Explanation

The audited financial statements for the parent company, European Wax Center, Inc. (EWC), provided in Exhibit F-2, show the company has been profitable for the last three fiscal years, with positive net income and stockholders' equity. While total revenue slightly decreased in the most recent fiscal year, the company maintains a stable financial position with substantial assets. This financial health suggests EWC has the resources to support the franchise system.

Potential Mitigations

• An independent review of the complete, audited financial statements and accompanying notes by your accountant is essential to verify financial health.
• Discuss with your financial advisor the implications of the parent company's capital structure, including its significant long-term debt.
• Inquiring with existing franchisees about their perception of the franchisor's financial commitment to support and innovation is a valuable step.

Explanation

The European Wax Center brand has been franchising since 2006 and has over 1,000 locations, indicating it is a mature and established system. The management team described in Item 2 generally has extensive experience in the franchising and retail sectors. Therefore, the risks associated with an unproven system or inexperienced management appear to be low.

Potential Mitigations

• A review of the management team's tenure and background in Item 2 with your business advisor is still a useful due diligence step.
• Discussing the system's history and evolution with long-tenured franchisees can provide valuable context beyond the FDD.
• Your attorney should confirm the corporate history outlined in Item 1 to ensure there are no unmentioned predecessor issues.

Explanation

The business model, focused on waxing and related skincare products, is part of the large and established beauty and salon industry. While consumer preferences in this industry can change, hair removal is a recurring service need rather than a novelty. The franchisor's long history since 2006 and large system size suggest a sustained market demand, reducing the risk that the business is a short-term fad.

Potential Mitigations

• An analysis of the beauty and wellness industry's long-term trends with your business advisor can help validate the concept's sustainability.
• Inquire with the franchisor about their research and development plans for new services and products to adapt to changing market tastes.
• Reviewing local competition with a real estate professional can help assess the long-term demand in your specific market.

Explanation

This risk was not identified in the FDD package. Item 2 lists the executive team, showing that most key personnel have significant prior experience in large-scale retail, restaurant, or franchise operations. This level of experience suggests the management team is well-equipped to manage a large franchise system, which is a positive factor for a prospective franchisee.

Potential Mitigations

• It is still worthwhile to perform your own background research on the key executives listed in Item 2.
• Speaking with current franchisees can provide firsthand accounts of their interactions and the effectiveness of the leadership team.
• A business advisor can help you assess how the management team's specific skills align with the franchise's operational needs.

Explanation

This specific risk was not identified. The FDD provides extensive detail in Item 1 regarding the complex corporate structure, including the immediate and ultimate parent companies. Furthermore, the parent company, European Wax Center, Inc., provides a full Guarantee of Performance and its audited consolidated financial statements are included in Item 21, Exhibit F-2. This level of transparency allows for a proper assessment of the entire enterprise's financial health.

Potential Mitigations

• An accountant should carefully review the provided parent company financial statements and the accompanying Guarantee of Performance.
• It is important for your attorney to explain the complex securitization structure described in Item 1 and how it affects the entity you are contracting with.
• A financial advisor can help you understand the relationship and financial dependencies between the franchisor and its various parent entities.

Explanation

Item 1 discloses a clear line of predecessors, including EWC Franchise, LLC and EWC Franchise Group, Inc., and explains the corporate restructuring that led to the current entity. Item 3 discloses litigation involving these predecessors, and Item 4 confirms no bankruptcy history for the franchisor or its predecessors. The disclosures appear to provide a clear picture of the system's lineage and historical issues, allowing for an informed risk assessment.

Potential Mitigations

• It is advisable for your attorney to review the corporate history in Item 1 in conjunction with the litigation history in Item 3.
• When speaking with long-term franchisees, asking about their experiences under previous ownership can provide valuable context.
• A business advisor can help you trace the operational history of the brand through its various corporate forms.