Why do you feel like you're the right fit to get this company back on track?
Well, first of all, thanks for having us. I'm incredibly excited to be back in the day-to-day seat. Although, probably a year ago, this wasn't exactly as I'd drawn it up on the game plan. But really excited to be back in the day-to-day operations. I recognize a lot of familiar faces, so but for those of you that don't know and might be listening, I was the CEO from 2018 to 2023. We IPO'd, as you mentioned, Korinne, in August of 2021. We grew the business from just under 700 centers to over 1,000 centers during that time, and now just about 1,100 centers.
Double-digit growth from a top-line standpoint, doubled our bottom line, and returned over $200 million of capital to shareholders during my tenure as CEO. So I, the board, we made a decision that at kind of this juncture of European Wax Center's journey, it just made sense to have a leadership change, to really get focused back on that growth agenda. Incredibly excited to be back. About four weeks in the day-to-day seat, back in that. Incredible welcome by associates and by our franchisee team, and we're here to really get hyper-focused on a couple things that are gonna get us back to our growth initiatives.
Great. And maybe let's go to the both of you to understand, you know, what exactly has been going on with the business a little bit more recently. In August, you did revise your guidance due to the slowed volumes that are no longer expected to accelerate in the back half. Maybe let's first touch on what's going on here. Where are you seeing that softness? And you've previously talked about that routine guest being a little bit more resilient. So if it's not the routine guest, where is that softness coming from? And really, what gives you confidence in your core routine guest staying pretty resilient?
Yeah, let, maybe I'll start, Stacie-
Sure.
-and then, I think, Korinne, it's really important to know this is still a phenomenal business model that has attractive returns for us as the franchisor and for our franchisees from a four-wall standpoint. The softness, clearly, we, you know, the biggest guidance takedown, I think, was around new center openings. We've talked about sort of this inextricable link between financial performance, driving new guests, driving transactions, and growth, and unit growth. We believe that to be true. That's what's fueled our growth, our predictable growth over the past-
Mm-hmm.
- five or six years. And we've seen a slowdown in our new guest count, we've seen a slowdown in our transactions, and that really is what led us to have the conversations with our franchisees about what made sense. And we talked very deliberately about a temporary pause to really say, "Okay, let's not, let's, let's take the foot off the gas a bit on development and really get focused on driving." So if you come to my office, on the whiteboard and on my front door, it says, "Attract them, retain them, and get them back.
Mm-hmm.
And those are the three things that we're focused on. Again, I feel really great about the partnership we've got with our franchisee, particularly our franchisee leadership team, as well as our associates, to be hyper-focused on those things. And what I said at the outset, we had some things that were helping drive those three key initiatives. We just need to do some more things, and that's what-
Yeah
-that's what we're working on. And Stacie, you want to comment again?
Yeah, yeah. No, I would just a couple of things. One is, as you mentioned, that routine guest, right? Well, that routine guest for us is our core guest is our routine guest and our Wax Pass guest, which that guest continues to come and continue. You know, they continue to. Their dollars that they're spending are the same, the frequency is the same, and that's about 75% of our system-wide sales.
Mm-hmm.
The issue is that we just aren't bringing in enough new guests, right? We need to bring in more new guests to fill that funnel as we, you know, fueling the growth that we've had from a unit basis. A couple of things I would say that are working, we did introduce a new playbook in the first quarter in March to our, you know, for our new centers, and we've seen phenomenal improvements. Very small database at this point in time, but we're very pleased with what we've seen there.
Mm-hmm.
And some of the initiatives that we talked about and that was in that initial guidance at the start of the year, we're seeing some, you know, some green shoots there. It's just not as much as what we need it to be in order to maintain the original guidance. We are seeing some of it, you know, resonate with guests-
Mm-hmm
-but just not to the degree we need to at this point.
Great. Great, that's really helpful. And as it relates to kind of the trends you're seeing, some of the comments we hear from investors is: is it coming from the franchisees, and how motivated are those franchisees to really drive a higher AUV? Maybe you could speak a little bit to how you view your relationship with the franchisee base, how you see that progressing, now with David back in the seat. And, you know, is that something where you think that you could drive a lot more improvement going forward?
Yeah, it's a great question, and it's fundamental for any franchisor to have great relationship with the franchisees. I guess that just is sort of a condition precedent. I've spent a lot of my career in franchising, and there are very few instances in my career where a franchisor's interests have been misaligned with a franchisee interest. In this case, we are absolutely aligned. We need to get this business back to a growth business. I think two weeks after I came back in the seat, we convened a meeting with five key franchisees that make up a significant portion of our overall franchisee base. Had a five-hour in-person meeting with them.
I've had phone calls with multiple franchisees over the past four weeks, to really understand what's going on, what are they hearing. They're the ones that are closest to our guests. They're the ones that are operating our centers, and I think there's absolute alignment. You know, we have a common goal to really get that core business back on track. We're tracking ten key actions with our franchisees, and I said to both our associates and our franchisees, "As smart as Stacie is and the ELT is, we need help. And we need help from our associates, and we need help from our franchisee partners, and we absolutely have that.
So I feel great about, you know, sometimes in crisis comes an opportunity to really know that you're in the foxhole together, and that's where we are. So I couldn't be happier and more appreciative of the support that we've gotten from our franchisees early on, and we're gonna continue to work with them to drive this business forward.
Mm-hmm. Great. And I mean, part of the, you know, the initiatives to get the business back on track is Operation Elevate.
Mm-hmm.
You did touch a little bit on that. Can you just maybe go through the building blocks of that? And, you know, when should we start, you know, kind of expecting to see that impact the model a little bit more? How far into Operation Elevate are you? When is the finish line, and when should we start seeing those changes really materialize?
Yeah, probably at the risk of scaring my ops team, there's never a finish line. We're gonna continue to have, you know, work on continuously improving, continually elevating the business. The test happened, what? Eight or nine months ago-
Yeah.
that we started it.
[crosstalk]
Very deliberately.
Mm-hmm.
We now have on track for 2024, 250 centers, and we'll do another 400 centers next year. So this is something we're just rolling through the system. What's important is not just that we see initial lift, and we're looking at things like services per ticket, average sales, Wax Pass conversion, all those key KPIs that really move the needle for our franchisees at center level. But to take a retrospective look, to do a postmortem, to make sure that we're sustaining-
Mm.
Those lifts. We obviously see a lift when that team goes in, but we wanna make sure that we go back and say, "Okay, these are the actual things that are helping drive the business," and we feel good about that. Early days, but we're gonna. We feel like we've got the staffing model right now with our franchisees, or sorry, with our field trainers and our franchise business consultants, and this will be just something again, it's back to that focus, really getting us focused on those key things that help drive franchising.
Yeah
-forward.
Yeah. Maybe you could touch a little bit on, you know, just the general macro as well, and how that's impacting maybe your more episodic guests. You have said, like, the routine guest is pretty resilient. You are struggling to get new guests in the door, but what about those episodic guests that I believe you say make up, what? 20%-25%-
Yeah
-of the business. How is the macro impacting those folks? And then in past tougher macro environments, how would you say the business has fared, and how does that, you know, relate to what you're seeing right now?
Yeah. So we're trying to change a little bit of the vernacular about core, which is our-
Mm-hmm
-our routine guest and our Wax Pass holder, and then not core, and that's more the seasonal or episodic guest that we've referred to.
And new.
And new guests.
Mm-hmm.
Yeah, thanks, Stacie. So the brand was founded in 2004 , so I wish I had great data from kind of the 2008 timeframe. We had a handful of centers. Probably our best analog is how we rebounded coming out of COVID, when obviously-
Mm
-the entire system was shut down, and as we opened back up, saw that pent-up demand, saw our ramps go back to kind of where they were, and then that core guest come back part of their regimen. The macroeconomic situation, we can't ignore sort of it, it is what it is, and our guest survey work, we certainly hear from our guests, and they cite the number one reason that they've either slowed down their routine or they haven't, they're not coming back, is because of the economic situation, and it's a pinch for them. So that gives us an opportunity. If I look at that bucket on how do we retain you?
If we get you in on that first wax, how do we make sure that you're coming back in forty-five or sixty days? And similarly, lapsed guests, so we define lapsed guests, from a temporal standpoint, somebody who hasn't been in the center for twelve months.
Mm-hmm.
We've got a database there now, much stronger CRM capabilities, to go back after that guest and candidly think about what are the right incentives to get it back? Is it enough just to say, "Korrine, we haven't seen you in twelve months, or do we need to get you some incentive to come back into the center?
Mm.
So, we think that's an opportunity, but we've kind of just said, "Hey, listen, it is what it is." I use this analogy, we're playing on a really slippery, icy field. That's what it is. That's the macroeconomic situation is where it is, and we've got to understand that's the environment we're in and go fight to win it.
Yeah. Is it something where, you know, maybe you would think about pricing actions or heavier promos or offering more value to the consumers to, to make it more enticing?
Yeah, I think, I, I don't think we're ever gonna have to be a discount brand.
Mm-hmm.
That's not who we are. I think getting discipline around promotions, we've sort of trained our guests to wait for that promotional period to buy that Wax Pass. So query, are there other ways that we could present a Wax Pass and a more sticky membership model? Things that we're looking at. I think as, as you know, technically, you know, the franchisor recommends prices, pricing, or we can talk about elasticity studies. It's up to the individual franchisee to price.
Mm-hmm.
We have those discussions going on with our franchisees about what makes most sense, but I don't, again, I think we've got the right as the undisputed leader, given our market share, that we can charge a premium over what the mom and pops are, but obviously mindful of the elasticity of our pricing as well.
Yeah. Yeah.
Looking at, are there other opportunities within that Wax Pass? You know, we've talked about a new guest Wax Pass, which is a three plus one.
Mm-hmm.
So again, it's getting that and getting that stickiness.
Yeah.
Because as soon as we get them to convert, then they're pretty loyal, right?
Yeah.
Even testing other things, is there a six plus two? Those sorts of things to see if in this time, when guests are more economically pinched-
Mm-hmm
-is there a way to get them to convert?
Yeah. What about the other services you're starting to offer, like the brow tint or even the laser? Are you seeing those services be maybe either more resilient or a little bit more vulnerable to macro pressures than the broader waxing service?
Yeah. You wanna talk to the services, and I'll.
Yeah, yeah. So, from brow tint, right? We're just in the kind of really in-
Mm
-the throes of pushing that out. We think that there's a great opportunity because as you think about all of our services, for the most part can be done in fifteen minutes, and so certainly an eyebrow well within that fifteen-minute range.
Mm-hmm.
So throw on, you know, a brow tint, and it's just added margin for that, you know, center's profitability. So we are very excited about that, but we're in the very early days of rolling that out.
Yeah.
We have to go through a whole training unit process-
Mm-hmm
-et cetera. What was the second? Oh, you want to talk about laser.
I'll touch on laser. Yeah.
Yeah.
We've rolled out laser in New York with a great franchisee partner that has piloted that for us. We will have 30 centers piloting laser. We're gonna move into some other geographies where it's a little bit more difficult from a regulatory standpoint, so that we can learn, and I think that laser has, to me, to me, we started with, Does a guest give us permission? Does a brand give us permission to do this?
Mm-hmm.
I think as the undisputed leader in out-of-home waxing, I think we have the right to be the undisputed leader in out-of-home hair removal, regardless of modality. You've heard me talk before about being focused, and I don't want to be six rings outside the bull's-eye. I think laser is, you know, half a ring outside the bull's eye.
Mm-hmm.
While we're seeing good results, we need to do more. We've, I think, been very consistent with our message about we're gonna learn deliberately here on laser. And again, with great partners, we've got a number of franchisees that are interested in, but we need to continue to figure out how to get cost of acquisition down to an acceptable level. What is the right bundling? What's the average ticket have to be? And as we think about kind of that pro forma model, what can it add to a franchisee's four-wall? We still feel good about it, but we're gonna continue to be very thoughtful kind of about our growth-
Yeah
-in that and in our testing.
Yeah. Great. Maybe Stacie, let's turn to you. In the revised guidance that you laid out a couple weeks ago-
Mm-hmm
-you know, you did note that the bottom end does allow for maybe some greater disruption. Maybe you could speak to how you're seeing things trend over the past couple weeks. Is that disruption starting to materialize any further, to the extent that you can comment, and then as we think about the higher end of the guidance range, what does that all entail?
Mm-hmm.
And how much flexibility for the macro have you really baked into that range?
Sure, sure. So when we did our Q2 call, the guidance that we gave to, just so everyone knows, right, we brought down that top-line guidance to $930 million-$950 million. That $950 million basically assumes that there's really no change necessarily in the macro, and also assuming that the initiatives that we have in place, that we're not gonna all of a sudden see a ramp-up in those. So we feel like that was kind of the prudent thing to do, given the bring down that we were doing. And as you said, the bottom end of that range does assume that there could be a downtrend. We haven't updated anything from that point, but at that point, it was based on the trends that we were seeing as the early innings of Q3.
Great, great. And then as we think about, you know, heading into, say, twenty twenty-five and beyond the next couple quarters, how do you see that progression playing out, both from, like, the macro side and your initiatives with Operation Elevate and the franchisees? When should we start to be, you know, expecting more of that acceleration to happen?
So a couple of things. On Operation Elevate, you know, we said we'll be in about a quarter of those. At this point, when we have a 60-day look-back, that's, you know, around 90 centers.
Mm-hmm.
So it's still a very small amount. So we'll, it's, it's one of those that's going to, we think will be meaningful-
Mm-hmm
-just based on the early reads, but it's gonna take a little bit of time to get there. I think that, you know, the other initiatives that we put in place from a marketing standpoint, as I said, we're starting to see some of those, but it's really all about trying to get this new guest in.
Yeah.
And so we don't have that visibility quite yet as it relates-
Mm-hmm
-to twenty-five, to see, but we do believe we're building those, y ou know, we have those building blocks in place, and as David mentioned, the focus that we have on that new guest, that last guest-
Mm-hmm
-you know, those things will start to deliver.
Yeah. Yeah. Great. Also on the call, you did lower the unit growth outlook due to some extended opening timelines that you've implemented. Maybe could you speak to, you know, how long that extended timeline is expected to persist initially? I think you have said, too, that once tickets and new guest trends are back on track, maybe the unit growth will start to come. Any progress there that you can update us on?
Yeah, I think we called it, Korinne, sort of deliberately a temporary pause.
Mm-hmm.
Not an easy decision to make, but I think absolutely the right one for the business at the time, which was, again, get us back to get focused, work with our franchisee partners on driving that core business. And candidly, as we talked about sort of the positive results we've seen with our early look at the playbook for 2024 NCOs, new center openings, we need to work that back to 2022 and 2023 cohorts.
Mm-hmm.
Those have not been ramping at the levels that, that we expect, that our franchisees expect. So when we get that, again, that inextricable link back to driving more transactions, driving more new guests. So I think that focus on getting us getting those fundamentals back in play, that then will lead us to say, "Okay, great. We've got that, we've got that playbook dialed in," and that's gonna drive that continued growth. We've been very proud of the fact that, you know, our growth comes from our current franchisee base. This is still a franchisee base that, that is incredibly committed, loves this brand.
Mm-hmm.
We've seen them exit other concepts to come into this brand. Still an attractive franchise concept compared to others. If I may take the liberty of, given that we're in the fall, a football analog, I think we've been running some good plays, right?
Mm-hmm.
We need to run a few more plays. Not just run off tackle all the time, but have a little bit more of a wide open offense and have a little bit more feedback from our athletes as they see what's going on in the field. Candidly, our job as leaders is to put that playbook together-
Mm-hmm
-again, in concert with our franchisees, track it, model it, measure it, and then go execute to it.
Yeah.
And that's what we're doing.
Great. Great. And is there any challenge that you're facing in just getting new franchisees, you know, interested and signed up? Or is it really just a matter of making sure you execute within the existing parameters?
I think it's more the latter. We haven't historically gone out and sought new franchisees. I think that's an opportunity for us.
Mm-hmm.
As I alluded to, this is still an incredibly attractive model from a, If I wanted to become a franchisee. So that sales effort really hasn't been something that, that development sales effort hasn't been something we've been focused on. We are investing in some resources-
Mm-hmm
-to do that. We feel great about our pipeline. 370 centers that we've got visibility to. Our franchisees want to grow with us, right? They know that their value continues to get enhanced when they grow, just like ours as the franchisor.
Mm-hmm.
Again, those interests, I think, are absolutely aligned.
Great, great. And then last one on the unit growth. I mean, you have previously laid out a longer-term target of, I believe, 3000+ -
Mm-hmm
-units in the United States. A few questions here: how does the current developments and the current opening timeline delays impact that, the timeline to getting to that longer-term target? And then, at what point would you think to explore some international opportunities?
Yeah, I think let me answer those in reverse. I, as a guy who spent most of his career in international hotel, retail, and restaurant business, I have a real affinity for it. I also think that we've got to make sure the core business is running.
Yes.
I don't want to get distracted by a shiny object right now. We've had this conversation with our franchisees. They recognize our desire to grow, and I think absolutely this brand has, forgive the pun, legs to go outside of the United States.
Mm-hmm.
But that will be a priority. That is, sorry, that is not a priority for us in 2024. I think, again, getting our franchisees thinking about how to be thoughtful in growth and our, as a franchisor, thoughtful growth. We've redone sort of our white space analysis. We continue to feel good that we're in that zip code of 3,000-ish centers, that we're, you know, just a third of the way there. So there's a number of years yet to go, even if we get back to, when we get back-
Mm-hmm
-to our long-range algo of high single-digit growth.
Mm-hmm.
So we continue to feel good about that.
Great. Great. And then, you know, just talking about the P&L a little bit, one thing people love about franchise models is the P&L is pretty, you know, attractive.
Mm-hmm.
Even if the top line is a little bit softer. And I think you've also spoken to some cost savings that you've experienced. A few questions here. One is, of the savings that you have experienced, how much of that is sustainable going forward, versus how much is a little bit more transitory? And then how do you think about the overall resilience of the P&L? And at what point would, you know, the top line softness really start to impact the health of the P&L?
Like you said, very, you know, good business model, right? Asset light, capital light, strong cash-generating model.
Mm-hmm.
As we think about kind of where we are today and over the past couple of years, where we've been, you know, from a gross margin perspective, we've really been able to grow that quite meaningfully through the cost negotiations of our proprietary wax that we sell to the network. So last year, we were around 71.7% in gross margin. This year, we expect to be somewhere around 73%, and we expect that to be, we can sustain that, right?
Mm-hmm.
As our purchasing power continues to grow, and so we feel very good about that. On the OpEx standpoint, you know, there's not a huge amount of infrastructure, and certainly, as we grow on the top line or the number of units, we're not adding people, you know-
Mm-hmm
-there's not an equation, other than in the field. And so there's an ability to leverage our OpEx, and so we should be able to see, you know, continued expansion from an EBITDA margin perspective, and so we feel good about that. As far as you know, we, like any company, right, there's more pressure on the top line, you're obviously always looking for opportunities from-
Yes
-an SG&A optimization perspective.
Yeah. Great. Great. And then you did mention, I mean, you do generate a good amount-
Mm-hmm
-of cash. Maybe you could share with us, you know, your plans for capital allocation, both near term and longer term?
Yeah. So listen, we're really fortunate to have a highly cash-generative business, and we, as a board, look at options when we look at our cash position. I think if you kind of look at, tick through the options, can we do share buybacks? We had a $50 million authorization from our board to buy shares back. We exercised $10 million of that in Q2, share price around $10.88 or so.
Mm-hmm.
Clearly, we look at the value, the valuation of the business and think if that's a good opportunity, that we would continue to engage in share buybacks, you know, special dividends. We issued one earlier in post-IPO. You know, our debt structure, we feel great about 5.5% fixed paper until 2027. That one is sort of repaying debt. We feel very comfortable with our 4.3x leverage of adjusted EBITDA as we continue to grow EBITDA.
Mm-hmm.
And then I guess the other piece is just, are there some inorganic opportunities? So would you think about doing M&A? Would you think about potentially buying back some franchisees that might be willing, wanting to exit at a lower multiple? That might be something we think about. I don't think there's any burning desire on my part to say: Let's go do a bunch of M&A acquisitions. But we'll continue to be prudent about it.
Yes.
High-quality problem for us, that we do-
Yeah
-generate that cash and figure out how it's best to return that value to shareholders.
Great. Awesome. And then maybe in the last few seconds, I mean, David, you did just come back into the seat. What are you most excited about for your time back?
I think, Korinne, what I'm most excited about is that the fundamentals that I saw when I joined the company in 2018 and when General Atlantic made its investment are still there.
Mm-hmm.
That leadership position, the white space we talked about, the recurring revenue model with those that, that core guest, and the enthusiasm from our associates and the partnership with our franchisees to move this-
Mm-hmm
-move this forward and really have returns for all shareholders, all stakeholders, our franchisees, our associates, and certainly our shareholders. So-
Great. Awesome.
We thank you all for the attention today, really.
Thank you. Thank you so much for being with us today.
Thank you.
Really appreciate it.
Appreciate it.