Sticking To Success: European Wax Center's Operating Model Earns Outperform Rating Despite Minor Revenue Miss

Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of European Wax Center Inc EWCZ with a price target of $22.00.
EWCZ reported first-quarter adjusted EBITDA of $16.3 million versus $15.2 million last year, coming in above the consensus estimate of $15.3 million.
Revenue increased 9.8% to $49.9 million, coming in slightly below the market's expectation for 11.2% growth to $50.5 million.
Total system-wide sales grew 5.5% to $218.4 million, with the growth once again attributable to higher guest spending and new store openings, said the analyst.
In order to generate recurring and predictable visits, EWCZ is strengthening guest engagement and focusing its Wax Pass adoption through its "Attract More, Buy More, and Visit More" strategy, noted the analyst.
The ability to achieve its prior guidance is based on the resiliency of its Wax Pass holders and routine guests, combined with initiatives to "bolster trends" in the current dynamic environment.
Despite 1Q23 revenue falling slightly short of consensus estimates, overall, the analyst sees both the Q1 results and the reiterated FY23 outlook as evidence of the stability of the company's operating model in the face of macro uncertainties.
The highly fragmented market has given the company a significant strategic advantage in its scale to offer a clean, convenient, easy-to-use waxing experience, said the analyst.
The analyst sees long-term stock price appreciation potential for EWCZ given the company's consistency of topline growth, a capital efficient, asset-light model and scope for future unit expansion.
Price Action: EWCZ shares are trading lower by 6.27% at $16.60 on the last check Wednesday.

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