On Thursday, BofA Securities adjusted its outlook on European Wax Center (NASDAQ:EWCZ), reducing the price target to $16.00 from the previous $19.00. Despite this change, the firm maintains a Buy rating on the stock.
European Wax Center, known for its beauty and waxing services, posted first-quarter revenues of $51.9 million, a figure that slightly exceeded the consensus estimates. However, comparable store sales (comps) dipped by 1.2%, which did not meet the anticipated 1.5% increase.
The company experienced minor setbacks during the quarter, including store closures due to adverse weather conditions in January and the impact of Easter falling in the first quarter rather than the second.
These factors contributed to the negative comps, which would have been marginally positive without these disruptions. According to the company, spending and visit frequency among existing customers remained consistent in the first quarter.
Management at European Wax Center has decided to uphold its full-year 2024 guidance. They anticipate a gradual improvement in comparable store sales throughout the year, driven by the implementation of various growth strategies.
Despite the current challenges in comparable sales, the company's less discretionary services, recurring revenue model, and robust unit growth continue to present an attractive investment profile.
In light of these developments, BofA Securities has also revised its forecast for the company's adjusted EBITDA in fiscal year 2024, reducing the estimate by 4% to $78.4 million.
The new price objective of $16.00 is based on 15 times the firm's fiscal year 2025 EBITDA estimates, which represents a more conservative premium compared to peers in light of the current comp environment.
InvestingPro Insights
As European Wax Center navigates through its recent challenges, InvestingPro data reflects a mix of caution and optimism for investors. With a market capitalization of $695.25 million and a high earnings multiple, EWCZ's P/E ratio stands at 44.44, indicating investors' high expectations for future earnings growth. The company's gross profit margin is robust at 71.66%, underscoring its efficiency in controlling costs relative to revenue. Despite trading near its 52-week low, analysts remain positive about the company's future profitability.
Of particular note, InvestingPro Tips highlight that European Wax Center is expected to see net income growth this year and maintains impressive gross profit margins, which aligns with the company's strategies to improve performance. However, the company is trading at a high revenue valuation multiple, suggesting that its stock price may be somewhat premium-priced in relation to its sales. For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available, providing deeper insights into EWCZ's financial health and market position.
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