What Happened:

Shares of breakfast restaurant chain First Watch Restaurant Group (NASDAQ:FWRG) fell 16.2% in the afternoon session after the company reported first-quarter earnings results. Its revenue unfortunately missed analysts' expectations, and full-year guidance for revenue was lowered slightly. On the other hand, adjusted EBITDA and gross margin came in ahead of expectations, partly due to improved pricing. However, the company noted that consumers are being more cautious in their spending habits, resulting in fewer dining-out occasions across the industry. Management added that while same-restaurant traffic trend improved month-on-month in Q1, it remains negative mid-single-digit quarter-to-date. The trend is expected to extend to Q2, while same-restaurant traffic in the second half of 2024 is expected to be relatively flat. Overall, this was a weaker quarter for the company.

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What is the market telling us:

First Watch's shares are somewhat volatile and over the last year have had 6 moves greater than 5%. But moves this big are very rare even for First Watch and that is indicating to us that this news had a significant impact on the market's perception of the business.

First Watch is up 8.6% since the beginning of the year, but at $21.25 per share it is still trading 16.7% below its 52-week high of $25.52 from April 2024. Investors who bought $1,000 worth of First Watch's shares at the IPO in September 2021 would now be looking at an investment worth $962.49.

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