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First Watch Restaurant Group, Inc. (FWRG)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered strong top-line growth but notable margin compression: total revenues rose 16.4% to $282.2M while income from operations margin fell to 0.4% and restaurant-level operating profit margin to 16.5% .
  • Results missed Wall Street: EPS came in at ($0.01) vs consensus $0.034*, revenue ~$282.2M vs ~$283.3M*, and Adjusted EBITDA $22.8M vs ~$25.8M*; management lowered FY25 Adjusted EBITDA guidance to $114–$119M and raised the blended tax rate to 45–50% .
  • Management attributed the miss to softer in-restaurant traffic (February weather), “Invest in the Guest” initiatives, higher health benefits, 7.7% commodity inflation (eggs, bacon, coffee, avocados), and ~30 bps tariff impacts; April traffic was the best in over two years and Q2 is expected to be the inflation peak .
  • Catalyst: guidance cut and higher tax rate (with margins pressured by commodities/tariffs) vs otherwise intact unit growth/revenue outlook; strategic acquisitions (19 restaurants in April) add ~4% revenue growth and ~$7M FY25 Adjusted EBITDA contribution .

What Went Well and What Went Wrong

What Went Well

  • 16.4% revenue growth to $282.2M, supported by positive same-restaurant sales (0.7%), new units, and acquisitions; system-wide sales increased 11.5% to $323.0M .
  • Best monthly same-restaurant traffic in over two years in April; sequential dine-in traffic improvement trend continued from 2H 2024 into March/April .
  • New unit performance exceeded cohort and first-year expectations; robust pipeline and strategic franchise acquisitions (16 in NC/SC; 3 in MO) to strengthen corporate footprint .

What Went Wrong

  • Margin pressure: restaurant-level operating margin fell to 16.5% (from 20.8% y/y); Adjusted EBITDA declined to $22.8M, with income from operations margin at 0.4% .
  • Cost headwinds: 7.7% commodity inflation (eggs, bacon, coffee, avocados), higher health benefits, and ~30 bps tariff impact; portion-size investments (Tri-Fecta bacon) without price increase further pressured margins .
  • In-restaurant traffic below expectations in Q1 (weather-driven February), mix headwinds from third-party delivery (mid-teens traffic growth at lower margin by design) .

Financial Results

Revenue and EPS by Quarter

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$251.6 $263.3 $282.2
Diluted EPS ($USD)$0.03 $0.01 $(0.01)

Margins and EBITDA

MetricQ3 2024Q4 2024Q1 2025
Income from Operations Margin (%)2.5% 1.5% 0.4%
Restaurant-Level Operating Profit Margin (%)18.9% 18.8% 16.5%
Adjusted EBITDA ($USD Millions)$25.6 $24.3 $22.8

Revenue Mix (Q1 2025 vs Q1 2024)

ChannelQ1 2024 ($USD Millions)Q1 2025 ($USD Millions)
In-Restaurant Dining Sales$195.199 $226.727
Third-Party Delivery Sales$25.935 $32.005
Take-Out Sales$18.174 $20.859
Total Restaurant Sales$239.308 $279.591

KPIs and Footprint

MetricQ3 2024Q4 2024Q1 2025
Same-Restaurant Sales Growth (%)(1.9%) (0.3%) 0.7%
Same-Restaurant Traffic Growth (%)(4.4%) (3.0%) (0.7%)
System-Wide Sales ($USD Millions)$291.8 $304.1 $323.0
System-Wide Restaurants (Total; Co./Franchise)547 (466/81) 572 (489/83) 584 (498/86)

Vs. S&P Global Consensus (Q1 2025)

MetricConsensus*Actual
EPS ($USD)$0.0339*$(0.01)
Revenues ($USD)$283.28M*$282.24M
Adjusted EBITDA ($USD)$25.81M*$22.75M

Values with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (3/11/2025)Current Guidance (5/6/2025)Change
Adjusted EBITDA ($USD Millions)FY 2025$124.0–$130.0 $114.0–$119.0 Lowered
Blended Tax Rate (%)FY 202531.0%–33.0% 45.0%–50.0% Raised
Same-Restaurant Sales Growth (%)FY 2025Positive low-single digits Positive low-single digits Maintained
Same-Restaurant Traffic Growth (%)FY 2025Flat to slightly positive Flat to slightly positive Maintained
Total Revenue Growth (%)FY 2025~20% (incl. ~4% from acquisitions) ~20% (incl. ~4% from acquisitions; ~$7M to EBITDA) Maintained
New System-Wide Restaurants (net)FY 202559–64 (55–58 Co.; 7–9 Fr.) 59–64 (55–58 Co.; 7–9 Fr.) Maintained
Capital Expenditures ($USD Millions)FY 2025$150–$160 (excl. franchise buyouts) $150–$160 (excl. franchise buyouts) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Marketing & “Invest in the Guest”Targeted campaigns with small PPA impact; operational acuity improvements (ticket times, turnover) Enhanced digital/social/CTV marketing across most markets; Surprise & Delight program weighed on margins more than anticipated Scaling and iterating; near-term margin trade-off for loyalty/traffic
Third-Party Delivery OptimizationContinued use; no check management Mid-teens traffic growth in 3P channel; restructured surcharge improves traffic at lower margin by design Traffic tailwind; margin headwind
Commodity InflationMixed inflation commentary 7.7% Q1 inflation; eggs, bacon, coffee, avocados elevated; Q2 expected to be peak Near-term peak then easing expected
Tariffs/MacroHurricane Milton delays Q4 openings ~30 bps cost impact to total revenue (food/supplies); packaging/paper goods from Asia affected New incremental cost headwind
Throughput/TechnologyOperational KPIs improving KDS, dining room optimization, app waitlist, pay-at-table improving ticket times; GM staffing to support openings Continuous operational efficiency gains
Regional Trends (Florida)Underperforming previously, then leveling Florida outperformed system; bullish on state expansion Positive momentum
Product/Beverage InnovationOngoing menu innovation Testing expanded beverages to drive attachment Early-stage test

Management Commentary

  • “First quarter same restaurant traffic results are encouraging… both the 2024 and 2025 NRO classes continue to exceed expectations, and our development pipeline… remains robust.” — CEO Chris Tomasso .
  • “Adjusted EBITDA was lower than prior expectations due to weaker-than-expected in-restaurant traffic in Feb/March, higher-than-anticipated Surprise & Delight costs, and increased health benefit costs.” — CFO Mel Hope .
  • “Commodity inflation remains in the high single digits… Q2 should be the peak, with relief in the back half.” — CFO Mel Hope .
  • “We doubled the amount of meat in the Tri-Fecta without taking price… increased bacon costs and demand shifted into this item, pressuring margins.” — CEO Chris Tomasso .

Q&A Highlights

  • Traffic/Comps: Despite Easter shift, underlying traffic trends were positive in March/April; April was best monthly traffic in 2+ years .
  • Marketing ROI: Enhanced media spend is systemwide with heavier “ups” in selected markets; early engagement results are promising and informing targeting .
  • Commodities/Tariffs: Eggs require mature hens for extra-large cage-free supply; tariff impacts largely in packaging/paper goods from Asia; Q2 inflation peak expected .
  • Long-term Margins: Restaurant-level margin target remains 18–20% over time, despite near-term compression .
  • Closures & Footprint: Three expected closures are lease/market optimization; new markets include Boston Back Bay flagship, New England expansion, Memphis, Boise/Meridian .

Estimates Context

  • EPS: Miss — ($0.01) vs $0.0339*; drivers include softer in-restaurant traffic in February, investments in Surprise & Delight, health benefits inflation .
  • Revenues: Slight miss — $282.24M vs $283.28M*; top-line still +16.4% y/y on comps, new units, acquisitions .
  • Adjusted EBITDA: Miss — $22.75M vs $25.81M*; margin headwinds from commodities, tariffs, portion-size investments, and lower-margin 3P mix .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term margin headwinds peaked in Q2 (management view); watch for commodity relief (eggs/bacon/coffee/avocados) and tariff pass-throughs in 2H .
  • Traffic momentum is improving (best April in 2+ years), with broader marketing and delivery optimizations; expect comps support in 2H if macro remains stable .
  • FY25 guidance reset lowers Adjusted EBITDA and raises tax rate; revenue growth and unit growth targets unchanged, supported by recent franchise acquisitions .
  • Mix shift to third-party delivery boosts traffic at lower margin; in-restaurant channel recovery is critical for margin normalization .
  • Operational initiatives (KDS, waitlist app, dining room optimization) continue to improve throughput; long-term restaurant-level margin target (18–20%) remains intact .
  • Strategic footprint expansion is accelerating (New England, Memphis, Idaho; Boston Back Bay flagship) with new cohorts outperforming, supporting the 2,200-location TAM narrative .
  • Action: Monitor Q2 inflation peak execution, 2H traffic trajectory, and any updates to tariff/commodity outlook; expect consensus to adjust EBITDA/tax assumptions post-guide-down .