First Watch (FWRG) Earnings Call Signals Profitable Growth

First Watch Restaurant Group, Inc. ((FWRG)) has held its Q1 earnings call. Read on for the main highlights of the call.

First Watch Restaurant Group’s latest earnings call struck a cautiously upbeat tone, with management emphasizing strong revenue growth, expanding margins and early wins from marketing and menu initiatives. While negative traffic, a small net loss and thin operating margins tempered the story, executives sounded confident that current investments are laying the groundwork for durable, profitable growth.

Strong Top-Line Growth

First quarter revenue jumped 17.3% to $331.0 million, underscoring the power of First Watch’s expansion strategy and same-restaurant sales growth. Contributions from newly opened and acquired units were key drivers, signaling that the company’s development pipeline is translating into tangible sales momentum across the system.

Same-Restaurant Sales and Check Improvement

Same-restaurant sales rose 2.8%, but that gain was driven largely by higher checks rather than more guests. The company reported that per-person check increased above carried pricing thanks to its revamped core menu, shareable dishes and add-ons, highlighting successful upselling even as traffic slipped.

Margin Expansion at Restaurant Level

Restaurant-level operating profit margin climbed to 18.5%, a robust 200 basis point expansion versus last year. Management credited favorable product mix, menu pricing and tight cost control, suggesting that operational improvements are meaningfully boosting profitability at the store level.

Adjusted EBITDA Growth and Guidance Raise

Adjusted EBITDA surged 22.2% to $27.8 million, lifting margin to 8.4% from 8.1% a year ago and supporting a higher earnings base. Reflecting this momentum, the company raised the low end of its full-year adjusted EBITDA outlook to a range of $133 million to $140 million, signaling increased confidence in 2026 performance.

Cost Benefits and Operating Leverage

Food and beverage costs improved to 22.6% of sales from 23.8%, benefiting from roughly 4% carried pricing and about 1.6% commodity deflation. Labor and related expenses improved by 90 basis points to 33.7% of sales, indicating early operating leverage as the brand grows and refines its staffing model.

Expansion and Development Momentum

The system expanded to 648 restaurants after 16 openings in the quarter, including 13 company-owned and 3 franchised units. Management reaffirmed its 2026 target of 59 to 63 net new restaurants and reiterated a long-term ambition to grow the concept toward 2,200 locations across the U.S. over time.

Marketing Rollout Driving Early ROI

First Watch’s digital marketing program now covers about 75% of the system, up from roughly one-third previously, and early analytics point to a positive return on investment. The company reported gains in unaided brand awareness and future purchase intent, and it pulled several million dollars of marketing spend into the second quarter to accelerate momentum.

Successful New Menu and Seasonal Offerings

By late February, the company had completed the system-wide rollout of its new core menu, which is already boosting mix and average check. High-performing seasonal and limited-time items such as Chimichurri Steak & Eggs Hash are encouraging trade-ups and add-ons, reinforcing the brand’s positioning around fresh, innovative daytime dining.

Negative Same-Restaurant Traffic

Same-restaurant traffic declined 2.0% in the quarter, highlighting a key pressure point beneath the headline sales growth. Management attributed roughly half of that decline to weather and to intentional sales transfers tied to densifying markets, but the trend still underscores the need to convert rising awareness into higher guest counts.

Net Loss Reported

Despite stronger EBITDA, First Watch posted a net loss of $2.7 million in the quarter, reflecting items below the EBITDA line and front-loaded investments. Management framed the loss as a byproduct of funding growth, but investors will watch closely for a turn to consistent profitability as new restaurants mature.

Thin Income From Operations Margin

Income from operations margin was just 0.3%, showing that GAAP operating leverage remains limited even as restaurant-level economics improve. This gap between store profitability and corporate-level margins highlights the cost of growth and overhead and will be a key metric as the company scales.

Inflationary Risks and Commodity Variability

Management reiterated full-year commodity inflation expectations of 1% to 3%, with cautions around avocados, coffee and other crop-dependent items. Restaurant-level labor costs are expected to inflate 3% to 5%, reminding investors that wage and input pressures could chip away at the margin gains seen this quarter.

Timing and Concentration of Openings

The development pipeline is heavily weighted to the back half of the year, especially the fourth quarter, which introduces timing and execution risk. Management also noted that as it densifies markets, planned sales transfers between restaurants can temporarily pressure same-store metrics even as overall market revenue grows.

G&A and One-Time Increases

General and administrative expenses rose to $39.9 million, or 12.1% of revenue, boosted by the timing of a leadership conference and expanded equity compensation. The company also pulled a portion of its marketing expense into the second quarter, adding some noise to quarter-to-quarter G&A cadence for investors modeling earnings.

Market Perception and Capital Allocation

Executives acknowledged recent weakness in the company’s stock price and fielded questions on capital allocation priorities. For now, management is sticking with a growth-first approach, signaling no immediate moves such as share repurchases and instead emphasizing reinvestment in new restaurants and brand-building initiatives.

Guidance and Forward Outlook

Management reiterated 2026 targets for same-restaurant sales growth of 1% to 3% and total revenue growth of 12% to 14%, including about a 100 basis point lift from acquisitions. The company raised its adjusted EBITDA outlook to $133 million to $140 million, plans capital spending of $150 million to $160 million, and expects 59 to 63 net new system-wide restaurants, even as it navigates 1% to 3% commodity and 3% to 5% labor inflation.

First Watch’s earnings call painted a picture of a growth concept balancing strong unit economics and bold expansion against traffic softness and thin corporate margins. For investors, the story hinges on whether marketing and menu innovations can reignite guest counts and whether expanding restaurant-level profits can increasingly flow through to the bottom line as the brand scales.