First Watch Delivers Growth Despite Traffic Headwinds

First Watch Restaurant Group, Inc. ((FWRG)) has held its Q4 earnings call. Read on for the main highlights of the call.

First Watch Restaurant Group, Inc. struck a broadly upbeat tone on its latest earnings call, highlighting a year of strong growth, expanding margins, and record development despite choppy industry traffic. Management emphasized that top-line momentum, profitable new units, and early wins in marketing and delivery outweigh near-term headwinds from inflation, weather, and a planned CFO transition.

Robust Revenue Growth Fueled by New Units

Total revenue grew more than 20% for 2025, with fourth quarter sales reaching $316.4 million, up 20.2% year-over-year. The company credited both new restaurant openings and steady demand for driving this expansion, underscoring its ability to scale the concept across a widening national footprint.

Steady Same-Restaurant Sales and Positive Traffic for the Year

Same-restaurant sales rose 3.6% for the full year, with a 3.1% increase in the fourth quarter, reflecting healthy pricing and mix dynamics. Management also noted positive same-restaurant traffic for the full year, an important sign of underlying demand even as the broader industry shows signs of slowing.

Significant Adjusted EBITDA Growth and Margin Expansion

Adjusted EBITDA jumped 38.7% in the fourth quarter to $33.7 million, up from $24.3 million a year earlier. The adjusted EBITDA margin improved to 10.6% from 9.2%, signaling improved operating leverage as the brand grows and executes more efficiently at scale.

Restaurant-Level Margins Firmly in Target Range

Restaurant-level operating profit margin came in around 18.5% for the year and about 19% in recent commentary, squarely inside the company’s long-term 18% to 20% range. This margin strength suggests the concept can absorb moderate inflation while still generating attractive unit economics for further expansion.

Record Development and Outperformance from New Restaurants

The company opened a record 64 new restaurants system-wide in 2025, ending the year with 633 locations across 32 states. Management said the 2025 new-restaurant class is running roughly 19% above underwriting targets, pointing to better-than-expected ramp performance, with Costner’s Corner topping $90,000 in first-week sales.

Marketing and Digital Tests Deliver Early Returns

Digital marketing initiatives rolled out to about one-third of the comparable base generated positive returns, boosting aided and unaided brand awareness while driving incremental traffic. With these early wins, the company plans to extend the program to most of its comp base in 2026, positioning marketing as a scalable growth lever.

Delivery and Off-Premise Channels Add Profitable Demand

Enhanced partnerships with third-party delivery providers produced incremental transactions that management describes as profitable. The company believes many delivery occasions are additive rather than cannibalizing dine-in visits, and may actually seed future in-restaurant traffic as customers discover the brand.

Culture and Employer Brand as a Competitive Advantage

First Watch highlighted multiple workplace accolades, including top rankings from Yelp, Best Practice Institute, and Glassdoor, as evidence of a strong people-focused culture. Restaurant-level turnover declined while applicant flow rose about 40% year-over-year, which should support service quality and help manage labor pressures.

Detailed 2026 Growth and Profitability Outlook

Management laid out 2026 guidance calling for same-restaurant sales growth of 1% to 3% and total revenue growth of 12% to 14%, including about 100 basis points from acquisitions. They plan 59 to 63 net new system-wide units, mostly company-owned, with adjusted EBITDA projected between $132 million and $140 million and capital spending of $150 million to $160 million.

Industry Traffic Headwinds Temper the Backdrop

Despite solid brand performance, the company acknowledged that same-restaurant traffic was down 1.9% in the fourth quarter. Citing industry data that points to an expected 3% decline in same-restaurant traffic across the sector for 2026, management flagged a tougher macro backdrop that could pressure comps.

Managing Through Commodity and Labor Inflation

Commodity costs remained a factor in the quarter, with about 1.1% inflation, and the company expects 1% to 3% commodity inflation in 2026, with mixed moves across key items. Restaurant-level labor inflation is expected to run 3% to 5%, though Q4 labor expenses improved 20 basis points to 33.5% of sales, showing some efficiency gains.

Modest GAAP Profitability Despite Strong Operations

While operating metrics are robust, GAAP profitability remains modest, with income from operations margin at 2.9% and net income of $15.2 million, a 4.8% net margin. Investors will be watching whether continued scale and margin improvement can translate into stronger bottom-line performance over time.

G&A and Non-Cash Compensation Weigh on Near-Term Leverage

Fourth quarter general and administrative expense was $31.8 million, or 10.1% of revenue, and management warned that G&A will be materially higher in the first quarter due to the timing of a leadership conference. Expanded equity-based compensation will also increase non-cash G&A, potentially delaying further G&A leverage in the near term.

New Units and Pre-Opening Costs Dilute Consolidated Margins

Management noted that juvenile restaurants and pre-opening and training expenses weigh on consolidated margins even as unit-level economics remain strong. Accelerating margin contributions from these newer locations is key for pushing consolidated margins toward the upper end of the long-term target band.

Short-Term Disruptions and Pricing Discipline

Weather disruptions in January reduced operating days in the comparable base, adding uncertainty to the cadence of first-quarter 2026 results. The company chose not to take a menu price increase at the start of the year, which supports value perception but may limit short-term margin offset against inflation.

CFO Transition Adds an Execution Variable

The planned retirement of Chief Financial Officer Henry Melville Hope later this year introduces some transition risk during a period of rapid growth. Management outlined a planned transition and advisory period to smooth the handoff, but investors will watch closely for continuity in financial strategy and capital allocation.

Guidance Signals Confidence Amid Measured Caution

For 2026, management expects positive same-restaurant sales each quarter, with carried pricing of about 4% in the first half moderating to roughly 2% for the year. They also flagged early weather impacts and higher first-quarter G&A, yet still project mid-teens total revenue growth, rising adjusted EBITDA, and continued aggressive unit expansion funded by sizable capital spending.

First Watch’s earnings call painted the picture of a growth concept still in expansion mode, with strong unit economics, rising margins, and a deep development pipeline supporting a bullish medium-term story. While industry traffic softness, cost inflation, and leadership change pose challenges, management’s guidance and marketing and digital initiatives suggest the company believes it can continue outgrowing the broader casual dining space.