European Wax Center has a new CEO — and a new problem with growth.
The U.S. macroeconomics story of consumers cutting back on discretionary purchases continues. Shares of European Wax Center (EWCZ -26.98%) got destroyed this afternoon — down 26.6% through 12:30 p.m. ET — after the company apparently beat on earnings but missed on sales.
Analysts forecast the body-hair removal franchisor would earn $0.08 per share on $61.3 million in sales in the second quarter, or about $3.9 million. Actual earnings were $6 million, or $0.12 per share (although the company didn’t provide a per-share number). Sales, however, fell short at $59.9 million.
Second-quarter earnings
At first glance, that doesn’t seem so bad: earning more than expected despite selling less than expected. Earnings grew 6% year over year, despite sales growing only 1%.
Investors might worry, however, that today’s news is worse than appears, because concurrent with the earnings release, European Wax Centers announced it is switching CEOs, with David Willis leaving the company to be replaced by David Berg.
Exacerbating this worry is new guidance for the rest of fiscal 2024, which suggests a sharply slowing business. Previously, management had planned to open as many as 80 new shops this year, but now it has cut that forecast to somewhere between 27 and 32 (15 of these have already been opened).
The company also cut its revenue forecast, to between $216 million and $221 million, and flipped its forecast for same-store sales growth from a range of 2% to 5%, to a range of 0.5% to negative 1.5%.
Is European Wax Center stock a sell?
Translation: Sales are getting worse at the company’s existing locations, and the number of new locations that are opening, that might offset those revenue declines, is itself declining.
As regards profits, European Wax Center didn’t give a forecast under generally accepted accounting principles (GAAP). Instead, it warned that its adjusted income is going to be less than forecast — somewhere between $19 million and $22 million, so no better than $0.45 per share. That’s still better than Wall Street’s forecast of $0.37.
But between the CEO switcheroo and the ominous reduction in store openings, investors don’t seem to care.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
