Bank of America just raised its EUR/USD forecast
On Wednesday, Citi issued a downgrade for European Wax Center (NASDAQ:EWCZ) from a Buy to a Neutral rating, adjusting the price target significantly to $5.50, a steep decline from the previous $16.00. This decision follows the company's second-quarter earnings per share (EPS) announcement.
European Wax Center's second-quarter sales were slightly below consensus, and although EBITDA surpassed expectations, the management's substantial reduction in fiscal year 2024 sales guidance and new store growth projections have raised concerns.
The company cited macroeconomic pressures and also announced the reinstatement of former CEO David Berg. The changes come as the company's initiatives to attract new customers have not translated into expected systemwide sales growth.
Citi's analysis suggests that the current lack of earnings visibility and the potential for a reduction in the stock's multiple could limit the upside potential of European Wax Center's shares. The firm believes that the risk/reward profile for the stock is balanced at its current levels, indicating a neutral stance on the stock's future performance.
In other recent news, European Wax Center (EWC) reported a 2.3% increase in system-wide sales, reaching $260.2 million during their second quarter fiscal 2024 earnings call. Despite a challenging macroeconomic environment, the company saw same-store sales grow by 1.6% and a gross margin improvement to 73.2%. However, adjusted EBITDA fell by 2.6% due to higher advertising expenses, leading EWC to revise its financial guidance for 2024.
EWC plans to expand its successful laser hair removal pilot to additional states and focus on driving new guests, reactivating lapsed guests, and enhancing the guest experience. The company expects to open 27 to 32 net new centers and achieve system-wide sales of $930 million to $950 million.
Despite some bearish highlights such as a decrease in productivity in certain geographies and a drop-off in episodic guests, EWC remains optimistic about long-term market opportunities and franchise network strength. They are adjusting their strategy to focus on driving new guests and transactions amidst a softer macroeconomic environment.
Finally, EWC has seen a 22% increase in brand awareness and continues to lead in market share. The company plans to use promotional strategies to attract new and lapsed guests without compromising the brand's value proposition.
InvestingPro Insights
In light of Citi's recent downgrade of European Wax Center, real-time data and insights from InvestingPro may offer additional context for investors considering the stock's future. The company's management has been actively repurchasing shares, as indicated by one of the InvestingPro Tips. This could signal confidence from management in the company's intrinsic value, despite recent setbacks. Additionally, the company is expected to see net income growth this year, which may provide some optimism regarding its earnings potential.
From a valuation standpoint, European Wax Center is trading at a P/E ratio of 39.49, which adjusts to a lower 27.92 when looking at the last twelve months as of Q1 2024, according to InvestingPro Data. This suggests that while the stock may seem expensive based on past earnings, it could be more reasonably priced when considering expected earnings. The company also boasts a high gross profit margin of 72.33% for the same period, reflecting its strong ability to control costs relative to revenue.
However, the stock has faced significant price declines, trading near its 52-week low and having fallen by over 60% in the last year. Investors should note that while the company's liquid assets exceed short-term obligations, indicating financial stability, the stock has been under considerable pressure. For those interested in a more in-depth analysis, there are 15 additional InvestingPro Tips available that can provide further guidance on European Wax Center's stock.
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