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European Wax Center Franchise Has a Resilient Business Model (2022)

Written by: Qingyi (Shirley) Cao
Last Updated by Brenda Bagnoli: June 10, 2022
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european wax center

European Wax Center franchise business offers high-end facial and body waxing and related skincare services, and other related products and services. Founded in 2004, EWC has been franchised for over 13 years. Since then, EWC revolutionized the market for out-of-home hair removal services by creating the first professionalized model exclusively focused on providing high-quality waxing experiences for guests. Unlike other businesses, EWC solely focuses on perfecting and professionalizing the wax experience.

They follow the industry-leading cleanliness standard and their wax specialists must complete a proprietary training program in addition to being licensed.

Contents

What is the European Wax Center Franchise Cost?

The total investment necessary to begin operations of a European Wax Center is $349,600 to $553,950. This includes $62,000 to $65,350 if you are a new franchisee, or $53,000 to $56,350 if you are an existing franchisee. Which must be paid to the franchisor or our affiliates. These amounts include the franchise  fee, which is currently $45,000 for new franchisees, and $36,000 for existing franchisees.

The total investment necessary to enter into a European Wax Center multi-unit development agreement is  $72,000 to $207,000. If you are opening less than 10 stores, the franchise fee is $18,000 for each additional store after the first location. It will be zero when you open more than 10 stores!

With an asset-light and recurring revenue model, EWC has opened 853 centers, 99% of which are franchised and 65% are multi-unit franchises. 21 million services are performed in 2021. EWC has a strong customer base, where 80% of visitors are repeat customers. And 50% of them have been guests for 3 years and more.  

Who Owns the European Wax Center Franchise?

EWC is currently owned by European Wax Center, Inc. Brothers David & Joshua Coba opened the first EWC in Fort Lauderdale, FL. After 18 years, it has become the largest and fastest-growing franchisor. And operator of out-of-home (OOH) waxing services in the United States. EWC completed its IPO on August 6, 2021, at a price of $22.35. With $1.479 billion of market capitalization, the stock is relatively volatile, oscillating between $20 and $30. 

How is the European Wax Center Positioned in the Beauty and Salon Industry?

European Wax Center franchises operate in a total of $18 billion hair removal addressable domestic market. Specifically, the EWC focuses on the OOH portion, where its growth is 8% compared to 3% of total hair removal addressable domestic CAGR. Currently, EWC has realized $0.7 billion of the market, which is approximately 4% of the total hair removal market. Showing a large room for growth. With 853 centers opened, EWC is 6 times larger than the next largest waxing-focused competitor by center count and 13 times larger by system-wide sales.  

Currently, the market is highly fragmented, with more than 10,000 independent waxing-focused operators. That lack scale and almost 100,000 beauty salons that only provide waxing as a small part of their businesses. This fragmentation results in a marketplace characterized by inconsistent quality and a lack of technological accessibility. European Wax Center is singularly focused on providing waxing services for customers, filling in the gap. 

European Wax Centers compete in the beauty and salon industry against other businesses offering similar services.

Including other national chains, health clubs, spas, beauty salons, beauty parlors, beauty supply stores,  e-commerce (Internet) businesses, and secondary online markets. EWC franchises also compete against other franchisees in your territory.

Strong Business Model Scaled Up Business Quickly

The business model has helped the EWC scale quickly since it was founded in 2004. Private equity sponsored the assembled seasoned executive team and made large-scale investments. Following the area representative buybacks in 2019, the EWC was well-positioned to drive a long-term expansion strategy. In 2020, the EWC implemented the new POS and ERP systems, opening 50+ new centers while navigating the pandemic.

In 2021, the company relaunched the retail product line, loyalty program, and mobile app, preparing for rapid development in the coming future. 

This business model creates strong guest metrics as consumers return to their personal care regimen post-pandemic, which results in attractive same-store sales performance. 330+ centers will be built in the future with increasing customer demand. The company has also developed new programs to enhance guest experience and incentivize frequency and retention. 

beauty

While continuously opening new stores over the years, EWC has 9 consecutive years of positive same-store sales growth until 2019, averaging 29%. These numbers prove a viable business model with a good management team and wide financing. 

In addition to the initial franchise fee, the franchisees are required to purchase a start-up package. Which includes an opening inventory of European Wax Center products and supplies. The standard fee for the start-up package ranges from $17,000 to $20,000, varying on the location of the center. Franchisees may be asked to pay a set-up fee of $350 at or around the time of opening. 

Once the operations begin, franchisees are expected to pay the company a royalty fee of 6% on gross sales and a marketing fund contribution of 3% of gross sales. There are additional ongoing fees, including a $100 IT network insurance fee paid annually and a $310 technology and security fee monthly.

What is the European Wax Center Franchise Cost? 

The total investment necessary to begin operations of a European Wax Center is $349,600 to $553,950. This includes $62,000 to $65,350 if you are a new franchisee, or $53,000 to $56,350 if you are an existing franchisee, which must be paid to the franchisor or our affiliates. These amounts include the franchise  fee, which is currently $45,000 for new franchisees, and $36,000 for existing franchisees. The total investment necessary to enter into a European Wax Center multi-unit development agreement is  $72,000 to $207,000. If you are opening less than 10 stores, the franchise fee is $18,000 for each additional store after the first location. It will be zero when you open more than 10 stores! 

In addition to the initial franchise fee, the franchisees are required to purchase a start-up package which includes an opening inventory of European Wax Center products and supplies. The standard fee for the start-up package ranges from $17,000 to $20,000, varying on the location of the center. Franchisees may be asked to pay a set-up fee of $350 at or around the time of opening.  

Once the operations begin, franchisees are expected to pay the company a royalty fee of 6% on gross sales and a marketing fund contribution of 3% of gross sales. There are additional ongoing fees, including a $100 IT network insurance fee paid annually and a $310 technology and security fee monthly.  

 Development FeeAmount of initial franchise fee due upon signing of Franchise Agreement
Development Agreement (1st Franchised Center)$45,00 ($36,000 for existing franchisees)$0
Development Agreement (2nd – 10th Franchised Center)$18,000 per CenterBalance od then-current initial franchise fee due under Franchise Agreement for each Franchised Center after application of $18,000 credit
Development Agreement (11th and Each Subsequent Franchised Center)$0Full then-current initial franchise fee under Franchise Agreement

How Much Do European Wax Center Owners Make?

European Wax Center does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. However, if you are purchasing an existing European Wax Center franchise, the company may provide you with the actual records of that franchise.

Through our analysis of the franchisor income statement, we can estimate sales figures from the income statement line item “Franchise Revenue.” Ideally, the line item is Royalty Revenue. Franchise revenue can include franchise fees received.

The European Wax Center 2021 saw a revenue increase of over 70% from $25 million in 2020 to $43 million in 2021.

 

2021 European Wax Center Sales and Breakeven point:

Royalty fee: 6% of annual gross sales

Royalty revenues: $43,648,000

Estimated system-wide franchise sales: $727,466,667

Estimated average franchise revenue: $857,861

2021 European Wax Center Average Franchise Sales (Single Unit): $857,861

Initial Investment (midpoint)%Profit margin of average franchise salesEstimated profitsTime to recoup investment
$451,77515%$128,6795 years
$451,77520%$171,5724.1 years
$451,77525%$214,4653.6 years

2021 European Wax Center Average Franchise Sales (Multiple Unit – 5): $4,289,305

Initial Investment (midpoint)%Profit margin of average franchise salesEstimated profitsTime to recoup investment
$2,186,87515%$643,3954.9 years
$2,186,87520%$857,8614 years
$2,186,87525%$1,072,3263.5 years

Based on the average sales calculated above, at an average of a 20% profit margin, it will take approximately 4 years to recoup your investment for both single-unit and multi-unit franchisees. The time to recoup investments incorporates roughly a 1.5-year period to scale up the store. This includes finding the location, building the center, passing break even, and then reaching significant income.

These numbers demonstrate that the asset-light and recurring revenue model is a successful business model for the franchisees, as they can recoup their investment shortly after scaling up.

Is the European Wax Center Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for the European Wax Center franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems of beauty salons.

Under $1 Million Net Sales

  • Estimated Selling Price = Net Sales – 0.31

$1 Million – $5 Million Net Sales

  • Estimated Selling Price = Net Sales – 0.28

When you go to sell a European Wax Center franchise based on the median multiple of 0.47 and net sales of $857,861, it would sell for $403,194. This is approximately equal to the midpoint investment of $451,775. As an owner of more than 2 stores, the median multiple for net sales between $1 million and $5 million is 0.28, resulting in $1.7 million in franchise sales. Selling these 2 stores would amount to $480,402, which is not much more than selling one store.

How Many European Wax Center Units Have Opened and Closed? 

StateYearOutlets at Start of YearOutlets OpenedTerminationsNon-RenewalsReacquired by FranchisorCeased Operations-Other ReasonsOutlets at end os the Year
Total2019702440003743
2020743535002789
2021789622100848

The total number of franchisees is increasing over the last three years. Even during the COVID-19 pandemic, the European Wax Center opened 46 net new locations in 2020 and 59 net new locations in 2021. There were 5 terminations and 2 ceased operations in 2020, and only 2 terminations and 1 non-renewals in 2021. The failure rate for 2021 is only 0.35%!

Not only is it 2021, but the average failure rate over the three years is also less than 0.5%. Additionally, the number of franchisees joining the business is increasing at a stable rate. 

European Wax Center Income Statements Takeaways

 For the Years Ended  
 December 25, 2021December 26, 2020$ Change% Change
Revenue:    
Product sales$99,740$56,977$42,76375.1%
Royalty fees 43,648 25,674 17,97470.0%
Marketing fees 24,610 13,465 3,38982.8%
Other revenue 10,680 7,291 3,389 46.5%
Total revenue:178,678103,40775,27172.8%
Operating expenses:    
Cost of revenue46,84135,50811,33331.9%
Selling, general and administrative61,81238,99722,81558.5%
Advertising24,99011,49513,495117.4%
Depreciation and amortization20,33319,5827513.8%
Loss on disposal of assets and non-cancellable contracts3351,044(709)(67.9%)
Total operating expenses154,311106,62647,68544.7%
Income (loss) from operations24,367(3,219)27,586857.0%
Interest expense20,28618,2762,01011.0%
Income (loss) before income taxes4,081(21,495)25,576119.0%
Interest tax expense114114
Net Income (loss)$3,967$(21,495)$25,462118.5%
Less: net income (loss) attributable to EWC Ventures, LLC prior to the Reorganization Transactions10,327(21,495)31,822148,0%
Less: net loss attribute to non controlling interest(2,945)(2,945)
Net loss attributable to European Wax Center, Inc. $(3,415)$(3,415)

Revenue for the EWC consists of four parts: product sales, royalty fees, marketing fees, and other revenue. Product sales revenue comprised 55.8% of the total revenue in 2021, while the royalty fee comprised 24.4%. Although the performance of the EWC is highly dependent on the financials of its franchisees, a large proportion of the revenues comes from its sales of waxing products. 

The total revenue increased from $103 million for the year 2020 to $178 million in 2021. The cost of revenue increased from $11.3 million to $46.8 million, largely due to the result of higher revenues in the current year period compared to the previous year. Recovering from the disruption due to the pandemic, EWC has a 118.5% increase in net income. 

European Wax Center Cash Flows Statement Takeaways

Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised locations. According to the cash flows statement, the European Wax Center has a $6.5 million increase in cash and cash equivalents. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $43 million

There was a $41.3 million increase in net cash provided by operating activities, which was largely attributable to the improved operating results in 2021. Starting in 2020, the EWC is performing the reacquisition of area representative rights. Where it spent $34.7 million of cash in 2020 and another $7.6 in 2021. 

 For the Years Ended
 December 25, 2021December 26, 2020December 28, 2019
Cash flows operating activities:   
Net income (loss)$ 3,967$ (21,495)$ (24,396)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Depreciation and amortization20,33319,58215,534
Amortization of deferred financing costs1,0441,2841,238
Loss on debts extinguishment6,313
Loss on non-cancellable contracts1,0852,532
Impairment of internally developed software18,183
Loss on write-down of obsolete inventory3176,656552
Provision for bad debts616
Loss (gain) on disposal of property and equipment336(41)1,920
Gain on sale of centers(2,120)
Remeasurement of tax receivable agreement liability195
Equity compensation11,1352,0521,570
Changes in assets and liabilities:   
Accounts receivable(2,185)1,7211,096
Inventory(9,460)5,101(5,355)
Prepaid expenses and other assets(1,916)(2,124)(435)
Accounts payable and accrued liabilities8,707(10,499)2,076
Deferred revenue912(666)1,250
Other long-term liabilities1,033(1,259)1,156
Net cash provided by operating activities41,3461,39714,701
Cash flows from investing activities:   
Purchases of property and equipment(559)(2,158)(9,343)
Reacquisition of area representative rights(7,644)(34,685)(33,189)
Cash received for sale of centers1,838
Net cash used investing activities(8,203)(36,843)(40,694)
Cash flows from financing activities:   
Proceeds on line of credit27,000
Payments on line credit(30,000)(3,500)
Proceeds on long-term debt179,37015,00040,000
Principal payments on long-term debt(240,553)(2,397)(2,050)
Deferred loan costs(1,294)(763)(638)
Payments of debt extinguishment costs(2,446)
Distributions to EWC Ventures LLC members(5,270)(1,847)(5,194)
Contributions from EWC Ventures LLC members24,909
Proceeds from public offerings of Class A common stock, net of underwriting discounts and offering expenses212,941
Repurchase of Class A units(942)
Repurchase of Class B common stock and EWC Ventures common units(138,368)
Advanced to related parties, net(811)
Net cash (used in) provided by financing activities(26,562)61,90227,807
Net increase in cash6,58126,4561,814
Cash, beginning of period36,72010,2648,450
Cash, end of period$ 43,301$ 36,720$ 10,264
Supplemental cash flow information:   
Cash paid for interest$ 11,763$ 16,469$ 17,342
Cash paid for income taxes$ 10$ –$ –
Non-cash investing activities:   
Property purchases included in accounts payable and accrued liabilities$ 89$ 33$ 148
Reacquired rights purchased included in accounts payable and accrued liabilities$ –$ – $ 2,183
Non-cash financing activities:   
Non-cash equity distributions$ 689$ 122$ –
Public offering expenses in accounts payable and accrued liabilities$ 870$ – $ – 

Conclusion

Investing in a European Wax Center is an interesting opportunity. With its asset-light and recurring revenue business models, franchisees have been earning a considerable amount of profit and according to our estimates, they can recoup their initial investment in 4 years!

The truly differentiated brand experience and care for guest relationships have helped the EWC build a solid customer base. From which the franchisees could benefit.

If you want to join a business in the beauty and salons industry, the European Wax Center is a great place to start. 

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