First Watch Restaurant Group Q1 Earnings Call Highlights

Key Points

• Top-line and margin improvement: Revenue rose 17.3% to $331 million with same-restaurant sales up 2.8%, restaurant-level operating margin of 18.5%, and adjusted EBITDA up 22.2% to $27.8 million (net loss $2.7 million).
• Marketing and menu driving mix: The company expanded digital marketing to ~75% of restaurants and pulled “several million dollars” of spend into Q2, while a system-wide core menu refresh and high-margin seasonal items are improving check composition and customer frequency.
• Growth outlook and unit expansion maintained: Management reaffirmed full-year guidance (same-restaurant sales 1–3%, revenue growth 12–14%), raised the low end of adjusted EBITDA guidance to $133M, and plans 59–63 net new restaurants in fiscal 2026 as it pursues a long-term 2,200-location target.

First Watch Restaurant Group NASDAQ: FWRG management highlighted what it called a solid start to fiscal 2026, pointing to same-restaurant sales growth, margin improvement, and continued unit expansion, while reiterating key elements of its full-year outlook and discussing stepped-up marketing efforts and a newly refreshed core menu.

First-quarter results: sales growth, margin expansion, and unit additions

Chief Executive Officer and President Chris Tomasso said the company delivered same-restaurant sales growth of 2.8% in the first quarter and produced a restaurant-level operating profit margin of 18.5%. The chain also expanded to 648 restaurants after opening 16 new locations during the quarter.

Chief Financial Officer Mel Hope reported first-quarter revenue of $331 million, up 17.3% year over year. Hope attributed the revenue increase to same-restaurant sales growth and contributions from “194 non-comp restaurants,” including 68 company-owned new restaurant openings and 19 franchise locations acquired since the fourth quarter of 2024.

Same-restaurant traffic declined 2% in the quarter. Hope said weather negatively affected results by about 100 basis points, “in addition to our customary planned sales transfer,” adding that underlying traffic trends were consistent with expectations when excluding those impacts.

On costs, Hope said food and beverage expense improved to 22.6% of sales from 23.8%, benefiting from carried pricing of about 4% and commodity deflation of around 1.6% driven primarily by eggs, avocados, and a brief favorable trend in bacon prices. Labor and related expenses were 33.7% of sales, improving 90 basis points from 34.6% a year earlier. Hope said carried pricing offset 3.7% of labor inflation, while labor efficiency was “essentially flat” compared to last year.

Adjusted EBITDA rose 22.2% to $27.8 million, and adjusted EBITDA margin increased to 8.4% from 8.1%. The company posted a net loss of $2.7 million. General and administrative expenses were $39.9 million, or 12.1% of revenue, with Hope citing the timing of a leadership conference and an expanded equity compensation program as key drivers. He also noted that first-quarter G&A was below plan due to timing.

Marketing investment expands; spend pulled forward to the second quarter

Tomasso emphasized that digital marketing has become a key growth initiative, saying the company began investing in digital programs early last year and “accelerated that effort” in the first quarter of 2026. He said First Watch expanded its digital marketing campaign to about 75% of restaurants, up from roughly one-third in 2025.

The campaign uses what Tomasso described as a targeted multi-channel approach spanning paid social, online video, paid search, and connected TV. He said early analytics show a positive return on investment both in new markets receiving support for the first time and in markets receiving a second year of spending. Tomasso said the campaign is attracting first-time customers, re-engaging lapsed customers, and increasing frequency among existing customers, while also improving unaided brand awareness and future purchase intent.

Based on those early results, Tomasso said the company is pulling forward “several million dollars” of marketing spend into the second quarter from the back half of 2026. Hope said the full-year G&A plan is unchanged, but the shift means second-quarter G&A is expected to be roughly in line with the first quarter.

During Q&A, Bank of America analyst Sara Senatore asked whether strong ROI could lead to higher full-year marketing spend. Hope said G&A includes many line items and management can “throttle up or down” marketing while adjusting other areas, adding that management will continue to manage spending within the full-year plan. Tomasso added that pulling forward spend gives the company “flexibility and optionality” to consider additional marketing later in the year if conditions warrant.

Piper Sandler’s Brian Mullan asked whether marketing benefits build over time. Hope said the lift in restaurants that received additional marketing spend last year “has been sustained,” and the company continues to spend in those markets this year.

Menu refresh and seasonal items drive mix and check composition

Tomasso said First Watch rolled out a new core menu system-wide by late February following extensive testing in 2025, calling it the company’s first comprehensive menu update in more than a decade. He said the goals were to elevate the guest experience while simplifying execution and improving efficiency.

Early performance indicators have been positive, according to Tomasso. He said two prior seasonal fan favorites—the Barbacoa Breakfast Tacos and Barbacoa Chilaquiles Breakfast Bowl—are mixing above expectations and are “higher margin entrees.” Tomasso also said enhancements are driving positive mix in fresh juices, shareables, and add-ons, contributing to improved check composition and per-person check growth beyond carried pricing.

Tomasso also discussed a tactical change to seasonal menu cadence, extending the “jumpstart” seasonal menu window from 10 weeks to 20 weeks for the first time. He said the longer window allows operators to focus on executing the new core menu, provides an opportunity to evaluate how longer seasonal marketing campaigns influence mix, and enables the return of successful limited-time offerings such as “The B.E.C.” and Strawberry Tres Leches French Toast. Tomasso added that the Chimichurri Steak & Eggs Hash is now the company’s “highest performing seasonal entree of all time.”

In response to TD Cowen’s Zach Ogden on whether mix could continue to improve, Tomasso said the new menu and seasonal performance could support “positive mix,” though he noted the company does not explicitly plan for mix.

Development pipeline, market densification strategy, and long-term targets

Tomasso said First Watch remains focused on “durable, profitable growth,” with plans to expand in new markets and move “briskly from market entry to market densification.” He said densification can improve regional efficiencies, broaden the customer base, and build brand awareness, while the company remains disciplined in site selection across core and emerging markets. Tomasso reiterated the company’s long-term ambition to reach 2,200 locations.

Hope said the company opened 16 new system-wide restaurants in the first quarter (13 company-owned, three franchise-owned) and ended the period with 648 restaurants in 32 states. For fiscal 2026, management reaffirmed plans for 59 to 63 net new system-wide restaurants, comprising 53 to 55 company-owned and nine to 11 franchise-owned openings, with three company-owned closures planned. Hope said the pipeline is weighted to the second half of the year, “Q4 in particular,” and that the cadence is expected to be similar to last year.

On new-unit performance, Tomasso said the “class of 2025” annualized sales are ahead of underwriting targets and the comp base, and that early results for the 2026 class are performing even better. He attributed improvement to ongoing learning in site selection, prototype execution, and design, and later added that pre-opening marketing is helping drive stronger openings.

In a discussion about sales transfer associated with densification, Hope said the company models and plans for transfer in underwriting and that observed transfer is generally within expectations, though he said the company typically does not quantify it publicly. Tomasso called sales transfer a “natural headwind” to restaurant traffic that the company views as a positive outcome of market fortification rather than core weakness.

Guidance reiterated; adjusted EBITDA range increased at the low end

Hope said the company is reiterating fiscal 2026 same-restaurant sales growth guidance of 1% to 3% and expects positive same-restaurant sales growth in each quarter. Total revenue growth guidance remains 12% to 14%, including about 100 basis points of impact from acquisitions.

The company maintained its outlook for full-year commodity inflation of 1% to 3% and restaurant-level labor inflation of 3% to 5%. Hope said the company raised the low end of adjusted EBITDA guidance, updating the range to $133 million to $140 million from $132 million to $140 million.

Pricing remains under evaluation. Hope said guidance assumes carried pricing around 4% in the first half of the year, blending to 2% for the full year, and noted the company did not take a price increase at the beginning of 2026. In response to investor questions about inflation pressures and gas prices, Hope said the company considers customer pressures—such as fuel costs—when thinking about pricing. Tomasso said the company “will always lean towards the consumer whenever we can,” preferring to build check through innovation and mix rather than like-for-like price increases, while still acknowledging the need to balance inflation realities.

Elsewhere in the call, Tomasso said First Watch’s outperformance relative to broader “breakfast” concerns comes down to “experience, execution, and value,” adding that much of the softness cited in breakfast has been more concentrated in quick-service restaurants. He also said the company’s customer base skews higher income, which he said provides some insulation in the macro environment. Later, Tomasso said the chain has seen its average customer age decline, citing growth among millennials and the impact of new market entries and digitally focused marketing channels.

Management also addressed an operational leadership change. In response to Stifel’s Chris O’Cull, Tomasso said the company eliminated the COO position as part of a natural evolution of its G&A setup and to bring him closer to operations. He said the company created two senior vice presidents of operations who split the country, adding that the restructuring added one direct report to him and would allow him to be more involved in day-to-day execution and strategy.

About First Watch Restaurant Group NASDAQ: FWRG

First Watch Restaurant Group, Inc NASDAQ: FWRG operates a specialty daytime dining concept focused on breakfast, brunch and lunch. The company's casual, full-service cafés emphasize fresh ingredients, made-to-order entrées and a seasonally driven menu that ranges from omelets and Benedicts to salads, skillets and afternoon sandwiches. First Watch positions itself as a daytime-only destination, with most locations opening early morning and closing by mid-afternoon.

Founded in 1983 by Ken Pendery and John Sullivan in Pacific Grove, California, First Watch began as a single café and gradually expanded through company-owned and select franchised locations.

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