EWCZ Delivers Higher Profits Despite Center Closures and Revenue Decline: What’s Driving Margin Expansion?
Margins Improve as Network Shrinks and Revenue Slips
European Wax Center, Inc. (NASDAQ: EWCZ) delivered an intriguing set of third-quarter results: despite a 2.2% drop in revenue and a net decrease in operating centers, the company’s profitability jumped. GAAP net income soared 164% year-over-year to $5.4 million, with adjusted net income rising 14.2% to $10.7 million. Adjusted EBITDA climbed nearly 10%, and margin expansion was striking—net income margin rose 620 basis points to 9.9% and adjusted EBITDA margin expanded 400 basis points to 37.2%.
Cost Discipline Powers Bottom-Line Gains
EWCZ’s operational story is all about disciplined expense control. While total system-wide sales edged down 0.8% and center count declined 1% (from 1,064 to 1,053 locations), selling, general, and administrative (SG&A) expenses dropped 25.4% to $13 million. Key drivers included lower technology and marketing costs, plus a reversal of last year’s non-recurring items (notably executive severance and a terminated debt offering). The result: efficiency improvements far outpaced top-line pressures, supporting a solid jump in earnings despite muted growth.
Resilient Performance and Shareholder Returns Stand Out
The company stayed busy on the capital allocation front. EWCZ repurchased 1.2 million shares in the quarter for $4.6 million, pushing cumulative buybacks under the current $50 million program to $45.9 million. As of October 4, the balance sheet showed $73.6 million in cash, no borrowings on the revolver, and $387 million in senior secured notes outstanding. Year-to-date operating cash flow remains strong at $45.2 million.
| Key Metric | Q3 2025 | Q3 2024 | % Change |
|---|---|---|---|
| Total Revenue | $54.19M | $55.43M | -2.2% |
| System-Wide Sales | $238.20M | $240.20M | -0.8% |
| Same-Store Sales | +0.2% | - | - |
| GAAP Net Income | $5.37M | $2.03M | +164.4% |
| Adjusted EBITDA | $20.17M | $18.41M | +9.6% |
| Net Income Margin | 9.9% | 3.7% | +620bps |
| Adjusted EBITDA Margin | 37.2% | 33.2% | +400bps |
| Centers at Quarter-End | 1,053 | 1,064 | -1.0% |
Guidance Holds Steady Despite Macro Headwinds
EWCZ reaffirmed its fiscal 2025 outlook, forecasting system-wide sales of $940M–$950M, total revenue of $205M–$209M, and adjusted EBITDA of $69M–$71M. Notably, the company expects a net reduction of 23 to 28 centers by year-end as closings outpace new openings. This signals a pragmatic approach to network quality over sheer growth. Yet, the positive performance on profitability, even with contraction, suggests management is focused on core execution and shareholder value.
| 2025 Full-Year Guidance | Low | High |
|---|---|---|
| System-Wide Sales | $940M | $950M |
| Total Revenue | $205M | $209M |
| Same-Store Sales Growth | 0.0% | 1.0% |
| Adjusted Net Income | $31M | $33M |
| Adjusted EBITDA | $69M | $71M |
| Net Center Closings | 23 | 28 |
Takeaway: Operational Efficiency Trumps Growth Concerns
EWCZ’s quarter is a lesson in how cost discipline and operational efficiency can offset sluggish sales growth and contraction at the network level. The sharp increase in margins and earnings, coupled with buybacks and stable cash generation, hints at an operator keenly focused on delivering value to both customers and shareholders—despite a tougher backdrop. For investors, the key question ahead is whether these gains are sustainable as network rationalization continues and macro conditions remain challenging.
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