European Wax Center's (NASDAQ:EWCZ) Q4 Sales Beat Estimates But Full-Year Sales Guidance Misses Expectations
Beauty and waxing service franchise European Wax Center (NASDAQ:EWCZ) announced better-than-expected results in Q4 FY2023, with revenue up 5.2% year on year to $56.33 million. On the other hand, the company's full-year revenue guidance of $228.5 million at the midpoint came in 2.3% below analysts' estimates. It made a GAAP profit of $0.07 per share, improving from its profit of $0.02 per share in the same quarter last year.
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European Wax Center (EWCZ) Q4 FY2023 Highlights:
Revenue: $56.33 million vs analyst estimates of $54.07 million (4.2% beat)
EPS: $0.07 vs analyst estimates of $0.04 ($0.03 beat)
Management's revenue guidance for the upcoming financial year 2024 is $228.5 million at the midpoint, missing analyst estimates by 2.3% and implying 3.4% growth (vs 6.8% in FY2023) (adjusted EBITDA guidance for the period also missed)
Free Cash Flow of $16.74 million, similar to the previous quarter
Gross Margin (GAAP): 72.4%, up from 70% in the same quarter last year
Same-Store Sales were up 1.3% year on year (beat vs. expectations of roughly flat or no growth year on year)
Market Capitalization: $656.8 million
David Willis, Chief Executive Officer of European Wax Center, Inc. stated: “European Wax Center delivered a strong fourth quarter and equally strong full year 2023 performance. We opened 100 net new centers in 2023, all of which were developed by existing operators, demonstrating continued demand from our franchisees. Further, our core guests, Wax Pass and routine guests, remained firmly committed to their personal care routines, demonstrated by their recurring, predictable revenue stream comprising more than 75% of our $955 million in full year system-wide sales.”
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 Facilities
Leisure 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 Growth
A company's long-term performance can indicate its business quality. Any business can enjoy short-lived success, but best-in-class ones sustain growth over many years. European Wax Center's annualized revenue growth rate of 9.4% over the last four years was weak for a consumer discretionary business.
Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. European Wax Center's annualized revenue growth of 11.2% over the last two years is above its four-year trend, suggesting some bright spots.
We can dig even further into 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 7.3% 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 reported solid year-on-year revenue growth of 5.2%, and its $56.33 million of revenue outperformed Wall Street's estimates by 4.2%. Looking ahead, Wall Street expects sales to grow 6.1% over the next 12 months, an acceleration from this quarter.
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Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Over the last two years, European Wax Center has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining a robust cash balance. The company's free cash flow margin has been among the best in the consumer discretionary sector, averaging 23.1%.
European Wax Center's free cash flow came in at $16.74 million in Q4, equivalent to a 29.7% margin and in line with the same quarter last year.
Key Takeaways from European Wax Center's Q4 Results
We liked how revenue and EPS both outperformed Wall Street's estimates. On the other hand, its full-year revenue and adjusted EBITDA guidance missed. Zooming out, we think this was still a decent, albeit mixed, quarter. The market is shrugging off the guidance, and the stock is up 3.1% after reporting and currently trades at $13.5 per share.
So should you invest in European Wax Center right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
