First Watch Restaurant Group Q2 Earnings Call Highlights

Key Points

• Strong second-quarter growth: Revenue rose 15.2% to $354.7 million, driven by 3.4% same-restaurant sales growth, marketing initiatives and 18 new restaurant openings. Adjusted EBITDA increased 13.5% to $34.5 million, while restaurant-level margins improved to 18.8%.
• 2026 outlook raised for sales but lowered for EBITDA: First Watch lifted its same-restaurant sales outlook to 1.5%-3% and revenue growth forecast to 12.5%-14%, but cut adjusted EBITDA guidance to $133 million-$136 million because strong demand for premium beef offerings increased food costs.
• Expansion continues at a measured pace: The company ended the quarter with 665 restaurants across 33 states and now expects 60-62 net new openings in 2026. Beginning in 2027, it plans roughly 50 company-owned openings annually while targeting positive free cash flow and a stronger balance sheet.

First Watch Restaurant Group NASDAQ: FWRG reported second-quarter revenue growth of 15.2% as positive same-restaurant sales, marketing initiatives and new restaurant openings supported results. The daytime dining chain also raised the low end of its full-year same-restaurant sales and revenue growth outlook, while lowering its adjusted EBITDA forecast due to higher costs associated with strong demand for premium beef menu items.

Chief Executive Officer and President Chris Tomasso said the company generated 3.4% same-restaurant sales growth during the quarter. Comparable traffic improved sequentially and turned positive in June, although same-restaurant traffic for the full quarter was essentially flat. The company said quarterly same-restaurant traffic improved 160 basis points from the first quarter and outperformed casual dining and the broader restaurant industry, according to Black Box.

“We are pleased to report another strong quarter of growth,” Tomasso said, citing sales gains from both comparable restaurants and new unit openings. First Watch ended the quarter with 665 restaurants in 33 states and said it opened 18 new system-wide locations during the period.

Marketing, Menu Changes Support Sales Mix

Management attributed part of its traffic and sales momentum to expanded marketing efforts initiated early last year. The company has focused on targeted, data-informed campaigns designed to encourage repeat visits among existing guests and bring new consumers into the brand.

Tomasso said 17% of new customers acquired through targeted campaigns this year had already returned for a second visit, a result he said was tracking above average. First Watch has expanded its use of video advertising, including YouTube and connected television, as well as influencer and social-media marketing. These channels allow the company to target demographic groups within specific markets and assess performance at the restaurant level, management said.

The company said unaided brand awareness has increased by more than 50% and aided awareness has risen 15% since early last year, though management described overall awareness as relatively low compared with the industry. Chief Brand Officer Matt Eisenacher said influencer and organic social-media efforts represented a meaningful step forward during the year and are expected to become a larger component of the paid-media mix next year.

First Watch’s core menu, launched in February, also supported sales mix, with per-person check growth exceeding carried pricing in both the first and second quarters. Tomasso said guests have been ordering more add-on items and selecting more premium offerings.

The company’s seasonal menu strategy contributed to a 50-basis-point positive menu-mix benefit in the second quarter. Management said the Chimichurri Steak & Eggs Hash, available on the seasonal menu from January through late May, was its best-selling limited-time entree to date. The current summer menu’s Chipotle Steak and Queso Hash is expected to become the company’s second-best-selling limited-time item when the menu concludes in mid-August, while Honey Butter Biscuit Bites are on track to become its highest-mixing shareable item since Million Dollar Bacon.

Revenue, Margins and Restaurant Development

Total revenue rose to $354.7 million during the second quarter. Chief Financial Officer Ashlee Weisser said growth reflected comparable sales gains, contributions from 132 non-comparable restaurants, including 57 company-owned openings since the second quarter of 2025, and 19 franchise locations acquired in the prior-year quarter.

Same-restaurant traffic declined 0.4% in the quarter when including planned sales transfers associated with expanding the restaurant base. Weisser said the transfers were within underwriting expectations. Responding to an analyst question, she said traffic would have been positive excluding the sales-transfer effect, though the company did not quantify that impact.

Food and beverage costs were 23.5% of sales, improving 10 basis points from a year earlier. The company benefited from approximately 3.7% of carried pricing and commodity deflation of about 1.6%, led by eggs, avocados and bacon, partially offset by higher coffee costs.

However, Weisser said demand for beef-based menu products raised food costs by just under 100 basis points year over year. Beef became a more meaningful input following the addition of Barbacoa Breakfast Tacos, the Barbacoa Chilaquiles Breakfast Bowl and steak-based seasonal offerings. The company said the cost impact should moderate substantially following the conclusion of its current steak limited-time offer.

Labor and related expenses were 32.9% of sales, improving 30 basis points from the prior-year period, despite 4.1% wage inflation. Weisser said the improvement reflected sales leverage and changes to the staffing model. In response to an analyst question, she said the company had adjusted manager staffing levels based on restaurant volume.

• Restaurant-level operating profit margin increased 20 basis points to 18.8%.
• Income from operations margin was 2.3%.
• Adjusted EBITDA increased 13.5% to $34.5 million.
• Adjusted EBITDA margin was 9.7%.
• Net income totaled $2.3 million.

Of the 18 system-wide restaurant openings, 14 were company-owned and four were franchise-owned. The quarter also included one franchise closure. First Watch entered New Hampshire with an opening in Nashua, its third restaurant in the Boston designated market area since entering that market in January 2025. Tomasso said the Nashua restaurant’s weekly sales have been materially above expectations since opening.

Updated 2026 Outlook and Long-Term Targets

First Watch increased the low end of its 2026 same-restaurant sales outlook to a range of 1.5% to 3%, from a prior range of 1% to 3%. Management continues to expect positive same-restaurant sales in every quarter of 2026, though Weisser said the third quarter faces the company’s most difficult year-over-year comparison and is expected to be at or below the low end of the annual range.

The company now expects total revenue growth of 12.5% to 14%, compared with prior guidance of 12% to 14%. Its outlook includes a 2.9% price action implemented at the beginning of the third quarter and projected full-year carried pricing of approximately 3.6%.

First Watch narrowed expected net new system-wide openings to 60 to 62, including 53 to 54 company-owned restaurants and nine to 10 franchise-owned locations. It lowered projected capital expenditures to $145 million to $150 million from $150 million to $160 million, largely due to development spending shifting into next year.

The company reduced its commodity inflation expectation to flat to up 1.5%, from prior guidance of 1% to 3%, but said the benefit will be offset in food and beverage costs as a percentage of sales by the temporary premium-beef mix. Adjusted EBITDA guidance was set at $133 million to $136 million, with Weisser saying the revision was entirely attributable to unexpectedly strong demand for higher-cost beef offerings.

Looking beyond 2026, First Watch said it plans to target 50 company-operated restaurant openings annually beginning in 2027, compared with 53 to 54 planned for 2026. The company updated its long-term targets to include roughly 55 system-wide annual openings, same-restaurant sales growth of 2% to 4%, total revenue growth of 10% to 13%, adjusted EBITDA growth of 11% to 14%, and positive free cash flow beginning in 2027.

Tomasso said the more moderate development pace is intended to allow the company to self-fund organic growth and maintenance capital expenditures while strengthening the balance sheet. First Watch plans to provide additional details on its strategy during an Investor Day in Boston on Nov. 12.

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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