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European Wax Center (EWCZ) has appointed a new CEO, sparking concerns regarding its growth trajectory amidst challenging market conditions.
The broader economic environment has prompted consumers to reduce spending on non-essential items, leading to a significant decline in European Wax Center’s stock. Shares plummeted by 26.6% in the early afternoon trading session following the company’s earnings report, despite beating earnings expectations.
Analysts had projected earnings of $0.08 per share on revenues of $61.3 million for the second quarter, but the company reported earnings of $6 million, or $0.12 per share, while sales fell short at $59.9 million.
Second-quarter earnings overview
At a glance, the earnings report might seem positive — a 6% year-over-year increase in earnings despite a 1% rise in sales. However, investors are likely to be more concerned about the underlying issues suggested by these figures.
Compounding investor trepidation is the announcement of the leadership change, with David Willis stepping down and David Berg taking over as CEO. This transition occurs at a critical time for the company.
Furthermore, European Wax Center has revised its growth outlook for fiscal 2024. Management initially planned on launching up to 80 new locations but has now decreased this estimate to between 27 and 32, with 15 already opened. This indicates a slowdown in expansion efforts.
Additionally, the company has adjusted its revenue forecast downward to a range of $216 million to $221 million, along with changing its same-store sales growth forecast from 2% to 5% to a new range of 0.5% to a potential decline of 1.5%.
Investment considerations for European Wax Center
The implications of these adjustments suggest a worsening picture for revenue at existing locations, alongside a drop in new openings that could have balanced out the losses.
On the profit side, European Wax Center chose not to provide a forecast under generally accepted accounting principles (GAAP), but it did indicate that its adjusted income would fall short of previous expectations. The new forecast ranges between $19 million and $22 million, or around $0.45 per share, still surpassing Wall Street’s expectation of $0.37.
Despite this positive surprise in earnings, the leadership change and reduced growth outlook have led to a negative sentiment among investors.
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