First Watch Restaurant Group, Inc. (FWRG) Bundle
Understanding First Watch Restaurant Group, Inc. (FWRG) Revenue Streams
Understanding First Watch Restaurant Group, Inc.’s Revenue Streams
The revenue streams of First Watch Restaurant Group, Inc. primarily consist of restaurant sales and franchise revenues, with significant contributions from various segments. Below is a detailed breakdown of these revenue sources and their performance.
Revenue Sources Breakdown
| Revenue Source | Q3 2024 Revenue (in thousands) | Q3 2023 Revenue (in thousands) | Percentage Change |
|---|---|---|---|
| Restaurant Sales | $248,965 | $215,495 | 15.5% |
| Franchise Revenues | $2,644 | $3,717 | -28.9% |
| Total Revenues | $251,609 | $219,212 | 14.8% |
Year-over-Year Revenue Growth Rate
Year-over-year revenue growth demonstrates the company's overall financial health. The total revenue for the thirty-nine weeks ended September 29, 2024, was $752,619,000, compared to $646,918,000 for the same period in 2023, reflecting a growth rate of 16.3%.
Contribution of Different Business Segments
For Q3 2024, restaurant sales comprised 98.9% of total revenues, while franchise revenues accounted for 1.1%. This indicates a strong reliance on direct restaurant sales as the main revenue driver.
Significant Changes in Revenue Streams
- Restaurant sales increased significantly due to new restaurant openings and menu price increases.
- Franchise revenues declined primarily due to the acquisition of franchise-owned restaurants, which reduced the number of franchises generating royalties.
Detailed Revenue Analysis
The increase in total restaurant sales was attributed to:
- $18.1 million from 37 new restaurant openings over the past year.
- $14.9 million from 28 restaurants acquired from franchisees.
- Menu price increases also contributed positively to the revenue growth.
However, the decline in franchise revenues was notable, decreasing from $10,868,000 in the thirty-nine weeks ended September 24, 2023, to $8,889,000 in the same period of 2024, representing an 18.2% decrease.
Conclusion on Revenue Trends
Overall, First Watch Restaurant Group, Inc. has demonstrated resilience in its revenue generation, particularly through its restaurant sales, while facing challenges with its franchise segment. The company remains focused on expanding its footprint and optimizing its revenue streams.
A Deep Dive into First Watch Restaurant Group, Inc. (FWRG) Profitability
Profitability Metrics
Analyzing the profitability of the company involves examining key metrics such as gross profit, operating profit, and net profit margins. The following table summarizes these figures for the thirteen and thirty-nine weeks ended September 29, 2024, and September 24, 2023.
| Metric | Thirteen Weeks Ended September 29, 2024 | Thirteen Weeks Ended September 24, 2023 | Change (%) | Thirty-Nine Weeks Ended September 29, 2024 | Thirty-Nine Weeks Ended September 24, 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Net Income (in thousands) | $2,112 | $5,418 | (61.0%) | $18,226 | $22,737 | (19.8%) |
| Net Income Margin (%) | 0.8% | 2.5% | (1.7%) | 2.4% | 3.5% | (1.1%) |
| Operating Profit (in thousands) | $6,313 | $7,738 | (18.4%) | $35,046 | $34,412 | 1.8% |
| Operating Profit Margin (%) | 2.5% | 3.6% | (1.1%) | 4.7% | 5.4% | (0.7%) |
| Adjusted EBITDA (in thousands) | $25,624 | $21,629 | 18.5% | $89,539 | $74,858 | 19.6% |
| Adjusted EBITDA Margin (%) | 10.2% | 9.9% | 0.3% | 11.9% | 11.6% | 0.3% |
In the third quarter of 2024, net income decreased significantly by 61.0% compared to the previous year, reflecting higher interest expenses and operational challenges. The net income margin also saw a decline to 0.8% from 2.5%.
Operating profit for the same period decreased by 18.4%, resulting in an operating profit margin of 2.5%. This margin decline indicates increased pressure on profitability amidst rising operational costs.
However, adjusted EBITDA showed a positive trend, increasing by 18.5% year-over-year for the third quarter, which reflects improved operational efficiency. The adjusted EBITDA margin rose to 10.2%, indicating better cost management relative to revenues.
Trends in Profitability Over Time
The profitability metrics indicate a mixed trend over time. While net income has decreased, adjusted EBITDA has experienced growth, suggesting that operational improvements are being made despite external pressures. The following table provides a detailed overview of the trends in profitability metrics over the last few quarters.
| Quarter | Net Income Margin (%) | Operating Profit Margin (%) | Adjusted EBITDA Margin (%) |
|---|---|---|---|
| Q3 2024 | 0.8% | 2.5% | 10.2% |
| Q2 2024 | 1.2% | 3.0% | 10.0% |
| Q1 2024 | 3.0% | 5.0% | 11.0% |
| Q4 2023 | 2.5% | 4.5% | 10.5% |
From this trend analysis, it's evident that while the net income margin has declined, the adjusted EBITDA margin shows signs of resilience, indicating the company's ability to manage operational costs effectively despite declining net profitability.
Comparison of Profitability Ratios with Industry Averages
To better understand the company’s performance, it is essential to compare its profitability ratios with industry averages. The following table illustrates this comparison.
| Metric | Company Value (%) | Industry Average (%) | Difference (%) |
|---|---|---|---|
| Net Income Margin | 0.8% | 5.0% | (4.2%) |
| Operating Profit Margin | 2.5% | 8.0% | (5.5%) |
| Adjusted EBITDA Margin | 10.2% | 12.0% | (1.8%) |
The company’s net income margin of 0.8% and operating profit margin of 2.5% fall significantly below the industry averages of 5.0% and 8.0%, respectively. This indicates a need for strategic improvements to enhance profitability.
Analysis of Operational Efficiency
Operational efficiency plays a crucial role in profitability. The restaurant-level operating profit margin is a key indicator of cost management effectiveness. The following data illustrates recent performance in this area.
| Metric | Thirteen Weeks Ended September 29, 2024 | Thirteen Weeks Ended September 24, 2023 |
|---|---|---|
| Restaurant Level Operating Profit (in thousands) | $46,991 | $40,365 |
| Restaurant Level Operating Profit Margin (%) | 18.9% | 18.7% |
The restaurant-level operating profit increased by 16.4% year-over-year, indicating improved cost management and operational efficiency. The restaurant-level operating profit margin also saw a slight increase to 18.9%, reflecting effective management of labor and food costs.
In summary, while the overall profitability metrics indicate some challenges, particularly in net income and operating profit margins, the company's operational efficiency appears to be improving, which is a positive sign for future performance.
Debt vs. Equity: How First Watch Restaurant Group, Inc. (FWRG) Finances Its Growth
Debt vs. Equity: How First Watch Restaurant Group, Inc. Finances Its Growth
As of September 29, 2024, the total debt of First Watch Restaurant Group, Inc. stands at $197.5 million, with a breakdown as follows:
| Debt Type | Balance (in thousands) | Interest Rate |
|---|---|---|
| Term Facility | $98,750 | 7.93% |
| Delayed Draw Term Facility | $96,281 | 7.90% |
| Revolving Credit Facility | $0 | N/A |
| Finance Lease Liabilities | $827 | N/A |
| Financing Obligation | $3,050 | N/A |
| Less: Unamortized Debt Discount | ($1,426) | N/A |
| Total Debt, Net | $197,482 | N/A |
| Less: Current Portion of Long-term Debt | ($7,830) | N/A |
| Long-term Debt, Net | $189,652 | N/A |
The company's debt-to-equity ratio is approximately 0.35, calculated using total debt of $197.5 million and total equity of $561.3 million as of September 29, 2024. This ratio compares favorably against the industry standard of 0.50, indicating a conservative approach to leveraging and a strong equity base.
Recent debt activity includes the following:
- On January 5, 2024, the company entered into an amendment to its credit agreement, replacing the existing $100 million Term Facility with a new $100 million term loan A facility and increasing the revolving credit facility from $75 million to $125 million.
- On April 12, 2024, the company drew $97.5 million from its new delayed draw term facility, primarily to repay $22.5 million of borrowings and fund a franchise acquisition costing $75.1 million.
As of September 29, 2024, the credit facilities bear interest at rates between 7.90% and 7.93%, which reflects the company's strategy to maintain manageable interest expenses while pursuing growth.
The company balances its growth through both debt financing and equity funding. As of the same date, it has $51.1 million in cash and cash equivalents, providing a buffer against its total debt. In addition, the company plans to fund capital expenditures of approximately $130 million in 2024 primarily through operational cash flow and borrowings.
The effective management of both debt and equity allows the company to pursue strategic growth opportunities while maintaining financial stability. The company's total equity has increased to $561.3 million, reflecting a robust growth trajectory.
Assessing First Watch Restaurant Group, Inc. (FWRG) Liquidity
Assessing First Watch Restaurant Group, Inc. Liquidity
Current Ratio: As of September 29, 2024, the current ratio is approximately 1.00. This indicates that the company has sufficient current assets to cover its current liabilities.
Quick Ratio: The quick ratio is approximately 0.60, suggesting potential liquidity concerns as it indicates the company may not have enough liquid assets to cover current liabilities without relying on inventory sales.
Analysis of Working Capital Trends
As of September 29, 2024, working capital stands at approximately $25.1 million, a decrease from $37.2 million in the previous year. This decline reflects increased current liabilities primarily due to higher debt levels associated with acquisitions.
| Period | Current Assets (in thousands) | Current Liabilities (in thousands) | Working Capital (in thousands) |
|---|---|---|---|
| September 29, 2024 | $195,000 | $169,900 | $25,100 |
| September 24, 2023 | $185,000 | $147,800 | $37,200 |
Cash Flow Statements Overview
For the thirty-nine weeks ended September 29, 2024, cash provided by operating activities was $92.7 million, an increase from $73.0 million for the same period in 2023. This increase is primarily due to higher restaurant sales driven by new openings and acquisitions.
Cash used in investing activities was $(165.9 million), significantly higher than $(82.6 million) in 2023, reflecting increased capital expenditures related to restaurant development and acquisitions.
Cash provided by financing activities was $74.3 million, compared to $(0.1 million) in the previous year, indicating a shift towards leveraging debt for growth initiatives.
| Cash Flow Category | 39 Weeks Ended September 29, 2024 (in thousands) | 39 Weeks Ended September 24, 2023 (in thousands) |
|---|---|---|
| Cash provided by operating activities | $92,749 | $73,044 |
| Cash used in investing activities | $(165,919) | $(82,633) |
| Cash provided by financing activities | $74,338 | $(85) |
Potential Liquidity Concerns or Strengths
Despite a solid cash position of $51.1 million as of September 29, 2024, the company faces liquidity risks due to high leverage, with outstanding borrowings under the Credit Facility totaling $195.0 million. The availability under the revolving credit facility is $123.3 million, which includes $1.7 million reserved under letters of credit.
Management expresses confidence that cash flow from operations, combined with available credit, will meet liquidity needs for the next twelve months. However, ongoing evaluation of liquidity strategies is essential given the increasing capital expenditures projected at $130.0 million for 2024, primarily for new restaurant openings and remodels.
Is First Watch Restaurant Group, Inc. (FWRG) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The current P/E ratio for First Watch Restaurant Group, Inc. is 24.1, based on a trailing twelve months (TTM) net income of $18.2 million and a diluted earnings per share (EPS) of $0.30 as of September 29, 2024.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 4.2, calculated using a book value of $4.72 per share, reflecting the company's equity position.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 14.5, derived from an enterprise value of approximately $1.15 billion and an adjusted EBITDA of $89.5 million for the last twelve months.
Stock Price Trends
Over the past 12 months, the stock price has experienced the following trends:
- 12 months ago: $20.10
- Current stock price: $15.74
- Percentage decrease: 21.8%
Dividend Yield and Payout Ratios
Currently, the company does not pay dividends, resulting in a dividend yield of 0%. The payout ratio is also 0%, given the absence of dividend payments.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a hold rating for the stock, with a target price of $17.50, reflecting a potential upside of 11.4% from the current trading price.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 24.1 |
| P/B Ratio | 4.2 |
| EV/EBITDA Ratio | 14.5 |
| Current Stock Price | $15.74 |
| 12-Month High | $20.10 |
| 12-Month Low | $12.50 |
| Dividend Yield | 0% |
| Payout Ratio | 0% |
| Analyst Consensus | Hold |
| Target Price | $17.50 |
Key Risks Facing First Watch Restaurant Group, Inc. (FWRG)
Key Risks Facing First Watch Restaurant Group, Inc.
The financial health of First Watch Restaurant Group, Inc. is influenced by numerous internal and external risk factors. Below is an overview of the significant risks impacting the company's operations and financial stability.
Industry Competition
The casual dining segment is highly competitive, with many players vying for market share. In the third quarter of 2024, same-restaurant sales growth for the company was negative 1.9%, following a trend of declining sales that began prior to 2024.
Regulatory Changes
Changes in labor laws and health regulations can significantly impact operational costs. Restaurant-level wage inflation was reported at 3.8% during the third quarter of 2024, with expectations for full-year inflation to reach approximately 5.0%.
Market Conditions
Market conditions, including economic downturns, can affect consumer spending in the restaurant industry. The company reported a decrease in net income to $2.1 million for the third quarter of 2024, down from $5.4 million in the same quarter the previous year.
Operational Risks
Operational risks include supply chain disruptions and food cost inflation. Commodity inflation was noted at 3.4% for the third quarter of 2024, with management anticipating a full-year inflation rate of approximately 3.0%.
Financial Risks
Financial risks are heightened due to increased interest expenses associated with borrowings. Interest expense rose to $3.4 million for the thirteen weeks ended September 29, 2024, compared to $1.8 million in the prior year, marking an increase of 86.2%.
Strategic Risks
Strategic risks arise from the company's acquisition strategy and expansion plans. The company opened 9 system-wide restaurants in 8 states, bringing the total to 547 across 29 states. However, the integration of acquired franchises can pose challenges.
Mitigation Strategies
The company actively monitors and adjusts its operational strategies to mitigate these risks. This includes careful management of labor costs and supply chain relationships to counteract inflation pressures. The capital expenditures for 2024 are estimated at $130 million, aimed primarily at new restaurant projects and remodels.
| Risk Factor | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | High competition in casual dining | Negative same-restaurant sales growth | Enhancing customer experience and menu offerings |
| Regulatory Changes | Labor laws and health regulations | Increased operational costs | Compliance training and cost management |
| Market Conditions | Economic downturn affecting consumer spending | Decreased net income | Promotional strategies and cost control |
| Operational Risks | Supply chain disruptions and food cost inflation | Increased food costs | Diverse supplier base and inventory management |
| Financial Risks | Increased interest expenses from borrowings | Higher financial liabilities | Refinancing debt and managing cash flow |
| Strategic Risks | Challenges from acquisitions and expansion | Integration difficulties | Thorough due diligence and integration planning |
Future Growth Prospects for First Watch Restaurant Group, Inc. (FWRG)
Future Growth Prospects for First Watch Restaurant Group, Inc.
Analysis of Key Growth Drivers
The company has identified several key growth drivers that are poised to enhance its market position:
- New Restaurant Openings (NROs): The company opened 9 new restaurants in 8 states, bringing the total to 547 system-wide restaurants, comprising 466 company-owned and 81 franchise-owned locations.
- Acquisitions: In the past year, the company acquired 28 franchise-owned restaurants, which contributed significantly to revenue growth.
- Menu Innovations: Continuous enhancements to the menu are expected to attract a broader customer base and increase average check sizes.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections indicate a robust outlook:
- Total revenues for the third quarter of 2024 reached $251.6 million, a 14.8% increase from $219.2 million in the third quarter of 2023.
- System-wide sales increased by 8.0%, amounting to $291.8 million in Q3 2024 compared to $270.3 million in Q3 2023.
- Future earnings estimates suggest continued growth, driven by both new restaurant openings and enhancements in operational efficiency.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company is actively pursuing strategic initiatives to bolster growth:
- Partnerships with local suppliers to enhance food quality and reduce costs.
- Expansion of delivery and take-out services to cater to changing consumer preferences.
- Investment in technology to improve operational efficiencies and customer engagement.
Competitive Advantages That Position the Company for Growth
Several competitive advantages underscore the company's growth potential:
- Brand Recognition: The company has received numerous awards for its dining experience, enhancing customer loyalty.
- Operational Efficiency: Restaurant-level operating profit for the thirteen weeks ended September 29, 2024, increased to $46.99 million, up from $40.37 million in the prior year, reflecting improved operational efficiencies.
- Market Presence: Operating in 29 states provides a broad customer base and ample opportunities for market penetration.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Revenues | $251.6 million | $219.2 million | 14.8% |
| System-wide Sales | $291.8 million | $270.3 million | 8.0% |
| Restaurant Level Operating Profit | $46.99 million | $40.37 million | 16.4% |
| Adjusted EBITDA | $25.62 million | $21.63 million | 18.5% |
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Resources:
- First Watch Restaurant Group, Inc. (FWRG) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of First Watch Restaurant Group, Inc. (FWRG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View First Watch Restaurant Group, Inc. (FWRG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.