10-Q 1 ewcz-20240406.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 6, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-40714

 

EUROPEAN WAX CENTER, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

86-3150064

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

5830 Granite Parkway, 3rd Floor

Plano, Texas

75024

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (469) 264-8123

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, par value $0.00001 per share

 

EWCZ

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of May 10, 2024, the registrant had 48,610,728 and 12,219,589 shares of Class A and Class B common stock, respectively, $0.00001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

1

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets as of April 6, 2024 and January 6, 2024

1

 

Condensed Consolidated Statements of Operations for the 13 weeks ended April 6, 2024 and April 1, 2023

2

 

Condensed Consolidated Statements of Cash Flows for the 13 weeks ended April 6, 2024 and April 1, 2023

3

 

Condensed Consolidated Statements of Stockholders' Equity for the 13 weeks ended April 6, 2024 and April 1, 2023

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

24

 

 

 

PART II.

OTHER INFORMATION

25

 

 

 

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 3.

Defaults Upon Senior Securities

25

Item 4.

Mine Safety Disclosures

25

Item 5.

Other Information

25

Item 6.

Exhibits

26

Signatures

27

 

i


 

PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

EUROPEAN WAX CENTER, INC. and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

April 6, 2024

 

 

January 6, 2024

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,355

 

 

$

52,735

 

Restricted cash

 

 

6,516

 

 

 

6,493

 

Accounts receivable, net

 

 

8,191

 

 

 

9,250

 

Inventory, net

 

 

22,314

 

 

 

20,767

 

Prepaid expenses and other current assets

 

 

5,469

 

 

 

6,252

 

Total current assets

 

 

102,845

 

 

 

95,497

 

Property and equipment, net

 

 

1,774

 

 

 

2,284

 

Operating lease right-of-use assets

 

 

4,138

 

 

 

4,012

 

Intangible assets, net

 

 

159,334

 

 

 

164,073

 

Goodwill

 

 

328,551

 

 

 

328,551

 

Deferred income taxes

 

 

137,307

 

 

 

138,215

 

Other non-current assets

 

 

2,912

 

 

 

3,094

 

Total assets

 

$

736,861

 

 

$

735,726

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

16,076

 

 

$

17,966

 

Long-term debt, current portion

 

 

4,000

 

 

 

4,000

 

Tax receivable agreement liability, current portion

 

 

9,369

 

 

 

9,363

 

Deferred revenue, current portion

 

 

4,187

 

 

 

5,261

 

Operating lease liabilities, current portion

 

 

1,250

 

 

 

1,232

 

Total current liabilities

 

 

34,882

 

 

 

37,822

 

Long-term debt, net

 

 

372,290

 

 

 

372,000

 

Tax receivable agreement liability, net of current portion

 

 

197,596

 

 

 

197,273

 

Deferred revenue, net of current portion

 

 

6,473

 

 

 

6,615

 

Operating lease liabilities, net of current portion

 

 

3,253

 

 

 

3,158

 

Other long-term liabilities

 

 

2,246

 

 

 

2,246

 

Total liabilities

 

 

616,740

 

 

 

619,114

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock ($0.00001 par value, 100,000,000 shares authorized, none issued and outstanding as of April 6, 2024 and January 6, 2024, respectively)

 

 

 

 

 

 

Class A common stock ($0.00001 par value, 600,000,000 shares authorized, 51,391,532 and 51,261,001 shares issued and 48,607,512 and 48,476,981 shares outstanding as of April 6, 2024 and January 6, 2024, respectively)

 

 

 

 

 

 

Class B common stock ($0.00001 par value, 60,000,000 shares authorized, 12,219,589 and 12,278,876 shares issued and outstanding as of April 6, 2024 and January 6, 2024, respectively)

 

 

 

 

 

 

Treasury stock, at cost 2,784,020 shares of Class A common stock as of April 6, 2024 and January 6, 2024, respectively

 

 

(40,000

)

 

 

(40,000

)

Additional paid-in capital

 

 

233,819

 

 

 

232,848

 

Accumulated deficit

 

 

(106,685

)

 

 

(109,506

)

       Total stockholders’ equity attributable to European Wax Center, Inc.

 

 

87,134

 

 

 

83,342

 

Noncontrolling interests

 

 

32,987

 

 

 

33,270

 

Total stockholders’ equity

 

 

120,121

 

 

 

116,612

 

Total liabilities and stockholders’ equity

 

$

736,861

 

 

$

735,726

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CoNDENSED Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

For the Thirteen Weeks Ended

 

 

 

April 6, 2024

 

 

April 1, 2023

 

REVENUE

 

 

 

 

 

 

Product sales

 

$

29,498

 

 

$

27,842

 

Royalty fees

 

 

12,436

 

 

 

12,351

 

Marketing fees

 

 

7,096

 

 

 

6,902

 

Other revenue

 

 

2,844

 

 

 

2,797

 

Total revenue

 

 

51,874

 

 

 

49,892

 

OPERATING EXPENSES

 

 

 

 

 

 

Cost of revenue

 

 

13,524

 

 

 

14,457

 

Selling, general and administrative

 

 

13,466

 

 

 

17,263

 

Advertising

 

 

8,688

 

 

 

7,809

 

Depreciation and amortization

 

 

5,000

 

 

 

5,063

 

Gain on sale of center

 

 

(81

)

 

 

 

Total operating expenses

 

 

40,597

 

 

 

44,592

 

Income from operations

 

 

11,277

 

 

 

5,300

 

Interest expense, net

 

 

6,336

 

 

 

6,862

 

Other income

 

 

(20

)

 

 

 

Income (loss) before income taxes

 

 

4,961

 

 

 

(1,562

)

Income tax expense (benefit)

 

 

1,232

 

 

 

(509

)

NET INCOME (LOSS)

 

$

3,729

 

 

$

(1,053

)

Less: net income (loss) attributable to noncontrolling interests

 

 

908

 

 

 

(545

)

NET INCOME (LOSS) ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC.

 

$

2,821

 

 

$

(508

)

Net income (loss) per share

 

 

 

 

 

 

Basic - Class A Common Stock

 

$

0.06

 

 

$

(0.02

)

Diluted - Class A Common Stock

 

$

0.06

 

 

$

(0.02

)

Weighted average shares outstanding

 

 

 

 

 

 

Basic - Class A Common Stock

 

 

48,555,134

 

 

 

47,988,681

 

Diluted - Class A Common Stock

 

 

48,633,413

 

 

 

62,683,724

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CONDENSED Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

 

 

 

For the Thirteen Weeks Ended

 

 

 

April 6, 2024

 

 

April 1, 2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

3,729

 

 

$

(1,053

)

Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

5,000

 

 

 

5,063

 

Amortization of deferred financing costs

 

 

1,377

 

 

 

1,318

 

Provision for inventory obsolescence

 

 

(30

)

 

 

 

Provision for bad debts

 

 

9

 

 

 

19

 

Deferred income taxes

 

 

1,145

 

 

 

(486

)

Remeasurement of tax receivable agreement liability

 

 

(20

)

 

 

 

Gain on sale of center

 

 

(81

)

 

 

 

Equity compensation

 

 

1,382

 

 

 

5,931

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

1,035

 

 

 

(639

)

Inventory, net

 

 

(1,537

)

 

 

(2,230

)

Prepaid expenses and other assets

 

 

1,160

 

 

 

(1,391

)

Accounts payable and accrued liabilities

 

 

(1,184

)

 

 

(2,267

)

Deferred revenue

 

 

(1,029

)

 

 

(70

)

Other long-term liabilities

 

 

(232

)

 

 

(14

)

Net cash provided by operating activities

 

 

10,724

 

 

 

4,181

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(30

)

 

 

(358

)

Cash received for sale of center

 

 

135

 

 

 

 

Net cash provided by (used in) investing activities

 

 

105

 

 

 

(358

)

Cash flows from financing activities:

 

 

 

 

 

 

Principal payments on long-term debt

 

 

(1,000

)

 

 

(1,000

)

Distributions to EWC Ventures LLC members

 

 

(1,180

)

 

 

(276

)

Taxes on vested restricted stock units paid by withholding shares

 

 

(319

)

 

 

(126

)

Dividend equivalents to holders of EWC Ventures units

 

 

(687

)

 

 

(735

)

Net cash used in financing activities

 

 

(3,186

)

 

 

(2,137

)

Net increase in cash, cash equivalents and restricted cash

 

 

7,643

 

 

 

1,686

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

59,228

 

 

 

50,794

 

Cash, cash equivalents and restricted cash, end of period

 

$

66,871

 

 

$

52,480

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

5,490

 

 

$

5,560

 

Cash paid for income taxes

 

$

40

 

 

$

245

 

Non-cash investing activities:

 

 

 

 

 

 

Property purchases included in accounts payable and accrued liabilities

 

$

 

 

$

122

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

592

 

 

$

368

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

CONDENSED Consolidated Statements of STOCKHOLDERS’ Equity

(Amounts in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

Class B Common Stock

 

paid-in

 

Accumulated

 

Treasury

 

Noncontrolling

 

Total

 

 

Shares

 

Amount

 

Shares

 

Amount

 

capital

 

deficit

 

Stock

 

interest

 

equity

Balance at January 6, 2024

 

48,476,981

 

$

 

12,278,876

 

$

 

$232,848

 

$(109,506)

 

$(40,000)

 

$33,270

 

$116,612

Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock

 

56,232

 

 

(56,232)

 

 

 

 

 

 

Vesting of restricted stock units

 

99,023

 

 

 

 

 

 

 

 

Shares withheld for taxes on vested restricted stock units

 

(24,724)

 

 

 

 

(319)

 

 

 

 

(319)

Forfeiture of unvested incentive units

 

 

 

(3,055)

 

 

 

 

 

 

Equity compensation

 

 

 

 

 

1,382

 

 

 

 

1,382

Distributions to members of EWC Ventures

 

 

 

 

 

 

 

 

(1,180)

 

(1,180)

Forfeiture of accrued dividend equivalents

 

 

 

 

 

 

 

 

10

 

10

Tax receivable liability and deferred taxes arising from share exchanges

 

 

 

 

 

(113)

 

 

 

 

(113)

Allocation of equity to noncontrolling interests

 

 

 

 

 

21

 

 

 

(21)

 

Net income

 

 

 

 

 

 

 

2,821

 

 

908

 

3,729

Balance at April 6, 2024

 

48,607,512

 

$

 

12,219,589

 

$

 

$233,819

 

$(106,685)

 

$(40,000)

 

$32,987

 

$120,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

paid-in

 

 

Accumulated

 

 

Treasury

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

Stock

 

 

interest

 

 

equity

 

Balance at December 31, 2022

 

 

44,561,685

 

 

$

 

 

 

18,175,652

 

 

$

 

 

$

207,517

 

 

$

(118,437

)

 

$

(10,080

)

 

$

51,304

 

 

$

130,304

 

Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock

 

 

5,129,351

 

 

 

 

 

 

(5,129,351

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units

 

 

33,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares withheld for taxes on vested restricted stock units

 

 

(6,708

)

 

 

 

 

 

 

 

 

 

 

 

(126

)

 

 

 

 

 

 

 

 

 

 

 

(126

)

Equity compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,931

 

 

 

 

 

 

 

 

 

 

 

 

5,931

 

Distributions to members of EWC Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(276

)

 

 

(276

)

Tax receivable liability and deferred taxes arising from share exchanges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,519

)

 

 

 

 

 

 

 

 

 

 

 

(3,519

)

Allocation of equity to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,657

 

 

 

 

 

 

 

 

 

(12,657

)

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(508

)

 

 

 

 

 

(545

)

 

 

(1,053

)

Balance at April 1, 2023

 

 

49,717,874

 

 

$

 

 

 

13,046,301

 

 

$

 

 

$

222,460

 

 

$

(118,945

)

 

$

(10,080

)

 

$

37,826

 

 

$

131,261

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

EUROPEAN WAX CENTER, INC. and Subsidiaries

Notes to CONDENSED Consolidated Financial Statements

(Amounts in thousands, except share/unit and per share/unit amounts)

(Unaudited)

1. Nature of business and organization

European Wax Center, Inc. was formed as a Delaware corporation on April 1, 2021. European Wax Center, Inc. and subsidiaries (“the Company”) was formed for the purpose of completing a public offering and related transactions in order to carry on the business of EWC Ventures, LLC (“EWC Ventures”) and its subsidiaries. Through its subsidiaries, the Company is engaged in selling franchises of European Wax Center, distributing unique facial and body waxing products to franchisees which are used to perform waxing services and providing branded facial and body waxing products directly to consumers at various locations throughout the United States.

The Company operates on a fiscal calendar which, in a given year, consists of a 52 or 53 week period ending on the Saturday closest to December 31st. The quarters ended April 6, 2024 and April 1, 2023 both consisted of 13 weeks.

2. Summary of significant accounting policies

(a) Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC and includes the operations of the Company and EWC Ventures and its wholly owned subsidiaries. EWC Ventures is considered a variable interest entity. The Company is the primary beneficiary of EWC Ventures. As a result, the Company consolidates EWC Ventures.

The condensed consolidated balance sheet as of January 6, 2024 is derived from the audited consolidated financial statements of the Company but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended January 6, 2024 included in our annual report on Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation.

Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the audited consolidated financial statements and the related notes thereto for the year ended January 6, 2024 included in our annual report on Form 10-K.

(b) Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the financial statements include revenue recognition, inventory reserves, income taxes, the Tax Receivable Agreement (“TRA”), the expected life of franchise agreements, the useful life of reacquired rights, valuation of equity-based compensation awards, and the evaluation of the recoverability of goodwill and long-lived assets, including indefinite-lived intangible assets. Actual results could differ from those estimates.

(c) Implications of being an Emerging Growth Company

The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced

5


 

disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

(d) Comprehensive income (loss)

Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income (loss) is equal to net income (loss) for all periods presented.

(e) Recently issued accounting pronouncements not yet adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and subsequent interim periods, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07 will have on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, which expands disclosures in an entity's income tax reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact that adopting this guidance will have on our consolidated financial statements.

3. Prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

April 6, 2024

 

 

January 6, 2024

 

Prepaid inventory

 

$

177

 

 

$

238

 

Prepaid insurance

 

 

740

 

 

 

1,507

 

Prepaid technology

 

 

2,337

 

 

 

1,922

 

Prepaid advertising

 

 

1,256

 

 

 

1,038

 

Prepaid commissions

 

 

372

 

 

 

380

 

Prepaid other & other current assets

 

 

587

 

 

 

1,167

 

Total

 

$

5,469

 

 

$

6,252

 

 

4. Accounts payable and accrued liabilities

 

Accounts payable and accrued liabilities consisted of the following:

 

 

 

April 6, 2024

 

 

January 6, 2024

 

Accounts payable

 

$

8,068

 

 

$

6,048

 

Accrued inventory

 

 

1,460

 

 

 

1,397

 

Accrued compensation

 

 

1,551

 

 

 

4,646

 

Accrued taxes and penalties

 

 

1,350

 

 

 

1,207

 

Accrued technology and subscription fees

 

 

187

 

 

 

237

 

Accrued interest

 

 

1,287

 

 

 

1,290

 

Accrued professional fees

 

 

655

 

 

 

458

 

Accrued advertising

 

 

740

 

 

 

1,375

 

Accrued dividend equivalents

 

 

112

 

 

 

799

 

Other accrued liabilities

 

 

666

 

 

 

509

 

Total accounts payable and accrued liabilities

 

$

16,076

 

 

$

17,966

 

 

6


 

5. Long-term debt

Long-term debt consists of the following:

 

 

 

April 6, 2024

 

 

January 6, 2024

 

Class A-2 Notes

 

$

393,000

 

 

$

394,000

 

Less: current portion

 

 

(4,000

)

 

 

(4,000

)

Total long-term debt

 

 

389,000

 

 

 

390,000

 

Less: unamortized debt discount and deferred financing costs

 

 

(16,710

)

 

 

(18,000

)

Total long-term debt, net

 

$

372,290

 

 

$

372,000

 

 

On April 6, 2022 (the “Closing Date”), EWC Master Issuer LLC, a limited-purpose, bankruptcy remote, indirect subsidiary of the Company (the “Master Issuer”), completed a securitization transaction pursuant to which it issued $400,000 in aggregate principal amount of Series 2022-1 5.50% Fixed Rate Senior Secured Notes, Class A-2 (the “Class A-2 Notes”).

In connection with the issuance of the Class A-2 Notes, the Master Issuer also entered into (i) a revolving financing facility that allows for the issuance of up to $40,000 in Variable Funding Notes (”Variable Funding Notes”), and certain letters of credit and (2) an advance funding facility with Bank of America, N.A. (“BofA”), whereby BofA and any other advance funding provider thereunder would, in certain specified circumstances, make certain debt service advances and collateral protection advances (not to exceed $5,000 in the aggregate). The Variable Funding Notes were undrawn as of April 6, 2024.

Fair Value

The carrying values of cash, accounts receivable and accounts payable approximate fair value because of the short-term nature of these instruments. Cash equivalents consist of money market funds for which original cost approximates fair value. Cash equivalents have an approximate fair value of $33,967 as of April 6, 2024 which was determined using Level 1 inputs. Our outstanding Class A-2 Notes had an approximate fair value of $375,158 as of April 6, 2024 which was determined using Level 2 inputs.

6. Equity Based Compensation

Restricted Stock Units

During the 13 weeks ended April 6, 2024 and April 1, 2023, we granted 356,727 and 270,055 restricted stock units (“RSUs”), respectively, to certain employees under the 2021 Omnibus Incentive Plan (the “2021 Incentive Plan”) that will generally vest in three equal installments of 33.33% on each of the first three anniversaries of the date of grant, subject in all cases to continued employment on the applicable vesting date. The total grant date fair value of the RSUs will be recognized as equity-based compensation expense over the vesting period. The weighted average grant date fair values of the RSUs granted during the 13 weeks ended April 6, 2024 and April 1, 2023 were $14.73 and $16.27, respectively, and were equal to the closing price of the underlying Class A common stock on the date of grant.

 

Class A Common Stock Options

During the 13 weeks ended April 6, 2024 and April 1, 2023, we granted 308,776 and 267,640 options with weighted average exercise prices of $17.74 and $19.60, respectively, to certain employees under the 2021 Incentive Plan. The stock options granted have a ten-year contractual term and will cliff vest on the third anniversary of the date of grant, subject in all cases to continued employment on the applicable vesting date. The weighted average grant date fair value of the stock options were $8.40 and $9.81 for the 13 weeks ended April 6, 2024 and April 1, 2023, respectively. The total grant date fair value of the stock options will be recognized as equity-based compensation expense over the vesting period. As these options were granted with exercise prices 20% higher than the closing price, it was determined that the options contained an implicit market condition. As such, the Company estimated the fair value of the options using a binomial lattice model.

 

The following table presents the weighted average assumptions used in the lattice model to determine the fair value of the stock options granted during the 13 weeks ended April 6, 2024 and April 1, 2023:

 

7


 

 

 

For the Thirteen Weeks Ended

 

 

April 6, 2024

 

 

April 1, 2023

 

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

Expected volatility

 

 

56.0

%

 

 

62.3

%

Risk-free rate

 

 

4.1

%

 

 

3.6

%

Suboptimal exercise factor

 

2.5x

 

 

2.5x

 

 

A description of each of the inputs to the lattice model is as follows:

Expected dividend yield - The expected dividend yield is based on our history of not paying regular dividends in the past and our current intention to not pay regular dividends in the foreseeable future. An increase in the expected dividend yield would decrease compensation expense.
Expected volatility - This is a measure of the amount by which the price of the equity instrument has fluctuated or is expected to fluctuate. The expected volatility was based on the historical volatility of the Company as well as that of a group of guideline companies. An increase in expected volatility would increase compensation expense.
Risk-free interest rate - This is the U.S. Treasury rate as of the measurement date having a term approximating the contractual term of the award. An increase in the risk-free interest rate would increase compensation expense.
Suboptimal exercise factor - The multiple of the exercise price at which an option exercise would be expected to occur. An increase in the suboptimal exercise factor would increase compensation expense.

 

7. Commitments and contingencies

Litigation

The Company is exposed to various asserted and unasserted potential claims encountered in the normal course of business. Although the outcomes of potential legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material effect on its financial position, results of operations, or cash flow.

8. Revenue from contracts with customers

Contract liabilities consist of deferred revenue resulting from franchise fees, which are generally recognized on a straight-line basis over the term of the underlying franchise agreement. Also included are service revenues from corporate-owned centers, including customer prepayments in connection with the Wax Pass program. Contract liabilities are classified as deferred revenue on the condensed consolidated balance sheets.

Deferred franchise fees are reduced as fees are recognized in revenue over the term of the franchise license for the respective center. Deferred service revenues are recognized over time as the services are performed. The following table reflects the change in contract liabilities for the periods indicated:

 

 

 

Contract liabilities

 

Balance at January 6, 2024

 

$

11,876

 

Revenue recognized that was included in the contract liability at the beginning
   of the year

 

 

(1,863

)

Contract liability assumed by buyer of corporate-owned center

 

 

(187

)

Increase, excluding amounts recognized as revenue during the period

 

 

834

 

Balance at April 6, 2024

 

$

10,660

 

 

During the 13 weeks ended April 6, 2024, the Company recognized $1,863 in revenue that was included in the contract liability as of January 6, 2024. During the 13 weeks ended April 1, 2023, the Company recognized $950 in revenue that was included in the contract liability as of December 31, 2022.

The weighted average remaining amortization period for deferred revenue is 3.4 years.

8


 

The following table illustrates estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of April 6, 2024. The Company has elected to exclude short term contracts, sales-based royalties and any other variable consideration recognized on an “as invoiced” basis.

 

Contract liabilities to be recognized in:

 

Amount

 

2024 (from April 7, 2024)

 

$

3,869

 

2025

 

 

1,240

 

2026

 

 

1,134

 

2027

 

 

1,081

 

2028

 

 

1,033

 

Thereafter

 

 

2,303

 

Total

 

$

10,660

 

 

The summary set forth below represents the balances in deferred revenue as of April 6, 2024 and January 6, 2024:

 

 

 

April 6, 2024

 

 

January 6, 2024

 

Franchise fees

 

$

7,768

 

 

$

8,620

 

Service revenue

 

 

2,892

 

 

 

3,256

 

Total deferred revenue

 

 

10,660

 

 

 

11,876

 

Long-term portion of deferred revenue

 

 

6,473

 

 

 

6,615

 

Current portion of deferred revenue

 

$

4,187

 

 

$

5,261

 

 

9. Sale of corporate-owned center

In March 2024, the Company sold one corporate-owned center for $135. The difference between the sale price and carrying value of the net assets sold was recognized as a gain of $81 in the condensed consolidated statements of operations for the 13 weeks ended April 6, 2024.

10. Income taxes

The Company is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to its allocable share of any taxable income or loss of EWC Ventures. The remaining share of EWC Ventures income or loss is non-taxable to the Company and is not reflected in current or deferred income taxes.

EWC Ventures is a limited liability company that is treated as a partnership for U.S. federal income tax purposes and for most applicable state and local income tax purposes. As a partnership, EWC Ventures is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by EWC Ventures is passed through to and included in the taxable income or loss of its members on a pro rata basis, subject to applicable tax regulations.

We recorded $1,232 in income tax expense and $509 of income tax benefit for the 13 weeks ended April 6, 2024 and April 1, 2023, respectively. The effective tax rate was 24.8% and 32.6% for the 13 weeks ended April 6, 2024 and April 1, 2023, respectively. The effective tax rate for the 13 weeks ended April 6, 2024 differs from the U.S. federal statutory rate primarily due to non-taxable income attributable to noncontrolling interest, state taxes and the tax effects of stock compensation. The effective tax rate for the 13 weeks ended April 1, 2023 differs from the U.S. federal statutory rate primarily due to non-taxable income attributable to noncontrolling interest, state taxes and the tax effects of stock compensation.

Tax Receivable Agreement

As of April 6, 2024, future payments under the TRA are expected to be $206,965. Payments made under the TRA represent payments that otherwise would have been made to taxing authorities in the absence of attributes obtained by us as a result of exchanges by our pre-IPO members. Such amounts will be paid only when a cash tax savings is realized as a result of attributes subject to the TRA. That is, payments under the TRA are only expected to be made in periods following the filing of a tax return in which we are able to utilize certain tax benefits to reduce our cash taxes paid to a taxing authority. The impact of any changes in the projected obligations under the TRA as a result of changes in the geographic mix of the Company’s earnings, changes in tax legislation and tax rates or other factors that may impact the Company’s tax savings will be reflected in other expense on the condensed consolidated statement of operations in the period in which the change occurs.

9


 

11. Noncontrolling interests

We are the sole managing member of EWC Ventures and, as a result of this control, and because we have a substantial financial interest in EWC Ventures, we consolidate the financial results of EWC Ventures. We report noncontrolling interests representing the economic interests in EWC Ventures held by the other members of EWC Ventures. Income or loss is attributed to the noncontrolling interests based on their contractual distribution rights, and the relative percentages of EWC Ventures non-voting common units (“EWC Ventures Units”) by us and the other holders of EWC Ventures Units during the period.

The EWC Ventures LLC Agreement permits the members of EWC Ventures to exchange EWC Ventures Units, together with related shares of our Class B common stock, for shares of our Class A common stock on a one-for-one basis or, at the election of the Company, for cash at the current fair value on the date of the exchange. Changes in the Company’s ownership interest in EWC Ventures while retaining control of EWC Ventures will be accounted for as equity transactions. As such, future redemptions or direct exchanges of EWC Ventures Units by the other members will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital. Additionally, certain members of EWC Ventures hold unvested EWC Ventures Units that are subject to service, performance, and/or market conditions. The vesting of EWC Ventures Units will result in a change in ownership and increase the amount recorded as noncontrolling interest and decrease additional paid-in capital.

The following table summarizes the ownership of EWC Ventures as of April 6, 2024:

 

 

April 6, 2024

 

 

 

Units Owned

 

 

Ownership Percentage

 

European Wax Center, Inc.

 

 

48,607,512

 

 

 

79.9

%

Noncontrolling interests

 

 

12,196,992

 

 

 

20.1

%

Total

 

 

60,804,504

 

 

 

100.0

%

 

The following table presents the effect of changes in the Company’s ownership interest in EWC Ventures on the Company’s equity for the 13 weeks ended April 6, 2024 and April 1, 2023:

 

 

 

For the Thirteen Weeks Ended

 

 

April 6, 2024

 

 

April 1, 2023

 

Net income (loss) attributable to European Wax Center, Inc.

 

$

2,821

 

 

$

(508

)

Transfers from noncontrolling interests:

 

 

 

 

 

 

Increase in additional-paid-in-capital as a result of equity allocations from the noncontrolling interest

 

 

21

 

 

 

12,657

 

Net increase in equity of European Wax Center, Inc. due to equity interest transactions with noncontrolling interests

 

$

2,842

 

 

$

12,149

 

 

12. Net income (loss) per share

Basic net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Class A common shareholders for the period by the weighted average number of shares of Class A common stock outstanding for the same period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period in which the shares were outstanding. Diluted net income (loss) per share of Class A common stock is computed by dividing net income (loss) attributable to Class A common shareholders by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities using the more dilutive of either the treasury stock method or the if-converted method.

10


 

The following table sets forth the computation of basic net income (loss) per share of Class A common stock for the 13 weeks ended April 6, 2024 and April 1, 2023:

 

 

For the Thirteen Weeks Ended

 

 

 

April 6, 2024

 

 

April 1, 2023

 

(in thousands, except for share and per share amounts)

 

 

 

 

 

 

Net income (loss)

 

$

3,729

 

 

$

(1,053

)

Less: net income (loss) attributable to noncontrolling interests

 

 

940

 

 

 

(322

)

Net income (loss) applicable to Class A common shareholders

 

$

2,789

 

 

$

(731

)

Basic weighted average outstanding shares

 

 

 

 

 

 

Class A Common Stock

 

 

48,555,134

 

 

 

47,988,681

 

Basic net income (loss) per share applicable to common shareholders:

 

 

 

 

 

 

Class A Common Stock

 

$

0.06

 

 

$

(0.02

)

 

The following table sets forth the computation of diluted net income (loss) per share of Class A common stock for the 13 weeks ended April 6, 2024 and April 1, 2023:

 

 

For the Thirteen Weeks Ended

 

 

 

April 6, 2024

 

 

April 1, 2023

 

(in thousands, except for share and per share amounts)

 

 

 

 

 

 

Net income (loss)

 

$

3,729

 

 

$

(1,053

)

Less: net income attributable to noncontrolling interests

 

 

939

 

 

 

 

Net income (loss) applicable to Class A common shareholders

 

$

2,790

 

 

$

(1,053

)

Diluted weighted average outstanding shares

 

 

 

 

 

 

Basic weighted average outstanding shares - Class A Common Stock

 

 

48,555,134

 

 

 

47,988,681

 

Effect of dilutive securities:

 

 

 

 

 

 

     Class B Common Stock

 

 

 

 

 

14,629,907

 

     RSUs

 

 

78,279

 

 

 

65,136

 

Diluted weighted average outstanding shares - Class A Common Stock

 

 

48,633,413

 

 

 

62,683,724

 

Diluted net income (loss) per share applicable to common shareholders:

 

 

 

 

 

 

Class A Common Stock

 

$

0.06

 

 

$

(0.02

)

 

For the 13 weeks ended April 6, 2024, diluted net income per share of Class A common stock was calculated using the treasury stock method. For the 13 weeks ended April 1, 2023, diluted net loss per share of Class A common stock was calculated using the if-converted method.

Shares of Class B common stock do not share in the earnings or losses attributable to the Company and are therefore not participating securities. As such, separate presentation of basic and diluted net income (loss) per share of Class B common stock under the two-class method has not been presented. Shares of Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related EWC Ventures Units, are exchangeable into shares of Class A common stock on a one-for-one basis.

There were 12,219,589 shares of Class B common stock, 734,138 options and 342,350 RSUs excluded from the computation of diluted net income per share of Class A common stock for the 13 weeks ended April 6, 2024 as they were determined to be antidilutive. There were 480,818 options and 270,055 RSUs excluded from the computation of diluted net loss per share of Class A common stock for the 13 weeks ended April 1, 2023 as they were determined to be antidilutive.

13. Stockholders’ equity

 

Share Exchange Transactions

During the 13 weeks ended April 6, 2024 certain members of EWC Ventures exercised their exchange rights and exchanged 56,232 EWC Ventures Units and the corresponding shares of Class B common stock for 56,232 newly issued shares of Class A common stock. These exchange transactions increased the Company’s ownership interest in EWC Ventures.

14. Subsequent Events

 

On May 13, 2024, the Company’s Board of Directors approved a share repurchase program, which authorized the Company to repurchase, from time to time, as market conditions warrant, up to $50,000 of its shares of Class A common Stock. The share repurchase

11


 

program does not obligate the Company to repurchase any particular amount of Class A common stock, and it could be modified, suspended or discontinued at any time. The timing and amount of repurchases will be determined by the Company’s management at its discretion based on a variety of factors such as the market price of its Class A common stock, corporate and legal requirements, general market and economic conditions, and compliance with the terms of agreements governing the Company’s outstanding indebtedness. Purchases of the Company’s Class A common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, in privately negotiated transactions or by other means in accordance with federal securities laws. The Company may elect to implement a 10b5-1 repurchase program, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our historical performance, financial condition and future prospects in conjunction with the management’s discussion and analysis of financial conditions and results of operations and the audited consolidated financial statements included in our annual report on Form 10-K for the fiscal year ended January 6, 2024. The following discussion and analysis should also be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that are based on the views and beliefs of our management, as well as assumptions and estimates made by our management. Actual results could differ materially from such forward-looking statements as a result of various risk factors, including those that may not be in the control of management. For further information on items that could impact our future operating performance or financial condition, see Part I, “Item 1A. Risk Factors” included in our annual report on Form 10-K for the fiscal year ended January 6, 2024.

We conduct substantially all of our activities through our subsidiary, EWC Ventures, LLC and its subsidiaries. We operate on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52- or 53-week period ending on the Saturday closest to December 31. Our fiscal quarters are composed of 13 weeks each, except for 53-week fiscal years for which the fourth quarter will be composed of 14 weeks.

Overview

We are the largest and fastest-growing franchisor and operator of out-of-home ("OOH") waxing services in the United States by number of centers and system-wide sales. We delivered over 23 million waxing services in 2023 and over 22 million waxing services in 2022 generating $955 million and $899 million of system-wide sales, respectively, across our highly-franchised network. We have a leading portfolio of centers operating in 1,051 locations across 45 states as of April 6, 2024. Of these locations, 1,046 are franchised centers operated by franchisees and five are corporate-owned centers.

The European Wax Center brand is trusted, efficacious and accessible. Our culture is obsessed with our guest experience and we deliver a superior guest experience relative to smaller chains and independent salons. We offer guests high-quality, hygienic waxing services administered by our licensed, EWC-trained estheticians (our “wax specialists”), at our accessible and welcoming locations (our “centers”). Our technology-enabled guest interface simplifies and streamlines the guest experience with automated appointment scheduling and remote check-in capabilities, ensuring guest visits are convenient, hassle-free, and consistent across our network of centers. Our well-known, pre-paid Wax Pass program makes payment easy and convenient, fostering loyalty and return visits. Guests view us as a non-discretionary part of their personal-care and beauty regimens, providing us with a highly predictable and growing recurring revenue model.

Our asset-light franchise platform delivers capital-efficient growth, significant cash flow generation, and resilience through economic cycles. Our centers are 99% owned and operated by our franchisees who benefit from superior unit-level economics, with mature centers generating annual cash-on-cash returns in excess of 50%.

In partnership with our franchisees, we fiercely protect our points of differentiation that attract new guests, build meaningful relationships and promote lasting retention. We are so confident in our ability to delight that we have always offered all of our guests their first wax free.

Hair removal solutions are consistently in demand, given the recurring nature of hair growth. The OOH waxing market is the fastest-growing hair removal solution in the United States, defined by an estimated total addressable market of over $18 billion with annualized growth that is more than double other hair removal alternatives. European Wax Center has become the category-defining brand within this rapidly growing market and became so by professionalizing a highly fragmented sector where service consistency, hygiene, and customer trust were not historically offered. We are approximately six times larger than the next largest waxing-focused competitor by center count and approximately 11 times larger by system-wide sales. Our unmatched scale enables us to drive broader brand awareness, ensures our licensed wax specialists are universally trained at the highest standards and drive consistent financial performance across each center.

Under the stewardship of our CEO, David Willis, and the other management team members, we have prioritized building a culture of performance, success, and inclusivity. Additionally, we have intensified our focus on enhancing the guest experience and have invested significantly in our corporate infrastructure and marketing capabilities to continue our track record of sustainable growth. The foundation for our next chapter of growth is firmly in place.

 

Growth Strategy and Outlook

We plan to grow our business primarily by opening new franchised centers as well as increasing our system-wide sales in existing centers while leveraging our corporate infrastructure to expand our profit margins and generate robust free cash flow.

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We believe our franchisees’ track record of successfully opening new centers and consistently generating attractive unit-level economics validates our strategy to expand our footprint and grow our capacity to serve more guests. Our center count grew 11% during both fiscal year 2023 and fiscal year 2022, and has grown each year since 2010. Our thoughtful approach to growth ensures each center is appropriately staffed with the high-quality team and licensed, highly-trained wax specialists that our brand has been known for since our initial opening. We believe that none of our existing markets are fully penetrated, and that we have a significant whitespace opportunity of more than 3,000 locations for our standard center format across the United States. Our centers have a long track record of sustained growth delivering consistent positive same-store sales growth with resilient performance through economic cycles.

Our straightforward, asset-light franchise platform and our proven track record of increasing profitability is expected to continue to drive EBITDA margin accretion and free cash flow generation as we expand our national footprint. We have invested in building our scalable support infrastructure, and we currently have the capabilities and systems in place to drive revenue growth and profitability across our existing and planned franchise centers.

 

Key Business Metrics

We track the following key business metrics to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions. Accordingly, we believe that these key business metrics provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key business metrics are presented for supplemental information purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled metrics or measures presented by other companies.

Number of Centers. Number of centers reflects the number of franchised and corporate-owned centers open at the end of the reporting period. We review the number of new center openings, the number of closed centers and the number of relocations of centers to assess net new center growth, and drivers of trends in system-wide sales, royalty and franchise fee revenue and corporate-owned center sales.

System-Wide Sales. System-wide sales represent sales from same day services, retail sales and cash collected from wax passes for all centers in our network, including both franchisee-owned and corporate-owned centers. While we do not record franchised center sales as revenue, our royalty revenue is calculated based on a percentage of franchised center sales, which are 6.0% of sales, net of retail product sales, as defined in the franchise agreement. This measure allows us to better assess changes in our royalty revenue, our overall center performance, the health of our brand and the strength of our market position relative to competitors. Our system-wide sales growth is driven by net new center openings as well as increases in same-store sales.

Same-Store Sales. Same-store sales reflect the change in year-over-year sales from services performed and retail sales for the same-store base. We define the same-store base to include those centers open for at least 52 full weeks. If a center is closed for greater than six consecutive days, the center is deemed a closed center and is excluded from the calculation of same-store sales until it has been reopened for a continuous 52 full weeks. This measure highlights the performance of existing centers, while excluding the impact of new center openings and closures. We review same-store sales for corporate-owned centers as well as franchisee-owned centers. Same-store sales growth is driven by increases in the number of transactions and average transaction size.

Net New Center Openings. The number of net new center openings reflects centers opened during a particular reporting period for both franchisee-owned and corporate-owned centers, less centers closed during the same period. Opening new centers is an integral part of our growth strategy, and we expect the majority of our future new centers to be franchisee-owned. Before we obtain the certificate of occupancy or report any revenue from new corporate-owned centers, we incur pre-opening costs, such as rent expense, labor expense and other operating expenses. Some of our centers open with an initial start-up period of higher-than-normal marketing and operating expenses, particularly as a percentage of monthly revenue.

Average Unit Volume (“AUV”). AUV consists of the average annual system-wide sales of all centers that have been open for a trailing 52-week period or longer. This measure is calculated by dividing system-wide sales during the applicable period for all centers being measured by the number of centers being measured. AUV allows management to assess our franchisee-owned and corporate-owned center economics. Our AUV growth is primarily driven by increases in services and retail product sales as centers fill their books of reservations, which we refer to as maturation of centers.

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Wax Pass Utilization. We define Wax Pass utilization as the adoption of our Wax Pass program by guests, measured as a percentage of total transactions conducted using a Wax Pass. Wax Pass utilization allows management to better assess the recurring nature of our business model because it is an indication of the magnitude of transactions by guests who have made a longer-term commitment to our brand by purchasing a Wax Pass.

 

 

 

For the Thirteen
Weeks Ended

 

(in thousands, except operating data and percentages)

 

April 6, 2024

 

 

April 1, 2023

 

Number of system-wide centers (at period end)

 

 

1,051

 

 

 

978

 

System-wide sales

 

$

221,379

 

 

$

218,441

 

Same-store sales

 

 

(1.2

)%

 

 

4.5

%

Net new center openings

 

 

7

 

 

 

34

 

 

The table below presents changes in the number of system-wide centers for the periods indicated:

 

 

 

For the Thirteen
Weeks Ended

 

 

 

April 6, 2024

 

 

April 1, 2023

 

System-wide Centers

 

 

 

 

 

 

Beginning of Period

 

 

1,044

 

 

 

944

 

Openings

 

 

10

 

 

 

35

 

Closures

 

 

(3

)

 

 

(1

)

End of Period

 

 

1,051

 

 

 

978

 

 

Significant Factors Impacting Our Financial Results

We believe there are several important factors that have impacted, and that we expect will continue to impact, our business and results of operations. These factors include:

New Center Openings. We expect that new centers will be a key driver of growth in our future revenue and operating profit results. Opening new centers is an important part of our growth strategy, and we expect the majority of our future new centers will be franchisee-owned. Our results of operations have been and will continue to be materially affected by the timing and number of new center openings each period. As centers mature, center revenue and profitability increase significantly. The performance of new centers may vary depending on various factors such as the effective management and cooperation of our franchisee partners, whether the franchise is part of a multi-unit development agreement, the center opening date, the time of year of a particular opening, the number of licensed wax specialists recruited, and the location of the new center, including whether it is located in a new or existing market. Our planned center expansion will place increased demands on our operational, managerial, administrative, financial, and other resources.

System-Wide Sales Growth. System-wide sales growth is a key driver of our business. Various factors affect system-wide sales, including:

consumer preferences and overall economic trends;
the recurring, non-discretionary nature of personal-care services and purchases;
our ability to identify and respond effectively to guest preferences and trends;
our ability to provide a variety of service offerings that generate new and repeat visits to our centers;
the guest experience we provide in our centers;
the availability of experienced wax specialists;
our ability to source and deliver products accurately and timely;
changes in service or product pricing, including promotional activities;
the number of services or items purchased per center visit;
center closures in response to state or local regulations or health concerns

Overall Economic Trends. Macroeconomic factors that may affect guest spending patterns, and thereby our results of operations, include employment rates, the rate of inflation, business conditions, changes in the housing market, the availability of credit, interest rates, tax rates and fuel and energy costs. However, we believe that our guests see our services as largely non-discretionary in nature.

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Therefore, we believe that overall economic trends and related changes in consumer behavior have less of an impact on our business than they may have for other industries subject to fluctuations in discretionary consumer spending.

Guest Preferences and Demands. Our ability to maintain our appeal to existing guests and attract new guests depends on our ability to develop and offer a compelling assortment of services responsive to guest preferences and trends. We also believe that OOH waxing is a recurring need that brings guests back for services on a highly recurring basis which is reflected in the predictability of our financial performance over time. Our guests’ routine personal-care need for OOH waxing is further demonstrated by the top 20% of guests who visit us, on average, approximately every five weeks.

Our Ability to Source and Distribute Products Effectively. Our revenue and operating income are affected by our ability to purchase our products and supplies in sufficient quantities at competitive prices. While we believe our vendors have adequate capacity to meet our current and anticipated demand, our level of revenue could be adversely affected in the event we face constraints in our supply chain, including the inability of our vendors to produce sufficient quantities of some products or supplies in a manner that matches market demand from our guests, leading to lost revenue. We depend on two key suppliers to source our Comfort Wax and one key supplier to source our branded retail products and we are thus exposed to concentration of supplier risk.

Our Ability to Recruit and Retain Qualified Licensed Wax Specialists for our Franchised Centers. Our franchisee’s ability to operate their centers is largely dependent upon their ability to attract and retain qualified, licensed wax specialists. Our unmatched scale enables us to ensure that we universally train our wax specialists at the highest standards, ensuring that our guests experience consistent level of quality, regardless of the specific center they visit. The combination of consistent service delivery, across our trained base of wax specialists, along with the payment ease and convenience of our well-known, pre-paid Wax Pass program fosters loyalty and return visits across our guest base. Over time, our ability to build and maintain a strong pipeline of licensed wax specialists is important to preserving our current brand position.

Seasonality. Our results are subject to seasonality fluctuations in that services are typically in higher demand in periods leading up to holidays and the summer season. The resulting demand trend has historically yielded higher system-wide sales in the second and fourth quarter of our fiscal year. In addition, our quarterly results may fluctuate significantly, because of several factors, including the timing of center openings, price increases and promotions, and general economic conditions.

Components of Results of Operations

Revenue

Product Sales: Product sales consist of revenue earned from sales of Comfort Wax, other products consumed in administering our wax services and retail merchandise to franchisees, as well as retail merchandise sold in corporate-owned centers. Revenue on product sales is recognized upon transfer of control. Our product sales revenue comprised 56.9% and 55.8% of our total revenue for the 13 weeks ended April 6, 2024 and April 1, 2023, respectively.

Royalty Fees: Royalty fees are earned based on a percentage of the franchisees’ gross sales, net of retail product sales, as defined in the applicable franchise agreement, and recognized in the period the franchisees’ sales occur. The royalty fee is 6.0% of the franchisees’ gross sales for such period and is paid weekly. Our royalty fees revenue comprised 24.0% and 24.8% of our total revenue for the 13 weeks ended April 6, 2024 and April 1, 2023, respectively.