European Wax Center, Inc. Q1 FY2024 Earnings Call

Good morning, everyone, and thank you for joining us. Welcome to European Wax Center's First Quarter Fiscal 2024 Earnings Call. On the call today are David Willis, Chief Executive Officer; Stacie Shirley, Chief Financial Officer; and Andrea Wasserman, Chief Commercial Officer. I will now hand the call over to Bethany Johns, Director of Investor Relations. Please go ahead.

Thank you, and welcome to European Wax Center's First Quarter Fiscal 2024 Earnings Call. For today's call, David will begin with a brief review of our first quarter performance and discuss our priorities for the balance of 2024. Then Stacie will provide additional details regarding our financial performance and our fiscal 2024 outlook. Following the prepared remarks, the team will be available to take questions. Before we start, I would like to remind you of our legal disclaimer. We will make certain statements today, which are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings as well as our earnings release issued today for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call, and we take no obligation to revise or publicly release the results of any revision to our forward-looking statements in light of new information or future events. Also during the call, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in our earnings release. A live broadcast of this call is also available on the Investor Relations section of our website at investors.waxcenter.com. I will now turn the call over to David Willis.

Thank you, Bethany, and good morning, everyone. Thank you for joining us today. We began 2024 with stable frequency and spend among our current guests, signaling the resiliency and predictability of our business model. Even in an uncertain macroeconomic environment, these guests remain resilient. Net new center openings, a key growth driver for European Wax Center, were in line with our expectations as we grew center count by 7.5% to 1,051 centers in 45 states. We also delivered growth of 1.3% and 4%, respectively, in system-wide sales and total revenue. Same-store sales were down 1.2%, and we estimate they would have been slightly positive except for weather and Easter-related center closures that impacted our top line metrics. Profit margins were strong due to our asset-light, highly cash-generative franchise model, and our cash position increased meaningfully during the quarter. In fact, with our growing liquidity in mind, this week, our Board authorized a new $50 million share repurchase program to give us flexibility as we seek opportunities to drive long-term shareholder value. On our year-end earnings call, we shared our focused initiatives to drive average ticket and frequency from both new and existing guests. We are still in the beginning stages of these initiatives. As I will detail shortly, we are seeing good early reads. As we shared last quarter, we expected that in the current macro environment, Q1 would be the low point in our full-year results as these efforts begin to take root. We believe that these initiatives will materialize and gain traction as we move through the year. Second quarter trends are tracking in line with this expectation. As a result, we are reiterating our fiscal 2024 financial guidance today. Before I dive into our strategic initiatives, I want to congratulate the entire European Wax Center team on being officially recognized as a great place to work for the second year in a row. Our associates are the key to EWC's culture and success, and the leadership team and I are proud to facilitate an environment where they are free to be their authentic selves, drive performance, delight our guests, and be unleashed to do their best work. Ultimately, they are focused on consistently delivering for both our franchisees and our guests, which we fully expect will translate into continued long-term growth. Now I'd like to discuss the progress we've made on our two key growth vectors: expanding net new centers and driving in-center sales as well as the plans we have for the balance of 2024. I'll start with our unit growth vector. As planned in our development schedules, our franchisees opened seven net new centers, translating to 7.5% unit growth in Q1. Our franchisee relationships continue to strengthen as we work together to further elevate European Wax Center's leadership position. In fact, nearly all of our expected 75 to 80 net new centers in fiscal 2024 will come from existing franchisees, showcasing their excitement for the European Wax Center business model and their commitment to reinvesting in our brand. We remain focused on the diversity of our franchisee base as well and expect smaller independent operators, self-funded multi-unit developers, and private equity-backed franchisees to each operate approximately one-third of our centers over time. Overall, our franchisees remain well-capitalized, and our development pipeline of over 370 locations remains robust. Most importantly, these long-term commitments are a testament to the strength and resiliency of our model and give us visibility to deliver against our high single-digit unit growth algorithm for 2024, 2025, and beyond. Our key focus this year is on supporting top-line growth and strong four-wall economics for franchisees, particularly through new guest acquisition. We believe that a strong opening creates the best foundation for new centers and their unit economics. Our data-driven preopening playbook launched in Q1, and the centers following it are generating higher average grand opening guest lists and staffing levels. While it will take time for these improvements to move the needle on system-wide metrics, we believe they will translate into higher sales, profitability, and predictability for franchisees through their ramping cycles. Turning to our second growth vector, driving in-center sales, which benefits system-wide sales and same-store sales growth. I'll start with the dynamics we're seeing across our guest cohorts. As I mentioned earlier, spend and frequency among our existing guests have remained stable in 2024. This includes both our less frequent guests as well as our core guests. As a reminder, core guests are comprised of the Wax Pass and routine guests who drive approximately 75% of our sales volume. These guests have remained committed to their personal care routines for much of the last two years, representing a recurring and durable revenue stream for our brand through various economic cycles. We are pleased with their stability, but we remain focused on growing spend and frequency among this group. Current customers remain loyal fans of European Wax Center's unparalleled service, efficiency, and expertise, but attracting first-time guests remains our biggest opportunity, especially in the current macro environment where consumers appear more discerning with their spend. We have made real progress against the media, local marketing, and operational initiatives that I outlined on our last earnings call. However, it's still too early to see the full benefits of our guest acquisition efforts. I'll now highlight a few updates on our initiatives starting with media. We engaged a new media agency in Q4 to streamline our strategy across all of our paid digital channels and search efforts and increase guest reservations in centers. We are pleased that this new strategy is driving reservations, new guests, and cost efficiencies. In late Q2, we expect to begin aligning our media mix to the channels and messages driving the strongest returns. As a result, we believe the biggest impact from our improved approach will come in the back half of the year. And finally, with Wax Pass holders generating more than twice the spend and frequency of non-core guests, we remain very focused on growing Wax Pass penetration. To target frequency, conversion, and loyalty, we successfully tested a 3+1 Wax Pass offer for new guests, which generated incremental sales and retention rates. As a result, we rolled it out network-wide at the end of Q1 and have already seen a positive impact. On to the second bucket, local marketing. We believe one of the best ways to drive new guest acquisition is through local marketing efforts that boost center visibility and awareness. As we ended Q1, we launched partnerships with new local digital media agencies to stimulate franchisee spending. We believe the increased effectiveness and structure under the new agencies will help us demonstrate an even higher local marketing ROI and motivate additional network investments. We also dedicated corporate personnel and introduced franchisee tools to help simplify grassroots marketing plans and execution. Enthusiasm from the network so far has been encouraging with meaningful uptake, and we expect franchisees to ramp up their local marketing spend and efforts throughout 2024. Lastly, our operational initiatives should drive new guests to the brand as well as increased spend from existing guests. First, we've deepened the support of our field trainers in select markets through training, coaching, and ongoing development. By optimizing the guest experience, pilot centers in this program generated improvements across our most important KPIs that impact four-wall sales and profitability. We are excited about this program's potential and are currently increasing resources to scale it as the year progresses. As I mentioned last quarter, we continue to make good progress on our proven brow tint formula. Pilot testing indicated that brow tinting attracts new guests to the brand and increases services and therefore, dollars per ticket. We expect to launch this incremental service nationwide in the third quarter and support it with a robust staff training program and marketing campaign. Finally, we continue to advance our laser hair removal pilot. Early testing validated our hypothesis that expanding our service offering to laser could attract new guests to the brand and increase share of wallet from existing waxers. Our first six pilot centers in New York generated strong sales with minimal cannibalization of core waxing services. Given our confidence in these early results, we expanded the pilot to 10 more New York centers during Q1 and expect to add a handful of Florida centers in Q2. These Q2 centers will help us better understand the operational impact of a stricter regulatory environment and further confirm our hypothesis that laser can enhance already robust four-wall economics over time. As mentioned on our last call, we plan to make additional deliberate investments to support this pilot in other states throughout the year, including adding dedicated personnel to our corporate leadership team. While we see this as a potential additive opportunity to expand our brand and the model, European Wax Center remains the dominant player in out-of-home hair removal with a strong and resilient core service offering, waxing. As the experts in our category, we remain uniquely positioned to leverage our scale and footprint to pilot laser and look forward to updating you on our progress. Ultimately, we are confident in our ability to drive new guests to the brand and increase ticket value and frequency among existing guests through the initiatives I outlined. We believe that our data-driven strategies will allow us to deliver another year of top-line growth in 2024. With that, I'd like to hand the call over to Stacie Shirley to review our financial performance and guidance. Stacie?

Thanks, David, and good morning. Before I begin my remarks, I'd like to remind everyone that in some instances, I will speak to adjusted metrics on this call. You can find reconciliation tables to the most comparable GAAP figures in our press release and 10-Q filed with the SEC today. As a reminder, both fiscal years 2022 and 2023 included a 53rd week, and fiscal 2024 returns to a 52-week year. Turning now to our first quarter financial performance. We added seven net new centers during the quarter, in line with our expectations. System-wide sales grew 1.3% to $221.4 million as a result of our ramping centers, and total revenue, which includes wax and retail products we sell to the network, increased 4% to $51.9 million. Same-store sales were down 1.2%. Excluding the impact of center closures related to inclement weather in January and the shift in Easter timing between quarters, we estimate Q1 same-store sales would have been slightly positive. As a reminder, same-store sales reflect in-center transactions and wax-based visits as they are redeemed, while system-wide sales is predominantly a cash-based metric that we recognize as payments for products, services, and wax passes are received. In terms of profitability, first quarter gross margin improved approximately 290 basis points to 73.9%, primarily as a result of negotiated cost savings. Q1 SG&A decreased 22% year-over-year to $13.5 million, and as a percent of revenue, improved 860 basis points to 26% compared to 34.6% in the prior year. This decrease was driven by the modification of certain pre-IPO equity awards that added an incremental $3.9 million in share-based compensation to Q1 last year. First quarter SG&A this year was also positively impacted by the timing of technology, professional, and laser-related expenses that we expect to shift into Q2. Q1 adjusted EBITDA dollars increased 7.4% year-over-year to $17.5 million, and margin improved 100 basis points to 33.7%, driven by the flow-through of the cost savings I just mentioned. With higher interest income in 2024, net interest expense decreased to $6.3 million from $6.9 million in the same period last year. Income tax expense was $1.2 million compared to a benefit of $500,000 last year. Despite the increase in taxes, GAAP net income improved to $3.7 million, and adjusted net income grew 41.3% to $4.8 million. Turning to the balance sheet. We ended the first quarter with $60.4 million in cash, and net cash provided by operating activities was $10.7 million compared to approximately $100,000 in investing outflows. As David mentioned, strong free cash flow is a stable part of our asset-light, capital-light model. We had $393 million outstanding under our senior secured notes, and our $40 million revolver remains fully undrawn. Net leverage at the end of Q1 was 4.2x adjusted EBITDA, and our guidance implies net leverage to be at or below 4x at the end of this year. Our leverage expectations do not reflect any share repurchases we may execute under the new $50 million authorization approved by our Board this week. As a reminder, we fulfilled our previous $40 million repurchase authorization in Q4 2023 and believe that an additional authorization gives us flexibility to be opportunistic as we drive long-term shareholder value. We remain committed to delevering organically over time through adjusted EBITDA growth and continuously evaluating the best use of our strong free cash flow. Turning now to our outlook for 2024. Given stable trends for existing guests and the expected progression of our initiatives to drive greater share of wallet and new guest acquisition, we are reiterating our full-year guidance. Our outlook assumes a stable macro environment and that our focused initiatives will materialize as we progress through the year. While data points thus far have been encouraging, we are still in the early stages of these specific initiatives, and we continue to monitor how they are resonating with new and existing guests in this macro environment. In terms of unit growth, we continue to expect franchisees to open 75 to 80 net new centers in 2024, driven primarily by existing franchisees focused on markets where we have had less development activity in recent years. Based on franchisee construction schedules, we are updating the expected timing of those openings to approximately one-quarter in the first half of the year and three-quarters in the second half. On the top line, we continue to expect system-wide sales between $1 billion and $1.025 billion or approximately 6.5% to 9% growth on a 52-week adjusted basis, as well as 2% to 5% same-store sales growth for the year. As David noted in his remarks, we believe our top line will benefit more from our focused strategic initiatives in the second half of the year than in the first half. With the rollout of these initiatives in mind, we expect system-wide sales dollars to be the lightest in Q1 and spread fairly evenly between the second and third quarters. We still anticipate that Q1 same-store sales will be the lowest this year, with subsequent quarters following a consistent ramp as our top line initiatives take root. As David mentioned, second quarter to date is tracking in line with this expectation. We continue to expect total revenue between $225 million and $232 million. On a full-year basis, revenue as a percent of system-wide sales will be impacted by the removal of a COVID-related surcharge for franchisees in 2024. However, even without the surcharge in place, we expect underlying cost savings to drive gross margin expansion in fiscal 2024. From an expense standpoint, on a full-year basis, we expect advertising as a percent of revenue to be flat to last year. However, we currently plan for advertising expense to be approximately 400 basis points higher year-over-year in Q2 to align our spend with the ramp of seasonal traffic and to drive initiatives we've described. As shared on our last call, we expect to invest approximately $4 million of operating expenses, a significant portion of which is foundational and one-time in nature, to support the expansion of our laser hair removal pilot. We plan to incur these expenses at a greater pace in Q2 and further increase them over the balance of the year. We've seen encouraging results in the early stages of this pilot, but above all, we remain focused on our strong, resilient, and profitable core service offering, waxing. Including these incremental laser costs, our adjusted EBITDA outlook remains approximately $75 million to $80 million. Absent the laser investment, we would expect to drive adjusted EBITDA margin expansion in 2024. We expect approximately $28 million of interest expense this year and currently believe our 2024 effective tax rate will be approximately 25% before discrete items. Given our capital structure, we expect our blended statutory tax rate will be approximately 20% and expect it to increase over time as pre-IPO shareholders exchanged Class B shares for Class A shares. As a result, we expect adjusted net income between $22 million and $25 million. In summary, we remain confident in our resilient asset-light model, recurring predictable visits from our core guests, and our well-capitalized franchisee base. We are pleased with the progress we continue to make on our strategies to drive in-center sales growth in 2024. We believe we are making investments in the right areas to extend our position and continue taking share as the undisputed leader in the highly fragmented out-of-home hair removal category. We'd now like to open up the call for questions.

The first question comes from Randy Konik with Jefferies.

I guess, David, first, just a clarification. When you look at the first quarter same-store sales, and you talked about the weather headwind, the Easter shift, and you talked about slightly positive would have been the result. Does that mean a 0.1% or 1% type comp, just that? And then when you talk about in the guidance, I think the second and third quarter are supposed to be equal in terms of your same-store sales assumption, are you tracking in the range of that annual guidance of 2% to 5% right now? Is that kind of what we should take away?

There are a few points to address. We didn't provide more detail or direction regarding the slightly positive outcome. These figures are estimates, which is how we arrived at our conclusion based on the combined effects we've observed. Regarding the guidance for Q2 and Q3, it is important to note that we referenced system-wide sales rather than same-store sales. Therefore, we anticipate that both Q2 and Q3 will be more aligned with each other. Historically, Q2 tends to be the strongest quarter, but due to the rollout of our initiatives, we expect these two quarters to be more comparable than in previous years.

And then just as we think about over the, let's say, the medium term, a couple of things. As we think about the ability to drive venue growth, how do you think about the different levers of price versus guests versus service visit growth? Just give us your perspective there. And I'd love to understand in the laser test that you've done so far, are you getting a different type of guests? Are they trying to loop in some waxing services when they do laser? I'm just curious on what type of behaviors they're exhibiting in the laser test units versus the non-laser units that are out there?

As it relates to driving revenue growth, the mix between price and frequency in dollars per ticket, generally, we expect to drive more tickets and dollars per ticket. Let me double-click on that. So when we talk about our field trainer support program, this is where we deploy field trainers into different markets. And we're seeing an immediate impact on our ability to influence wax pass conversion and retail attachment. So for the guests that are coming into those centers, we're able to drive better retention rates, visit frequency, and dollars per transaction. What we've really modeled is on the backside of what we internally refer to as Operation Elevate is to bring in our marketing team to really drive local grassroots marketing on the backside of Operation Elevate, that's intended to drive more momentum and ultimately drive more guests. So it is a combination approach, Randy, but we're confident in our ability to move the needle without just having to rely on taking price. As it relates to laser, our hypothesis in this initial pilot program was that we could attract more new guests to the brand and drive greater share of wallet from our existing wax guests. The six center pilot was expanded to 10 centers because we saw enough data to confirm that. The third data point is we wanted to ensure that cannibalization of our core waxing services were contained within acceptable levels, and we're also seeing that. The ultimate bellwether for laser for this brand is, is it accretive on both top line and bottom line? And while we're incredibly encouraged with the initial results, we want to get smarter in some other states where the regulatory environment is a bit stricter than in New York. So that's what's leading us to expand the laser pilot to Florida. We're taking it to our corporate-owned centers in Florida and will continue to monitor. We have strong interest from our network to further expand into other states, so we will continue to evaluate laser potential within the brand. I hope that helps, Randy.

Next question will come from Scot Ciccarelli with Truist.

Looks like for comps to hit the low end of your annual guide. You made positive low single digits in 2Q, kind of ramping that to mid-single digits for the balance of the year. And then by our math, to hit the high end, you basically need a steeper slope with an exit rate, really high single digits, almost even double digits. So I guess the questions are, can we assume that you are posting positive low single digits today? And second, is that fair assumptions regarding kind of the slope of the curve you guys are thinking about for the balance of the year?

I believe your assessment is quite reasonable. We have indicated that we expect steady and consistent growth as we move through the year due to the initiatives we have implemented, which we will continue to monitor. Therefore, your basis for customer acquisition cost seems appropriate. It is certainly more back-end loaded, particularly with regard to these initiatives and attracting new guests. For the second quarter, we have stated that we are on track with our expectations of 2% to 5% growth.

Stacie, just to be clear, the current plans in place in terms of the change in marketing, et cetera, the expectation is that can get you to mid-single digit to high single-digit kind of exit rate by the end of the year or fourth quarter.

Yes. I mean as you do your math, right, it's a negative 1.2% and then you have to see how you would have to ramp to get to that 25%. Again, that's, I think, a reasonable assumption is how you would get there.

Yes, let me add to that. Our reiteration of the guidance assumes a stable macro environment and that the initiatives we have been discussing will indeed drive results and impact as the year progresses. We have a few proof points informing this reiteration. One is the National Media Agency retained in Q4, which laid the groundwork that is boosting reservations, attracting new guests, and improving cost efficiencies. They are working on optimizing this strategy, which we expect will have further impact as the year goes on. Regarding our field trainer support program, we are very excited. We launched a pilot in Q4 and expanded to more centers by late Q1. A key takeaway is that the improvements in four-wall KPIs are being sustained by franchisees after our field trainers have supported these markets. Our aim is to further scale this program throughout the year. Although based on smaller data sets, we mentioned our NCO playbook in past calls. This data-driven playbook details the necessary spend prior to a center's opening, the required staffing, and the training of that staff. Launched in late Q1, centers that opened following this playbook are seeing more new guests on their first day, appropriately trained staff, and a quicker ramp-up in both tickets and revenue. Lastly, regarding our local digital agencies brought on April 1, over 400 centers have signed up to utilize these agencies, and the early feedback has been very positive. These examples, along with our trends from the second quarter to date, provide us with confidence to reaffirm our full-year outlook.

Our next question comes from Dana Telsey with Telsey Advisory Group.

Can you provide a regional review? Did you notice any differences in performance by region, particularly in California compared to others? Also, what are the current trends in pricing and labor costs, and how might that affect your pricing strategy going forward? Additionally, should we be aware of any significant impacts from the new marketing agency for the third and fourth quarters?

From a geography standpoint, I don’t have anything significant to mention. Weather impacted some areas more than others, which is worth noting. However, in terms of California, there hasn’t been much change at the top line. We are still facing challenges due to rising labor and construction costs, but we are managing those issues as they arise.

Yes, Dana, I would just add, as it relates to labor costs, no major headlines in terms of across the network. There's obviously isolated markets that have seen elevated minimum wage rates go into effect earlier this year, and in select markets, we've seen franchisees take price in those markets to accommodate the elevated labor cost. Maybe, Andrea, do you want to touch on how we're thinking about pricing overall?

So as a reminder for everybody, we did recommend price increases in 2021 and again in 2022. But as you know, our franchisees set their own prices and some have taken prices up over the past year as well. Based on the always-on analysis and monitoring and evaluating the situation that we continue to do, we don't plan to recommend a system-wide price increase this year, but we continue to put science behind that. We would consider different pricing scenarios market by market. And we're looking across our own costs, our four-wall margins for our franchisees, the pricing elasticity that we see consumers exhibit, the transaction trends that we experienced, and what the competition is doing. So all of that is factoring into the way that we are continuing to look at the landscape.

The next question comes from Lorraine Hutchinson with Bank of America.

I was curious what the feedback was from franchisees around the NCO program? And has that alleviated any concerns they may have on the profitability ramp of future centers given the higher cost to open?

Franchisees who adopted the new NCO playbook are fully supportive and seeing positive early results, though the data is limited as we started this midway through Q1. We have addressed two main concerns from franchisees. The first is the profitability ramp of an NCO, and this playbook aims to support that by helping them achieve faster breakeven points and reach attractive 20% cash-on-cash returns more quickly. Second, we are mindful of their concerns about market oversaturation and have collaborated with our Franchise Advisory Council to establish mutually agreed upon market impact guidelines. Our real estate models already account for potential developments and their effects on surrounding centers, operating under the assumption that a 5% to 10% cannibalization rate is acceptable for multi-unit growth concepts. If a franchisee's selected site is likely to negatively affect surrounding centers significantly, we will seek an alternative location. We are committed to providing NCOs with the best chance for profitable growth while ensuring the surrounding franchise locations remain profitable.

The next question comes from Korinne Wolfmeyer with Piper Sandler.

The first one is, I just wondered if there's any way you could better quantify the Easter and weather impact. And maybe you could give us some color on how many centers were actually closed on the Easter holiday? And then how many centers and how many days were closed due to weather and maybe that could help give us a little bit more comfort that there's not some other impact going on like the macro or weaker episodic guest trends that may also be contributing to that lower same-store sales?

And I appreciate the question, Korinne, but we've not broken it out between those two pieces. What I can tell you from a weather perspective, nearly 300 store days is kind of what we calculated in January across those kind of 12 different states. And so it was very impactful for sure, but we've not quantified it any further than that. And then, of course, on Easter, we're closed that day.

And then I think in the prepared remarks, you talked a little bit about a spending shift from Q1 to Q2. Is there a way you can quantify that? And then maybe help give us a little bit more color on how we should be thinking about the margin cadence for the remainder of the year?

From a gross margin perspective, we experienced a significant increase in Q1 due to the negotiated cost savings we've implemented. I expect to see continued improvement throughout the year, though not to the extent of what we achieved in Q1, which was exceptional. As we move into the second half of the year, we'll begin to anniversary some of those cost savings that started in late 2023. Regarding our guidance, we didn't quantify the impact of the timing shift in professional fees and technology. One key point for Q2 is our expectation of around a 400 basis point increase in advertising as a percentage of revenue for the quarter, as we ramp up these initiatives to support seasonal traffic.

The next question comes from Simeon Gutman with Morgan Stanley.

I want to inquire about the productivity of the new centers. It seems difficult for us to get the accurate figures. Additionally, it appears that you need to achieve three comparable store sales for the remainder of the year to meet the guidance range, at least the lower end. You began the year with around 100 stores and will be adding another 100 throughout this year. How do you anticipate reaching that comparable range with nearly 20% more locations, and how might this affect the trajectory for the year?

Yes. Regarding the productivity of the new centers, as I mentioned earlier, the data is still limited, particularly for those centers that followed our NCO playbook requirements, but we are quite pleased. The ticket and revenue trends over a few weeks to a few months for these centers resemble the performance of centers before COVID in terms of productivity. That said, Simeon, you mentioned 100 centers this year. Our forecast for unit development is 75 to 80 for the full year, and we expect to meet that guidance. We recognize that this indicates a quarter-over-quarter improvement in our comparable sales. The initiatives we’ve discussed and the early data give us confidence that these trends will continue and lead to greater impacts as we move forward each quarter.

On expenses, I think Stacie you said, I was going to ask you how much expenses shift from Q1 to Q2. I don't think you're quantifying. And then the IPO awards, can you just refresh what that was from? And then is this new run rate going forward? Or do we see some of that expense come back at any point?

So in Q1 last year, there was almost $4 million of kind of, let's say, a one-time or not one-time, but an outsized amount related to the pre-IPO some pre-IPO grants. So you can completely take that out as it relates to the ongoing run rate. And so what you would see quarter-over-quarter is pretty consistent. I think we call it out, it's roughly $2 million or something like that.

The next question comes from Jonathan Komp with Baird.

If I could just follow up on the plan for unit development here in 2024 I think three quarters back half weighted is more weighted to the back half than we've typically seen. So can you maybe just comment on any individual circumstances leading to the shape of the year and really visibility to that second half ramp?

It is more back half weighted than what we saw last year. There were six centers that we had scheduled to open in Q2 that are going to move to the back half of the year. Three of those in the Northeast just had some permitting delays, and three of those lease negotiations with landlords took an extended period of time. We have every confidence all six of those centers will open in 2024. So while we are back half loaded, I don't have any concerns that this is going to push further as of today, Jon. Our franchisees remain committed to developing with the brand. They continue to make solid cash-on-cash returns. So hopefully, that addresses your specific question.

Maybe just one other broader question as you think about really the right same-store sales run rate for this business over time, so not directly tied to 2024. But over time, how are you thinking about same-store sales? I know at one point, the view was towards high single-digit comps. I don't know if you have any updated thoughts related to that.

Clearly, that is where our long-term algorithm is; that's what we have spoken about. And to get there, it's a low single digit for mature centers and high single digit for ramping, and we believe that we still have the opportunity to get back there. And as we progress through the year, we'll get closer, especially on the mature centers of getting back to that long-term ramp, assuming that, again, the things that David talked about before, a stable environment as well as these initiatives really starting to materialize. So we still believe that, that is something that we can achieve in this model.

The next question comes from John Heinbockel with Guggenheim Partners.

David, can you expand on the field training initiative, right, in terms of what they're specifically working on? I don't know if they're training wax specialists, managers, etc. You talked about KPIs, right? So what are the KPIs that you think are most critical? And then lastly, I'm just curious, right, obviously, you're going to have multiple trainers doing a lot of stores. I'm just curious, ultimately, is this a 50-person effort? Is it a 100-person? What's the size of it, if you think about it?

Today, we have fewer than 10 field trainers. While we aim to grow this team, this does not indicate a significant change in our operational expenditure structure. The contribution these trainers can make will positively affect our revenue and ultimately our EBITDA. When assessing a specific market, we deploy our field business consultants and trainers to either larger franchisee groups or smaller clusters of franchisees, allowing them to immerse themselves in the market for several weeks. This approach enables them to thoroughly evaluate staffing at the centers, adherence to our operational guidelines, and provide hands-on coaching and mentoring based on the playbooks we've established for the network. The key performance indicators we are concentrating on include wax-based conversion and guest retention, where we measure whether guests return to rebook a visit within 60 days after their initial appointment, as well as driving retail attachment. This method is significantly more involved than periodic check-ins, and we are very pleased with the early results. We completed one pilot center in the fourth quarter of last year and expanded to another market in late Q1 of this year. Our intention is to further develop this program as we move through the year.

As a follow-up to that, if we consider the increase in system-wide sales from now until the fourth quarter and categorize it into four areas: core, non-core, traffic, and spend, where do you see the most significant increase coming from in those categories?

John, can you clarify about core and non-core?

I believe you mentioned the core, which I don’t want to oversimplify. If I consider the core as 75% and the non-core as 25%, then looking at the $75 million and the 25%, and thinking about the traffic and spend in each category, if you were to identify one or two areas that would drive a significant increase, which would they be?

I don't believe there's one factor that will lead to a significant increase. When considering our existing customers, both core and non-core, I anticipate a significant portion of this growth throughout the year will come from our existing customer base. For our core customers, we aim to capture a larger share of their spending, which presents a substantial opportunity. They are already visiting us regularly, and we could enhance retail sales by offering add-on services. For our non-core customers, who visit less often, we need to encourage them to adopt a regular routine. Therefore, as we project the growth, I believe the majority will stem from our existing customer base, leading to increased visits and higher spending per transaction. We briefly discussed this in our prepared remarks, and I see a significant opportunity to attract new customers to our brand. In this current climate, convincing consumers who are not already part of a waxing routine may be a bit more difficult, but we're happy with the initial feedback from our national media campaign and encouraged by the early results from our local digital agency efforts. I hope that provides you with more insight into our thoughts on this, John.

The next question comes from Kelly Crago with Citi.

I just wanted to focus in on the comp performance in 1Q. So ex the timing shift in closures, the slightly positive comp, it was below how consensus is modeling. So I'm just curious how the comp performance was relative to your plan going into the quarter. You mentioned and we talked about the weakness that you saw from new guests. Was that what you expected given you did have this partnership with this new media agency? And then just secondly, on more color on that episodic guest performance versus expectations given they are more susceptible to fluctuations in the macro?

Regarding the comp in Q1, we do not provide specific quarterly guidance or our internal expectations. However, we indicated in our March call that we anticipated Q1 would be the low point of the year due to the rollout of initiatives starting to take effect. We were also mindful of weather conditions and the impact of Easter at that time. We still maintain the expectation that Q1 will be the low point for the year, and we have reiterated our guidance for a full year growth of 2% to 5%. That's the situation we're in today.

Yes, Kelly, I would just add, in terms of the episodic guests. In Q1, we actually saw that part of the file remain stable in terms of visit frequency and spend. Our biggest opportunity, as we talked earlier, is really attracting more new guests to the brand, and we expect more new guests added to our file as we progress through the year, again, part related to our national media agency, but we expect more momentum to come from the local digital agencies in these local grassroots efforts, we're seeing already that the franchisees embracing the grassroots marketing playbook are making a difference in their centers.

Got it. Just one more question for me on the cadence of the comparisons, excluding the shift in closures. Can you provide any insights on how the comp performance evolved throughout the quarter to help us better understand the run rate as we exited the first quarter?

We do not share monthly performance metrics. However, it is clear that January was significantly impacted, with an estimated 300 store days of closures. March marked a shift, but we have not quantified this in detail beyond stating that in Q2, we are tracking in line with our expectations for the year.

I show no further questions in the queue at this time. I would now like to turn the call back to David Willis for closing remarks.

Thanks, Michelle, and thank you, everyone, for your time on the call today. We look forward to speaking with you in the days and weeks to come and to delivering on our long-term growth objectives. Thanks for attending the call.

This does conclude today's conference call. Thank you for participating. You may now disconnect.