First Watch Q1'25 Earnings: Traffic Gains & Expansion Offset Margin Pressures

Hardik Shah
2 days ago
4 min read

First Watch Restaurants snapshot — Source: FWRG Earnings deck

TL;DR

Revenue grew 16.4%, driven by new restaurant openings and positive same-store sales.
Margins under pressure from commodity inflation, tariffs, and guest-centric initiatives, leading to a net loss of $0.8 million.
Expansion momentum remains strong, with new markets like Boston, Boise, and Memphis fueling long-term growth plans.

Business Overview

First Watch Restaurant Group (NASDAQ: FWRG) is a leading Daytime Dining chain specializing in made-to-order breakfast, brunch, and lunch. With a brand anchored on freshness, elevated classic dishes, and seasonal innovation, First Watch operates over 580 locations across 31 states — primarily company-owned. The company’s strategy revolves around:

Restaurant expansion: targeting 2,200 total locations in the U.S.
Daypart specialization: focusing exclusively on breakfast and lunch to drive operating efficiency.
Brand experience: emphasizing exceptional in-restaurant hospitality and customer loyalty through initiatives like “Surprise and Delight.”

First Watch Earnings - Q1'25

After surpassing $1 billion in revenue for the first time in 2024, First Watch is proving that scale fuels growth. Q1 2025 results show the brand is not just expanding — it's accelerating, with double-digit revenue growth, record April traffic, and new market entries in Boston, Boise, and Memphis driving toward its 2,200-location vision.

First Watch Earnings - delivered solid top-line growth in Q1 2025, but profitability came under pressure from a confluence of factors that weighed on margins and earnings.

Total Revenue rose 16.4% year-over-year to $282.2 million, driven by positive same-restaurant sales (+0.7%) and robust contributions from new units.
Same-restaurant traffic declined slightly (-0.7%) during the quarter but improved sequentially throughout Q1 and turned positive in April.
Restaurant-level operating profit margin fell meaningfully to 16.5%, down from 20.8% a year ago, reflecting higher food, labor, and occupancy costs.
Adjusted EBITDA declined to $22.8 million (8.1% margin), compared to $28.6 million (11.8% margin) last year, falling short of prior expectations.
The company posted a net loss of $(0.8) million, or $(0.01) per diluted share, compared to net income of $7.2 million in the prior year.

While revenue growth remained healthy, several margin headwinds emerged:

Commodity inflation in key categories (eggs, bacon, coffee, avocados) drove food costs up by 7.7% year-over-year, pushing food and beverage costs to 23.8% of sales (vs. 21.8% last year).
Labor and health benefit costs increased, lifting labor-related expenses to 34.6% of sales (up 130 basis points YoY).
Tariffs and supply chain costs, including packaging and paper goods, added incremental pressure.
Guest-centric initiatives such as the Surprise and Delight program and portion increases on value menu items enhanced the customer experience but diluted margins.

"While we’re investing in customer experience and absorbing outsized cost pressures, we remain confident that these challenges are transitory and that our scale and traffic momentum will drive margin recovery over time." — Mel Hope, CFO

Forward Guidance

Revenue growth ~20% (includes acquisitions).
Same-restaurant sales growth: Low-single-digit positive, with flat-to-slightly positive traffic expected.
Adjusted EBITDA lowered to $114–119 million due to Q1 margin pressures and inflation.
Commodity inflation expected to peak in Q2, with relief likely in H2 2025.
59–64 new restaurants planned for FY 2025, weighted to H2.

Operational Performance

Successes

Opened 13 new restaurants in Q1, bringing system-wide total to 584.
New restaurants (2024 and 2025 classes) are outperforming expectations — tracking ~10% ahead of comp cohort sales.
Positive traffic trends in March and April, marking best performance in two years.

"April posted the best monthly same-restaurant traffic result in over two years, giving us optimism that we're on track to achieve positive traffic for the year." — Chris Tomasso, CEO

Challenges

Margin pressure from commodity inflation and tariff impacts (~30bps).
Increased costs related to "Surprise and Delight" initiatives, delivery channel investments, and marketing ramp-up.

Market Insights

Macro headwinds: Inflation, commodity spikes, and new tariffs have challenged margins.
Consumer trends: Higher-income consumers (First Watch’s core demographic) remain resilient; weekday softness and lower-income cohort pullback less impactful to FWRG.
Competitive pricing advantage: Management emphasized maintaining lower menu prices relative to family diners to drive traffic and build loyalty.

"We are strengthening the system... differentiating ourselves in a challenging environment." — Chris Tomasso, CEO

Strategic Initiatives

Marketing push: Focus on digital and connected TV, yielding early engagement gains.
Third-party delivery optimization: Partnership with DoorDash reversed prior negative traffic trends.
Guest experience investments: "Surprise and Delight" program aims to deepen emotional customer connections.
New market expansion: Entering Boston, Memphis, Boise and growing in established strongholds like Florida.
Franchise acquisition: Completed acquisitions in Missouri and the Carolinas, enhancing development pipeline.

"The Hanover, Massachusetts restaurant is performing well above our expectations... further proof that the First Watch brand is highly portable." — Chris Tomasso, CEO

Capital Allocation

CapEx for FY 2025 projected at $150–160 million, primarily for new restaurants and remodels.
Debt and liquidity remain manageable, though guidance assumes elevated tax rates (45–50%) and inflation headwinds.

The Bottom Line

First Watch delivered healthy revenue and traffic trends in Q1 2025 despite macroeconomic pressures. Management remains confident in its differentiated positioning, strong expansion pipeline, and customer-centric initiatives to drive sustainable growth. However, near-term margins will remain challenged by commodity inflation, tariffs, and deliberate value-driven guest investments. With improving traffic momentum and a solid new unit performance, First Watch looks well-positioned to emerge stronger through a volatile macro backdrop.

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