Holistic Wellness And Tech Alternatives Will Undermine Traditional Waxing

Key Takeaways

• Shifting beauty trends, aging demographics, and rising competition from at-home alternatives may reduce demand and hinder future revenue growth.
  
• Franchise model limits quality control, while inflation, labor, and regulatory pressures threaten profitability and margin sustainability.
  
• Modernized marketing, strong recurring sales, and strategic franchise support position the company for sustained revenue growth, stable margins, and resilient cash flow.

Catalysts

Operates as the franchisor and operator of out-of-home waxing services in the United States.

• Despite management's focus on new guest acquisition and digital marketing, increasing consumer preference for holistic wellness and natural beauty could erode demand for traditional waxing, leading to stagnating or declining same-store revenue growth over the long term as trends shift away from hair removal. This threatens future topline growth.
  
• As the aging population in developed markets continues to expand, the addressable market for personal grooming and hair removal services may shrink, putting structural pressure on customer volumes and causing revenue growth to underperform expectations.
  
• Technological advancements in at-home hair removal and non-invasive alternatives such as laser and IPL devices are likely to take share from brick-and-mortar waxing services, causing greater competition and putting downward pressure on client traffic and average unit volumes, ultimately hurting both revenue and margins.
  
• The company's reliance on a franchise model limits operational control, making it difficult to ensure consistent service quality at scale; as underperforming centers persist and closures mount, systemwide performance may deteriorate, reducing both profitability and the company's ability to justify premium pricing.
  
• Inflationary pressures and rising labor costs, combined with potential increases in regulatory scrutiny around hygiene and chemical use, could compress unit-level margins even as top-line growth slows, resulting in weaker net margins and lower overall earnings growth over the long run.

European Wax Center Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on European Wax Center compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming European Wax Center's revenue will grow by 1.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.4% today to 10.7% in 3 years time.
• The bearish analysts expect earnings to reach $24.5 million (and earnings per share of $0.45) by about July 2028, up from $9.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 22.9x today. This future PE is lower than the current PE for the US Consumer Services industry at 19.1x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.05%, as per the Simply Wall St company report.

European Wax Center Future Earnings Per Share Growth

Risks

• Structural demand for out-of-home personal care services remains robust, with management citing a large and stable addressable market and ongoing improvements in new guest acquisition—this ongoing consumer interest could sustain or grow revenue in the long term.
  
• New executive leadership, including a CEO and CFO with backgrounds in franchise growth and digital marketing, are implementing data-driven, modernized marketing strategies that are already showing traction in improving customer acquisition efficiency and could drive top-line revenue growth and strengthen profit margins over time.
  
• The business continues to generate strong free cash flow through its asset-light franchise model, with healthy adjusted EBITDA margins reported and maintained guidance, supporting ongoing earnings stability and the potential for capital returns or reinvestment.
  
• Investments in enhanced franchisee support, data tools, training, and refined site selection may improve unit economics for new and existing centers, setting a foundation for healthy net unit growth and higher system-wide sales as underperforming locations are closed and growth resumes by end of 2026.
  
• The company’s high percentage of recurring Wax Pass sales (approximately 75 percent of revenues) indicates strong customer loyalty, which can provide resilience against macro consumer pressures and underpin stable or growing revenue levels.

Valuation

• The assumed bearish price target for European Wax Center is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of European Wax Center's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $228.2 million, earnings will come to $24.5 million, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 9.1%.
• Given the current share price of $5.0, the bearish analyst price target of $4.0 is 25.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.