EWCZ - NASDAQ

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to European Wax Center's Second Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a Q&A session. [Operator Instructions]. At this time, I would now like to turn the conference over to Bethany Johns, Director of Investor Relations. Ma'am, you may begin.

Thank you, and welcome to European Wax Center's Second Quarter Fiscal 2023 Earnings Call. With me today are David Berg, Chief Executive Officer; David Willis, President and Chief Operating Officer; and Stacie Shirley, Chief Financial Officer. For today's call, David Berg and David Willis will provide a brief overview of our second quarter performance and discuss our priorities for fiscal 2023. Then Stacie will provide additional details regarding our second quarter financial performance and our fiscal 2023 outlook. Following the prepared remarks, David, Stacie and David will be available to take questions. Before we start, I would like to remind you of our legal disclaimer. We will make certain statements today which are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call and we take no obligation to revise or publicly release results of any revision to our forward-looking statements in light of new information or future events. Also, during this call, we will discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release. A live broadcast of this call is also available on the Investor Relations section of our website at investors.waxcenter.com. I will now turn the call over to David Berg.

Thanks, Bethany, and good morning, everyone. Thank you all for joining us today. Before discussing our Q2 results, let me say a few words about this morning's news. As I'm sure most of you have seen by now, we issued a press release earlier today, announcing that after nearly five years as CEO of European Wax Center, I am excited to transition to the newly-created Executive Chair role. I couldn't be more thrilled to share that David Willis, our current President and Chief Operating Officer will become our next CEO, effective September 30, 2023. David Willis joined European Wax Center seven years ago and has worn many hats, including President, COO and CFO over his tenure. He has been an integral part of our unit growth and development story and my key partner in designing and executing our strategic roadmap. Most importantly, David embodies the core values that drive European Wax Center's best-in-class culture by ensuring associates have the opportunities and resources to achieve their goals. I could not be more confident in his experience, franchisee relationships, deep knowledge of our business model and robust leadership skills, all of which make him perfectly suited to become our next CEO. In addition, we announced that Gavin O'Connor, our Chief Legal and Human Resources Officer will transition to the newly-formed leadership position of Chief Administrative Officer. Gavin will assume responsibility for our supply chain and technology functions in addition to his current responsibilities of legal, talent, ESG and risk management. This transition is the culmination of a thoughtful succession planning process developed by the Board and me over the last year, which has also involved the evolution and strengthening of our full executive leadership team. This team now includes Stacie Shirley, a seasoned retail executive and long-term public company CFO; and Chief Commercial Officer, Andrea Wasserman, responsible for driving network sales through our attract more, buy more and visit more pillars. Along with veteran team members, Joel Larkin, leading our unit growth initiative as Chief Development Officer; and Julie Hauser-Blanner supporting the field as Chief Franchise Officer. The Board and I are confident we have the right executive team in place for our next phase of growth. Given European Wax Center's strong foundation and our clear and demonstrated growth trajectory, it is the right time for me to complete this transition and I look forward to extending my tenure at EWC through my role as Executive Chairman. It has been an incredible honor to serve as European Wax Center CEO and I'm so proud of our many accomplishments that have positioned us for continued growth. Our founders envisioned a professional, consistent, hygienic and efficient experience for guests across the country. Almost 20 years later and despite navigating a global pandemic and an uncertain macroeconomic environment, we have expanded our presence as the undisputed leader in out-of-home waxing. Since 2018, we have significantly grown both our top and bottom lines and expanded our footprint as the dominant industry player. And since our successful IPO exactly two years ago, our says consistently match our do's and we have been able to return over $200 million to shareholders. We are well-positioned to take more share in this highly fragmented industry and I'm confident that under David Willis, the best is yet to come. Most importantly, I am thankful for the best-in-class culture we've created, where our associates live our values, can be their authentic selves and are able to do their best work. Now diving into our Q2 results. We are pleased to deliver strong Q2 performance as continued franchisee demand drove robust new center openings and our strategic initiatives performed in line with our expectations. In the second quarter, we generated $254 million in system-wide sales, $59 million in total revenue and $21 million in adjusted EBITDA, representing 10%, 11% and 14% growth respectively. We delivered 2.6% same-store sales growth and opened 25 net new centers, building on momentum from Q1, during which we set the record for the number of European Wax Centers opened in a single quarter. We also drove more than 10% growth in Wax Pass sales during our May, June promo period, which symbolizes a deepened relationship between European Wax Center and our most valuable guests. While guests can purchase Wax Passes year round, we run enhanced promotions twice a year to drive outsized sign-ups and renewals. As a reminder, Wax Passes engender brand loyalty and drive repeat visits by rewarding guests with a discount on prepaid body part specific packages. Much like a membership program, the Wax Pass supports predictable guest engagement. Wax Pass holders generate two-thirds of our visits and network sales. Our routine guest cohort behaves similarly and contributes an additional 10% of sales and visits and we're pleased that both groups remain consistent in their waxing frequency and spend. We continue to focus on driving bigger share of wallet and increase frequency with these loyal guests who together make up over 75% of our recurring revenue stream. As we discussed last quarter, we also deployed several initiatives in Q2 to engage episodic guests and we are happy to share that we observed some recovery among this group as we exited the quarter. David Willis will touch on guest trends in depth later on. As a result, we are pleased with how the second quarter unfolded and our says and do's match once again. We believe our results reinforce the strength and consistency of our business model anchored by our growth vectors, unit growth and in-center sales growth. The predictable nature of our most loyal guests and the organic unit growth driven by a robust pipeline give us confidence in reiterating our full-year financial expectations for 2023. With that, I'd like to turn the call over to David Willis to discuss our recent trends and growth vectors. David, over to you.

Thank you, David, and good morning, everyone. Before I begin my remarks, I wanted to say a few words about this morning's announcement. I am both humbled and honored to have been selected as European Wax Center's next CEO. And I want to express my sincere appreciation to all of our associates and franchise partners for their continued support. We've been on a transformational journey since I became involved with the company seven years ago and I could not be more excited about our future and the growth opportunities ahead for all of us. Importantly, I also want to thank David for his exceptional leadership and for the contributions he's made to European Wax Center's success. During his tenure, we've expanded from nearly 700 centers to more than 1,000 centers today, grown network sales at double-digit rates, we've doubled bottom line performance and successfully became a public company, all while creating a world-class culture for our associates. I look forward to continuing to partner with David in his new role as we continue our growth and deepen the brand's unparalleled relationships with our guests. Turning to the second quarter. As David mentioned, our focus on our two key growth vectors remains unchanged. In terms of our first priority, unit growth, both our pipeline of new locations and the health of our franchisees remain strong. As a result, we continue to feel confident in targeting over 10% unit growth this year. In Q2, we opened 25 net new centers across 19 different states. We also reached an incredible milestone for the brand, opening our 1,000th center in Louisville, Kentucky. It means a lot to our team to celebrate this achievement in the heartland of America. While the Top five states with the most licenses yet to be developed, California, Florida, Pennsylvania, Texas and New York are along the coasts and comprise approximately 40% of our pipeline, we still have a lot of white space in the middle of the country. Through over 1,000 locations in 45 states, we've demonstrated that our concept translates across all geographies. We're also proud that this milestone location was opened by a smaller franchisee, Mark Mick, who despite a multi-year pandemic was able to grow from one to five centers with us. Mark also has plans to continue densifying his local markets and he exemplifies the partnership with franchisees that are just as important to us as our relationships with the institutionally-backed operators who already comprise one-third of our pipeline. We expect that over the next few years, smaller independent operators, self-funded multi-unit developers and private equity-backed operators will each operate approximately one-third of our centers. Last month, we gathered more than 100 of our franchisees together to collaborate and share best practices. This was a high energy environment. The enthusiasm for both our brand and our future was truly palpable. It's easy to see why demand from franchisees of all sizes remains robust. Given the relatively modest initial investment for our centers, our franchisees have sufficient access to capital to fund their growth even in a high interest rate environment. They have access to several lenders who understand our model and its robust financial returns and who are committed to supporting the network as it expands. We also continue to find ways to maximize franchisees' capital investments by improving the build efficiencies in our new design elements and leveraging our scale to drive savings with our vendors. Operationally, we are focused on driving faster breakeven, preparing new centers for opening and building our pipeline of wax specialists to support near-term and long-term growth. We recently rolled out a new market playbook for franchisees featuring recommendations on where to find talent and attract them to our best-in-class brand. Our beauty school partnership program continues to expand, now at 27 schools in six states, including our top markets. Scheduling efficiencies have improved labor utilization rates year-over-year. This drives throughput and profitability for the center. As a result of our efforts, Q2 wax specialist staffing levels were in line with our targets. We are confident in our ability to provide excellent service in our existing centers and to support new center growth through our wax specialist pipeline initiative for years to come. Now turning to our second growth vector, driving in-center sales. This benefits both system-wide and same-store sales growth. During the second quarter, we deepened our executive team by adding Andrea Wasserman as our first ever Chief Commercial Officer. As Andrea digs in, she will work to identify areas for optimization and leverage data insights to drive sales through actionable marketing and merchandising initiatives. Within marketing, we remain focused on our three pillar attract more, buy more and visit more strategies to engage new and existing guests. Our attract more pillar is designed to drive new guest acquisition and its cornerstone is the new Every Body Smooth campaign we launched in May. In the campaign's first two months, it generated significant year-over-year increases in ad awareness, consumer consideration and paid media performance. We are more than pleased with the results so far and we'll continue to monitor its performance as we evolve and build upon the campaign in the back half of the year. Consistent with Q2, we also intend to optimize our marketing spend in the back half to lean into action-driven performance media designed to support our near-term guest acquisition and transaction goals. Our second pillar, buy more, is designed to increase the average spend per ticket, primarily by, one, adding on services per transaction or SPT, and two, attaching more retail products. As I mentioned last quarter, we believe that bundling services or services and products has meaningful potential for us. We began testing bundles in our corporate-owned centers this summer and more recently expanded the pilot to more than 100 centers across the network. While it's too early to measure the learnings, anecdotally, we are hearing positive feedback from wax specialists. In terms of retail product, we anticipate rolling out in-suite merchandising tools that empower wax specialists to leverage their trusted guest relationships to suggest their favorite products. We expect this to drive retail attachment and increased spend per ticket. Our third pillar, visit more, is designed to increase frequency among existing guests. Wax Pass holders and routine guests have maintained their frequency while generating over 75% of annual system-wide sales. While we began to see softening frequency during Q1 among a portion of our more episodic guests, we deployed several initiatives in Q2 and have been pleased to see some recovery among this cohort recently. We remain focused on growing episodic engagement and converting them into Wax Pass holders and routine guests through our ever-evolving CRM tools. Ultimately, with Wax Pass holders visiting more than twice as often as episodic guests, the Wax Pass remains our most powerful frequency driver. I'd like to thank our operations associates and franchisee teams in center who drove more than 10% growth in Wax Pass sales during the Q2 promo period. This helped us deliver a strong second quarter and gives us confidence in our outlook for the remainder of the year. Lastly, as the dominant player in our category with a strong and resilient core service offering, we are always looking at opportunities to expand our brand and the model. Based on our established leadership position and the trust that guests place in European Wax Center to remove unwanted hair, we believe that offering another modality could capture an incremental customer demographic and enhance already robust four-wall economics. Therefore, in the coming months, we will launch a small laser hair removal test in a handful of New York centers to help us evaluate this potential over time. With that, I'd like to hand the call over to Stacie Shirley to review our financial performance and guidance for fiscal 2023. Stacie?

Thanks, David, and good morning, everyone. Before I begin my remarks, I'd like to remind everyone that in some instances, I will speak to adjusted metrics on this call. You can find reconciliation tables to the most comparable GAAP figures in our press release and 8-K filed with the SEC today. Turning to our financial performance. Our second quarter played out largely as expected. Q2 system-wide sales increased 10% to $254.2 million and total revenue increased 10.7% to $59.1 million. Overall, top line growth was driven by our two growth vectors, including 12.3% unit growth over the second quarter of last year. We also delivered a 2.6% same-store sales increase in line with expectations, driven by both our ramping and mature centers. Consistent with Q1, higher average tickets were the primary driver of our comp growth. From a profit standpoint, second quarter gross margin of 71.4% was in line with our full-year guidance. Second quarter SG&A was $14.1 million and a margin of 23.9% was a 460 basis point improvement from Q2 last year. This improvement was primarily driven by two factors. First, the non-recurrence of $1.4 million in professional fees related to a secondary offering and our whole business securitization, both completed in the second quarter of last year and to a lesser extent, the timing of certain professional fees and travel expenses this year that we had expected to occur in Q2, but now expect to occur in Q3. Q2 adjusted EBITDA, which excludes transaction-related expenses, increased 13.8% to $21.2 million. Adjusted EBITDA margin was 35.9%, representing a 100 basis point improvement year-over-year. Below the line, adjusted net income was $5.8 million. This differs from adjusted EBITDA that I just mentioned due to three primary reasons. First, interest expense was $6.8 million. This is a decrease from $8.1 million last year, primarily due to $2 million of debt extinguishment charges incurred last year when we refinanced our long-term debt and locked in a fixed 5.5% rate. Second, Q2 depreciation and amortization were $5.1 million. As always, the vast majority of this line item relates to the noncash amortization of intangible assets, such as franchisee relationships and area representative rights that were established prior to our IPO. And third, the income tax component. We released our valuation allowance on deferred tax assets at the end of 2022. As a result, we expect to recognize annual income tax expense compared to very negligible expense incurred during the periods covered by the valuation allowance. For Q2, GAAP net income reflects $2.8 million of tax expense and adjusted net income reflects $3.6 million of adjusted tax expense. Q2 tax expense was higher than initially expected due to changes in state tax rates that impacted our deferred tax assets during the period. In terms of the balance sheet, we ended the quarter with $54.4 million in cash, $396 million outstanding under our senior secured notes and nothing drawn on our $40 million revolver. Net leverage continues to decrease, ending Q2 at 4.5x adjusted EBITDA compared to 4.8x in Q1 and 5.6x in Q2 last year. We continue to expect to de-lever approximately a full turn from 2022 to 2023. Operating activities generated $17 million in cash during the second quarter compared to investing outflows of approximately $250,000. We repurchased less than $1 million of stock during the quarter and still have approximately $29 million remaining under our current buyback authorization. Our ability to generate strong free cash flows gives us the optionality to deploy cash over time to continue to create value for our model, our network and our shareholders. Turning now to our outlook for 2023. As David mentioned, the Wax Pass and routine guests driving more than 75% of our system-wide sales have continued to show resilience and consistency, demonstrating that European Wax Center provides a non-discretionary part of their personal care routine. Given stable trends for these core guests and the improvement we've seen with episodic guests since implementing several initiatives in Q2, we are pleased with how we entered Q3 and continue to feel good about our existing full-year guidance. In terms of new centers, franchisee demand and unit growth remains strong. As a reminder, we delivered more than 10% unit growth in 2022 and expected to deliver another 10% in 2023. A handful of Q3 new centers opened a few weeks early at the end of the second quarter, enabling us to reach 59 net new centers in the first half of the year. We have a clean line of sight to the balance of our fiscal 2023 openings and we remain confident in our existing full-year outlook of 95 to 100 net new centers. Our expectations remain unchanged for 2023 system-wide sales of between $965 million and $990 million and total revenues between $222 million and $229 million, implying 7% to 10% growth for both metrics. We continue to expect a mid single-digit same-store sales increase for the full-year and mid single-digit comps in Q3 and Q4, driven by ramping centers, solid Wax Pass sales and the tactics underlying our attract more, buy more, visit more strategy that David covered earlier. We are also reiterating our existing adjusted EBITDA outlook of $77 million to $80 million. As David just shared, we anticipate launching a laser hair removal test in six New York centers in the coming months. We estimate that we could incur up to $1 million of SG&A expense to support this test, primarily driven by foundational guest research and marketing to build awareness in test markets. While this investment was not contemplated in our original guidance for fiscal 2023, we still expect our full-year adjusted EBITDA to be within our existing range. As it relates to the cadence of the year, the timing of products sell into the network and SG&A expenses, including advertising, certain professional fees, payroll and travel has shifted since we provided our initial expectations for fiscal 2023. As a result of this inter-quarter timing and incremental laser-related costs, we now expect adjusted EBITDA margins to be in the low 30%s in Q3 before peaking in Q4 and we continue to expect mid-30%s adjusted EBITDA margins for the full-year. Our 2023 interest expense outlook remains approximately $28 million, slightly weighted to Q4 given the 53rd week in 2023. We continue to expect our 2023 blended statutory tax rate to approximate 20%, which is based on known year-to-date exchanges from Class B to Class A shares. All in, we expect adjusted net income within our existing range of $22 million to $24.5 million. In conclusion, we believe our business remains on solid ground, delighting guests with an unparalleled experience and generating strong free cash flow. We are pleased with the progress we have made in our guest trends, which enabled us to deliver on our expectations to date and to reiterate our outlook for the balance of fiscal 2023. As we look ahead, we expect our continued efforts to generate strong top line growth and EBITDA margin expansion in fiscal 2024 and beyond. With that, I'd like to turn the call back to David Berg to wrap up our prepared remarks and open it up for Q&A. David?

Thank you, Stacie. We are the undisputed leader in a highly fragmented industry, delighting guests in more than 1,000 centers across 45 states. Our best-in-class business model is generating continued enthusiasm and reinvestment from our franchisees. We enjoy average cash-on-cash returns of 60% at maturity. At only one-third of our unit growth target of 3,000 centers, we believe we have incredible runway within our existing model to continue growing for years to come. We expect our focus on our two key growth vectors will enable us to generate long-term revenue growth, leverage our fixed cost profile for EBITDA margin expansion and generate significant free cash flow over time, in turn, creating significant value for European Wax Center's franchisees and shareholders. I look forward to working with David Willis and the leadership team as we continue to grow our leadership position. We'd now like to open up the call for questions. Operator?

[Operator Instructions] And our first question coming from the line of Randy Konik with Jefferies. Your line is open.

Hey, good morning everybody. David, congratulations and David, congratulations. So thanks everybody.

Thanks, Randy.

Look forward to working with you, David. And David, thanks for everything for the last five years and still look forward to working with you. You guys had a lot of good things to talk about on the call. Maybe give us some perspective on the episodic guests because I think that's showing a real good signal of improvement there. Any other kind of items you would call out that are kind of important for us to kind of take away? And as you think about the dynamic of ticket versus traffic, you did talk about ticket driving a lot of the comp. But it sounds like we should be expecting a little bit more balance in ticket versus traffic going forward. Just want to get your thoughts there. And then I have a follow-up. Thanks.

Hey, Randy. Thanks. Listen, let me just start with the great news is our Wax Pass holders and our routine guests have behaved consistently. Continue to come on the same frequency, spending the same amount of money. So that ring fence of 75-plus percent of our revenue stream has been absolutely consistent. To your point, we were pleased to see some recovery in our episodic guests. As we talked about in our Q1 announcement, we did some specific things. First and foremost, with Andrea Wasserman coming on as our Chief Commercial Officer. And as we mature our data warehouse really have dug in to say, hey, what's going on with that episodic guest? Who is she? How do we go out and reach her? And we did a couple of specific things. One was we were able to find that episodic guests with some real targeted e-mails and drive that episodic guests back into our centers during the second quarter. We did offer some incentives for them to come in and get a value reduction in their next service to help drive them back into our centers. So we were very pleased to see that recovery with our episodic guests. Again, Randy, you know this for context. It's kind of 5% to 10% of our guest profile. So the tail doesn't wag the dog here. It's really us making sure that our most loyal guests continue to come, but we were very pleased with the work that we did around driving that episodic guest. The other key thing we've done is really moved our media spend to lower funnel to really some action-driven media. That's -- we're pleased with the initial results of that and that will continue in the second half of the year. We continue to feel good as we started the quarter. Obviously, the consumer is still something we keep an eye on in the macroeconomic situation we're in. But I think probably what we're most pleased with is that we delivered Q2 and in line with our expectations.

And Randy, this is David. I'll just touch on your ticket versus traffic. The positive news is all of our cohorts continue to comp positive. So that's another quarter where we feel good about that. It is a similar story that we've had in prior quarters where we're getting there more from ticket value more so than traffic volume. We've not done an across-the-board price increase. We are seeing some of our guests purchase the higher dollar value body services. And we've seen a handful of our franchisees take price that are operating in markets that had elevated minimum wage rates. So comp still positive between the ramping in the mature centers, still getting there more from ticket value than from traffic.

The last thing I would add to that, Randy, is we also saw a slight increase in our services per ticket. So our wax specialists are doing an even better job of driving those sales and driving those guests for additional services. So that helps slightly as well.

Thank you. And David Willis, one other thing that really kind of caught my attention in your prepared remarks was you talked about the partnering with the franchisees talking through some additional build efficiencies, helping to focus on that breakeven pace. Maybe elaborate a little bit on that because I think that's super important where it kind of continues to kind of underpin the strength that you're seeing from franchisees to open. So maybe a little bit more elaboration on what you talked about earlier in the prepared remarks would be super helpful. Thanks.

You bet. So while we already view kind of our upfront capital investment as a relatively modest investment compared to do some other concepts, we do view it our responsibility to continue focus on value engineering cost out of the fixtures. We have great partners that work with our franchisees in that respect. And so that will be an ongoing initiative that we work with both our vendors and our franchisees. While we've got the spec book is established, we will continue to look at opportunities to value engineer costs out of the upfront capital investment we're asking our franchisees to make.

Great, thanks guys.

Thanks, Randy.

Thank you. And our next question coming from Dana Telsey with Telsey Advisory Group. Your line is open.

Hi, good morning everyone. As you think about regional trends and what you're seeing in terms of availability of aesthetician, what did you see in California? Were there any regional trends to note and the cadence? And with the promotion, any different insights this year from the promotion than you've had in years past? And then I have a follow-up. Thank you.

Hi Dana, this is David. As you may recall, we really focused extensively in California as that state came back online, last day to come back online post-pandemic. And some of the best practices that we learned with the successes that we had in California, we've now applied those in other markets where we have a need to find aesthetician. I would say there is no specific region that we are doing better or worse. I think when I look at our targeted staffing levels across the country that we are in line with our targets across the country, we feel pretty good. Of course, there are always opportunities in certain markets where we need to focus our wax or pipeline initiative efforts in our outreach to beauty schools. But overall, I don't think that we're seeing a given state or a given region that's trending below where our targets are on overall. In terms of -- Dana, in terms of promotions, we are using targeted promotions through our CRM efforts to reach certain guest cohorts. So it's not so much that we are using a certain promotion in a given geographic reach and if I understood your question specifically.

And Dana, specifically on sort of, as you know, we run a Wax Pass promotion two times a year. We were very pleased with the lift that we saw in Wax Pass sales during our May, June promotion that we just came out of. And as I think everybody on the call understands that Wax Pass guest visits us more often, spend more money, stays with us longer and refers more guests. So it continues to be a key driver for our field team to have higher conversion rates on Wax Pass, particularly during the promotional periods where we outsized in terms of sale of our Wax Pass. And we were very pleased with how that came out in the quarter.

Got it. And then just on the laser test, is it -- did I hear that it's going in five stores? How you price -- how are you pricing it and frequency of laser versus frequency of waxing and how you're going to market it? And what measures -- what is a sign of success? How long do you expect to test it for before you move on? Thank you.

Dana, that was a six-part follow-up question. Your combo question. DW, you want to...

Yes. Dana, as you probably heard us talk in prior quarters, so we're going to focus on those things that what does the brand give us permission to do and what does the guest give us permission to do. From survey work that we have conducted, we feel confident the guest would give us permission to remove hair through other modalities. I'll start with our core business performance is so solid. That's what's really giving us permission to launch this pilot later in the year. We're talking to you guys today because we will be in the market talking to guests here over the next few weeks and we didn't want to catch our analysts and our investors off-guard by discovering we're exploring pilot, we're exploring laser through website marketing. So what we want to do, we think there's a couple of hypothesis here. One, we think we can attract more new guests to the brand that are lasering with somebody else. So that's one objective that we want to measure and evaluate. Two, we want to increase share of wallet. So we think there's an opportunity with our existing guests that are waxing certain body parts that may have a propensity to laser other body parts. And we really want to leverage our unique value proposition. If you think about that industry, we, as European Wax Center, can be agnostic as to the form of hair removal for those types of guests. And then finally, we want to make sure that we can operationally execute this and provide an amazing guest journey like we do with our core waxing guests. So it's months in the making. In terms of pricing, marketing, all of those logistics, those are -- we have ideas there. We have formulas, we have approaches and strategies, but we'll be in market later this year and happy to report how things are progressing once we get a few weeks, if not months. I would say this, Dana, final comment. We're going to be very deliberate in terms of measuring results. So in terms of whether this goes beyond six centers, that's likely going to -- that will be informed with data, performance and a decision that's likely going to be a 2024 decision.

Thank you. And congratulations both Davids. Thank you.

Thank you, Dana.

Thanks, Dana.

Thank you. And our next question coming from the line of Scot Ciccarelli with Truist Securities. Your line is open.

Hey, good morning. This is Josh Young on for Scot. So you mentioned last quarter that the aesthetician turnover rate in the first 90 days are starting to improve. So curious if that's continued and what your outlook is there? And then how do you feel about the pipeline for new wax specialists? What do you think about the hiring keeping pace with your new center targets? Thanks.

Thank you. So in terms of turnover rate, no material trends, positive or negative. When I talked in our prepared remarks about our targeted level of wax specialist per center, we are in line with those targets throughout the country. So all in, we're feeling good. In terms of our confidence in the pipeline and our ability for our franchisees to recruit wax specialists, I think the best kind of bellwether is our franchisees continue to open centers and we continue to support them in staffing those centers. So as of today, we feel great about the staffing levels to support our guests within our existing centers and we feel very confident that the wax or pipeline initiatives we have in place working in concert with our franchisees should enable them to continue to recruit and staff their centers, new centers that come online.

Got it. Okay, thank you. And then one quick follow-up. It sounds like Wax Pass sales were strong during the quarter. So was that primarily just a function of the promotions you're running during the period? Or is there anything else you'd call out there that's helping to drive that strength?

Sean, it's David. As we've talked about, May, June and November, December are two promotional periods on wax passes. We put a lot of focus on it. Our franchisees are phenomenal in terms of executing because they know the value that our Wax Pass holders bring to the brand and bring into the four-wall contribution to their center. So it's just super-focused. And again, we're really pleased with the kind of the year-over-year lift that we saw during the May-June time frame.

Got it, okay, thank you.

Thanks, Josh.

Thank you. And our next question coming from the line of Jonathan Komp with Baird. Your line is open.

Hi, good morning. I want to ask about the same-store sales outlook. You maintained the full-year outlook for mid-single digits. So would you expect both third and fourth quarter to be in that range? And could you maybe just highlight some of the key factors driving some acceleration from the Q2 trend? And then Stacie, can I ask on the system sales? Would you expect roughly similar system sales Q3 and Q4? Or are there other factors to think about seasonality between the quarters?

Sure. So on the comp, so we didn't give any further guidance other than mid-single digits for the year. So you can take that to mean that we would expect similar comp Q3 and Q4. And what we see is driving that is just the continued strength of our Wax Pass sales as some of that kind of bleeds over into Q3 and then again the promotional period that we'll have once again in Q4. And then also just the strategy that we have been talking about, as it relates to our buy more, attract more, visit more and those marketing efforts as a result of Andrea coming on and looking at everything with a slightly different lens. And so the strength of those kind of will continue, which is what gives us confidence in that guidance. As it relates to the overall cadence of the quarter and reiterating our guidance for the full-year, a couple of things I would note. So on a top line basis, if we think about system-wide sales, again, we'd expect those to be roughly even between those two quarters. There will be a little bit of shifting as it relates to EWC revenue because as you know, as the franchisor, some of that product revenue for us, it hits our P&L differently than it does the franchisees that we're doing the sell-in of that product. So a couple of things have happened. We had some products in LTO product that shifted to a couple of weeks early in Q2. And then there's also a couple of retail launches that the timing of that might shift into Q4. So just think about that as you're looking at your model specifically to our revenue line. As it relates to expenses, we talked about the shifting of some expenses this quarter. It was really just from timing from professional fees, some marketing shifting into Q3. We had also, if you recall on our Q1 call, had discussed there was about $1 million of expenses, those same categories and including payroll that we expected to shift into Q3. And then the last piece that we called out this quarter was the investment in laser in that pilot of $10 million, which is a number of things or foundational investment that we're making, consultant, surveys, those sorts of things as well as marketing around the pilot. And so as you think about that piece, it's going to be a little heavier in Q4. So all-in-all, we also gave the guidance for the year that we still expect to hit the mid-30%s on our EBITDA, adjusted EBITDA margin, with some additional guidance for Q3 being in the lower 30%s.

Great. That's all very helpful detail. Thank you. And then just one follow-up. Going back to the laser test -- not to ask too many questions about a small test, but I know that the discussion previously highlighted your view of some of the advantages from the consumer side of waxing versus laser. So I just wanted to get your current thoughts if the thinking on there has changed at all. And then you administering laser in a franchise model, could you just talk through some of the operational factors that you're considering to test out here?

Yes, Jon. So I don't think our -- as we think about this pilot, we've monitored that form of hair removal modality. And as we step back and really looked at it, we said how can we maximize four-wall profitability within our existing footprint? And would the guests give us permission to do this? Based on survey work, we think they might. So that was the catalyst was how do we optimize revenue and EBITDA beyond what we think are already pretty robust four-wall economics, is this an opportunity to further enhance that? In terms of how do we operationalize this across the franchise network, we're going to learn a lot in these six centers. And candidly, based on the homework we've done, the regulatory environment varies by state. So we're starting in a state where I think operational execution should be easier than in other states. That will inform our ability to go to other states and execute this where regulations are a bit more. And there are certain states that likely we will never go. So I don't want to -- I don't want to commit to you, we figured this out in terms of a full network rollout. This was intended to be a small isolated pilot that will inform kind of where we go next with the potential laser, but we're incredibly excited, at least about its potential.

Okay, great. Thanks again.

Thanks, John.

Thank you. And our next question coming from the line of John Heinbockel with Guggenheim. Your line is open.

Thanks. Congratulations to you guys. Let me -- I want to start with how would you characterize this Wax Pass sale compared to the last few, right, in terms of not just volume but sort of composition, right? Renewals versus new, right? And then I guess the other part of that, Wax Pass members, what percent of those are renewing the next time their package runs out and they're eligible to renew?

John, so I'll start with the last part of your question. We have not cited previously the specific percentage of renewals on Wax Pass. As we continue to evolve our data warehouse, we look forward to being able to share with you the specific percentage of renewals. In terms of overall performance, I would say, one, we're very pleased. As David said in his prepared remarks, I would say it operated on par with prior Spring Wax Pass promos. When you look at the growth in the network, the 10% lift year-over-year, we feel good about that. As you know, John, the performance of Wax Pass promos are leading indicators of what we would expect to see future visits in the back half of the year and into 2024. So all in, I think we feel, especially against this macroeconomic environment, that it performed in line with expectations, performed consistently with where we've seen prior Spring promos. And that is, in part, informing kind of our reaffirmation of outlook for fiscal 2023.

Okay. Maybe a separate topic. I know you want to improve the four-wall returns, right, for franchisees. Now changing the investment helps. But the bigger thing, right, is getting to $1 million of AUV faster. So maybe give us sort of an updated thought, right, because there was a model that you put out during the IPO, right? So maybe $500,000 year one, right, getting up to $1 million over, I guess, four years. Are new cohorts exceeding that? And how quickly do you think you can get to that kind of terminal rate with a network effect and other initiatives?

Yes, John. So great question. There's a couple of things we're doing this year, specifically to focus on faster breakeven. Our operations team recently launched kind of a staffing playbook for NCOs that walks them through leveraging all of the wax or pipeline initiatives that we support our franchisees and packages those. So a new center kind of has a go-to playbook for what to do when in their pre-opening cycle from a staffing and recruiting standpoint. Andreas' team recently launched a marketing playbook for NCOs that includes packaging of some initiatives that we have time to be quite successful plus some local initiatives that are new to the network. What we plan to do by the end of this year is have this pre- -- what we call -- pre-NCO opening playbook and discipline and rigor that says, here's the checklist you need to complete to qualify to open your center. And those -- all those activities will be informed with data that say, if you staff at this level, we know you can hit a certain level of revenue in month one, month three, month six. If you build your guest file to this level prior to opening, we know with data that you can achieve revenues of X in month one, Y in month three,

Hey John, just to build on David's comment, it is an absolute key initiative cross-functionally for us here at EWC with the commercial office marketing team and the ops team. A key initiative is how do we get to breakeven faster, how do we ramp faster. So it's front and center in terms of our priorities out in the field. I think kind of the proof in the pudding here is that we feel incredibly confident about our now close to plus 10% year-over-year growth in terms of units. We feel great about that. And it's our current franchisees that are continuing to reinvest in our brand, right? That's where our growth is coming from. And it's all because of that 60% cash-on-cash returns and we know that or we can move that from four years to three years, it's just going to accelerate that flywheel and help drive unit count. So you pick a good topic, one that's front and center for us and we know that can drive continued growth for us from a unit standpoint.

Thank you.

All right, John. Thank you.

Thank you. [Operator Instructions] And our next question coming from the line of Kelly Crago with Citi. Your line is open.

Hi, thanks for taking my questions. I just wanted to follow-up on an earlier question. Do you continue to expect ticket to be the main driver of comp growth in the second half of the year? Or should we see more of a balance between traffic and ticket that's going to drive the acceleration in comp growth?

I think we'll start to see more of a balance as we look at the balance of the year, the remaining part of the year. The different initiatives that we've spoken about, right, to drive traffic to continue to reengage that episodic guests, all of those things will drive higher traffic. At least that is the intention of those initiatives. And so I think there will be more balance -- in this quarter, we still have a little bit of that tailwind of the pricing that we took last year. We also know that some of our franchisees have taken price where they thought that it was appropriate. But going forward, we would expect it to be more balanced.

Got it. And then just wondering if you could elaborate on the bundling tests that you've been running. What does the bundles look like? And how has the customer responded? Are these initiatives that you would eventually deploy are part of your broader promotional strategy?

Hi, Kelly, we certainly hope so. When we talked last quarter, we had literally, I think a few days before, had launched the bundles. There are six versions of the bundles. Most of these are service bundles and we offer one that is a Brazilian bikini and a product bundle. We used the first several weeks to just operationally pressure test our ability to execute these in center. We have since rolled those out more recently to 100 centers, all of these bundles. So I think we don't probably have an update to say this is definitively going to go to the broader network. What I would say is the early reads anecdotally, we're quite pleased with it and most importantly, the wax specialists are pleased with it. They view that these are easy to execute. So we're not putting extra pressure on them to try to sell a second service or another product. So right now we're in 100 centers. We'll continue to measure that. If those continue to perform well, then we would ultimately roll this out to the balance of the network based on results.

Thank you. And just last one for me. To follow-up on the laser hair test, I was just curious, do you need to hire a certain specialist? Or can you kind of train your existing aestheticians in laser? Just curious how that works?

Yes, so at least in the -- at least where we're starting in New York, we will hire some laser techs as are the franchise centers that are participating in this pilot and we expect to cross-train our wax specialist as well. There are other states where that may not be possible, but at least in New York where we're starting, the goal is to hire experts that are already familiar with this service, administered the service as well as cross-train our wax specialists.

Got it, thank you.

Thanks, Kelly.

Thank you. And our next question coming from the line of Simeon Gutman with Morgan Stanley. Your line is open.

Hi guys. Hopefully, you can hear me. Congratulations, Dave. On lasering -- first question -- I get the hypothesis on driving revenue, I think that's great and it's good for the franchisees, the question is, are you seeing the market move any more in that direction? Because when we spoke a couple of years ago, it was sort of off to the side and not something that we're really worried about. Curious how that's evolved.

Yes, Simeon, we still feel great about sort of the modality of waxing growing at 2.5x the rate of the other modalities. As David sort of commented in both prepared remarks and in the follow-up, we just -- this is a test, right? And we wouldn't be doing this if our core business was anything but as rock solid as it is. But we do think there's an opportunity, candidly, to get full service. We know that some guests that get laser service need to augment that with a different modality. As the experts in waxing, we're the experts in hair removal. And we just think this is a good opportunity for us to test and, to your point, to hopefully drive some additional revenue into our centers for our franchisees, reach a new customer group. So we continue to feel great about our addressable market probably continues to be significantly higher than that of the laser category. And that's why, again, I don't want this to be too much of the shiny disk, that's why we're going to be very prudent in our test in the New York area, learn and figure out if this makes sense for our guests and helping drive additional revenue for our franchisees.

Fair enough. And then a follow-up. When we do some fieldwork and speak to customers, they talk about the reason why they continue is they get comfortable with a particular aesthetician. So I think you mentioned staffing levels are high. Maybe can you talk about within that, the turnover of the most seasoned folks, how those metrics look? And is there any change, good or bad, on those metrics?

Yes, I mean, Simeon, I think certainly from the outset of the brand, right, consistency, training, ensuring a great guest experience has been an absolute foundational piece of who we are and that continues today. We do more training candidly than a lot of aestheticians get in beauty school. So if you come in, you have your favorite aesthetician, but she's not available and you can go to somebody else, you better get the same exact experience in that center or even if you're across the country in another center. So we're very diligent to make sure that there's consistency of service levels across regardless of what center you go into. We continue to feel great about sort of the improvements we've made in staffing. As we've talked about before, we've got very tenured wax specialists that can make $70,000, $80,000, $90,000 that have been with us for 10 years and that continues. It's a place where they can build a book of business. Kind of all the back of the house stuff has taken care of for them. So we continue to feel great about our staffing levels. And again, I keep going back to our franchisees open new centers with gusto and continue to reinvest in our brand and also feel great about the ability to continue to deliver that amazing experience to our guests.

Thank you.

Thanks, Simeon.

Thank you. I'm not showing any further questions in the queue at this time. I would now like to turn the call back over to Mr. David Berg for any closing remarks.

Thank you very much. Thanks, everybody, for getting on the call this morning. Again, very pleased that we delivered our Q2 in line with our expectations and we look forward to speaking with you in the coming days and reporting on Q3 later this year. Have a great rest of the day. Thank you all.