Stock Story -
Beauty and waxing service franchise European Wax Center (NASDAQ:EWCZ) fell short of analysts’ expectations in Q2 CY2024, with revenue up 1.3% year on year to $59.87 million. The company’s full-year revenue guidance of $218.5 million at the midpoint also came in 5.3% below analysts’ estimates. It made a GAAP profit of $0.13 per share, improving from its profit of $0.09 per share in the same quarter last year.
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European Wax Center (EWCZ) Q2 CY2024 Highlights:
- Revenue: $59.87 million vs analyst estimates of $61.34 million (2.4% miss)
- EPS: $0.13 vs analyst estimates of $0.07 ($0.05 beat)
- The company dropped its revenue guidance for the full year to $218.5 million at the midpoint from $228.5 million, a 4.4% decrease
- EBITDA guidance for the full year is $72 million at the midpoint, below analyst estimates of $77.71 million
- Gross Margin (GAAP): 73.2%, up from 71.4% in the same quarter last year
- EBITDA Margin: 34.5%, down from 35.9% in the same quarter last year
- Free Cash Flow Margin: 23.8%, down from 28.4% in the same quarter last year
- Same-Store Sales rose 1.6% year on year (2.6% in the same quarter last year)
- Market Capitalization: $336.9 million
Founded by two siblings, European Wax Center (NASDAQ:EWCZ) is a beauty and waxing salon chain specializing in professional wax services and skincare products.
Leisure FacilitiesLeisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.
Sales GrowthA company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, European Wax Center’s 6.9% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. European Wax Center’s annualized revenue growth of 7.7% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. Note that COVID hurt European Wax Center’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.
We can better understand the company’s revenue dynamics by analyzing its same-store sales, which show how much revenue its established locations generate. Over the last two years, European Wax Center’s same-store sales averaged 2.9% year-on-year growth. Because this number is lower than its revenue growth, we can see the opening of new locations is boosting the company’s top-line performance.
This quarter, European Wax Center’s revenue grew 1.3% year on year to $59.87 million, falling short of Wall Street’s estimates. Looking ahead, Wall Street expects sales to grow 7.1% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
European Wax Center has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cash cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 24.1% over the last two years.
European Wax Center’s free cash flow clocked in at $14.22 million in Q2, equivalent to a 23.8% margin. The company’s cash profitability regressed as it was 4.6 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
Key Takeaways from European Wax Center’s Q2 Results We liked how European Wax Center beat analysts’ EPS expectations this quarter. On the other hand, its revenue fell short of Wall Street’s estimates. Adding to the negatives, its full-year revenue guidance was lowered and missed expectations. Overall, this quarter could have been better. The stock remained flat at $6.93 immediately after reporting.
