First Watch Restaurant Group, Inc. (NASDAQ:FWRG) Q4 2024 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture. While total revenue increased by 16.8% and adjusted EBITDA improved, same-restaurant sales and traffic declined, indicating potential underlying issues. Management's optimism about future marketing and restaurant openings is tempered by economic pressures and higher commodity costs, including tariffs. The lack of a share repurchase program and unclear responses in the Q&A section contribute to uncertainty. Given the small-cap nature of the company, these mixed signals suggest a neutral stock price movement over the next two weeks.
Key Financial Performance
Total Revenue $263.3 million, an increase of 16.8% year-over-year, attributed to the addition of 145 non-comp restaurants, including 43 new company-owned and 28 acquired franchise locations.
Same Restaurant Sales Negative 0.3%, with a same restaurant traffic decline of 3%.
Food and Beverage Expense 22.7% of sales, compared to 22.5% in the same period last year, impacted by commodity inflation of 2.4%.
Labor and Other Related Expenses 33.7% of sales, a 20 basis point improvement from 33.9% reported in the fourth quarter of 2023, due to increased labor efficiency.
Restaurant Level Operating Profit Margin 18.8%, even with the fourth quarter of 2023 when excluding the impact of the 53rd week.
General and Administrative Expenses $30.7 million, 11.7% of fourth quarter revenue, favorable to the prior year by 50 basis points.
Adjusted EBITDA $24.3 million, an increase of nearly $5 million compared to $19.6 million in the fourth quarter of 2023, with an adjusted EBITDA margin of 9.2% compared to 8.7%.
Net Income $700,000, with a net income margin of 0.3%.
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Operating Highlights
New Menu Innovations: We will soon test an expanded line of beverages and have already tested exciting new menu innovations, which have delivered positive early results.
Customer Experience Enhancements: Later this year, we also plan to launch enhanced customer facing technologies including a custom built waitlist experience, a new menu experience with dynamic nutrition and allergen tools, new ordering capabilities and a personalized offer wallet.
New Restaurant Openings: We opened 50 new restaurants in 2024, including a record 25 in the fourth quarter alone.
Market Expansion: We are bullish on our ability to bring our unique breakfast brunch and lunch offering to new markets such as New England and Las Vegas.
Labor Efficiency: We controlled the controllables and in the process, increased labor efficiency, improved restaurant level operating profit margins, reduced ticket times, improved employee turnover and raised our already exceptional customer experience scores.
Cost Management: Our increased labor efficiency combined with carried pricing offset the impact of labor inflation in the fourth quarter.
Marketing Strategy: We are meaningfully scaling our marketing spend in 2025 to raise brand awareness via smart targeted marketing efforts.
Long-term Growth Strategy: We’ve identified vast white space for First Watch throughout the US, which continues to affirm our strategy to reach 2,200 locations in the Continental US.
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Risk or Challenges
Earnings Expectations: First Watch Restaurant Group, Inc. missed earnings expectations with a reported EPS of $0.01, below the expected $0.02.
Consumer Pressure: The company faced adverse conditions affecting consumer spending, which pressured restaurant industry sales.
Labor Inflation: Restaurant level labor inflation was reported at 4.3%, impacting overall labor costs.
Commodity Inflation: High single-digit percentage inflation in key commodities such as eggs, avocados, bacon, and coffee beans is expected to persist throughout the year.
Supply Chain Challenges: The ongoing impact of avian influenza has necessitated supplemental egg purchases at spot market pricing, increasing overall egg costs.
Traffic Decline: The company reported a same restaurant traffic decline of 3% in the fourth quarter.
Economic Factors: The company anticipates continued economic pressures affecting consumer behavior and restaurant traffic.
New Restaurant Performance: New restaurants typically operate at less efficient margins, impacting overall profitability in the early stages.
Regulatory Issues: Recently announced tariffs are expected to contribute to higher commodity costs.
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Guidance & Outlook
New Restaurant Openings: Opened 50 new restaurants in 2024, including a record 25 in Q4. Average new restaurants projected to generate third year sales of $2.6 million, with cash on cash return above 35%.
Marketing Strategy: Scaling marketing spend in 2025 to enhance brand awareness through targeted marketing efforts, utilizing various media strategies.
Customer Experience Innovations: Launching enhanced customer-facing technologies in 2025, including a custom waitlist experience and new ordering capabilities.
Long-term Growth Goals: Aiming for 2,200 locations in the Continental US, with mid-teens percentage increases in revenues and adjusted EBITDA.
2025 Revenue Growth: Expecting total revenue growth of around 20%, with a net 400 basis point impact from acquisitions.
Same Restaurant Sales Growth: Guidance for positive low single digits, including a 1.3% price action implemented in January.
Adjusted EBITDA Guidance: Expected range of $124 million to $130 million, with acquisitions contributing about $8 million.
Capital Expenditures: Projected capital expenditures of $150 million to $160 million, excluding franchise acquisitions.
Commodity Inflation: Expecting high single-digit percentage increase in commodity inflation, driven by recent increases in key ingredients.
Labor Inflation: Restaurant level labor inflation expected in the range of 2% to 4%.
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Shareholder Return Plan
Share Repurchase Program: None
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Key Q&A
Q:Any concern of a slowing macro beneath the surface that is perhaps being masked by these transitory headwinds?
A:It’s hard to say, Jeff, but we feel good about the direction that we’ve seen for our business. Our Q4 traffic was better than Q3, and our Q1 to date traffic is better than Q4. So, we’re seeing a positive trend.
Q:What components have you most excited about marketing for 2025?
A:We’re really excited about the results that we’ve seen from the marketing campaigns and initiatives that we tested in 2024. We’ve basically taken the best of what we tested and put that into our plan.
Q:What are you specifically seeing on the egg side regarding inflation?
A:The eggs and potatoes roughly run about 15% of our market basket. We contract for that price on an annual basis, but during this time when there is diminished flocks, we’re having to supplement the supply.
Q:How much of the inflation is driven by the eggs component?
A:Overall, our eggs, we contract for that price on an annual basis. I don’t know the portion that we’re buying on the open market right now.
Q:How open-minded are you to revisit pricing decisions later in 2025?
A:We’re going to follow the same cadence we do every year. We may or may not price to cover all of it based on the long-term health of the business.
Q:Do your customers recognize the value you’re emphasizing without deep discounts?
A:The focus on communicating our everyday value was something that came to light in the marketing testing with the messaging.
Q:Is your inflation still a lot lower than competitors?
A:We don’t procure our eggs from the same place that grocers do. It is very, we’re paying a premium.
Q:How will higher marketing costs show up on the P&L?
A:Marketing would be in the G&A line item.
Q:Will you see more productivity improvements from labor efficiencies?
A:There are more things that they’ll continue to add, but I don’t know that we can expect the kind of efficiencies to flow through that we saw last year.
Q:How much of the high single-digit commodity impact is from tariffs?
A:Management considers it one pool of costs that we manage to.
Q:Is the marketing driving new guests or supporting existing customers?
A:I think our expectation of our marketing is — we’re certainly very optimistic about it. I think it drives both frequency and new guests.
Q:Are you assuming any negative mix impacts from marketing investments?
A:We don’t expect a negative mix impact.
Q:What are the common threads driving the outperformance of new unit openings?
A:The square footage has exceeded the legacy fleet, and we can go into second-generation spaces.
Q:What are the high-level guardrails for your guidance?
A:The adjusted EBITDA in the range of $124 million to $130 million for the year.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the breakdown of inflation components, particularly regarding the impact of tariffs on commodity costs. Additionally, they did not confirm the percentage range of margin decline suggested by analysts.
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Earnings Word Cloud
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NASDAQ Transcript
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FWRG Transcript
First Watch Restaurant Group, Inc. (FWRG) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call highlights a strong revenue growth forecast, increased EBITDA guidance, and effective marketing strategies. Despite some inflationary pressures, the company is managing costs well and expects continued growth with new restaurant openings. The Q&A section reveals confidence in marketing efforts and competitive advantages in securing locations. Overall, the sentiment is positive, with a focus on expansion and customer engagement, suggesting a likely positive stock price movement.
First Watch Restaurant Group, Inc. (FWRG) Q2 2025 Earnings Call Transcript
Positive8-5
The earnings call summary and Q&A indicate strong revenue growth, successful marketing strategies, and effective cost management, despite some uncertainties in guidance and EBITDA. The company's strategic initiatives, like new restaurant openings and enhanced customer experience, coupled with positive same-restaurant sales and traffic trends, contribute to a positive outlook. The market cap suggests a moderate stock price reaction, leading to a positive sentiment rating.
First Watch Restaurant Group, Inc. (FWRG) Q1 2025 Earnings Call Transcript
Unknown5-6
Despite revenue growth and positive traffic trends in March and April, the company faces challenges with rising costs, declining margins, and a net loss. The lack of a share repurchase program and unclear management responses further dampen sentiment. The market cap indicates a potential for stronger reactions, but the overall negative aspects, such as increased expenses and lower operating profit margins, outweigh the positives, suggesting a stock price decline of -2% to -8% over the next two weeks.
First Watch Restaurant Group, Inc. (NASDAQ:FWRG) Q4 2024 Earnings Call Transcript
Unknown3-12
The earnings call presents a mixed picture. While total revenue increased by 16.8% and adjusted EBITDA improved, same-restaurant sales and traffic declined, indicating potential underlying issues. Management's optimism about future marketing and restaurant openings is tempered by economic pressures and higher commodity costs, including tariffs. The lack of a share repurchase program and unclear responses in the Q&A section contribute to uncertainty. Given the small-cap nature of the company, these mixed signals suggest a neutral stock price movement over the next two weeks.
FWRG Slides
FWRG Report
Frequently Asked Questions
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