First Watch Restaurant (US:FWRG)2022-03-23 15:27Financial Data and Key Metrics Changes - In 2021, First Watch achieved system-wide sales of $750.7 million, a 76.1% increase year-over-year and a 34.4% increase over 2019 [11] - Total revenues for Q4 2021 were $162.6 million, up 48.7% compared to Q4 2020 [40] - Same-restaurant sales growth for Q4 was 36.7%, driven by a 31.9% increase in traffic [41] - Adjusted EBITDA for Q4 increased to $14.2 million from $3.5 million in 2020, with an adjusted EBITDA margin of 8.7% compared to 3.2% in the previous year [47] Business Line Data and Key Metrics Changes - The company opened eight new restaurants in Q4 2021, bringing the total openings for the year to 31 [15] - New restaurants achieved annualized average unit volumes (AUVs) of $2 million, which is 11% higher than existing company AUVs [19] - Off-premises sales in Q4 were $34.4 million, slightly higher than $33.7 million in Q4 2020 [42] Market Data and Key Metrics Changes - Dine-in traffic increased by 49.1% over Q4 2020, rebounding to more than 90% of pre-pandemic levels [41] - The company experienced significant same-restaurant traffic growth of 52.6% for the year [12] Company Strategy and Development Direction - First Watch aims to expand to over 2,200 restaurants in the U.S., with a focus on evolving restaurant design to enhance customer experience [15][20] - The company is committed to maintaining a one-shift operation model, which contributes to a strong workplace culture and lower management turnover [25] - The introduction of an alcohol platform has been successful, with over 70% of restaurants offering crafted cocktails by the end of 2021 [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of inflation, expecting 10% to 13% inflation for the year, driven by increased costs in key items [51] - The company plans to open 30 to 35 company restaurants and 8 to 13 franchise restaurants in 2022, with a focus on driving same-restaurant sales growth in the high single digits [59] - Management expressed confidence in their pricing power to offset inflationary pressures, having taken a 3.9% increase in in-restaurant menu prices in Q1 2022 [55] Other Important Information - The company reported a significant increase in general and administrative expenses due to IPO-related charges and increased headcount [46] - First Watch's management turnover is about 30% lower than the industry average, indicating a strong organizational culture [25] Q&A Session Summary Question: Can you elaborate on the dynamics between increased inflation and pricing? - Management indicated that a 3.9% price increase was implemented, and they are monitoring inflation closely to defend margins [27][28] Question: What are the greatest headwinds to the 2022 guidance? - Management noted that while inflation is a concern, they have built an operating plan that accounts for current variables, including potential impacts from geopolitical events [31][32] Question: How do you view the pricing power in relation to inflation? - Management believes they have developed credibility around pricing power and are prepared to adjust prices as necessary to defend margins [32][33] Question: Can you explain the implied step down in new store volumes? - Management attributed the step down to the timing of openings and their contribution during the cycle, while remaining optimistic about unit economics [34][35] Question: What is the current state of construction costs? - Management reported an 8% increase in construction costs but remains confident in the ROI of new restaurant investments [40][41]