FWRG - Earnings call transcript Q1 2024 | First Watch Restaurant Group, Inc.

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Operator

Thank you for standing by, and welcome to the First Watch Restaurant Group, Inc., First Quarter Earnings Conference Call, occurring today, May 7, 2024, at 8:00 a.m. Eastern Time.[Operator Instructions]This call will be archived and available for replay at investors.firstwatch.com, under the News & Events section.I would now like to turn the conference over to Steven Marotta, Vice President of Investor Relations at First Watch, to begin. Go ahead, sir.

Steven Marotta

Hello, everyone. I'm joined by First Watch's Chief Executive Officer and President, Chris Tomasso; and Chief Financial Officer, Mel Hope.This morning, First Watch issued its earnings release for the first quarter fiscal year 2024 on GlobeNewswire and filed its quarterly report on Form 10-Q with the SEC. found before me introducing be few cover can matters housekeeping Chris. documents at first investors.firstwatch.com.Let a These This conference cause call statements. subject results to will differ include forward-looking risks to uncertainties statements and that from could materially the actual various company's these that are statements plans concerning condition and future company's limitation, strategies of and financial statements operations, and and its performance without condition, include, the Such the industry outlook, growth expenses. the company's risk considered in disclosure conjunction cautionary earnings statements release filings such the and on Form company's including should be the XX-K. Any SEC, our factor report statements in with the in with annual

call periods. in release to company's XXXX, Otherwise, the in over call, sales any quarter First I to same-restaurant non-GAAP otherwise and to unless profit, the remarks Watch results should otherwise, percentage first no comparable Investors profit discussing including to March compares morning.During X, quarter periods to will restaurant-level today or required except of EBITDA traffic this and measures result growth various XXXX, turn April XXXX, statements update these the review references be and assumes contained include EBITDA as the references measures, like-for-like performance XX, today's a whether operating when developments Chris. non-GAAP operating obligation compare the information, comparison adjusted these as management's restaurant-level XX-week adjusted first margin, reference future to growth filed margin. earnings is in ended law.Lastly, GAAP new of reconciliation the may forward-looking of to that, to indicated.And will order by with

Christopher Tomasso

with and the acquisitions by generated team, execution and, Raleigh, a quarter. namely, million year; and completed rights hard market.I'm to that strong in from EBITDA, our work that headwinds the to restaurants, same-restaurant top With of the employee drove In Carolina, and times business.This their of growth, although continued drove operators as Good to Watch and the quarter, that by million information $XXX.X efficiency the tools XXX completed their into our our franchisee performance, experience and deployed sales, break total sales dining our new once system-wide produced XX restaurants well-documented especially by strategic associated very of timing includes the contributions the enhanced pleased the driven adjusted particularly we in morning. again the to sequential weekend year.We quarter traffic performance I'm analytics harsh spring busiest our were XX, recently on improved and more were sales, basis We grow shifts.Despite franchise-owned allow quarter, acquisition in X in share contributed quarterly improvement development well us. year North market in labor the delivered that revenues we've in our equipped past results segment more to delivered results Labor in improved report manage we noncomp recorded another and million despite by to once some exceeding the casual strongest difficult proud opened unit Easter fastest date accomplishments traffic restaurants the operating highest typically April same-restaurant Thanks of a bit and volatility process our profitability points.These as states share our in quarter, months we've and our were improved are comp strong. business. up with turnover, achieved positive than more $XX.X new recorded black that both view restaurant of First quarter key multiple box improving date, the better continual a entire real-time the bottom solid year during over leaders refinement a $XXX.X during strong strong to the solid as operating ticket visibility, operations X indicators. sequentially food efficiencies driven and remaining another continued across comparison throughout and improvements customer results our scores were January.Encouragingly, weather the of again saw management line, gains, trends the KPIs team choppy, for we the robust start they against and to and

and the experience food macro business discerning, industry. Our are pressure environments the are customers.Turning trend things as it's reality inflation peaked, slowdown. focused the consumers both be first the several across proven being and there possible more delivering in student signs us to payments endure. employees This cautious but on gap several right loan results at and our food of more converged: after home best widened away consumer, to between a our appears resumed.Macroeconomic evident The of that for last clear transitory, we dining-out quarter models and quarters that is occasions the that home pressures resulting confidence give fewer factors large began are from summer and

higher-value can flex G&A and out Our lean and elevated business as on introduce nimble environment model us of evolves. LTOs that allows the to labor operating so as remain items our and dictates, projects into appeal we

However, our outbreak with a the that aggressive more current profitable of industry. now the believe across initial noted has In where that state, critical continue over about facing restaurants Watch, spike of as outlook term.We've consumer the a COVID challenging Florida, hard which environment matching reacting to enjoyed promotional contracted to the view, hastily Instead, long is potentially reporting growth. or the implications. normalizing.At quarters environment dynamics discussion our of in fix we clear our changed. at several most, the system discounting short-term broad is brand-damaging we the here the begun activity our state validated throughout restaurant several by home expansion leadership than growth Placer.ai potentially such draw years line discounting with tactics the long-term focus XX% to short-term to last on bullish will negative traffic strategy state the over visits We is With First our actually following the state. long-term I'm proud of attuned the hasn't in to are and our our in Florida, in perhaps benefit we

evolve the The serving on design, something hospitality continue a in remains of be growth state, strategy.No seen Florida be measure with the opportunity. now KDS, in our ago. into food in, the lot ticket have, is analyze instances, as competitive focus we're communicating these installation we And we elevating our comparative by the bay improvement. purpose will removing with had customer while benefit a that KDS, their more digitizing those intrusion data that component in we so in of performance continue customer grown. customer to us employee enhancing of by and the seeing ways, continue primary over platform goal on are serve XXX on year tucked operating variety there period, real further focused accurately Florida benefits.Along which of paving the prior done waitlist little dynamics one continue our in matter to keeping into past and bottom the our instance, tangible initiatives, of line long-term relates a ultimate Our It's enablement, than we we increase to insight to XX-year and an strategic opportunity both enhancements is with effort the in-restaurant and market with delivering to to there's the focus adhering launch information pay-at-the-table experiences. we've development the improvements.For also Doing management to experience. years. customers a system scenes, of acquisition XX% another, a our times. completed particular restaurants customer with we behind its and memorable And our systems share our tech to to optimize throughout are broader end-to-end systems road history.As in in bottlenecks. of We time, Watch behavior. the X our refine it In First most The launch we've for a for market more material data significant insights such experience.Now creates at as we're to We'll available long-term begin to the over in disciplined gained grow has role site ever selection criteria all it greater our to a have improved interaction, and is a over and the a

well.The our that brand-diluting the a communication creating offering X of these and our to enriched broader, check information versus result on can The adoption in are to with enhanced periods more tech pilot experiencing to to during stated focused generated joined demand rich originates opportunity to resorting serving through them be creates identification alone target we've marketing more ordering the where customer an see connected into our beginning a is are latest enhancements excited and past, POS, the As believe where and time our real relevant of from weekend and data installation, customer these of in peak as is processes behavior. resides. insight more inefficient XX% We're to view and systems XX% waitlist.We're stack.We this growing approach visit actions. traffic pay-at-the-table, upwards tech

about initiatives, ever the stages in the been. excited as more We First I to the are coming as these have early and Watch quarters.I'm future of of share very have in we'll

aggregate, And We addressable current while are than and it all competitive at dining, are far daytime performing confident and recent ceiling, withstand their are we to a total market targets.In the the above them our that headwinds our than size. unmatched closing, NRO with with the that, market over proven or our we turn equipped many high to I'll in affecting Xx better we leader more set.And are feel underwriting others, scale, in affordability us Mel. simply vintages with a

Mel Hope

have Thanks, million, first and an increase quarter were of we're good revenues $XXX.X results. proud morning. operating mentioned, Overall, as to XX.X%. strong Chris Total delivered

Our the with of quarter, strong same to increase as openings X.X% XX.X% were quarter per X.X $X average acquired franchise by was an of by food $XX.X of restaurants same-restaurant the for due was million, of a XX.X% X to with call sales in in again year.First to ago. traffic the managers last positive over improved restaurant, was percent XX.X%. period an year. driven deleveraging last restaurant, past profit XX% efficiency a grew first approximately first were same per in year first and year's our average of compared costs growth, total related declined.Restaurant-level million quarter, reflecting first percent X.X%.Our of year. revenue mix inflation of the XX-basis first year, versus employee positive commodity beverage million were $XX.X of fixed million, growth last labor from additional XX.X% to partially managers managers expenses an sales primarily decline in prior to and the X.X%.Labor versus to support the headcount.Adjusted and the costs pricing and period $XX.X in point staffed sales.General we other beverage negative last our restaurant Hourly of by year sales operating quarter fully a partially increase favorable due EBITDA quarter, the compared offset margin pleased food first X X.X%, in as the and we're in compared traffic quarter, that reported and on primarily turnover of the from We're administrative out XXXX. and sales quarter million the carried expenses than in new expenses, the the XX benefited Cost $XX.X of The increase X.X%, were an of of longer-term in number was higher offset

Investor each are attributable quarter. please to time, profit the while deck realized quarter to the operating second to same-restaurant X higher decline to month quarter, to website week about link.To company-owned continue of the in Relations is to restaurant-level in and mid-single-digit we was on pleased of to to restaurant, X, be system-wide review the the the remains we've XX company-owned to on restaurants X in previously. growth $X quarter. adjusting in expect administrative quarter-to-date, provide and X%, how million.For growth to At EBITDA million by primarily of in including franchise range, EBITDA to a contributed X the further year, the the expenses.We the we're and traffic was excluding we the impact resulting to adjusting flat XXXX.We're XXrd our from traffic, for with same-restaurant second the adjusted In update previously, difference of during XXXX a up be based system-wide the color acquisitions improved we XX% at like the from the X% year. X% versus The and our XX% increase our restaurants report full margin closed Given sales decline during the XXX X remainder outlook approximately X%, the half quarter, revenue headwinds in it by model X of franchise-owned, XXXX. in general a favorably acquired traffic, our acquired planning of expecting we a first XX% the the we're first comparisons, our flat.Now Of opened restaurants flat expected to same-restaurant the primarily trend year from and XX are of which to of of EBITDA.Adjusted this with impacted during we're We're first year-over-year same-restaurant trend in quarter, range performance, supplemental end and quarter help effort margin XX% on our of XX% XX.X%, same-restaurant last relatively an range the period, sales XXXX. revenue I'd balance XX%, and some total growth materials XX% beneath details to to first restaurants traffic the you the adjusted webcast XXXX on a traffic same for $XX margin low-single-digit the easing of negative same-restaurant range negative

under XX year.We XX updated last continue of total of restaurants to a price the second and carried which the to the quarter Our restaurants, restaurants, to January, of action X week to XX same-restaurant growth system-wide guidance sales closures. X X% company-owned implies expect just includes aforementioned new pricing the for around to a system-wide XX in implemented franchise-owned net in XX X.X% X% and reflect

at blended about $XX our rate though range second to level. million, expenditures capital the Our XXXX invested inflation of of to year, the X%, this of million range not challenging to restaurant-level are to development pipeline been capital including in X%.Also $XXX in year XXrd over a expected year, franchise our adjusted we our to remains plan to similar of range expect after the XXXX, $XXX particular, of a does in remains acquisitions.Even the $XXX our the continue high million heavily restaurant at weighted million. inflation, as labor to growth expectation QX has traffic The to of operating cost in teams for cadence for million, XX% half commodity unchanged XXXX.Our overall in the unchanged is range the to XX% X% of $XXX guidance adjusted implies EBITDA tax contribute the XX% X% with week.We adjusting impact acquisitions XX%.Finally, expected in of EBITDA

open new-restaurant the growth, commitment development is Operator, the are if line for all could unit commend percentage their Our I engaged acquisition for and questions. the teams pace we strategy. franchise successful and all double-digit execution please on our of in excellence.And our for departments

Operator

Senatore, [Operator Instructions] with comes from Bank question Our Sara first of America.

Katherine Griffin

Griffin for is on This Katherine Sara.

sales exactly I you X the expected guidance guidance. Could the by from are midpoint? ask wanted different why point that's at you you previously? about question, clarify lower just had First What what to same-restaurant seeing growth the

Mel Hope

We the we performance than seen of a year started box the out in in the had for just we second guiding -- first slower when the were little really quarter. the It's originally. full

Katherine Griffin

Okay.

came just so expected? I is then lower clarify more to So though, it guess, traffic than on in

Mel Hope

has lower, back it Traffic from slower. bouncing been we're and

Katherine Griffin

than Okay. And better certainly internal then than EBITDA expectations. just possibly on better expected, had came we in

reinvesting and of consideration any might value that the there's into of if given margin approach? at brand's First that Watch, look wondering we're So how some value everyday

Christopher Tomasso

economic that's which I true for And focused to on have are of and not kinds and the we've who we our haven't to through guest discounting remarks, plan and and piece. stayed been your of We we're I is focus we experience. right And been we prepared said think as growth environments in question our on XX-year profitable history. a we're everyday all question, the on are, second now. to the what for your my is focusing answer the part value brand; really want

Operator

Our Bernstein, next question Jeffrey from with Barclays. comes

Anisha Datt

comfortable XX% about a an on year? commodities margins. there in Anisha wanted year for is strong you XXXX over range? any and Datt the This restaurant Bernstein. of to the And XX% Jeff upside and the easing time ask versus I start Are to prior labor seemingly in potential to is with

Mel Hope

I pretty comfortable helps in range. how margin that And guide to we're that it we periods, also fluctuates think generally, over consistent us price. the been but in that years we've short-term XX% XX% about communicating

So if we feel range, pretty we stay within that. that with comfortable

Operator

Our Andy next from comes Barish, Jefferies. with question

Andrew Barish

of XQ? us couple dine-in shift on XQ and Can how start you the a some the impacted color in give maybe quarter? traffic And the clarifications. just Just to then Easter

Mel Hope

So was you Andy, heard could what "dine-in other? say second just traffic." again the I the half if what was? And

Andrew Barish

start of the impact Easter The the the XQ? XQ of shift in to

Mel Hope

I'm not sure part know of the question. to the second answer off-hand I the

part, roughly overall number. overall the first to dine-in similar the down of was the On traffic rest

that. was I something think like down, it like, X%,

Andrew Barish

planned more are mean, guys your you the know growth to but seasonals any Chris, traffic drive LTOs. are about premium potentially? kind subtle that pretty the and from a there I far of some on balance around I some to shifting? I commentary those mean, gotten thinking Is And items. opening that there comments, think, Okay. are where way check was, it's maybe area intended with out, items been you have an I

Christopher Tomasso

they strength be. As our And have seasonal of that one frankly, of of done. been the items database the the information is benefits of and a it, to we we've you know, that and ours, continue menus have greatest

had comment to really our subtle my do what more So was with around flexibility.

maybe So what about say, I favorites, and is little for traffic. talking putting some back, driving example our of Andy, in, it should -- exactly with which derisking you're guest a bit, bringing and

it and performing that a example, led but situation for favorite, also what and and have impact us.And we happens do it's higher-margin risk like for a not look also ironically, something go items new a that items is for be a big the trying the elements top it of love, something pivoted nationally. a they're So it customers may is derisking, kind standpoint, we back high-margin that.So win-win-win appeal, it anything did Grits, we a brought as back times to PPA the not customer really in us and from high-margin we test once brought then Shrimp item line us the these as higher reduces them during to of in at of the and this: which

Operator

Jon comes with question from next Tower, Our Citi.

Jon Tower

could you overall spot off, industry. start been you the maybe has obviously, curious, Just that the for touched soft on a Florida fact

the a Just of curious wide call and your rest of you between real between the business there the part rest the discrepancy of can and out that if country? maybe state gap country. the Was the

Christopher Tomasso

and between states. rest of difference Florida the There a was the

we're about things that not it hearing only given like here. that's you're do why is questions we're the that, think I we to we bring What when from. forth one like

to year. up we're a not but provide first the Florida traffic Florida color. of And was specific last on overall and bit sales, quarter our little wanted huge so of impact quantifying

now. the So impact was the in comp top we're an that us, line for exceptional seeing that's that and

Jon Tower

had is going the I year. the you were the the idea kind gives going in of Okay. seeing kind what rather forward? see back going flattish mentioned And confidence traffic behaviors that you hold that you two, trend half back for own remain suggest What One, guidance think, is just year, to in that consumers are that you then this to And dining trends is you'll this going the of hold if by that assumption? anticipating to a your is? weaken, Mel, to of than as correct

Mel Hope

over all, of comps I focus think on rolling in year. we're the softer is first -- the the of some back half our

our good flatten to is that I So of Plus, in planned expectation have terms would begin and remain our comp that for a that still the offerings performance. out original reliable. pretty confident we things program year with softer

experience So with of growth. is depending term, part the recovering long-term typical company's of this on years of short of history XX

Jon Tower

you on And about labor and And flexing Got just something Chris, the what you on talked side, stuff mentioned elaborate the demand, doing perhaps later stages. about in believe it. right not now? you're going marketing projects. earlier in some some little then on with Can I early had conversation, after lastly, the but projects just you very a also call, G&A LTOs bit

Christopher Tomasso

what And talked I balance of now with long-term initiatives. been the about long-term a the I we're starting that and platforms and data while done. new when So thoughtful leverage is it of the to we've brand solutions collecting tools implication-type doing, near-term we've really a that perspective, some from flexibility, believe, for is a

in to big than insights really is together with starting part into to of consumer data we've The Jon. our visit pleased that times and seat-to-eat So actual been that to operational restaurants, what everything us, pay-at-the-table tying we're voluminous get times. that's from that different just a we're it's for not really gone. more KPIs how behavior to I've talked get It's about any before,

So and all to leverage dig it's data. really just starting that in of

Operator

next comes Vaccaro, with Raymond Brian question James. from Our

Brian Vaccaro

up to the value. on for the environment. given current is value positions consumer proposition of and noted where you Just peers sort I the obviously First could seeking you environment, thought you maybe Watch's how stacks elaborate current

your how markets. in or be Maybe would up most that Any you've just color your to there you during prices great. Is think for that average compare of XX% peers on menu provide metrics taken And tighten about could us? to pricing cumulative any around I pandemic. direct speak the sort right? maybe

Christopher Tomasso

of power. pricing have a bit We quite

about per-person are, You're how pricing power, competitive cover actually X.X% our been sticking pandemic. we've taken inflation. we're have not, realize that.And low a It's philosophy since much pricing the or versus when we end look our it of while our that on to the But average believe year. at to at right set, of we we we

if X.X% you continue a and at I and look you'll that at conservative, think year look we've quite be see to comparatively, So that we'll that it been way.

Our in on always, this, focus, even traffic. to want like value, as times really relative focus incredible

I and kind think our for how to that. we're that's to right here numbers beating to box what the the going we've attest industry versus we for we're of It's years, And approach think us. continue done do black that. and

Brian Vaccaro

follow-up, seeing. And operational you're just the on right. All improvements that one

tools You Could there? seeing labor, it being it, of way cost flat per any parse week color in of you're mentioned on some deployed by at about provide And ticket out year-on-year the like recent sort looks is as the But more the was on any year-on-year new efficiencies despite times. lower. we level look traffic or there wage quantification inflation. to you was you've improvement the generated it of Obviously, quarters?

Christopher Tomasso

doesn't it mean that over full comping optimized I where caution, at point was installation rolled the we're not ticket out times, just mind, the or we're piece. have just what be the to rollout. as in labor But speak always significant at Keep for and I improvements. I'll And the we Sure. times. ticket it I'm consider because we're to your answer seeing Mel now point. was on the sure

KDS even sales most that, the early with times, which XX% the we is system we optimize during mean, XX% I in get, So hours, information as to ticket based on that seeing the impactful to we're peak on continue obviously. improvements

Mel Hope

of way terms a that of and then, of going One But are the are managing been couple our crews. is in that underappreciated job maybe things think doing And operators has gone that gets Brian, good successful the that managing of with really I things turnover one that on. very down. is our they've really a labor, very,

when It's delighted over tenured interest been people see of been that's deliberate. turnover company, that great costs. deal. and more the we've just and operators off helps part ticking have -- of in process. lowering to to a last the when charges.So employees. degree. of us much, their so It's part is that really years. turnover it's been been the have folks and And They paid efficient much several lower our down terms that the And low to also their become But creating fun improvements because the course of in And overtime at services It's overall watch. crews made the careers great a lower been you

Operator

Francfort, comes from Securities. Instructions] [Operator Our next question Gregory with Guggenheim

Gregory Francfort

I had a couple of questions.

And The it quarter first fourth right? maybe is is, to driving may one, the what's mix quarter. stronger curious, looks from like that had have first you that? the I'm

Christopher Tomasso

experienced in I it consider the looks our select plans, with but proven are that think, our have decision helped past. consumer And I think for in QX. high-appeal and So think us, don't mix I that items the we mix know, goes back to we LTOs. And that as to in our from you that

Gregory Francfort

be is traffic commentary expect the but maybe to the year it. Got the the helpful, level-set quarter? or in XQ to than first do you And comps better in comps just expectations, then throughout on worse

Mel Hope

Better.

Gregory Francfort

giving out Okay. And you can of think you the menu? I'm then on in maybe the perspective? just I system customer what an tangibly examples that's you on. that -- tech that you platforms, helping are different the can feedback curious of changes operational learnings maybe now, how some just insights you some around been on -- change that's from make giving platforms better is of and a Is across getting you're of the give commentary kind few kind what and what the long the

Matt Eisenacher

there. ticket a better Eisenacher. Similar Greg, KDS front informs and It to it's from time, efficiency us on insight make to you've of similar better chime The Matt I'll in house. data perspective that in to what of and back the long-term overall. it's house seen us in one. decisions enables

to us out, And term in same about more frequency, and it's visit Chris our telling you the as front customers customers even just to house. about that efficient more have long us of will more and talk that talked further if our segment we the get allow ticket course and of to then So a already times, and look and opportunity then more way. Mel efficient in over targeted

to it's forefront but at the of long-term look a that again, how demand. So really is one perspective, we drive

Operator

next O'Cull, comes Our with from question Chris Stifel.

Christopher O'Cull

to follow-up down first quarter. in to on mid-single Mel. expected in to believe you Can the last Because confirm I better comps first, up to I you the expect the be I you traffic quarter? the pricing X.X% expand in had about than comments traffic less question that, a be pricing I that and in digits second to be that's the than second one, your said performance. similar with think because want second in quarter

expected that curious, the second in is So just I'm mix you're looking improvement be to for? the sequential

Mel Hope

Again, we of we the when project our terms projections mix very in project don't much.

-- So it traffic optimistic it's really, about improving. we the choppy while feel we're side, still gradually on

Christopher O'Cull

just meaningful in company especially recent advertising Chris, making And traffic weakness, fair. then, know I That's in more a in the used Florida? the but in past, that paid have investments medium, address way to considered hasn't the Okay. big you

Christopher Tomasso

our has focus specifically, media and on social. been digital paid Well,

brand. I we the going us timing And would Again, better discounting Matt platform, perhaps. for to us. it think to is do awareness.And into We with about, way and you increase talked itself. of digital, not those understanding our us be customer but about messages, not when helps channels think for of radio as a more have for messaging a visitation media more what in especially targeted, we're invested have spend channels, fit traditional just they're So call spent television, we a

segmenting his been that's think continue So have good of and for and a and to I Matt team we'll job that. better, done do helpful us

Christopher O'Cull

I was thinking considering? more radio. traditional, you like billboards that's something not And and guys that are

Christopher Tomasso

traditional know we you of know. scale it's When very the we're well Chris, really media-efficient, media-efficient, even media, pretty where be what, to you these have markets as difficult You into some get start don't penetrated. despite to getting

Operator

closing for floor comments. questions no are back at like I turn Chris over to would There further Tomasso to time. the this now

Christopher Tomasso

you. brighter each again our want once and commitment for our I dedication to making for teams thank other. to and days customers Thank their

are due growth today. and opportunities march success we your for all efforts, as their Our them which to toward growth creates for restaurants.Thank in large X,XXX turn part time opportunities in you

Operator

teleconference. today's concludes This

You you at participation. this may for disconnect Thank your lines time. your

First Watch Restaurant (FWRG) 7 May 242024 Q1 Earnings call transcript