First Watch Restaurant Group, Inc. ((FWRG)) has held its Q4 earnings call. Read on for the main highlights of the call.
First Watch Restaurant Group’s recent earnings call painted a picture of both robust growth and looming challenges. The company celebrated significant achievements in revenue and strategic expansion, yet acknowledged the hurdles posed by inflationary pressures and declining same-restaurant sales. This dual sentiment underscores the complexity of navigating the current economic landscape.
Record Revenue and Adjusted EBITDA
First Watch Restaurant Group marked a milestone by surpassing $1 billion in total revenue and achieving over $100 million in adjusted EBITDA for the first time. This record-breaking performance highlights the company’s strong financial foundation and its ability to generate substantial earnings amidst a challenging market environment.
Expansion and New Restaurant Openings
In 2024, First Watch opened 50 new restaurants, setting a record with 25 openings in the fourth quarter alone. These new establishments are projected to outperform the current system average, with third-year sales expected to reach $2.6 million, indicating a promising trajectory for future growth.
Improved Operational Metrics
The company has made significant strides in enhancing operational efficiency. Improvements in labor efficiency, restaurant-level operating profit margins, and employee turnover, along with reduced ticket times, demonstrate First Watch’s commitment to optimizing its operations and delivering better service.
Positive Developments in Third-Party Delivery
Adjustments in First Watch’s approach to third-party delivery have yielded positive results, contributing to increased traffic year-to-date in 2025. This strategic shift underscores the company’s adaptability and focus on leveraging delivery channels to boost customer engagement.
Strong New Restaurant Performance
The restaurants opened in 2024 are not only meeting but exceeding expectations, with higher sales and returns. These new locations are projected to achieve a cash on cash return above 35% and an internal rate of return (IRR) above 22%, reflecting their strong performance and potential for profitability.
Negative Same Restaurant Sales
Despite the overall growth, First Watch faced a decline in same-restaurant sales by 0.3% in the fourth quarter, with a 3% drop in same-restaurant traffic. This decline highlights the challenges the company faces in maintaining consistent sales across its existing locations.
Commodity Inflation Pressures
The company anticipates high single-digit commodity inflation in 2025, driven by rising costs of key ingredients like eggs, pork, coffee, and avocados, exacerbated by tariffs. This inflationary pressure poses a significant challenge to maintaining profit margins.
First Quarter 2025 EBITDA Decline
Looking ahead, First Watch expects a decline in adjusted EBITDA by approximately $4 million in the first quarter of 2025 compared to the same period in 2024. This anticipated decrease is attributed to the costs associated with new restaurant openings and spikes in commodity prices.
February Traffic Challenges
February 2025 presented additional challenges with negative low single-digit same-restaurant traffic. This downturn was attributed to unseasonably cold weather and a generally weaker industry backdrop, affecting overall customer visits.
Forward-Looking Guidance
First Watch’s guidance for fiscal 2025 reflects optimism tempered with caution. The company projects a 20% increase in total revenue, driven by unit expansion and strategic marketing efforts. Despite the challenges of high commodity inflation, First Watch plans to open 59 to 64 new restaurants and aims for low single-digit positive same-restaurant sales growth, maintaining a focus on sustainable expansion.
In summary, First Watch Restaurant Group’s earnings call reveals a company navigating the complexities of growth and inflation. While the record revenue and strategic expansions are commendable, the challenges of declining same-restaurant sales and rising commodity costs cannot be overlooked. The company’s forward-looking guidance suggests a balanced approach to growth, with a keen eye on market conditions and operational efficiency.