First Watch Restaurant Group, Inc. (FWRG) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total Revenue $282.2 million, an increase of 16.4% year-over-year. The growth was driven by positive same-restaurant sales growth of 0.7% and contributions from 115 non-comp restaurants, including 46 company-owned new restaurant openings and 22 locations acquired since Q4 2023.
Same-Restaurant Traffic Negative 0.7%, with January and March showing positive growth, but February experiencing headwinds. Overall, in-restaurant traffic was below expectations.
Food and Beverage Expense 23.8% of sales, up from 21.8% in Q1 2024. This increase was due to commodity inflation of 7.7% and the decision to increase portion sizes.
Labor and Other Related Expenses 34.6% of sales, a 130 basis point increase from 33.3% in Q1 2024, primarily due to higher health benefit costs.
Restaurant Level Operating Profit Margin 16.5%, down from 20.8% in Q1 2024, impacted by the lower efficiency of new restaurants and increased costs.
Adjusted EBITDA $22.8 million, down $5.8 million year-over-year, with an adjusted EBITDA margin of 8.1%, down from 11.8%. The decline was due to weaker traffic in February and March, costs associated with customer engagement initiatives, and increased healthcare costs.
Net Loss $829,000 for the quarter.
General and Administrative Expenses 10.7% of total revenue, a 70 basis point improvement from the same quarter last year, driven by investments in marketing and headcount.
New Restaurant Openings 13 new system-wide restaurants opened during the quarter, ending with 584 locations.
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Operating Highlights
New Menu Item: Doubled the amount of meat in the trifecta dish without increasing the price to maintain customer frequency.
New Restaurant Openings: Opened 13 new restaurants across 10 states, including the first New England location in Hanover, Massachusetts, and a flagship location on Boylston Street, Boston.
Market Expansion: Signed leases for new locations in Nashville, New Hampshire, and Memphis, Tennessee, with plans to open in Q3 2025.
New State Entry: Opened the first restaurant in Idaho, marking the 31st state of operation.
Operational Efficiency: Improved ticket times and reduced employee turnover for the eighth consecutive quarter.
Third-Party Delivery Program: Implemented a strategy that reversed negative traffic trends in the delivery channel, resulting in mid-teen percentage traffic growth.
Marketing Strategy: Enhanced marketing efforts across multiple channels, including social media and digital advertising, to increase brand awareness and customer engagement.
Customer Experience Initiatives: Empowered general managers to enhance customer service through surprise acts of kindness, fostering loyalty.
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Risk or Challenges
Economic Factors: The broader macro environment appears volatile with rapidly shifting expectations for consumer demand and input costs, impacting overall traffic and margins.
Commodity Inflation: High rates of inflation are affecting key market basket items such as eggs, bacon, coffee, and avocados, with expectations of high single-digit inflation for 2025.
Labor Costs: Restaurant-level labor inflation is projected to be in the range of 3% to 4%, with increased health benefit costs contributing to higher labor expenses.
Supply Chain Challenges: New tariff implementations are expected to add approximately 30 basis points of additional costs as a percentage of total revenue.
Margin Pressure: The company's margin profile is being pressured by higher inflationary headwinds, increased costs from new initiatives, and the impact of commodity inflation.
Traffic Trends: In-restaurant traffic was below expectations, with negative same-restaurant traffic reported, although there was a positive trend in March and April.
New Restaurant Performance: New restaurants typically operate at less efficient margins, impacting overall profitability during their initial months.
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Guidance & Outlook
Total Revenue Growth: First quarter of 2025 delivered better than 16% total revenue growth, driven by positive same-restaurant sales and new restaurant openings.
New Restaurant Openings: Opened 13 company-owned and franchised restaurants during the quarter, ending with 584 locations.
Marketing Strategy: Enhanced strategic marketing efforts began rolling out across multiple markets in March, targeting various consumer touch points to drive brand awareness.
Employee Development: Continued investment in employee well-being and development, resulting in reduced turnover rates.
Third-Party Delivery Program: Implemented a strategy with third-party delivery partners to reverse negative traffic trends, resulting in mid-teens percentage traffic growth.
Customer Satisfaction Initiatives: Empowered general managers to enhance customer experience through acts of kindness, fostering long-term customer retention.
Same-Restaurant Sales Growth: Maintaining estimate of percentage same-restaurant sales growth at positive low-single digits with flat to slightly positive same-restaurant traffic.
Total Revenue Growth: Expect total revenue growth of around 20% with a net 400 basis point impact from completed acquisitions.
New Restaurant Development: Expecting 59 to 64 net new system-wide restaurants in 2025, including 55 to 58 company-owned.
Adjusted EBITDA Guidance: Lowering adjusted EBITDA guidance to a range of $114 million to $119 million.
Capital Expenditures: Expect capital expenditures of $150 million to $160 million, excluding franchise acquisitions.
Commodity Inflation: Expect full year percentage commodity inflation in the high single digits, with peak inflation expected in Q2.
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Shareholder Return Plan
Share Repurchase Program: None
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Key Q&A
Q:Can you expand on the comment that sales turned positive in March and then traffic turned positive in April?
A:The shift this year caused some favorability, but we're seeing the trend is even through the holidays, pulling out the holiday effect, our traffic continues to be positive across both periods.
Q:What gives you confidence this is the right approach for the business regarding driving traffic through third-party actions at a lower margin?
A:The results that we're seeing are encouraging for us. Our focus is on driving traffic in our channels and specifically in our dining rooms and in the third-party channel.
Q:Can you talk about some of the learnings from the increased media spend and engagement following new media efforts in March?
A:We're pleased with the results we've seen, which come to life in the form of the improved traffic trends.
Q:Is 2Q expected to be the peak on commodity costs?
A:We have commodities that are crop related, and we don't expect the current inflation to be permanent.
Q:Could you elaborate on what percentage of the system had support in the first quarter?
A:Almost the entire system is receiving some kind of support, with heavy ups in certain markets.
Q:Are there macro factors weighing on the breakfast category in the US?
A:We believe that our higher income profile customer provides some protection against the lower income consumer pulling back.
Q:Can you prioritize the primary drivers for the significant EBITDA reduction?
A:The cost-related issues motivated us to bring down our guidance for the full year, including sustained inflation and tariffs.
Q:Have you seen any change in consumer behavior regarding frequency or weekday versus weekend?
A:We're not seeing any big shifts or check management, and we see a healthy customer base.
Q:Can you talk about the closures this year?
A:We're closing a few restaurants due to lease expirations, but new units continue to outperform the rest of the system.
Q:What are you seeing in test for expanded beverage lines?
A:We're still in the final stages of moving into test for those expanded beverages.
Q:Can you comment on the Florida market relative to the system?
A:Florida has been great and is outperforming the rest of the country.
Q:What is your target for long-term margins?
A:We target between 18% and 20% on the restaurant level operating profit margins.
Q:Are you seeing anything different from the consumer in terms of how they're responding to aggregator performance?
A:We haven't seen much change in consumer response, but our partnership with DoorDash has been beneficial.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the specific percentage of the system that had marketing support in the first quarter, stating that almost the entire system received support but not disclosing specific figures. Additionally, there was a lack of clarity on the exact drivers for the significant EBITDA reduction, with management mentioning cost-related issues without providing detailed breakdowns.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America Todd
Bay
Boston
Brian
Chief Executive
Executive Officer
Hanover
Memphis
Nashville
New England
President Investor
Vice President
awareness
breakfast brunch
brunch lunch
campaign
cash
challenge
class
commitment
connection
customer satisfaction
expansion
instance
lease
life
lift
location
loyalty
margin profile
market restaurant
party delivery
program
region
retention
return traffic
state
success
th acquisition
traffic improvement
traffic restaurant
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
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