First Watch Restaurant Group Q3 Earnings Call Highlights

Key Points

• Third-quarter revenue rose 10.7% to $349.9 million, supported by 1% same-restaurant sales growth and new locations, despite a 1.9% decline in comparable traffic. Adjusted EBITDA increased 17% to $39.7 million, while restaurant-level margins edged lower to 19.4%.
• First Watch opened 16 restaurants in the quarter, bringing year-to-date openings to 53, and remains on track for approximately 60 net new locations in 2026 and 55 in 2027. Management cited strong performance from newer restaurants and continued opportunities to expand its daytime-dining footprint.
• The company raised its 2026 outlook for Adjusted EBITDA to approximately $136 million and now expects more than 15% annual Adjusted EBITDA growth through 2028, up from its prior 11%–14% target. Full-year same-restaurant sales growth is expected to be about 2%, with revenue growth of approximately 13.5%.

First Watch Restaurant Group NASDAQ: FWRG reported third-quarter revenue growth of 10.7% as positive same-restaurant sales and contributions from newer locations helped offset a decline in comparable traffic. Management said the company remains on track for aggressive unit expansion while updating several elements of its 2026 outlook and raising its longer-term Adjusted EBITDA growth target.

Total revenue rose to $349.9 million during the quarter, while same-restaurant sales increased 1%. Same-restaurant traffic declined 1.9%, which management said was largely attributable to planned sales transfers associated with opening restaurants in additional locations and serving customers through a broader footprint.

Chief Executive Officer and President Chris Tomasso said the quarter represented the company’s strongest sales comparison of the year, following a 7.1% same-restaurant sales gain in the prior-year period. On a two-year basis, same-restaurant sales rose 8.1% and traffic increased 0.8%.

“We’re pleased with our consistent performance in what remains a highly dynamic consumer environment,” Tomasso said. He added that the company’s customer base tends to be higher income and more highly educated, and management has not seen meaningful changes in guest behavior when customers visit its restaurants.

Profitability and Expenses

First Watch reported restaurant-level operating profit margin of 19.4%, down 30 basis points from a year earlier. Food and beverage expense was 22.3% of sales, up 10 basis points year over year, while labor and related expenses were unchanged at 32.6% of sales.

Chief Financial Officer Ashlee Weisser said commodity deflation of roughly 40 basis points, primarily from bacon and avocados, was partly offset by higher turkey sausage prices. The year-over-year comparison also reflected vendor credits recognized in the third quarter of 2025, as well as the impact of a steak limited-time offering that ended in mid-August.

Wage inflation was approximately 4.1% during the quarter. Weisser said the company sees opportunities to improve labor efficiency through a more balanced schedule of restaurant openings and better alignment between restaurant management staffing and the maturity of individual locations.

General and administrative expense totaled $35.2 million, or 10.1% of revenue, improving 60 basis points from 10.7% in the prior-year quarter. Weisser attributed the improvement primarily to leveraging existing headcount as the company scales, while continuing to increase marketing investment.

Adjusted EBITDA increased 17% to $39.7 million, compared with $34.1 million a year earlier, and Adjusted EBITDA margin rose to 11.4% from 10.8%. The result included about $1 million in repairs, maintenance and marketing expenses that are now expected to occur in the fourth quarter. Net income was $4.8 million.

Marketing Tests and Consumer Engagement

First Watch is testing additional marketing channels intended to build brand awareness and generate restaurant traffic. Tomasso said the company will pilot TikTok GO in the United States during the fourth quarter, describing the effort as an online-to-offline service aimed at encouraging local discovery.

The company was selected among the initial restaurant participants in the test, Tomasso said, and sees the initiative as complementary to investments in paid social media, online video, connected television and influencer marketing.

First Watch also began testing local linear television in a larger market where awareness has historically been more difficult to build. Following what management described as encouraging early results, the company expanded the test to a second market. Tomasso said linear television could become an efficient awareness-building and traffic-supporting channel in select markets.

Management said an annual email promotion produced higher-than-normal redemption rates during the quarter, partly reflecting improvements to the company’s customer database and email testing. That promotion, along with a lower-priced limited-time menu item, weighed modestly on sales mix. Weisser said the company has not seen evidence of customer check management.

Development Pipeline and Outlook

First Watch opened 16 systemwide restaurants across 11 states in the third quarter, bringing year-to-date openings to 53 restaurants across 22 states. The company said sales at its 2025 and 2026 restaurant classes are outperforming both comparable restaurants and financial underwriting targets.

Tomasso said two of the company’s three strongest first-week performances among 2026 new restaurant openings occurred during the third quarter, in Attleboro, Massachusetts, and Jackson, Tennessee. The company is already developing sites planned for openings in the second half of 2028.

Management expects approximately 60 net new systemwide restaurants in 2026, including 53 company-owned openings and nine franchise-owned openings, offset partly by the closure of one company-owned and one franchised restaurant. First Watch expects to open approximately 55 systemwide restaurants in 2027.

Beyond 2027, the company plans to set annual unit-growth targets one year at a time. Weisser said rising interest rates and the company’s floating-rate borrowing exposure reinforce the value of preserving flexibility in development pacing, although management has not observed a change in developer activity.

Tomasso said the company has maintained a significant competitive lead in daytime dining as some competing concepts have reduced their expansion activity. He said First Watch continues to pursue key markets and secure desirable real estate sites while also focusing on initiatives intended to increase shareholder value.

Updated 2026 Guidance

First Watch updated its full-year outlook based on year-to-date results and early fourth-quarter trends. The company now expects:

• Same-restaurant sales growth of approximately 2%, compared with prior guidance of 1.5% to 3%.
• Total revenue growth of approximately 13.5%, compared with a prior range of 12.5% to 14%.
• Carried pricing of roughly 3.6% for the full year and about 2.9% in the fourth quarter.
• Commodity inflation to be approximately flat, compared with previous expectations of flat to up 1.5%.
• Restaurant-level labor cost inflation of around 4%.
• Adjusted EBITDA of approximately $136 million, at the high end of its prior $133 million to $136 million range.
• Capital expenditures of approximately $145 million, compared with prior guidance of $145 million to $150 million.

The company also raised its outlook for annual Adjusted EBITDA growth through 2028 to more than 15%, up from its prior long-term target of 11% to 14%. Its other targets through 2028 remain unchanged, including same-restaurant sales growth of 2% to 4%, total revenue growth of 10% to 13%, G&A growth below revenue growth, and positive free cash flow beginning in 2027.

About First Watch Restaurant Group (NASDAQ:FWRG)

First Watch Restaurant Group, Inc operates a daytime-focused restaurant concept serving breakfast, brunch and lunch. Its restaurants offer made-to-order meals such as omelets, pancakes, French toast, sandwiches, salads and bowls, along with fresh juices, coffee and other beverages. The company generally does not serve dinner, positioning its restaurants around the daytime dining occasion.

First Watch restaurants emphasize fresh preparation and seasonal menu offerings, including items made with eggs, fruits, vegetables and other ingredients prepared in the restaurant.

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