First Watch Restaurant Group, Inc. Q1 FY2025 earnings call

• First quarter 2025 delivered over 16% total revenue growth, positive same-restaurant growth, 13 new system-wide restaurant openings, and new marketing campaigns. • Traffic improved with positive January and March results, and April had the best same-restaurant traffic in over two years. • Opened 13 company-owned and franchised restaurants across 10 states, ending with 584 locations. Expanded into new markets like New England, Memphis, Idaho. • Implemented third-party delivery strategy to reverse negative traffic trends, saw mid-teens percentage traffic growth in that channel. • Increased portion sizes of the trifecta, empowered managers with surprise and delight programs to build customer loyalty. • Focus on operational efficiency with improved ticket times and reduced field level employee turnover for eight consecutive quarters.

Total first quarter revenues were $282.2 million, an increase of 16.4%. Same-restaurant sales grew by 0.7%, driven by 115 non-comp restaurants including 46 company-owned new restaurant openings and 22 acquired locations since Q4 2023. Food and beverage expense was 23.8% of sales, up from 21.8% in Q1 2024, due to commodity inflation and portion size increases. Labor and other related expenses were 34.6% of sales, a 130 basis point increase from Q1 2024, primarily due to higher health benefit costs. Restaurant level operating profit margin was 16.5% in Q1 2025 compared to 20.8% in Q1 2024.

• Maintains same-restaurant sales growth at positive low-single digits with flat to slightly positive same-restaurant traffic. • Expects total revenue growth of around 20% with net 400 basis point impact from acquisitions. • Anticipates 59 to 64 net new system-wide restaurants, including 55 to 58 company-owned and 7 to 9 franchise-owned, with 3 company-owned closures. • Full year commodity inflation expected in high single digits, restaurant-level labor cost inflation 3%-4%. • Lowers adjusted EBITDA guidance to $114 million to $119 million, including estimated net contribution from acquired restaurants.

• Broader macro environment remains volatile with shifting consumer demand and input costs. • Commodity inflation, especially for eggs, bacon, coffee, and avocados, poses pressure on margins. • Tariff implementation adds incremental costs. • In-restaurant traffic was lower than expected near-term, impacting margin profile.

Q: Can you expand on the comment that sales turned positive in March and then traffic turned positive in April?

A: Mel Hope mentioned the trend continued even through holidays, pulling out holiday effect, traffic remained positive across periods. Chris Tomasso added sequential positive dine-in traffic improvement for all four quarters last year except February.

Q: Could you talk more about the trade-off between driving traffic through third-party actions and other initiatives, but doing so at a lower margin? What gives you confidence this is the right approach?

A: Chris Tomasso stated results are encouraging, focus on driving traffic in channels including dining rooms and third-party, confident costs are not permanent and top line is driving guidance.

Q: On the 2025 guide, tempered EBITDA by roughly $10 million, what are the primary drivers?

A: Mel Hope said cost-related issues, sustained inflation, and tariffs were primary drivers. Chris Tomasso added unprecedented pressure on four top five commodities at once.