First Watch Restaurant (FWRG) - 2024 Q4 - Annual Report

Restaurant Operations and Growth - As of December 29, 2024, the company operated a total of 572 restaurants across 29 states, with 489 being company-owned and 83 franchise-owned[15]. - In 2024, the company opened 50 new system-wide restaurants across 19 states, continuing its growth strategy targeting low double-digit annual percentage growth[20]. - The company acquired 22 operating restaurants from franchisees in 2024 and has agreements to acquire an additional 19 restaurants[22]. - The company has a robust growth plan with over 100 new restaurants in the development pipeline, necessitating a strong talent bench for general managers[45]. - As of December 29, 2024, the company had 11 franchisees operating 83 restaurants, with franchisees obligated to develop 29 new restaurants[36]. - The total number of franchise-owned restaurants is 83, which represents approximately 14.5% of the total restaurant count[195]. - The company has no company-owned restaurants in states like Arkansas, Louisiana, and Utah, indicating potential areas for expansion[195]. - The company may consider further market expansion in states with fewer locations to enhance its footprint[195]. Financial Performance and Projections - The average unit volume per restaurant is projected to be $2.2 million in 2024, operating only 7.5 hours per day[14]. - Same-restaurant sales growth is critical for profitability, and the company may not achieve expected growth rates in future periods[82]. - The profitability of new restaurants is uncertain, with initial operating profit margins typically lower during the first 12 months of operation[88]. - The company recorded a charge of$0.8 million for estimated probable losses related to unclaimed gift card balances in Q4 2023[122]. - A payment of $0.7 million was made to the State of Delaware to resolve escheat matters concerning unclaimed gift card balances[122]. - The principal amount of the company's term loans outstanding was$193.8 million as of December 29, 2024, which could significantly affect its business and financial condition[163]. - The company does not anticipate paying any dividends on its common stock in the foreseeable future, as it intends to use cash flow for business growth[181]. - The company may require additional capital for growth, which may not be available on favorable terms, impacting expansion opportunities[187]. Customer Engagement and Marketing - The company has gathered customer information for over 17.9 million unique customer profiles, with 7.7 million opting for direct communication[28]. - The alcohol menu is offered in about 90% of system-wide restaurants as of December 29, 2024, reflecting the company's culinary innovation[28]. - Significant investments are being made in digital marketing initiatives to enhance customer awareness and loyalty across multiple digital channels[110]. - The company heavily relies on social media for marketing, necessitating continuous innovation to maintain customer engagement and brand relevance[110]. Employee and Workplace Culture - The company employs over 15,000 restaurant employees, with no employees part of a collective bargaining agreement[29]. - More than 85% of the 510 employees promoted to general manager at corporate-owned restaurants since 2022 were promoted from within[44]. - The "You First" Emergency Assistance Fund has provided over $1 million in tax-free hardship grants to employees since its inception[41]. - The company operates on a "No Nights Ever" model, allowing employees to enjoy evenings with family, contributing to improved work-life balance[39]. - Maintaining corporate culture is critical for the company's success, and failure to do so could adversely impact operations and employee retention[131]. - The restaurant industry is experiencing aggressive competition for talent, leading to wage inflation and pressure to improve employee benefits[130]. Supply Chain and Cost Management - The company is experiencing significant increases in food costs, particularly for eggs, coffee, and avocados, due to supply chain disruptions and climate impacts[85]. - There is a reliance on a small number of suppliers for a substantial amount of food and coffee, increasing vulnerability to supply chain disruptions[70]. - The company faced supply chain disruptions in January 2024 due to a strike at its broad-line distributor, leading to increased costs and delays in food deliveries[104]. - The company sources nearly all pork from two suppliers, eggs from one supplier, and coffee from one supplier, creating potential risks for supply shortages[105]. Regulatory and Compliance Risks - The company faces risks related to compliance with nutritional disclosure laws, which could be costly and time-consuming[72]. - The company is subject to evolving privacy laws, including the California Consumer Privacy Act, which may increase compliance costs and legal liabilities[117]. - The company is subject to extensive federal, state, and local laws and regulations, which could adversely affect its results of operations if not complied with[152]. - Legal and regulatory risks related to employment and labor laws could result in substantial damages or settlement costs[135]. Financial and Market Risks - The company may face adverse impacts from economic downturns, geopolitical tensions, and inflation affecting consumer discretionary spending[70]. - Increased labor and healthcare costs due to regulatory changes could adversely affect financial performance[72]. - The company faces risks related to "dram shop" statutes, which could result in significant judgments and settlements that may not be covered by insurance[151]. - The market price of the common stock could decline significantly due to substantial sales by Advent, affecting capital raising efforts[184]. - The company's quarterly results may fluctuate significantly due to seasonality, potentially impacting stock price and investor expectations[182]. Cybersecurity and Technology - The company maintains a cybersecurity program and conducts annual risk assessments, but any breaches could have a material adverse effect on operations[192]. - The rapid evolution of artificial intelligence technologies may impact customer expectations and increase cybersecurity risks[112]. - The company faces risks related to cybersecurity, with potential interruptions in operations due to system failures or breaches, which could materially affect financial results[111]. Franchise Operations and Challenges - The company has limited control over franchisee operations, which could result in inconsistencies in service and quality, impacting brand reputation[101]. - As of December 29, 2024, 15% of system-wide restaurants were franchised, indicating a reliance on franchisee performance for overall financial health[100]. - The company’s restaurants are geographically concentrated in the southeast U.S., which may pose challenges when entering new markets[76]. Strategic and Competitive Positioning - The restaurant industry is highly competitive, with the company positioned to compete effectively due to its focus on quality breakfast, brunch, and lunch experiences[52]. - Competition in the restaurant industry is intense, with many competitors having greater financial and marketing resources, which could adversely affect customer traffic and sales[92]. - The company emphasizes high food quality and safety, with regular inspections and a commitment to operational excellence[27].