Why European Wax Center Shares Plunged 26%
A new CEO has been appointed to the European Wax Centre, and with that growth comes new challenges.
The U.S. macroeconomic story of consumers cutting back on discretionary spending continues. European Wax Center (EWCZ -27.72%) The stock plunged this afternoon. As of 12:30 p.m. ET, it was down 26.6%. The company beat earnings but missed sales expectations.
Analysts had expected the body hair removal franchise to earn $0.08 a share, or about $3.9 million, on revenue of $61.3 million in the second quarter. Earnings were $6 million, or $0.12 a share (the company did not provide per-share figures), but revenue came in at $59.9 million, missing expectations.
2nd quarter performance
At first glance, it doesn’t seem so bad. Even though we sold less than expected, we made more than expected. Even though sales grew by only 1%, our income grew by 6% year-over-year.
But investors may be worried that today’s news may be worse than it appears, as the European Wax Center announced a change of CEO at the same time as its earnings report, with David Willis leaving the company and being replaced by David Berg.
Further fueling these concerns is new guidance for the remainder of fiscal 2024, which suggests a sharp slowdown in business. Management had previously planned to open up to 80 new stores this year, but has now cut that forecast to 27 to 32 (15 of which are already open).
The company also lowered its revenue forecast to a range of $216 million to $221 million and revised its forecast for same-store sales growth from a range of 2% to 5% to a range of 0.5% to 0.2%. negatory 1.5%.
Should I sell my European Wax Center stock?
Translation:Sales at the company’s current stores are declining, and the number of new stores it is opening to offset the decline in sales is decreasing.
As for earnings, the European Wax Center did not provide a forecast in accordance with generally accepted accounting principles (GAAP). Instead, it warned that adjusted earnings would be lower than expected, between $19 million and $22 million, which would be no better than $0.45 per share. Still, it would be better than Wall Street’s forecast of $0.37.
But despite the CEO changes and the sharp decline in store openings, investors don’t seem to care.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
