EWCZ Q1 Earnings Call: Revenue Flat, Profitability Beats Expectations Amid Strategic Reset

Beauty and waxing service franchise European Wax Center (NASDAQ: EWCZ) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $51.43 million. Its non-GAAP profit of $0.13 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

European Wax Center’s first quarter results reflected the early impact of a new leadership team’s focus on operational basics and franchisee support. CEO Chris Morris emphasized that recent efforts to modernize the company’s marketing approach and enhance data-driven guest acquisition strategies have begun to show incremental improvement in new guest trends and sales stability. The company’s executive team highlighted actions such as upgrading digital marketing tools and refining brand messaging, which they believe are key to reaching higher-value guests. Additionally, management stressed that underperforming centers remain a primary challenge, largely due to lower average unit volumes, and that narrowing the performance gap between centers is a near-term operational priority. While progress has been made, Morris described 2025 as a “reset year” for the brand, reflecting a cautious outlook regarding the pace of recovery.

Looking forward, management’s guidance for the year is built on plans to accelerate marketing initiatives and sharpen franchisee operational execution, particularly in the second half of 2025. CFO Tom Kim noted that the high end of guidance assumes new marketing strategies drive stronger traffic later in the year, while the low end assumes only modest improvements. The company is also actively addressing external risks such as tariffs on imported goods, with contingency plans underway to mitigate cost impacts. Morris stated, “We are leaving no stone unturned” regarding cost control and supply chain alternatives, while reaffirming that the brand’s Comfort Wax formula remains unchanged. European Wax Center’s path to renewed unit growth hinges on effective guest acquisition, franchisee profitability, and disciplined expansion into underpenetrated markets, with management reiterating confidence in navigating a dynamic consumer and regulatory environment.

Key Insights from Management’s Remarks

Management linked first quarter outcomes to the rollout of new marketing technologies, stabilization in core guest behavior, and stepped-up franchisee engagement. Several strategic and operational priorities shaped results.

• Marketing and guest acquisition: The company implemented a digital-first marketing engine, including new data analytics tools to improve advertising effectiveness and lower customer acquisition costs. Early signs show improved new guest trends on a two-year basis, with ongoing efforts to refine messaging for high-value customer segments.
• Franchisee operational support: European Wax Center increased the capacity of its franchisee support team and deployed enhanced tracking tools, aiming to close performance gaps between underperforming centers and the broader network. Management reported that these actions have led to key performance indicator (KPI) improvements in challenged locations.
• Brand identity and research: Management conducted extensive research to redefine its target guest profile and brand identity, identifying new high-value customer groups. This effort is intended to support more effective marketing campaigns, with new creative assets set to launch ahead of the peak summer season.
• Network rationalization: The company is prioritizing the health of its franchise network by focusing on supporting strong performers and managing the closure of persistently underperforming centers. Management attributed recent closures to prior overexpansion and underwhelming sales at certain locations, and expects closures to affect results in the near term.
• Leadership and structural changes: Several key executives, including a Chief Commercial Officer and Chief Information and Digital Officer, joined during the quarter. Their roles are focused on executing strategic priorities in marketing, digital operations, and franchisee success.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on revitalizing guest traffic, mitigating cost pressures, and preparing for a return to unit growth by late 2026.

• Marketing initiatives and guest targeting: The company’s guidance relies on the success of new marketing strategies to drive traffic and guest acquisition, particularly targeting higher-value customers. The high end of expectations assumes these efforts gain traction in the second half of the year, while persistent transaction declines would keep results at the lower end of guidance.
• Cost management and tariff mitigation: Facing increased tariffs on certain imported supplies, management is pursuing alternative sourcing and efficiency measures to contain input costs. While the proprietary Comfort Wax will not change suppliers, other products and medical supplies are under review for potential cost-saving alternatives.
• Franchisee profitability and network optimization: The company is working to improve profitability at the center level through enhanced operational support, refined site selection, and improved market analytics. These changes are expected to help stabilize closures and lay the groundwork for sustainable net unit growth by late 2026.

Catalysts in Upcoming Quarters

Going forward, the StockStory team will closely monitor (1) the impact of new marketing campaigns on guest acquisition and frequency, (2) the pace and effectiveness of underperforming center closures and subsequent sales transfers, and (3) the company’s ability to manage tariff-related cost pressures without eroding franchisee margins. Execution on digital initiatives and the outcome of upcoming franchisee conventions will also serve as indicators of strategic progress.

European Wax Center currently trades at a forward P/E ratio of 18.4×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).

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