First Watch (NASDAQ:FWRG) Reports Sales Below Analyst Estimates In Q1 Earnings

Anthony Lee /
2024/05/07 7:41 am EDT

Breakfast restaurant chain First Watch Restaurant Group (NASDAQ:FWRG) missed analysts' expectations in Q1 CY2024, with revenue up 14.7% year on year to $242.4 million. It made a GAAP profit of $0.12 per share, down from its profit of $0.15 per share in the same quarter last year.

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First Watch (FWRG) Q1 CY2024 Highlights:

  • Revenue: $242.4 million vs analyst estimates of $245 million (1.1% miss)
  • Adjusted EBITDA: $28.6 million vs analyst estimates of $24.5 million (16.7% beat)
  • EPS: $0.12 vs analyst estimates of $0.10 (26.3% beat)
  • Full year guidance for same store sales and revenue growth lowered; adjusted EBITDA guidance maintained
  • Gross Margin (GAAP): 22.5%, down from 23% in the same quarter last year
  • Same-Store Sales were up 0.5% year on year
  • Store Locations: 531 at quarter end, increasing by 47 over the last 12 months
  • Market Capitalization: $1.52 billion

“First Watch posted another solid quarter with positive same restaurant sales*, traffic trends that improved sequentially through the quarter and year-over-year adjusted EBITDA growth,” said Chris Tomasso, First Watch CEO and President.

Based on a nautical reference to the first work shift aboard a ship, First Watch (NASDAQ:FWRG) is a chain of breakfast and brunch restaurants whose menu is heavily-focused on eggs and griddle items such as pancakes.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Sales Growth

First Watch is a mid-sized restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, First Watch can still achieve high growth rates because its revenue base is not yet monstrous.

As you can see below, the company's annualized revenue growth rate of 20.5% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was exceptional as it added more dining locations and increased sales at existing, established restaurants.

First Watch Total Revenue

This quarter, First Watch's revenue grew 14.7% year on year to $242.4 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 18.8% over the next 12 months, an acceleration from this quarter.

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Same-Store Sales

Same-store sales growth is an important metric that tracks organic growth and demand for a restaurant's established locations.

First Watch's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 8% year on year. With positive same-store sales growth amid an increasing number of restaurants, First Watch is reaching more diners and growing sales.

First Watch Year On Year Same Store Sales Growth

In the latest quarter, First Watch's year on year same-store sales were flat. By the company's standards, this growth was a meaningful deceleration from the 12.9% year-on-year increase it posted 12 months ago. We'll be watching First Watch closely to see if it can reaccelerate growth.

Key Takeaways from First Watch's Q1 Results

We were impressed by how significantly First Watch blew past analysts' gross margin and adjusted EBITDA expectations this quarter. On the other hand, its revenue unfortunately missed analysts' expectations and full year guidance for revenue was lowered slightly. Overall, we think this was still a decent quarter that should satisfy shareholders given the big adjusted EBITDA outperformance, showing that while topline may be a little soft, the growth is much more profitable than expected. The stock is up 3.4% after reporting and currently trades at $25.99 per share.

First Watch may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.