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On Wednesday, Telsey Advisory Group adjusted its price target for European Wax Center (NASDAQ:EWCZ) shares, reducing it to $5.00 from the previous $6.00 while maintaining a Market Perform rating. The revision follows the company’s fourth-quarter report, which, according to Telsey, contained few surprises after European Wax Center’s reaffirmation of its FY24 guidance in mid-January. The report indicated slightly weaker sales but an EBITDA beat due to stringent expense management. The company, currently trading at $4.45, has seen its stock decline by 67% over the past year, with EBITDA standing at $68.7 million. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations.
New CEO Chris Morris, who has been leading the company for just over two months, has been the focus as he begins to outline his strategy to stabilize the business. Morris’s initial outlook for FY25 was below expectations, which Telsey did not find surprising. The CEO has been quick to make significant changes to the senior executive team, including a new CFO, Chief Commercial Officer, and Chief Information and Digital Officer, aiming to guide the company through its transitional period. Despite recent challenges, InvestingPro data shows the company maintains impressive gross profit margins of 73% and a strong current ratio of 3.17, indicating solid financial health. Subscribers can access 13 additional ProTips and comprehensive analysis through the Pro Research Report.
Despite operating in a large and growing market with significant strategic advantages due to its scale, Telsey expressed caution regarding European Wax Center’s ability to attract new customers and expand its footprint. The company has announced plans for net closures in FY25, which was previously a key growth driver. The new management team and the persistently challenging consumer environment contribute to the uncertainty about the company’s strategy for improvement.
Telsey’s revised price target of $5.00 is based on an 8.5x multiple on their two-year forward adjusted EBITDA estimate of $74 million, which aligns with the recent average next twelve months (NTM) multiple. This adjustment reflects moderated estimates and the extended timeline anticipated for European Wax Center’s potential recovery.
In other recent news, European Wax Center reported its fourth-quarter revenue for 2024, which fell short of expectations at $49.7 million, compared to the forecasted $51.91 million. This represents a year-over-year decline of 4.6%, despite a slight increase in system-wide sales. The company is facing challenges, including inflationary pressures that are impacting franchisee profitability and plans for significant center closures in 2025. European Wax Center anticipates closing up to 60 centers next year due to these ongoing challenges.
Additionally, Truist Securities adjusted its outlook on European Wax Center, reducing the stock price target from $8.00 to $6.00, while maintaining a Buy rating. This adjustment follows the company’s fourth-quarter results, which were in line with Truist’s estimates but accompanied by an anticipated increase in store closures. Despite these challenges, Truist Securities remains optimistic about European Wax Center’s restructuring efforts, which they believe will enhance unit profitability and stimulate franchisee demand in the long term.
Looking ahead, European Wax Center projects 2025 as a transitional year, with expected system-wide sales between $940 million and $960 million. The company also announced new executive appointments to drive strategic initiatives aimed at overcoming current market pressures. These developments reflect European Wax Center’s efforts to navigate a challenging consumer environment and position itself for future growth.
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