Participants
Bethany Johns; Director of Investor Relations; European Wax Center Inc
Chris Morris; Chairman and Chief Executive Officer; European Wax Center Inc
Stacie Shirley; Chief Financial Officer; European Wax Center Inc
Randal Konik; Analyst; Jefferies
Scot Ciccarelli; Analyst; Truist Securities
Dana Telsey; Analyst; Telsey Advisory Group
Jonathan Komp; Analyst; Baird
Presentation
Operator
Good morning ladies and gentlemen and thank you for standing by. Welcome to European Wax Center's fourth-quarter fiscal 2024 earnings call. After the speaker's presentation, there will be a Q&A session. (Operator Instructions)
On the call today Morris Chairman and Chief Executive Officer; and Stacie Shirley, Chief Financial Officer. I'm I like turn the conference over to Bethany Johns, Director of Investor Relations. Ma'am, you may be begin.
Bethany Johns
Good morning everyone. Thank you and welcome to your European Wax Center's fourth-quarter and full fiscal year 2024 earnings call.
On today's call, Chris Morris will do the first two months with the company and share his initial observations and priorities. Then Stacy will discuss our fourth-quarter of fiscal 2024 performance and fiscal 2025 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 the 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 this 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.
Chris.
Chris Morris
Okay, thank you, Bethany. Good morning, everyone. I'm thrilled to be with you all today on my first earnings call as Chairman and CEO of European Wax Center.
Before I begin, I want to thank my predecessor David Berg for his passion, dedication, and leadership since joining the company in 2018 and especially after resuming the CEO role last year.
His efforts to sharpen our focus on our core waxing guest engagement capabilities and organizational structure have better positioned us for long term growth and success.
I look forward to continue to work with David through our roles on the board. With that said, I'd like to start our call today by sharing what initially attracted me to European wax center and why I'm so excited about our future.
First, were the industry pioneer with a meaningful white space opportunity. We believe out of home waxing is a $7 billion market opportunity and yet we're still a fraction of that we professionalised the space and are the only truly national player at about 11 times larger as competitor.
In other words, we believe we are by far the best position to leverage our scale and grow as a category leader.
Next, we offer an unparalleled guest experience that serves a recurring need with three quarters of our sales generated by loyal core guests. One thing I've learned in my career is that creating an emotional connection.
What the customer is critical, and that happens when you consistently deliver on your brand promise. A confidence of guest feels after one of our services plays a huge role and whether they will come back.
At EWC, we like to say they walk in and strut out delivering that feeling builds loyalty and that's exactly why we've seen such stability in our core guests.
Lastly, I've learned that what makes this brand so unique is that it's comprised of so many talented and passionate people. More than 10,000 associates across the country managed by more than 180 franchisees who are driven to win and determined to reach our full potential.
As I wrap up my first 60 days with the organization. I appreciate our strengths even more in my conviction in the future of EWC has only grown. We're at a pivotal time in our growth journey with an opportunity to elevate our infrastructure to support both our existing footprint of more than 1,000 centers as well as our next phase of growth.
This aligns very well with my career operating, developing, and reinvigorating consumer brands over the past 25 years. I look forward to leveraging these consumer facing experiences at European Wax Center.
Since joining the team, I've been immersing myself in the brand by visiting centers across the country and listening closely to our key stakeholders to better understand the challenges we're facing and the opportunities ahead.
I want to take a moment to focus on the heart of our business and franchisor our primary customers are franchisees. Their success drives our success.
We're fortunate to have so many talented and committed operators taking care of our guests every day. Strong franchisee partnerships based on mutual trust, respect, and credibility built European wax in or what it is today, the undisputed leader in out of home waxing, it will be the basis for our growth going forward.
In my conversations with franchisees, they have repeatedly voiced their confidence in and commitment to the long term growth potential of this brand.
However, they are feeling the pressure of declining transactions and profitability. My key takeaway is that our marketing approach and operational infrastructure have not evolved of our unit growth in recent years.
At the same time, the macro environment has become more challenging, which has led to pressured consumer spending, especially among new guests.
As a result, average unit economics have softened, why we can't control the environment, we can better adapt to it. The good news, we believe we have our arms around our challenges. We've identified our opportunities and the work to reignite our growth is well underway.
In the near term, many franchisees have paused their new center growth plans as we work to stabilize and re-accelerate the business. But we do expect 10 to 12 gross new centers to open fiscal year.
At the same time, franchisees these are closing underperforming centers due to ongoing profitability pressures individual franchisee challenges or desire to consolidate centers within the same market.
We've recently added development resources, conducted a full network review and established a proactive process to better assess franchisee heal'th and closure risk. We've top line performance, ticket trends, market penetration operational KPIs.
As a result, we estimate that 40 to 60 centers could close this year. We are closely managing this situation with franchisees, and we've made rapid and substantial progress understanding the key factors at play and more importantly, what we should do about it.
I've been assess everything from our guest experience to technology systems and pricing models, leaving no stone unturned.
And while nine weeks isn't enough time to finalize our long-term strategic plan my near term priorities for this business are clear. These are number 1 developing a robust data rich marketing engine that drives traffic to centers. Number 2, cultivating a more effective service-based infrastructure to enable franchisee success. Number 3, implementing a more sophisticated development approach focused on thoughtful and provention.
And lastly number 4, we're assembling a world class management team with the skill set and expertise needed to address these opportunities and achieve sustainable long term growth.
I cannot emphasize enough that our franchisees and I share the same goal to return the business to sustainable growth both at the center level and for the network as a whole.
I believe that if we execute, these priorities for wall performance will improve and we will reignite positive unit growth by the end of 2026.
I'll first touch on our efforts to develop a robust marketing engine that drives traffic, but in turn increased revenue and improve four wall profitability. The beauty of our model is that we serve a recurring need that generates repeat visits from our retained guests.
We already deliver an unparalleled guest experience with strong and consistent core gas retention. But we need to be better and acquire new guests and driving frequency from our non-core guests. To accomplish this, we need to elevate our technology foundation guest engagement strategies and brand messaging.
And we have made substantial progress over the past several months. We spent the fourth quarter building out the technology needed to link marketing interactions to guest visits and better measure our advertising effectiveness. As a result, we have significantly improved both our access to and our ability to quickly adjust our engagement.
Strategies based on what we learn. With our initial foundation in place. We're now getting smarter about the messaging that resonates with both new and existing guests.
During Q1 we've been actively testing new messages increasing our ability to directly engage with guests. Our goal is to bring this all together in Q2 aligning our brand voice the test insights and then leveraging our enhanced data foundation and measurement tools to drive traffic to centers.
We expect to test, iterate, and build upon this foundation over the next 18 months. But we are excited about the potential to begin improving center level economics and the back half of 2025.
My next area of focus is to cultivate a more effective service-based infrastructure at the corporate level to help our franchisees navigate challenges maximize top line growth, and be an unequal employer of choice for highly skilled wax specialist.
Throughout my career, I have worked on both the franchise or and franchisee sides giving me a unique perspective on what it means to be and support local operators.
With the right support structure in place, I believe that operational be a competitive advantage of European Wax Center. One that translates to an unparalleled guest experience at every visit, higher guest retention and more opportunities.
I plan to share more in the coming months about how we intend to achieve this, including when I present our strategy at our franchisee conference this May.
In the meantime we've launched a focused effort to improve the execution and our underperforming centers, and I've reaffirmed our commitment to providing all franchisees with the support they need to be successful.
As for the third focus area, we will implement a more sophisticated approach focused on thoughtful, profitable expansion. We need to enhance our site selection and market planning capabilities to be the best resource for franchisees.
As I mentioned earlier, we've already added internal resources and implemented new processes. And we are partnering closely with franchisees to evaluate future growth plans. Success in this area should enable us to prioritize long term network health as we thoughtfully pursue our white space for years to come.
And finally, I've started assembling a team of seasoned leaders who will play key roles in executing these priorities.
Earlier today we announced appointments for Tom Kim as CFO; Katie Mullen, Chief Commercial Officer, and Chris Andrews as Chief Information and Digital Officer. Tom is a seasoned financial executive with expertise driving profitable growth at franchise companies.
Katie and Chris bring significant experience marketing and digital transformations that we believe will bolster our infrastructure for future growth. To round out our executive team, we're also in the midst of a search for a Chief Operating Officer to drive operational excellence. I'm confident that we are assembling the right team to position us for long term success.
To summarize, 2025 will be a transitional and pivotal year for European Wax and why we have a lot of work to do, we are not starting from scratch. We have a solid foundation in a clear direction in place, with profit growth as our top focus. I am confident that when we execute on our near term priorities we will improve for wall economics and reignite unit growth by the end of 2026.
As we advance along this journey to drive value for franchisees. Associates and shareholders, I'm committed to providing regular transparent communication and progress updates. I expect to be able to provide more details in our long-term strategy and tactics on our earnings call in May.
Before I close, I want to thank our current CFO Stacie Shirley, who will be leaving European Wax center next month. She's played an integral role in supporting the brand through several key milestones that have laid the foundation for our path forward. I appreciate her commitment to getting me up to speed since I joined.
In addition to staying with us through the end of April to ensure a smooth transition. I wish Stacie all the best in her future endeavors.
So with that Stacy, we'll review our fiscal 2024 financial performance and our outlook for 2025.
Stacie Shirley
Thank you, Chris. It has been a pleasure serving European Wax Center as CFO. This is a special brand with a strong model and plenty of white space ahead. I look forward to working with Tom to ensure a smooth transition.
Before I begin, I'd like to remind everyone that fiscal 2023 contained a 53rd week. Therefore, some of my remarks today will focus on the fourth quarter and fiscal year 202,4 versus the comparable 13 or 52 week period in fiscal 2023.
Now to our results. During the fourth quarter, franchisees opened 3 net news centers comprised of 10 gross openings and 7 closures. From a financial standpoint, we delivered solid results largely in line with our expectations.
Those are our core guests who remain stable and committed to their waxing routines, as well as a strong semi-annual wax pass promotional period. I want to express our appreciation for the hardworking European Wax Center associates who successfully converted guests into wax pass holders in Q4.
On a 13 week basis, 4th quarter system-wide sales increased 1.1% to $229.3 million increased 0.8%. Total revenue decreased 4.6% to $49.7 million. While it was within our expectations, revenue has continued to be impacted by softer retail product sales.
As we've previously discussed, we believe that in a tougher macro environment, our guests are prioritizing our services over products with their discretionary dollars. Additionally moved a COVID-related surcharge in early 2024 that had previously been a tailwind to wholesale product revenue earned from franchisees.
From a profit standpoint, Q4 gross margin improved 190 basis points to 74.3% primarily due to continued cost savings. As retail products continue to be challenged, the margin rate also benefited from a higher mix of royalty and marketing fees flowing through gross margin at 100%. Fourth quarter SG&A increased 8.2% to $14.8 million, primarily driven by an adjustment to franchise tax expense recognized during the quarter. Which was largely offset below the line by a benefit to state tax expense.
Q4 advertising expense of $4.3 million was $5 million lower year over year. Well, advertising as a percent system sales what's flat on a full year basis. We allocated more of the spend to the first half of fiscal 2024 compared to 2023.
Q4 adjusted EBITDA of $19 million decrease 1.6% and adjusted EBITDA margin increased 390 basis points to 38.1% margin favorable advertising timing more than offset higher SG&A year over year. Lastly, we generated an income tax benefit of $1.6 million in Q4 due to lower state income taxes. GAAP net income decrease 13.1% to $3.1 million while adjusted net income increased 37% to $8.1 million.
In terms of our full year results, franchisees opened 23 net news centers comprised of 43 growth openings and 20 closures. Resulting in 2.2% net unit growth to 1067centers across 45 states.
On a 52 week basis, system-wide sales increased 1.2% to $951 million. And same store sales increased 0.2%. Top line growth was driven by increased spending by guests at our existing centers as well as new centers opened. Adjusting for the 53rd week, total revenue of $216.9 million was approximately flat till last year.
Gross margin, 83.6%, continued to benefit from cost savings and full year SG&A decrease 1.3% to $58.7 million primarily due to one last week in fiscal 2024.
Adjusted EBITDA of $75.5 million decrease 7% from fiscal 2023, but beat our revised outlook, largely due to of compensation and lower than expected costs related to our laser hair removal pilot. Improve gross margin contributed to a 40 basis points increase in adjusted EBITDA margin year over year to 34.8%.
Higher interest income benefit full year net interest expense, which decreased to $25.5 million from $26.7 million the previous year.
Lastly adjusted net income increased 15.2% to $25.6 million due to a combination of higher operating income and lower state income taxes. After, so as a housekeeping item as of March 5, 2025, there were 43.3 million Class A common shares outstanding in 19.4 million potentially diluted shares related to Class B shares and outstanding equity awards.
Turning now to the balance sheet, our $40 million dollar revolver remains fully and drawn, and we ended the quarter with $49.7 million in cash and $390 million outstanding under our senior secured notes. Our net leverage ratio at the end of fiscal '24 was 4.5 times. Excluding the $40.1 million in stock buybacks we executed during the year.
As a fiscal year in, we had approximately $10 million remaining under our current $50 million dollar net cash provided by operating activities with $56.5 million in fiscal 2024 compared to less than $0.5 million in investing outflows, staple of our asset light, Capital Lite model, that continues to generate strong free cash flow, even in a challenging environment.
Turning now to our outlook for 2025, as Chris mentioned, we expect fiscal 2025 to be a transitional year for us as we solidify the foundation for returning European to sustainable growth. Touching first on our unit expectations for the year. As Chris said, we expect 10 to 12 gross openings in 40 to 60 center closures, or 28 to 50 net center closures.
Today, franchisees have opened 2 and closed 5 centers, and we currently expect 6 to 7 net center closures n Q1, as Chris discussed in his remarks, we've made a lot of progress assessing network health in recent months.
We are actively working through potential closures with franchisees. We expect to be able to refine our fiscal '25 closure estimate and provide more clarity as we move through the year. From a top line standpoint, we expect system-wide $940 million and $960 million representing approximately flat year over year growth at the midpoint.
Including the impact of expected net center closures same store sales is expected to be flat to 2%. And we estimate total revenue between $210 million and $214 million. Given current business product trends, we expect revenue as a percent of system-wide sales to be approximately 22.3% in fiscal 2025.
The high end of our outlook assumes that our guests' engagement efforts begin to drive traffic more significantly during the second half of fiscal 2025 with trends improving as we move through the balance of the year.
On the other hand, the low end of our outlook assumes that we will make progress against our strategic priorities, but that those actions do not begin to meaningfully drive the top line until 2026. The low wind therefore assumes that our mature centers continue to experience modest transaction declines this year as we were to enhance our case to reignite long term growth.
In terms of cadence, we expect the seasonality of system-wide sales to be about the same as in fiscal 2024 with two caveats. First, the Q1 will have one additional sales day compared to last year due to the Easter calendar shift. And second, that the high end of our outlook assumes more top line than in the back half of the year.
Moving to the bottom line, we expect modest gross margin expansion to approximately 74% for the full year. However, our adjusted EBITDA outlook of $69 million to $71 million reflects headwinds from first, the impact of slightly lower revenue primarily related to retail product trends. Normalize incentive compensation expense, which was a tailwind in fiscal 2024 and increased payroll expenses for personnel to help us achieve our strategic goals.
We expect adjusted net income between $16 million and $18 million, which reflects an effective tax rate of approximately 23% before discrete items. Estimate our investments in marketing and technology will result in capital expenditures of $9 million to $11 million in 2025, of which approximately $6 million is expected to be non-cash.
We believe these investments for our efforts to engage guests and drive traffic in fiscal 2025 and beyond. Before we open the call for questions, I'd like to turn the call back to Chris for final remarks.
Chris Morris
Okay, thank you, Stacie. Ultimately we are looking at 2025 as an opportunity to refine the foundation of this business to support profitable long term growth. With the help of our committed franchisee partners we've identified the marketing infrastructure development priorities that we believe are critical to re-accelerating our performance.
We are united in our belief that our challenges are not insurmountable, and our ability to capture our long term potential in the highly fragmented hair removal industry remains in our control. We look forward to updating you on our progress as we tape European Wax Center to this next phase of growth.
Operator, we will now take questions.
Question and Answer Session
Operator
(Operator Instructions)
Randal Konik, Jefferies.
Randal Konik
Yeah, thanks a lot. Chris, when you think about the door closure guidance for 2025, when you the bottom of the closures, are we going to get like meaning in 2025, when we're going to see net closures, do we see net opening in 2026. I'm just trying to get an assessment of where you think we are with the real estate.
You know, closure timeline and then you talked about in some of franchisees consolidating centers in same markets, our threads with the stores that are regions that are closing or markets that are kind of closing stores, be very helpful and then like any kind of update on performance in California versus the balance of the chain would be super helpful. Thanks.
Chris Morris
Okay, all right, Randal, thanks. There's you know, all great questions so lot to unpack there, starting with closures, so you know, here's what number one, keep in mind I've been here 60 days, so my, my very first priority was getting our arms around.
The health of the system parting with our franchisees to really understand the status of our overall performance. I feel very comfortable with the range that we provided.
I can tell you that we've got an enormous amount of effort and energy going into work directly with our franchisees to manage through this and you know we're doing our best to manage to be at the low end of the range as opposed to the high end of the range, but with all that said, we feel very comfortable with the 40 to 60, we spent a lot of time to assess where we are and that's the number that we feel comfortable, managing to this year.
In terms of 2026, and where we go from here, you know, it really gets down to the things that we're focused on our priorities and we believe when we execute those priorities that we're going to be in the best possible position to return to growth in 2026, so that's everything we're doing and all the conversations we're having is to get the business back to unit count growth in 2026, just given the timeline.
And where things stand, you should think of that growth as being towards the end of 2026, not the beginning of 2026. There's just simply too long of a lead time, to manage any other capacity, so the underlying assumptions there are that we deliver on the items that I outlined on the call, you know, the company performs at the level that's within our guidance and if we do those things, that's what we expect the outcome to be.
I think as we look through, as we think about growth, I think the important thing to understand is this brand is not broken by any stretch of the imagination. You know, I'm here because I believe in our future.
I'm excited that our franchisees also believe in our future, but we have work to do and 2025 is a reset year where we we've got to shore up, the business we need to put the right infrastructure in place, to be able to manage.
Business and when we do that, we still believe there's ample white space left in this in this brand but it's going to be smart, thoughtful, growth from this point forward, so that's, that's how we're thinking about those, trying to think through the other two questions that you had, so common threads, so you know, really there's no there's one single, common thread that links, the all the closures together it's just a variety of different things.
It's a combination of margin, margin performance. It's a combination of, franchisee, their own set of unique challenges.
It's in some cases these closures are done, deliberately, so franchisees are just optimizing their own portfolio variety of different things and then your last question with respect to California performance, look, I'll what I'll tell you there is, California spend more inflationary pressure and California than other parts of the country and the franchisees are feeling that pressure, and so the work that we're doing on marketing and building out the right marketing engine to be able to very skilfully target our guests and then more importantly, the work we're doing with our franchisees to improve our execution when all that comes together, we believe we're going to be in a better position in our franchisees will be in a much better position in California to, to navigate, the ongoing pressures on. On the bottom line, but the pressure is still there in California. That hasn't gone away. It's still there.
Stacie Shirley
Yeah, I would just, this is Stacy, I would just add on that. It's, it's really not the top line necessarily in California but we had seen a couple of years ago it is the inflationary issues that Chris spoke of that has made that profitable for wall economics much more pressured and, and we've seen that soften so if you look at it, if there's any underlying theme geography wise there is a proportion of closure in California, but it's not because necessarily the top line they're seeing the same thing as other centers have done.
Chris Morris
So thank you, Randy.
Operator
Scot Ciccarelli, Truist.
Scot Ciccarelli
So you did make multiple references to wanting to improve for wall economics. Obviously that makes sense, but can you provide us a snapshot of where the four wall economics exist today and kind of how you envision it, advancing as you make progress on the turnaround and then secondly, can you provide some more color around the tax impact and SG&A and the office we got that. Thanks.
Chris Morris
Yeah, sure, Scott, I'll take that first part and then I'll leave it to Stacie, with respect to, unit economics what I'll tell you is that you know we still have very strong unit economics in this business, our mature units still have AUVs that are north of a million dollars. And still get great cash on cash returns on those mature units right around 40%.
So it's still, the fundamentals of this business are still very strong. With respect to, the rest of the portfolio and the things that we're focused on, I really believe, number one.., I'll have to say I have tremendous respect for the previous management team and we are the leader we are today because of the work, the great work that was done before I step foot in this building 60 days so the previous management team has done a phenomenal job managing this business.
What I can tell you is with the benefit of hindsight when I look at where we are, one of the things that is very clear that we missed in our just building the analytical rigor able to work directly with our operators to manage the business like the blocking and tackling of the business.
I think we were so focused on growth and getting unit expansion that we didn't put the right infrastructure in place. To identify where the opportunities were to be able to you know work, give the operators the tools they need to be able to manage that business, monitor our performance, share best practices, and ultimately execute at a high level and so that is the work we're putting that infrastructure in place today, the first step in that is, the executive team that we just hired and all the great investment that we're making and you know just building out a data analytics platform
And so while our unit economics are very strong for a mature, our plan is to, continue to with the sharp focus and partnership with our franchisees to improve our overall profitability.
So our plan is to improve, where we are today and we're already starting from a really strong place.
So Stacie take the next part
Stacie Shirley
Thanks, Scott, good morning, there was a, an adjustment to SG&A, a related to franchise taxes which is above the line, and that was largely offset by state taxes that is below the line, the net impact was around $60,000 but that's kind of what happened. It was just a normal do course of reconciliation of going through our fiscal year and that resulted in those adjustments.
Operator
Dana Telsey, Telsey Advisory Group.
Dana Telsey
Hi, good morning, everyone. Chris, as you think about the franchisee bench, what are you seeing that makes a successful franchisee versus not. And with the closings that you're having, last time it was mentioned that perhaps European wax buys some of those stores.
Do you have any inclination to do that. And does the franchisee economic agreement need to be retooled in light of what's happened, and then just lastly, any other regional trends to call out. Thank you.
Chris Morris
Okay, thank you, Dana. All great questions, so starting with, the first thing I'll tell you is I, I'm very pleased with the quality of the franchisees that we have in the system, we've got, people we've got a large group of people who are very passionate about what we do, committed to the brand and the work that's in front of us and all of my conversations have gone very well.
I think we as a franchisor, You know where we can improve in our partnership is just you're doing a better job with, as I mentioned earlier with the analytical rigor and developing the tools necessary to help coach the franchisees on where the opportunities are.
In terms of, what it takes to be successful, So it's, we need people, I guess. It takes, someone who is, you know, very committed to the service that we offer, it kind of starts there it starts with the feeling that our guest has, when they leave our facility and finding somebody who is incredibly passionate and committed to being in a service oriented business that is all around, a mission of improving, one's self worth and so it's, all everything that we do has to start there.
So I would say that's number one is you have to have a one connection fulfilling our brand promise, and you know, the good news is I believe we have that in large part, secondly is, this business, it's all about the and while on the surface it seems easy, when you get in you start executing the details can be complicated and so you know it takes someone who is committed to managing those details on things like labor scheduling and recruiting and staffing and hiring the right people and so, and being able to manage those details, you need the right tools it's developing those right tools is where that partnership, really pays off the partnership between the franchisee and the franchisor, so I'm not looking at this as, we have an opportunity to completely reprioritize what it, our franchise base, that's not where we are at all.
We've got a very strong base of franchisees. Our job is to work directly with them, to identify, to build, put these building blocks in place and to identify where we have the greatest opportunity to grow our business in 2026 and beyond and to make sure that we're setting ourselves up for success, so that's kind of the area of focus in terms of markets what I'll tell you is we are certainly open to that, and, and I think it makes a lot of sense for us to not only be a world-class franchise but to be a world class operator.
And I think the best way of being a world class franchisor is to actually, own and operate, you know, many, many centers and develop the skill set that it takes to be able to execute the highest level, so we're open to it at some point in time we will do that.
What I'll tell you is not the time that is not what we're focused on and you know our team is very much focused on the right sequencing and first things first, and that's exactly what you're seeing us do.
The first step is around you know the health of the portfolio. The second step is to partner directly with our franchisees to manage through that the highest level. The third step is to redesign our entire approach to real estate site selection and partner with our franchisees on returning to growth in a very high quality way.
That's what we're focused on that's what we're going to be executing and I believe strongly that when we do that and we do it well, that will actually open the door, for those types of opportunities, but that is not something that that that is a priority for us at this point in time.
We just have too many other things that we need to do, so we'll be, we'll be working closely with our franchisees to if there's a franchisee who is wanting, we will be partnering that franchisee with other franchisees and that's going to be where we focus now. And then, the -- what was the last question, Bethany?
Bethany's doing a great job of keeping track of these questions.
Bethany Johns
So she did the franchise agreements need to be retooled or think about different support or financial structure.
Chris Morris
Yes, the short answer is no, not, not at this point in time, but again, keep in mind I'm here 60 days, so I'm I've learned a lot in the last 60 days. I'm going to learn a lot more as we move forward. We're going to be ordering some very high quality executives and so at this point time I don't see us making those changes, but you know there's still a lot to learn as we move forward.
Operator
Jonathan Komp, Baird.
Jonathan Komp
Yeah, I didn't want to follow up. Could you, could you maybe comment on the state of the pipeline of unopened units and whether or not you've seen any falling out there and it may be just bigger picture. What gives you comfort that you're not seeing a broader external shift in terms of consumer behavior or the competitive environment that's causing some of the pressure on union economics.
Chris Morris
Yeah, John, so I'm going to go reverse order, so you know it's the same thing you've heard me say now a few times. Keep in mind 60 days on the job, so learning a lot about this brand, I spent a lot of time partnering directly with our franchisees, they have the history and so it's been a tremendous opportunity for me to learn kind of their view on where things are and where we've been.
I also spent a lot of time with our boards, spent time with, various members of our management team and you know I think you know.
What I'll tell you is I, the consumer obviously there's a lot of uncertainty out in the macro environment, and it would be a mistake to ignore that. So the environment over the past couple of years has been compliant and that is certainly not made it easy on us, so we do feel like that there has been some headwinds just created very challenging consumer environment.
The competitive market, it's kind of hit or miss, it's, it's really market by market, I think it depends on your point of reference. If you were to compare where we are now in the competitive landscape to where we were when the brand started 20 years ago, clearly there's more competition.
Over the last five years I wouldn't say that there's been a material shift and the competitive landscape. I think the fact that we are 11 times larger than our next closest competitor.
We have so much scale and the investments that we're making in this business we believe strongly that that's just going to continue to give us a competitive point of difference and so I don't really see the competitive landscape as being a significant threat as we move forward.
I think we've got a lot of a lot of defense mechanisms that's going to allow us to out execute. And I, and I don't see it growing, you know, significantly where it's something that we need to be concerned about.
In terms of pipeline, you know, we have 10 to 12 new unit openings, those, nothing has changed in my last 60 days, we've looked at those we spent a lot of time on those 12 openings and we feel very confident that they're the right openings, and the franchisee opening those centers feel very good about it, so there's been, there's been no shift there.
The greatest shift has been, as we said in our remarks, are collectively our franchisees have just because there's been so many moving pieces here the last couple years, a lot of people just hit the pause button, I'm very confident that we're on the right path. And we're going to put ourselves in a position to return to growth, thoughtful growth, successful growth in 2026 and beyond.
Jonathan Komp
Makes a tough one and just to clarify, Chris, I think in the past there was a disclosure something like 370 licenses in the pipeline is that is that number change significantly or is that still, an opportunity longer term after the pause here to resume opening of that pipeline.
Chris Morris
So that has not changed. Those numbers are still valid, what, what we're doing, and again, we're going to, you have my commitment that as we move forward we move forward in a very transparent way and so our next call will be in May and you'll have they'll -- you'll have, I'll be able to provide.
More detail with how we're thinking about our long term growth plans what so the number of licenses that's still out there, what's different is the work we're doing now is we're really in to our real estate site selection model so when we return to growth we can return to growth in a very smart, thoughtful way, and what I mean by that is I believe again with the benefit of hindsight here, what I believe what has happened over the last few years is we had mud agreements in place all over the country and our development team was working closely with our operators in order to get the units open to comply with the muds and so it was more of a bottoms up approach and it was very much on delivering on the timeline in the mud agreements.
What the shift that we are making is taking more of a top down approach, and so looking at the entire universe of market opportunities across the country identifying the markets where we have the greatest chance to be successful and then we were working with the right we're aligning with the right franchisees to capture that growth.
And so as we go through that exercise. We will be in a better position to re-evaluate our mud agreements, so that's I believe that that's the right approach. It's a strategic approach. I think it's going to be the best way where I know it's the best way to return to, year in and year out growth as we move forward so more to come in May.
Jonathan Komp
Great thanks again.
Chris Morris
Yeah, thank you.
Operator
Korinne Wolfmeyer, Piper Sandler.
Hi, good morning. This is Sarah on Korinne. Just wondering how your strategy and price and then what are the areas of opportunity that you see here, and then also what point would you implement system-wide versus keeping these things more optional for the franchisee.
Chris Morris
So that there, there's a lot of work going into our entire marketing approach, you know, and so you know that work was kicked off before I got here, and you know I'm very pleased with the quality of work that's been done to date with Katie Mullen coming on to our team we are so blessed to have someone, join our team that is as capable as Katie Mullen. She's absolutely outstanding, and so, going to, just do a phenomenal job of building out the capabilities to be highly effective with our promotional offers.
So where we are, is we've improved our data pipelines so we have a much better ability to be able to the effectiveness of what we're doing, we've improved our ability to buy media and so we're far more efficient in our media buying today than we were just a few months ago, which means that we'll get more out of the dollars that that we're spending and we're in the process of testing we have a number of different tests that we're doing on the creative messaging. All of that is just a great backdrop to inform our promotional strategy going forward.
So really not a whole lot to report right now, as we move throughout the year you'll get a lot more details from us. All I can tell you is that you know the infrastructure that we were putting in place around that is very good and is going to put us in the best possible position to grow from here and to learn from what we're doing.
On price, you know, obviously our franchisees control pricing decisions, but what we do not have throughout the network we did not have a sophisticated approach to pricing and so that is something that we are working at this very moment with our franchisees is to develop the capabilities to be smarter about how they price.
So that's that that work is being done, that's the foundational work that I referenced in my prepared remarks, and that's exactly, the things that that we'll be doing this year to position us for growth.
Operator
Simeon Gutman, Morgan Stanley.
Hi, this is [Loren] on for Simeon. Good morning. Our question first is on the core guests. Could you give more call on maybe how that core guest that European is behaving and maybe how your European is thinking about the core guests in '25 if the macro becomes weaker and our follow up question is on the cost savings. Could you give more color around what these cost savings were specifically and efficiently.
Chris Morris
Good morning. Let me start with the cost savings. It's really just as we look at, from a cost of goods sold, we've continued to have some great success in negotiating cost savings as it relates to some of the product that we're buying, as far as gross, and expectations for 2025, we said that, we expect to be somewhere around 74%, so modest improvement on a gross margin perspective and from a core guest I would say that you know, as we've talked about that, which that core guest for us we that as our wax pass gas well as our routine guests, but that's been really stable through all of these cycles.
We haven't seen really any changes in their behavior as it relates to their amount of spend as well as frequency of their of their visits in 2024 that's what gives us, as it relates to, how that, that guest is actually, continues to be incredibly loyal.
I'm really where the opportunity for us is re-engaging lapse guests as well as new guests so that we can then bring them into the centers into the, into EWC and convert them into this core guests. Thank you.
Operator
Thank you and I'm showing at this time I like to hand the call back over to Chris Morris for closing remarks.
Chris Morris
Okay, thank you, operator. Thank you everyone who participated in the call today, we continue about our future, this is a reset year, that we're very focused in the right foundation building blocks, partnering with our great franchisees.
And then returning the business back to growth in 2026, so we are, excited about the opportunity to continue to, to give you progress updates as we move forward. Have a great day and look forward to continue the dialogue as we move forward. Thank you.
Operator
This concludes today's conference call. Thank you for your participation. You mean now disconnect.
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