European Wax Center (EWCZ)

Beauty and waxing service franchise European Wax Center (NASDAQ:EWCZ) beat Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $51.43 million. The company expects the full year’s revenue to be around $212 million, close to analysts’ estimates. Its GAAP profit of $0.04 per share was $0.02 above analysts’ consensus estimates.

Company Overview

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 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.

As a niche business, European Wax Center has no direct public competitors. Privately owned competitors include Bluemercury, Radiant Waxing, and Waxing the City.

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, European Wax Center grew its sales at a sluggish 7.6% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. European Wax Center’s recent performance shows its demand has slowed as its annualized revenue growth of 1.1% over the last two years was below its five-year trend. Note that COVID hurt European Wax Center’s business in 2020 and part of 2021, and it bounced back in a big way thereafter.

European Wax Center also reports 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 1.1% year-on-year growth. This number doesn’t surprise us as it’s in line with its revenue growth.

This quarter, European Wax Center’s $51.43 million of revenue was flat year on year but beat Wall Street’s estimates by 3.7%.

Looking ahead, sell-side analysts expect revenue to decline by 1.6% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges.

European Wax Center’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 22.3% over the last two years. This profitability was elite for a consumer discretionary business thanks to its efficient cost structure and economies of scale.

In Q1, European Wax Center generated an operating profit margin of 20.6%, down 1.2 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

European Wax Center’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, European Wax Center reported EPS at $0.04, down from $0.06 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects European Wax Center to perform poorly. Analysts forecast its full-year EPS of $0.25 will hit $0.19.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

European Wax Center has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer discretionary sector, averaging 27.1% over the last two years.

European Wax Center’s free cash flow clocked in at $12.05 million in Q1, equivalent to a 23.4% margin. This result was good as its margin was 2.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

European Wax Center historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, European Wax Center’s has increased over the last few years. This is a good sign, and we hope the company can continue improving.

European Wax Center reported $58.33 million of cash and $381.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $76.76 million of EBITDA over the last 12 months, we view European Wax Center’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $12.52 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly European Wax Center blew past analysts’ EPS expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2.3% to $4.03 immediately following the results.

Updated: May 15, 2025 at 10:53 PM EDT

Are you wondering whether to buy European Wax Center or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

European Wax Center’s business quality ultimately falls short of our standards. For starters, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its projected EPS for the next year is lacking. On top of that, its same-store sales performance has disappointed.

European Wax Center’s P/E ratio based on the next 12 months is 17.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $6.75 on the company (compared to the current share price of $5.54).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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