Form 10-Q - Quarterly report [Sections 13 or 15(d)]
15 August 2024 - 1:42AM
Edgar (US Regulatory)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 6, 2024
OR
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number: 001-40714
EUROPEAN WAX CENTER, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware |
86-3150064 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer
Identification No.) |
5830 Granite Parkway, 3rd Floor Plano, Texas |
75024 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (469) 264-8123
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Class A common stock, par value $0.00001 per share |
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EWCZ |
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The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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☐ |
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Accelerated filer |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
Emerging growth company |
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☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 9, 2024, the registrant had 47,764,963 and 12,214,845 shares of Class A and Class B common stock, respectively, $0.00001 par value per share, outstanding.
Table of Contents
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
EUROPEAN WAX CENTER, INC. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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July 6, 2024 |
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January 6, 2024 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
55,684 |
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$ |
52,735 |
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Restricted cash |
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6,465 |
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6,493 |
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Accounts receivable, net |
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10,086 |
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9,250 |
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Inventory, net |
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22,062 |
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20,767 |
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Prepaid expenses and other current assets |
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6,276 |
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6,252 |
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Total current assets |
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100,573 |
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95,497 |
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Property and equipment, net |
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1,732 |
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2,284 |
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Operating lease right-of-use assets |
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3,866 |
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4,012 |
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Intangible assets, net |
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154,595 |
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164,073 |
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Goodwill |
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328,551 |
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328,551 |
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Deferred income taxes |
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136,088 |
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138,215 |
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Other non-current assets |
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2,504 |
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3,094 |
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Total assets |
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$ |
727,909 |
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$ |
735,726 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
16,385 |
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$ |
17,966 |
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Long-term debt, current portion |
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4,000 |
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4,000 |
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Tax receivable agreement liability, current portion |
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2,873 |
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9,363 |
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Deferred revenue, current portion |
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4,315 |
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5,261 |
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Operating lease liabilities, current portion |
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1,274 |
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1,232 |
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Total current liabilities |
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28,847 |
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37,822 |
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Long-term debt, net |
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372,599 |
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372,000 |
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Tax receivable agreement liability, net of current portion |
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197,908 |
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197,273 |
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Deferred revenue, net of current portion |
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6,330 |
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6,615 |
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Operating lease liabilities, net of current portion |
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2,926 |
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3,158 |
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Other long-term liabilities |
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2,264 |
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2,246 |
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Total liabilities |
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610,874 |
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619,114 |
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Commitments and contingencies (Note 7) |
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Stockholders’ equity: |
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Preferred stock ($0.00001 par value, 100,000,000 shares authorized, none issued and outstanding as of July 6, 2024 and January 6, 2024, respectively) |
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— |
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— |
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Class A common stock ($0.00001 par value, 600,000,000 shares authorized, 51,415,110 and 51,261,001 shares issued and 47,711,539 and 48,476,981 shares outstanding as of July 6, 2024 and January 6, 2024, respectively) |
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— |
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— |
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Class B common stock ($0.00001 par value, 60,000,000 shares authorized, 12,214,845 and 12,278,876 shares issued and outstanding as of July 6, 2024 and January 6, 2024, respectively) |
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— |
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— |
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Treasury stock, at cost 3,703,571 and 2,784,020 shares of Class A common stock as of July 6, 2024 and January 6, 2024, respectively |
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(50,001 |
) |
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(40,000 |
) |
Additional paid-in capital |
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237,218 |
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232,848 |
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Accumulated deficit |
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(102,379 |
) |
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(109,506 |
) |
Total stockholders’ equity attributable to European Wax Center, Inc. |
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84,838 |
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83,342 |
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Noncontrolling interests |
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32,197 |
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33,270 |
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Total stockholders’ equity |
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117,035 |
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116,612 |
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Total liabilities and stockholders’ equity |
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$ |
727,909 |
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$ |
735,726 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
EUROPEAN WAX CENTER, INC. and Subsidiaries
CoNDENSED Consolidated Statements of Operations
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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For the Thirteen Weeks Ended |
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For the Twenty-Six Weeks Ended |
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July 6, 2024 |
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July 1, 2023 |
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July 6, 2024 |
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July 1, 2023 |
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REVENUE |
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Product sales |
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$ |
33,923 |
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$ |
33,725 |
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$ |
63,421 |
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$ |
61,567 |
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Royalty fees |
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14,465 |
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14,147 |
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26,901 |
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26,498 |
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Marketing fees |
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8,142 |
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7,915 |
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15,238 |
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14,817 |
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Other revenue |
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3,341 |
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3,303 |
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6,185 |
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6,100 |
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Total revenue |
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59,871 |
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59,090 |
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111,745 |
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108,982 |
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OPERATING EXPENSES |
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Cost of revenue |
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16,024 |
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16,900 |
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29,548 |
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31,357 |
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Selling, general and administrative |
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12,911 |
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14,134 |
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26,377 |
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31,397 |
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Advertising |
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11,576 |
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8,684 |
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20,264 |
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16,493 |
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Depreciation and amortization |
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4,985 |
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5,045 |
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9,985 |
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10,108 |
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Gain on sale of center |
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— |
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— |
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(81 |
) |
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— |
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Total operating expenses |
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45,496 |
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44,763 |
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86,093 |
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89,355 |
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Income from operations |
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14,375 |
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14,327 |
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25,652 |
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19,627 |
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Interest expense, net |
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6,367 |
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6,762 |
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12,703 |
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13,624 |
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Other expense (income) |
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269 |
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|
(792 |
) |
|
|
249 |
|
|
|
(792 |
) |
Income before income taxes |
|
|
7,739 |
|
|
|
8,357 |
|
|
|
12,700 |
|
|
|
6,795 |
|
Income tax expense |
|
|
1,739 |
|
|
|
2,763 |
|
|
|
2,971 |
|
|
|
2,254 |
|
NET INCOME |
|
$ |
6,000 |
|
|
$ |
5,594 |
|
|
$ |
9,729 |
|
|
$ |
4,541 |
|
Less: net income attributable to noncontrolling interests |
|
|
1,694 |
|
|
|
1,582 |
|
|
|
2,602 |
|
|
|
1,037 |
|
NET INCOME ATTRIBUTABLE TO EUROPEAN WAX CENTER, INC. |
|
$ |
4,306 |
|
|
$ |
4,012 |
|
|
$ |
7,127 |
|
|
$ |
3,504 |
|
Net income per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Class A Common Stock |
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.15 |
|
|
$ |
0.06 |
|
Diluted - Class A Common Stock |
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.15 |
|
|
$ |
0.06 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic - Class A Common Stock |
|
|
48,176,149 |
|
|
|
50,335,784 |
|
|
|
48,365,642 |
|
|
|
49,162,232 |
|
Diluted - Class A Common Stock |
|
|
48,216,643 |
|
|
|
50,439,538 |
|
|
|
48,425,028 |
|
|
|
49,246,677 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EUROPEAN WAX CENTER, INC. and Subsidiaries
CONDENSED Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Twenty-Six Weeks Ended |
|
|
|
July 6, 2024 |
|
|
July 1, 2023 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
9,729 |
|
|
$ |
4,541 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,985 |
|
|
|
10,108 |
|
Amortization of deferred financing costs |
|
|
2,773 |
|
|
|
2,639 |
|
Provision for inventory obsolescence |
|
|
(70 |
) |
|
|
(11 |
) |
Provision for bad debts |
|
|
113 |
|
|
|
80 |
|
Deferred income taxes |
|
|
2,789 |
|
|
|
2,164 |
|
Remeasurement of tax receivable agreement liability |
|
|
249 |
|
|
|
(792 |
) |
Gain on sale of center |
|
|
(81 |
) |
|
|
— |
|
Loss on disposal of property and equipment |
|
|
3 |
|
|
|
— |
|
Equity compensation |
|
|
3,323 |
|
|
|
7,757 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(964 |
) |
|
|
(2,452 |
) |
Inventory, net |
|
|
(1,246 |
) |
|
|
(506 |
) |
Prepaid expenses and other assets |
|
|
948 |
|
|
|
(1,110 |
) |
Accounts payable and accrued liabilities |
|
|
(835 |
) |
|
|
(1,464 |
) |
Deferred revenue |
|
|
(1,044 |
) |
|
|
529 |
|
Other long-term liabilities |
|
|
(541 |
) |
|
|
(263 |
) |
Net cash provided by operating activities |
|
|
25,131 |
|
|
|
21,220 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(215 |
) |
|
|
(623 |
) |
Cash received for sale of center |
|
|
135 |
|
|
|
— |
|
Net cash used in investing activities |
|
|
(80 |
) |
|
|
(623 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
Principal payments on long-term debt |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
Distributions to EWC Ventures LLC members |
|
|
(2,515 |
) |
|
|
(1,214 |
) |
Repurchase of Class A common stock |
|
|
(10,001 |
) |
|
|
(819 |
) |
Taxes on vested restricted stock units paid by withholding shares |
|
|
(393 |
) |
|
|
(146 |
) |
Dividend equivalents to holders of EWC Ventures units |
|
|
(725 |
) |
|
|
(2,615 |
) |
Payments pursuant to tax receivable agreement |
|
|
(6,496 |
) |
|
|
(3,209 |
) |
Net cash used in financing activities |
|
|
(22,130 |
) |
|
|
(10,003 |
) |
Net increase in cash, cash equivalents and restricted cash |
|
|
2,921 |
|
|
|
10,594 |
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
59,228 |
|
|
|
50,794 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
62,149 |
|
|
$ |
61,388 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
Cash paid for interest |
|
$ |
10,976 |
|
|
$ |
11,097 |
|
Cash paid for income taxes |
|
$ |
444 |
|
|
$ |
513 |
|
Non-cash investing activities: |
|
|
|
|
|
|
Property purchases included in accounts payable and accrued liabilities |
|
$ |
21 |
|
|
$ |
— |
|
Right-of-use assets obtained in exchange for operating lease obligations |
|
$ |
592 |
|
|
$ |
368 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EUROPEAN WAX CENTER, INC. and Subsidiaries
CONDENSED Consolidated Statements of STOCKHOLDERS’ Equity
(Amounts in thousands, except share and per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
|
Class B Common Stock |
|
paid-in |
|
Accumulated |
|
Treasury |
|
Noncontrolling |
|
Total |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
capital |
|
deficit |
|
Stock |
|
interest |
|
equity |
Balance at January 6, 2024 |
|
48,476,981 |
|
$— |
|
12,278,876 |
|
$— |
|
$232,848 |
|
$(109,506) |
|
$(40,000) |
|
$33,270 |
|
$116,612 |
Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
|
56,232 |
|
— |
|
(56,232) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Vesting of restricted stock units |
|
99,023 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Shares withheld for taxes on vested restricted stock units |
|
(24,724) |
|
— |
|
— |
|
— |
|
(319) |
|
— |
|
— |
|
— |
|
(319) |
Forfeiture of unvested incentive units |
|
— |
|
— |
|
(3,055) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Equity compensation |
|
— |
|
— |
|
— |
|
— |
|
1,382 |
|
— |
|
— |
|
— |
|
1,382 |
Distributions to members of EWC Ventures |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,180) |
|
(1,180) |
Forfeiture of accrued dividend equivalents |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
10 |
|
10 |
Tax receivable liability and deferred taxes arising from share exchanges |
|
— |
|
— |
|
— |
|
— |
|
(113) |
|
— |
|
— |
|
— |
|
(113) |
Allocation of equity to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
21 |
|
— |
|
— |
|
(21) |
|
— |
Net income |
|
— |
|
— |
|
— |
|
— |
|
|
|
2,821 |
|
— |
|
908 |
|
3,729 |
Balance at April 6, 2024 |
|
48,607,512 |
|
$— |
|
12,219,589 |
|
$— |
|
$233,819 |
|
$(106,685) |
|
$(40,000) |
|
$32,987 |
|
$120,121 |
Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
|
4,744 |
|
— |
|
(4,744) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Vesting of restricted stock units |
|
25,355 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Shares withheld for taxes on vested restricted stock units |
|
(6,521) |
|
— |
|
— |
|
— |
|
(74) |
|
— |
|
— |
|
— |
|
(74) |
Equity compensation |
|
— |
|
— |
|
— |
|
— |
|
1,941 |
|
— |
|
— |
|
— |
|
1,941 |
Repurchase of Class A common stock |
|
(919,551) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(10,001) |
|
|
|
(10,001) |
Distributions to members of EWC Ventures |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,335) |
|
(1,335) |
Tax receivable liability and deferred taxes arising from share exchanges |
|
— |
|
— |
|
— |
|
— |
|
383 |
|
— |
|
— |
|
— |
|
383 |
Allocation of equity to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
|
1,149 |
|
— |
|
— |
|
(1,149) |
|
— |
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
4,306 |
|
— |
|
1,694 |
|
6,000 |
Balance at July 6, 2024 |
|
47,711,539 |
|
$— |
|
12,214,845 |
|
$— |
|
$237,218 |
|
$(102,379) |
|
$(50,001) |
|
$32,197 |
|
$117,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
paid-in |
|
|
Accumulated |
|
|
Treasury |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
deficit |
|
|
Stock |
|
|
interest |
|
|
equity |
|
Balance at December 31, 2022 |
|
|
44,561,685 |
|
|
$ |
— |
|
|
|
18,175,652 |
|
|
$ |
— |
|
|
$ |
207,517 |
|
|
$ |
(118,437 |
) |
|
$ |
(10,080 |
) |
|
$ |
51,304 |
|
|
$ |
130,304 |
|
Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
|
|
5,129,351 |
|
|
|
— |
|
|
|
(5,129,351 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vesting of restricted stock units |
|
|
33,546 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for taxes on vested restricted stock units |
|
|
(6,708 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(126 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(126 |
) |
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,931 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,931 |
|
Distributions to members of EWC Ventures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(276 |
) |
|
|
(276 |
) |
Tax receivable liability and deferred taxes arising from share exchanges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,519 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,519 |
) |
Allocation of equity to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,657 |
|
|
|
— |
|
|
|
— |
|
|
|
(12,657 |
) |
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(508 |
) |
|
|
— |
|
|
|
(545 |
) |
|
|
(1,053 |
) |
Balance at April 1, 2023 |
|
|
49,717,874 |
|
|
$ |
— |
|
|
|
13,046,301 |
|
|
$ |
— |
|
|
$ |
222,460 |
|
|
$ |
(118,945 |
) |
|
$ |
(10,080 |
) |
|
$ |
37,826 |
|
|
$ |
131,261 |
|
Exchange of Class B Common Stock and EWC Ventures Units for Class A Common Stock |
|
|
652,558 |
|
|
|
— |
|
|
|
(652,558 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vesting of restricted stock units |
|
|
12,131 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeiture of unvested incentive units |
|
|
— |
|
|
|
— |
|
|
|
(29,697 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares withheld for taxes on vested restricted stock units |
|
|
(1,057 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20 |
) |
Equity compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,826 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,826 |
|
Repurchase of Class A Common Stock |
|
|
(51,592 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(819 |
) |
|
|
— |
|
|
|
(819 |
) |
Distributions to members of EWC Ventures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(938 |
) |
|
|
(938 |
) |
Forfeiture of dividend equivalents payable to holders of EWC Ventures Units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98 |
|
|
|
98 |
|
Tax receivable liability and deferred taxes arising from share exchange |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(421 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(421 |
) |
Allocation of equity to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,682 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,682 |
) |
|
|
— |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,012 |
|
|
|
— |
|
|
|
1,582 |
|
|
|
5,594 |
|
Balance at July 1, 2023 |
|
|
50,329,914 |
|
|
$ |
— |
|
|
|
12,364,046 |
|
|
$ |
— |
|
|
$ |
225,527 |
|
|
$ |
(114,933 |
) |
|
$ |
(10,899 |
) |
|
$ |
36,886 |
|
|
$ |
136,581 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
EUROPEAN WAX CENTER, INC. and Subsidiaries
Notes to CONDENSED Consolidated Financial Statements
(Amounts in thousands, except share/unit and per share/unit amounts)
(Unaudited)
1. Nature of business and organization
European Wax Center, Inc. was formed as a Delaware corporation on April 1, 2021. European Wax Center, Inc. and subsidiaries (“the Company”) was formed for the purpose of completing a public offering and related transactions in order to carry on the business of EWC Ventures, LLC (“EWC Ventures”) and its subsidiaries. Through its subsidiaries, the Company is engaged in selling franchises of European Wax Center, distributing unique facial and body waxing products to franchisees which are used to perform waxing services and providing branded facial and body waxing products directly to consumers at various locations throughout the United States.
The Company operates on a fiscal calendar which, in a given year, consists of a 52 or 53 week period ending on the Saturday closest to December 31st. The quarters ended July 6, 2024 and July 1, 2023 both consisted of 13 weeks.
2. Summary of significant accounting policies
(a) Basis of presentation and consolidation
The accompanying unaudited condensed consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC and includes the operations of the Company and EWC Ventures and its wholly owned subsidiaries. EWC Ventures is considered a variable interest entity. The Company is the primary beneficiary of EWC Ventures. As a result, the Company consolidates EWC Ventures.
The condensed consolidated balance sheet as of January 6, 2024 is derived from the audited consolidated financial statements of the Company but does not include all disclosures required by GAAP. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended January 6, 2024 included in our annual report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated in consolidation.
Accounting policies used in the preparation of these unaudited condensed consolidated financial statements are consistent with the accounting policies described in the audited consolidated financial statements and the related notes thereto for the year ended January 6, 2024 included in our annual report on Form 10-K.
(b) Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results. Significant areas where estimates and judgments are relied upon by management in the preparation of the financial statements include revenue recognition, inventory reserves, income taxes, the Tax Receivable Agreement (“TRA”), the expected life of franchise agreements, the useful life of reacquired rights, valuation of equity-based compensation awards, and the evaluation of the recoverability of goodwill and long-lived assets, including indefinite-lived intangible assets. Actual results could differ from those estimates.
(c) Implications of being an Emerging Growth Company
The Company is an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) and may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards. We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
(d) Comprehensive income (loss)
Comprehensive income (loss) is defined as the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income (loss) is equal to net income (loss) for all periods presented.
(e) Recently issued accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures, which expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and subsequent interim periods, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-07 will have on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures, which expands disclosures in an entity's income tax reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. We are currently evaluating the impact that adopting this guidance will have on our consolidated financial statements.
3. Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 6, 2024 |
|
|
January 6, 2024 |
|
Prepaid inventory |
|
$ |
20 |
|
|
$ |
238 |
|
Prepaid insurance |
|
|
1,025 |
|
|
|
1,507 |
|
Prepaid technology |
|
|
2,454 |
|
|
|
1,922 |
|
Prepaid advertising |
|
|
1,719 |
|
|
|
1,038 |
|
Prepaid commissions |
|
|
364 |
|
|
|
380 |
|
Prepaid other & other current assets |
|
|
694 |
|
|
|
1,167 |
|
Total |
|
$ |
6,276 |
|
|
$ |
6,252 |
|
4. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
July 6, 2024 |
|
|
January 6, 2024 |
|
Accounts payable |
|
$ |
5,567 |
|
|
$ |
6,048 |
|
Accrued inventory |
|