What Happened?
Shares of breakfast restaurant chain First Watch Restaurant Group (NASDAQ:FWRG) fell 4.7% in the afternoon session after the company delivered mixed fourth-quarter results: EPS fell short, and full-year EBITDA guidance came in slightly below Wall Street estimates.
On the other hand, same-store sales and EBITDA surpassed analysts' expectations. A key concern was the decline in same-restaurant traffic, which dropped 3% year-on-year despite ongoing expansion efforts. This decline led to a modest dip in same-restaurant sales, highlighting potential challenges in sustaining customer demand. Despite this, sales increased 7.6% from the prior year, driven by new store openings.
Looking ahead, management guided for low single-digit same-restaurant sales growth in 2025, with traffic expected to be flat to slightly positive. However, the company anticipated 20% total revenue growth, primarily driven by new restaurant openings. Overall, while expansion efforts remained strong, softer same-store performance and rising costs remained key concerns.
The shares closed the day at $16.83, down 7% from previous close.
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What The Market Is Telling Us
First Watch’s shares are very volatile and have had 20 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 10 months ago when the stock dropped 16.2% on the news that the company reported weak first-quarter earnings results. Its revenue unfortunately missed analysts' expectations, and full-year guidance for revenue was lowered slightly.
On the other hand, adjusted EBITDA and gross margin came in ahead of expectations, partly due to improved pricing. However, the company noted that consumers were being more cautious in their spending habits, resulting in fewer dining-out occasions across the industry. Management added that while same-restaurant traffic trend improved month-on-month in Q1, it remained negative mid-single-digit quarter-to-date. The trend was expected to extend to Q2, while same-restaurant traffic in the second half of 2024 was expected to be relatively flat. Overall, this was a weaker quarter for the company.
First Watch is down 10.4% since the beginning of the year, and at $16.83 per share, it is trading 34.1% below its 52-week high of $25.52 from April 2024. Investors who bought $1,000 worth of First Watch’s shares at the IPO in September 2021 would now be looking at an investment worth $760.51.
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