Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First Watch Restaurant Group Inc reported strong first quarter operating results with total revenues of $242.4 million, a 14.7% increase.
- The company successfully opened nine new restaurants in eight states and completed the acquisition of 21 franchise-owned restaurants.
- Adjusted EBITDA increased to $28.6 million, reflecting solid operational execution and strategic acquisitions.
- First Watch Restaurant Group Inc achieved positive same-restaurant sales and continued market share gains, outperforming the black box casual dining segment.
- The company is leveraging technology enhancements like KDS and pay at the table systems to improve operational efficiency and gather valuable customer data.
Negative Points
- First Watch Restaurant Group Inc experienced a negative traffic of 4.5% in same-restaurant sales compared to the previous year.
- Labor and related expenses increased to 33.3% of sales, reflecting higher costs despite improvements in labor management efficiencies.
- General and administrative expenses rose by approximately $5 million due to additional headcount, impacting profitability.
- The company faces a challenging consumer environment with cautious spending and fewer dining out occasions, influencing its performance.
- Despite positive revenue growth, the adjusted EBITDA margin decreased to 11.8% from 13% in the previous year, due to increased operating costs and higher administrative expenses.
Q & A Highlights
Q: Could you clarify why the same-restaurant sales growth guidance was lowered by 1 point at the midpoint? What are you seeing that's different from what you expected previously?
A: Christopher Tomasso, President, CEO, Director - The adjustment is primarily due to slower than expected performance in the first quarter. Traffic has been lower, and the recovery from this has been slower than anticipated.
Q: Are you considering reinvesting some of the margin into value, given the better than expected EBITDA?
A: Christopher Tomasso, President, CEO, Director - The focus remains on everyday value rather than discounting. The strategy is to focus on profitable growth and enhancing the guest experience, maintaining the brand's long-standing approach against broad discounting.
Q: Can you provide insights on restaurant margins and potential upside in 2024 with easing commodities and labor costs?
A: Christopher Tomasso, President, CEO, Director - Comfortable with the 19% to 20% range for restaurant margins over time. Pricing strategies are guided by staying within this margin range, which helps in managing costs effectively.
Q: How did the Easter shift impact the first quarter and the start of the second quarter?
A: Christopher Tomasso, President, CEO, Director - Specific details on the impact of the Easter shift weren't provided, but dine-in traffic overall was down by approximately 4%.
Q: With the current consumer environment focusing on value, how does First Watch's value proposition compare to peers?
A: Christopher Tomasso, President, CEO, Director - First Watch has significant pricing power but has taken a conservative approach with about 3.5% price increases annually since the pandemic, which is at the lower end compared to competitors. The focus remains on providing incredible relative value and driving traffic.
Q: Given the operational improvements mentioned, such as better ticket times, can you quantify these improvements and their impact on labor costs?
A: Christopher Tomasso, President, CEO, Director; Henry Hope, CFO, Treasurer - Significant improvements in ticket times, around 10% to 20% better during peak hours. Lower employee turnover has also contributed to reduced labor costs, enhancing overall operational efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
