First Watch Q2 2025 slides: Revenue jumps 19% despite margin pressure

First Watch Restaurant Group (LON:RTN) Inc (NASDAQ:FWRG) released its Q2 2025 supplemental information on August 5, 2025, revealing strong revenue growth despite facing significant margin pressure. The daytime dining leader’s stock surged 14.27% in premarket trading to $19.70, suggesting investors were focusing more on the company’s growth trajectory and raised guidance than on its profitability challenges.

Quarterly Performance Highlights

First Watch reported total revenues of $307.9 million for Q2 2025, representing a 19.1% increase compared to the same period in 2024. System-wide sales grew 15.8% to $346.2 million. The company achieved same-restaurant sales growth of 3.5% and same-restaurant traffic growth of 2.0%, marking its third consecutive quarter of improvement in these metrics.

However, profitability metrics showed considerable pressure. Income from operations margin decreased to 2.4% from 6.4% in Q2 2024, while restaurant level operating profit margin fell to 18.6% from 21.9%. Net income declined to $2.1 million ($0.03 per diluted share) from $8.9 million ($0.14 per diluted share) in the prior year period, representing a 50% miss compared to analyst expectations of $0.06 per share.

As shown in the following comprehensive overview of the quarter’s performance:

Detailed Financial Analysis

The company’s adjusted EBITDA decreased to $30.4 million compared to $35.3 million in Q2 2024, reflecting the margin pressure. This decline in profitability metrics comes despite the strong top-line growth, suggesting that rising costs are impacting the company’s bottom line.

First Watch’s financial reconciliation shows the components affecting its adjusted EBITDA:

Similarly, the company’s restaurant level operating profit reconciliation provides insight into the factors impacting store-level profitability:

CEO Chris Tomasso addressed the company’s performance in his commentary, highlighting the positive traffic growth and expressing confidence in stronger profitability in the second half of the year: "We delivered positive same-restaurant traffic and sales growth in the second quarter, marking three consecutive quarters of improvement. We anticipate stronger profitability in the second half of the year and have raised our annual outlook for adjusted EBITDA."

Strategic Initiatives & Expansion Plans

First Watch continues to execute its aggressive expansion strategy, opening 17 system-wide restaurants across 8 states during Q2, with only 1 planned closure. This brought the company’s total to 600 system-wide restaurants (531 company-owned and 69 franchise-owned) across 31 states.

The company’s presentation highlighted its attractive unit economics, which support this expansion strategy:

First Watch targets Year 3 average sales of $2.7 million per restaurant, with restaurant-level operating profit of 18-20% and cash-on-cash returns of approximately 35%. The company’s flexible restaurant format (3,800-6,600 sq ft) with an average net build-out cost of ~$1.75 million enables it to adapt to various locations and markets.

The company also continues to innovate its menu offerings, introducing seasonal items like Blueberry Lemon Cornbread, Shrimp & Grits, Elote Breakfast Burrito, and Watermelon Wakeup for the summer season running from June 3 to August 11, 2025.

Forward-Looking Statements

First Watch raised its adjusted EBITDA guidance for fiscal year 2025 to a range of $119.0 million to $123.0 million, while maintaining its same-restaurant sales growth projection in the positive low-single digits with flat-to-slightly positive same-restaurant traffic growth.

The company confirmed its total revenue growth target of approximately 20.0% and plans to open 59 to 64 new system-wide restaurants (net of 3 company-owned restaurant closures) by the end of fiscal year 2025.

The following slide details the company’s updated outlook:

Capital expenditures are expected to be in the range of $148.0 million to $152.0 million, primarily invested in new restaurant projects and planned remodels.

Despite the earnings per share miss and declining profitability metrics, the market’s positive reaction suggests investors are focusing on First Watch’s continued revenue growth, positive traffic trends, and the management’s confidence in improved profitability for the second half of 2025. The company’s daytime dining concept (operating from 7 a.m. to 2:30 p.m.) and focus on fresh ingredients continue to resonate with customers across generations, supporting its expansion strategy despite the current margin challenges.

Full presentation:

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