First Watch Restaurant Group, Inc. Q2 FY2025 earnings call

• Strong revenue growth of over 19% led by new restaurant openings and acquisitions. • Positive same-restaurant sales growth of 3.5% with 2% traffic growth, showing sequential improvement in traffic trends. • Opened 17 new system-wide restaurants across 8 states and integrated 19 franchise restaurants. • Customer base evolving to include more Gen Z and millennial generations, with marketing efforts driving traction. • Culinary innovation with seasonal menu changes and test items exceeding expectations. • Employee engagement through annual town halls and initiatives like the certified general management program to improve retention.

Total revenue for the second quarter was $307.9 million, an increase of 19.1%. Same-restaurant sales grew by 3.5%, driven by 2% same-restaurant traffic growth. Restaurant-level operating profit margin was 18.6% in the second quarter compared to 21.9% in the second quarter of 2024. Adjusted EBITDA was $30.4 million, $4.9 million below the previous year, with an adjusted EBITDA margin of 9.9% compared to 13.7% last year. 17 new system-wide restaurants were opened during the quarter, and the company ended the period with 600 restaurants in the system.

• Maintained low single-digit same-restaurant sales growth estimate with flat to slightly positive same-restaurant traffic growth. • Expected total revenue growth around 20% with a net 400 basis point impact from acquisitions. • Expect 62 to 67 new system-wide restaurants, including 55 to 58 company-owned and 7 to 9 franchise-owned. • Lowered commodity cost inflation guidance to 5% to 7% from high single digits. • Increased adjusted EBITDA guidance to $119 million to $123 million. • Lowered capital expenditures guidance to $148 million to $152 million.

• Commodity cost inflation remains a concern, though guidance for lower inflation is provided. • Potential impact of tariffs on costs, though considered immaterial for the year. • Competition in the daytime dining segment could affect performance. • Operational challenges in integrating new restaurants and expanding into new markets.

Q: Regarding the majority age of customers falling below 50, is it due to broadening store footprint or third-party platform usage?

A: It's a combination of entering new markets, evolving the prototype, and reaching out to younger generations in core markets.

Q: What gives confidence to raise EBITDA outlook?

A: Relief in egg costs and positive consumer trends, including no deceleration in same-restaurant traffic in July.

Q: How is pricing strategy affecting margins?

A: Pricing is to offset permanent inflation, with a typical range of 3% to 3.5% and helping offset sticky inflation.

Q: Why the increase in third-party delivery volumes?

A: Optimization of relationships with providers, reduced surcharges, and improved execution of the third-party experience.

Q: Are in-restaurant actions like surprise and delight noticed by consumers?

A: Consumers are noticing and appreciating these actions, as they respond positively to increased hospitality and value.