European Wax Center's Hidden Turnaround: A Contrarian Play on Margin Resilience

The first quarter of 2025 has been a tale of two metrics for European Wax Center (EWAX). While its GAAP net income declined sharply, the company’s adjusted EBITDA margin surged to a record 36.5%, revealing a strategic shift that could position this beauty services leader as a contrarian value opportunity. Amid macroeconomic headwinds and short-term volatility, the divergence in these figures signals a disciplined operational turnaround—and a chance for investors to buy at a discount before the market catches on.

The GAAP-Adjusted Divergence: Cost Discipline or Crisis?

Let’s start with the bad news first. European Wax Center’s GAAP net income plunged 29.7% to $2.6 million in Q1, reflecting one-time costs like executive severance and elevated stock-based compensation. These expenses drove SG&A expenses up 13.9%, overshadowing core operational progress.

But here’s where the story turns: the adjusted EBITDA margin hit 36.5%, a 2.8 percentage-point jump from 2024. This is no small feat. The margin expansion was fueled by same-store sales growth of 0.7% and stronger Wax Pass adoption, which boosted system-wide sales to $225.9 million. Critically, this metric strips out the volatility of non-operational expenses, revealing a business that’s tightening costs while maintaining demand resilience.

The takeaway? GAAP net income is a red herring. The company isn’t failing—it’s restructuring. By cutting discretionary spending and sharpening its focus on controllable costs, European Wax Center is prioritizing long-term free cash flow over short-term accounting noise.

Franchisee Support: The Key to Halting Store Closures by 2026

The company’s 40–60 projected center closures in 2025 are a stark reminder of the challenges ahead. But here’s the contrarian angle: management isn’t just accepting attrition. Instead, it’s doubling down on franchisee support initiatives that could reverse the trend by 2026.

Consider the tools now at franchisees’ disposal:
- Enhanced supply chain management: Streamlined procurement to reduce costs.
- Digital marketing platforms: Centralized tools to boost local demand.
- Profitability dashboards: Real-time metrics to help owners optimize pricing and staffing.

These moves are critical. Franchisees account for 80% of locations, and their success is tied to the company’s long-term health. By reducing operational friction and improving margins at the store level, European Wax Center is building a more sustainable network.

Buybacks and Guidance: Betting on the Long Game

While headlines fixate on the GAAP decline, European Wax Center is quietly signaling confidence. The company has deployed $41.2 million of its $50 million buyback authorization, demonstrating conviction in its valuation. Even more telling: it reaffirmed its full-year 2025 guidance, projecting revenue of $210–$214 million and adjusted EBITDA of $69–$71 million.

This isn’t just stubborn optimism. The adjusted net income rose 10.3% to $9.5 million, proving that the core business is thriving despite one-time hits. Pair this with a debt-free balance sheet and a focus on margin stability, and you’ve got a company primed to capitalize on pent-up demand as macro pressures ease.

Why Now Is the Contrarian Moment

The market has punished EWAX for its GAAP stumble, but this is precisely the opportunity. The stock trades at 11.2x EV/EBITDA, a discount to its historical average and a fraction of peers like Massage Envy. Meanwhile, the adjusted metrics—the true measure of operational health—are flashing green.

Investors fixated on short-term earnings volatility are missing the bigger picture:
- Margin resilience is a moat in uncertain times.
- Buybacks and guidance reflect confidence, not complacency.
- Franchisee tools are the antidote to store closures, not the cause.

This isn’t a bet on a quick rebound. It’s a contrarian play on a company that’s systematically addressing its weaknesses while capitalizing on its strengths. For those willing to look beyond the headlines, European Wax Center offers a rare combination of value, stability, and long-term upside.

The question isn’t whether the GAAP decline is concerning—it’s whether you’re ready to act on the metrics that matter.