On Thursday, Telsey Advisory Group adjusted its stance on European Wax Center (NASDAQ:EWCZ), downgrading the stock from Outperform to Market Perform and lowering the price target to $6.00 from the previous $8.00. The adjustment follows a challenging period for the company, with the stock down nearly 60% year-to-date and trading at $5.56.
According to InvestingPro analysis, the company's shares currently appear undervalued despite recent challenges, characterized by slow guest acquisition and stagnant sales figures.
European Wax Center has revised its forecast for new center openings in the fiscal year 2024 for the second quarter in a row, citing these challenges. Despite maintaining impressive gross profit margins of 73% and a strong financial health score according to InvestingPro data, the firm expressed concerns regarding European Wax Center's ability to attract new customers and expand its presence—fundamental components of the company's growth strategy.
The company's decision to halt its laser-hair removal pilot program was also noted as a factor contributing to the downgrade. With a new CEO set to take over in January, marking the third CEO in just over a year, there is uncertainty about the company's strategic direction. The transition at the executive level adds to the lack of clarity regarding the potential for improvement in the company's operations and performance.
The downgrade reflects a more guarded outlook on European Wax Center's ability to execute its growth plans effectively. Telsey's commentary highlighted the significance of new guest attraction and expansion as vital to the company's historical growth model, which now faces scrutiny amid strategic and leadership changes.
In other recent news, European Wax Center has seen several significant developments.
The company's third-quarter 2024 results indicated a slight decrease in revenue to $55.4 million and same-store sales, while system-wide sales remained steady at $240.2 million. A gross margin improvement to 72.9% was also reported. European Wax Center's financial outlook for 2024 anticipates system-wide sales between $930 million and $950 million, with an adjusted EBITDA of $70 million to $74 million.
Citi recently adjusted its rating for European Wax Center, downgrading the stock from Buy to Neutral and setting a price target of $5.50. This aligns with a previous assessment that indicated a change in perspective on the company's long-term growth potential. Morgan Stanley (NYSE:MS) also downgraded the company's stock from Equalweight to Underweight, citing concerns about rapid expansion and inconsistent sales growth.
European Wax Center plans to open 43 new centers, with 35 already operational, and expects net openings of 17 to 22 after closures. The company has paused the expansion of its laser hair removal pilot and has not purchased any corporate units from franchisees.
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