First Watch Earnings: Traffic Rebounds, EBITDA Outlook Raised on Commodity Relief
- Hardik Shah
- Aug 5
- 3 min read
TLDR
📈 Revenue Strength:Revenue rose 19.1% YoY to $307.9M, driven by new unit openings and improved same-store sales.
💰 Margin Trends:Margins compressed due to commodity inflation and higher labor costs; Adjusted EBITDA margin fell to 9.9%.
🔮 Forward Outlook:Guidance raised for FY25 Adjusted EBITDA ($119M–$123M); traffic momentum and lower egg costs support margin recovery.
Business Overview
First Watch Restaurant Group, Inc. (NASDAQ: FWRG) is a leading Daytime Dining concept operating over 600 restaurants across 31 U.S. states. The brand serves breakfast, brunch, and lunch during a single 7.5-hour shift (7 a.m.–2:30 p.m.), appealing to a wide demographic—from Gen Z to Boomers—via a fresh, chef-driven menu that rotates seasonally.
Their business is anchored in:
Made-to-order meals
Seasonal innovation (menus change every 10 weeks)
Flexible formats (freestanding and second-generation locations)
Customer-first digital enhancements (automated waitlist, nutrition filters)
First Watch Earnings Q2'25
Revenue: $307.9M, up 19.1% YoY
System-wide Sales: $346.2M, up 15.8% YoY
Same-restaurant Sales: +3.5%
Same-restaurant Traffic: +2.0%
Net Income: $2.1M vs. $8.9M YoY
Adjusted EBITDA: $30.4M vs. $35.3M YoY
Adjusted EBITDA Margin: 9.9%, down from 13.7%
Restaurant Operating Profit Margin: 18.6%, down from 21.9%
Operating Income Margin: 2.4%, down from 6.4%
Openings: 17 new restaurants (15 company-owned, 2 franchise-owned)
📉 Margin compression was driven by:
Commodity inflation (+8.1%), particularly on eggs, bacon, coffee, and avocados
Labor inflation (+3.9%) and rising health benefit costs
Marketing and headcount investments
Forward Guidance
📊 Management Outlook
Adjusted EBITDA: $119M–$123M (raised from $114M–$119M)
Total Revenue Growth: ~20%
Same-restaurant Sales Growth: Low-single digits
Capital Expenditures: $148M–$152M
Net New Openings: 59–64 system-wide units (mostly company-owned)
“Looking ahead, we anticipate stronger profitability in the second half of the year... we remain confident in our momentum through the balance of 2025 and beyond.” — Chris Tomasso, CEO
⚠️ Risks & Opportunities
Tailwinds:
Lower egg prices (commodity cost guidance reduced to 5–7%)
Continued traffic growth in both dine-in and third-party delivery
Watchouts:
High food input inflation
Seasonal Q3 demand softness
Lapping strong 2024 promotional comps in Q3
Operational Performance
Unit Growth: Company on track for 62–67 new openings in 2025; more than 130 sites in development
Real Estate Strategy: ~40% of recent openings are second-gen conversions, offering cost and speed advantages
Digital Upgrades: Relaunching customer-facing platforms including a geolocation-enabled waitlist and streamlined online ordering
Labor: Turnover below industry averages; expanding management pipeline via Certified General Manager and FARM programs
Market Insights
Daypart Strength: Traffic growth consistent across all dayparts, including record-setting holidays like Mother’s Day and Father’s Day
Third-Party Delivery: Traffic rebounding due to strategic tweaks; incremental rather than cannibalizing dine-in
Pricing Strategy: 2.8% price action in July; long-term pricing philosophy targets ~3–3.5% annually
Consumer Behavior & Sentiment
Demographic Shift: Younger generations now make up the majority of customers, thanks to social media engagement, menu evolution, and digital UX
Loyalty & Frequency: Marketing efforts driving frequency among core customers and attracting new ones in growth markets
Menu Appeal: Seasonal dishes like Shrimp & Grits, Elote Breakfast Burrito, and Wild Berry French Toast continue to resonate with evolving tastes
“Our customers are skewing more towards the Gen Z and millennial generations... a direct result of our marketing, culinary and operational efforts.” — Chris Tomasso, CEO
Strategic Initiatives
Brand Refresh: Digital interface upgrades and waitlist automation enhance convenience
Menu Innovation: Continuous R&D with new seasonal rotations and platform experimentation
Real Estate: Focus on highly visible A+ locations with customizable layouts, including second-gen sites
People Development: FARM program expands leadership bench strength, aiding scale
“Each year, we are opening the equivalent of an entire regional chain... doing it with a well-formed playbook.” — Chris Tomasso, CEO
Capital Allocation
CapEx: Targeting $148M–$152M, mostly for new builds and remodels (excluding franchise buyouts)
Buybacks & Dividends: Not emphasized in this quarter’s update
Franchise Acquisitions: Added 19 units in NC, SC, and MO; contributing ~$7M in revenue and $1M in EBITDA in Q2
The Bottom Line
First Watch continues to distinguish itself in the full-service dining space with:
Sustained traffic momentum and a strong development pipeline
Broadening consumer appeal and efficient site conversion model
Raised profit outlook despite short-term margin pressures
Investor Watchpoints:
Will Q3 consumer softness and lapping challenges slow momentum?
Can easing commodity inflation fully offset labor and marketing investments?
Will digital upgrades drive material improvements in throughput or loyalty?
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