On Tuesday, First Watch CEO Chris Tomasso began his prepared remarks to investors by labeling 2022 “another stellar year,” but the glowing description doesn’t quite do it justice.
The industry reported same-restaurant traffic declines of 3 percent, year-over-year, according to Black Box. Meanwhile, First Watch experienced traffic growth of 7.7 percent compared to 2021 and 6.5 percent versus 2019. Same-store sales lifted 14.5 percent last year and 29.6 percent against 2019. In Q4, traffic dipped 0.6 percent, but that’s because it lapped 31.9 percent growth in 2021. Compared to pre-COVID, traffic hiked 5.2 percent. Comps in the fourth quarter increased 7.7 percent and 29.3 percent versus three years ago.
Through February quarter-to-date, same-store sales rose 15.7 percent and traffic jumped 8.5 percent, thanks to the benefit of rolling over Omicron last year. In March, First Watch started to lap tougher comparisons.
“To us, strong traffic share represents the truest measure of consumer appeal and the overall health of a concept,” Tomasso said during the brand’s Q4 and full-year earnings call. “As the pioneer of the daytime dining segment, our consistent year-over-year traffic growth is yet another indication that consumers recognize the highly differentiated offering that First Watch provides and the continued growing awareness of our brand. It is further evidence that our strategies are driving our desired results and gives us great confidence in our ability to achieve our long-term growth targets.”
First Watch, in its 40th year of business, performs better with each store, its CEO said. The chain opened 43 restaurants in 2022. Of that, 29 were company-owned, and that group is achieving AUVs roughly 7 percent above the comp group’s $2 million and well past first-year projections. These restaurants are spread across the country and continue to build volumes as they mature.
In November, the company debuted a restaurant in Virginia that earned opening week sales of just under $75,000; prior, First Watch had never earned more than $70,000 in a week. Over the next few weeks, the store broke the record three more times, reaching more than $110,000 in its fifth week. Year-to-date, the Virginia location is still bringing in nearly $90,000 per week, which is about $4.68 million in annualized AUV.
Since, First Watch has seen other stores break the $75,000 per week threshold, Tomasso said.
“These higher sales are not an anomaly,” The CEO said. “Our strong new restaurants from 2022 are still trending well above our comp group AUVs and their high volumes appear to be sticky. We believe that one of these exceptional restaurants from our 2022 vintage will be our first $4 million restaurant. Achieving $4 million in sales in one 7.5 hour daily shift will be an amazing accomplishment for sure.”
The chain finished 2022 with 474 stores systemwide, including 366 corporate units and 108 franchises across 29 states. The brand’s long-term goal is to reach 2,200 domestic restaurants.
While others have struggled with finding sites and delays in permitting and equipment, Tomasso views it as one of First Watch’s strengths.
“We took control of the sites earlier,” he explained. “Basically took control of the situations that we’re facing with anybody who was building anything this past year and took control of the space, took control of the timeline. So that’s why we were able to stay so tight with our development schedule and why we feel confident in our development schedule for this year too even though it’s elevated from last year. And even though it’s backloaded into the second half of the year, that’s merely a function of the pipeline rebuilding from COVID. So we were able to execute a backloaded development schedule in 2022 and we believe we’ll be able to do it really well. And not only just get them open, but get them at these high volumes that we’re talking about and performing as well as they have been.”
With traffic and sales consistently moving upward, Tomasso said First Watch’s biggest opportunity is serving more demand, and the brand has five strategic initiatives to achieve that goal.
The first is obvious—opening more restaurants and investing in larger, standalone units to generate higher volumes. First Watch has barely seen cannibalization when it infills a market. When cannibalization does happen, it’s an intentional plan to spread excess demand, and it’s accounted for in the brand’s new restaurant pro forma. The chain’s second objective is kitchen enhancements, like double makelines to accommodate off-premises volumes, wider grills to allow for more pancakes and sandwiches to cook at the same time, double dishwashers, and energy-efficient smart ovens to ensure faster cook times.
Third on the list is kitchen display systems. First Watch completed the rollout to all company-owned stores ahead of schedule. Next is staff specialization, meaning a dedicated expeditor role and beverage position to free time for servers in the dining room. In tests thus far, waiters have served more tables and improved customer satisfaction. The fifth and final initiative is optimizing the dining room to reduce pain points for guests. It’s a strategy that First Watch has already made great strides on; the chain served the most customers in history in 2022, yet wait times were shorter than prior years and satisfaction was above industry averages.
“2023 marks our 40th year in business and a 40-year old brand doesn’t establish itself as a growth concept without a dedication to evolution,” Tomasso said. “Our success meeting evolving consumer preferences and adapting to an ever-changing marketplace fuels my belief that First Watch is just getting started.”
First Watch expects 45-51 net new stores in 2023, including 38-42 company-owned restaurants and 10-12 franchises. Those openings will be weighed more heavily in the back half of the year. So far in Q1, the NextGen Casual has opened six units. The brand expects capital expenditures between $100 million to $110 million to pay for an increased pace of openings and sites with more square footage, indoor or outdoor bars, larger patios, and expanded back-of-house equipment.
Same-store sales are projected to grow 6-8 percent in 2023, along with positive traffic.