Executive Summary / Key Takeaways

• Strategic Reset Underway: European Wax Center (EWCZ) is undergoing a strategic "reset year" in 2025, led by a new executive team focused on leveraging data and technology to reignite sustainable, profitable growth after a period of rapid expansion and macroeconomic headwinds.
• Technological Differentiators Driving Efficiency: The company's investment in a data-rich marketing engine, enhanced analytics, and a technology-enabled guest interface is proving crucial, leading to an estimated 40% improvement in cost per acquisition and a 0.5 increase in visit frequency for engaged guests.
• Solid Financial Foundation Amidst Transition: Despite a narrowed top-line outlook for 2025 (system-wide sales of $940M-$950M, same-store sales flat to +1%), EWCZ maintains its Adjusted EBITDA guidance of $69M-$71M, demonstrating strong operational efficiency and cost discipline.
• Addressing Network Health for Future Expansion: The company anticipates 40-60 net center closures in 2025 as it optimizes its franchisee network, with a clear objective to return to positive net unit growth by the end of 2026 through thoughtful, data-informed expansion.
• Resilient Core Business with Market Leadership: EWCZ remains the undisputed leader in the fragmented out-of-home waxing market, significantly larger than its closest competitor, supported by a loyal core guest base that accounts for approximately 75% of its revenue.

The Enduring Appeal of European Wax Center: A Market Leader's Evolution

European Wax Center, Inc. (NASDAQ:EWCZ) stands as the preeminent franchisor and operator in the specialized out-of-home waxing services sector within the United States. With a history spanning two decades, the company has cultivated a loyal customer base and established itself as an industry pioneer, professionalizing a market estimated at $7 billion. EWCZ's business model, primarily asset-light and driven by franchising, generates robust cash flow, a testament to the recurring nature of its services and the strong brand affinity it commands.

The company's journey has seen significant milestones, from its acquisition by General Atlantic in 2018 to its public offering in 2021 and a substantial securitization transaction in 2022. This period of rapid expansion, while establishing EWCZ's national footprint, also highlighted the need for evolving its operational and marketing infrastructure. By mid-2024, macroeconomic pressures and shifts in consumer spending began to challenge unit economics, prompting a strategic re-evaluation and the appointment of Chris Morris as CEO in early 2025 to lead a pivotal "reset year."

EWCZ operates in a highly fragmented industry, yet it is approximately 11 times larger than its closest competitor, underscoring its dominant market position. This scale provides a significant competitive advantage, enabling universal training standards for wax specialists and ensuring a consistent, high-quality guest experience across its network. The company's well-known, pre-paid Wax Pass program further enhances customer loyalty and convenience, fostering repeat visits that are crucial in the recurring hair removal market. EWCZ's brand trust was recently recognized, being named one of America's Most Trusted Brands in 2025 by USA Today.

At the heart of EWCZ's competitive differentiation lies its commitment to technological innovation and operational excellence. The company leverages a technology-enabled guest interface that streamlines automated appointment scheduling and remote check-in, enhancing convenience and consistency. Critically, EWCZ has invested in building a data-rich, digital-first marketing engine. This platform links marketing interactions to guest visits, providing invaluable insights into advertising effectiveness and enabling a rigorous test-and-learn approach. This has already yielded tangible benefits, including an estimated 40% improvement in cost per acquisition since the beginning of the year. Furthermore, the company has significantly increased its "contactability rate" (SMS/email opt-in) from 38% to 57%, contributing to an average 0.5 increase in visit frequency for engaged guests. These technological advancements are not merely features; they are foundational to EWCZ's competitive moat, driving marketing efficiency, improving franchisee profitability, and reinforcing its market leadership.

Financial Performance: A Foundation Under Reset

EWCZ's recent financial performance reflects a business in transition, balancing strategic investments with a challenging macroeconomic backdrop. For the twenty-six weeks ended July 5, 2025, total revenue decreased by 3.9% to $107.3 million compared to $111.7 million in the prior year. This decline was primarily driven by a 6.4% decrease in product sales to $59.39 million, influenced by reduced transactions at existing centers and the removal of a COVID-related surcharge. Royalty fees also saw a modest 0.7% decrease to $26.71 million, impacted by center closures. However, marketing fees increased by 0.5% to $15.31 million, partially offsetting these declines.

Despite top-line pressures, EWCZ demonstrated strong profitability management. The gross margin expanded modestly to 74.6% in Q2 2025, benefiting from a higher mix of royalty and marketing fees, which flow through at 100%, and ongoing product margin improvements. Adjusted EBITDA for the twenty-six weeks ended July 5, 2025, was $34.62 million, with an Adjusted EBITDA margin of 38.7% in Q2 2025, a significant 420 basis point increase year-over-year. This margin expansion highlights the company's disciplined execution and focus on operational efficiency, even as revenue faced headwinds. Selling, general, and administrative expenses increased by 13.2% to $29.8 million for the twenty-six weeks, primarily due to increased corporate headcount, higher compensation, and professional fees, partially offset by reduced technology and corporate marketing costs. Advertising expenses decreased by 24.0% to $15.4 million, reflecting a more strategic and efficient allocation of marketing spend compared to the elevated investments in prior periods.

EWCZ maintains a robust liquidity position, ending Q2 2025 with $63.9 million in cash and a fully undrawn $40 million revolving credit facility. The company's asset-light, capital-efficient franchise model consistently generates strong free cash flow, with net cash provided by operating activities at $15.2 million in Q2 2025. This financial strength provides flexibility for capital allocation priorities, including potential share repurchases, debt paydown, and future investments. The net leverage ratio stood at 4.2x at quarter-end, or approximately 3.8x excluding recent stock buybacks, indicating a manageable debt profile.

Strategic Imperatives: Realigning for Growth

Under new leadership, EWCZ is executing a multi-pronged strategy to address its challenges and capitalize on its significant market opportunity. The core of this strategy revolves around three key imperatives: modernizing the marketing engine, cultivating a more effective service-based infrastructure for franchisee success, and implementing a sophisticated approach to thoughtful, profitable expansion.

Modernizing the Marketing Engine

EWCZ is building a data-rich, digital-first marketing engine to drive traffic and enhance guest engagement. This involves leveraging advanced analytics to link marketing impressions directly to in-center guest behavior, providing unprecedented insight into the effectiveness of paid media. This improved visibility, coupled with smarter guest targeting, has led to an estimated 40% improvement in cost per acquisition since the beginning of the year. The company is also refining its brand identity and target guest profiles based on extensive research, aiming to resonate with high-value audiences and drive new guest acquisition. Initiatives like the "Champion ad test," evaluating over 100 creative variations, are part of this data-driven approach. Furthermore, EWCZ is focusing on increasing its "contactability rate" to deliver personalized messaging, which has already resulted in an average 0.5 increase in visit frequency for engaged guests.

Elevating Franchisee Success

Recognizing that franchisee success is paramount, EWCZ is cultivating a more effective corporate infrastructure to support its partners and improve four-wall profitability. This includes increasing the capacity of its franchisee support team, delivering over 2,000 touch points, 400 field visits, and nearly 200 labor analytics reports in 2025. New tools for enhanced tracking, accountability, and transparency are being deployed across the system, enabling better identification of opportunities and action plans. This focused support is yielding results, with highly engaged centers showing EBITDA margin improvements of 170 basis points. The appointment of Angela Jaskolski as Chief Operating Officer is expected to further sharpen this operational focus, ensuring consistent service delivery and optimal unit-level performance.

Thoughtful Expansion and Network Health

EWCZ is shifting towards a more sophisticated development approach, prioritizing thoughtful and profitable expansion over rapid unit growth. While the company acknowledges past over-growth that led to some suboptimal locations, it is now focused on identifying underpenetrated trade areas with strong demand. An upgraded market planning tool with enhanced analytics and a rigorous site approval process are being implemented to ensure new centers align with performance expectations and network health. The company anticipates 40 to 60 net center closures in 2025, a necessary step to optimize the network and improve overall unit economics. However, new center openings in 2025 are already ramping above pre-pandemic levels, a positive indicator attributed to a new grand opening playbook and strong franchisee commitment. The long-term goal is to return to positive net unit growth by the end of 2026, driven by this disciplined expansion strategy.

Outlook and Risks: A Prudent Path Forward

EWCZ's outlook for fiscal year 2025 reflects a prudent and realistic assessment of its transitional period. The company has narrowed its system-wide sales guidance to $940 million to $950 million and same-store sales to flat to up 1%. Total revenue is now expected to be between $205 million and $209 million. This adjustment accounts for the slower-than-expected momentum in new customer acquisition, even as initiatives with existing customers gain traction. Despite the top-line revision, the Adjusted EBITDA guidance remains unchanged at $69 million to $71 million, underscoring management's confidence in its operational rigor and cost discipline. Adjusted net income is projected to be between $31 million and $33 million. Advertising expenses are planned to be slightly above 3% of system-wide sales, spread more evenly throughout the year to support ongoing traffic-driving initiatives.

The path forward is not without risks. The uncertain macroeconomic environment continues to pressure consumer spending, particularly impacting new guest acquisition and retail product sales. The company also faces supplier concentration risk for its proprietary Comfort Wax and branded retail products, with over half of its product cost subject to global tariffs. Regional challenges, such as high labor and rent inflation in California, continue to pressure franchisee profitability. However, EWCZ is actively mitigating these risks through diversified sourcing strategies for tariffs and by providing targeted operational support to franchisees to improve unit economics. The strategic focus on data-driven marketing and operational excellence is designed to build resilience against these external pressures.

The company's commitment to returning to net unit growth by the end of 2026 is a key long-term objective. This will be achieved by leveraging its enhanced market planning capabilities and partnering with strong franchisees to ensure thoughtful, profitable expansion. The investments in technology and talent, including new executive hires like the Chief Operating Officer and Chief Development Officer, are critical enablers for this future growth.

Conclusion

European Wax Center is at a pivotal juncture, undergoing a comprehensive strategic reset designed to fortify its foundation and unlock its significant long-term potential. As the undisputed leader in a fragmented yet stable $7 billion market, EWCZ's core strengths—its resilient brand, loyal customer base, and asset-light franchise model—remain intact. The company's intensified focus on leveraging data-driven technology for marketing efficiency and operational excellence is a critical differentiator, enabling it to drive guest engagement and improve franchisee profitability even amidst a challenging macroeconomic landscape.

While 2025 is projected as a transitional year with anticipated net center closures, this strategic pruning is a deliberate step towards a healthier, more profitable network. The unwavering Adjusted EBITDA guidance, despite a narrowed top-line outlook, highlights management's disciplined execution. With a clear roadmap to return to thoughtful net unit growth by the end of 2026, EWCZ is positioning itself to capitalize on its competitive advantages and technological leadership, promising a compelling long-term value proposition for discerning investors.