First Watch (FWRG) Earnings Call: Growth Amid Challenges

First Watch Restaurant Group, Inc. ((FWRG)) has held its Q2 earnings call. Read on for the main highlights of the call.

First Watch Restaurant Group, Inc. recently held its earnings call, presenting a strong performance characterized by significant revenue growth and positive customer engagement. Despite facing challenges with increased food and labor costs impacting margins, the company remains optimistic. The improved EBITDA guidance and successful marketing initiatives underscore a generally positive outlook for the company.

Significant Revenue Growth

First Watch Restaurant Group reported a remarkable increase in total revenue by more than 19% compared to the second quarter of 2024. This growth was primarily driven by high-performing new restaurant openings and strategic acquisitions, showcasing the company’s effective expansion strategies.

Positive Same-Restaurant Sales Growth

The company experienced a 3.5% growth in same-restaurant sales, supported by a 2% increase in same-restaurant traffic. This indicates a healthy demand for First Watch’s offerings and successful customer retention strategies.

Strong New Restaurant Openings

Seventeen new system-wide restaurants were opened across eight states, with these new locations on track to meet or exceed cash-on-cash returns and ROI targets. This expansion is a testament to First Watch’s strategic growth initiatives.

Record Performance on Key Holidays

Mother’s Day marked the busiest day in First Watch’s history, with record same-restaurant traffic and sales, followed by a strong performance on Father’s Day. These results highlight the brand’s popularity and effective holiday promotions.

Improved EBITDA Outlook

The company raised its adjusted EBITDA guidance to between $119 million and $123 million, up from $114 million to $119 million. This improvement is attributed to a reduction in egg costs and successful cost management strategies.

Successful Marketing Initiatives

First Watch’s marketing efforts are yielding positive results, contributing to increased same-restaurant traffic growth and brand awareness, particularly in the Southeast and Southwest regions.

Expansion of Customer Demographics

The customer base is increasingly skewing towards Gen Z and millennial generations, with the majority of customers now below 50 years old. This demographic shift is crucial for the company’s long-term growth.

Increased Food Costs

Food and beverage expenses rose to 23.6% of sales, up from 21.8% in the previous year, driven by an 8.1% commodity inflation for key items like eggs, bacon, coffee, and avocados.

Higher Labor Costs

Labor and related expenses increased to 33.2% of sales, a 40 basis point rise from the previous year, primarily due to labor inflation and higher health benefit costs.

Lower Restaurant Level Operating Profit Margin

The restaurant level operating profit margin declined to 18.6% from 21.9% in the second quarter last year, reflecting the impact of increased food and labor costs.

Forward-Looking Guidance

First Watch Restaurant Group’s management provided robust guidance for fiscal 2025, highlighting a 19.1% increase in total revenue driven by new restaurant openings and strategic acquisitions. The company plans to open 62 to 67 new locations and maintain its focus on operational excellence and customer engagement. With improvements in traffic trends and targeted marketing efforts, First Watch is well-positioned for continued growth.

In conclusion, First Watch Restaurant Group’s earnings call reflects a generally optimistic sentiment, with significant revenue growth and successful expansion efforts. Despite challenges with increased costs, the company’s improved EBITDA outlook and strategic initiatives indicate a promising future.