Q2 2025 First Watch Restaurant Group Inc Earnings Call
Thank you for standing by.
And welcome to the First Watch Restaurant Group Incorporated, second quarter earnings conference call occurring today, August 5th, 2025 at 8, a.m. eastern time.
Please note that all participants are currently in a listen-only mode.
Following the presentation, the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time.
This call will be archived and available for replay at investors firstwatch.com under the news and events section.
I would now like to turn the conference over to Stephen marada, vice president of investor relations at First Watch to begin.
Hello everyone. I am joined by First Watch Chief Executive Officer and President, Christopher Tomasso, and Chief Financial Officer, Henry Hope. This morning, First Watch issued its earnings release for the second quarter of fiscal 2025 on GlobeNewswire and filed its quarterly report from 10 Queensway.
Investor should review the reconciliation of these non-gaap measures comparable. Gaap results. Contained in the company's earnings release filed this morning.
Any reference to percentage growth when discussing the second quarter performance is a comparison to the second quarter of 2024 unless otherwise indicated and with that, I'll turn the call over to Chris.
Good morning everyone. We appreciate you joining us to discuss our second quarter performance.
We're pleased to report a strong quarter and encouraging underlying Trends as first watches Broadband appeal and unit growth engine were on full display.
Equally important, the decisions we've made around pricing, including, for instance, our resistance to passing along long-term temporary commodity cost inflation, are proving to be well received by our customers.
Total revenue increased by more than 19% led. By growth from high performing new restaurant openings and their strategic Acquisitions. We completed over the past year.
This was underpinned by positive, same restaurant sales, growth of 3 and a half percent driven, predominantly by 2% positive. Same restaurant traffic growth
We enjoy sequential Improvement in both in restaurant and Consolidated traffic Trends. Generated growth in everyday parts and saw in our continuing to see tangible traction from our marketing efforts.
We opened 17 new systemwide restaurants across 8 States. And these new restaurants are on track to meet or exceed the strong cash on cash returns, and Roi that we target.
We also successfully completed the acquisition and integration of 19 franchise restaurants in North Carolina, South Carolina and Missouri.
Our results. Illustrate that our growth strategy is working. And before we dive in, I want to thank our teams across the entire Enterprise who execute at a very high level every day to deliver these results.
As we noted during our first quarter conference, call the second quarter got off to a strong start with April delivering the best monthly. Same restaurant traffic growth. In more than 2 years
met with similar to April and June exhibited, even further Improvement,
Delivery sustained traffic momentum across multiple quarters, building our confidence in achieving positive traffic for the balance of 2025 and for the full year, as we mentioned previously.
These two occasions perfectly illustrate our capacity to achieve even higher unit volumes.
Mother's Day was the single busiest day in our 42 plus year history with record, same restaurant traffic and sales.
Just one month later, we locked in seam restaurant traffic growth in the mid-single digits on Father's Day.
As a reminder, our ads have grown from 1.6 million dollars in, 2019 to 2.3 million today and our new restaurants are projected to reach 2.7 million in their third year of operation with recent classes on track to exceed. Even that Target
First Watch remains America's fastest-growing full-service restaurant brand, averaging more than one new restaurant opening per week. Given the strength of our new openings and the related returns, we're not slowing down.
I'm proud of our development teams, sharp focus on strategies and their successful results.
The NRL pipeline is as strong as ever with more than 130 new sites approved and in various stages of completion.
In fact, our double digit percentage growth. Plans for 2026 are already firmly in place and we are nearly halfway to our Target for 2027.
In short, we're right where we need to be as it relates to hitting our near- and mid-term unit growth targets.
In effect, each year, we are opening the equivalent of an entire regional chain.
To better illustrate our new restaurants opened in the last 2 years outnumbered, the entire system size of the next largest. Daytime dining concept. First Watch is growing aggressively and doing it with a well-formed playbook in place.
For 2025, we are targeting 62 to 67 new locations.
The broad geographic diversity of our new restaurant openings can be seen in the first half of this year, where we opened new restaurants in 18 markets across 15 states.
Rnr's are positioned in highly visible. A locations providing us with a competitive Advantage during our day park.
As a group, they continue to outperform our underwriting targets which include year 3, average unit volumes of 2.7 million dollars, cash on cash returns of around 35% and Returns on investment of better than 18%.
Increasingly we are taking advantage of more second generation sites with high, visibility plentiful, parking and the square footage that showcases our larger patties.
2025 nearly 40% of our 80 new restaurants were second generation restaurant spaces with about 60% of those in freestanding buildings.
Because each 1 of our restaurants is unique and not artificially constrained by a cookie cutter approach to design. We can modify just about any location into a highly efficient firstwatch
We have successfully converted. Well-known National full service further, changes Seafood. Chains bar and grills Italian Concepts Bakery, cafes and even National Family. Dining Concepts.
These locations, both some of our highest AUVs and 40% of our yet-to-be-built active pipeline, are previous generation restaurant spaces and all of exceptional site quality.
With our top testile restaurants. Spread across 14 States and 22 dmas, and consistent auvs, across all regions. We remain confident in our ability to reach our stated total, addressable Market of 2,200 locations within the continental United States.
and with over 600 firstwatch restaurants and operations today,
We have many years of strong new restaurant. Growth ahead of us
Shifting now to brand and marketing.
The investments we are making this year are yielding positive results, contributing to our same-restaurant traffic growth and increased brand awareness.
For example, in core geography like the Southeast and the Southwest, we're not only outperforming the system but also gaining market share.
Even in Florida, the state, we've called home for nearly 40 years, we still have opportunities to increase brand awareness and we remain bullish on the untapped potential across all regions.
I'm particularly enthusiastic about how nice the composition of our customer base continues to evolve.
Broadening our demographics beyond what leans toward the Boomer generation just 10 years ago.
Today, our customers are skewing more towards the Gen Z and Millennial generations with the majority falling below. 50 years old, which is a direct result of our marketing culinary and operational efforts to ensure our ongoing relevance and long-term viability.
We are highly attentive to all facets of the customer experience to that end in the second half of this year, we'll be relaunching. All of our customer facing digital properties, including a custom built, wait list experience, streamline digital ordering and nutritional filtering tools. Further, enhancing the first, watch customer experience, more to come on, all of that in the future,
1 of the best examples of our commitment to our customers. International experience is about removing needless friction from the weightless process.
For those of you who have visited the first watch, you know, that our host area can become quite congested during peak hours.
While paying the table improve the payment process and successfully alleviate a portion of this congestion, our new weight list experiences is automation to improve the experience even further.
Geo location technology allows customers the option to be automatically checked in and notified as they approached the restaurant, saving them, the need to physically check in at the host stand.
Culinary innovation has always been a competitive advantage at First Watch and is key to our customer experience.
With our seasonal menu changing, every 10 weeks we're continuously testing new and Innovative offerings while involving and optimizing the core menu to enhance menu, navigation, Test new items, and introduce new platforms.
Our culinary and menu Evolution continues to get better each year as we learn more and more about what resonates with our customers.
In the first half of this year, we have several test items exceed expectations and 1 actually broke the sales mix record, giving us a high degree of competence in our upcoming seasonal offerings when they go to Nationwide rollout.
At first, watch our focus is on our people and our culture of kindness.
Some of you may have seen the August cover story that FSR magazine just released featuring First Watch.
Danny Cline and the entire editorial staff. Did a really nice job, capturing the essence of our philosophical approach in these areas and how we bring them to life.
The timing of this profile is apropos. As we are in the midst of conducting. Our annual wide, for which stands for, we hear you and comprises. Nearly 2, dozen 90 minutes virtual town halls with me. Our chief operations officer, Dan Jones, and our chief people officer, Laura, swordsman directly engaging with hourly employees.
The feedback gathered during these sessions has proven crucial across Enterprise touch points, including marketing, generating menu ideas, enhancing processes, developing retention strategies, and identifying, countless ways to improve both the employee and customer experiences. It's an important interaction that we look forward to every year.
We are and will remain an employer of choice, providing a unique combination of quality of life and growth opportunities that are unmatched in our industry.
And expanding the First Watch Academy of Restaurant Management program, or FARM as we affectionately refer to it, to include a Director of Operations session for the first time.
The certified general manager. Program is a new role that focuses on improving manager training and retention and enables us to build a people pipeline made up of Veteran managers who support our aggressive, unit growth plans,
Since this implementation early last year, we have raised the bar on the rate of internal promotions, as well as our execution in the restaurant.
This program has been so successful that the vast majority of our multi-unit, director of operations promotions, or existing certified general managers.
Initiatives like this, certified general manager program. Among others are improving our turnover at all levels.
Our strong employee retention among our hourly staff and at the manager level improved again in the second quarter with turnover, for both remaining several hundred basis points below both service industry averages
In today's dynamic environment, we are seeing a growing demand for full-service dining as consumers increasingly gravitate towards more hospitable, casual dining experiences. They're seeking consistency, exceptional service, and innovative menu offerings made with high-quality ingredients that elevate their visit beyond what the best casual category can offer.
This is an area, frankly, where we shine.
The appeal of a full-service casual dining, visit to First, Watch rests, in our ability, to offer a memorable experience, at an enticing value throughout the entire customer Journey. We feel really great about how we are positioned.
Our unwavering focus on the customer experience and people development has positioned First Watch as a leader in full-service dining.
With our robust people and real estate pipelines planned. Operational improvements menu, Innovation. And a steadfast commitment to fostering. A culture of Engagement. We continue to elevate, both the employee and customer experience.
Our progress is reflected, not only in the positive shifts in customer demographics, but also in our industry-leading employee retention and track record of successfully executing our growth strategies.
As we move forward, these foundational strengths will remain Central to sustaining our momentum and delivering long-term value creation for our investors. And now I'd like to turn it over to Mel.
Thank you, Chris and good morning.
Total second quarter revenues were 3007.9 million, an increase of 19.1%, our Topline results were driven by the contribution of 149 non-comp restaurants, including 61 company-owned, new restaurant openings and the 40 franchise locations. We acquired since the first quarter of 2024 and traffic driven positive, same restaurant sales, growth of 3
3.5%.
Same restaurant. Traffic was positive, 2%.
In our discal June, we posted the best monthly same restaurant traffic growth in over two years, which reaffirms our confidence in projecting positive same restaurant traffic growth for the remainder of this year.
Our Inn Restaurant traffic for the quarter. While slightly negative was also the best in 6 quarters.
Traffic growth in the third party, delivery Channel increased materially during the second quarter a continuation of the first quarter Trend and a direct result of the changes we made to that program earlier this year.
As part of our efforts at the start of this year, to improve the performance in the third-party Channel, we set 2 primary goals 1 to recapture lost traffic in the channel.
We have successfully met this goal.
And $2 million to generate incremental profit dollars, we successfully achieved this goal as well.
Additionally, we believe that third-party delivery occasions are incremental not a replacement for in restaurant, dining visits. We believe this is at least partially validated by the fact that both in restaurant and third-party delivery traffic had been improving simultaneously.
We again, experienced modest, positive sales, mix overall during the quarter.
Food and beverage expense, was 23.6% of sales up from 21.8% in the second quarter last year.
Costs as a percent of sales benefited from carried pricing of around 2 and a half percent though, this was more than offset by commodity inflation in the quarter of 8.1%.
Eggs, bacon, coffee and avocados, which comprised 4 of our top 5 cost inputs were all materially more expensive than in the same period last year. Similar to the first quarter.
Cost in just a moment when I share the good news about our forecasted costs for the balance of the year.
Labor and other related expenses, were 33.2% of sales in the second quarter of 40 basis. Point increase from 32.8% reported in the second quarter of 2024
Restaurant level labor. Inflation was 3.9% a combination of Labor inflation and higher health. Benefit costs were the largest factors for the increase in the percent of sales.
Our labor efficiency was in line with last year.
Restaurant level, operating profit margin was 18.6% in the second quarter compared to 21.9% in the second quarter last year.
General and administrative expenses increased to 33.2 million from 27.2 million in the second quarter of 2024.
At 10.8% of total revenue, these expenses were 30 basis points higher than in the same quarter last year. The increase was driven by investments in marketing and headcount.
the income from operations margin was 2.4%.
Adjusted ibaa was 30.4 Million, 4.9 million below last year with adjusted evaa margin declining to 9.9% from 13.7%.
We reported net income of 2.1 million.
There were 17 new systemwide restaurants open during the second quarter of which 15 our company-owned and 2 are franchise owned and we ended the period with 600 restaurants in the system.
The effect of our franchisee Acquisitions, which includes only the impact of purchases made within the last 12 months. Increased second quarter Revenue by about 7 million dollars and adjusted ibida by about 1 million.
For further details on the second quarter, please review our supplemental materials that are on our industrial relations website. Beneath the webcast link,
Now, I'd like to provide our updated outlook for 2025.
We are maintaining our estimate of positive low. Single digits percentage. Same restaurants sales growth with flat to slightly positive, same restaurant traffic growth.
Our estimate includes 2.8% of price implemented in July and carry pricing of around 4% in the second half of the year, which blends to around 3% of price for the full year.
As a point of reference, we piloted a handful of call to action consumer Outreach programs around this time. Last year, which positively impacted the same restaurant traffic in the third, and fourth quarters of 2024.
Consequently, this year's fiscal, September presents our most challenging monthly comparison.
Additionally, the Cadence of our 2025 marketing investment reflects the fact that the third quarter is typically our seasonally slowest period.
We expect total revenue growth of around 20%, with a net 400 basis point impact from completed acquisitions.
We expect 62 to 67 new systemwide restaurants, including 55 to 58 new company-owned restaurants, and 7 to 9. New franchise owned restaurants with 3 planned, company-owned restaurant closures.
Our company-owned new restaurant development pipeline remains weighted to the second half of 2025. The fourth quarter in particular,
there is good news in our cost expectations for the balance of the year as it pertains to eggs.
As you are aware, the effects of recurring incidents of 80 and flu in recent quarters had elevated, the cost of eggs.
Earlier this year, the increased cost of the eggs was a major input to our forecasts of overall commodity cost inflation.
As of July, with egg supply improving, our cost has improved as well.
As such, we are lowering our fiscal year 2025 commodity cost inflation guidance to a range of 5 to 7% down from high single digits previously.
Restaurant level labor cost. Inflation is still expected to be in the range of 3 to 4%.
Million from acquired restaurants.
Our updated estimate of full year adjusted. The ibida is primarily driven by the reduction in our egg costs combined with the shifting impact from Terrace.
For modeling purposes. We expect GNA in the third and fourth quarter to be roughly equivalent to the second quarter results in absolute dollars.
We expect a blended tax rate of 35 to 40%.
We are lowering our expected range for Capital expenditures to 148 to 152 million from 150 to 160 million dollars, not including the capital allocated to the franchisee acquisitions.
The adjustment is largely due to fewer than expected ground lease, new restaurant openings in both 2025 and 2026.
And the ladders impact on current year capex.
We have a lot to look forward to in the back half of 2025.
With a healthy lineup of new restaurant, openings, moderating commodity costs, and a deep bench of seasoned staff. We are, well, positioned to extend our lead in the daytime dining segment.
An operator with that, would you please open the line for questions?
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And we'll go first to Jim Solera with Stevens Incorporated.
Chris, no good morning. Thanks for taking our call.
Sure. Uh
So I wanted to ask about something, you'd mentioned in your prepared, remarks regarding the, the majority age of customers, falling below. 50 years old and to drill down on that. Do you think that that's a function of broadening? The store footprint across, you know, more and more markets outside of the core of Florida Market or, or is there also a component there that gen Z and younger Generations tend to order more off to third-party platforms? And and now that you're seeing an uptick there but that's changing the composition any commentaries there would be great. Yeah sure. I think it's all the above. I think, you know, we're entering new markets where a lot of the customers are are having their first experience at at First Watch.
And, you know, you've seen the evolution of our prototype. You've seen the, the um, you know, the kind of the advancement in our culinary that's continued. Um, so there's that piece of it and then I think our team's just done a really nice job of of, you know, reaching out to that next generation of firstwatch customer in our core markets, which I think has been, you know, a driver also of trial and and, you know, expanding our customer base. So we're really focused on filling the pipeline with the next generation of First Watch customers. We're, we're, we're thinking about the next 40 years. Uh, just like we did the first 40. So I think it's, it's really part and parcel to everything that we're doing.
And are you able to speak to any differences in frequency or ticket size? Just trying to get a better sense of how those younger consumers engage with the brand relative to, you know, which has been your traditional older consumer?
Not very different. I mean, we're not seeing, you know, any kind of massive shifts in in mixed items and things like that, you know, 1, other proof point to your, to, your first question actually is I mean, if you just think about social media alone, the presence that we have on social media, and how active we are, um, just lends itself to attracting that next Generation. So, you know, even with with the introduction of alcohol, for example, I think that helps, um, you know, attract that generation as well. So really it's, it's our brand voice. It's how we're positioning ourselves and how we continue to just evolve, what we don't want to do.
Is ever have to be, uh, in a in a period where we're having to reinvent ourselves. So we're constantly evolving, uh, as we go along. Um, and, and, you know, really focused on long-term consumer Trends and staying ahead of them.
Great, I appreciate the detail. I'll hop back in the Que
and our next question comes from Jeff, Bernstein with Barkley's.
This uh positioning last quarter, just wanted to parse out what you feel, um, you know, gives you the confidence uh, to raise the Outlook. Uh, especially just given the ongoing volatility, you know, we've seen a lot of noise, uh, in the data, um, in this year and obviously, uh, you know, consumers are obviously a little bit jittery, um, just anything you're seeing in your consumer base. That gives you that confidence and then have a follow-up. Thanks. Yeah.
Sure. I think. Um, first and foremost on the ibida is, you know, uh, relief in egg costs is really a big driver there. Um, that was that was, you know, probably well, it was the largest input to our our cost inflation which, you know, at the beginning of the year, we we projected at high single digits. So um,
So some relief there in the second half of the year is is a big contributor. Um and then honestly on the, on the consumer front, um, we're really pleased with the trends. We've seen the underlying Trends. We we did not see any deceleration in in our same restaurant traffic Trends in July, uh, so it just gives us a lot of confidence that what we're doing is working. Um, and so that's why you saw the the um, you know, the kind of the changes to guidance there.
Understood and, uh, Mel, just a question on the pricing strategy looks like, it took 280 basis points in July with consumers, obviously focused on value. We've heard no shortage of this. Um, from, um, some of the companies that are reported, uh, this cycle. Just, how are you thinking about that going forward, and the flow through the margins, uh, in the second half.
Thank you. Our, uh, our actually our pricing strategy hadn't changed, uh, over decades. Frankly we generally visit pricing about twice a year uh with a Cadence of hitting some in the first quarter and then revisiting based on how we see inflation and do a little bit, of course correction mid year. So, um, the the pricing hasn't uh, the pricing philosophy in our application of it hasn't changed, uh, this year and any other time. And it's it's kind of within the range that we typically predict as a long term, you know, 3 to 3 and a half percent
Got it. And any any implication on the margin there from from the pricing action? Or
Well, it's it's when we price we price to offset. What we see is permanent inflation. Um, so uh, we we try not to price for temporary. You know, what we see is temporary inflation? So as, as we, as we took, uh, the 200 basis points you mentioned, you know, it it will be helpful, uh, to us and it considers, you know, it considers some of the off offset of what we see.
Is more permanent or sticky inflation.
And our next question comes from Todd, Brooks with the Benchmark company.
Hey, thanks for taking my question and congrats on the return to positive traffic in the quarter.
Thanks, I wanted wanted to try to tie that return deposit of traffic to
Some of the marketing tactics, Chris you pointed out that a lot of this was tested.
Kind of late Q3. And then the Q4 last year and refined
I guess I don't know if Matt's there to speak to it or if you want to speak to it, but I'm just wondering where you're seeing traction and how.
And maybe, if you can quantify for us how that effort is really aiding, uh, that growth and traffic that you're seeing, and the recent quarter.
I got you brand officer. Um, you know, as as we Chris said in the in the script you know, we we did focus a lot of our efforts in certain geographies, um, you know, really corresponding to some of our largest markets and you know, we we've seen tangible Traction in those geographies and you know, just like anyone would you know, we compare that to the rest of the system in certain control markets and so when you ask where the confidence comes in, we've just been really pleased with the the results we've seen in those markets versus the rest of the system. And I think it's also important to talk about, you know, who we're talking.
Targeting, uh, we're targeting our customers for increased frequency, we're targeting uh users of the category uh where we believe that we have opportunities to to, you know, gain another share, another visit. So, uh, and we've seen success across that as well. So it's the, it's The Who, and the and the where and the how that's, um, getting us there.
Perfect. And then just a second, not related question, but I was surprised when you were talking about
in the pipeline of openings and out of the last 80 openings that 40% of those have been
Opening new units. Now, can you walk through, um, when you're looking at the build cost, what's the, what's the difference in build cost for a second generation reclaim versus a typical First Watch? Build, thanks. So so our, our, our building average on, um, on average across all of our, all of our restaurants,
Uh after TI dollars uh generally runs about a million 7 uh along that order often times with second generation space. There's a there's uh, an eagerness of a
Uh, developer, uh, or the landlord to, to get a new National Credit like us into the space and operating, you know, using the facility quickly and, uh, and effectively. And so, as a consequence, uh, the net doesn't really change that much. Uh, and then the square footage, we often times are for larger, Footprints are able to, uh,
You know, we might be because we're paying for more square footage. Uh, we might get a little bit of a break on the, on the, uh, average rate, uh, per square foot something like that. So it, it actually comes out, uh, actually Blends out pretty close to um, you know, just the the uh, if first generation space, that's an end cap with great access and egress. And those things that we always characterize for our our, a first generation space.
Okay, perfect. Thanks Mel.
Moving on to John Tower with City.
Yeah. Hey thank you guys for taking the question, maybe. Hey morning, thanks for for taking the questions. Um maybe kind of hitting on both of those questions again, different tax. Um the media spending in in specifically the traffic that you're seeing um coming to your stores, in response to the media spend that you're getting. Are you seeing an increase in customer frequency from existing customers? Are you drawing new customers to the brands? And I'm curious, um, to the brand that is and and across both the in-store and the 3PD Channel or I'm just kind of curious. If you could parse that out for us.
I think given our the frequency in Full Service uh restaurants that probably we need a longer cohort to see how much uh
You know how much repeat business we're getting or or um uh you know accelerate whether we're accelerating visits.
Okay, and then maybe just going back to the last question regarding the second gen. Um, you know, you talked about the pipeline being pretty solid over the next 12 months. I think roughly, what 130 stores or so in the pipeline today, I apologize if I'm off a little bit there. Yep. Yep. That's right. That's right.
Okay, when, when thinking about that, and even going beyond that, and I think there was even an article yesterday, um, in in 1 of the trade Rags, talking about the amount of property sales and casual dining plummeting over the past few years. And, you know, second gen real estate really, you know, topping up for casual dining. Um, is this, you know, something as a, a multi-year driver for you guys. So like the mix of new stores popping up as second gen. You know, today, 40% is this going to, you know, persist at 40% or do you see it running at a 4050? Maybe 60% of new stores over the next several years versus, you know, ground up brand new builds. Yeah. It's, it's hard to tell, but I'll tell you, at least for the next few years because we know it already because our pipeline is such. Um, but I mean, we're getting first calls, uh, is what? I'll tell you on these sites that become available. And so, uh, we get to choose which ones we want to, uh, you know.
You know, move forward with and which ones we don't. So, um, you know, I I guess it depends on on the health of of call it casual dining in general. Um, and, you know, we're we're seeing a lot more of these sites than we've seen in the past and um, because of the success we've had in converting them. And again the the flexibility that we have to, to put a really high performing First Watch in in almost any kind of footprint at this point. Um you know, has that high on our list from a from a top
We can do it rapidly, we can train, train our staff, you know, the and the choreography, and the restaurants of these larger footprint, dining rooms. Um all of that's been helpful to us and uh it's it's a you know I applaud our development team for um,
Their work with their, with our operations crew and really, uh, really helping us to move into those places profitably and quickly. But the, the, the, the central theme Here is that these are high quality locations. And, um, so when they check all our boxes for our, the discipline that we follow for, um, for psych criteria. I mean, they're, they're, they're again top of the list.
Got it. Thanks for taking the questions.
Moving on to Brian, Mullen with Piper Sandler.
Hey thanks. Uh you've been asked about marketing and the impact of traffic already. I I I want to ask on some of the actions. You've taken inside the restaurants, you know, less core. You talked about improving the value to the consumer for the trifecta. That's a high selling item. You you reintroduced to surprise and Delight acts of kindness from the GMS. You know, my question is do you think the consumers is noticing and appreciating this are there any other similar moves? You could look to make just to continue to make sure the guests, appreciate your total value proposition.
Yeah, I I think they're absolutely noticing it and, you know, in these times more than ever and so, you know, we're we're really, really leaning into that. And and I reference the, the article in in FSR magazine that that came out I think yesterday, or, or the day before just, you know, they they really keyed in on that and we're keyed in on it from an organization. So, um, you know, we really believe that the consumer now is at a place where they're looking to be, um, you know, they're looking for Hospitality, they're looking for high-quality ingredients, they're looking for, um, you know, consistency and value. I mean, that those are always themes that the consumer looks for. But I think there was a period of time where, uh, the consumer may have have, um, you know, given up on that a little bit in exchange for value and price. And um, but but we're definitely seeing that the the consumers responding well to that. So it's interesting when we get asked about the impact of the marketing and other things, we really we look at it holistically like we we
We really think that we're trying to do the right thing by the consumer across all of our, our touch points, you know, from being being conservative, around pricing at times where they're feeling crunched, uh, raising the level of hospitality, at the same time, increasing portion sizes? I mean, you just don't hear about, you know, restaurant companies doing that right now. And so we think it's an opportunity for us to stand out and, and we absolutely believe that the consumer is recognizing that
Okay, thanks and then, just wanted to ask about the mix. I think it was down about 100 basis points in the quarter. Just remind us, the contributing factors and then talk about uh, how to what, uh, mix for the back half of the year and what what we might expect
We we actually had slightly positive mix. Um, the impact on the PPA comes from the, um, you know, some of the, some of the efforts that we've done around the Inn Restaurant, what we're talking to and really, it's, it's related primarily to the reduction of the third-party search charge, but we, we did not see a, a negative mix effect. In fact, it was ever so slightly positive
Okay, thank you. Uh, huh.
Our next question comes from Brian viscero with Raymond James.
Hi, thanks and good morning. Um, I wanted to just ask about your your uh, raised EBA guidance for the year. Uh, I think it's a midpoint, it implies about 68 million bucks and and a return to significant year-on-year growth. Um, could you provide any guard rails on your expectations for third quarter and fourth quarter given all the moving pieces? And if not maybe just walk through some of the key moving Dynamics supporting that Improvement in Iva. Obviously when you talk
About the pricing and easing of food inflation. But anything else we should keep in mind?
And model out the second half.
The I would say the adjusted Eva that we expect for the back half of the year to be about about even between quarters 3 and 4. Um
Technically there's I don't know that we have any other you know, other real guard rails to provide. Okay, even that is a helpful. So thank you for that and Mel you touched on Terrace at 1 Point. Um could you just elaborate on your latest thinking on the Tariff impact uh uh this year and and
Any any color that would be great?
For us. Uh, I think we have about 10% maybe built in for the balance of the year, but it's, um, kind of thinking it might be
Uh, 10 10 in terms of just cost items but uh, but it's getting them material for this year. So,
Okay, so you're just to clarify that about 10% of your basket, might have some impact, but it's an image. Yeah, I think, I think we've, I think we've kind of counted it as about 10 basis points or something like that. In terms of the 4 year,
Okay, thank you.
All right, I'm sorry. I said 10% but
10 bits.
Moving on to Andrew Charles, with TD Cohen.
On for Andrew, I just wanted to follow up on the surprise and delayed and the increased portioning. How much of a drag are these still having on margins relative to the margins margin had when you saw on 1 q and is there anything else from the 1 Q headwinds you called out last time? As as you would say, is notably improved since 1 Q
So those aren't headwinds. Those are actually how we conduct business in the restaurant. And, um, and so we, you know, we view it as as something that to which the guests uh, respond positively and and as a consequence it's it's built into our uh it's it's built into our expert.
Expectations for the year. What what we spoke to in the first quarter, uh, particularly as it pertained to some of the promotions in the restaurants was that we had, you know, enthusiasm from our teams. We've now improved some of the tools that they have to monitor that. And our training has uh uh, you know, helped them in that area too. But we're, we're pleased with what it is. But it's built. It's, you know, it's built into the structure of the company that that said, we did see improvement from Q2 uh, uh, in Q2 from q1, um, you know, through, you know, increased communication with the restaurants, um, about the execution of it.
Hey, guys, good morning. Uh, yeah, just wanted to double click. Uh, Hey, just wanted to double click on that for a second. Um, so so was that kind of, you know, Cadiz, related and reduced ticket times where you can kind of, you know, get under that magical sort of 30 minute Mark, that, you know, is, is sort of that barrier for a lot of the delivery stuff.
Um, I I mean, look, I'll say that Cadiz helps us execute, you know, on any kind of, uh, occasion that we have just just for more efficiency in the kitchen. Um, but you know, it's it's the whole cocktail of of, you know, reducing the search charge. Um, also, you know, communication with our teams about how to manage that that channel during peak hours and things like that. So yeah, it's it, it's all part of it. But um, uh, you know, keeping the channel open at all times and being able to to execute
Executed at a, at a high level. So um, the good news is, you know, we we had a couple of challenges uh, to address like Mel mentioned in his prepared remarks. We we did address them. And um we're we're really happy with with how that channel um you know performs for us now and how we perform executing that channel.
That kind of year-over-year, mix headwinds, uh, you know, approaching the lapping. Um, when you put it, you know, put that into place. Yeah, and the third and the third quarter last year, what you may be referring to is the fact that we piloted some of the marketing uh uh, tactics that we've implemented on a broader basis this year, but we were not, uh, we weren't adjusting third-party delivery until the first quarter of this year.
Okay, understood and, um, just finally on
you know, on D traffic, uh, you know, is it reasonable to think that could be, you know, kind of flat to positive in the back half of the year or, you know, does rolling over some of the pilots, you know, testing kind of give you a little bit of a headwind
Uh you know, we I mean we certainly like the trend in the dining room traffic just like we like the overall trend. Uh we haven't been breaking it down too much by by a sales Channel.
Thank you guys.
We'll go next to Chris. Okay. Cole with stifel
Great. Thanks guys. Good morning. This is, uh, Patrick on for Chris. I, I, I just had a quick follow-up on the the marketing. Uh, Chris I know you said you were targeting both existing First, Watch users and new guests that, you know, are daytime users users, but not necessarily, uh, guess the first watch yet. So, I was curious. How does that lean into dollar terms? And in terms of the investment 1 to the other, um, where the majority of the
The funds are going and then are there any particular channels like programmatic TV or paid advertising on social media that are particularly effective and just how you're thinking about the trajectory that's been relative to what you did in the first half over the second half of the year.
Yeah. This is uh Matt, I take that 1. Yeah, as Chris said, you know, we we have seen it as, you know, a good first step to really focus on this category users largely because it's just more effective and efficient spend, um, you know, as you know, going after and finding brand new, customers takes time, and, and consistent investment. And so, we saw it as a prudent investment to start and and really identify those category users. And, and yes, it has been much more of an efficient spend for us. Um, all of those channels that you mentioned are ones that we've um, employed. Um, in the first half of the year, um, again all of it is is digital related and let's get the benefit. Is that we're able to Target individuals, uniquely. So, we know from a 1 to 1 basis. We were targeting versus going after big broad audiences.
Yeah, that that's helpful. And then uh Mel I know you mentioned at least in the first quarter that you know new unit drag played a little bit of a role in the margin results and you know, you guys open quite a few units again, this quarter. Um, and so I was just curious kind of how that's trending. I know. Uh, Top Line is looking pretty good. And so if you had any comments, you could make on just sort of how that margin ramp up is looking and how to think about uh any sort of drag you've built in from that dynamic in the restaurant Market.
Over the remainder. Yeah, there's a there's a that that's a good question. We always have that uh, phenomenon, right? That are mature restaurants.
Uh, operate at margins. That are, you know, if you, you know, a few hundred basis points higher than the new restaurants that are on the maturity curve. Um, we don't generally break them out, uh, by group because we know we're always going to have highly productive new restaurants. And the fact, is that because of their sales level, they tend to over index at the margin level, uh, because they're outperforming the Legacy Fleet in term at the Top Line. And so, we'll always have that. So, I think there's generally you can count on a pretty similar spread from quarter to quarter, uh, in terms of the, uh, impact on the overall Consolidated margin.
Great, thanks. Appreciate it.
We'll go next to Sarah, Senator with Bank of America.
All right, thanks for taking my questions. Um, this is Isaiah on for Sarah. Just a quick question. When we look at COGS versus expectations, I'm just curious how you guys are able to do better than expected, given that inflation was at its peak in Q2. And then, um, a quick follow-up after that.
so, um, improve uh, improvements in our
You know, we're we're still, we're still a couple hundred basis points, uh, lower than this time last year. Uh, so I would say that inflation still, you know, took a, you know, took its bite out of our, uh, out of our cogs.
Being more mindful of it and generally speaking. Um, we have a broad enough basket
where when we have heightened, you know heightened um inflation in 1 or 2 uh,
Commodities we'll have we'll have a little bit of favorability in a couple of others. Um, as it happened this quarter and last last quarter 2, uh our highest, you know, all all of our high use Commodities were were very, very high. Um, but I think what, what you're seeing in terms of doing a little bit better than probably we expected has has more to do with just managing it as opposed to actually seeing the seeing some decline in the overall cost.
Got it very helpful. Um and then just unrelated. But uh when thinking about the drivers of Top Line, just going into the second half of the year, do you see things as more segments specific, uh, as you know, relating to breakfast or more company specific? And if it's the former uh does any Improvement in breakfast? Kind of signal, anything about how the consumer is reacting to things, or maybe if weekday breakfast is improving, um you know, to the levels of weekend, does any color that you have over there
Yeah, again, we, we saw, um, Improvement in all of our day Parts, um, which was very encouraging. Um, you know, I can't speak to the rest of the segment, but I know that, uh, you know, we're really pleased with our underlying Trends and our performance and how that's continued. So, um, I'll go back to my point about the consumer seeking Hospitality, um, and and quality, and all the attributes I listed before. And again, I think we show up perfectly right in the center of all of that. And so, um, I think that's, that's the benefit we're seeing plus the, the, the proactive nature of things we're doing, uh, from an operations execution, standpoint from a unit growth standpoint, helping our raise our brand awareness and then from a culinary, uh, standpoint as well.
Comes from Greg Frankfort with Guggenheim.
Hi, good morning. This is Arien resi for Greg. Um, thanks for taking out questions. Um, can you please expand on Regional performance? Like did you see any pockets of weakness in the quarter and um, maybe into the third quarter? Do you see any impact from recent? Um, devastating floods in Texas? Like anything on, that will be super helpful for us and um I wanted to follow up on the second Jan. You said the cap axis is pretty similar.
Um, but anything you can add on Roi and, um, cash on cash. Just like to further further, understand the structure there. Thank you. Okay. All right. Well, regionally there was no, there was no, uh, weakness in any region in terms of performance, the, the the, uh, our, our trade areas.
generally perform fairly similarly, uh, across geographies as
Uh, it goes to the just the site selection disciplines, as long as we observe our site selection disciplines, the restaurants are fairly consistent without regard to, uh, without regard to Regions. Know, we didn't see a lot of impact from floods in Texas. Um, and then, um, what was the what was the second question, Second Chance? Oh, on second gen space, we don't relax the underwriting criteria for our new restaurants, regardless of their size or what kind of space it is. We're always we're we're we're always underwriting for them to get to about 2.7 million in sales by year number 3. Uh, mature margins in the 18% range which generally comes to an Roi of about 18 to 20% as well, and a cash on cash return uh, at at 35% or thereabouts.
And I'll just remind you that, you know, our top Sr restaurants are in 14 States and 22 dmas, that that kind of, you know, uh, puts a finer point on Mel's comment. And uh, we see similar performance with our new restaurant openings too. Even when we're going into new markets so um we we love that flexibility of being able to open uh across geographies and and have the same expectations around performance.
Got it. Thank you so much.
Thank you.
This now concludes our question and answer session. I would now like to turn the floor back over to Christopher Tomasso for closing comments.
Great, thanks everybody for joining us on the. Call this morning, we really appreciate it. Appreciate all the questions. Um, as always, we're grateful for the dedication shown by our entire team and we're really looking forward to building on this strong Foundation throughout the rest of 2025 and Beyond have a great day everybody.
Ladies and gentlemen.
Participation, this does conclude today's teleconference, you may disconnect your lines and have a wonderful day.