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First Watch (FWRG) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Aug 4, 2026

Source: earnings call transcript

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

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

Product announcements

ProductTypeDetails
New Core Menulaunch
Seasonal Jumpstart Menuupdate
Summer Menuupdate
Pumpkin Pancakesroadmap

Risks & headwinds

Planned sales transfer from new restaurant openings Q2 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 offerings Q2 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 growth Q3 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

Q3 Same Restaurant Sales Growth

Q3 FY26
Current Positive same restaurant sales growth in Q2 FY26 (3.4%)
Target Positive, 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.

Find out whether FWRG delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.