Q3 2025 European Wax Center Inc Earnings Call
Speaker #1: Good and thank Welcome European Wax day to the quarter 2020 Earnings Center . Third . only At standing speakers all participants on a question the and answer Call during this time , .
Speaker #1: Good and thank Welcome European Wax day to the quarter 2020 Earnings Center . Third . only At standing speakers all participants on a question the and answer . one one on your mode .
Speaker #1: After telephone . your hand hear an is automated your Please be one advised message that today's session conference is advising recorded . being now like to I would conference over to your press Tom hand the Kim , will need raised .
Speaker #2: European Wax Center, Inc. third quarter Fiscal 2025 Earnings Chris will provide an . Year On details additional welcome to regarding
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While her work is only beginning. Angela has already taken a more granular. Look at incident operations and has been active in the field. Working closely with franchisees to demonstrate. How elevating the guest experience can meaningfully Impact Center performance.
1 of Angela's key. Priorities is digging deep into the factors. Within a Cent's control, which we know have a direct impact on sales and retention.
Her team is focused on ensuring franchises have the tools, insights, and resources they need to strengthen operations and ultimately improve profitability.
We believe this disciplined focus on Center. Controllables is critical to driving stronger unit economics and delivering a consistent high quality guest experience across the system.
In addition, performance and Q2 and Q3 confirms the role of franchisee engagement and Hands-On support in driving performance.
We've continued to expand in Center coaching and training, resources, to ensure every franchisee can assess and Implement best practices consistently while also exploring ways technology can unlock additional upside at the unit level.
These learnings from 2025 are shaping a comprehensive operational strategy for 2026 focused on closing training and infrastructure gaps. Enhancing build support and franchising engagement and driving, greater consistency and stronger Center profitability across our Network.
Finally, our third priority is grounded in advancing. A disciplined development approach that supports thoughtful, profitable expansion.
Under the leadership of Curt Smith, our new Chief development officer. We've completed a deep network analysis to help us prepare.
For the remainder of 2025 and 2026.
Our development and operations team have also launched a focused effort to strengthen unit economics.
Mitigate future closure risk and improve network health.
Through our analysis. We've identified centers that are ramping more slowly and determined where we believe Target adaption can make the greatest impact especially in attractive markets.
We're working directly with these franchises to strengthen performance through targeted, Operational Support.
Training and local marketing.
Improving unit economics, across the system, remains essential to reducing closure risk over the long term.
This reflects both timing shifts and anticipated closures and the traction we're seeing in our strategic initiatives, with franchisees, as we thoughtfully assess, which centers should remain in the system.
Looking ahead, our Focus turns to 2026,
where we're working closely with franchises to refine development plans.
That reflect the timing of 25 closures.
And continued progress on our strategic initiatives.
Our class of 2026 openings are taking shape, and we believe we remain on track to return to positive net center growth by year-end as development momentum builds throughout the year.
We continue to prioritize new centers and markets with strong demand and solid unit economics to support sustainable, profitable growth.
Encouragingly our 2025 class continues to ramp above pre-pandemic levels.
Underscoring the commitment of our franchisee Partners in the effectiveness of our grand opening Playbook and we're applying those insights in an effort to set our 2026 openings up for success.
As we look to finish the year. Strong, I'm confident in the path. We're on, in the progress we're making.
We are confidently, taking action, having built the better data sharper. Insights in a clearer view of what's within our control to keep the system healthy and moving forward.
We're using that visibility to make smarter decisions focused on the levers that matter most and drive consistent execution across the business.
While results can fluctuate quarter to quarter. We believe the work we're doing now is building lasting strength and setting the stage for sustained growth.
We have the right leadership, the right strategy and the discipline to stay focused on what drives performance.
With that, I'll turn it over to Tom to walk through a Q3 Financial results and share more about our outlook for the year.
Tom.
Thank you, Chris. Before I begin my remarks, I'd like to remind everyone that our discussion of growth rates on this. Call will refer to the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024.
Now, to our results.
We delivered another solid quarter, underscoring, the progress, we're making on our strategic priorities in this pivotal transitional year.
Our performance reflects discipline execution, a strong business model and a continued momentum in the initiatives that are strengthening our foundation for sustainable growth.
Same-store sales grew 20 basis points year over year.
Systemwide sales decreased 8% to 20038.2 million driven primarily by the impact of closed centers.
As we continue to build out our marketing and operational capabilities under our new leadership team. We are gaining clear visibility into what's driving performance and where targeted actions can strengthen guest engagement and traffic.
Cam Trends were strong through July and mid August before. Softening in the latter, half of August and September. This was driven in part by short-term factors within our control that we've since addressed.
The utilization of our enhanced Data. Insights has already informed changes across the system, and we expect to see the benefits reflected in mature Center traffic over the coming months.
We ended 23 with 1,053 centers down, 1% year-over-year.
We opened 3 growth centers during the quarter and closed 9 result in 6, net closures, which was better than our expected closure range of 15 to 16 by a shift in the timing of anticipated closures and the progress. We're making in our strategic initiatives with franchises.
Total revenue of 54.2 million decreased approximately 1.2 million or 2.2%.
Primarily driven by lower contributions from wholesale product and Retail Revenue, as a percentage of systemwide sales.
As expected gross margin increased modestly to 73.3% in part, due to a higher mix of royalty, marketing fees and product margin improvements.
Sgna expenses. Decreased 4.5 million to 13 million.
Primarily driven by timing of payroll and benefits. Professional fees and marketing spend
advertising expense decreased 0.8 million dollars due to the timing of spend within the fiscal year.
.4 million in the prior year, period.
Adjusted ibitta margin increased, 400 basis points to 37.2%.
This reflects our continued focus on profitability cost discipline and operational efficiency, all of which contributed to significant margin Improvement.
Q3 results. Also benefited from the timing of certain operating expenses including marketing and Technology spend tied to our strategic initiatives.
Which will shift into the fourth quarter.
Net, interest expense increased to 6.5 million from 6.3 million in the prior year and income tax expense increased to 2 million from 0.8 Million last year.
Adjusted net income, increased 14.2% to 10.7 million from 9.3 Million last year. Lastly, as a housekeeping item. As of November 7th, 2025 there were 43.7 million class, a common shares outstanding and 20.7 million potentially dilutive shares related to class B shares and outstanding Equity Awards.
turning now, to the balance sheet,
R40 million dollar revolver remains fully undone and we ended the quarter with 73.6 million in cash and 387 million outstanding under our senior secured notes.
Our net leverage ratio at quarter end was 3.9 times, and would have been approximately 3.7 times excluding the $16.1 million in stock buybacks executed over the trailing 12 months.
Which includes 4 million and excise tax related to 2024 BuyBacks.
As of quarter end we had 4.1 million remaining under our current fifty million dollar, share repurchase authorization.
Our franchise model continues to produce consistent free cash flow providing us both the flexibility and financial strength to maintain a discipline Capital allocation strategy.
In Q3 year to date. Operating activities, generated 45.2. Million in net cash compared to 2.2 million of investing cash outflows
Our whole business securitization structure remains a source of stability, allowing us to meet debt. Obligation safely, invest in the brand and maintain a healthy balance sheet, and a dynamic macro environment.
Turning. Now, to our current outlook for the balance of 2025.
Starting with our unit expectations for the year, we are narrowing our closure range to between 35 and 40, which reflects timing shifts and anticipated closures, as well as progress made on our initiatives to strengthen the health of our network in partnership with our franchises.
We continue to expect 12 Grouse openings and 2025 resulting in 23 to 28 net Center closures for the full year.
Moving to our financial Outlook as we've discussed in Prior quarters. Our guidance for 2025 reflects a balanced view of our transformation progress and the expected timing benefits from our strategic initiatives.
As we approach the end of the year, our results are tracking within our previously, communicated Outlook. Enabling us to reaffirm our financial guidance for the year.
We continue to expect systemwide sales of 940 to 950 million, and same Source sales to be flat to up 1% for the full year, our adjusted ebit to Outlook remains unchanged at 69 to 71 million, reflecting continued discipline, execution, and cost management.
Full year revenue remains in the range of $205 to $209 million, reflecting stable transaction trends and initiatives to support franchisee health.
while we continue to see steady progress across our strategic priorities,
new guest acquisition remains pressured and we expect to see more Improvement in 2026.
We continue to plan for advertising expenses, slightly above 3% of systemwide sales.
On tariffs, we've continued to stay ahead of potential impacts by partnering closely with our suppliers and further diversifying, our sourcing.
These ongoing efforts to optimize our supply chain.
Give us confidence in our ability to manage cost pressures and maintain our eita Outlook.
Finally, we continue to expect adjusted. Net income between 31 million and 333 million reflecting an approximately. 23% effective tax rate before discrete items.
In summary, our financial guidance remains unchanged, and the progress we've made to date gives us confidence that we're on track for the remainder of the year.
Analytics to refining our marketing. Playbook is beginning to take hold.
We're encouraged that. These initiatives are reinforcing the foundation of our business and positioning us for sustainable long-term growth,
As we continue to execute with focus and discipline, we expect to see greater consistency and stability in our topline performance.
We remain confident in our ability to navigate 2025 within our expectations and position the brand for Meaningful growth in 2026.
With that operator, please open the line for questions.
Thank you as a reminder, to ask a question. Please press star, 1, 1 of your telephone, and wait for your name to be announced.
To withdraw your question, please press star 1 1 1 again.
We ask that you please limit yourself to 1 question and 1 follow-up.
Our first question comes from the line of Scott Ciccarelli with Truist. Your line is now open.
Hey, good morning. This is Josh Jung on First Scott. It sounds like the revamped marketing efforts are showing solid early results in terms of re-engaging some of those less frequent guests. Can you just give us any quantification in terms of the lift that you're seeing there? And how do you think that can look as we move into 2026?
Yep. Hey Josh. Uh, this is Chris
um yeah, here's what I can tell you is um
We are seeing. Yeah, so there are three main things that we're focused on for topline growth. One is marketing tactics aimed right at existing guests.
2 is um, a focused effort on new guest Acquisitions and 3 is Ops execution.
Um so your question is more around, existing guests, we have seen uh quite a bit of ability. Now that we have developed robust reporting around our guest behavior and we're able to group our guests into a certain set of routines.
We have more insight than ever before into how to intercept those guests to drive behavior going forward.
Adding to that has been our focused effort partnering, direct with our franchisees to grow our contactability uh number. So when we started the year, we only had the ability to contact about 38% of our guests today. We have 60%, we have an ability to contact 60% of our guests. Um, and so as you can imagine, that just gives us so much more opportunity to engage with our guests. And we know when we do that we have that we have a greater chance of being able to drive Behavior going forward. And so through that effort we have been able to very Focus through a focused effort to take a non- routine, guests and start to drive them into routines and we are seeing an improvement.
Improvement in our frequency. Uh, I don't, you know, I really don't want to get into uh, the habit of disclosing, you know, specific frequency numbers across all those different bands. But I can tell you that we've seen meaningful progress in in that ability and it gives us a lot of confidence as we move forward.
Got it. That's helpful. Thank you.
Yep.
Thank you. Our next question comes from the line of Dana Chelsea with Chelsea Advisory Group. Your line is open.
Hi, good morning everyone. As you talked about the Cadence of the quarter, what did you notice about your core consumer? How is it different? How is it the same? What are you seeing from wax? Past sales and how is that trending and Regional Trends, anything California versus other areas and then I just have a follow-up.
Okay, all right. Good morning. Dana
Um yeah, this business just continues to be very stable uh wax past sales. We're we're seeing a slight uptick on a year-over-year basis, in wax past sales. When we look at our total core guest, uh, our core guests, it's it's very stable. It's been stable throughout the entire year.
Um so you know we're not we're not seeing any meaningful movement there. Um and so that gives us, you know uh that stability just reinforces our confidence as we move forward. Our big opportunity is everything that I just walked through with Josh, our big opportunity going forward is to build on that stability by 1.
Engaging with our existing guests to drive, more frequency, uh, to partner with our operator, our operators to drive more new guests, uh, retention and 3 to continue to build on all the success that we've seen on our marketing tactics around new guest acquisition. So when all that comes together, you know, we believe, uh, we're going to be poised for long-term sustainable growth because we're starting from such a strong position of strength.
You know, not many brands have the stability that we have in this brand.
Where we continue to see, you know, uh, more weakness is in areas like New York, Philadelphia DC. Um, but I'll having said that, I'll tell you. It's not a situation where you have 3 or 4 markets pulling down the entire company. Uh, we see you know relative consistency across the entire country. But, um, if there's, you know, more weakness in 1 area or the other, it's those 3 areas, New York Philadelphia and DC. But uh, we we've seen some improvement in California.
Forward.
Thoughts on.
More closings? Less closings? Are openings there? Is there any difference in the cost of opening different construction or configuration of a center that you're looking for, and how you're thinking about closings going forward? Thank you.
Yes, sure.
Um, so we are in the throws right now of building out our our business plan for 2026 and partnering directly with our franchisees on what those business priorities are. And so, in February, the next time we get in front of all of you, uh, we will provide, um, guidance on exactly how we see 2026 playing out. Uh, what I can tell you is, uh, we're very pleased that, uh, we're now narrowing, the range on closures. We started the year saying 40 to 60, and now we're saying,
You know, 35 to 40, um, and some of that is timing. So some of those uh, closures are moving into 2026 and some of it is just improving the partnership with our franchises and starting to make progress on our initiatives. Um, so we do expect closures next year. We're, we're still in the process of sizing that up. What I can tell you is, um, with respect to knossos, uh, we, we continue to, uh, Target that by the end of 2026, we will return
To net Positive Growth from that point forward. So um that's that's consistent. We've been saying that from, you know, from from the beginning of 2025 and we still believe we're on track to do that. So the way that'll play out next year is um, they'll they'll be, you know closures in the beginning of the year. But then when we move to the end of the year, we'll be in a positive position. And you have to remember that when we started basically our NCO development was on pause. So in order to go from something that's on pause to returning to growth
You know, there's there's a lag time. Um we're still we're working closely with our our franchises on sizing up what growth looks like next year and we're pleased with that Pipeline and and how that's shaping up and I'll share more of that with you in February.
Thank you. Our next question comes from the line of Jonathan cop with beard. Your line is now open.
Yeah, good morning. This is Alex Conway on for John. If I could just ask again about the units, you you, as you just mentioned, cutting cutting the guidance for, for closures for this year, what are you still seeing out of the units that are having to close? What's, what are the main hold up and what's really giving you that confidence that those pressures are going to alleviate by the second half of next year?
Um, so the the the units that are closing are very are low volume units. And they've been, you know, low volume units from day 1. Uh, and the reason they're low volume is just a variety of different reasons. Um, you know, bad real estate, uh, you know, bad Market. Um,
you know, in some cases, you know, uh, franchisees just had, you know, some other, uh, unique circumstances that they were managing through
But but it's mainly it's just all low volume units and uh and so we've worked closely with them and to understand you know, what's the you know, where is this unit? Uh how is this unit performing? Uh,
The risk of closure, uh, here in 2025. And, as we look for 2026,
um, in terms of, you know, our confidence that, you know, by the end of 2026, um,
you know, we'll be back into NCO Positive Growth territory is
You know, we've got, you know, we really have our arms around just the, the overall health of the portfolio. And so we we feel confident that we
Um, have a good grip on where the risk is and, uh, and our communication and partnership with our franchises, just continues to get better and better.
And so that gives us, you know, confidence that, uh, we're not going to be surprised, you know, in a material way. And then, secondly, we are seeing, you know, a lot of green shoots throughout the business. And so, as our team has dug in and worked directly with our franchisees, it's becoming very clear where the opportunities are. And what has me excited is not only do we know where the opportunities are, but there is a shared passion across the network for.
Addressing those opportunities. So we're seeing improvement in our ability to, uh, you know, Target existing guests to drive frequency. We're seeing improvement in our ability to effectively, um, scale. Our Acquisitions on new guests. Um, new guest Acquisitions, and we have alignment on what we need to do operationally and improved reporting to high.
Light where the opportunities are. And I just believe the combination of all that is going to
You know, put us in a position to where we can really start seeing some improvement in the 2026.
Great, thanks. Thanks for all that color. And then maybe just as a follow-up on the modeling side, it seems like through the first 3 quarters, you drove decent, uh, even a growth year-over-year and obviously guidance is is showing that below for the full year. Are there any unique factors to Q4 that we should be thinking about that that's kind of causing causing the lower year-over-year growth?
Uh, thanks, Alex. So what we comment is, uh, we still uh, believe in the full year guidance, so that holds, uh, relative to Topline with our comp trajectory and what we're seeing in the system. Uh, and then
And then on the bottom line, standpoint uh as we've guided and reiterated to the ibitta uh that still holds as well. And we're very confident uh, in delivering against that. Now, when you take the 2 components of a Top Line and bottom line, and what that implies, uh, you can see that from a, a yearly standpoint, the adjusted ebit the target, uh, ranges in that 34% range. Uh, when you look at and take a step back and look at the whole year as a whole, uh, and this is what you're calling out there. There are some, uh, timing. Um,
Situations going on that. Uh, uh, will play out through the year but uh, we are very confident as as you look through the modeling and you level out through the year to those targets, uh and the bottom line implication um that that's the Dynamics that uh will play out in Q4.
thank you as a reminder to ask a question at this time, please press star 1 1 or your touchtone telephone,
Our next question comes from the line of Simeon Goodman with Morgan Stanley. Your line is now open
Hey, good morning everyone. At first, I want to ask about new guest acquisition. It seems like it's a big big piece of the, the 3-pronged approach. Can I ask what your hypothesis is on? What is holding it back? Um, if there's anything regionally, its broader marketing, if there are certain markets that are just more mature. So you know what, why has that been tougher than you've expected, uh, to turn?
uh, combination of factors, you know, 1 just having um,
you know, robust data, you know, having the right, uh, data analytics to gather the right insights to then know what decisions to make and how to Pivot, um, our team, you know, we've now I've been with the company now for 10 months and then I have, uh, feel very fortunate that I've been able to attract
Old and we feel much smarter and uh and we're seeing the results of that that um improved intelligence actually making an impact on our ability to scale.
So, um, just being able to build all that out has taken some time.
Um, I would say, you know, our brand you see us, uh, I I mentioned in the prepared remarks, that we hired a new brand agency, um, to work with us, uh, closely on um, developing a brand identity that is will help us make more progress in high valued Acquisitions. And so we think that there's there's a big opportunity to just inject new life into the brand. And we're, we're doing that in close partnership with our franchises as well. Just so we can use leverage all of their years of experience with this brand to help guide that. But we're very excited about that work. And, um, that's underway right now. Uh, and, uh, we will be, you'll, you'll start seeing that show up in, in the market in 2026. So a combination of
You know, the right intelligence along with a freshened lively, um brand, uh, aimed at um, you know, High valued Acquisitions, but we think that combination is really going to pay off.
Okay, and um, thanks for that. And the follow-up is, can you give us a sense of guest, Count versus ticket in the quarter and then what is the right model or mode for the business? Is it flat guest count? I'm sure you'd want it up, but can it, can it be flat-ish and then you can grow with price, or it has to be positive, guest count with, you know, some level of price as well.
Um we don't our our reporting practices. Are we don't provide uh that level granularity that breakdown. Um, but to answer the second part of your question,
you know, ultimately the, uh,
we want to drive traffic into the centers, we believe that's that is that, that is our very sharp. Focus is to generate long-term sustainable traffic, count growth. Uh, I do think in the realities of of the business, uh, we can't do that just alone. We have to also be mindful of ticket and so we're trying to take a really balanced approach. Uh so this will never be you know, you're not going to see our team driving traffic uh through promotions. Um you know a deep discount and promotional type of tactic
Uh, we're going to be very conscious of attacking both sides of that. So ultimately, we want to get to long-term sustainable traffic, count growth along coupled with smart ticket growth and that ticket growth can come in the form of price increases as well as um, add-ons. So, as we are focusing on building out, uh, the reporting the capabilities to be able to engage with our existing guest.
It puts us in a better position.
To, um, deliver a message to that guest in a way that's going to resonate to drive more incremental spending either through services or retail products.
And so that's, you know, ultimately that that would also Drive ticket, so it's not just going to be price, it's going to be a combination of all of those.
So that was a long way of saying, we're going to take a balanced approach.
Thank you. And I'm currently Sean no further questions at this time. I'd like to now turn the call back over to Chris Morris for closing remarks.
All right. Thank you everyone. Thank you for your time today and your support, we look forward to sharing with you. Uh our progress update in February and walking through our plans for 2026. Have a great day.
This concludes today's conference, thank you for your participation. You may now disconnect