Welcome. Thanks, everybody, for coming today. We're really excited to announce Chris Morris, the new CEO of European Wax Center, and Stacie Shirley, the CFO. Thank you guys both for coming to Miami.
Yeah, thank you.
Busy time for you. European Wax Center reported earnings yesterday. Before we dive into the results of the quarter, I just wanted to start by asking you to give a quick overview of European Wax Center.
Yeah, yeah, sure. Absolutely. We operate in the out-of-home wax services industry. We are the clear dominant leader. This is arguably a category that we created 20 years ago. There was really no one doing what we're doing on such a specialized level until we started doing it. As a result, it's a very fragmented industry. The reason I said we're the clear dominant leader is we're 11 times larger than our next closest competitor. There's still ample white space for this brand to continue to grow. It's about a $7 billion industry. Our system-wide sales last year was about $950 million. We're still a relatively small piece of this industry. We've got a very loyal guest base. About 95% of our guests are female, 5% are male. Our core guest, she visits us about seven times a year.
It's a very important component to her daily routine or to her personal care routine, rather. As a result, that loyalty just results in a very resilient revenue base. I'm excited to be here. I'm 60 days on the job and really happy to be here in front of all of you.
Thanks. What does the competitive landscape look like for the industry?
It is very fragmented. You have a bunch of mom-and-pops. Our biggest competitor across the country is mom-and-pops for the most part. You have some regional players out there that typically have 30-40, the largest has about close to 100 locations. You have med spas.
Okay. Chris, you've been at European Wax Center 60 days.
Yes. Yeah.
Any early observations you want to share? Has anything surprised you since you joined?
Yeah. Yeah. Great question. I'd say first, I knew this coming in, but I think having spent the last 60 days and immersing myself in the business, meeting directly with our franchisees, our management team, I've been doing a tremendous amount of field visits over the last 60 days. I'm typically out in the market a couple of days a week. The first thing I'll say is that we are starting from such a strong position of strength. This is an incredible brand with so much potential. The fact that we are the leading operator in this industry and there's such a loyal guest base with so much white space still in front of us, it's a great place to be. Our franchisees, we're largely franchise operated, so we have about over 1,000 units. We own five. The rest are franchise locations.
Our franchisees are incredibly passionate about what we do. They care about the services that we provide, and they believe in the future. I think that is the first observation, just how much potential this brand has. The second observation is, while we have all that potential and we have been very successful to date, we do have some work to do in 2025. Yesterday, in our earnings call, we characterized the 2025 year as a reset year. The reason for that is, since I am new on the job, I have the benefit of looking back, and hindsight is always 20/20. I can tell you that I would not be here had it not been for my predecessor, David Berg, so I have tremendous respect for David and what he built over the last several years.
When we look back, it's very clear that we were very focused on new unit expansion, and we didn't really take the time to put the building blocks in place to support that growth. With the benefit of hindsight, it's clear to us that our growth just simply outpaced our core capabilities around some important blocking and tackling functions, things like marketing analytics. We don't have a marketing engine today that you would expect a company with 1,000 units to have. We're in the process of building that. With our approach on real estate and site selection, it was more of a bottoms-up approach, working directly with our franchisees to activate their MUD agreements, as opposed to taking more of a strategic overlay and a top-down approach in identifying areas of opportunity to grow.
On our ops side of the business, we see a tremendous opportunity to enhance our analytical rigor around how we partner with our operations to drive performance. That is both in top line and bottom line. When I look at this, the observation is a tremendous amount of upside, but a year where we have some work to do. The good news is, when we get through this work this year, we are going to be very well positioned to be able to get back to growth and get back to growth in a very consistent and methodical way. I am excited about that.
Okay. In the reset year, where are the most important or most impactful things that you plan to start with during this reset year?
I'd say the first thing is, obviously, working on the marketing engine. That work was kicked off by David Berg before I started, and we're continuing that journey. We just hired a Chief Commercial Officer. We've been partnering with a group that we've talked about publicly named Dolabra Digital. That is one of our very top priorities because getting that built out is going to allow us to do a much better job of being able to drive traffic into our centers in a very personalized way. That is kind of first and foremost. The second is just building a very strong relationship with our franchisees to drive performance at the center level across all areas of the business.
I have the benefit in my career, I've been both a franchisor and a franchisee, and it uniquely positions me to partner with our franchisees and build a strong partnership all around execution. That partnership will be fundamental to our ability to return to growth because, as we return to growth, we've got a system of franchisees who are very capable operators and are going to work with us to get back to that.
I think, as an analyst, the thing I always worry about is a reset year turns into reset years. Just describe to us, you'll do the analytics, you'll drive the customer growth, and then are there specific metrics that your franchisees want to see before they really reinvigorate their store opening engine?
Yeah. I mean, our entire organization is focused on stimulating traffic growth or ticket growth at our locations. The work that we're doing, building out this marketing engine, we're doing it directly in partnership with the franchisees. The green shoots that we're all looking for is around activating transaction growth. The way where we see that opportunity is it's a partnership between marketing and operations. We will be doing a much better job of driving traffic into the top of the funnel, but so much of our ability to grow sales depends on the experience that happens in the center. At least half of that opportunity is at the center level. We are working directly with them to be able to attack both sides of this.
We're attacking the top of the funnel, driving transactions, and then executing at an improved level. As we're building out all those capabilities, we're looking for the right KPIs, the right leading indicators that that's starting to gain traction.
Okay. You also announced some management changes yesterday. Can you speak a little bit about the new executive you announced and what you've been looking for, and should we expect any additional changes?
Yeah, sure. Having the right team. Obviously, we have a lot of work to do this year. We have a lot of upside. Getting the right team in place to be able to execute on these strategies is fundamental. When I stepped foot in the door 60 days ago, there were some very significant gaps. We did not have a Chief Operating Officer, and we did not have a Chief Commercial Officer. Those are two fundamental positions. We have a nationwide search going on right now for a Chief Operating Officer. That's well underway. Chief Commercial Officer, we brought in an extremely capable individual named Katie Mullen. She spent about 10 years with BCG on doing marketing transformations for companies and then was the Chief Digital Officer at Neiman Marcus and the Chief Customer Officer at JCPenney.
She has been a phenomenal addition to the team. When I started 60 days ago, Stacie and I had a lot of conversations around where she is in her career journey and where she wants to go. It was clear that she was going to be transitioned out of the organization, and I needed to find a CFO to take care of the torch forward. We have done that. We have hired a CFO named Tom Kim. He starts April 7th. Very talented individual, has significant franchise experience, and I believe is going to be just a terrific partner to our team as we build out the analytical rigor in those areas that I mentioned. Last is on technology. We are investing heavily in building out a data analytics platform that is going to drive so much of our business, starting with the marketing engine.
I felt it was really important to have a strategic thought partner on the executive team helping us think through that. We created a position, Chief Information and Digital Officer, and we hired a very capable individual named Chris Andrews. He starts March 31st. He not only has the right technical background, but also has significant experience in franchise. Very excited about that.
Great. I wanted to shift to unit growth, which has always been a really huge part of the European Wax story. Your guidance calls for net 28-50 closures this year. Can you talk a little bit about what led to that and if there's any commonalities, be it location, type of owner, how long the center has been open that you could point to on these closures?
Yeah, sure. My very first, when I stepped foot in the door, the very first thing that I did with the rest of our team is just to get our arms around just the health of the business, to really dig in, work directly with our franchisees to understand what we were dealing with. Through that exercise is how we arrived at the range of 40-60 closures. I want to be clear, we do not have a list of 40-60. I mean, we do not have franchisees raising their hand and saying, "I'm going to close." This is a situation where we partner directly with them. We looked at the fundamental trends of the business. We looked at lease renewals. We talked to them about their intentions, and we are very comfortable living within that range of 40-60.
At the same time, we are actively partnering with them and managing. We want to be on the low end of that range. We do not want to be on the high end. That is work that is well underway that we will be focused on through the remainder of this year. There is not really a, I would love to be able to just say there is one common link across all of these, and it is really not that type of situation. It is a variety of different reasons why this is a year we are going to have some net closures. The important thing to us is managing this in the most effective way. As I said, when we are done with all of this work, by the time we close out 2025, every step we are taking is to return the business to growth in 2026 again.
I believe strongly when we execute on all of our initiatives, we will go into the 2026 year better positioned, better poised, and with a team of people who are ready to execute and get back to growth going forward.
Okay. What is being done to support some of the underperforming franchises or stores to prevent further closures?
The biggest thing that we're doing, it's back to that strong partnership with franchisees and building the analytical rigor to assist. We have our entire network of ops support focused on these underperforming centers, and we are working directly with them to identify where they have opportunities. It's nothing profound. It's just really blocking and tackling. Let's understand where those opportunities are. Let's understand where the gaps are in the execution. Let's share best practices. Let's develop the reporting to track the progress we're making. Celebrate the individuals who are making progress, coach the individuals who aren't. It's just really bringing that laser focus to that ops side of the business is where we're focused first. The second is on this data analytics platform that we're building.
We've already made considerable progress, and we're in a better position today than we were just three or four months ago. We've improved the pipe. Basically, we're now able to draw a link from the marketing impression to the guest behavior. That's something that didn't exist before. That's huge for us. We're out testing a number of different creative approaches. We can go through a test and learn so we know exactly what piece of creative, what type of messaging works with which audience. That's work that we weren't able to do before that we're now doing. We're far more efficient in our media buying than we were before. We're getting more bang for our bucks, so to speak. We're getting our dollars are going towards working media at a greater rate than they were before.
As we're building all that out, we're keeping a very sharp focus on where do we have opportunities with our underperforming units to provide some additional assistance. It's a combination of the marketing approach and the ops focus.
Great. What about the economics as it relates to cost of opening a center, break-even, maturity? Have those changed, or are you looking to try to change those?
Yeah. I'll let Stacie answer.
Yeah. As we look at that, the unit economics have certainly become more constrained, but we still feel like that overall, we're very strong. If you look at our AUV for our mature centers, which we define as something over five years, we're at about a $1.1 million AUV. The cash-on-cash returns are around 40%, which has come down from prior years, but that's not surprising, right, as a result of the compression on the top line. We have seen some inflation on the build-out cost. That's something we're focused on as well to see how can we mitigate that and bring that down.
Having said all that, we still feel like we're, compared to other franchise operators, we still feel like we're in a good position, but work to be done, all of the things that Chris has just walked through to really try to reignite the top line to get us back to where we have been in the past.
Okay. Moving on to your core customer, what's the target age, the target income demographic, and can you elaborate on how that consumer is doing in this environment?
Yeah, sure. I'll start, and then I'll let Stacie kind of fill in some gaps. As I mentioned earlier, we're 95% female, 5% male. As we're developing this marketing engine, it's going to allow us to reach various demographic profiles in a more impactful way. As opposed to just having one core, but the core guest is 35- 45, skews, higher income. As we said, our core guest is a very loyal guest. Visits us seven times a year. They view this experience largely as a non-discretionary spend because it's such an important component to their personal care routine. Our core guest is fairly resilient. That core guest represents the majority of our sales. It puts us in a unique position as we're navigating these difficult waters in a complex consumer environment.
This is not a situation where we're losing our core guest at a rapid pace. Our core guest is hanging in there. For us, it's more about managing the edges of that customer profile. I'll let Stacie.
No, I think you hit on most of it. I think the only thing I would add is, as we've talked about in prior quarters, that our opportunity is that non-core guest, right, primarily so that we can get them in, drive the traffic so that we can then convert them and make them more of a core guest. It is really around that new guest and getting them to change their behavior. Obviously, in this backdrop of this consumer environment, macro environment, it's been more challenging. That is something that we're obviously very, very focused on.
What proportion of sales comes from that core guest? And then how has the behavior looked differently for the non-core?
The combination of our core guests and our Wax Pass sales, it's about 70% of our total sales.
The other 30, that's been a lot more volatile. Maybe talk a little bit about why or what they're feeling or seeing or what you're hearing from them.
I think what they're feeling is no different than what everybody else is feeling. It's been a very complex consumer environment. It's been choppy, and there's been a lot of pressure on spending. They're just feeling that ongoing pressure. As a result, it has made it more difficult for us to be able to generate sustainable sales within that 30% growth. It's just been more challenging.
I think that.
Oh, I'm sorry. Sorry.
No, no, go ahead.
Because if we think about these kind of two buckets of our guests, that core guest really does view the service as a non-discretionary part of their overall beauty regimen. The rest is it's non-discretionary. When you're counting your pennies, that sort of thing, that is where that becomes a little bit more challenging for that particular consumer and where there has been more volatility.
As you're building the building blocks for marketing strategies, do you think about trying to reinvigorate that existing 30% guest, or is it all a new customer acquisition opportunity?
No, it's definitely both. It's definitely both. I think we have the ability to do that. One of the things that, as I mentioned, we're testing a number of different value propositions in the market today. We have the ability to be able to test different offers with different messages, with different creative wraps to different groups of guests. That's one of the benefits of being able to build out this engine is we'll be able to be highly personalized. We're trying to attack both sides of that.
Okay. Increasing the frequency of existing guests, obviously one of the core tenets. I know you've been working with Dolabra Digital. Maybe you can expand on the progress that they have made to try to improve guest acquisition and retention.
Yeah. I mean, the progress that's been made is the three areas that I mentioned. We now have a link from the impression to the guest behavior, which is absolutely huge because that really enhances our ability to understand what's happening. We've dramatically improved the efficacy of our spend. We are getting more, we're able to be more efficient with our dollars, meaning that we're able to buy, we've been able to drive more working media and reduce non-working media for the same amount of money. We're getting more usage out of the dollars we're allocating to marketing. Just being in this position where we can run these creative tests and gather data and insights, that's really important. These things are a two-year project. They're a few months in, just a month ahead of me.
This is going to take time to build. The good news is we've already been able to accomplish a lot. As we move forward, we're just going to be able to add layers on top of that. The focus that we're bringing to partnering with our ops team to execute and to build awareness on just the role that that execution plays in driving overall sales, I think, is also going to be a very important component to get the most out of this investment. I'm very, very enthusiastic about what we're going to be able to do there.
Will this require increased marketing spending, or are you just reimagining the way you spend the dollars?
Right now, it's more reimagining how we're spending the dollars is the approach that we're taking.
Okay. Maybe an update on pricing. What pricing actions have you taken over the past year, and what do you expect for the coming year?
Yeah, sure. I'll start with that. I'll let Stacie fill in the gaps since she has the history. I'll tell you, as a franchisor, we can't dictate prices. That's done by the franchisee. I was remiss in not mentioning this in my observations. One observation is we do not have a sophisticated pricing tool available to our franchisees. I see that as a huge opportunity. We are working directly with our franchisees right now, evaluating different tools and fully expect to land on the right recommendation and move forward. There's a big upside in getting pricing right along with the right marketing. At that intersection, we think that there's huge upside there. The pricing that's in the system today is fairly nominal. Very minimal pricing.
Our ability to have effective pricing is just going to get better as we partner with the franchisees this year. Do you want to, what would you like to hear?
Yeah. We have not made a kind of a broad-based recommendation across the enterprise for a couple of years now. Our franchisees take price all the time, though. As we've talked about, that's been a driver of our comp. We, as a franchisor, haven't made that recommendation. Like Chris said, doing a lot of work to figure out a better way and a more sophisticated way to implement this with our franchisees and give them the tools that they need because, again, we can only recommend, but to give them the tools that they need to make sure that we are very competitive.
Okay. Right now, the recommendation is regionally based?
Correct.
Okay. It would be up to them to manage to take that and maybe up or down depending on their success rate. Okay.
Even looking at it service by service versus broadly. Yeah.
Our role as a franchisor is to report to the system on what's working, what's not, based on what we hear from the franchisees. It is sharing the ideas. It is creating a mechanism for them to share ideas and to develop best practices.
Okay. Shifting gear for future growth opportunities. You've tested laser in a few centers, but then recently just pressed pause to focus on wax. What's the rationale behind potentially going back into laser? Do you still see this as an opportunity?
Again, 60 days on the job, my impression the first 60 days on the job is I do. I think the short answer is yes. I do see this as an opportunity, but it's kind of first things first. I fully support putting this on pause. When we put it on pause, that simply means we're not expanding the test. We still have the test out in 20 centers. We're still gathering information. The fact of the matter is we've got a lot of work to do in the priorities that I outlined with you earlier today and on the call yesterday. That's our focus. Our focus is on our core business.
Our focus is on working with our franchisees to manage through these closures and then starting to build out the analytical rigor in these other areas to get the business back to growth, new unit expansion growth. Where laser fits into that at this point in time, I don't know exactly where that fits in. I just know that we've got work to do on the core first, and then we'll get to laser. We'll continue to learn on these 20 centers where we're testing it.
Okay. Before I open it up to questions, I just wanted to follow- up on one thing that you'd spoken about a little bit on the call yesterday, which was you own five stores. Maybe is there a consideration to, instead of closing some of these underperforming ones, buy them back to increase your ability to test some of these new processes?
Yeah, absolutely. My answer is going to be very similar to what I just said in laser is I fundamentally believe we should not only be a best-in-class franchisor, we should be a best-in-class operator. I think the path towards being a best-in-class franchisor is to be a world-class operator. At some point in time, we will capitalize on that opportunity, but now is not the right time. Our team is completely focused on the initiatives that I walk you through. That is crystal clear to the entire team. We have to earn our way into these other strategic opportunities.
Let's manage through these closures and make the most out of it, partner with our franchisees to develop the necessary skills to drive top line and to manage bottom line, bring a more sophisticated approach to real estate and site selection, and to get back to growth. Along the way, I believe when we focus on those right foundation building blocks, there will be an opportunity for us to buy. When we buy, we need to make sure that we have the operating capabilities to be able to execute. Today, I do not even have a Chief Operating Officer. We are out searching for a Chief Operating Officer. We have just got to be really smart and methodical about how we approach the sequencing of all these opportunities.
Okay. It looks like we have one question over there.
Thanks, guys. Just a follow-up on the pricing part of our conversation. How do you think your current pricing architecture across services will fare if consumer spend does start to slow a bit? Maybe just remind us how your core consumer fared over the last several years during this inflationary environment and what gives you confidence that it'll be okay.
Yeah. Yeah. Stacie, you want to take that? Do you have the history?
Sure. I'll start with the second part of the question as far as how the consumer has fared the past couple of years. That is what we have been talking about as far as this kind of non-core guest, right? That is where the challenge has been. Because as we've looked at our core guest, which is a routine and a Wax Pass guest, it's been very steady, right? From a standpoint of the amount of spend and their visits, that hasn't really changed over the past couple of years. It's the other piece that is the opportunity. As we've grown over 200 centers over the past few years, we haven't kept up from a new guest and bringing more guests into top of the funnel to get them to a place where then we're converting. That is kind of where we are there.
From a pricing perspective, I think that we'll see as far as the consumer. We feel like right now, we're very competitively priced, but we're doing the work to figure out making sure we're understanding the price elasticity. Is there more opportunity either to go up or potentially we need to go down to ensure that we are competitive? As we're putting together this marketing muscle, making sure that that all kind of goes working together so that when we attract the guests, we're making sure we're doing that at the right price point. Something we'll have to continue to be mindful as it relates to the projections that we've put out. We've basically assumed that there's not a change necessarily in the macro. Obviously, if that gets worse, then that will impact us potentially at the bottom end of our range.
Right now, we're just assuming that it's a little bit more of the same of what we've been dealing with.
Any other audience questions? Maybe before we wrap it up, no good European Wax fireside chat is complete without a discussion of Wax Pass, which I don't feel like we've really touched on too much. Can you talk a little bit about what that looks like, some of the promotional levers you've tried, what's worked, what hasn't, and where you see the future of the Wax Pass?
Wax Pass is a fundamental part of our brand. I definitely don't see us making any changes anytime soon. I also don't see us moving into heavy promotional as we're working to navigate driving more demand for our business. At this point in time, we don't see a need to move forward with a heavy discounting approach. I think the Wax Pass is fundamental. We're going to continue to do it. I think the real opportunity is on the work that we're doing on the marketing engine and getting the right impression to the right person at the right time. That to us is the greatest path. When you combine the top of the funnel with the in-center execution, that leads to Wax Pass sales. The most common Wax Pass is buy nine and get three.
You're buying nine visits and you get three free. I think we're very pleased with that type of approach. There's always room for additional testing. We're working with our franchisees on trying is there an opportunity to restructure things, but at this point in time, that's very minimal. If we were to make changes, it would be something we would test. We would vet, make sure we felt comfortable with it before we executed it because it is so fundamental.
Great. Thank you both for joining us today. Good luck with all the new strategies.
Thank you. Yeah. Appreciate it. Thank you very much, everybody.