Why European Wax Center Stock Just Plunged 26%

The story of the US macro economy of consumers reducing discretionary purchases continues. Actions of European Wax Center (EWCZ -26.70%) was destroyed this afternoon — down 26.6% by 12:30 p.m. ET — after the company apparently beat earnings but missed sales.

Analysts expect the body hair removal franchisor to earn $0.08 per share on second-quarter sales of $61.3 million, or about $3.9 million. Actual earnings were $6 million, or $0.12 per share (although the company did not provide a per-share number). However, sales fell to $59.9 million.

Second quarter earnings

At first glance, this doesn’t seem so bad: you earn more than expected, despite selling less than expected. Earnings rose 6% year-on-year despite sales rising just 1%.

Investors may worry, however, that today’s news is worse than meets the eye, as alongside the earnings release, European Wax Centers announced it is changing CEOs, with David Willis leaving the company to be replaced by David Berg.

Exacerbating this concern is new guidance for the remainder of fiscal 2024, which suggests a sharp slowdown in business. Management previously planned to open up to 80 new stores this year, but has now cut that forecast to somewhere between 27 and 32 (15 of which have already opened).

The company also cut its revenue estimate to between $216 million and $221 million and changed its forecast for same-store sales growth from a range of 2% to 5% to a range of 0 .5% at negative 1.5%.

Is European Wax Center stock a sell?

Translation: Sales are deteriorating at the company’s existing locations, and the number of new locations opening that could offset those revenue declines is declining.

Regarding profits, the European Wax Center did not give a generally accepted accounting principles (GAAP) forecast. Instead, it warned that its adjusted income would be lower than estimated — somewhere between $19 million and $22 million, so no more than $0.45 per share. That’s still better than Wall Street’s forecast of $0.37.

But between the CEO change and the looming reduction in store openings, investors don’t seem to care.