First Watch Restaurant (US:FWRG)2025-08-05 13:00Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was $307.9 million, an increase of 19.1% compared to the previous year [25] - Same restaurant sales growth was 3.5%, with same restaurant traffic growth of 2% [25][26] - Adjusted EBITDA decreased to $30.4 million, down $4.9 million from the previous year, with adjusted EBITDA margin declining to 9.9% from 13.7% [29] Business Line Data and Key Metrics Changes - The company opened 17 new system-wide restaurants in Q2, including 15 company-owned and 2 franchise-owned, bringing the total to 600 restaurants [30] - The acquisition of 40 franchise locations contributed approximately $7 million to revenue and $1 million to adjusted EBITDA [30] Market Data and Key Metrics Changes - The company reported positive same restaurant traffic growth in April, May, and June, with April being the best month in over two years [8][25] - The third-party delivery channel saw significant growth, with traffic increasing materially during Q2 [26] Company Strategy and Development Direction - First Watch aims to open 62 to 67 new locations in 2025, with a strong pipeline of over 130 new sites approved [10][32] - The company is focusing on enhancing customer experience through digital innovations and culinary offerings, including a seasonal menu that changes every ten weeks [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving positive traffic growth for the remainder of 2025, citing strong underlying trends and effective marketing strategies [8][30] - The company is lowering its commodity cost inflation guidance to 5% to 7%, down from high single digits, due to improved egg supply [33] Other Important Information - Labor and related expenses were 33.2% of sales, reflecting a 40 basis point increase from the previous year, driven by labor inflation and higher health benefit costs [28] - The company is committed to maintaining a culture of engagement and improving employee retention, with turnover rates below industry averages [21][22] Q&A Session Summary Question: Customer demographics and market expansion - Management indicated that the shift towards a younger customer base is due to expanding into new markets and effective outreach to younger generations [39][41] Question: Confidence in raised EBITDA outlook - The relief in egg costs and positive trends in same restaurant traffic provided confidence for raising the EBITDA outlook [47][49] Question: Pricing strategy and margin implications - The pricing strategy remains consistent, with adjustments made to offset permanent inflation rather than temporary increases [51][53] Question: Marketing tactics and traffic growth - Marketing efforts have been focused on core geographies, leading to tangible traction and increased customer frequency [58][61] Question: Impact of new restaurant openings on margins - New restaurants typically operate at lower margins initially, but their strong sales levels help offset this effect [113][114] Question: COGS performance amid inflation - The company managed to keep COGS lower than expected through effective management despite inflation pressures [117][119] Question: Drivers of top-line growth - Improvement was seen across all dayparts, indicating a positive consumer response to the company's hospitality and quality offerings [121][123]