been a time of action.
Speaker Change: As I mentioned last quarter, it's evident that we have a lot of opportunities to solidify the foundation of this business.
Speaker Change: We've already taken a lot of steps designed to improve execution strengthen operations and build momentum.
Speaker Change: I believe 2025, as a reset year, but let me be clear, what we need to do to reignite our growth isn't complex because the core of our concept remains strong we need to focus on the basics bring energy back to the brand and assure we have the tools needed to execute flawlessly.
Speaker Change: This includes modernizing our marketing engine, making sure our franchisees are set up for success and being disciplined and strategic in our approach to new center expansion.
Speaker Change: Together with my New executive team, we are sharpening our vision for the future. We continue to ground, our actions and driving sales improving four wall profitability and reigniting unit growth, which I believe are critical to delivering near term results and best positioning us to revitalize our long term growth story.
Speaker Change: I'm incredibly proud of the progress we've made on each of these priorities over the past two months and I'm excited to walk you through our accomplishments and our action plans for Q2 and beyond.
Speaker Change: First driving sales through traffic growth our core guests continue to love European Wax center and remains stable, but to increase four wall sales and profitability, we need to drive more new guests and get noncore guests to visit us more often.
Speaker Change: And to do that well we are building a data rich digital first marketing engine underpinned by a clear and relevant brand identity.
Speaker Change: Our marketing team is acting with conviction to deliver near term wins, while laying the groundwork to fuel sustainable long term sales growth.
Speaker Change: We are methodically and deliberately approaching this effort from a few angles.
Speaker Change: We began in Q4 by building the measurement foundations I truly understand our advertising effectiveness and support a modern approach to marketing we introduced that technology in Q1 and as a result, we are leveraging our data with our digital social media partners better than ever before and enabling our media dollars to be more efficient and lowering our cost per acquisition.
Speaker Change: <unk>.
Speaker Change: Most importantly, we are seeing early signs of traction with new guests.
Speaker Change: On a two year basis 2025, new guest trends have improved each month, given us confidence that we're headed in the right direction.
Speaker Change: In terms of non core guests, we're significantly increasing our ability to engage with them through E mail and SMS, which should enable us.
Speaker Change: To unlock additional visits.
Speaker Change: This is a great example of the kind of basic sharpen the edges opportunities, we have uncovered which we anticipate will result in better guest engagement.
Speaker Change: We're still not where we need to be but we're pleased with the progress we've made so far.
Speaker Change: To drive new guest acquisition for the long term, we are redefining our target guest profile and reinvigorating our brand identity.
We performed extensive research and testing in Q1 that has given us three valuable insights.
Speaker Change: First out of home waxing still represents a large and stable addressable market.
Speaker Change: Second we can cast a wider net with new guests by leaning into those who offer a higher lifetime value.
Speaker Change: And are more profitable and more likely to be retained and third we can deliver a clear message that better resonates with our high value guests I just described.
Speaker Change: Armed with this new information, we are taking immediate actions to improve marketing content this quarter.
Speaker Change: Shall phase of refining our message and creative assets is already underway with a new champion that expected to be live for the peak summer wax in season.
Speaker Change: We plan to launch bigger more holistic brand strategy work later this year.
Speaker Change: Together with improvements, we've made leveraging data and lowering our cost of acquisition, we expect to refine our marketing mix and more effectively drive traffic in the second half of 2025.
As a reminder, this is a key assumption in the high end of our outlook.
Speaker Change: Our second area of focus is cultivating a more effective corporate infrastructure to support franchisees facilitating higher four wall profitability through operational excellence.
Speaker Change: We realized franchisees are the primary customers, we serve and their success drives our success.
Speaker Change: Our immediate priority is to narrow the gap between underperforming centers in the broader network.
Speaker Change: We've increased the capacity of our franchisee support team and we're spending more time working hand in hand with operators.
Speaker Change: We recently deployed new tools that offer enhanced tracking accountability and transparency, making it easier than ever for both us and our franchise partners to see opportunities and action plans.
Speaker Change: Our operations team is also driving 50% more engagement with our learning management system.
Speaker Change: Combined these actions have started to generate API improvement underperforming centers.
Speaker Change: Regarding our long term goal of operational excellence, we have made progress on our search for a strong chief operating officer to evolve our structure and processes.
Speaker Change: We also look forward to engaging with our partners next week.
Speaker Change: At our annual franchisee event, where we will reinforce our aligned focus on reigniting sustainable profitable growth both at the individual center level and across the network as a whole.
Speaker Change: Moving to my third focus area implementing a more sophisticated development approach focused on thoughtful profitable expansion.
Speaker Change: We continue to partner closely with franchisees to evaluate near term growth plans, while prioritizing long term network health.
Speaker Change: To prepare for 2026, New center openings, we've identified underpenetrated trade areas with strong existing demand for out of home hair removal, which we believe will pave the way for franchisees to resumed unit growth, while best positioning their centers for success.
Speaker Change: Longer term, we plan to utilize a more strategic development approach, we've upgraded our market planning tool to a purpose built solution with enhanced analytics and forecasting capabilities.
Speaker Change: This leaf and sophistication should enable us to more accurately model new site potential moving forward. We've also implemented a rigorous site approval process for new centers.
Speaker Change: We believe that both of these actions should enable better new center performance and support more sustainable growth over time.
Speaker Change: Ultimately, we remain confident that our efforts to drive sales and improve four wall profitability will best position the network to return to net unit growth by the end of 2026.
Speaker Change: And last but not least we've made substantial progress in assembling a team of seasoned leaders, who will help execute these priorities for 2025 and beyond.
Speaker Change: Our chief commercial officer, Katie Mullen, and Chief information and Digital Officer, Chris Andrews officially joined at the end of Q1 and are off to a running start and.
Speaker Change: And they've done a tremendous amount of work in the short time, they've done with us.
Speaker Change: And finally I'm excited to introduce Tom Kim our new Chief Financial Officer for the first time today.
Speaker Change: Tom joined US last month and is a strategic CFO with franchise experience and a history of driving profitable growth.
Speaker Change: He will be a valuable and impactful partner in executing our strategic priorities and reigniting growth for European WAC Center, and I look forward to all of you getting to know him better in the coming weeks and months.
Speaker Change: So with that I'll pass things over to Tom to review, our Q1 financial results and our outlook for 2025 Tom.
Thank you Chris I'm excited to be on my first earnings call as part of the European Wax Center team with my background, leading finance for consumer and franchise businesses. It was easy to see that Ewc's category leadership position meaningful white space and strong free cash flow profile offer a compelling and attractive opportunity.
Speaker Change: I look forward to partnering with the team and our franchisees to capitalize on our opportunities as we solidify our foundation and reinvigorate our unit growth.
Speaker Change: Before I begin my remarks, I'd like to remind everyone that our discussion of growth rates on this call refer to the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024.
Speaker Change: For comparability purposes. Please note that our centers are closed on Easter Sunday, which fell in Q1 fiscal 2024, but shifted to Q2 fiscal 2025.
Speaker Change: Now to our results.
Speaker Change: We ended Q1 with 1062 centers, representing 1% growth year over year we.
Speaker Change: We had five gross openings during the quarter and 10 closures, resulting in five net center closures.
Speaker Change: We were expecting six to seven net closures, but benefited from an opening that shifted forward into Q1.
Speaker Change: Systemwide sales increased two 1% to $225 9 million from $221 4 million with year over year growth driven by the shift in the Easter holiday and payment timing.
Speaker Change: Same store sales grew 70 basis points.
Speaker Change: Adjusting for the Easter shift we estimate it would have been approximately flat.
Speaker Change: While transaction growth remains pressured as Chris mentioned, we're starting to see some improvement in new guest trends we.
Speaker Change: We are still in the early stages of enhancing our marketing and operational capabilities under the leadership of our new executive team.
Speaker Change: And we're excited about the work we're doing to drive topline momentum.
Speaker Change: Total revenue of $51 4 million decreased approximately 400000 or 90 basis points, primarily due to lower retail and wholesale product revenue.
Speaker Change: Additionally, this is the final quarter, we are lapping a COVID-19 related surcharge with product revenue that we eliminated early last year.
Speaker Change: Q1 revenue exceeded our internal expectations due to franchisee order patterns and a successful retail promotion.
Speaker Change: Both of which we believe pulled forward some demand.
Speaker Change: As expected gross margin increased modestly to 74, 2%, primarily due to a higher mix of royalty and marketing fees.
Speaker Change: SG&A expenses increased $1 9 million to $15 3 million, primarily driven by higher stock based compensation and executive severance costs that we exclude from adjusted EBITDA.
Speaker Change: Advertising expense decreased $1 $4 million due to the timing of spend within the fiscal year.
Speaker Change: Adjusted EBITDA of $18 8 million increased seven 2% from $17 5 million in the prior year period.
Speaker Change: Adjusted EBITDA margin increased to 36, 5% from 33, 7% and was higher than our full year expectations of approximately 33% due to the revenue advertising and SG&A expense timing that benefited Q1.
Speaker Change: Net interest expense increased slightly to $6 6 million and income tax expense increased to $1 4 million from $1 2 million last year.
Speaker Change: Adjusted net income increased 10, 3% to $9 5 million from $8 6 million last year.
Speaker Change: We have updated our definition of adjusted net income to better align the metrics with management's review of our core ongoing operations by excluding noncash amortization of intangible assets.
Speaker Change: Please refer to the earnings release for further details and a reconciliation to adjusted net income as reported in prior periods.
Speaker Change: Lastly, as a housekeeping item as of May nine 2025, there are $43 3 million class a common shares outstanding and $22 1 million potentially dilutive shares related to class B shares and outstanding equity Awards.
Speaker Change: Now turning to the balance sheet.
Speaker Change: A $40 million revolver remains fully undrawn and we ended the quarter with $58 3 million in cash and $389 million outstanding under our senior secured notes.
Speaker Change: Our net leverage ratio at quarter end was four three times and would have been approximately three eight times, excluding the $41 2 million in stock buybacks, we executed during the trailing 12 months.
Speaker Change: As of quarter end, we had $8 $8 million remaining under our $50 million share repurchase authorization.
Speaker Change: In terms of our capital allocation priorities.
Speaker Change: Our attractive asset light and capital light franchise model continued to generate healthy free cash flow that we believe will enable us to remain opportunistic.
Speaker Change: Q1 was yet another strong quarter as net cash provided by operating activities was 12 7 million compared to 700000 in investing cash outflows.
Speaker Change: We remain comfortable meeting our debt service obligations under our flexible whole business securitization.
Speaker Change: And we value the optionality to invest in reigniting, our core business, while maintaining a strong balance sheet to position us well through a variety of macroeconomic conditions.
Speaker Change: Turning now to our outlook for 2025, which we are reiterating today.
Let me start with our underlying assumptions, which are based on a stable consumer environment in 2025.
Speaker Change: As a reminder, in March we shared that the high end of our outlook assumed that our marketing efforts will begin to drive more traffic in the back half of 2025 with.
Speaker Change: With trends improving through the second half.
Speaker Change: The lower end of our outlook assumes that while we made progress against our priorities.
Speaker Change: Modest transaction decline, we continue to see a mature centers persist throughout this year.
Speaker Change: While we normally do not comment on quarter to date trends.
Speaker Change: We recognize that the macro environment has been incredibly dynamic over the past few weeks nor.
Speaker Change: Normalizing for Easter holiday shift mature center transaction trends have been stable year to date and our outlook assumptions for the full year remain intact.
Speaker Change: Importantly, our unit expectations for the year remain unchanged, we expect 10% to 12 gross openings and 40% to 60 center closures or 28% to 50 net center closures.
Speaker Change: In Q2 franchisees have opened one and closed two centers, so far and we expect 78 net closures for the quarter.
Speaker Change: We continue to expect systemwide sales between $940 million and $960 million, representing approximately flat year over year growth at the midpoint.
Speaker Change: Same store sales is expected to be flat to positive 2%.
Speaker Change: Which assumes some sales recapture for comp stores closures during the year.
Speaker Change: We expect our Q2 same store sales could be flat to down slightly due to the Easter shift.
Speaker Change: Implying expected improvement in the two year stack from Q1 to Q2.
Speaker Change: Consistent with last quarter.
Speaker Change: Outlook for full year revenue remains between 210 and $214 million and approximately 22, 3% of system wide sales.
Speaker Change: As I mentioned earlier, we expect that franchisees shifted product purchases into Q1 due to April tariff announcements and a successful retail promotion.
Speaker Change: Which will likely impact revenue recognized in Q2.
On this topic, let me take a minute to discuss the potential impact of increased tariffs on our business in fiscal 2025.
Speaker Change: Approximately half of our product cost is currently subject to a 10% global tariff.
Speaker Change: The majority of our retail products are sourced domestically.
A portion of our medical supplies and retail product components are sourced from China.
Speaker Change: Our proprietary waxes sourced from Europe.
Speaker Change: That said our cross functional team is doing an excellent job acting quickly with our suppliers to mitigate the risk of cost increases and identify alternatives, where it makes sense.
Speaker Change: We recognize that this is a highly fluid environment.
Speaker Change: We are still working through several options, but based on what we know today, we feel confident in our ability to manage the estimated tariff impact within our current outlook.
Speaker Change: We continue to plan advertising expense slightly higher than 3% of system wide sales in fiscal 2025 to support the traffic driving initiatives Chris described earlier.
Speaker Change: Compared to 2024, our current plans are to spread advertising expense more evenly throughout the year.
Our adjusted EBITDA outlook remains.
Speaker Change: At $69 million to $71 million and reflects our expectation of SG&A growth, primarily driven by personnel to help us achieve our strategic goals and normalized incentive compensation.
Finally, we expect adjusted net income between $31 million and $33 million, which is consistent with our previous guidance of 16 to 18 million plus approximately $15 million of intangible asset amortization expense.
Speaker Change: Net of an approximately 23% effective tax rate before discrete items.
Speaker Change: As we look to the back half of the year European WAC centers, certainly not unique in navigating an uncertain macro environment.
Speaker Change: We are acting thoughtfully and swiftly to drive sales improve four wall profitability and reignite unit growth.
Speaker Change: Our pursuit of these priorities is within our control even if the environment is not.
Speaker Change: While it's still early days, we believe we are putting the right people and actions in place to drive near term results and long term growth for European WAF Center, its franchisees and its shareholders.
Speaker Change: With that operator, please open up the line for questions.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone phone and wait for your name to be announced.
Speaker Change: Your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: First question comes from Dana Telsey with Telsey Advisory group.
Dana Telsey: Hey, good morning, everyone.
Speaker Change: Do you think about the game plan.
Speaker Change: As you think forward.
Speaker Change: Can you talk a little bit about what changed this quarter the outlook for the second quarter and the frequency of the wax past customers, what's happening with your promotional rates and then just expanding on the potential tariff impact. If there are other places to source funds.
Speaker Change: And what are you seeing from franchisees and ordering patterns. Thank you and then I just have a quick follow up.
Speaker Change: Okay great.
Dana Telsey: Good morning Dana.
Dana Telsey: We had a little bit of trouble on the audio it was choppy, but I'm pretty sure I captured your two questions. If not just please clarify.
Dana Telsey: In terms of what's changed I'll tell you. The first thing I will tell you is that we're very pleased with the progress that we've made.
Dana Telsey: Just in this short period of time since our team has been assembled.
Dana Telsey: We've got a very clear line of sight on where the opportunities are.
Dana Telsey: Where we need to focus and I feel very good about.
Dana Telsey: How things are progressing.
Dana Telsey: With respect to Q2 outlook I would say.
Dana Telsey: Overall, we're moving in line with kind of where we expect it to be at the very beginning of this year.
Dana Telsey: Which is one of the reasons why we feel so comfortable reiterating our annual guidance for the full year.
Dana Telsey: So things are progressing along according to plan a lot of the things that we're working on are a little bit longer term in nature. It takes time for these things to build and so we've always viewed this year as a year, where as our strategies start to take hold.
Dana Telsey: Benefit that more of the second half of the year than the first half of the year.
Dana Telsey: So all in we feel great there.
Dana Telsey: There's still a lot of work ahead of us.
Dana Telsey: But our team is.
Dana Telsey: We're getting our feet under us, we know exactly where to focus and we're making a lot of progress in terms of promotional activity.
Speaker Change: There hasnt been any material change at all in promotional activity.
Dana Telsey: Over the last few months and.
Dana Telsey: And we don't expect that that's going to change as we move forward. We see our biggest opportunity is just being more effective with the use of our marketing dollars being smarter and more targeted with the waiver.
Dana Telsey: Approaching paid media and having just a relentless focus on new guest acquisition.
Speaker Change: I don't believe at this point in time, we're not sitting here thinking that thats.
Speaker Change: That we're going to have to move into a heavy promotional period.
Speaker Change: That's not where the opportunity is at all.
Speaker Change: So there hasnt been any change on that we don't expect there to be any change.
Speaker Change: And then with respect to wax pass sales.
Speaker Change: As the business.
Speaker Change: As we've mentioned, we're very pleased that.
Speaker Change: On a two year stack, we've seen steady improvement in our comp store sales as well as steady improvement and new guest acquisitions.
Speaker Change: We are also seeing something similar on <unk> sales. So we had a nice Q4.
Speaker Change: We're feeling we're feeling good.
Speaker Change: Think the way, we think about the business right now it is.
Speaker Change: The word right now that we use is stability.
Speaker Change: So the business that appears to be stabilizing and we're starting to see some early traction on all of our strategies.
Speaker Change: With respect to tariffs.
Speaker Change: Yes, I mean I can tell you are just like every other company in the U S. Our team is.
Speaker Change: Maniacally focused on looking at all.
Speaker Change: Ways of managing through tariff exposure.
Speaker Change: So at the time today to walk you through where that exposure exists in our business we.
Speaker Change: We still feel very comfortable.
Speaker Change: That we can manage this year manage around tariffs and still deliver on our annual guidance.
Speaker Change: But we're basically our approach is we're leaving no stone unturned, we are looking at every single possible scenario, including.
Speaker Change: Looking at other sources for some of our medical equipment.
Speaker Change: Would not look for us to change our comfort wax formula that's fundamental to our brand and it will be more challenging for us to find a different different supplier, but for all other areas of the business we're actively.
Speaker Change: Exploring all those opportunities.
Speaker Change: Thank you and just on the lease.
Speaker Change: Net the center closures out there what are you hearing from franchisees.
Speaker Change: Hi.
Speaker Change: Think about the return to unit growth by the end of fiscal 'twenty. What are you learning. Thank you.
Speaker Change: Sure you bet.
Speaker Change: Yes, the first thing I'll say I said this in February I'll say it again, yes, we've just we're so blessed to have.
Speaker Change: Such high quality franchise partners, who care deeply about our brand.
Speaker Change: There is just a.
Speaker Change: Deniable passion for what we do.
Speaker Change: All of our franchisees want us to win all of them.
Speaker Change: And I think that is such a great place to start.
Speaker Change: But the reality is is that the past couple of years have been tough and as you know.
Speaker Change: It's been tough for us to consistently grow our transactions on a sustainable basis month to month and when transactions are declining that puts pressure on the bottom line.
Speaker Change: Combined with that we have as we've discussed with you before we went through this period of time, where we were in high growth mode.
Speaker Change: For all the right reasons, we were outgrowing units at a very rapid pace and now with the benefit of hindsight, we grew a little too quickly and so the combination of.
Speaker Change: Those two things happening at the same time as kind of what's led to closures our franchisees.
Speaker Change: Yes, they are.
Speaker Change: They are fighting the good fight and doing everything they can to kind of manage through this.
Speaker Change: The range of closures that we've identified 40 to 60 those are just simply underperforming units. Those are units that just have yet to really kind of a breakthrough on topline and so those units are still under pressure.
Speaker Change: That's precisely why we are really focused very heavily on building. These strong partnerships with our franchisees.
Speaker Change: Really dialing in on the tools that that's going to help us focus on where there is opportunities to improve profitability.
Speaker Change: To give the franchisees the support they need and give us the time to continue to build out this marketing engine to where we can be smarter and more effective about the use of our marketing dollars to drive new guest acquisition.
Speaker Change: And we believe that.
Speaker Change: Managing the business that way is going to put us in the best possible position to support our franchisees and minimize closures. So.
Speaker Change: Overall not much has changed since the last time, we talked about this but I can tell you that.
Speaker Change: Yes. This is.
Speaker Change: A very strong partnership with our franchisees to.
Speaker Change: To improve the business.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jonathan Komp with Baird.
Speaker Change: Yes, Hi, good morning, Chris Tom One question I wanted to ask just looking at the latest financial disclosure documents it looks like the high end of the cost to build.
Speaker Change: Disclosed in those documents increased pretty pretty substantially compared to recent years could you just.
Speaker Change: Given our current view of sort of key investments anything driving inflation and then and then overtime here. The return to net unit growth would you say, it's more based on optimizing the cost.
Speaker Change: The operations are more about the top line initiatives.
Speaker Change: Yeah, Yeah, you bet. So let me Jonathan let me kind of go in reverse order. So as we focus on returning to NCO growth. There are two guiding principles that we're following.
Speaker Change: Number one in the near term what where we're focused is let's focus on markets, where that where we believe there is enough density to support the volumes, we need for our franchisees to get.
Speaker Change: And effective return.
Speaker Change: And.
Speaker Change: We have an opportunity to open in those markets without impacting our core.
Speaker Change: So basically identifying kind of a low hanging fruit, where theres still opportunity for us to expand while protecting our core so no risk of any cannibalization and the good news is there's still there's plenty of markets out there, where we have the opportunity to grow that that's the first guiding principle, our second guiding principle.
Is working closely with our franchisees to ensure that.
Speaker Change: In these markets that theyre going to be able to achieve.
Speaker Change: Our return on investment that they find compelling and exciting.
Speaker Change: The dollars at risk.
Speaker Change: And so when we.
Speaker Change: When we're working through that.
Speaker Change: Similar to tariffs all we're leaving no stone unturned. So we're working very hard at.
Speaker Change: The entire unit economics profile, and seeing where we have opportunities and to prove and thats.
Speaker Change: Ensuring that our franchisees are setup for success on the top line working closely with them on.
Speaker Change: Franchise profitability and also addressing the overall capital investment.
Speaker Change: The reason you've seen our capital investment go up it's not something that there's no fundamental changes in our model that's just simply.
Speaker Change: Inflationary pressure that everybody has been feeling.
Speaker Change: Okay, Great. That's really helpful and just one follow up I know you talked about annual franchisee convention coming up here could you just maybe share Chris Moore.
Speaker Change: Do you think about the key themes you hope to get across there.
Speaker Change: During that event anything youre willing to share thanks again.
Speaker Change: Yes sure.
Speaker Change: Next week, we have I am sure many franchise partners listening to this call today, So I guess I will be giving them a sneak peek into what they're going to be hearing next week.
Speaker Change: Number one we're going to just go through a full situation assessments over all on the same page on where we are as a brand in.
Speaker Change: And as the network, we're going to discuss where we see opportunities in front of us.
Speaker Change: We're going to talk a lot about our plan to win.
Speaker Change: And we're going to spend time on our partnership between the brand and our franchise network on how we're going to.
Speaker Change: Work together to maximize our potential and I think our goal is everyone walks out of that meeting feeling very informed.
Speaker Change: Filling very supported and that there is a clear plan of attack not only in 2025, 2026 and beyond and we've got a unified vision and.
Speaker Change: Our commitment to one another to get out and drive this business in a very smart and profitable way.
Speaker Change: So really looking forward to spending time with our partners next weekend.
Sharon: Sharon that message and then hearing what's on their mind.
Sharon: That's great. Thanks again.
Sharon: You bet. Thank you.
Sharon: Our next question comes from John <unk> with Guggenheim.
Speaker Change: So Chris after you after you end up.
Sharon: Sort of cleaning up.
The centers that are underperforming.
Sharon: Curious how much of the.
Sharon: Of the remaining base do you think would be characterized as underperforming right and is that is that solely the ones that are underperforming.
Sharon: Solely in AAV issue.
Sharon: And then if that's true how do you think about against marketing as the answer but how do you think about.
Sharon: And it has been an issue in getting the sort of accelerating faster.
Sharon: What's the what's the one or two things that do that.
Sharon: Yes so.
Sharon: So great questions here.
Sharon: It's mainly an issue the challenge that we have is the.
Sharon: The centers that we've identified as risk of closure. It's an issue there is always room for improved profitability.
Sharon: But make no mistake topline is.
Sharon: What kind of led to these units be being on that closure list.
Sharon: And as you know topline is everything in our multi unit business.
Sharon: Especially a business with high labor cost.
Sharon: Because the more you can grow your top line and the more leverage you're going to get on that labor investment.
Sharon: So our focus is on first and foremost.
Sharon: Partnering directly with our franchisees on.
Sharon: Developing effective strategies to grow new guest acquisition.
Sharon: So thats all the work that.
Sharon: Our new Chief commercial officer is leading.
Sharon: The investments that we've made in building out a digital platform.
Sharon: A data analytics platform to get smarter about how we're deploying those marketing dollars.
Sharon: And.
Sharon: We are very pleased with what we've been able to see so far.
Sharon: As I said, we've period to period on a two year stack, we have seen improvement.
Sharon: Our comp store sales as well as steady improvement and new guest acquisitions, but we're still a long ways away from where we need to be.
Sharon: So the our very first focus is on continuing that work.
Sharon: On growing new guest acquisition.
Sharon: Where we see the opportunity is not only getting smarter about.
Sharon: Digital marketing performance marketing, but also.
Sharon: Our brand identity. So we've done over the last few weeks or last say 13 weeks, we have done a deep dive into our business commissioned a tremendous amount of research to really understand better about how our brand is showing up and against different target audiences and.
Sharon: So through that segmentation work, we feel that we've identified some opportunities to reach a different group of guests maintain the guests that we have but also reached a new group of guests.
Sharon: <unk>.
Sharon: And we feel like that we've got a clear line of sight on.
Sharon: But the message needs to be to resonate with that guest as well as the service model to deliver on that brand promise. So I think going forward, where we see the opportunity is twofold.
Sharon: Really sharpening our skill set on driving performance marketing and then combining that with.
Sharon: Our new brand identity that.
Sharon: Our refined I should say refine brand identity that we think is going to be more effective in the market.
Sharon: So we're excited too.
Sharon: To work on that.
And then just continuing to work with our operators on profitability just to.
Sharon: Continue to get smarter and smarter about areas of.
Sharon: Opportunity to drive efficiency at the unit level.
Sharon: With respect to how.
Sharon: Once we get through this round of closures.
Sharon: The health of the system.
Sharon: I believe we're going to learn a lot as we move throughout this year.
Sharon: But our belief is we're.
Sharon: We're focused on the right things and as our strategies unfold throughout this year and we execute on getting momentum on the topline we execute on improving profitability, we execute on returning to growth with our impacted in our core we believe when all that comes together we're going to have.
Sharon: Very healthy portfolio of centers and will be poised for ongoing growth from that point forward.
Speaker Change: And one quick one follow up you mentioned high value guest I'm curious.
Speaker Change: Some of them, maybe intuitive, but the characteristics of our high value guest and are Theyre high value guests potential, but you werent targeting before.
Speaker Change: Alright.
Speaker Change: Well.
Speaker Change: Yes, yes.
Speaker Change: Yes. The short answer is yes, I mean thats the answer yes, we've identified we believe and we're testing we're going through.
Speaker Change: The thing to keep in mind with our management team is.
Speaker Change: The.
Speaker Change: The skills that we are building internally are around doing a deep dive into the research gain gather insights from that research and then go through a rigorous test and learn process.
Speaker Change: And so.
Speaker Change: With that in mind, the research identified a group of high value.
Speaker Change: Customers.
Speaker Change: We believe that we can target and.
Speaker Change: Yes.
Speaker Change: We have quite a bit of success with so now that we've gathered that insight, we're going through a testing and learning process and.
Speaker Change: We're we're excited about it we think that there is an opportunity there and we think that it's an opportunity where we can build on what we have it's not substitute and what we have.
Speaker Change: Thank you.
Speaker Change: You bet. Thank you.
Speaker Change: Our next question comes from Karen <unk> with Piper Sandler.
Speaker Change: Hey, good morning team. Thanks for taking the question I wanted to touch a little bit on what Youre seeing just in the general market conditions with your consumers, obviously very dynamic macro backdrop, right now and want to understand.
Speaker Change: What kind of trends, maybe changed or stayed stable throughout the quarter and then how are you thinking about the market as it relates to the high end and the low end of the guidance range. Thank you.
Speaker Change: The thing I'll tell you is that so compelling about our brand is just.
Speaker Change: How resilient our core guest is.
Speaker Change: And that is such a strength that.
Speaker Change: And so rare and.
Speaker Change: Multiunit consumer businesses, so all that stability and resilience of our core guest has continued throughout as you know a very difficult and challenging.
Speaker Change: Consumer environment.
Speaker Change: We really haven't seen any change.
Speaker Change: And no negative change at all in our core guests.
Speaker Change: As you heard me say now a few times that one of the things that has US pleased as we are seeing sequential improvement in both comp store sales and new guest acquisition on a two year basis, a two year stack.
Speaker Change: And so that's telling you that we're seeing overall improvement across.
Speaker Change: All guest profiles not only our core that are episodic cost.
Speaker Change: It's not it's keep in mind these are.
Speaker Change: Minor sequential improvement so.
Speaker Change: Temporary and your expectations, but we are seeing stability and.
Speaker Change: An underlying trend that is upward sloping and that has us very encouraged again, just given the backdrop and the consumer environment.
Speaker Change: And what was and then.
Speaker Change: The guidance and then on the guidance for for the high end just to reiterate the things that Chris mentioned that we're diving deeper into research and learning and implementing on the marketing side with with new guests and other marketing initiatives.
Speaker Change: High end of the guidance assumes that some of these green shoots that are taking place really build out in the latter half of this year and that starts to take.
Speaker Change: Take us to the higher end of the revenue range versus.
Speaker Change: These marketing initiatives take more of a foothold in the beginning of 2026 will then subsequently puts.
Speaker Change: Puts us at the lower end of the range. Nevertheless, we have taken into account.
Speaker Change: Where we are headed based on both of those ranges and we are very confident in managing too.
Speaker Change: Two the guidance, which is why we reiterated it today.
Speaker Change: Okay.
Speaker Change: Very helpful. Thanks, So much for the color and then I wanted to touch a little bit on the advertising spend in the quarter.
Speaker Change: And then a little bit lighter and it seems like maybe there was some timing shifts can you just give us a little bit more color on what exactly was going on there and how we should be thinking about the cadence of AD spend for the remainder of the year.
Speaker Change: Yes, good question.
Speaker Change: It is worth to call out that as we've looked at this year's budgeting and the efforts and also with Kt, joining us and then and thinking through efficiencies of marketing spend.
Speaker Change: What we have budgeted for this year is much more of a <unk>.
Speaker Change: Leveling of marketing spend and comparison to prior quarters and prior years and so it is worth to call out that as we think about a quarter over quarter spend you are going to see a little bit more of a.
Speaker Change: Matching too.
Speaker Change: The revenue systemwide nature of the business versus I think there was some lumpiness in prior quarters and spending.
Speaker Change: In those quarters.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone phone.
Kelly: Our next question comes from Kelly <unk> with Citi.
Kelly: Hi, Thanks for taking our question I guess, just a follow up on an earlier question is there any way to sort of.
Kelly: Washout that.
Kelly: Formats of underperforming stores.
Kelly: Versus healthy stores and in the days to kind of understand.
Kelly: The drag that you're seeing on the total comp.
And then just on as you've seen storage clothes just curious.
Kelly: Can you quantify or talk about at this point any sales transfer what happens to that customer win.
Kelly: Of our closings in a given market or are you seeing that transfer to others.
Kelly: The units are or.
Kelly: And just any other detail there and then just had one follow up thanks.
Speaker Change: Alright, Thanks Kelly.
Speaker Change: Yes, well first of all go in reverse order. So on sales transfer it really depends at Storr Center by center. There are certainly cases, where we do see sales transfer.
Speaker Change: Youre never going to transfer 100% of the sales, but there are some cases, where you do see some fraction of your sales transfer it into the existing base. It really just depends on where that unit is located.
Speaker Change: And the unique dynamics of that market.
Speaker Change: One of the benefits we have is our wax pass and so when you have black pass holders in a center closes.
Speaker Change: Those waxed pass users will look for other nearby centers. So they can.
Speaker Change: We continue to redeem their wax pass.
Speaker Change: But it's just.
Speaker Change: As I said, it's on a case by case basis.
In regard to your very first question.
Speaker Change: I'd, rather not just get into those details in this platform what I can tell you is that we've factored in.
Speaker Change: Everything that you mentioned into our guidance for the year. So we obviously have a very good feel for how underperforming centers are performing relative to our core and.
Speaker Change: I've mentioned that those underperforming centers had lower <unk>, which is why they are on that watch list, but I'd, rather not get into like the granularity of the impact that they're having on the total system just know that thats all factored into our annual guidance.
Speaker Change: Got it and then just could you just provide us an update on where what percentage of your sales are coming from.
Speaker Change: Core of lastpass gas versus non wax past customers and what is the right place.
Speaker Change: Goal for where you'd like to be.
Speaker Change: With that longer term thanks.
Speaker Change: Sure.
Speaker Change: We're still we continue to run right around 75% of our sales our wax pass holders. So it's a substantial part of our business model.
Speaker Change: And at this point in time, we're comfortable with that I wouldn't look for us to make material changes.
Speaker Change: As we move forward as you heard me say as we're building out our commercial office and really getting.
Speaker Change: Really smart about.
Speaker Change: How we're using our marketing dollars.
Speaker Change: Yes.
Speaker Change: It's very possible that we're going to test and learn and find some other ways of driving revenue into the business that might impact that that ratio, but at this point in time, we have no immediate plans to change.
Speaker Change: I would expect that 75% to continue.
Speaker Change: Throughout the remainder of this year.
Speaker Change: Thank you.
Speaker Change: Thank you.
Unidentified Moderator: Our next question comes from Simeon Gutman with Morgan Stanley.
Speaker Change: Good morning, everyone, Hey, Chris.
Speaker Change: So we spent some time on this call we've talked about the marketing funnel.
Speaker Change: And some targeting and then we talked about franchisee execution I wanted to take your temperature on both of those and put a couple more up on the board.
Speaker Change: Laxer consistency and then the value that the businesses conveying to the consumer. So if you take all four of those I wanted to see where the priority sits it sounded like there was more focus on the marketing and the franchisee execution.
Speaker Change: So on those other two but just wanted to see if theres an opportunity with them as well.
Speaker Change: Yes, no really good insight into the business and I would say the priority is or exactly how you laid it out the very first priority is on the marketing funnel. The second priority is working closely with our operators on the execution and by the way that goes hand in hand in terms of execution. There is theres two things that we're focused on one is.
Speaker Change: Working directly with our partners on improving profitability. The other side of it is really being very focused on.
Speaker Change: Managing the guest experience and the best possible way to grow top line.
Speaker Change: So that would be the next priority the third would be waxer consistency in the fourth would be the value to the consumer from based on all of our research. We don't believe we have a value problem.
Speaker Change: So we feel comfortable with.
Speaker Change: The value in the market so.
Speaker Change: That's good news Waxer consistency theres always given that that's the core of our business and it's the biggest item on our P&L, there's always opportunity to improve.
Speaker Change: But we've got our first focus on marketing and execution those are the top two and then a very.
Speaker Change: Fast follow is continuing to work closely with our franchise partners on creating a world class environment for our wax specialists to thrive and to be fulfilled and which would drive retention and execution.
Speaker Change: Okay, and then a follow up on the underperforming franchises are franchisees can you talk about what you've uncovered and is there a situation in which franchise businesses are generating cash and there isn't that spark to get better or is it more location and not enough staff at these sites like what are you fine.
Speaker Change: <unk> is the diagnosis.
Speaker Change: Well I hate to say, it's a combination of all but that is the answer it's kind of a combination.
Speaker Change: Yes, that's right.
Speaker Change: Different circumstances across each individual unit.
Speaker Change: I do think what happens is when <unk>.
Speaker Change: Top line.
Speaker Change: You don't see topline.
Speaker Change: Natural instinct is to really manage your business differently and in some cases.
Speaker Change: You don't end up making the best decisions for the business.
Speaker Change: It's just simply because you are in survival mode.
Speaker Change: So it's just you've got a variety of different reasons you've got.
Speaker Change: When the unit was opened one we grew too quickly and we just opened some units in bad locations.
Speaker Change: In some cases, they were too close to each other in other cases.
Speaker Change: The franchisee was just spread really thin and didn't have the infrastructure in place to support that unit.
Speaker Change: And then in other cases, we just didnt follow the right.
Speaker Change: Plan to set up the center up for success. So we didn't invest money in local marketing, we didn't invest the right money and having the team members trained Theres just really just.
Speaker Change: Again, it's just all symptomatic of just growing really fast.
Speaker Change: So where we see the opportunity is in kind of the few areas one.
Speaker Change: Last year towards the end of 2020 for our team the team before we got here.
Speaker Change: Rolled out a new center of playbook and.
Speaker Change: That playbook provided specific.
Speaker Change: Initiatives around the right <unk> investment, making sure that the unit down and open until we have the right staffing.
Speaker Change: A good game plan on how to engage in the local community to ensure the marketing was there and we have seen that those units are ramping faster than before the playbook.
Speaker Change: So that's that's number one that we're focused on and then secondly, as all these other initiatives just being really smart about where we open.
Speaker Change: How we manage that opening the.
Speaker Change: The partnership that we have with our franchisees and the support we're providing and I think that's going to that's really going to make all the difference.
Speaker Change: Okay. Thanks, Chris Good luck and welcome Tom.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Scot Ciccarelli with truest.
Speaker Change: Okay.
Speaker Change: Good morning, guys Scot Ciccarelli.
Speaker Change: I'll provide some specific examples of the changes you've made or are making on the marketing front to drive new customer acquisition.
Speaker Change: The goal is certainly sounds logical, but maybe a few examples might help the group here and then secondly, a follow up on tariffs you said.
Speaker Change: Tariffs are included in your guide, but what is the strategy for dealing with higher input prices.
Speaker Change: Assume that you do have higher prices like is it to pass on higher prices to the customer are you going to EBIT as the franchise going to eat it just kind of a high level there. Thank you.
Speaker Change: Yes sure.
Speaker Change: Okay. So on tariffs Scott.
Speaker Change: Yes, we're looking at all available options to US right now and so we're not prepared to say, specifically, which which lever we're going to pull I can tell you. We're looking at everything that you said.
Speaker Change: Yes.
Speaker Change: Guiding principles around tariffs as we want to do the right thing for the brand we want to do the right thing for our franchise partners and we want to do the right thing for all of our stakeholders. So.
Speaker Change: We're looking at all those different options.
Speaker Change: But what I can tell you is based on everything we know we feel very confident we're going to be able to manage through.
Speaker Change: Navigate through tariffs to be able to deliver on our annual guidance, so but not prepared to tell you exactly what that plan is because it is being developed as we speak.
Speaker Change: And the first question remind me again, Scott what was your first question yes.
Speaker Change: Yes, just some specific examples on the changes youre, making to the marketing front for new customer acquisition.
Speaker Change: Yes, Okay, yes.
Speaker Change: Yes, so keep in mind, we're in the early stages of building out this marketing engine. So a lot of what youre going to hear from me is just blocking and tackling but it's things that as I've said, we feel very good about the work that we're doing the.
Speaker Change: First thing is we talked about implementing this technology in the fourth quarter.
Speaker Change: And that we've been able to leverage that in Q1, and Thats, just simply being able to see.
To develop a link between when a guest.
Speaker Change: Received the marketing impression versus what the guest behavior is in center, that's something a lot of consumer brands that have had we have not had and so what that does is that gives us incredible insight into.
Speaker Change: The best use of our paid media dollars. It also puts us in the best possible position to.
Speaker Change: Run through a test a learning process.
Speaker Change: To get smarter and better at paid media.
Speaker Change: So we've been able to really drive efficiency on our paid media, which has really helped our CPA.
Speaker Change: That's.
Speaker Change: That's been kind of first and foremost.
Speaker Change: And then on the other items that we've been doing is we've been testing different creative messages, we've been testing different.
Speaker Change: Aspects of the creative so how guests feel about different images, how guests feel about different messages.
Speaker Change: And we're really starting to hone in on that right combination that's going to drive.
Speaker Change: The greatest instrumentality.
Speaker Change: So just as I said, just very early innings.
Speaker Change: We've done a lot of research during this period of time. That's also helped inform where we're going from this point in time.
Speaker Change: Got it thank you.
Speaker Change: That concludes today's question and answer session I would like to turn the call back to Chris Morris for closing remarks.
Chris Morris: Okay. Thank you everybody, we really appreciate the interest.
Chris Morris: We look forward to continue to share our results as we move forward have a great day. Thank you.
Unidentified Moderator: This concludes today's conference call. Thank you for participating.
Chris Morris: You may now disconnect.
Chris Morris: Okay.
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