First Watch Restaurant Group Q1 2025 Earnings Report

First Watch Restaurant Group EPS Results

• Actual EPS: -$0.01
• Consensus EPS: $0.04
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: $0.12

First Watch Restaurant Group Revenue Results

• Actual Revenue: $282.24 million
• Expected Revenue: $282.98 million
• Beat/Miss: Missed by -$742.00 thousand
• YoY Revenue Growth: +16.40%

First Watch Restaurant Group Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 8:00AM ET

First Watch Restaurant Group (NASDAQ:FWRG), through its subsidiaries, operates and franchises restaurants under the First Watch trade name in the United States. The company was formerly known as AI Fresh Super Holdco, Inc. and changed its name to First Watch Restaurant Group, Inc. in December 2019. First Watch Restaurant Group, Inc. was founded in 1983 and is based in Bradenton, Florida.

First Watch Restaurant Group Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by and welcome to the FirstWatch Restaurant Group Inc. First Quarter Earnings Conference Call occurring today, 05/06/2025 at eight a. M. Eastern Time. Please note that all participants are currently in a listen only mode.

[Operator]

Following the presentation, the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time. This call will be archived and available for replay at investors.firstwatch.com under the News and Invest section. I would now like to turn the conference over to Steven Murata, Vice President of Investor Relations at First Watch, to begin.

[Steven Marotta, VP of IR at First Watch Restaurant Group]

Hello, everyone. I am joined by FirstWatch's Chief Executive Officer and President, Chris Tomasso and Chief Financial Officer, Mel Hope. This morning, FirstWatch issued its earnings release for the first quarter of fiscal twenty twenty five on Globe Newswire and filed its quarterly report on Form 10 Q with the SEC. These documents can be found at investors.firstwatch.com. This conference call will include forward looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements.

[Steven Marotta, VP of IR at First Watch Restaurant Group]

Such statements include, without limitation, statements concerning the condition of the company's industry and its operations, performance and financial condition, outlook, growth plans and strategies and future expenses. Any such statements should be considered in conjunction with the cautionary statements in the company's earnings release and the risk factor disclosure in the company's filings with the SEC, including our annual report on Form 10 ks and quarterly reports on Form 10 Q. First Watch assumes no obligation to update these forward looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management's remarks today will include references to various non GAAP measures, including restaurant level operating profit, restaurant level operating profit margin, adjusted EBITDA and adjusted EBITDA margin. Investors should review the reconciliation of these non GAAP measures to comparable GAAP results contained in the company's earnings release filed this morning.

[Steven Marotta, VP of IR at First Watch Restaurant Group]

Any reference to percentage growth when discussing the first quarter performance is in comparison to

[Steven Marotta, VP of IR at First Watch Restaurant Group]

the first quarter of twenty twenty four, unless otherwise indicated. And with that, I will turn the call over to Chris.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Good morning, everyone. Thank you for joining us today to discuss our first quarter results. And a very special thank you to our entire team across the country, over 16,000 strong.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

At FirstWatch, regardless of the season or the economic cycle, we are about growth, bringing our unique breakfast brunch and lunch offering to more customers, more often, and in more markets. Our first quarter of twenty twenty five delivered better than 16% total revenue growth, positive same restaurant growth, 13 new system wide restaurant openings, and the launch of new marketing campaigns across multiple markets. We also realized a lift in our traffic, as the improvement in that trend we shared with you in March continued with our first quarter results. As always, our teams continue their high standard of consistent execution on our service objectives. As recent headlines attest, the broader macro environment appears even more volatile than when we spoke in March, with rapidly shifting expectations for both consumer demand and input costs.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Last year, in describing our organization's primary focus, we often used the phrase controlling the controllables with regard to our customer and employee experiences, as well as our management of the business day in and day out. This approach served us well through 2024 and will continue to be a guiding principle. Now, on to Q1 in more detail. 2025 got off to an encouraging start, with a return to positive traffic in January, followed by a widely reported weather driven decline in February, and then a return to positive traffic in March. Then, in April, we posted the best monthly same restaurant traffic result in over two years, giving us optimism that we're on track to achieve positive traffic for the year.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Our better than 16% total revenue growth in the first quarter, driven by a powerful combination of positive same restaurant sales and continued success of new restaurants illustrates the strength of FirstWatch's growth strategy. The commitment of our culture to improving operational efficiency has led to the adoption of new technologies and streamlined processes, ensuring we deliver exceptional customer experiences while remaining competitive and agile in an ever changing macro backdrop. Ticket times, for instance, are an important KPI for us, and they improved once again in the first quarter compared to the year ago period. Our investments in the development of our people and their well-being continue to pay dividends, fostering a highly motivated and skilled team, as evidenced in part by our continued reduction of turnover rates. Indeed, the first quarter of twenty twenty five represented the eighth consecutive quarter of improved field level employee turnover.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Our people are a key brand differentiator, and because we recognize the importance of maintaining a positive and productive work environment, we will continue to introduce and prioritize programs that support their personal and professional growth. Like our GM Council, for instance, where a select few of our general managers are chosen to act as sounding boards and problem solvers for their counterparts across the system. Our enhanced strategic marketing efforts began rolling out across multiple markets in March, and we are pleased with the results thus far. We have tactically targeted various consumer touch points, including social media, digital advertising, and connected TV to positively influence both reach and engagement. This multifaceted approach is allowing us to connect with a broader but more targeted audience, driving brand awareness and fostering deeper connections with our existing customers.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

These campaigns are already exhibiting promising results in targeted geographies, As we continue to refine and expand our marketing strategies as the year progresses, we will be able to increase our reach, retention and frequency to support sustained same restaurant traffic growth. Turning to new restaurant development, we opened 13 company owned and franchised restaurants during the quarter across 10 states, ending with five eighty four First Watch locations. In January, we opened our first New England location in Hanover, Massachusetts. In only its first few months, this restaurant is performing well above our expectations, and is often on a wait even on weekdays. Hanover's success is yet another proof point that supports the fact that the First Watch brand is highly portable, and that our total addressable market of at least 2,200 locations in the Continental United States is not only realistic, but highly attainable.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And just two weeks ago, we announced that we will open a flagship location in a high profile site on Boylston Street, right at the finish line of the Boston Marathon in Boston's Back Bay. The entire New England market represents a significant opportunity for our continued expansion. Towards that end, we recently signed a lease in Nashua, New Hampshire, representing our very first in that state. Speaking of new markets, in addition to our previously announced entry into Las Vegas later this year, we recently signed our first lease agreement in Memphis, Tennessee, where we expect to open our first restaurant in Q3 of this year. Our strategic expansion into Memphis is also set to advance our footprint across the region, complementing our presence in Nashville, a market we entered more than a decade ago and now have 14 restaurants.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And just yesterday, we put our thirty first state on the map with our first restaurant in Idaho, specifically in Meridian, a suburb of Boise, yet another market with a lot of white space that also helps us fill in the Northwest and builds upon our expansion into Nevada and Utah. One last word on development. As a group, the 2024 and 2025 classes are currently tracking 10% or above both the comp cohort and our first year sales expectations. This relative outperformance underpins our confidence in delivering double digit percentage unit growth targets and in our capital allocation strategy targeting cash on cash returns of around 35% and an IRR of greater than 18%. Additionally, we are pleased to share the completion of our previously announced franchise acquisition of 16 restaurants in North and South Carolina on April 28, as well as the acquisition of three franchise restaurants in Missouri on April 14.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

These strategic acquisitions bolster our presence in these key states, and the accompanying development rights provide several high quality trade areas for continued new company restaurant growth. Every year, our strategic planning focuses on innovative methods to create more demand, improve throughput, enhance customer satisfaction, and at the same time, our entire team. I'd like to highlight a few key initiatives that aim to further strengthen our leadership position and contribute to our continued growth. Last quarter, we mentioned working more closely with our third party delivery partners to better accommodate the demand dynamics in that channel given the macro pressures facing the consumer. Working in partnership with the largest of our two third party delivery providers, we developed and implemented a strategy that reversed our negative traffic trends in this channel.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

The channel's traffic lift has outperformed our expectations, and as a result, we are driving more margin dollars, albeit by design at a lower PPA and at a somewhat lower margin. To enhance customer satisfaction and deliver increased value, we doubled the amount of meat in one of our top selling plastic dishes, the Trifecta, and chose not to take price in order to maintain original margin. The timing of an outsized increase in bacon costs, combined with a significant demand shift by customers into this menu item, has placed additional pressure on our margins. We believe taking selective steps like this will ultimately lead to increased customer frequency at the short term cost of a tighter margin for this high mixing item. Our general managers are at the forefront of our customer service.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

To demonstrate our commitment to hospitality, inspire their creativity, and positively impact their communities, we have empowered and encouraged them to make days brighter for certain customers through surprise and delight acts of kindness. These come to life in the form of a complimentary juice, shareable, or entree. While there is an impact to our per person average check, with these actions, we are making an investment in long term customer retention. Small acts such as these create an emotional connection for our customers and build loyalty in ways points based loyalty programs simply can't. We believe that the way to effectively manage through uncertain times is to focus on the customer, deliver exceptional value, and meet the customer where they are.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

By optimizing our third party delivery program, amplifying our invest in the guest initiatives, and empowering our leaders to make days brighter for our customers, we are doing just that and building a stronger foundation for future growth at the same time. Inevitably, every year presents a new set of challenges. While our overall first quarter traffic was a bit lower than our own expectations, specifically as it relates to the in restaurant channel, we're pleased to see same restaurant traffic growth displaying sequential improvement. April was better than the first quarter, which was better than the fourth quarter, which was better than the third quarter. Near term, our margin profile is being pressured by higher inflationary headwinds in our market basket since our last earnings call, the impacts of new tariff implementation, and the incremental costs of the previously listed initiatives.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

We believe that the multiple challenges affecting our current margin profile are transitory and that our daypart dominance, market share, unit growth, competitive positioning and customer service experience are unmatched across the industry. We have a lot to look forward to in 2025. With our increased marketing activity this year, we're actively building customer awareness in core, emerging and entirely new markets. Our new restaurant openings continue to exceed expectations. Our growth plan is solid with both our real estate and people pipelines in place to support our continued expansion.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Our top performing restaurants span 14 states and 22 DMAs, showcasing the adaptability and appeal of our brand across diverse regions and illustrating First Watch's widespread popularity. We have nearly 600 system wide restaurants serving breakfast, brunch, and lunch in 31 states. We believe that with the higher sales potentials represented in our new openings when compared to the existing portfolio, our future restaurant classes will perform even better. And now I'd like to turn it over to Mel.

[Mel Hope, CFO at First Watch Restaurant Group]

Thank you, Chris, and good morning. Total first quarter revenues were $282,200,000 an increase of 16.4%. Our top line increase results from positive same restaurant sales growth of 0.7% and the contribution of 115 non comp restaurants, including 46 company owned new restaurant openings and 22 locations we've acquired since the fourth quarter of twenty twenty three. Same restaurant traffic was negative seven tenths of a percent. We're generally pleased that both January and March posted positive same restaurant traffic, though the headwinds experienced industry wide applied pressure on February results.

[Mel Hope, CFO at First Watch Restaurant Group]

For the quarter, our in restaurant traffic was below our expectations. Our restaurant yielded immediate results with this channel experiencing percentage traffic growth in the mid teens and offsetting much of the traffic decline of our in restaurant dining and direct off prem sales channels. We also experienced positive sales mix during the quarter. Before moving on to specific income statement inputs, I want to draw your attention to two independent factors that impacted multiple income statement line items. First, growth in the per person average check was lower than carried pricing in the first quarter due to both the surcharge adjustments we made to our third party delivery program as well as various in restaurant marketing initiatives, not check management.

[Mel Hope, CFO at First Watch Restaurant Group]

Second, and as we've shared before, our new restaurants operate at less efficient margins with the first one hundred and twenty days having the steepest climb to maturity. During the quarter, the contribution from our new restaurants was more pronounced than usual considering that we've opened 33 new company owned restaurants in the last two quarters. Food and beverage expense rose to 23.8% of sales compared to 21.8% in the first quarter last year. Costs as a percent of sales benefited from carried pricing of around 2.5%, though this was more than offset by commodity inflation of 7.7%. Eggs, bacon, coffee, and avocados, which comprise four of our top five food cost inputs, are all trading at remarkably high prices and so are increasing our commodity costs.

[Mel Hope, CFO at First Watch Restaurant Group]

Additionally, food and beverage cost as a percent of sales were impacted by our decision to increase certain portion sizes as Chris mentioned earlier. Labor and other related expenses were 34.6% of sales in the first quarter, a 130 basis point increase from 33.3% reported in the first quarter of twenty twenty four. Higher health benefit costs were the primary reason for the year over year percentage increase due to higher enrollment and higher claims. Restaurant level labor inflation was 4.1% in the first quarter, and labor efficiency was in line compared with last year. Restaurant level operating profit margin was 16.5% in the first quarter compared to 20.8% in the first quarter last year.

[Mel Hope, CFO at First Watch Restaurant Group]

Income from operations margin was four tenths of a percent. We leveraged G and A expenses. As a percentage of total revenue, these expenses declined to 10.7%, a 70 basis point improvement compared to the same quarter last year. The $2,500,000 increase versus last year was driven by investments in marketing and in headcount. Adjusted EBITDA was $22800000.0.5800000.0 below last year with adjusted EBITDA margins slipping to 8.1% from 11.8%.

[Mel Hope, CFO at First Watch Restaurant Group]

Adjusted EBITDA results were lower than our prior expectations due to three factors. First, while March traffic improved from February, both months were weaker than we expected. Second, as Chris mentioned, we empowered our managers to surprise and delight certain customers, and the costs associated with this program were higher than anticipated. And lastly, adjusted EBITDA was affected by the increased cost of our health care benefit programs. We reported a net loss of $829,000 There were 13 new system wide restaurants opened during the first quarter, of which 10 are company owned and three are franchise owned, and we ended the period with five eighty four restaurants in the system.

[Mel Hope, CFO at First Watch Restaurant Group]

The net effective acquisitions, which includes only the impact of purchases made within the last twelve months, increased first quarter revenue by about $10,500,000 and adjusted EBITDA by about 1,900,000.0. For further details on the quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link. Before moving on to guidance, I want to offer some further context on our commodity costs. Four of our top five market basket items, including eggs, bacon, coffee, and avocado are experiencing high rates of inflation in 2025. While slightly higher since our last earnings call, our consolidated commodity inflation expectations remain in the high single digits for 2025, and we expect the inflated cost to peak in the second quarter.

[Mel Hope, CFO at First Watch Restaurant Group]

In our experience, outsized inflation tends to be transitory, and as such, we do not intend to fully offset the inflation with increased menu pricing. Now I'd like to provide an outlook for 2025. As I do, please note that our updates incorporate our estimates of the impacts of announced tariffs, which account for roughly 30 basis points of additional costs as a percentage of total revenue. We're maintaining our estimate of percentage same restaurant sales growth at positive low single digits with flat to slightly positive same restaurant traffic. Our estimate includes the consideration of a 1.3% price action implemented in January and implies carried pricing of around 2.6% in the second quarter and 2% for the full year.

[Mel Hope, CFO at First Watch Restaurant Group]

As a reminder, our menu pricing disciplines target the offset of what we perceive to be permanent cost inflation, not transitory spikes. We expect total revenue growth of around 20% with a net 400 basis point impact from completed acquisitions. We expect a total of 59 to 64 net new system wide restaurants, including 55 to 58 company owned restaurants and seven to nine franchise owned restaurants with three planned company owned restaurant closures. Our company owned new restaurant development pipeline is weighted in the second half of twenty twenty five, Q4 in particular. We expect full year percentage commodity inflation in the high single digits, driven largely by increases in the four commodities I discussed earlier, as well as the tariffs.

[Mel Hope, CFO at First Watch Restaurant Group]

Restaurant level labor cost inflation is expected to be in the range of 3% to 4%. We're lowering our adjusted EBITDA guidance to a range of 114,000,000 to $119,000,000 which includes the estimated net contribution of about $7,000,000 from acquired restaurants. Our updated estimate of full year adjusted EBITDA considers the first quarter's underperformance, our lower than expected in restaurant traffic, costs associated with invest in the guest measures, and incremental inflation expectations among other items. We expect a blended tax rate of 45 to 50%. We expect capital expenditures of $150,000,000 to $160,000,000 not including the capital allocated to franchise acquisitions.

[Mel Hope, CFO at First Watch Restaurant Group]

And finally, a couple of reminders about the current quarter to help with your financial models. As Chris mentioned, April's consolidated same restaurant traffic was positive, and though the consumer backdrop remains highly uncertain, our expectation of positive same restaurant traffic in the back half of twenty twenty five remains unchanged. Also, we currently expect the second quarter will represent the peak of our commodity inflation for the year with some relief in the second half of the year. With a strong pipeline of new restaurant openings and plans to continue driving traffic, we're looking forward to serving our current customers more frequently as well as introducing new customers to First Watch. Operator, if you'll please open the line for questions.

[Operator]

Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow-up so that others have an opportunity to ask questions. For participants using speaker equipment, it may be necessary to pick up your handset before pressing Our first question comes from Andrew Charles with TD Cowen.

[Operator]

Please proceed with your question.

[Mel Hope, CFO at First Watch Restaurant Group]

Good morning, Andrew.

[Andrew Charles, Managing Director at TD Cowen]

Good morning, Mel. Thank you, guys.

[Andrew Charles, Managing Director at TD Cowen]

Can you expand on the comment that sales turned positive in March and then traffic turned positive in April? I'm wondering just given the Easter shift, you can speak to two year underlying sales improving from March to April.

[Mel Hope, CFO at First Watch Restaurant Group]

I think what we're seeing across, I don't have the two year comp in front of me, the shift this year caused some favorability, but we're seeing the trend is even through the holidays, pulling out the holiday effect, our traffic continues to

[Mel Hope, CFO at First Watch Restaurant Group]

be positive across both periods.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Hey, Andrew, it's Chris. I'll say that we had sequential positive dine in traffic improvement for all four quarters last year and in Q1 taking out February that that trend would have continued.

[Andrew Charles, Managing Director at TD Cowen]

Okay. And then, Chris, wondering if could 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 is the right approach for the business?

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

That it's working. The results that we're seeing are encouraging for us. So our focus right now in this environment, obviously, we've got cost pressures. We'll talk about that some more, I'm sure. But our focus is on driving traffic in our channels and specifically in our dining rooms and in the third party channels.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

So as you know, we had certain headwinds that we spoke about very often in 2024 and our team got to work on addressing those. And we're pleased with the results we're seeing. So if you look at what we reported today, a lot of confidence here around our ability to move the needle and get the consumer engaged with us, whether it's the marketing efforts, the moves we make in partnerships with our third party providers. But the costs that we're dealing with, we are confident that they're not permanent. So we're really focused on the top line.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And that's really what's driving the guidance and why we kept a lot of the elements from the top line perspective of the guidance in place because we are seeing some positive inflection there.

[Andrew Charles, Managing Director at TD Cowen]

That's helpful. Thank you.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Sure.

[Operator]

Our next question comes from Jim Flair with Stephens Inc. Please proceed with your question.

[Jim Salera, Research Analyst at Stephens Inc]

Hey, guys. Good morning. Thanks for taking our question.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Sure.

[Jim Salera, Research Analyst at Stephens Inc]

I wanted to drill down a little bit on some of the learnings from the increased media spend, and particularly engagement that you've seen following some of the new media efforts in March.

[Jim Salera, Research Analyst at Stephens Inc]

And if that has any sort of learnings that you can apply more broadly across the network and help support traffic as we have kind of this consumer malaise that we're confronting?

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Yeah. Again, we you know, we're iterating as we go along, but we're pleased with the results we've seen. I think it it comes to life in the form of the improved traffic trends that we're seeing. And so we're chipping away at it. And we're only in, call it, the second month of that effort.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

We launched it really February, March. So we're starting to see the benefits of that now, which gave us the confidence to hold some of the guidance as it relates to that because we are happy with what we're seeing. So the team's just doing a really good job of A, harvesting the data, leveraging it for the messaging, the timing, all of those things. And it really is a highly iterative process where we're making a lot of positive adjustments as we go along.

[Mel Hope, CFO at First Watch Restaurant Group]

We're also learning from markets what are

[Mel Hope, CFO at First Watch Restaurant Group]

the characteristics that are where the response is quicker than others. And so it's helping us to dial it in more directly.

[Jim Salera, Research Analyst at Stephens Inc]

Okay, great. And then if I could maybe ask one on commodity. I believe you guys said 2Q should be the peak on commodity costs. Just any thoughts on is that just you have better visibility into commodities in the back half of the year or there's some things you're doing on sourcing that help mitigate those costs? Just any color around why we that

[Mel Hope, CFO at First Watch Restaurant Group]

you Jim,

[Mel Hope, CFO at First Watch Restaurant Group]

the one thing I would point to is first of all, we have commodities that are crop related. So some of them to do with when the crops come in. And so where we've gone through a season where crops haven't, they have suffered. We don't expect that to be a permanent sort of item. Then where eggs are concerned, for example, that's been a large part of the discussion around our inflation for quite a couple of quarters here.

[Mel Hope, CFO at First Watch Restaurant Group]

So as the flocks are still rebuilding for our we're finicky about our eggs. They're cage free pasteurized extra large shell in eggs that we use And in order for the flocks to lay extra large eggs, the hens have to be a certain maturity and they're replenishing those flocks now. So at some point in time, I have to believe that there's going to be a sufficient supply of our kind of specialty bird in order to see some relief there.

[Operator]

Our next question comes from Brian Vaccaro with Raymond James. Please proceed with your question.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Yes, just a quick follow-up on the marketing spend and just thinking about the potential benefits through the year. Could you elaborate on what percentage of the system had support in the first quarter? Or any color on how that could increase in the second quarter or second half or anything around spend levels? I'm just trying to gauge what we've seen versus what we could see rest of the year.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Thanks, Brian. It's Chris. I mean, basically, almost the entire system is receiving some kind of support. Obviously, there's heavy ups in certain markets that we're not disclosing. But there are efforts, whether it's digital, social, or some of the more targeted things that are impacting the entire system and then an elevated level in certain markets where more of the spend is being allocated.

[Mel Hope, CFO at First Watch Restaurant Group]

And Brian, every market, every restaurant has always received some level of marketing support. So this is more of an emphasis on certain markets.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Okay. And then I guess maybe a high level question. I guess I'm curious to get your thoughts just on the breakfast category in The US. It seems like quick service weakened quite a bit in the first quarter, and then legacy family dining continue to have its challenges. Are there macro factors that might be weighing there that you are less exposed to?

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Or maybe you do see some evidence of the broader headwinds sort of beneath the surface, whether that be softness during the weekdays or any pullbacks you're seeing in the lower range of your income cohorts? Just curious to get your lay of the land on the category.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Yes. We do believe that our higher income profile customer provides some protection for us against that. I think there's been a lot of discussion around the lower income consumers pulling back. And you know that's the type of customer that we appeal to and that makes up the majority of our demographic profile of our customers. So we think there's some protection there.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Thank you.

[Operator]

Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with your question.

[Jeffrey Bernstein, Analyst at Barclays Capital]

Great. Thank you very much. My question is on the 2025 guide. So you tempered the EBITDA by roughly $10,000,000 or 8%, but all of the components effectively reiterated. Mel, I know you talked a lot about a variety of headwinds.

[Jeffrey Bernstein, Analyst at Barclays Capital]

They don't seem to be top line related, at least in your view. I'm just wondering, it's all about costs over sales here. I'm just wondering if you could prioritize or bucket for us. Again, mentioned a number of them, but the primary drivers in order of magnitude I guess for that significant EBITDA reduction. And then I had one follow-up.

[Mel Hope, CFO at First Watch Restaurant Group]

I think almost certainly the cost related issues are the piece that motivated us to bring down our guidance for the full year. More sustained inflation and then obviously the consideration of tariffs, which we hadn't included in our guidance before.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And Jeff, this is I mean, I've been here as you know almost twenty years and at least in my time unprecedented that we'd have four of our top five commodities be under pressure at one time. The diversity of our market basket has been a benefit to us for throughout the history of the company. And so this is certainly a unique time.

[Jeffrey Bernstein, Analyst at Barclays Capital]

Got you. And my follow-up is just on the comp trend. I'm wondering whether you've seen any change in consumer behavior, whether it's frequency or weekday versus weekend. It does seem like you're encouraged by the sequential traffic uptick, but I know there are some that are concerned. It looks like you're saying you expect to sustain that positive traffic in the second half despite the consumer volatility.

[Jeffrey Bernstein, Analyst at Barclays Capital]

So I'm just wondering if you can prioritize the primary driver to give you that level of confidence. Thank you.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Sure. Yes, I are encouraged by the trends that we're seeing. And again, it goes back a little ways here as we're chipping away at it. But as far as the high level trends, we're not seeing any big shifts or anything. We're not seeing any check management, as Mel mentioned, which is great.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

So at least all the signs that we're seeing in our business, we see a healthy customer for us. And I'm choosing the word customer because they're the ones that come to us rather than consumer. Obviously, there are some challenges in the environment. But in our four walls, in our restaurants and the customers that we're serving, we're encouraged by the trends we're seeing right now.

[Jeffrey Bernstein, Analyst at Barclays Capital]

Great. Thank you.

[Operator]

Our next question comes from Sara Senatore with Bank of America. Please proceed with your question.

[Sara Senatore, Analyst at Bank of America]

Thank you. I have two questions. I'll start with the first one. Just on the closures this year, I think it's been a while since you've closed restaurants or certainly this number. Can you just talk about the ones that you're closing and especially in light of how good the new unit economics seem to be, anything worth noting there?

[Sara Senatore, Analyst at Bank of America]

Like I said, then

[Mel Hope, CFO at First Watch Restaurant Group]

Yeah. I mean, we're a system of 500 restaurants and every year one of the leases or a couple of the leases run to term and if the trade area has moved or something like that, then we might choose to not renew the lease or to relocate the restaurant or something like that. But there's nothing remarkable about the three closures anticipate having this year. But in terms of new units, you ask new units continue to outperform the rest of the system in terms of their sales volumes and meet our expectations on their pathway to full maturity over time.

[Sara Senatore, Analyst at Bank of America]

Right, so these aren't reloads. These are just like you said, a system of 500. You're going to invariably have maybe a couple more closures than you would have a couple of years

[Sara Senatore, Analyst at Bank of America]

ago.

[Mel Hope, CFO at First Watch Restaurant Group]

Yeah, across forty years we've got restaurants that have leases that are maybe 25, 30 years old. And so occasionally things move or trade areas go through a re gentrification or something like that.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Sarah, I'll be even more specific. Sometimes there are restaurants in what at the time we opened them, say twenty years ago, was really the only trade area to open in, and new trade areas have emerged. Sometimes by closing one, we can open two in adjacent trade areas now whereby having one in the middle locks out the other two. So we just we constantly do a review of our assets. And as leases expire, we look to be as proactive as we can about optimizing the markets and ideally shooting for the penetration in the market and the density in the market that we believe sets us up best for success.

[Sara Senatore, Analyst at Bank of America]

Okay. Thank you. That's very helpful. And then just on the surprise and delight, I know you said that was a little bit the pressure on margin was a bit higher than you had anticipated. Sounds like maybe some of the customer sort of choice too in terms of shifting to the higher COGS item with the portion investment.

[Sara Senatore, Analyst at Bank of America]

Is there anything maybe in particular with the surprise and delight piece that you can do to perhaps manage that or maybe guidance that you can give to your managers about how to do that most efficiently?

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Yeah. I mean, it was something we rolled out at our annual conference. And you hear us use the term making days brighter, and this was a way to bring that to life. And our managers got way behind it. They got really excited about it.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

I mean, we're recognizing first responders and teachers and our neighbors and Little League teams and really putting a big focus around 2.5 miles around the restaurants, which is where our customers come from. And so, yes, I mean, it's not this is something that we'll continue to do for the rest of the year. Obviously, there's conversations that goes on about managing it appropriately. But we think it's a great program. We think it's a great way to build loyalty.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And I think our teams are doing a great job with it. And we'll just manage it appropriately with them as the year goes on.

[Operator]

Our next question comes from Jon Tower with Citi. Please proceed with your question.

[Jon Tower, Analyst at Citigroup]

Great. Thanks. I know it's early in the process in terms of some of the marketing stuff and even some of the surprise and delight ramping. But I'm curious maybe if you've seen any improvement in some of the consumer scores regarding your value proposition for the guest as you've been ramping some of these things through the system?

[Mel Hope, CFO at First Watch Restaurant Group]

Yes, think you're right. It's early. I mean, we've been probably thirteen weeks with some of this. So there's we're going to have a longer period and more cohort to analyze.

[Jon Tower, Analyst at Citigroup]

Okay. And then maybe just on the

[Jon Tower, Analyst at Citigroup]

labor front, I know it was higher this quarter. You called out health benefit costs kind of picking higher. But is there anything else that we should consider going forward aside from the underlying labor inflation to consider? Is there any investment here

[Jon Tower, Analyst at Citigroup]

on the balance

[Mel Hope, CFO at First Watch Restaurant Group]

other part of the uptick is one that we always have, which is that we carry extra managers because we're opening so many restaurants at such a rapid pace that we carry extra managers so that when we do open a restaurant, we can put a veteran manager into the restaurant. And so we tend to carry some higher costs there. And as we open, as we're opening more restaurants each year and opening more rapidly, the fact of the matter is that we're carrying more managers.

[Jon Tower, Analyst at Citigroup]

Got it. And then just last one quick on the tariff pressure. Can you just tell us exactly where that came from? Is that coffee and maybe avocados? Curious where.

[Mel Hope, CFO at First Watch Restaurant Group]

A lot of it has to do with supplies that we get from Asia and there's some on food products, really a great deal of it has to do with our packaging supplies and paper goods, napkins, that sort of thing.

[Operator]

Our next question comes from Todd Brooks with The Benchmark Company. Please proceed with your question.

[Todd Brooks, Equity Research Analyst at The Benchmark Company LLC]

Hey, thanks for taking my questions. First wondering, and Mel, you gave us some color on the pricing waterfall over the balance of the year. But if we think about the mix impacts that you highlighted between the GM Surprise and Delight and DoorDash, the kind of new algorithm around how that business is priced. What do you see as kind of the mix offsets for those pricing impacts as we look forward?

[Mel Hope, CFO at First Watch Restaurant Group]

Todd, when you say mix offsets, help me understand what you're trying to drill to.

[Todd Brooks, Equity Research Analyst at The Benchmark Company LLC]

I'm trying to get from the menu pricing that you talked about to what the actual average check growth would be in the forward outlook.

[Mel Hope, CFO at First Watch Restaurant Group]

We generally don't guide to mix. Generally speaking, we consider it sort of a flattish in our own projections. So if that's helpful.

[Todd Brooks, Equity Research Analyst at The Benchmark Company LLC]

Okay. I didn't know if there

[Todd Brooks, Equity Research Analyst at The Benchmark Company LLC]

had been any delta with that with what you called out with surprise and delight and the kind of big growth you saw in third party delivery in the new structure there. Okay, great. Thanks. And then, and this is more of a just management kind of philosophy question, but in an environment like we're in now, it seems like relative to most that are maybe struggling with a guidance strategy, you guys the top line seems fairly sturdy relative to others. So when you're looking at the revised EBITDA guidance, is there a thought of, okay, let's take our swipe at this and really work to incorporate everything plus some cushion or this is basically best snap shot of where things stand now and what's a pretty fluid cost environment for you?

[Mel Hope, CFO at First Watch Restaurant Group]

In terms of just management, think, look, we're pleased with what we've with the investment, I guess that you mentioned. I think the thing that propels our growth over a long period of time is growing share. It's increasing our in restaurant dining, which is our most profitable and our proudest representation of our brand. And so I think those things that we do that create more loyalty, more frequency, remind the guests that we're thinking about them personally and celebrate their attendance in the restaurants. I think those things are management decisions that we believe are going to

[Mel Hope, CFO at First Watch Restaurant Group]

pay dividends over the long term.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

As it relates to the cost though, what's included there is all based on our best information right now. We started the year with a higher inflation estimate than others maybe on their calls. And it's based on what we've seen. And like I said, we're in a little bit of a unique situation with the top four of our top five commodities being under some of them double digit inflation pressure.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

So if you're asking if there's cushion in there, I'll just tell you, I think you know how we operate. We base it based on what we're experiencing now. But as Mel said, we expect Q2 to be the peak of that. And a lot of it has to do with the repopulation of the eggs, of the hens and the weather related pressures that we've had, whether it be on coffee or other commodities. So again, it's just it's based on our best information at the time.

[Operator]

Our next question comes from Andy Barash with Jefferies. Please proceed with your question.

[Andy Barish, Managing Director at Jefferies]

Hey, good morning, guys. Wondering if you could comment kind of on the Florida market relative to the system. I know there's been a lot of dynamics down there in that large market for you. Anything you'd like to call out?

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Florida has been great. It's outperformed the rest of the country. Think we've talked a lot about that when it wasn't, when it was underperforming and why we thought it was. I mean, I'd like to think that we had a really good handle on it when we were explaining in '24 that it was kind of a re leveling, if you will, of post COVID euphoria and kind of inbounds into Florida. And now it's leveled off.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

That has and performing really well. And we continue to open new restaurants here. And I'll use the same phrase we used all last year. We're bullish on Florida and nothing's changed.

[Andy Barish, Managing Director at Jefferies]

Yeah, good to hear. And then Mel, just one other cost item. It looked like you called out an increase. I think it was 2,500,000 in R and M and utilities. Was that kind of a variance on the bad side to what you guys expected or was that sort of in line with what you had been thinking in that area?

[Mel Hope, CFO at First Watch Restaurant Group]

Repair and maintenance has been a little bit I would say a little bit of a growth area for us in terms of increased cost, but it's not too surprising for us.

[Operator]

Our next question comes from Brian Mullen with Piper Sandler. Please proceed with your question.

[Brian Mullan, Director & Senior Research Analyst at Piper Sandler Companies]

Thank you. Just a question on menu innovation. Last call you discussed testing an expanded line of beverages. Can you just elaborate a bit on those efforts? What are you seeing in tests and maybe what the next steps would be with that idea if you wanted to move it across the system?

[Matt Eisenacher, Chief Brand Officer at First Watch Restaurant Group]

Yes. Hey, thanks for the question. This is Matt Chief Brand Officer. This is Matt Eisenach, our Chief Brand Officer. We've continued to iterate on different formats for our menus.

[Matt Eisenacher, Chief Brand Officer at First Watch Restaurant Group]

We are still in the final stages of moving into test for those expanded beverages. We obviously want to see those in market for quite a bit of time. But obviously, our goal is to continue to drive incremental beverage attachment.

[Brian Mullan, Director & Senior Research Analyst at Piper Sandler Companies]

Okay. Thanks. And just a follow-up. Again, question on the franchise store base. After this most recent acquisition closes this quarter, just remind us what you have left in terms of options to purchase stores, if anything, just an update.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

There'd be about well, there are 67 franchise locations, and eight of those are subject to purchase rights.

[Operator]

Our next question comes from Chris O'Cull with Stifel. Please proceed with your question.

[Patrick Johnson, Equity Research Associate at Stifel Financial Corp]

Great. Thanks, guys. Good morning. This is Patrick on for Good Hey. Just wanted to follow-up on the mix conversation.

[Patrick Johnson, Equity Research Associate at Stifel Financial Corp]

And I was just curious if you could talk about, Mel, the timing of the investment in portioning changes in the trifecta and then the DoorDash change or the 3P delivery change that you made, just in terms of timing in 1Q and really just looking to understand whether that mix impact we saw in first quarter is reflective of essentially a full quarter of impact?

[Mel Hope, CFO at First Watch Restaurant Group]

It would have been early in January on both of those fronts. That right, Pat? Okay. Yes. So if it's not all thirteen weeks, it's at least eleven of them.

[Patrick Johnson, Equity Research Associate at Stifel Financial Corp]

Got it. That's helpful. Thank you. And then, I think you mentioned, Chris, that ticket times improved again. And I was just curious if you have a sense of sort of the disaggregation of that between KDS system and pay at the table and kind of what those drivers are.

[Patrick Johnson, Equity Research Associate at Stifel Financial Corp]

And I think you guys made some other changes in terms of table utilization as well in the stores. I'm just curious how all that's coming together and if you could kind of rank order the impact that's having on service times.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Yeah. One, two and three is KDS. And I would say then the dining room optimization and the enhanced bussing procedures and again, what I call the unsexy things are part of the blocking and tackling, but really help with the throughput. I also don't want to not mention the wait list on the app. That's a big component of us being able to quote quote more accurate wait times, stop that look and leave, keep people from falling off the list, those type of things.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And then the pay at the table really isn't a ticket time driver. It's more of a consumer benefit, if you will, because it happens after the meals are out. So we're really focused on, as I've said before, the time of the experience that we control. We want to be as efficient as possible. Of course, our customers can can sit as long as they like.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

But whether it's getting them seated as quickly as possible, getting their food out to them as quickly as possible, allowing them to pay as they want to and when they want to, which is why we put the check down halfway through the meal so that now the power is in the hands of our customers to pay when they want to pay. So really is a toolbox that we've put together that all works really well together. And we've actually done some time and motion studies in the back of the house that we've removed a lot of steps and a lot of latency in different positions. So we've really been on, for the past couple of years, a serve more demand focus. And it's pretty much touched every part of our four wall experience.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And if you consider the app just outside the four wall. So that's all worked really well.

[Operator]

Our next question comes from Gregory Francfort with Guggenheim Securities. Please proceed with your question.

[Gregory Francfort, Director - Lead Restaurant Analyst at Guggenheim Partners]

Hey, thanks. I had two questions. The first one, I guess, is for Mel. Just how are you thinking about long term margins, restaurant margins within the context of maybe your 20% in 2024? I think your guidance would suggest it's going be down to some degree this year.

[Gregory Francfort, Director - Lead Restaurant Analyst at Guggenheim Partners]

What is your target for long term margins and kind of where you want to be in that range? Thanks.

[Mel Hope, CFO at First Watch Restaurant Group]

Yes. I think we've always said that we try to over the long term target between 1820% on restaurant level operating profit margins and that hasn't changed.

[Gregory Francfort, Director - Lead Restaurant Analyst at Guggenheim Partners]

Okay. And then just maybe digging in a little bit more on aggregator performance and the third party sales being as strong as they were in the quarter. Are you seeing anything different from the consumer in terms of how they're responding or the offers that they want to see or just kind of how the aggregators might be dealing with placing First Watch versus other brands? Just any thoughts there.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Not necessarily for us. I think our the biggest benefit that we received was really through the partnership with DoorDash and having them lean in and us lean in on realizing that we could really help each other. We serve a daypart that's not as crowded as lunch and dinner per se. And so but from a consumer standpoint, we haven't really seen much change as far as what the order looks like. And again, we're not we're not big on discounting on that channel.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

So that's not really a game that we're in.

[Operator]

Our next question comes from Brian Vaccaro with Raymond James. Please proceed with your question.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Yeah. I just had a quick follow-up, kind of high level on just thinking about relative pricing within the category. It seems like some of the family diners have gotten even more aggressive on value in recent months and quarters. But at the same time, they've maintained elevated menu pricing for maybe maybe a higher for longer strategy. Many of them are my franchisees, etcetera.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

So so their core menu prices, they don't appear to be much different than yours, and in some cases, are even higher based on some of our checks. I'm curious if that fits with what your pricing studies and internal analytics would show and just sort of how much that pricing differential may have narrowed over the last few years.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Yeah. It does line up with our research, Brian. And it's actually a big part of our strategy, which is why we are working really hard to keep our menu prices down and maybe taking having some impact on our margins right now because we think our relative value has improved significantly when you think about the quality of the ingredients that we use and what we offer as compared to family diners. And I'll go back to what I've said before with the highly franchised systems, mother ship doesn't have a lot of control over the menu pricing, which is why us being, call it 90% plus company owned allows us to make those long term strategic decisions that ultimately we believe will be the best decisions that we've made. So as we prioritize traffic right now and deal with the commodity costs that we're dealing with, we've got two drivers for our growth, our unit growth and our same store sales growth.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

And to us, the best way to build the same store sales is through increased traffic, not through pricing. We're looking to be that everyday occasion. We want to be approachable. We don't want price to be a limiter to us being able to build traffic. So we believe we're strengthening the system by acquiring franchisees and by the strategic moves we're making to differentiate ourselves in a challenging environment.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

So we know we're taking share. Our new restaurants are performing really well. And I think that's why we're just so optimistic about where we are right now and actually using this macro environment as an opportunity to strengthen our position and widen our lead.

[Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial]

Right. I'll take the rest offline. Thanks so much.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Thank you.

[Operator]

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

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Great. Thanks everyone for joining us this morning. We appreciate it. It really is an exciting time for FirstWatch and we're looking forward to continuing to make days brighter for our customers and our employees in our nearly six hundred First Watch restaurants across 31 states now. And a special thank you again to our entire team across the system for making days brighter for everyone.

[Christopher Tomasso, CEO, President & Director at First Watch Restaurant Group]

Thanks, everyone.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Steven Marotta, VP of IR
• Christopher Tomasso, CEO, President & Director
• Mel Hope, CFO
• Matt Eisenacher, Chief Brand Officer

Analysts

• Andrew Charles, Managing Director at TD Cowen
• Jim Salera, Research Analyst at Stephens Inc
• Brian Vaccaro, Managing Director - Equity Research at Raymond James Financial
• Jeffrey Bernstein, Analyst at Barclays Capital
• Sara Senatore, Analyst at Bank of America
• Jon Tower, Analyst at Citigroup
• Todd Brooks, Equity Research Analyst at The Benchmark Company LLC
• Andy Barish, Managing Director at Jefferies
• Brian Mullan, Director & Senior Research Analyst at Piper Sandler Companies
• Patrick Johnson, Equity Research Associate at Stifel Financial Corp
• Gregory Francfort, Director - Lead Restaurant Analyst at Guggenheim Partners