Breakfast restaurant chain First Watch Restaurant Group (NASDAQ:FWRG) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 31.7% year on year to $244.6 million. It made a GAAP profit of $0.04 per share, improving from its loss of $0.01 per share in the same quarter last year.
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First Watch (FWRG) Q4 FY2023 Highlights:
- Revenue: $244.6 million vs analyst estimates of $237.2 million (3.1% beat)
- EPS: $0.04 vs analyst estimates of $0.04 (small beat)
- Full year 2024 Guidance for revenue and adjusted EBITDA both above expectations
- Gross Margin (GAAP): 21.8%, up from 18.8% in the same quarter last year
- Same-Store Sales were up 5% year on year (in line)
- Store Locations: 524 at quarter end, increasing by 50 over the last 12 months
- Market Capitalization: $1.52 billion
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 19.6% 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.
This quarter, First Watch reported wonderful year-on-year revenue growth of 31.7%, and its $244.6 million in revenue exceeded Wall Street's estimates by 3.1%. Looking ahead, Wall Street expects sales to grow 15% over the next 12 months, a deceleration from this quarter.
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Same-Store Sales
First Watch's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 11.4% year on year. This performance suggests its steady rollout of new restaurants could be beneficial for shareholders. When a company has strong demand, more locations should help it reach more customers seeking its meals.
In the latest quarter, First Watch's same-store sales rose 5% year on year. This growth was a deceleration from the 7.7% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from First Watch's Q4 Results
We liked how First Watch beat revenue, gross margin, and EPS estimates this quarter. The company also guided to full year 2024 revenue and adjusted EBITDA above expectations. Zooming out, we think this was an impressive quarter that should delight shareholders. The stock is up 3.8% after reporting and currently trades at $26.42 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.