First Watch Restaurant Group, Inc. (NASDAQ: FWRG) (“First Watch” or
the “Company”), the leading Daytime Dining concept serving
breakfast, brunch and lunch, today reported financial results for
the thirteen weeks ended March 26, 2023 (“Q1 2023”) and raises
certain elements of its fiscal year 2023 guidance.
“First Watch delivered yet another strong
quarter. Most notably, we continued to differentiate ourselves by
driving traffic share with disciplined operational execution as
evidenced by our first quarter Restaurant-Level Operating Profit
margin of 21.2% and Adjusted EBITDA of $27.4 million,” said Chris
Tomasso, First Watch CEO and President. “Despite an increasingly
fragile consumer environment, our first quarter performance
reaffirms my continued confidence in First Watch’s leadership
position and our strong consumer value proposition.”
Highlights for Q1 2023 compared
to Q1 2022*:
- Total revenues increased 22.1% to
$211.4 million in Q1 2023 from $173.1 million in Q1 2022
- System-wide sales increased 23.6%
to $264.7 million in Q1 2023 from $214.1 million in Q1 2022
- Same-restaurant sales growth of
12.9% (42.0% relative to the first quarter of 2019**)
- Same-restaurant traffic growth of
5.1% (11.7% relative to the first quarter of 2019**)
- Income from operations margin
increased to 7.4% during Q1 2023 from 4.5% in Q1 2022
- Restaurant level operating profit
margin*** increased to 21.2% in Q1 2023 from 19.6% in Q1 2022
- Net income increased to $9.4
million, or $0.15 per diluted share, in Q1 2023 from $4.6 million,
or $0.08 per diluted share, in Q1 2022
- Adjusted EBITDA*** increased to
$27.4 million in Q1 2023 from $19.4 million in Q1 2022
- Opened 10 system-wide restaurants
in 7 states resulting in a total of 484 system-wide restaurants
(370 company-owned and 114 franchise-owned) across 29 states
___________________* Thirteen weeks ended March
27, 2022 (“Q1 2022”)** Comparison to the thirteen weeks ended March
31, 2019 (“first quarter of 2019”) is presented for enhanced
comparability due to the economic impact of COVID-19.*** See
“Non-GAAP Financial Measures” below
For additional financial information related to
the thirteen weeks ended March 26, 2023, refer to the Company’s
quarterly report on Form 10-Q filed with the Securities and
Exchange Commission on May 2, 2023, which can be accessed at
https://investors.firstwatch.com in the Financials & Filings
section.
Outlook Fiscal Year 2023
The Company raises certain of its guidance for the 53-week
fiscal year ended December 31, 2023:
- Total revenue growth in the range
of 16.0% to 20.0%(1)
- Adjusted EBITDA* in the range of
$80.0 million to $85.0 million(1)
- Updated blended tax rate in the
range of 33.0% to 36.0%
The Company confirms certain of its previous
guidance for the 53-week fiscal year ended December 31, 2023:
- Same-restaurant sales growth in the
range of 6.0% to 8.0% with positive same-restaurant traffic
growth
- Total of 45-51 new system-wide
restaurants, net of 3 company-owned restaurant closures (38 to 42
new company-owned restaurants and 10 to 12 new franchise-owned
restaurants)
- Capital expenditures in the range
of $100.0 million to $110.0 million invested primarily in new
restaurant projects and planned remodels(2)
______________________(1) Includes approximately
1.0% in total revenue growth and approximately $1.0 million in
Adjusted EBITDA associated with May 2023 franchise acquisition(2)
Does not include the capital outlays associated with the
acquisition of franchise-owned restaurants
* We have not reconciled guidance for Adjusted
EBITDA to the corresponding GAAP financial measure because we do
not provide guidance for the various reconciling items. We are
unable to provide guidance for these reconciling items because we
cannot determine their probable significance, as certain items are
outside of our control and cannot be reasonably predicted due to
the fact that these items could vary significantly from period to
period. Accordingly, a reconciliation to the corresponding GAAP
financial measure is not available without unreasonable effort.
Conference Call and Webcast
Chris Tomasso, Chief Executive Officer and
President, and Mel Hope, Chief Financial Officer, will host a
conference call and webcast to discuss these financial results for
Q1 2023 on May 2, 2023 at 8:00 AM ET.
Interested parties may listen to the conference
call via any one of three options:
- Dial 412-317-5208, which will be answered by an operator
- Pre-register by entering your information at this Call me™ link
and entering the following Call me™ passcode to receive a direct
call for instant access to the event: 6644352
- Join the webcast at
https://investors.firstwatch.com/news-and-events/events
The webcast will be archived shortly after the call has
concluded.
Definitions
The following definitions apply to these terms
as used in this release:
System-wide restaurants: the
total number of restaurants, including all company-owned and
franchise- owned restaurants.
System-wide sales: consists of
restaurant sales from our company-owned restaurants and
franchise-owned restaurants. We do not recognize the restaurant
sales from our franchise-owned restaurants as revenue.
Same-restaurant sales growth:
the percentage change in year-over-year restaurant sales (excluding
gift card breakage) for the comparable restaurant base, which is
defined as the number of company-owned First Watch branded
restaurants open for 18 months or longer as of the beginning of the
fiscal year (“Comparable Restaurant Base”). For the thirteen weeks
ended March 26, 2023 and March 27, 2022, there were 328
restaurants and 305 restaurants, respectively, in our Comparable
Restaurant Base.
Same-restaurant traffic growth:
the percentage change in traffic counts as compared to the same
period in the prior year using the Comparable Restaurant Base. For
the thirteen weeks ended March 26, 2023 and March 27, 2022,
there were 328 restaurants and 305 restaurants, respectively, in
our Comparable Restaurant Base.
Adjusted EBITDA: a non-GAAP
measure, is defined as net income (loss) before depreciation and
amortization, interest expense, income taxes and items that the
Company does not consider in the evaluation of its ongoing core
operating performance.
Adjusted EBITDA margin: a
non-GAAP measure, is defined as Adjusted EBITDA as a percentage of
total revenues.
Restaurant level operating
profit: a non-GAAP measure, is defined as restaurant
sales, less restaurant operating expenses, which include food and
beverage costs, labor and other related expenses, other restaurant
operating expenses, pre-opening expenses and occupancy expenses. In
addition, Restaurant level operating profit excludes
corporate-level expenses and items that are not considered in the
Company’s evaluation of its ongoing core operating performance.
Restaurant level operating profit
margin: a non-GAAP measure, is defined as Restaurant level
operating profit as a percentage of restaurant sales.
About First Watch
First Watch is an award-winning Daytime Dining
concept serving made-to-order breakfast, brunch and lunch using
fresh ingredients. A recipient of hundreds of local “Best
Breakfast” and “Best Brunch” accolades, First Watch’s chef-driven
menu includes elevated executions of classic favorites along with
First Watch specialties such as the protein-packed Quinoa Power
Bowl®, Farm Stand Breakfast Tacos, Avocado Toast, Chickichanga,
Morning Meditation (juiced in-house daily), Spiked Lavender
Lemonade and its signature Million Dollar Bacon. In 2023, First
Watch was named the top restaurant brand in Yelp’s inaugural list
of the 50 most loved brands in the U.S and recognized as a Customer
Experience All-Star by Forbes. In 2022, First Watch was awarded a
sought-after MenuMasters honor by Nation’s Restaurant News for its
seasonal Braised Short Rib Omelet, recognized with ADP’s coveted
Culture at Work Award and named a Most Loved Workplace® in Newsweek
by the Best Practice Institute. In 2021, First Watch was recognized
as FSR Magazine’s Best Menu and as the fastest-growing full-service
restaurant chain based on unit growth. There are more than 480
First Watch restaurants in 29 states, and the restaurant concept is
majority owned by Advent International, one of the world’s largest
private-equity firms. For more information, visit
www.firstwatch.com.
Forward-Looking Statements
This release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995 (“PSLRA”), which are subject to known and unknown risks,
uncertainties and other important factors that may cause actual
results to be materially different from the statements made herein.
All statements other than statements of historical fact are
forward-looking statements. Forward-looking statements discuss our
current expectations and projections relating to our financial
position, results of operations, plans, objectives, future
performance and business. You can identify forward-looking
statements by the fact that they do not relate strictly to any
historical or current facts. These statements may include words
such as “aim,” “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “future,” “intend,” “outlook,” “potential,” “project,”
“projection,” “plan,” “seek,” “may,” “could,” “would,” “will,”
“should,” “can,” “can have,” “likely,” the negatives thereof and
other similar expressions. In addition to historical information,
this release contains a number of “forward-looking statements” as
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, information
concerning First Watch’s possible or assumed future results of
operations, new restaurant openings, business strategies,
competitive position, industry environment, potential growth
opportunities and the effects of regulation. When used in this
press release, the words “estimates,” “projected,” “expects,”
“anticipates,” “forecasts,” “plans,” “intends,” “believes,”
“seeks,” “target,” “may,” “will,” “should,” “future,” “propose,”
“preliminary,” “outlook,” “guidance,” “on track” and variations of
these words or similar expressions (or the negative versions of
such words or expressions) are intended to identify forward-looking
statements. Forward-looking statements in this press release are
based on our current expectations and assumptions regarding our
business, the economy and other future conditions. Because
forward-looking statements relate to the future, by their nature,
they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict. As a result, our
actual results may differ materially from those contemplated by the
forward-looking statements. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include the following: uncertainty
regarding ongoing hostility between Russia and Ukraine and the
related impact on macroeconomic conditions, including inflation, as
a result of such conflict or other related events; our
vulnerability to changes in economic conditions and consumer
preferences; our inability to successfully open new restaurants or
establish new markets; our inability to effectively manage our
growth; adverse effects of the COVID-19 pandemic or other
infectious diseases; potential negative impacts on sales at our and
our franchisees’ restaurants as a result of our opening new
restaurants; a decline in visitors to any of the retail centers,
lifestyle centers, or entertainment centers where our restaurants
are located; lower than expected same-restaurant sales growth;
unsuccessful marketing programs and limited time new offerings;
changes in the cost of food; unprofitability or closure of new
restaurants or lower than previously experienced performance in
existing restaurants; our inability to compete effectively for
customers; unsuccessful financial performance of our franchisees;
our limited control over our franchisees’ operations; our inability
to maintain good relationships with our franchisees; conflicts of
interest with our franchisees; the geographic concentration of our
system-wide restaurant base in the southeast portion of the United
States; damage to our reputation and negative publicity; our
inability or failure to recognize, respond to and effectively
manage the accelerated impact of social media; our limited number
of suppliers and distributors for several of our frequently used
ingredients and shortages or disruptions in the supply or delivery
of such ingredients; information technology system failures or
breaches of our network security; our failure to comply with
federal and state laws and regulations relating to privacy, data
protection, advertising and consumer protection, or the expansion
of current or the enactment of new laws or regulations relating to
privacy, data protection, advertising and consumer protection; our
potential liability with our gift cards under the property laws of
some states; our failure to enforce and maintain our trademarks and
protect our other intellectual property; litigation with respect to
intellectual property assets; our dependence on our executive
officers and certain other key employees; our inability to
identify, hire, train and retain qualified individuals for our
workforce; our failure to obtain or to properly verify the
employment eligibility of our employees; our failure to maintain
our corporate culture as we grow; unionization activities among our
employees; employment and labor law proceedings; labor shortages or
increased labor costs or health care costs; risks associated with
leasing property subject to long-term and non-cancelable leases;
risks related to our sale of alcoholic beverages; costly and
complex compliance with federal, state and local laws; changes in
accounting principles applicable to us; our vulnerability to
natural disasters, unusual weather conditions, pandemic outbreaks,
political events, war and terrorism; our inability to secure
additional capital to support business growth; our level of
indebtedness; failure to comply with covenants under our credit
facility; and the interests of our majority stockholder may differ
from those of public stockholders. For additional discussion of
factors that could impact our operational and financial results,
please refer to our filings with the Securities and Exchange
Commission (the “SEC”), accessible on the SEC’s website at
www.sec.gov and the Investors Relations section of the Company’s
website at
https://investors.firstwatch.com/financial-information/sec-filings.
Should one or more of these risks or uncertainties materialize, or
should any of our assumptions prove incorrect, our actual financial
condition, results of operations, future performance and business
may vary in material respects from the performance projected in
these forward-looking statements.
Investor Relations Contact
Steve L. Marotta941-500-1918
investors@firstwatch.com
Media Relations Contact
FirstWatch@icrinc.com
Non-GAAP Financial Measures
(Unaudited)
To supplement the consolidated financial
statements, which are prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”), we use the following non-GAAP measures, which present
operating results on an adjusted basis: (i) Adjusted EBITDA, (ii)
Adjusted EBITDA margin, (iii) Restaurant level operating profit and
(iv) Restaurant level operating profit margin. Our presentation of
these non-GAAP measures includes isolating the effects of some
items that are either nonrecurring in nature or vary from period to
period without any correlation to our ongoing core operating
performance. These supplemental measures of performance are not
required by or presented in accordance with GAAP. Management
believes these non-GAAP measures provide investors with additional
visibility into our operations, facilitate analysis and comparisons
of our ongoing business operations because they exclude items that
may not be indicative of our ongoing operating performance, help to
identify operational trends and allow for greater transparency with
respect to key metrics used by management in our financial and
operational decision making. Our non-GAAP measures may not be
comparable to similarly titled measures used by other companies and
have important limitations as analytical tools. These non-GAAP
measures should not be considered in isolation or as substitutes
for analysis of our results as reported under GAAP as they may not
provide a complete understanding of our performance. These non-GAAP
measures should be reviewed in conjunction with our consolidated
financial statements prepared in accordance with GAAP.
Adjusted EBITDA and Adjusted EBITDA
Margin
Management uses Adjusted EBITDA and Adjusted
EBITDA margin (i) as factors in evaluating management’s performance
when determining incentive compensation, (ii) to evaluate the
Company’s operating results and the effectiveness of our business
strategies and (iii) internally as benchmarks to compare the
Company’s performance to that of its competitors.
The following tables reconcile Net income and
Net income margin, the most directly comparable GAAP measures, to
Adjusted EBITDA and Adjusted EBITDA margin for the periods
indicated:
|
THIRTEEN WEEKS ENDED |
(in thousands) |
|
MARCH 26, 2023 |
|
|
MARCH 27, 2022 |
Net income |
$ |
9,360 |
|
$ |
4,640 |
Depreciation and amortization |
|
9,117 |
|
|
8,223 |
Interest expense |
|
1,907 |
|
|
1,006 |
Income taxes |
|
4,558 |
|
|
2,277 |
EBITDA |
|
24,942 |
|
|
16,146 |
Strategic costs (1) |
|
305 |
|
|
450 |
Stock-based compensation (2) |
|
1,497 |
|
|
2,294 |
Delaware Voluntary Disclosure Agreement Program (3) |
|
367 |
|
|
— |
Transaction expenses, net (4) |
|
253 |
|
|
257 |
Insurance proceeds in connection with natural disasters, net
(5) |
|
(141) |
|
|
— |
Impairments and loss on disposal of assets (6) |
|
134 |
|
|
79 |
Recruiting and relocation costs (7) |
|
30 |
|
|
76 |
Severance costs (8) |
|
26 |
|
|
62 |
Adjusted EBITDA |
$ |
27,413 |
|
$ |
19,364 |
|
|
|
|
|
|
Total revenues |
$ |
211,406 |
|
$ |
173,112 |
Net income margin |
|
4.4 % |
|
|
2.7 % |
Adjusted EBITDA margin |
|
13.0 % |
|
|
11.2 % |
|
|
|
|
|
|
Additional information |
|
|
|
|
|
Deferred rent expense (9) |
$ |
584 |
|
$ |
580 |
___________________________(1) Represents costs
related to process improvements and strategic initiatives. These
costs are recorded within General and administrative expenses on
the Consolidated Statements of Operations and Comprehensive
Income.(2) Represents non-cash, stock-based compensation expense
which is recorded within General and administrative expenses on the
Consolidated Statements of Operations and Comprehensive Income.(3)
Represents professional service costs incurred in connection with
the Delaware Voluntary Disclosure Agreement Program related to
unclaimed or abandoned property. These costs are recorded in
General and administrative expenses on the Consolidated Statements
of Operations and Comprehensive Income.(4) Represents costs
incurred in connection with the acquisition of franchise-owned
restaurants. In 2022, represents termination fee in connection with
the closure of one company-owned restaurant. (5) Represents
insurance recoveries, net of costs incurred, in connection with
Hurricane Ian, which were recorded in Other income, net on the
Consolidated Statements of Operations and Comprehensive Income. (6)
Represents costs related to the disposal of assets due to
retirements, replacements or certain restaurant closures. There
were no impairments recognized during the periods presented. (7)
Represents costs incurred for hiring qualified individuals. These
costs are recorded within General and administrative expenses on
the Consolidated Statements of Operations and Comprehensive
Income.(8) Severance costs are recorded in General and
administrative expenses on the Consolidated Statements of
Operations and Comprehensive Income.(9) Represents the non-cash
portion of straight-line rent expense recorded within both
Occupancy expenses and General and administrative expenses on the
Consolidated Statements of Operations and Comprehensive Income.
Restaurant level operating profit and
Restaurant level operating profit margin
Restaurant level operating profit and Restaurant
level operating profit margin are not indicative of our overall
results, and because they exclude corporate-level expenses, do not
accrue directly to the benefit of our stockholders. We will
continue to incur such expenses in the future. Restaurant level
operating profit and Restaurant level operating profit margin are
important measures we use to evaluate the performance and
profitability of each operating restaurant, individually and in the
aggregate and to make decisions regarding future spending and other
operational decisions. We believe that Restaurant level operating
profit and Restaurant level operating profit margin provide useful
information about our operating results, identify operational
trends and allow for transparency with respect to key metrics used
by us in our financial and operational decision-making.
The following tables reconcile Income from
operations and Income from operations margin, the most directly
comparable GAAP financial measures, to Restaurant level operating
profit and Restaurant level operating profit margin for the periods
indicated:
|
THIRTEEN WEEKS ENDED |
(in thousands) |
|
MARCH 26, 2023 |
|
|
MARCH 27, 2022 |
Income from operations |
$ |
15,331 |
|
$ |
7,760 |
Less: Franchise revenues |
|
(3,438) |
|
|
(2,443) |
Add: |
|
|
|
|
|
General and administrative expenses |
|
22,705 |
|
|
19,563 |
Depreciation and amortization |
|
9,117 |
|
|
8,223 |
Transaction expenses, net (1) |
|
253 |
|
|
257 |
Impairments and loss on disposal of assets (2) |
|
134 |
|
|
79 |
Restaurant level operating
profit |
|
44,102 |
|
|
33,439 |
|
|
|
|
|
|
Restaurant sales |
|
207,968 |
|
|
170,669 |
Income from operations margin |
|
7.4 % |
|
|
4.5 % |
Restaurant level operating profit margin |
|
21.2 % |
|
|
19.6 % |
|
|
|
|
|
|
Additional information |
|
|
|
|
|
Deferred rent expense (3) |
$ |
534 |
|
$ |
530 |
____________________________(1) Represents costs
incurred in connection with the acquisition of franchise-owned
restaurants. In 2022, represents a termination fee in connection
with the closure of one company-owned restaurant. (2) Represents
costs related to the disposal of assets due to retirements,
replacements or certain restaurant closures. There were no
impairments recognized during the periods presented. (3) Represents
the non-cash portion of straight-line rent expense recorded within
Occupancy expenses on the Consolidated Statements of Operations and
Comprehensive Income.
FIRST WATCH RESTAURANT GROUP,
INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)(Unaudited) |
|
|
|
|
|
|
|
THIRTEEN WEEKS ENDED |
|
|
|
|
MARCH 26, 2023 |
|
|
|
MARCH 27, 2022 |
|
Revenues: |
|
|
|
|
|
|
|
Restaurant sales |
$ |
207,968 |
|
|
$ |
170,669 |
|
Franchise revenues |
|
3,438 |
|
|
|
2,443 |
|
Total revenues |
|
211,406 |
|
|
|
173,112 |
|
Operating costs and
expenses: |
|
|
|
|
|
|
|
Restaurant operating expenses
(exclusive of depreciation and amortization shown below): |
|
|
|
|
|
|
|
Food and beverage costs |
|
46,627 |
|
|
|
39,403 |
|
Labor and other related expenses |
|
68,573 |
|
|
|
55,142 |
|
Other restaurant operating expenses |
|
31,696 |
|
|
|
27,317 |
|
Occupancy expenses |
|
15,934 |
|
|
|
14,383 |
|
Pre-opening expenses |
|
1,036 |
|
|
|
985 |
|
General and administrative
expenses |
|
22,705 |
|
|
|
19,563 |
|
Depreciation and
amortization |
|
9,117 |
|
|
|
8,223 |
|
Impairments and loss on
disposal of assets |
|
134 |
|
|
|
79 |
|
Transaction expenses, net |
|
253 |
|
|
|
257 |
|
Total operating costs and expenses |
|
196,075 |
|
|
|
165,352 |
|
Income from operations |
|
15,331 |
|
|
|
7,760 |
|
Interest expense |
|
(1,907 |
) |
|
|
(1,006 |
) |
Other income, net |
|
494 |
|
|
|
163 |
|
Income before income taxes |
|
13,918 |
|
|
|
6,917 |
|
Income tax expense |
|
(4,558 |
) |
|
|
(2,277 |
) |
Net income and total
comprehensive income |
$ |
9,360 |
|
|
$ |
4,640 |
|
|
|
|
|
|
|
|
|
Net income per common share -
basic |
$ |
0.16 |
|
|
$ |
0.08 |
|
Net income per common share -
diluted |
$ |
0.15 |
|
|
$ |
0.08 |
|
Weighted average number of
common shares outstanding - basic |
|
59,243,430 |
|
|
|
59,048,446 |
|
Weighted average number of
common shares outstanding - diluted |
|
60,597,729 |
|
|
|
59,983,150 |
|
Same-Restaurant Sales Growth and Same-Restaurant Traffic
Growth |
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
Same-Restaurant Sales Growth |
|
Same-Restaurant Traffic Growth |
|
Comparable Restaurant Base |
March 26,
2023 |
|
12.9 % |
|
5.1 % |
|
328 |
March 27,
2022 |
|
27.2 % |
|
21.9 % |
|
305 |
March 28,
2021 |
|
14.1 % |
|
2.2 % |
|
270 |
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