Skip to content
    FWRG
    Earnings call· Jun 2026(Q2 FY26)

    First Watch Restaurant Group Q2 FY26 earnings call FWRG

    Aug 4, 2026 Source

    Executive summary

    First Watch Q2 FY26 — Strong Revenue Growth and Optimized Long-Term Strategy

    First Watch delivered a strong Q2 FY26, marked by robust revenue growth and positive same-restaurant sales, driven by effective marketing and menu innovation. While overall traffic was slightly negative, sequential improvement and positive June traffic indicate building momentum. The company is optimizing its long-term growth strategy, shifting to a slightly moderated unit growth rate to enhance free cash flow and balance sheet strength, with a focus on sustainable value creation.

    Highlights

    5

    • Total revenue increased 15.2% to $354.7 million.

    • Same restaurant sales grew 3.4% in Q2 FY26.

    • Comparable restaurant traffic improved sequentially, culminating in positive traffic for June.

    • 18 new system-wide restaurants opened in Q2 FY26, with 2025 and 2026 classes outperforming underwriting targets.

    • Unaided brand awareness increased more than 50% and aided brand awareness increased 15% since early last year.

    Concerns

    4

    • Same-restaurant traffic growth was negative 0.4% for Q2 FY26, despite sequential improvement.

    • Beef-based menu offerings increased overall COGS by just under 100 basis points year over year in Q2 FY26.

    • Adjusted EBITDA guidance for FY26 was revised to $133 million to $136 million, entirely due to higher COGS from premium protein offerings.

    • Q3 FY26 same restaurant sales growth is anticipated to be at or below the low end of the 2026 range (1.5% to 3%) due to challenging year-over-year comparisons.

    Guidance & targets

    15
    CategoryTargetConfidence
    Full-year 2026 Same Restaurant Sales Growth
    1.5% to 3%
    high materiality
    High
    Q3 FY26 Same Restaurant Sales Growth
    At or below the low end of 1.5% to 3%
    medium materiality
    Medium
    Full-year 2026 Total Revenue Growth
    12.5% to 14%
    high materiality
    High
    Full-year 2026 Net New System-Wide Restaurants
    60 to 62
    medium materiality
    High
    Full-year 2026 Commodity Inflation
    Flat to up 1.5%
    medium materiality
    High
    Full-year 2026 Restaurant-Level Labor Cost Inflation
    3.5% to 4.5%
    medium materiality
    High
    Full-year 2026 Adjusted EBITDA
    $133M to $136M
    high materiality
    High
    Full-year 2026 Capital Expenditures
    $145M to $150M
    medium materiality
    High
    Annual Company-Operated New Restaurant Openings
    50
    high materiality
    High
    Annual System-Wide New Restaurant Openings
    Around 55
    high materiality
    High
    Long-Term Same Restaurant Sales Growth
    2% to 4%
    high materiality
    High
    Long-Term Total Revenue Growth
    10% to 13%
    high materiality
    High
    Long-Term G&A Expense Growth
    Lower than total revenue growth
    medium materiality
    High
    Long-Term Adjusted EBITDA Growth
    11% to 14%
    high materiality
    High
    Free Cash Flow
    Positive and increasing
    high materiality
    High

    Operational metrics

    24
    Total Revenue
    $354.7Mup 15.2% YoY
    Q2 FY26

    Supported by positive same restaurant sales growth and strong new restaurant performance.

    Same Restaurant Sales Growth
    3.4%
    Q2 FY26

    Driven by positive menu mix and per-person check average growth outpacing carried pricing.

    Same Restaurant Traffic Growth
    -0.4%160 bps improvement vs Q1
    Q2 FY26

    Includes impact of planned sales transfer from new restaurant openings, which is within expectations.

    Carried Pricing
    3.7%
    Q2 FY26

    Benefited food and beverage expense.

    Commodity Deflation
    1.6%
    Q2 FY26

    Benefited food and beverage expense.

    Food and Beverage Expense as % of Sales
    23.5%improved 10 bps YoY
    Q2 FY26

    Modest improvement masked notable moving parts, including higher beef costs due to strong demand for premium LTOs.

    Labor and Other Related Expenses as % of Sales
    32.9%improved 30 bps YoY
    Q2 FY26

    Favorability driven by operational efficiencies.

    Restaurant Level Operating Profit Margin
    18.8%improved 20 bps YoY
    Q2 FY26

    Reflects strong revenue growth and disciplined cost management.

    Income from Operations Margin
    2.3%
    Q2 FY26
    General and Administrative Expenses
    $38.7M
    Q2 FY26

    Increase compared to last year due to timing of marketing spend and increased headcount to support growth.

    Adjusted EBITDA
    $34.5Mup 13.5% YoY
    Q2 FY26

    A $4.1 million increase versus $30.4 million reported last year.

    Adjusted EBITDA Margin
    9.7%
    Q2 FY26
    Net Income
    $2.3M
    Q2 FY26
    New System-Wide Restaurants Opened
    18
    Q2 FY26

    Opened across 15 states, including initial entry into New Hampshire.

    Total Restaurants Operating
    665
    Q2 FY26

    Concluded the quarter with 665 restaurants operating in 33 states.

    Revenue Impact from Acquisitions
    $2.4M
    Q2 FY26

    Net effect of acquisitions within the last 12 months.

    Adjusted EBITDA Impact from Acquisitions
    $0.4M
    Q2 FY26

    Net effect of acquisitions within the last 12 months.

    Marketing Spend as % of Total Revenue
    2%up ~40 bps YoY
    FY26

    Modestly investing around 2% of total revenue this year, up approximately 40 basis points from last year.

    Unaided Brand Awareness Increase
    50%
    Since early last year

    Indicates increasing awareness of the First Watch brand.

    Aided Brand Awareness Increase
    15%
    Since early last year

    Indicates increasing awareness of the First Watch brand.

    New Customer Second Visit Rate
    17%tracking higher than average
    This year

    In targeted acquisition campaigns, 17% of new customers have already returned for a second visit.

    New Restaurant Sales Target
    $2.8M
    3-year

    For the class of 2026, with $1.8M in net build-out costs.

    Actualized Cash-on-Cash Return
    35%
    3-year

    Current actualized 3-year cash-on-cash return for new restaurants.

    Total Addressable Market
    2,200+
    Long-term

    Total addressable market in the continental United States.

    Industry KPIs

    2
    MetricValueDetails
    Comparable sales comps3.4%%
    Net unit growth development pipeline18units

    Product announcements

    4
    ProductTypeDetails
    New Core Menulaunch
    Seasonal Jumpstart Menuupdate
    Summer Menuupdate
    Pumpkin Pancakesroadmap

    Risks & headwinds

    3
    Planned sales transfer from new restaurant openingsQ2 FY26

    Impacted same-restaurant traffic growth by -0.4% for the quarter.

    Mitigation: Management states the level of sales transfer is well within expectations and underwriting standards, indicating it's a managed outcome of growth.

    Increased cost of goods due to stronger than anticipated demand for premium beef-based menu offeringsQ2 FY26, temporary impact expected to moderate substantially in H2 FY26

    Increased overall COGS by just under 100 basis points year over year in Q2. Led to a revision of FY26 Adjusted EBITDA guidance to $133M-$136M.

    Mitigation: Impact is temporary and expected to moderate as the current LTO concludes. Management views this as a positive indicator of product appeal and pricing power, while remaining disciplined in evaluating margin mitigation opportunities.

    Most challenging year-over-year comparison for same restaurant sales growthQ3 FY26

    Anticipated Q3 same restaurant sales growth to be at or below the low end of the 2026 range (1.5% to 3%).

    Mitigation: Management expresses confidence in achieving positive same restaurant sales growth in Q3, despite the challenge.

    What to watch in Q3 FY26

    5

    Q3 Same Restaurant Sales Growth

    Q3 FY26
    CurrentPositive same restaurant sales growth in Q2 FY26 (3.4%)
    TargetPositive, at or below the low end of 1.5% to 3%

    Why it matters

    Verifies the company's ability to maintain positive sales growth despite challenging year-over-year comparisons, which was a key concern for investors.

    However, as a reminder, the third quarter does offer by far the most challenging year-over-year comparison of any quarter this year. So while we continue to expect positive same restaurant sales growth in Q3, we continue to anticipate it to be at or below the low end of our 2026 range.

    Q&A highlights

    6

    Asked about the drivers of sequential traffic improvement in Q2, positive traffic in June, and confidence in positive same-store sales for Q3 given challenging comps.

    Management reiterated confidence in positive same-store sales for Q3, despite it being the most challenging comp quarter. Attributed Q2 improvement to a combination of menu innovation, LTOs, and marketing efforts working together.

    “We did see sequential improvement through Q2 that culminated with positive traffic in June, so we were pleased with that. But we know what we're heading into Q3, but still feel good about it.”

    asked by Todd Brooks · answered by Chris Tommaso

    2 min read5 chapters

    Detailed Narrative

    01

    Marketing Strategy and Brand Awareness

    First Watch's expanded marketing strategy, implemented early last year, is driving brand awareness and improving restaurant traffic. The focus is on data-informed tactics, including video (YouTube, connected TV) and social media, to target specific demographics and track ROI. Unaided brand awareness increased over 50% and aided brand awareness increased 15% since early last year, indicating effective conversion of potential customers.

    02

    Menu Innovation and Mix Shift

    The new core menu, launched in February 2026, and the seasonal menu strategy are contributing to positive sales mix. Customers are engaging more broadly with offerings, increasing participation in add-on items, and selecting premium options. This has resulted in per-person check average growth outpacing carried pricing. Seasonal LTOs, like the Jimmy Cherry Steak and Eggs hash and the Chipotle Steak and Queso Hash, have been highly successful, driving mix and providing compelling marketing content.

    03

    New Restaurant Growth and Performance

    First Watch continues to be America's fastest-growing full-service restaurant brand, with 18 new system-wide restaurants opened in Q2 across 15 states, including entry into New Hampshire. The 2025 and 2026 restaurant classes are outperforming both the comp restaurant base and underwriting targets, with the 2026 class performing even better. The company maintains a robust real estate pipeline and believes it can reach its total addressable market of over 2,200 locations.

    04

    Capital Allocation Strategy Evolution

    The company is revising its long-term growth targets to optimize the balance between new unit growth and free cash flow. Historically, unit growth required credit facility access for capex. The new plan aims for 50 company-operated new restaurants annually starting in 2027, a modest reduction from the 2026 plan, to generate excess free cash, strengthen the balance sheet, and provide greater capital deployment flexibility. This change is expected to have minimal impact on adjusted EBITDA.

    05

    Operational Efficiency and Cost Management

    Food and beverage expense improved 10 basis points year-over-year to 23.5% of sales, benefiting from carried pricing (3.7%) and commodity deflation (1.6%), primarily in eggs, avocados, and bacon. Labor and related expenses improved 30 basis points to 32.9% of sales due to staffing model changes and sales leverage, despite 4.1% wage inflation. These efficiencies contributed to a restaurant-level operating profit margin of 18.8%, a 20 basis point improvement.

    AI-generated summary of the company’s earnings call. Not investment advice.