First Watch Restaurant Group, Inc. Price & Performance (FWRG)

Any such statements should be considered in conjunction with cautionary statements in company's earnings release and the First factor disclosure in the company's filings with the SEC. Including our annual report on Form 10 ks. [indiscernible] First Watch assumes no obligation to update these forward looking statements whether new information, future developments or otherwise. Except as may be required by law. Lastly, management's remarks today will include references to various non GAAP measures including restaurant level operating profit, restaurant level operating profit margin, adjusted EBITDA and adjusted EBITDA margin. Investors should review the reconciliation of these non GAAP measures to comparable GAAP results contained in the company's earnings release filed this morning. During today's call, references to same restaurant sales and traffic growth compares to the thirteen week periods ended 12/29/2024 and 12/31/2023. In order to compare like for like periods. Otherwise, any reference to percentage growth when discussing fourth quarter performance is a comparison to the fourth quarter twenty twenty three unless otherwise indicated. And with that, I will turn the call over to Chris. Good morning. Thank you all for joining us to discuss our fourth quarter twenty twenty four financial results and our outlook for 2025. And thank you to our more than 15,000 employees who wake up early every day to make days brighter for our customers and each other.

These results are the product of their extraordinary efforts. 2024 was a pivotal year for First Watch, just not in a typical way. I'm particularly proud of how our teams operated during the year driving our total revenue to over $1,000,000,000 in our adjusted EBITDA to over $100,000,000 for the First time in the company's more than forty year history. Despite the adverse conditions faced by consumers, which pressured restaurant industry sales, we controlled the controllables. And in the process increased labor efficiency improved restaurant level operating profit margins reduce ticket times, improved employee turnover, and raised our already exceptional customer experience scores. I'm also proud of what we did not do in 2024. [indiscernible] differentiated ourselves by refraining from aggressive price promotions which were widespread across all day parts. Above all, we stayed true to who we are which is a trait that has served us well through every environment. And as a result, the First Watch brand entered 2025 in a position of strength. Committed to serving an elevated daytime dining experience and to providing our customers with value. Importantly, we opened 50 new restaurants in 2024, including a record 25 in the fourth quarter alone. [indiscernible] On average, restaurants we opened in 2024 are on pace to generate third year sales of $2,600,000 or about 20% above our current system average unit volumes.

With a projected cash on cash return above 35% and IRR above 22%. The pace of our new restaurant development and our proven site selection principles creates a formidable growth engine that contributes to our ability to fulfill First Watch's long term annual goals of mid teens percentage increases We've identified vast white space for First Watch throughout The U. S. Which continues to affirm our strategy to reach 2,200 locations in The Continental U. S. It's not a matter of if, it's a matter of when. For more than four decades, First Watch has grown largely via word-of-mouth. [indiscernible] we're proud that loyal customers love and recommend us, as our national footprint has grown, we recognize our opportunity to raise brand awareness via smart targeted marketing efforts. After several years of technology investments and associated data collection, aimed at improving our marketing efficiency, combined with learnings from tests conducted in 2024 we are meaningfully scaling our marketing spend in 2025. This effort represents the next step in the continued evolution our marketing capabilities which has been years in the making and was not a reaction to the more recent challenging industry traffic. Our broad based iterative approach utilizes various media strategies that target current customer frequency as well as attract new consumers to the First Watch brand.

Historically, marketing campaigns aimed at increasing restaurant's brand awareness were anchored by a significant investment in advertising on national media. You should not expect to see first watch commercials on traditional broadcast television. Instead, our approach utilizes a variety of channels to connect with consumers at various stages of the marketing funnel and Our investments in technology have led to greater tracking, measurement and targeting. Resulting in more informed results and we believe the potential for greater per dollar return than previously achieved. Given these new capabilities, we are funding the cost of our 2025 with both the reallocation of existing dollars and increased investment and expect to drive a return to positive guest counts in 2025. While this investment represents a significant step up for us, we believe that as a percent of sales, planned investment in marketing remains below the industry average. We view this as a natural part of our brand's evolution and see it as a lever to support our long term growth targets. We do not expect our campaigns to result in traffic related peaks, driven by price promotions rather an ongoing drumbeat to scale awareness alongside our new restaurant growth. Later this year, we also plan to launch enhanced customer facing technologies as part of our ongoing journey to improve both the customer and employee experience.

These include, but are not limited to, a custom built waitlist experience, a new menu experience with dynamic nutrition and allergen tools, new ordering capabilities and a personalized offer wallet. [indiscernible] will build on these levers for continued growth over the next several years. As I mentioned on our third quarter conference call, in an effort to stabilize traffic in the third party delivery channel, we partnered with our platform providers to modify our approach and improve our effectiveness. These modifications, which we instituted early in the first quarter of this year, immediately improved our visibility within the delivery apps and subsequently reversed our trend. I'm pleased to report that traffic is now positive in this channel year to date. We know that the consumer is facing a lot of pressure everywhere they turn these days. Our instinctive response is to reinvest in the customer experience through innovation, heightened hospitality and enhanced value. Our highly anticipated seasonal menus continue to delight our customers, which was on full display with our current Jumpstart menu and its eye catching and craveable Parmesan prosciutto toast. We'll soon test an expanded line of beverages have already tested exciting new menu innovations which have delivered positive early results.

We increased meat and potato portions on some of our top selling menu items and replaced honeydew with more premium fruit such as strawberries, pineapple and blueberries in our fruit bowls. And we brought back complimentary coffee while you wait. Something our customers loved and we did for more than thirty years. We before it was discontinued for safety reasons during COVID. This invest in the guest philosophy is nothing new for us. It's yet another way in which we extend hospitality and a key factor in how we've remained relevant and driven a high value perception with our customers for many years. Being the category leader in the daytime dining segment has many advantages. Scale is the top of the list. This is where our scale matters. Scale is the difference between new restaurant openings at A locations in the epicenter of the trade area versus openings in second rate B or C locations. Scale is the difference between accelerating unit growth and expanding our footprint while others in our segment pull back or close underperforming units. Scale is the difference between an elevated menu offering with dynamic seasonal menus highlighting fresh in season ingredients, And scale is the difference between a strong supply chain versus scrambling for key ingredients in challenging times.

Quite simply, in good times and not so good times, our scale positions us to power through challenges especially those that are highly franchised which inherently have less control over menu pricing. Strategically and historically, our disciplined approach considers pricing only to long term inflationary trends. Not to transitory commodity spikes and we will do the same in 2025. Similar to the avian flu experience in 2022, after taking no price in 2021, our modest pricing that year looked through the short lived spike in egg costs which rolled off in the following year and spurred market share gains for us in the meantime. I'm also excited about the opportunities that lie ahead in 2025. Our real estate and people pipelines are robust, and well positioned to support our ambitious yet highly achievable unit growth targets. We're bullish on our ability to bring our unique breakfast, brunch and lunch offering to new markets such as New England, we've already been welcomed with open arms. And Las Vegas, where we expect to open in the second half of the year. While we continue to build out our core and emerging markets. We spent several years focusing on serving more demand and in doing so have raised our AUVs from $1,600,000 in 2019 to $2,200,000 today.

We now turn our efforts to creating more demand through our continued new restaurant unit growth and burgeoning marketing efforts to expand our presence, increase our awareness and drive our comp restaurant base. Every year inevitably presents unique challenges. Whether it be a pandemic, supply shortages, traffic malaise, national and global crises or outsized inflation.

We approach them all the same way, We control the controllables year in and year out and along the way take share and expand scale to set up a stronger tomorrow. Now, I'd like to turn it over to Mel. Thank you, Chris, and good morning. As Chris referenced in his opening remarks, our restaurant managers and crews continued the efficient operation of our They further improved our employee turnover, generated faster ticket times and posted better customer service scores compared to the prior year. Total fourth quarter revenues were $263,300,000 an increase of 16.8% excluding the impact of the fifty third week in twenty twenty three. [indiscernible] Our top line growth in the fourth quarter is attributed to the 145 non comp RAS company owned new restaurant openings and the 28 acquired franchise since the third quarter of twenty twenty three. This was partially offset by negative same restaurant sales, of 0.3%, which includes a same restaurant traffic decline of 3%. In the fourth quarter, our in restaurant dining traffic was stronger than our off prem traffic. However, as Chris mentioned early in 2025, we implemented changes to our delivery program This has driven improvement in the third party delivery sales channel resulting in higher traffic year to date [indiscernible] and is now positive year over year.

On the food cost front, food and beverage compared to 22.5% in the same period last year. As a percent of sales costs, benefited from carried pricing of 2.9% offset by commodity inflation of 2.4%. Excluding marketing incentives in the first month of the quarter, food and beverage as a percent of sales would have been flat versus the same period a year ago. During the quarter, restaurant level labor inflation was 4.3%. Labor and other related expenses were 33.7% of sales in the fourth quarter, a 20 basis point improvement from 33.9% reported in the fourth quarter of twenty twenty three. Our increased labor efficiency combined with carried pricing offset the impact of labor inflation in the fourth quarter. We achieved restaurant level operating profit margin of 18.8% in the fourth quarter of twenty twenty four, Excluding the impact of the fifty third week, in twenty twenty three's results, restaurant level operating profit margin would have been even with the fourth quarter of twenty twenty three. Income from operations margin was 1.5%. At 30,700,000.0 general and administrative expenses were 11.7% of fourth quarter revenue, which was favorable to the prior year by 50 basis points. Adjusted EBITDA was $24,300,000 a nearly $5,000,000 increase versus the $19,600,000 reported last year excluding the contribution of the fifty third week.

Adjusted EBITDA margin grew to 9.2% as compared to the 8.7% margin we realized in the fourth quarter of twenty twenty three, again excluding the impact of the fifty third week in 2023. Net income was 700,000 was 0.3%. With the 25 new system wide restaurant opened during the fourth quarter, of which 23 are company owned and two are franchise owned, [indiscernible] we ended the fourth quarter with five seventy two restaurants. [indiscernible] Our new restaurant openings are a key contributor to our growth. Not only did new restaurants increase our revenue and profits, they extend our leadership in the daytime dining segment They increase our brand awareness and they provide attractive personal and professional growth to our leading retention and turnover rates. For your financial modeling purposes, the net effect of acquisitions which includes only the impact of purchases made within the last twelve months, increased fourth quarter revenue by about $12,000,000 and adjusted EBITDA by about $3,000,000 and full year by about $58,000,000 and $13,000,000 respectively. For further details on our fourth quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link. Before providing guidance for 2025, we'd like to offer some additional color on the inflation in key commodities.

Although we contract annually for our eggs, which ensures our supply and protects us from the most severe price volatility the continuing impact of the avian influenza has necessitated that our egg supply will be supplemented with purchases subject to spot market pricing.

This obviously increases our overall egg cost. Additionally, prices of avocados, bacon and coffee beans are elevated as well. Year to date, our commodity inflation is tracking at high single digit percent inflation and we expect much of the higher pricing to be sustained throughout the year. Our full year expectation for commodity inflation and adjusted EBITDA have contemplated these higher costs as well Now I'd like to provide our initial outlook for 2025. We're expecting same restaurant sales growth to be positive low single digits with flat to slightly positive same restaurant traffic. Our same restaurant sales growth guidance includes a 1.3% price action implemented in January which implies carried pricing of around 2.8% in the first quarter and 2% for the full year. As a reminder, historically, our disciplined price actions aim to off what we perceive to be permanent inflation not transitory spikes. We expect total revenue growth of around 20% with a net 400 basis point impact from acquisitions completed or announced. Assuming the timely closing of announced acquisitions. We expect a total of 59 to 64 net new system wide restaurants including 55 to 58 company owned with three planned company owned restaurant closures due to lease expirations.

Our company owned new restaurant development pipeline is weighted in the half of twenty twenty five Q4 in particular. We expect full year commodity inflation percentage increase in the high single digits driven by recent increases in eggs, pork, coffee and avocados as well as the tariffs. Restaurant level labor inflation is expected to be in the range of 2% to 4%. Our adjusted EBITDA guidance range is $124,000,000 to $130,000,000 with the net impact from acquisitions expected to contribute about $8,000,000 to our adjusted EBITDA this year, assuming the timely closing We expect a blended tax rate in the range of 31 and We expect capital expenditures of $150,000,000 to $160,000,000 dollars not including the capital allocated to franchise acquisitions. While we do not typically provide quarterly earnings guidance, we believe you may find a number of current considerations helpful to your models. As we have discussed, our new restaurants operate at less efficient margins with the first one hundred and twenty days having the steepest climb to maturity. The company's overall profitability in the first quarter of twenty twenty five will be affected. By the record number of new company owned restaurants opened in the fourth quarter of twenty twenty four in addition to the 10 or so expected in the current quarter.

Combined with the recent spikes in key commodity prices, we expect adjusted EBITDA in the first quarter of twenty twenty five to to be around $4,000,000 below the first quarter of twenty twenty four. Note also that we expect $50,000,000 to 55% of our adjusted EBITDA for the year will be generated in the second half of twenty twenty five. Additionally, we enjoyed positive same restaurant traffic in the month of January though with unseasonably cold weather and a weaker industry backdrop. February proved more challenging posting negative low single digit same restaurant traffic. While we expect same restaurant traffic to be slightly negative for the first quarter, our guidance contemplates positive traffic for the balance of 2025. Lastly, remain highly confident in our growth prospects. As such, we're reiterating our long term annual financial targets including MRO percentage growth in the low double digits, same restaurant sales growth of around 3.5%, restaurant sales and adjusted EBITDA percentage growth in the mid teens. And so operator, if we could open the line now for questions.

Thank you. And our first question is from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Good morning, Jeff.

Good morning. Thank you very much. Two questions. The first one just on the the current comp trends Many have spoken of weather and holiday shifts pressuring the first quarter. Quarter to date comps. And it sounds like you had some impact in February. But any concern of a slowing macro beneath the surface that is perhaps being masked by these transitory headwinds That would seem to be contrary to your assumption for a return to positive traffic rest of the year. Just trying to gauge whether there's something more going on than perhaps just something transitory. Maybe you've seen something in consumer behavior by income levels or anything along those lines that you can share in terms of your confidence in those comps? Then one follow-up. Sure. [indiscernible] Q4 traffic was better than Q3. And our Q1 to date traffic is better than Q4. So we're seeing a positive trend.

Understood First.

And then in terms of the marketing you talked about I think you mentioned meaningfully scaling that. It's definitely an area of interest. Obviously, you seem pleased with your fourth quarter test. I'm just wondering how 2025 is going to look different than 2024? Maybe what components have you most excited or you're thinking about the dollars to spend? I think you said percentage of sales is still below peers, but any color you could share in terms of spend you're going to be doing and where you think you're going to get the best bang for the buck? Thank you. Sure. I'll take that one too. Yes, we're really excited about the results that we've seen from the marketing campaigns and initiatives that we we tested in 2024, as I said on our last call and at ICR, we've basically taken the best of what we tested and put that into our plan. It's fully contemplated in our plan, the expenses. It's a big step up for us from a spend standpoint. You've been following us for a long time. You know how that's been. It's been pretty low percent of sales for us. But really encouraged by the results we got.

So we've got that built into the plan. And that's kind of one of the major factors that drove our guidance.

Thank you.

Next question is from the line of Andrew Charles with TD Hey, guys. So very helpful details strong high single digit commodity inflation.

Just on the ex side, what are you specifically seeing there I know you said you had to go outside of your outside of the network to buy some spot price as well.

And just remind us, I guess, on the egg side. I believe in the First, you've quantified eggs and potatoes mix of your commodity basket. You provide an update of that as well?

Yes. The eggs and potatoes roughly run about 15% of our our market basket. And what was the I'm sorry, Andrew, what was the first question? Just any color on the eggs?

Yes, just eggs in particular as guys got into high single digit inflation for the full year and you're seeing that quarter to date, what's how much of that is just being driven by the eggs component of it?

Well, the overall inflation, we're not breaking down into components. But we do eggs I don't know the portion that we're buying on the open market right now, but overall our eggs, we contract for that price on an annual basis. And then during this time when there is diminished flocks, then we're having to supplement supply and that's causing causing some additional add or cost or a surcharge. On top of our negotiated price. And that's really where the inflation is eggs are concerned. In terms of time, frame, I've said before, we're pretty finicky about the quality of our eggs and the type of eggs. And therefore, in order for the flocks that produce the sort of eggs that we use it'll take the better part of the year, we understand, before before we see some sufficiently mature flocks. To to start producing the kind of eggs that we look for assuming there's no more flock depopulation.

That's helpful. And then Chris, quick follow-up. I think you articulated well, the reason why you want to keep pricing modest, only taking 1.3% pricing in January despite the severe amount of inflation you guys are seeing. Just curious, how open minded are you that if this persists, your level of willingness to potentially revisit the pricing decision later in 2025?

Yes. We're going to follow the same cadence we do every year. It's It has served us well for a number of years where we take a price increase at the beginning of the year based on what we expect the commodity or just the overall inflation labor and commodities to be. And then we are always planning to take a midyear look and see where we are, see if anything's changed for the for the good or the other way and and we'll approach it that way. In years of what I would call out inflation, [indiscernible] the opening, we may or may not price to cover all of it.

We may make a strategic decision based on on the long term health of the business, again, not to make a permanent pricing decision on something that we see a transitory issue, which we feel Avian Influenza is right now. [indiscernible] experienced that in 2022. I talked about that a little bit. We certainly didn't price to to cover that inflation, which I think was over 13% that year. And that helped us grow traffic since then and and we're going to take that same kind of approach mid year here. But we're open to it Andrew. We First we know what the pressure that the consumer is under and we want to make sure that we're thoughtful about it.

Makes sense. Thank you.

The next question is from the line of Sarah Simeonore with Bank of America. Please proceed with your question.

Thank you. I wanted to ask about your approach to value. I guess you said and maybe it's a two part you're emphasizing value without doing deep discounts. I guess do your customers recognize that or is that the feedback you're getting? Or how can you tell that that that that's the case versus something that's a little louder? And I guess in that same vein, even though you do have to buy on the spot, I suspect you are a inflation is still a lot lower than maybe what your competitors are seeing, who haven't locked in any and certainly what we're seeing in grocery stores. Is that an opportunity for you to kind of emphasize your value gap or expand it further? And then I'll have First a quick follow-up on advertising, please.

Sure. I'll take the first part and then let Mel speak to the inflation. I'll just say that the focus on communicating our everyday value was something that kind of came to light in the marketing testing with the messaging. We tested a number of different messages, creative and those type of things. And in the First, where you've seen us focus on our seasonal menus and perhaps some of the more I'd call them what's the word I'm looking for, more of specialty items that we do on the seasonal menus the messaging that we use that focused on the core menu and frankly some of our top sellers, our top three or five sellers is really what resonated with the consumer. So that's what we've leveraged going forward. And so you ask, how do we know that the consumer is recognizing that, we've we've got results from tests that we've done on a number of different creative executions.

And on the egg front, Sarah, our size and our annual egg contract really for us it secures the supply, right? We don't have don't have any outages or shortages of eggs in the restaurants. And but I don't think in terms of just pricing, we are still paying more and we have a premium product that we use in terms of eggs.

So So while you go to the grocery store and maybe your seeing egg outages, or just thin shelves that sort of thing.

We don't procure our eggs from the same place that grocers grocers do. Principally because of the business that we're in. But it's not a place for us to look for value right now. It is very it is we're paying a premium and I think everybody else is probably paying a premium too.

So as you think about competitors who may be surcharge things like that, your view is that you're still it still may not be the place you want to emphasize value just because your input costs are so high I think that's right, yes.

Okay. And then just quickly on the advertising, I guess when you talk about one like the delivery and the 3P, Is that what you were doing better as you think about transaction growth? Is it the marketing piece or is there something else that you were referring to as you're able to turn that that trend around?

Yes. If you remember what we talked about previously, the third party channel was the biggest drag was the biggest headwind on our customer counts and traffic. And we also talked about how quickly it turned. And so we've just worked very closely with our providers on kind of a new arrangement that and we've seen results that we expected from it. So our partners leaned in with us and worked with us. I mean, it's good for them too. Our daypart is one that a big player in and it's not as as robust, I guess, from a number of restaurants that that are in that space. So we're important to them. They're important to us and we work together to to put together a true partnership that works for both. Thank you. Next questions are from the line of Andy Barish with Jefferies. Please proceed with your question.

Hey, good morning guys. Just wanted to kind of go through restaurant level margins in 'twenty four, and 'twenty three for that matter at the high end of your kind of targeted range. And it looks like there'll be some decline this year. I'm kind of guessing anywhere from 25 bps to 75 bps is I guess, is that all in the in the food First line and where First in terms of geographically on the P and L, where will the higher marketing costs wind up showing up the First?

Yes. Marketing would be in the G and A. Line item. And if we have margin front, [indiscernible] I think what we're trying to dial into is we're focused on growing traffic and growing margin dollars even if the margin comes [indiscernible] as a result of the inflation that we're seeing.

Really wouldn't want to confirm kind of your percentage range that you expressed there. But again, we're focused on growing those dollars even if we have to take a little bit of the inflation on the margin because if we look and we see that the inflation appears to be transitory, then we're we're pleased to take some on the margin as long as we're growing our margin dollars.

Got you. And then just a quick follow-up on the on the labor efficiencies. I know that [indiscernible] worked really well. Are you at a point where there is more productivity improvements or will it kind of potentially come from just the leverage of getting back to positive comps and positive traffic?

Yes, that's the always work of the heart of the restaurant managers And so we claimed some low hanging fruit last year and kind of the teams worked hard to incorporate some of the new information and to adjust more swiftly in terms of staffing. There are more things that they'll continue to add I don't know that we can expect the kind of efficiencies to flow through that we saw last year just because the volume of things to focus on is smaller, but they're constantly looking for ways to either change the staffing or the choreography of the restaurants so that so that we can better serve the customers, but also to optimize the labor efficiency as well. And Andy, I'd say that restaurants performed exceptionally well in a down traffic environment. And so we think we have leverage opportunity with if and when we see the improved customer counts. Great. And thanks for opening Hanover, mate. You have to head over there later. Welcome. We did it for you.

Thank you. Limit yourself to one question for analysts. Next question will come from the line of Jim Solera with Stephens. Please proceed with your question.

Hey, Chris. Hey, Mike. Good morning.

Thanks for taking our questions. Mel, I wanted to maybe disaggregate if I can some of your commentary on the commodities. Given that you're factoring in tariffs, is there a way for you to break out how much of that high single digit commodity impact is from tariffs and if we were to see those roll off kind of what you would expect from an improvement?

And I guess would that happen I would think immediately, maybe if I'm not thinking about that correctly?

So Jim, we believe that Furnish and the and the inflation is just a combined range is most helpful because that's how we think about it. Management can one pool of costs that we manage to. And as we go through the year, I mean, we'll be updating where we come out on inflation and we'll know more about the tariffs when we issue in May.

And then maybe shifting gears and thinking about the traffic commentary, If we think about flat to positive traffic, for the year, obviously, a lot of people in the industry are talking about maybe flat to down traffic, which would imply you guys gaining a little bit of share. Is that the marketing driving new guests to the restaurants and kind of discovering First watch for the first time? Or is there a frequency component in there as well that's supporting guests that are already familiar with the concept coming on a more frequent basis?

I think our expectation of our marketing is we're certainly very optimistic about it. I think it drives both frequency and new guests.

Okay, great. I'll hop back in queue.

Our next question is from the line of Gregory Francfort with Guggenheim Securities. Please proceed.

Hey, thanks for the question.

My question is, I think a couple of quarters ago with when traffic was maybe in a little bit softer spot, you talked about pressure on kind of the weekday day part in certain times. Has that changed and has that been what's maybe helping traffic the last couple of quarters get a little bit better spot? Any change in terms of which you're seeing from a daypart perspective? Thanks.

I think it's pretty much stayed the same from a a mix standpoint. Weekend traffic is still better than weekday. And the daypart mix has been about the same. I think it's just I think the input flow of the consumer at the different dayparts hasn't changed. It's just that we've we've seen more.

Got it. And then maybe I'll sneak a second one in here. Chris, for a company of your size, I think you guys are doing more with customer data and analytics than some of your peers.

Can you share how you think about that? And do you need customers to be in a loyalty program to be able to use customer data? Can you do it outside of that? Just any perspective on how you do that?

Thanks. Yes. I'll tell you that if I have to answer your question, yes or no, the the question is no, you don't have to. As long as you have ways in which you can collect consumer data your customers, customers of competitors, lapsed users, those type of things. It's really about the the way you go about speaking to them and reaching out to them, the frequency, the [indiscernible] and those type of things. And our team does an incredible job of of cutting up that data and using it. We've been talking about it for a long time, building that data lake And we're at a point now where we can really start to leverage it. But the way in which our team goes about it is high level.

Thank you. Our next question is from the line of Chris O'Cull with Stifel. Please proceed with your question.

Great. Thanks guys. This is Patrick on for Chris. Good morning.

Hey, Patrick.

Hey.

I wanted to ask about the anticipated mix impact of the marketing investments going forward. Mel, I know you don't typically have an explicit forecast in the guidance for the underlying mix, if I remember correctly, and you can correct me if I'm wrong there, but are you assuming any negative mix impacts from those marketing investments you plan to make? And is the underlying mix still positive if you kind of back that out in the current results?

I don't think we anticipate and First of all, confirm you're right, we don't typically break out mix in our guidance. But we don't expect a negative mix impact Okay.

And then Chris, I had a quick follow-up on the marketing investment. So So is the plan to distribute the spend equally across the system or is there any intent to lean into specific markets or regions where you think you could see a disproportionate impact? And then in the testing that you guys did, was there any major difference in the result of reaching your own customers versus I know you had some efforts where you were looking to reach customers who had not ever used the brand yet. Maybe customers of competitors. And I was just curious kind of the relative distribution there as well between targeting your own customers versus targeting customers outside the brand and if there was any learning from the test that influence kind of how you distribute those investments across those buckets? Thanks, guys.

Sure. I'll start with the first part of your question, which is we're obviously focusing on markets where we have the greatest greatest density and penetration. For obvious reasons. The more The more outlets we have for customers to be able to engage with us, the more efficient our spend is going to be. And that was a big learning from our test. It's It's obvious, but we also wanted to test it that way. And on the second part of your question, we saw the results that we expected from when we targeted our own customers and when we targeted customers of competitors because it was based on frequency and basically trying to get one more visit out of our customers and also getting in the rotation for customers of competitors in our dayparts. And so both of those approaches were successful, obviously at different levels, but both of those approaches are also built into our plan for 2025. Great. Thank you.

Our next question is from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Hi, thanks and good morning.

You guys highlighted the strong performance of some of your new unit openings. Could you just elaborate on some of the common threads driving that outperformance versus your targets? And is there anything worth highlighting in terms of average square footage, new versus existing markets? Or any inflections you're seeing in certain markets around brand awareness?

Probably on average, the new restaurants that we've opened in the last recently and that frankly the last couple of years probably the square footage has has exceeded the legacy fleet. I think if you go back a few years, the legacy restaurants on average were probably under 4,000 square feet. And most of the projects that we open now are above 4,000 square feet, 4,500 There's also, Brian, I think you and I have talked about this before, that there's a lot of a lot of second generation space that we have proven that we can go into and sort of nimbly change restaurants, which are in great locations. For our for our customers. But that they they another brand or another another type of concept maybe wanted to move out of their lease or relocate or something like that. And so [indiscernible] some of those are actually quite large. And we'll take those spaces and and generally, they provide for a much larger dining room. And larger kitchens, larger patios or more prominent appearance in the restaurants. I do think that those are well received when we add them to the First.

And Brian, I'll add that one of the things I'm excited about and we've talked about it before is our ability to open across geographies and have similar performance. So we know that when our teams stick to the the data, the diligence, the site selection criteria, and the evolution that we've seen in our prototype that we work everywhere. And so our ability to enter new markets like we've done this year in New England and in years past with Chicago and other markets. Is very encouraging to us because we can kind of have a diversified geographical footprint of where we open. And if you look at we've talked about there's no two First watches that look alike. We're constantly iterating and improving prototype and how they look. For example, the patio features and those type of things. So we continue to get smarter and better at this and have been really pleased with the results I talked about in the opening from our NRO standpoint.

All right. That's helpful. Thank you. And maybe just one quick follow-up by if I could, on the guidance. Mel, obviously, a lot of moving pieces with commodity inflation, the advertising investment.

Are there any high level guardrails you could help us with in terms of what your guidance is assumes for store margins and G and A spend Thank you.

The guidance that we get, I think the guardrail I'd refer you to is the adjusted EBITDA in the range of $124,000,000 to $130,000,000 for the year. We've everything that we've considered for the year in terms of inflation, in terms of our marketing spend, in terms of restaurant margins, all of that is baked into those numbers and that's where we have our enthusiastic plan addressed.

Thank you.

At this time, I'll turn the floor back to Christian Maso for closing remarks.

Thank you for your thoughtful questions and for participating in our call today. We appreciate it. Once again, I also want to say a special thank you to our entire First Watch team for standing shoulder to shoulder and making days brighter for all of our customers every day. And I hope you all have a great day.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.