First Watch 2025 Q1 Earnings Misses Targets as Net Income Declines 111.5%

First Watch (FWRG) reported its fiscal 2025 Q1 earnings on May 06th, 2025. The company's earnings fell below expectations, with a net loss reported for the quarter. Despite revenue growth of 16.4%, First Watch experienced a significant decline in net income, swinging from a profit to a loss. The company adjusted its guidance, maintaining positive low-single digit growth expectations but missed targets for net income. The company's strategic expansion plans continue, with 59 to 64 new restaurant openings projected, demonstrating confidence in future prospects amidst macroeconomic uncertainties.

Revenue
First Watch's total revenue rose 16.4% to $282.24 million in Q1 2025, up from $242.45 million in the same quarter last year. Restaurant sales contributed $279.59 million to the overall revenue, while franchise revenues added $2.65 million, showcasing a balanced growth across its business segments.

Earnings/Net Income
First Watch experienced a notable setback in earnings, reporting a net loss of $0.01 per share in Q1 2025 compared to a profit of $0.12 per share in Q1 2024. The net loss totaled $829,000, marking a 111.5% deterioration from the previous year's net income of $7.21 million. The EPS indicates a challenging financial period.

Price Action
The stock price of First Watch edged up 1.52% on the latest trading day but fell sharply by 16.46% over the most recent full trading week. Month-to-date, the stock has tumbled 10.77%, reflecting investor concerns following the earnings report.

Post-Earnings Price Action Review
The strategy of buying First Watch shares after a revenue drop quarter-over-quarter and holding for 30 days has historically resulted in poor performance. Over the past five years, this approach yielded a return of -6.99%, significantly underperforming the benchmark return of 25.70%. The excess return was -32.70%, with a compound annual growth rate of -2.01%, indicating substantial losses. Additionally, the strategy experienced a high maximum drawdown of -12.98% and a Sharpe ratio of -0.15, suggesting considerable risk and negative returns. These figures highlight the challenges faced by investors employing this strategy in the context of First Watch's earnings volatility.

CEO Commentary
"First quarter same restaurant traffic results are encouraging and continued the trends we experienced exiting 2024, demonstrating both the strength and the resilience of the First Watch brand," said Chris Tomasso, CEO and President of First Watch. He emphasized the long-term value created by new restaurant openings and noted that, despite macroeconomic uncertainties, the 2024 and 2025 new restaurant openings (NRO) continue to exceed expectations, with a robust development pipeline for the remainder of the year and beyond.

Guidance
The Company updated its guidance for fiscal year 2025, expecting Adjusted EBITDA in the range of $114.0 million to $119.0 million and a blended tax rate of 45.0%-50.0%. It confirmed same-restaurant sales growth in the positive low-single digits and total revenue growth of approximately 20.0%. Additionally, First Watch plans to open 59 to 64 new system-wide restaurants, net of closures, with capital expenditures estimated between $150.0 million and $160.0 million primarily for new restaurant projects and remodels.

Additional News
First Watch Restaurant Group has been actively pursuing growth through acquisitions, most notably acquiring 16 franchise restaurants in North and South Carolina on April 28, 2025. This acquisition marks the second-largest franchisee deal in the company's history, underscoring its long-term growth strategy. In addition, the company announced a flagship location in downtown Boston on April 23, 2025, signaling continued expansion in the New England region. Furthermore, First Watch raised over $1,700,000 for the V Foundation, supporting pediatric cancer research, as part of a partnership entering its fourth year.