European Wax Center, Inc.

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to European WAC Center's third quarter fiscal 2023 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. In order to facilitate as many participants as possible, we ask that you please limit yourself to one question and one follow-up during the Q&A session. If you have additional questions, you may rejoin the queue. At this time, I would like to turn the conference over to Bethany Jones, Director of Investor Relations. Ma'am, you may begin.

Thank you and welcome to European WAC Center's third quarter fiscal 2023 earnings call. With me today are David Willis, Chief Executive Officer, and Stacey Shirley, Chief Financial Officer. For today's call, David Willis will provide a brief review of our third quarter performance and discuss our priorities for fiscal 2023. Then Stacey will provide additional details regarding our third quarter financial performance and our fiscal 2023 outlook. Following the prepared remarks, David and Stacey will be available to take questions. Before we start, I would like to remind you of our legal disclaimer. We will make certain statements today which are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinion only as of the date of this call, and we take no obligation to revise or publicly release the results of any revision to our forward-looking statements in light of new information or future events. Also during this call, we will discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release. A live broadcast of this call is also available on the investor relations section of our website at investors.waxcenter.com. I will now turn the call over to David Willis.

Thank you, Bethany, and good morning, everyone. It's a pleasure to be speaking to you all for the first time in my new role as European WAC Center's Chief Executive Officer. And I want to thank you for joining us today. As we shared in our press release this morning, we delivered another quarter of new unit top line and bottom line growth in Q3. Our strong and committed franchisees drove more than 12% unit growth through 23 net new center openings and continue to add to our pipeline of future new units. We generated $241 million in system-wide sales, $56 million in total revenue, and $19 million in adjusted EBITDA, each representing growth over the third quarter of fiscal 2022 despite a challenging macro environment. Furthermore, we delivered a 3.4% same-store sales increase driven by positive comps in both ramping and mature centers. We're grateful to our associates, franchisees, and in-center partners for their relentless commitment to excellence. While we delivered organic growth in each of these metrics, our third quarter did not materialize as we expected. I'll take a minute to talk about how business trends evolved as the quarter progressed. I'm pleased to say that throughout Q3, Our wax pass holders and routine guests remain committed to their waxing routines, driving consistent visit frequency and spend, just as they have in previous quarters. Both of these groups demonstrate strong brand loyalty and represent predictable recurring revenue. We remain focused on continuing to grow these loyal guest cohorts, who together comprise about 75% of network sales. and increased share of wallet from them. We also remain focused on engaging our episodic guests, who contribute a smaller portion of network sales, but whose behavior has been less predictable amid a difficult macro environment. During the second quarter, we deployed several initiatives through our CRM and data warehouse tools to reengage episodic guests, which were effective. As we noted in our earnings call in August, we were pleased with their performance as we exited Q2. Additionally, solid sales trends entering Q3 gave us confidence in reiterating our fiscal year outlook, which assumed continued momentum. However, third quarter survey work confirmed that while substantially all guests continue to be pleased with their experience at European WAC Center and plan to return, A portion of them report that economic concerns are impacting their waxing frequency and spend. In particular, episodic guest behavior has been more impacted. As planned in the third quarter, we increased our digital ad spend focused on driving reservations across all guest cohorts in lieu of broad or unnatural promotional activity that could impact four-wall margins. these media efforts proved less effective than planned, leading to top-line trends below our expectations. As a result, we are updating our guidance for the remainder of the year to reflect current transactional run rates. We have also retained a new media agency that is implementing new strategies, which we believe have the potential to favorably impact reservation trends over time. However, a revised guidance for fiscal 2023 has prudently not assumed a near-term change in trend from Q3 and Q4 to date. Stacey will provide more color on our outlook momentarily. We are very encouraged that our Wax Pass and routine guests remain committed to our brand and underscore the strength and consistency of the European Wax Center model. We recognize that we have an opportunity to not only better engage existing episodic guests, but also drive new customers to our brand, which I'll dive into shortly. To that end, we are more focused than ever on our two growth vectors, expanding our footprint through new center growth and driving in-center sales to benefit both system-wide and same-store sales growth. Turning first to unit growth. our consistent execution of new center openings remains unchanged. We believe that both our pipeline of new locations and the health of our franchisees remains strong, and demand from franchisees of all sizes remains robust. In the third quarter, we opened 23 net new centers across 12 different states, all of which were in existing markets. Through Q3, we have already opened more than 80% of our expected fiscal 23 new centers. We are not seeing our franchisees slow their interest or new unit development. As a result, we continue to feel confident in our outlook of more than 10% unit growth this year, our multi-year pipeline, and our long-term unit growth algorithm. Given the relatively modest initial investment for our centers, Our franchisees have sufficient access to capital to fund their growth, even in an elevated interest rate environment. We believe our franchisee base is well capitalized, with access to lenders who recognize our model's strong cash-on-cash returns and are committed to supporting network expansion. Additionally, our development team has worked tirelessly to offset industry-wide inflation in the construction process. both through value engineering and by leveraging our scale to drive savings with vendors. We are incredibly focused on managing franchisee upfront costs and ultimately return on capital, which has encouraged continued reinvestment from our existing franchisees who are driving nearly all of our new center openings this year and comprise more than 90% of our forward-looking pipeline. With these franchisees in mind, our teams are hyper-focused on driving top line in four-wall performance through various initiatives, including staffing pipeline efforts, facilitating network best practices, advising franchisees on how to address controllable costs, implementing grassroots marketing efforts, and identifying center-specific sales benchmarks to drive incremental revenue opportunities. And as always, the team continues to build our pipeline of WAC specialists to support near-term and long-term growth. During Q3, we hosted a gathering of more than 100 franchisees, which featured several helpful sessions on associate recruitment and retention. WAC specialist utilization in centers has improved year over year, and third quarter staffing levels were in line with targets. We are also making progress towards the brand's optimal mix of more experienced wax specialists. We remain confident in our ability to support both existing centers and new center growth through our wax specialist initiatives for years to come. Turning to our second growth vector, increasing both system-wide and same-store sales by driving in-center sales. As I mentioned last quarter, We were pleased to welcome Andrea Wasserman to our executive team earlier this summer as our first ever chief commercial officer. While our marketing pillars remain, attract more, buy more, and visit more, under Andrea's leadership, we are evolving our approach to marketing and media with an even greater discipline around driving visits from both new and existing guests, as well as attracting more guests to the brand. We recently engaged a new media agency focused on implementing a streamlined media strategy across all our paid digital channels and search efforts. Our revised approach launched this month with a singular focus, driving more guest reservations in centers. We continue to leverage enhanced guest insights to better refine the audiences we target, deliver the right creative at the right frequency, and drive high conversion rates. To drive more visits from existing guests, we have already implemented additional action messaging to target guests that are at risk of lapsing. We are also testing additional channels in Q4 to learn even more about the most effective method of driving reservations among both new and existing guests, regardless of cohort. As I've shared before, Wax Pass holders visit more than twice as often as episodic guests, making the Wax Pass our most powerful frequency driver. With that in mind, we have recently developed key communication flows to encourage Wax Pass consideration and purchase through our marketing channels, not just in sensors. In fact, Wax Passes and gift cards are now available online for the first time in our brand's history, just in time for the holidays in our semi-annual Wax Pass promotional period. Lastly, as we mentioned last quarter, we believe that offering additional hair removal modalities could be an effective method of attracting more guests to the brand, encouraging more visits, and getting guests to buy more products and services over the long term. Our belief is that laser hair removal has the potential to both capture an incremental customer demographic and increased share of wallet from existing wax guests. in turn enhancing already robust four-wall economics over time. We're in the very early stages of this effort and officially launched our laser test in six New York area centers about a month ago. While we plan to share initial test results further in 2024, we're pleased with the enthusiasm from both franchisees and guests during these early days. As we think about our longer-term opportunities and corporate responsibilities, I also want to highlight the third quarter release of our inaugural ESG report, detailing our efforts to build a more confident, inclusive, and sustainable community, as well as our first brand-wide fundraising campaign supporting the National Domestic Violence Hotline. Both of these efforts underscore our commitment to sustainability and living our values as a company every day. With that, I'd like to hand the call over to Stacey Shirley to review our financial performance and updated guidance for the balance of fiscal 2023. Stacey?