European Wax Center (EWCZ)

Beauty and waxing service franchise European Wax Center (NASDAQ:EWCZ) missed Wall Street’s revenue expectations in Q4 CY2025, with sales falling 9.3% year on year to $45.1 million. Its GAAP loss of $0.03 per share was significantly below 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.

The Consumer Discretionary sector, by definition, is made up of companies selling non-essential goods and services. When economic conditions deteriorate or tastes shift, consumers can easily cut back or eliminate these purchases. For long-term investors with five-year holding periods, this creates a structural challenge: the sector is inherently hit-driven, with low switching costs and fickle customers. As a result, only a handful of companies can reliably grow demand and compound earnings over long periods, which is why our bar is high and High Quality ratings are rare.

Leisure facilities companies own and operate theme parks, fitness centers, bowling alleys, and other venue-based entertainment destinations, generating revenue from admissions, memberships, and on-site spending. Tailwinds include consumer preference for experiential spending, tourism recovery, and technology-enhanced guest experiences that support premium pricing. Headwinds are notable: high fixed costs, such as real estate, labor, and maintenance, make profitability highly sensitive to attendance fluctuations during economic slowdowns. Weather, pandemics, and safety incidents can disrupt operations unpredictably. Rising construction and labor costs inflate expansion budgets, while competition from at-home entertainment alternatives and other experiential options limits pricing power in many markets.

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

Reviewing a company’s long-term sales performance reveals insights into 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 14.8% compounded annual growth rate. Though this growth is acceptable on an absolute basis, we need to see more than just topline growth for the consumer discretionary sector, which can display significant earnings volatility. This means our bar for the sector is particularly high, reflecting the non-essential and hit-driven nature of the products and services offered. Additionally, five-year CAGR starts around Covid, when revenue was depressed then rebounded.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. European Wax Center’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.3% annually. 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 were flat. Because this number is better than its revenue growth, we can see its sales from existing locations are performing better than its sales from new locations.

This quarter, European Wax Center missed Wall Street’s estimates and reported a rather uninspiring 9.3% year-on-year revenue decline, generating $45.1 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

European Wax Center’s operating margin has been trending down over the last 12 months and averaged 21.4% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, European Wax Center generated an operating margin profit margin of 9.9%, down 15.9 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

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 Q4, European Wax Center reported EPS of negative $0.03, down from $0.12 in the same quarter last year. This print missed analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

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 weak cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 25%, below what we’d expect for a consumer discretionary business.

European Wax Center’s free cash flow clocked in at $7.05 million in Q4, equivalent to a 15.6% margin. The company’s cash profitability regressed as it was 17.2 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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 12.1%, 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. Over the last few years, European Wax Center’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

European Wax Center reported $82.48 million of cash and $382.3 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 $73.22 million of EBITDA over the last 12 months, we view European Wax Center’s 4.1× net-debt-to-EBITDA ratio as safe. We also see its $13.19 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 struggled to find many positives in these results. Its EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $5.75 immediately after reporting.

Before deciding whether to buy European Wax Center or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We see the value of companies helping consumers, but in the case of European Wax Center, we’re out. On top of that, European Wax Center’s same-store sales performance has disappointed, and its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

European Wax Center’s P/E ratio based on the next 12 months is 9.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $7.64 on the company (compared to the current share price of $5.75).

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.