Good afternoon, everyone. Hope you're good. I'm Simeon Gutman, Morgan Stanley's Hardline and B roadline and Food Retail Analyst. It is my pleasure to welcome European Wax Center, represented by David Berg, welcome back, CEO and Executive Chairman, and Stacie Shirley, CFO. We're going to read some disclosures, and we'll ask the first question from here, and then we'll come and take a seat, and at the end, we will have time for Q&A. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley's sales representative. Just as a quick intro, for those that don't know the story, European Wax is the largest operator of waxing centers and style studios in the United States. We've always said, and we continue to say, they run the best mousetrap from a chain waxing perspective across the U.S.
It's a franchise business, 99%, and generates a lot of free cash flow. And welcome Dave back to running the company to talk about how the business is being repositioned for the next few years. So the first question, Dave, what's changed under your leadership since returning to CEO? And presumably, you worked with your predecessor when you were Executive Chairman. What are you doing differently than previous leadership?
Simeon, thank you. Just for the record, waxing, we're not a candle company. We actually.
I think to be clear.
Put wax on your body and take hair off. So we actually got asked that question during IPO a few years ago. So we've come a long way since then, Simeon. Thank you. Great to be here. Maybe I'll try to answer that, Simeon, and kind of for the audience, I was the CEO for five years, went to Executive Chairman for a year, and then came back about four months ago now in the day-to-day CEO role. I might address it by sort of kind of what am I hearing? What have we done about that? And then why are we optimistic about the future? So what are we hearing? Obviously, we had our Q3 announcement here a couple of weeks ago. I think number one is that everybody recognizes that it's a tough macroeconomic situation for consumers these days.
So there's a recognition of that, and we haven't been immune to that. Second, I think the deliberate pause that we took, as difficult as it was, to sort of say, hey, we're going to take a pause in terms of our unit growth to focus on the business. And we've got three core focus areas. One is, how do we drive new guests into the system? Second, how do we drive tickets or transactions? And we do that two ways, by retaining guests and reactivating guests. And then third, how do we help underperforming centers? So that's really what our focus has been. And we've gotten some credit to say, hey, that's great that you're really hyper-focused on that core aspect of the business. We made a decision. We have a pilot running now in 22 of our stores.
We call our store Centers here in New York on laser. That's a modality that we think our guests and our brand gives us permission to play. We plan to roll that out more broadly, but we decided to pause that to take some of those resources and put them back, focusing on the core business, which is 99.9% of what our business is about. So I guess I was segueing into what have we done. First and foremost, we got focused on those three areas that I mentioned. Second, I've been spending a significant amount of time with our franchisee leadership. I think we'd lost our way a little bit in terms of really making sure that we understood actions that we took, what impact they had on the Four-Wall Profitability of our franchisee.
That's obviously an incredibly important piece of the business and mindset that we have to have. We consider ourselves at corporate as the customer service department for our franchisees, and I think that's our job. We announced a fairly significant restructure in terms of our field organization so that we could, again, have more focus on helping our franchisees enhance their profitability. The other thing that we've done is we engaged a group called Dolabra, which is a marketing and technology group that's going to help us accelerate in those three focus areas, help us in terms of attraction of new guests, real deep knowledge in technology and creative and media buying that'll help us build that top of the funnel.
And our job is to bring those new guests in and get them to latch onto what is our Wax Pass, which is like our membership model, so that they can continue to come to us on a regular basis. Dolabra is also focused on CRM and Data Analytics and Metrics where we can reactivate those guests that have lapsed a bit. So feel good that those actions that we've taken are starting to take root, and we're excited in March to talk about kind of the progress that we've made. Why do we still feel incredibly confident about this business? It's about an $18 billion. The hair removal business in the U.S. is about an $18 billion TAM. Out-of-home waxing, about $6 billion of that.
We're far and away, as Simeon said at the outset, the leader in that space, 11x bigger in terms of revenue and 6 x bigger in terms of unit count. We have 1,060 centers that are open today. Our core guest makes up 75% of our revenue. She comes on a - I say she because 95% of our guests are female - comes in on a regular basis. We have incredible free cash flow, as you alluded to, Simeon, and we continue to feel great about the position that we're in and the white space that we've got to go grow.
If the backdrop were stronger, do you think we'd have that kind of conversation, meaning the business could still be growing, may not have looked so deeply at the footprint and looking at a lot of things from top to bottom? But if the backdrop was giving, you're doing a full, not a reset, but you're really looking at all the key drivers of the business.
Yeah. We're getting back to the fundamentals of the business. Yeah, absolutely. I think, I mean, if the economic situation was better, I think these are still the key focus areas. We are a rate and frequency business. How often do you come in, and how much money do you spend? So we think about attract more, buy more, visit more. That's kind of our goals as we think about guest acquisition.
And then working with some other companies on technology, and I also think it's customer acquisition. Is there a model that was working that just stopped working, and why did that stop working?
Yeah. I think it's been more difficult, Simeon, with the macroeconomic backdrop to get new guests in, and typically, our new guest is somebody who's not familiar to waxing. It's not we're taking somebody from threading or sugaring and converting them into a waxer. It's somebody that's probably just new to that modality, probably was shaving at home was most likely. That's our most likely new guest. As things got tougher economically, it was harder to get them off the sofa. Our average ticket is $60. You throw a tip in there, and so you're at $70 per visit. We knew from our guest survey work that those new guests, that was somewhat of an impediment to them. Bringing in Dolabra, where we've now gone back, and to your question about what was working, our creative probably lost its way a bit over the course of the past.
Two months ago, we started a test with four different imagery comparisons, everything from quite aggressive and racy to conservative. Ran those against each other across a uniform Meta channel and found that one prevailed. So that helps inform not just our prospective 2025 advertising campaign, but also our holiday campaign. So you'll see probably a little bit more skin and a little bit more revealing, beautiful skin messaging in our creative here in the coming weeks.
Nice. Talk about the health of the consumer. Has it devolved, or it's been tough for a couple of years? And then, yeah, I guess where else, where are they going, or where are they doing this? You mentioned it.
Yeah. I don't know if it's devolved. I think it's been tough over the last couple of years. And we don't think they're going anywhere. We don't think that they're going to sugar or thread. We think they're probably just, most our data would say they're just staying home and shaving. They're just opting for the cheapest way of hair removal, and that's what they're doing.
Right. So we could just be overreacting, meaning we.
I think you've totally overreacted, Simeon. Yes. Let the record be crystal clear on that one.
Correct. Just the health of the customer engaging in this category.
Yeah. We think so.
That 75% that David mentioned, that guest, right, is very, very stable, very, very consistent. So we haven't seen that change over the course of where there's been some more macro kind of challenges. So that gives us a lot of confidence in the fundamentals of the model are still there.
Yeah. And the way you're planning for the consumer for 2025 is tentative. It's not about guidance, but how you take what you're seeing. Do you play offense or defense as you move into next year?
Yeah. I think we've sort of said, "Great. That's not a bush we're going to hide behind." It is what it is. It's a tough consumer environment. That's the environment we're in. And we're not going to say, "If we get the serendipitous consumer all of a sudden is flushed with cash and is spending drunk in disorderly fashion, great." That's not how we're playing it, Simeon. We're going to say, "Okay. It's a tough environment. How do we go out and play offense and get that guest to come into our system?
So the market is fragmented. You mentioned that. And the customer is constrained. So the higher-priced options probably don't make sense for them. So what is the core value proposition? What is it? Can you describe it again? I think you did. And then did it degrade at all? Are there opportunities to make it better?
Yeah. So if you go back to our founders, they saw the opportunity 20 years ago. 2024 was our 20th anniversary. They saw an opportunity to professionalize out-of-home waxing. So historically, this was really relegated to the back room, quite schlocky, not very hygienic. And the two brothers who founded the business saw an opportunity to professionalize that. So they did that through a very hygienic environment. We still have that today. A ton of training. So all of our estheticians are licensed in the states in which they operate, and they have to go through our rigorous EWC proprietary training before they ever see a guest. We have something that's called Comfort Wax, which is proprietary to us. So it's a wax that goes on at 138 degrees, adheres to your hair and not to your skin.
So when it's removed, it's as comfortable as it possibly can be. The mom-and-pops, the fragmented market you alluded to, Simeon, doesn't have any of that. We get a marketing fund from our franchisees that allows us to go spend money in terms of acquisition and talking about the brand that others can't do. And it also allows us to make technology investments to enhance the guest experience. The guest experience, your question about, has that degraded. I think that there is an opportunity for us. The model here is you drive a guest into the system, you wow her with that service, and then she articulates into a Wax Pass to become that core guest that Stacie talked about that makes up that recurring revenue model whose behavior, spend and frequency haven't changed pre-COVID, post-COVID, or in a difficult macroeconomic situation.
Is that loyalty beholden to the aesthetician who's doing the waxing?
It's a really good question. So one of the things back to the founders, having training and consistency. We now have 1,064 centers across 46 states that you can get a service here in Manhattan, and it better be identical when you go out to La Jolla and get the same service or in Topeka for that matter. So we think the loyalty is to the brand. Certainly, I get very comfortable with my esthetician, as you might with your hairstylist or your massage therapist, but you can get a service. And we have different levels of efficiency of our waxers that you should get the same exact experience regardless of which of those 1,064 centers you go into.
I'll phrase this in when you talk to your franchisees because they're on the market. Are there more additions or subtractions of competitors coming into their domains?
From a pure waxing standpoint, we don't see more competitors. It continues to be highly fragmented. There's one fairly significant regional player. A lot of discussion around laser. As I mentioned briefly, that we've launched a laser pilot here in New York because we think both the brand and the guest gives us permission to be not just the hair removal expert via wax, but the hair removal expert full stop. We're going to get that. We're going to get that right. We're going to learn carefully and thoughtfully. We're the only place that you can go in and get one body part lasered, another body part waxed. So we haven't seen a competitive set that's come in, as I said earlier, Simeon. I think that economically pinched guest is just opting to do hair removal at home.
So the first strategy you mentioned is attract new guests. I think some technology, Dolabra, seems like they can help play a role. Is there any thought to something on execution needs to fall into place before you go full steam? And then what does that path for attracting new guests look like?
Yeah. So I think attracting new guests has a couple of elements. One is this creative play. We're getting back to sort of that messaging that it works for both our core guests and new guests. So that's something, again, that we'll be launching here in the holiday. I think programs like affiliate programs, programs with influencers, programs with partnerships. One of our biggest drivers of new guests is referrals. So how do we incent guests to have you come in as a referral? Similarly, how do we incent our wax specialists to get their network of friends? It's a very intimate service, as you can imagine. And that trusted relationship with that esthetician is really well regarded by our guests.
Once we get you into the system, then that experience piece. We've got our trainer team that goes out and works with our franchisees to ensure that you've got. We talk about one of our values is delighting our guests. At any time you come into the center, you're going to be wowed. We've journey mapped from literally when you hear about us to come to the front door, walk through the front door, come to the front desk, get into the wax suite, have your service, and leave.
We've journey mapped each of those steps in the journey and where you can make money, where you follow the process or if you don't, and are reinstituting and retraining that to our franchisees so that when we've done our job in driving that guest into the center, that she gets delighted and then convert her into that Wax Pass and loyal guest.
Yeah, and is it a couple of quarters? I know now we're getting a little murky.
I knew you'd fish at some point, Simeon.
Yeah. But what is your expectation of when you see an inflection from this?
So, I think we feel really good about the actions or the seeds that we've planted and that we will announce in early March, kind of on your end in Q4. And we certainly hope by then we'll be able to talk about some of the green shoots that we're seeing on the actions that we've taken.
Okay. Laser. I thought we only talked about it maybe a year ago in August, I think, and it was the right?
Yeah.
And it was described well as, "Hey, we're going to try this out. It could be supplemental." And we were all, the market was questioning of it. And now you've paused it as if something went wrong or it got too distracting. So what is the story?
So I don't think anything went wrong. I think there were really two reasons for the pause. One was to take some of those resources that we'd put on laser. I just felt it was more important to get them back on our core business. It is really what is the basis for our growth and our foundation. The second was I want to make sure we get the offering right. Maybe surprisingly, in the state of New York, it has the lowest regulatory hurdle. So we've got to get it right here. And by get it right, what do I mean? We had to make sure that we had sort of the new guest funnel perfected, how cost of acquisition got to a reasonable amount so that we could actually acquire a guest in a way that our franchisees could make money. What was right pricing?
What was right bundling? We originally went out, for example, with single body part laser. That really doesn't make sense. You actually have to have bundles to get to a price point that makes sense. We do think we're one of, again, one of the only players that can be uniquely positioned to offer you different modalities. Certain hair types, certain skin types aren't receptive to laser. So we still think there's a differentiator there. This is absolutely an and to your question, Simeon, that we think this could be a real positive addition to the core business of waxing in our centers. Typically, our centers are about 1,300 sq ft-1,500 sq ft, six wax suites in them, 70 sq ft or 80 sq ft each. We're going to dedicate one wax suite for laser. So it's not a huge cost expense for our franchisees to add laser into them.
And maybe a hypothesis on laser being part of the market, but not replacing waxing. Your hypothesis and your thesis hasn't changed.
No, it's an and.
Right.
It's an and.
Okay. Demographics. I want to talk about, I guess, not customer, geographic, and then performance among regions and customer type. And I think you distilled it down to just average customer, just not spending. But do you see differences? And then what describes the differences among the change?
Geography. Okay. So we've talked, I think the main topic coming out of COVID was how do you get employees back, particularly in California? It feels like we're still talking about California. Slightly different topic these days. We do see our centers in California that are facing higher cost pressures, particularly in rent, labor, some insurance, and that's had an impact on their overall profitability. So if you looked at the entire chain, and we've got roughly 15% of that 1,000-plus centers that are in California, they are not having the same financial returns as the rest of the network. The rest of the geography, there isn't really any specific instance to say this state's worse than another state. If you look at averages, and averages are very difficult and sometimes misleading, but I think this is a fair representation of our network. We have franchisees that voluntarily input their financials.
So about half of the system. If you take that and then take an average, the average unit volume is $1.1 million at maturity and EBITDA margins in mid-teens. So that's kind of on average what the entire chain is doing.
So what happens? These franchises out on the West Coast maybe end up making less money. Is there a negative feedback loop that you have to come in and try to prevent less go out and targeting customers or these things and then they go down a slippery slope?
Yeah. Could be. One of the things that we announced, obviously, was the 16 closures that we had that, again, on the scale of 1,000-plus is not that significant, but was higher than we've had historically. So we've put a lot more rigor around our sort of at-risk centers. And that's not to sort of say, "Okay, on such and such a date, they're going to close." It's actually so we can go out and work with that franchisee to say, "Hey, are you having rent problems? Can we help you renegotiate your lease with your landlord? Are you having labor problems? Let us help you with labor optimization.
Is there some relief that you can get that you need just from a cash flow standpoint for a period of time?" So we've really tried, Simeon, to get much more rigor around that so that we can help those franchisees be successful. Of the 16 centers that closed, as I mentioned, six of those closed in California. And those were largely driven because the ticket production had gone down and the cost structure had gone up, and it just didn't become profitable for them to continue to be open.
Right. And in any of those cases, was it the way the stores were laid out, meaning market density, proximity to competition?
Yeah. I mean, we continually look at sort of our cannibalization rates to make sure that we're going to not cannibalize. We talk about thoughtful growth. We want to make sure that it's done in a way that a franchisee opens a center and can be productive. So we have cannibalization assumptions in there when we approve new sites. One of the things that we did for our franchisees was that anybody that opened a cohort in 2022 or 2023, we've said to them that we will not open any other center or approve any other center for opening until 2026 within a 10-mi radius of those cohorts so that they can get up to speed and not face any sort of potential cannibalization impact.
When you look at the map of market concentration across the U.S., what are the white spaces?
Yeah. So our five biggest. I'll answer it two ways. Our five biggest states are New Jersey, New York, Texas, California, and Florida. We see white space. There isn't a single market that we believe is over-densified. There are places where there are less dots that we think that we can go to. So we're trying to take, again, Simeon, this holistic approach to say, "If you want to sign up for what we call a MUD, which is a Multi-Unit Development agreement for a particular geography, so a part of a city or part of a metropolitan area, we're willing to do that." We kind of like having a single franchisee or a couple of franchisees. I'm much better off cannibalizing myself than if we had 14 franchisees in one city and bringing in another operator.
Is there a long-term plan, a footprint plan that can help you get to that point?
There is. Yeah. There is. And we still feel good about the white space. We've done this study. We've refreshed it a number of times that there's still significant white space out there that we're roughly a third of the way through what we think we can grow in the U.S.
In 2025, the potential closures, does it offset unit growth or we haven't talked about what?
The guidance we gave at Q3 was that we certainly expect to have gross openings, that we have franchisees that are going to continue to open centers. It's just that there is the possibility that closures on a net basis, we may have a negative number.
In terms of returning back to a steady rate of annual growth, is it crawl, walk, run, you'll figure it out when we get there, or there's a number that you think the business can get back to in a year or two?
We'll speak more to this, obviously, when we give guidance in March. But at this point, Simeon, we've got in our long-range algorithm, we've talked about high single-digit growth rate in terms of units. I'm not sure that's what the market necessarily commands from us. I think what we want to do is make sure that we grow thoughtfully, predictably, and in a way that our centers ramp and are profitable so that our franchisees continue to reinvest in the brand.
Right. And then your unit economics, especially on new centers, how is that visibility conveyed back? Because you said not all franchisees report their financials. So how do you get that visibility?
I mean, we do have visibility, obviously, to their top line. And so we can monitor that to see are they ramping kind of in line with historical rates? Because our model, even when you look at that ramp, it's pretty set. It doesn't vary that much. Obviously, in the past 18 months or so, we've seen some pullback as it relates to the total tickets. And so that is the best indicator. So we have full visibility to that, but not always to the Four-Wall Profitability. But working with our franchisees to kind of educate them and that the better reporting that they're doing, the better information that we have. And so we can provide better guidance and education to them as to how to improve their overall profitability.
Yeah. David, you've been around franchise businesses for a long time, and when they get a bump, is it an opportunity where you look back and there could be some more restructuring for the better for the business? Or how would you characterize this blip in the context of the franchise businesses you've worked with?
Yeah. I think we've had a few whammies, right? You had COVID. You had a macroeconomic situation. We grew fast, right? We opened circa 100 stores in 2022 and 2023. And maybe that should have been a little bit, as we think prospectively, that's why we talk about thoughtful growth, Simeon. I think this is still a very attractive model. The fundamentals of the business. When I came back four months ago, I asked myself the question, sat down, and went through the work and said, "Hey, is there something fundamentally wrong with the business?" Absolutely not. This is a solid business. It's a great model. Again, you mentioned I've been in franchising a lot of my career where you can do one thing really well. That's easier to replicate across thousands of centers rather than trying to do 52 things.
So the good news is us doing this one thing really well, we continue to be very profitable, and our franchisees can have a great return as well.
We talked about driving new members or new guests. Now, what about new tickets? And what's more likely? We get the ticket up before we get the new guests up, or how should that sequence?
Yeah. They kind of go hand- in- hand, to be honest, Simeon. I think if you think about sort of the way we view this, the new guest builds the top of the funnel. You get them in, and you try to get them onto a wax pass over time. There's also the retention and the reactivation. Retention are guests that come in. So we have a first wax free. You can go to any center in the United States and get your first wax free. We need to do a better job at retaining that guest. So that's part of this guest experience journey that I alluded to, making sure that at every touchpoint, we're delighting that guest and she has an absolute wow experience so they will come back. Retention is probably - or excuse me, reactivation is probably our easiest bucket because we've got your email.
You've been a guest with us. We define you as a lapsed guest, somebody that hasn't come back and seen us in nine months or so. But we know when you came there, we've got your email address. We've got your phone number. We know what services you like. We know what products you bought. And with Dolabra's ability to get much deeper into data analytics, I can send you a very bespoke, personalized CRM message that we hadn't been able to historically. So hopefully, we can bring that guest back in. Ultimately, all of that drives tickets, which gets that flywheel moving. Again, franchisees making more money, breaking even at 114, having cash-on-cash returns that are attractive that get them to reinvest at maturity.
What's the state of unused Wax Passes that are in the system? And my perspective, yeah.
Yeah. So the liability sits with the franchisee. So there's no lawsuit kind of consensus.
Right. But are there waxing appointments that are unused that the franchisee is responsible for that will create revenue when they come? But meaning that people have these pre-bought so they don't have to come back and rebuy again.
Right. So that typical Wax Pass, that core guest that we talked about, Simeon—so we have two promotional periods. We're actually in one right now where you pay for nine and get 12. So buy 9 + 3 She comes on a pretty regular basis, right? So it's a 12- 15-month kind of timeline that they'll use up those Wax Pass. And then they'll buy again at the next promotional period.
I gotcha. Okay. Pricing may be very sensitive going into a weak backdrop, and you're sorting some things out. So how should we think about it?
Yeah. So I'll give, I'm an ex-lawyer, so this is Legal Advice 101. As a franchisor, I can't set prices, but we do a lot of elasticity studies, and we make recommendations on pricing. We took price in 2021 across all of our services about circa 4%-5%. And in the first quarter of 2022, just on body services, so nothing on face. Those are the only two network-wide price increases we've had. So we haven't seen dramatic increases in prices across the entire network. That said, as I mentioned, the franchisees are free to take price. Particularly, we've seen price increase in areas where they've got high minimum wages: California, northwestern part of the United States. We go back and do a postmortem after price increases occur to see what sort of transactional impact there's been.
We'll continue to be very scientific about our elasticity studies and the recommendations that we make.
Can you share any of what you've learned from the elasticity studies?
Those two price increases that we took in 2021 and 2022, we did not see a degradation in transactions. If you think about some of our core services and our top two services, our bikini and Brazilian, they're fairly inelastic services. A couple of dollar difference in price doesn't impact transactions.
Cost savings have been pursued in 2024. The gross margin got up to 73%. Can you talk about cost savings? What's in the pipe? How much more to go?
Yeah. So when we think about gross margin, right, we've done a really good job of achieving some improvement there. 2023, we were at 71.7%. As you said, we're expecting to be around 73% for 2024. So we've been able to really, as we've grown, leverage that purchasing power. And no reason to think that we should not be able to sustain that for the future. Not sure how much continued growth, but that's something we'll continue to work on through the negotiation of our wax costs and the medical supplies and those things that we provide to our franchisees. And then on an operating expense perspective, we're a pretty lean group. There's 125 corporate employees. There's obviously a mix of fixed and variable costs. But as we look at 2025, we will be as disciplined as we have been in the past and as efficient as we can be.
Further out, as we get back to more of the top-line growth, there's no reason we won't be able to leverage that and start to see nice EBITDA growth expansion.
On EBITDA growth, so you're reinvesting into some places and retooling technology, maybe some of the marketing. Thinking about what you can grow at in the future, was it execution, or does it give you a different mindset about reinvesting back in the business more vigorously once you get the momentum reinvigorated?
So one thing I would point out on Dolabra as being one of our big focus areas, that we don't see as a headwind to 2025. The way the structure of the contract is, it is pay for performance, and it has both a cash and an equity component to that. And so there's great alignment as it relates to what they need to achieve to be paid out. So alignment with EWC and all of our stakeholders. Additionally, one of the core benefits of bringing Dolabra on is we're looking to eliminate some of the retainers and third-party contracts that we have. As a result of doing that, bringing things in-house so that we can use those dollars to focus more on working media. So it's really increasing that allocation, which then, again, drives that top line. So getting much more efficient with those dollars.
Yeah. So our franchisees give us a 3% marketing fund. We run that EBITDA neutral. And to Stacie's point, what we're going to try to do, what we will do, is we'll get more of those dollars working towards actual working media versus marketing overhead.
Yeah, and I know the cost of supplies, wax has gone up. Some of that input cost, is there any relief on that that can be passed back to franchisees?
Yeah. We always look at that. Anytime that we have achieved any type of cost savings, it's always a part of the conversation. And whether or not we might split that at different percentages, but obviously, it's in our own best interest for our franchisees to be growing profitably. And so that's always part of the equation.
Yeah. We obviously want, as I had mentioned at the outset, Simeon, keeping the Four-Wall Profitability in mind is important for us. We've raised the price of wax once in 20 years. So we've been very mindful to make sure that we can make gross margins that are acceptable as we sell that wax, but also that the franchisee at the service prices that they charge can also make good margins.
I want to transition to capital allocation. If people in the audience do want to ask, you can feel free to wave, and then we'll get there. I'll ask, and then I'll let you, no problem. We'll take one from you in a second. Sure. Capital allocation, the leverage is high, but it's supported because the cash flow generation is great. You want to run the business at this leverage level. Does that make sense?
Here's how I'd answer that. At 4.5% we're very comfortable. I think that we have room to lever up if that's what made sense, if there was a use of cash. If you look at the model, we have debt at 5.5% at a fixed rate. It's very good. So we feel very comfortable with that. And you think about what are our uses of cash, there's four different buckets, right? There's one that you could say M&A, right? Not something that we've really had people, bankers come and talk to us all the time, but not something that we've really been very active in. Two would be buying up maybe some of these unproductive centers. That's potentially something although we don't have the internal capabilities to do that on a broad level, so we would have to build that out.
Third would be some type of a dividend. And fourth is a stock buyback, which we have been very active in. We have our second authorization now of $50 million, of which we've used $30 million through Q3. So very good. Again, at four and a half, could we handle 6x ? Yes. But there'd have to be a reason, I think, for it. Constant conversations with our board just to make sure that we're as efficient as possible.
Do you ever dream of a scenario where you own 5% of the units of the locations, or that's already?
I think we always want to make sure that we can, with integrity and transparency, say we're an asset-light franchising business. I was on the Board at Planet Fitness. We had this discussion about what was that level like? So I think there's a scenario that we could own some. To Stacie's point, it's not a capability we have today. Anybody that's been in this where you have both, it's a different skill set, Simeon. So if we thought about buying something with some scale, it would probably be as much about that EBITDA acquisition, but also acquiring some capabilities that help us run those stores.
Yeah. Any questions out there? Please. They're bringing you a mic. Sorry.
What I'm listening to is I come across what I think is a big challenge, which is, first of all, the people are key to you. So it has to be a great relationship. But the concept that I would love to see is how do you get more out of everyone that you service? You got to get more dollars out of them. And the waxing part, I mean, I have none of them go waxing or anything. So what else can you add in there and develop that relationship, whether it's neck massages, whether it's nails, whether it's Botox? I mean, there's got to be so many things that you can do because there's a relationship that can get established in you. And you have space where you can add something else, take away a room from waxing and put something else in and get some real growth in this business. Am I crazy? Simeon, am I crazy?
It's up to Dave.
Yeah. I think it's so the question is, what other services? I think it's a great question. Again, we're executing this across 1,000-plus stores, right? So doing 52 things is difficult, as you know. I have a very simple mentality about what is focus is such an important piece of the business for me. We talk about rings outside the bullseye. Something that's three or four rings outside the bullseye, blow dry, massage, I don't think so. Something that's one ring outside the bullseye called laser taking hair off, we think that makes sense. Again, we start with what does the brand give us permission to do and what does the guest give us permission to do? I would respectfully push back a little bit when I see some of these other concepts that had a core offering and then have to do 52 other things.
It's because their core business wasn't working. We have a belief. I have a hypothesis. It's part of the reason I came back is that the fundamental business of waxing and hair removal still has legs and works, and that's what we're trying. That's why we're so hyper-focused on the core business.
No, I'm not saying it doesn't work, but I'm saying to get a little more from the person that's there.
Yeah.
Coming for waxing, but while I'm there, you know something? I need my hair blow dried. I don't want to go to a beauty parlor. You got someone there that can do it for me. And of course.
So I'll give you a real-life example. We saw that guests came in and got their eyebrows waxed. And then they were going down the street to get that. Now, I'm way out of my realm here, okay? They went down the street to get their brows tinted. We decided, okay, that's a logical thing to do. So one of the things that is different, if I take due respect to my friends in the massage business, if you book a 60-minute massage, you can't do that in 45 minutes. Our business is about throughput. How can I get maximized revenue optimization in that wax suite? So we figured out a way to wax your brows and tint your brows in the same 15-minute increment. That's a great moneymaker for us. And it added a service that our guests wanted.
And by the way, our estheticians love doing that because it lets them practice some of their artistry. That was one ring outside the bullseye. I didn't see that at three or four rings. So we have, and we talk about attract more, buy more, visit more. That buy more, we constantly look at things that are within our skill set. I won't get too far in the weeds here, but there are differences in if I've got an esthetician versus I have to have an RN, what's my labor scheduling like? What's my price? Oh, you make this much money. I make this much money. So it's a very fair point. And we do continue to look at those services that we think our guests would like us to [crosstalk] .
It could be a huge opportunity for you.
Yeah. Yep.
Thank you for the question.
Yes. Thank you.
With that, we're at time. We appreciate your perspective. Good luck.
Thank you.
Thank you for being here.
All right, Simeon. Thanks for having me.
Thank you Simeon.
Appreciate it.