European Wax Center, Inc. (EWCZ) has cemented its position as the leading franchisor and operator of out-of-home waxing services in the United States. With a focus on delivering an unparalleled guest experience and leveraging its extensive national footprint, the company has carved out a dominant niche in the highly fragmented hair removal market.
Company History and Growth European Wax Center, Inc. was formed as a Delaware corporation in 2021 for the purpose of carrying on the business of EWC Ventures, LLC and its subsidiaries. The company is engaged in selling franchises of European Wax Center, distributing unique facial and body waxing products to franchisees which are used to perform waxing services, and providing branded facial and body waxing products directly to consumers at various locations throughout the United States.
Founded in 2004 with the opening of its first European Wax Center location, the company has rapidly expanded its presence across the country. Over the next several years, the company focused on expanding its franchise system, growing from a single location to over 850 centers across 45 states by the end of 2021. This rapid expansion was fueled by the company's asset-light franchise model, which allowed it to scale efficiently while leveraging the investments and operational expertise of its franchisees.
In 2021, the company completed an internal reorganization and initial public offering, which provided it with additional capital to continue its growth strategy. Prior to the IPO, the company was majority owned by affiliates of private equity firm General Atlantic. The IPO and related transactions allowed the company to become a standalone public company, with General Atlantic retaining a significant ownership stake.
The company faced some challenges in recent years, including the COVID-19 pandemic which temporarily closed all of its centers in 2020. However, the company was able to navigate these challenges, with positive same-store sales growth resuming in 2021 as consumer demand for the company's waxing services rebounded. The company has continued to expand its footprint, opening 93 new centers in 2022 and 107 in 2023, bringing its total number of locations to 1,067 across 45 states as of the end of fiscal year 2023.
Under the leadership of its recently appointed CEO, Chris Morris, European Wax Center is poised to enter the next phase of its growth journey. Morris, with over 25 years of experience in operating and revitalizing consumer brands, including franchise businesses, brings a wealth of expertise to guide the company's strategic initiatives.
Financial Performance and Metrics European Wax Center's financial performance has been marked by steady growth and strong profitability. In fiscal year 2024, the company reported system-wide sales of $951 million, a 1.2% increase over the prior year on a 52-week basis. Same-store sales also grew 0.2% during the same period, demonstrating the resilience of the company's core customer base.
The company's asset-light franchise model has enabled it to maintain robust financial metrics. For the fiscal year ended January 4, 2025, European Wax Center reported total revenue of $216.92 million, with annual net income of $14.68 million. The company's strong cash flow generation is evident in its annual operating cash flow of $56.51 million and free cash flow of $55.98 million in fiscal year 2024.
In the most recent quarter, the company reported revenue of $49.74 million and net income of $3.1 million. System-wide sales grew 1.1% year-over-year, although total revenue decreased by 4.6% compared to the prior year quarter.
The company's primary revenue streams come from product sales, royalty fees, and marketing fees. In fiscal year 2024, product sales accounted for 56.0% of total revenue at $121.45 million, a 3.0% decrease from the previous year due to one less sales week and the removal of a COVID-19 related surcharge. Royalty fees, based on 6.0% of franchisees' gross sales, represented 24.5% of total revenue at $53.09 million, a slight 0.5% decrease. Marketing fees, primarily based on 3.0% of franchisees' gross sales, accounted for 13.9% of total revenue at $30.17 million, a 0.6% increase. Other revenue, including service revenues from corporate-owned centers and franchise fees, made up the remaining 5.6% at $12.20 million, a 1.7% decrease primarily due to the sale of a corporate-owned center.
Financials and Liquidity The company's financial position remains solid, with a healthy balance of cash and debt. As of January 4, 2025, European Wax Center reported cash and cash equivalents of $49.73 million and a net debt position of $327.5 million, reflecting a net leverage ratio of 4.5x. This capital structure provides the company with ample flexibility to fund its growth initiatives while maintaining a healthy balance sheet.
European Wax Center's liquidity position is further strengthened by its $40 million available credit line under a revolving financing facility. The company's debt-to-equity ratio stands at 5.95, indicating a significant reliance on debt financing. However, the company's strong cash flow generation capabilities help mitigate this risk.
The company's current ratio of 2.43 and quick ratio of 1.90 indicate a healthy short-term liquidity position, with sufficient current assets to cover short-term liabilities. These ratios suggest that European Wax Center is well-positioned to meet its short-term financial obligations.
In terms of profitability, European Wax Center reported GAAP net income of $14.7 million and adjusted EBITDA of $75.5 million in fiscal year 2024, with adjusted EBITDA margins of 34.8%. The company's strong cash flow generation underscores the inherent strength of its business model.
Navigating Challenges and Charting a Path Forward Despite the company's impressive track record, European Wax Center has not been immune to the macroeconomic headwinds and operational challenges faced by the broader industry. In fiscal year 2024, the company experienced a slight decline in system-wide sales and total revenue, reflecting softer retail product sales and the impact of one less sales week compared to the prior year.
To address these challenges, the company has implemented a multi-pronged strategy under the leadership of its new CEO. Key priorities include:
1. Developing a robust, data-driven marketing engine to drive traffic and engagement with both new and existing guests. 2. Cultivating a more effective, service-based infrastructure to enable franchisee success and operational excellence. 3. Implementing a more sophisticated development approach focused on thoughtful and profitable expansion. 4. Assembling a world-class management team with the expertise to execute on these strategic initiatives.
These efforts are designed to stabilize the business, improve four-wall economics at the center level, and reignite sustainable long-term growth. While fiscal year 2025 is expected to be a transitional year, the company is confident that the execution of its strategic plan will position European Wax Center for a return to positive unit growth by the end of 2026.
For fiscal year 2025, the company has provided guidance that reflects its transitional state. European Wax Center expects 10 to 12 gross new center openings and 40 to 60 center closures, resulting in 28 to 50 net center closures. System-wide sales are projected to be between $940 million and $960 million, representing approximately flat year-over-year growth at the midpoint. Including the impact of expected net center closures, same-store sales are expected to be flat to positive 2%.
Total revenue for fiscal year 2025 is estimated to be between $210 million and $214 million. The company expects gross margin to expand modestly to approximately 74%. Adjusted EBITDA is projected to be $69 million to $71 million, with adjusted net income expected to be $16 million to $18 million. Capital expenditures are estimated to be $9 million to $11 million, of which approximately $6 million is expected to be non-cash.
Competitive Landscape and Risks The out-of-home waxing industry in the United States is highly fragmented, with over 10,000 independent operators and nearly 100,000 beauty salons that offer waxing services as a small part of their broader offerings. This competitive landscape presents both opportunities and challenges for European Wax Center.
On the one hand, the company's unmatched scale, with its network of over 1,000 centers, and its focus on delivering a consistently superior guest experience, position it as the clear industry leader. However, the company faces risks related to its ability to attract and retain qualified wax specialists, manage its supply chain effectively, and navigate the evolving regulatory landscape.
Additionally, the company's franchise-centric model exposes it to risks related to the financial health and performance of its franchisees, as well as their ability to successfully execute on the company's strategic initiatives.
Conclusion European Wax Center's position as the dominant player in the fragmented out-of-home waxing industry, coupled with its proven franchise model and experienced management team, make it a compelling investment opportunity. The company's strong brand recognition, focus on delivering a superior guest experience, and asset-light franchise platform have enabled it to generate consistent financial performance, with system-wide sales of $951 million in fiscal year 2024.
The company's mature centers generate annual cash-on-cash returns in excess of 40%, supporting the franchise model's attractive unit-level economics. The out-of-home waxing market is estimated to be over $7 billion in size, providing significant growth opportunity for European Wax Center.
While the company navigates near-term operational challenges, its strategic focus on enhancing its marketing capabilities, strengthening franchisee support, and driving profitable expansion positions it well for long-term success. The company's Wax Pass program and mobile app technology further enhance the guest experience, contributing to customer loyalty and repeat business.
As European Wax Center continues to execute on its strategic priorities, investors will be closely watching the company's ability to stabilize its business, improve four-wall economics, and reignite sustainable unit growth - key milestones that will shape the company's future trajectory in the dynamic and growing out-of-home waxing market.