European Wax Center, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to European WAC Center's second quarter fiscal 2024 earnings call. At this time, all participants are on a listen-only mode. After this previous 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. On the call today are David Berg, Chief Executive Officer, and Stacey Shirley, Chief Financial Officer. I would now like to send the conference over to Bethany Johns, Director of Investillations. Ma'am, you may begin.

Thank you and welcome to European WAC Center's second quarter fiscal 2024 earnings call. On today's call, David Berg will begin with a brief review of our second quarter performance and discuss our priorities for the balance of 2024. Then Stacey will provide additional details regarding our financial performance and updates to our fiscal 2024 outlook. Following the prepared remarks, the team 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 opinions 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 the 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 Berg.

Thanks, Bethany, and good morning, everyone. Thank you for joining us today. Let me start by saying how excited I am to be back at European Wax Center, speaking with you all today as CEO once again. I first joined EWC six years ago and was energized by the opportunity to build and expand an iconic one of a kind brand. I was most excited about the company's undisputed leadership position, significant white space, passionate associates, and consistent recurring revenue model that allowed our franchise partners to generate strong financial returns and reinvest in the brand. What I learned over the course of the past six years is there is a deep love for this brand, from our guests, from our franchisees, and also from our associates, who are guided by our core values while feeling empowered to be their authentic selves, all of which make European Wax Center a great place to work. These unique attributes still exist at EWC today, and I remain excited and optimistic about the potential that lies ahead for our company. At the same time, I know there is much work to be done to realize our potential and reposition EWC for sustainable long-term growth. We're navigating an ongoing difficult macroeconomic environment that is affecting consumer spending across many categories and income levels. Yet it is our job to do everything we can do to drive growth despite the external challenges we are facing. There is strong alignment between the board and the executive team on what needs to be done to deliver long-term value to our guests, franchisees, associates, and shareholders. I believe that we have built a solid foundation from which to address those challenges, but it is important to refocus on the strategies that will move the needle and ultimately drive results. Before I jump into the details of the quarter and our outlook, I would also like to extend a thank you to David Willis, for all he's done for EWC in his eight-year tenure, and for being an invaluable partner to me over the past six years. He played an integral part of our unit growth and development story, and I truly wish him all the best in his future endeavors. Now, let me turn to a brief recap of our second-quarter performance, our outlook, and my key priorities as I step back into the CEO role. During the second quarter, our top line was modestly below our expectations. System-wide sales grew 2.3% to $260 million. Total revenue was just under $60 million, and same-store sales increased 1.6%. We also opened at eight net new centers in the quarter. I will go into more detail on our unit growth strategy in a few moments. We managed bottom-line performance well, with adjusted EBITDA coming in at $20.6 million and adjusted EBITDA margin of 34.5%. During the second quarter, we continued to see a challenging macro environment, with consumers being more selective with their spend. Last quarter, we highlighted a few key initiatives designed to drive transaction volume in our centers, which we expected to ramp up substantially in the back half of this year. While delivering some improvement, the impact from these initiatives has not been large enough to offset softer transaction and new guest growth in this environment. As a result, we are reducing our outlook for the back half of 2024. Stacey will cover our updated guidance in a few minutes. We recognize we need to improve the effectiveness of our efforts to better position our franchise partners for long-term success. Driving transaction growth in ramping and mature centers is a top priority for both our franchisees and management, and we are actively collaborating with the network to refine our plans and achieve this objective. In pursuit of our shared goals and in light of the current operating environment, we have been working with our franchise partners over the past several weeks to reevaluate near-term development plans and extend the timeline of new center openings. As a result, we are lowering our unit growth outlook for 2024. While we don't take this action lightly, it is the right thing to do, as we believe it will provide us and our franchise partners with more capacity and resources to address near-term macro related challenges. Additionally, we are actively working with franchisees in certain geographies who are facing increased rent and labor costs to mitigate potential closures, including facilitating transfers to stronger operators. We continue to be pleased with the desire of our franchisee group to expand with the brand and support the network through these efforts. Importantly, Existing franchisees remain committed to their long-term development plans. The health of our franchisees remains strong, as does our robust pipeline of over 370 locations. We are focused on the long-term success of the network. Our franchisees have helped make us the undisputed leader in out-of-home waxing. They are the ones who serve our guests day in and day out, and our job is to ensure they can do that to the best of their ability. Therefore, we have and will continue to explore ways to support them as we navigate this important time together. So what are we doing? What are our focus areas? Our financial performance and our new center productivity are inextricably linked. And the underlying drivers for accelerating both to a level that meet our expectations are the same. Namely, one, driving new guests to the brand. Two, reactivating lapsed guests. Three, fostering an amazing guest experience. And four, prudently investing in capabilities that will enhance financial performance. And above all, maintaining a close connection with our franchisees to confirm we are hearing our guests as we work together to grow four-wall profitability. Let me double-click on each of these and detail where our opportunities lie. We must. First and foremost, stay focused. The business model remains sound. Our franchisees are engaged. Our guests love the brand and the services they receive. Thus, our focused efforts will be, first, inviting new guests to the brand. Our enhanced data analytics capabilities allow us to verify that we capture a high ROI on our marketing spend using the right channels and the right creative. We are pleased with the progress we are making and media efforts are driving incremental reservations, but we must build on this. We know as the category leader in what is still a vastly fragmented market that we have significantly more advertising dollars than the competition to deploy towards attracting new guests. Specifically, we are targeting both current waxers and those new to waxing. We must continue to optimize our use of franchisees' marketing funds to be as efficient as possible in supporting our network so we can put more dollars towards actively recruiting new guests to the brand. Second, we must do better at reactivating last guests. This is our bring them back strategy. We know the ongoing challenging macroeconomic situation has impacted consumers' behavior across many categories, including ours. We are fortunate that our core wax pass and routine guests, who comprise of approximately 75% of our sales, consider out-of-home waxing with EWC to be non-discretionary, and their spend and visit frequency has remained stable, providing predictable and recurring revenue for us and our franchisees. However, we need to be better at re-engaging guests already in our system. We have an opportunity to be more aggressive in our efforts to get lapsed guests back. We believe we have untapped potential in delivering great service to these guests and converting them into core guests over time, thereby increasing their loyalty to both their waxing routine and our brand. Our leadership position provides us with this unique capability. Our third focused effort, we must foster an amazing experience at center level. We are relentlessly focused on partnering with our franchisees and deepening our relationship with our franchise advisory councils so they have the support they need and deserve from us. To start, as you may know, we launched a program referred to as Operation Elevate, the goal of which is to elevate four wall performance in select markets through training, coaching, and ongoing development by our field trainers. We are encouraged by the early results here. On a per center basis, participants are demonstrating sustainable improvement in dollars per ticket, wax pass sales, product purchases, and other key KPIs. However, we have an opportunity to accelerate adoption. As we continue to scale the program, we're making informed adjustments to enhance its impact. We've also seen promising results from our new center pre-opening playbook. New centers opened in Q2 using the playbook are outperforming the 2022 and 2023 cohorts with notably higher sales and transactions in their first three months. We will take those applicable learnings and operationalize them in mature centers as well. Next, we will continue to focus on staffing levels. We know that properly staffed centers produce better results, so we will do a thorough review and ensure franchisees feel properly supported in this area. Finally, European WAC Center has always been known for cleanliness hygiene, efficiency, and expertise. This is demonstrated by our net promoter scores, which continue to be best in class. We must maintain this competitive advantage across all centers and continue to delight our guests with every service so they can walk in and strut out. And finally, our fourth and final focus effort. We will make thoughtful investments to support our goals of driving new guests and elevating the guest experience. In the past, I've led successful gain share structured agreements. We plan to evaluate partnerships with experts in marketing and technology, including AI, to help drive transactions and incentivize those partners based upon delivering improved performance. We also have the opportunity to leverage our significant customer base and seek brand partnerships that can cast a wider net and introduce EWC to new guests. Even as the leader in this highly fragmented category, we have less than 15% market share. Gaining market share remains a large opportunity and we are pleased to have already driven a 22% increase in brand awareness year over year. We need to make deliberate investments in our app and website to make it easy for a guest to book an appointment at the center of their choice for the time they want and the service they desire. Finally, we continue to advance our laser hair removal pilot which has proven to be a valuable opportunity to add new guests to the brand and increase share of wallet from existing customers. We have made specific investments in laser expertise and marketing talent dedicated to this initiative. We plan to further expand the test to Florida, Pennsylvania, and Ohio, bringing us to approximately 30 pilot centers in four states by the end of Q3. As I mentioned, our financial performance and our new center productivity are inextricably linked. Driving and retaining new guests and improving transaction counts feed the flywheel for center development and expansion. When new centers ramp faster, our franchisees can generate higher four-wall EBITDA and in turn continue to reinvest in the brand. In closing, my commitment to our associates, guests, franchise partners, and shareholders is that we will continue to be guided by our values and relentlessly focused on driving new guests, retaining existing guests, and making them loyalists to the brand while improving our financial performance and expanding our leadership position. While it will take some time for us to get back to our full potential, we can assure you we are incredibly action-oriented at EWC with a can-do attitude. I know I can count on our amazing associates and franchisees to keep accelerating EWC forward. I'm encouraged by our franchisees' long-term commitments to drive continued predictable unit growth as reflected in our robust pipeline. By narrowing our focus on the key priorities I highlighted earlier, I am confident that our says and dos will match as we move forward and earn back your trust. I was excited about this brand's prospects when I joined as CEO in 2018. As I rejoin as CEO in 2024, I have even more conviction that our best days are ahead of us. We will update you as we progress in our journey. And with that, I'd like to hand the call over to Stacey Shirley to discuss our Q2 financial performance and guidance for the balance of the year. Stacey?