Earnings call transcript: First Watch Q2 2025 stock surges despite EPS miss

First Watch Restaurant Group Inc. (NASDAQ:FWRG), with a market capitalization of $1.05 billion, reported its financial results for the second quarter of 2025, revealing mixed performance metrics. The company experienced a significant earnings per share (EPS) miss, reporting $0.03 against a forecast of $0.06, marking a 50% shortfall. Despite this, the company’s revenue slightly exceeded expectations, coming in at $307.9 million compared to the projected $306.6 million. The stock responded positively, with a premarket surge of 14.27%, reaching $19.70. According to InvestingPro data, five analysts have recently revised their earnings estimates downward for the upcoming period, suggesting potential challenges ahead.

Key Takeaways

• First Watch’s Q2 EPS fell short of expectations by 50%.
• Revenue surpassed forecasts with a 0.42% surprise.
• The stock surged 14.27% in premarket trading.
• The company opened 17 new restaurants and acquired 19 franchise locations.
• Adjusted EBITDA guidance for 2025 was raised to $119-$123 million.

Company Performance

First Watch reported a 19.1% year-over-year increase in total revenues for Q2 2025, reaching $307.9 million. The company opened 17 new restaurants and acquired 19 franchise locations, contributing to its growth. Despite a decline in restaurant-level operating profit margin from 21.9% in Q2 2024 to 18.6%, the company’s net income stood at $2.1 million. Adjusted EBITDA was $30.4 million, down from $35.3 million in the same quarter last year.

Financial Highlights

• Revenue: $307.9 million, up 19.1% YoY
• Earnings per share: $0.03, down from an expected $0.06
• Same restaurant sales growth: 3.5%
• Same restaurant traffic growth: 2%
• Restaurant level operating profit margin: 18.6%
• Adjusted EBITDA: $30.4 million

Earnings vs. Forecast

First Watch’s EPS of $0.03 fell short of the forecasted $0.06, representing a 50% miss. However, the company managed to beat its revenue forecast by a small margin, achieving $307.9 million compared to the expected $306.6 million. This revenue surprise was 0.42%, a modest yet positive deviation.

Market Reaction

Despite the EPS miss, First Watch’s stock saw a significant premarket increase of 14.27%, trading at $19.70. This movement contrasts with its 52-week range, where the stock had a low of $12.90 and a high of $22.71. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with a concerning P/E ratio of 99.42x. The stock’s positive reaction suggests investor confidence in the company’s strategic direction and future growth potential, though current valuations may warrant caution. For deeper insights into FWRG’s valuation metrics and 8 additional ProTips, consider exploring the comprehensive Pro Research Report.

Outlook & Guidance

First Watch raised its adjusted EBITDA guidance for 2025 to a range of $119-$123 million. The company expects to open 62-67 new restaurants this year and maintains a low single-digit same-restaurant sales growth estimate. Commodity cost inflation guidance was lowered to 5-7%, reflecting improved cost management.

Executive Commentary

• "We’re targeting our customers for increased frequency." - Chris Tomaso, CEO
• "The consumer now is at a place where they’re looking for hospitality, high quality ingredients, consistency and value." - Chris Tomaso, CEO
• "We’re right where we need to be as it relates to hitting our near and mid term unit growth targets." - Chris Tomaso, CEO

Risks and Challenges

• Declining operating profit margins could pressure future profitability.
• Commodity cost fluctuations may impact cost management efforts.
• Increased competition in the full-service dining sector.
• Dependence on consumer spending trends and economic conditions.
• Execution risks associated with rapid expansion plans.

Q&A

During the earnings call, analysts raised questions about First Watch’s marketing strategies and improvements in third-party delivery performance. The company’s focus on attracting younger demographics and its pricing strategy were also discussed, highlighting the importance of maintaining competitive margins in a challenging market environment.

Full transcript - First Watch Restaurant Group Inc (FWRG) Q2 2025:

Conference Operator: Thank you for standing by and welcome to the First Watch Restaurant Group Incorporated Second Quarter Earnings Conference Call occurring today, 08/05/2025 at eight a. M. Eastern Time. Please note that all participants are currently in a listen only mode. Following the presentation, the conference call will be open for analyst questions and instructions on how to ask a question will be given at that time.

This call will be archived and available for replay at investors.firstwatch.com under the News and Events section. I would now like to turn the conference over to Stephen Marotta, Vice President of Investor Relations at FirstWatch to begin.

Stephen Marotta, Vice President of Investor Relations, FirstWatch: Hello, everyone. I am joined by FirstWatch’s Chief Executive Officer and President, Chris Tomasa and Chief Financial Officer, Mel Hope. This morning, FirstWatch issued its earnings release for the 2025 on GlobeNewswire and filed its quarterly report on Form 10 Q with the SEC. These documents can be found at investors.firstwatch.com. This call will include forward looking statements that are subject to various risks and uncertainties that could cause the company’s actual results to differ materially from these statements.

Such statements include without limitation statements concerning the conditions of the company’s industry and its operations, performance and financial condition, outlook, growth plans and strategies and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company’s earnings release and the risk factor disclosure in the company’s filings with the SEC, including our Annual Report on Form 10 ks and quarterly reports on Form 10 Q. First Watch assumes no obligation to update these forward looking statements, as a result of new information, future developments or otherwise, except as may be required by law. Lastly, management’s remarks today will include references to various non GAAP measures, including restaurant level operating profit, restaurant level operating profit margin, adjusted EBITDA and adjusted EBITDA margin. Investors should review the reconciliation of these non GAAP measures to comparable GAAP results contained in the company’s earnings release filed this morning.

Any reference to percentage growth when discussing the second quarter performance is a comparison to the 2024 unless otherwise indicated. And with that, I’ll turn the call over to Chris.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Good morning, everyone. We appreciate you joining us to discuss our second quarter performance. We’re pleased to report a strong quarter and encouraging underlying trends, as FirstWatch’s broad brand appeal and unit growth engine were on full display. Equally important, the decisions we’ve made around pricing, including, for instance, our resistance to passing along temporary commodity cost inflation, are proving to be well received by our customers. Total revenue increased by more than 19%, led by growth from high performing new restaurant openings and the strategic acquisitions we completed over the past year.

This was underpinned by positive same restaurant sales growth of 3.5%, driven predominantly by 2% positive same restaurant traffic growth. We enjoyed sequential improvement in both in restaurant and consolidated traffic trends, generating growth in every daypart, and saw and are continuing to see tangible traction from our marketing efforts. We opened 17 new system wide restaurants across eight states, and these new restaurants are on track to meet or exceed the strong cash on cash returns and ROI that we target. We also successfully completed the acquisition and integration of 19 franchise restaurants in in North Carolina, South Carolina, and Missouri. Our results illustrate that our growth strategy is working.

And before we dive in, I want to thank our teams across the entire enterprise who execute at a very high level every day to deliver these results. As we noted during our first quarter conference call, the second quarter got off to a strong start, with April delivering the best monthly same restaurant traffic growth in more than two years. May was similar to April, and June exhibited even further improvement. Delivering sustained traffic momentum across multiple quarters builds our confidence in achieving positive traffic for the balance of 2025 and for the full year, as we guided to previously. Mother’s Day and Father’s Day, our two busiest days of the year, occurred in the second quarter, and our teams operated splendidly on both holidays.

These two occasions perfectly illustrate our capacity to achieve even higher unit volumes. Mother’s Day was the single busiest day in our forty two plus year history, with record same restaurant traffic and sales. Just one month later, we lost same restaurant traffic growth in the mid single digits on Father’s Day. As a reminder, our AUVs have grown from $1,600,000 in 2019 to $2,300,000 today, and our new restaurants are projected to reach $2,700,000 in their third year of operation, with recent classes on track to exceed even that target. First Watch remains America’s fastest growing full service restaurant brand, averaging more than one new restaurant opening per week.

And given the strength of our new openings and the related returns, we’re not slowing down. I’m proud of our development team’s sharp focus on strategy and their successful results. The NRO pipeline is as strong as ever, with more than 130 new sites approved and in various stages of completion. In fact, our double digit percentage growth plans for 2026 are already firmly in place, and we are nearly halfway to our target for 2027. In short, we’re right where we need to be as it relates to hitting our near and mid term unit growth targets.

In effect, each year, we are opening the equivalent of an entire regional chain. To better illustrate, our new restaurants opened in the last two years outnumber the entire system size of the next largest daytime dining concept. First Watch is growing aggressively and doing it with a well formed playbook in place. For 2025, we are targeting 62 to 67 new locations. The broad geographic diversity of our new restaurant openings can be seen in the first half of this year, where we opened new restaurants in 18 markets across 15 states.

Our NROs are positioned in highly visible A locations, providing us with a competitive advantage during our daypart. As a group, they continue to outperform our underwriting targets, which include year three average unit volumes of $2,700,000 cash on cash returns of around 35%, and returns on investment of better than 18%. Increasingly, we are taking advantage of more second generation sites with high visibility, plentiful parking, and the square footage that showcases our larger patties. In the eighteen month period between the beginning of Q1 twenty twenty four and the midpoint of 2025, nearly 40% of our 80 new restaurants were second generation restaurant spaces, with about 60% of those in freestanding buildings. Because each one of our restaurants is unique and not artificially constrained by a cookie cutter approach to design, we can modify just about any location into a highly efficient first watch.

We have successfully converted well known national full service burger chains, seafood chains, bar and grills, Italian concepts, bakery cafes, and even national family dining concepts. These locations boast some of our highest AUVs, and 40% of our yet to be built active pipeline sites are previous generation restaurant spaces and all of exceptional site quality. With our top decile restaurants spread across 14 states and 22 DMAs, and consistent AUVs across all regions, we remain confident in our ability to reach our stated total addressable market of 2,200 locations within the Continental United States. And with over six hundred First Watch restaurants in operation today, we have many years of strong in restaurant growth ahead of us. Shifting now to brand and marketing.

The investments we are making this year are yielding positive results, contributing to our same restaurant traffic growth and increased brand awareness. For example, in core geographies like the Southeast and the Southwest, we’re not only outperforming the system, but also gaining market share. Even in Florida, the state we’ve called home for nearly forty years, we still have opportunities to increase brand awareness, and we remain bullish on the untapped potential across all regions. I’m particularly enthusiastic about how nicely the composition of our customer base continues to evolve. Broadening our demographics beyond what leaned toward the boomer generation just ten years ago.

Today, our customers are skewing more towards the Gen Z and millennial generations, with the majority falling below 50 years old, which is a direct result of our marketing, culinary, and operational efforts to ensure our ongoing relevance and long term viability. We are highly attentive to all facets of the customer experience. To that end, in the second half of this year, we’ll be relaunching all of our customer facing digital properties, including a custom built waitlist experience, streamlined digital ordering, and nutritional filtering tools, further enhancing the First Watch customer experience. More to come on all of that in the future. One of the best examples of our commitment to our customers’ inter restaurant experience is by removing needless friction from the waitlist process.

For those of you who have visited the First Watch, you know that our host area can become quite congested during peak hours. While Hey at the Table improved the payment process and successfully alleviated a portion of this congestion, our new waitlist experience uses automation to improve the experience even further. Geolocation technology allows customers the option to be automatically checked in and notified as they approach the restaurant, saving them the need to physically check-in at the host stand. Culinary innovation has always been a competitive advantage at First Watch and is key to our customer experience. With our seasonal menu changing every ten weeks, we’re continuously testing new and innovative offerings, while evolving and optimizing the core menu to enhance menu navigation, test new items, and introduce new platforms.

Our culinary and menu evolution continues to get better each year, as we learn more and more about what resonates with our customers. In the first half of this year, we had several test items exceed expectations, and one actually broke a sales mix record, giving us a high degree of confidence in our upcoming seasonal offerings when they go to nationwide rollout. At FirstWatch, our focus is on our people and our culture of kindness. Some of you may have seen the August cover story that FSR Magazine just released featuring FirstWatch. Danny Klein and the entire editorial staff did a really nice job capturing the essence of our philosophical approach in these areas and how we bring them to life.

The timing of this profile is apropos, as we are in the midst of conducting our annual Y Tour, which stands for We Hear You, and comprises nearly two dozen ninety minute virtual town halls with me, our Chief Operations Officer, Dan Jones, and our Chief People Officer, Laura Sorenson, directly engaging with hourly employees. The feedback gathered during these sessions has proven crucial across enterprise touch points, including marketing, generating menu ideas, enhancing processes, developing retention strategies, and identifying countless ways to improve both the employee and customer experiences. It’s an important interaction that we look forward to every year. We are and will remain an employer of choice, providing a unique combination of quality of life and growth opportunities that are unmatched in our industry. A few examples include the introduction of a certified general management program, and expanding the First Watch Academy of Restaurant Management Program, or FARM, as we affectionately refer to it, to include a director of operations session for the first time.

The certified general management program is a new role that focuses on improving manager training and retention, and enables us to build a people pipeline made up of veteran managers who support our aggressive unit growth plans. Since its implementation early last year, we have raised the bar on the rate of internal promotion, as well as our execution in

Mel Hope, Chief Financial Officer, FirstWatch: the restaurants.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: This program has been so successful that the vast majority of our multiunit director of operations promotions were existing certified general managers. Initiatives like this certified general manager program, among others, are improving our turnover at all levels. Our strong employee retention among hourly staff and at the manager level improved again in the second quarter, with turnover for both remaining several 100 basis points below full service industry averages. In today’s dynamic environment, we are seeing growing demand for full service dining as consumers increasingly gravitate towards more hospitable, casual dining experiences. They’re seeking consistency, exceptional service, and innovative menu offerings made with high quality ingredients that elevate their visit beyond what the best casual category can offer.

This is an area, frankly, where we shine. The appeal of a full service casual dining visit to First Watch rests in our ability to offer a memorable experience at an enticing value throughout the entire customer journey. We feel really great about how we are positioned. Our unwavering focus on the customer experience and people development has positioned FirstWatch as a leader in full service dining. With our robust people and real estate pipelines, planned operational improvements, menu innovation, and a steadfast commitment to fostering a culture of engagement, we continue to elevate both the employee and customer experience.

Our progress is reflected not only in the positive shifts in customer demographics, but also in our industry leading employee retention and track record of successfully executing our growth strategies. As we move forward, these foundational strengths will remain central to sustaining our momentum and delivering long term value creation for our investors. And now I’d like to turn it over to Mel.

Mel Hope, Chief Financial Officer, FirstWatch: Thank you, Chris, and good morning. Total second quarter revenues were $307,900,000 an increase of 19.1%. Our top line results were driven by the contribution of 149 non comp restaurants including 61 company owned new restaurant openings and the 40 franchise locations we acquired since the 2024 and traffic driven positive same restaurant sales growth of 3.5%. Same restaurant traffic was positive 2%. In our fiscal June, we posted the best monthly same restaurant traffic growth in over two years, which reaffirms our confidence in projecting positive same restaurant traffic growth for the remainder of this year.

Our in restaurant traffic for the quarter, while slightly negative, was also the best in six quarters. Traffic growth in the third party delivery channel increased materially during the second quarter, a continuation of the first quarter trend and a direct result of the changes we made to that program earlier this year. As part of our efforts at the start of this year to improve the performance in the third party channel, we set two primary goals. One, to recapture lost traffic in the channel. We have successfully met this goal, and two, to generate incremental profit dollars, we successfully achieved this goal as well.

Additionally, we believe that third party delivery occasions are incremental, not a replacement for in restaurant dining visits. We believe this is at least partially validated by the fact that both in restaurant and third party delivery traffic had been improving simultaneously. We again experienced modest positive sales mix overall during the quarter. Food and beverage expense was 23.6% of sales, up from 21.8% in the second quarter last year. Costs as a percent of sales benefited from carried pricing of around 2.5%, though this was more than offset by commodity inflation in the quarter of 8.1%.

Eggs, bacon, coffee, and avocados, which comprise four of our top five cost inputs, were all materially more expensive than in the same period last year, similar to the first quarter. I’ll return to the topic of the egg costs in just a moment when I share the good news about our forecasted costs for the balance of the year. Labor and other related expenses were 33.2% of sales in the second quarter, a 40 basis point increase from 32.8 reported in the 2024. Restaurant level labor inflation was 3.9%, a combination of labor inflation and higher health benefit costs were the largest factors for the increase in the percent of sales. Our labor efficiency was in line with last year.

Restaurant level operating profit margin was 18.6% in the second quarter compared to 21.9% in the second quarter last year. General and administrative expenses increased to $33,200,000 from $27,200,000 in the 2024. At 10.8% of total revenue, these expenses were 30 basis points higher than in the same quarter last year. The increase was driven by investments in marketing and headcount. The income from operations margin was 2.4%.

Adjusted EBITDA was $30,400,000 $4,900,000 below last year with adjusted EBITDA margin declining to 9.9% from 13.7%. We reported net income of $2,100,000 There were 17 new system wide restaurants opened during the second quarter of which 15 are company owned and two are franchise owned, and we ended the period with 600 restaurants in the system. The effect of our franchise acquisitions, which includes only the impact of purchases made within the last twelve months, increased second quarter revenue by about $7,000,000 and adjusted EBITDA by about 1,000,000 For further details on the second quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link. Now I’d like to provide our updated outlook for 2025. We are maintaining our estimate of positive low single digits percentage same restaurant sales growth with flat to slightly positive same restaurant traffic growth.

Our estimate includes 2.8% of price implemented in July and carry pricing of around 4% in the second half of the year, which blends to around 3% of price for the full year. As a point of reference, we piloted a handful of call to action consumer outreach programs around this time last year, which positively impacted same restaurant traffic in the 2024. Consequently, this year’s fiscal September presents our most challenging monthly comparison. Additionally, the cadence of our 2025 marketing investment reflects the fact that the third quarter is typically our seasonally slowest period. We expect total revenue growth of around 20% with a net 400 basis point impact from completed acquisitions.

We expect 62 to 67 new system wide restaurants, including 55 to 58 new company owned restaurants and seven to nine new franchise owned restaurants with three planned company owned restaurant closures. Our company owned new restaurant development pipeline remains weighted to the 2025, the fourth quarter in particular. There is good news in our cost expectations for the balance of the year as it pertains to eggs. As you are aware, the effects of recurring incidents of avian flu in recent quarters have elevated the cost of eggs. Earlier this year, the increased cost of eggs was a major input to our forecast of overall commodity cost inflation.

As of July, with egg supply improving, our cost has improved as well. As such, we are lowering our fiscal year 2025 commodity cost inflation guidance to a range of 5% to 7%, down from high single digits previously. Restaurant level labor cost inflation is still expected to be in the range of 3% to 4%. We are increasing our adjusted EBITDA guidance range to $119,000,000 to $123,000,000 up from $114,000,000 to $119,000,000 which includes the expected net contribution of about $7,000,000 from acquired restaurants. Our updated estimate of full year adjusted EBITDA is primarily driven by the reduction in our egg costs combined with the shifting impact from tariffs.

For modeling purposes, we expect G and A in the third and fourth quarter to be roughly equivalent to the second quarter results in absolute dollars. We expect a blended tax rate of 35% to 40%. We are lowering our expected range for capital expenditures to $148,000,000 to $152,000,000 from $150,000,000 to $160,000,000 not including the capital allocated to franchise acquisitions. The adjustment is largely due to fewer than expected ground lease new restaurant openings in both 2025 and 2026 and the latter’s impact on current year CapEx. We have a lot to look forward to in the back half of 2025.

With a healthy lineup of new restaurant openings, moderating commodity costs, and a deep bench of seasoned staff, we are well positioned to extend our lead of the daytime dining segment. And operator, with that, would you please open the line for questions?

Conference Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Please limit yourself to one question and one follow-up.

You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. And again, that is star one to ask a question. And we’ll go first to Jim Salera with Stephens Incorporated.

Jim Salera, Analyst, Stephens Incorporated: Chris, good morning. Thanks for taking our question. Good morning.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Sure.

Jim Salera, Analyst, Stephens Incorporated: Chris, I wanted to ask about something you’d mentioned in your prepared remarks regarding the majority age of customers falling below 50 years old. And to drill down on that, do you think that that’s a function of broadening the store footprint across more and more markets outside of the core Florida market? Or is there also a component there that Gen Z and younger generations tend to order more off the third party platforms? And now that you’re seeing an uptick there, that’s changing the composition. Any commentary there would be great.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yes, sure. I think it’s all the above. I think we’re entering new markets where a lot of the customers are having their first experience at FirstWatch. And you’ve seen the evolution of our prototype. You’ve seen kind of the advancement in our culinary that’s continued.

So there’s that piece of it. And then I think our team’s just done a really nice job of reaching out to that next generation of First Watch customer in our core markets, which I think has a driver also of trial and expanding our customer base. So we’re really focused on filling the pipeline with the next generation of FirstWatch customers. We’re thinking about the next forty years just like we did the first forty. So I think it’s really part and parcel to everything that we’re doing.

Jim Salera, Analyst, Stephens Incorporated: And are you able to speak to any differences in frequency or ticket size? I’m trying to get a better sense of how those younger consumers engage with the brand relative to what’s kind of been your traditional older consumer?

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Not very different. I mean, we’re not seeing any kind of massive shifts in mix items and things like that. One other proof point to your first question actually is, I mean, if you just think about social media alone, the presence that we have on social media and how active we are just lends itself to attracting that next generation. Even with the introduction of alcohol, for example, I think that helps attract that generation as well. So really it’s our brand voice, it’s how we’re positioning ourselves, and how we continue to just evolve.

What we don’t want to do is ever have to be in a period where we’re having to reinvent ourselves. So we’re constantly evolving as we go along and really focused on long term consumer trends and staying ahead of them.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Great. I appreciate the detail. I’ll hop back in the queue.

Conference Operator: And our next question comes from Jeff Bernstein with Barclays.

Jeff Bernstein, Analyst, Barclays: Hi, good morning guys. This is Pradek on Good for Good morning. Chris, it’s encouraging to see a more positive EBITDA outlook, especially after the more cautious positioning last quarter. Wanted to parse out what you feel gives you the confidence to raise the outlook, especially just given the ongoing volatility. We’ve seen a lot of noise in the data this year.

And obviously, consumers are obviously a little bit jittery. Just anything you’re seeing in your consumer base that gives you that confidence? And then I have a follow-up. Thanks.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yeah. Sure. I think first and foremost on the EBITDA is relief in egg costs is really a big driver there. That was

: probably well, it

Chris Tomaso, Chief Executive Officer and President, FirstWatch: was the largest input to our cost inflation, which at the beginning of the year we projected at high single digits. So some relief there in the second half of the year is a big contributor. And then honestly, the consumer front, we’re really pleased with the trends we’ve seen, the underlying trends. We did not see any deceleration in our same restaurant traffic trends in July. So it just gives us a lot of confidence that what we’re doing is working.

And so that’s why you saw kind of the changes to guidance there.

Jeff Bernstein, Analyst, Barclays: Understood. And Mel, just a question on the pricing strategy. It looks like you took two eighty basis points in July. With consumers obviously focused on value, we’ve heard no shortage of this from some of the companies that have reported this cycle. Just how are you thinking about that going forward and the flow through to margins in the second half?

Thank you.

Mel Hope, Chief Financial Officer, FirstWatch: Actually our pricing strategy hadn’t changed over decades frankly. We generally visit pricing about twice a year with a cadence of hitting some in the first quarter and then revisiting based on how we see inflation and do a bit of course correction midyear. So the pricing philosophy and our application of it hasn’t changed this year and any other time and it’s kind of within the range that we typically predict as a long term 3% to 3.5%.

Jeff Bernstein, Analyst, Barclays: Got it. And any implication on the margin there from the pricing action or?

Mel Hope, Chief Financial Officer, FirstWatch: Well, it’s when we price, we price to offset what we see as permanent inflation. So we try not to price for temporary, what we see as temporary inflation. So as we took the 200 basis points you mentioned, it will be helpful to us and it considers some of the offset of what we see as more permanent or sticky inflation.

Jeff Bernstein, Analyst, Barclays: Got it. Thank you very much. I appreciate it.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: And

Conference Operator: our next question comes from Todd Brooks with The Benchmark Company.

Todd Brooks, Analyst, The Benchmark Company: Hey, thanks for taking my question. Congrats on the return to positive traffic in the quarter. Thanks. Wanted to try to tie that return to positive traffic to some of the marketing tactics. Chris, you pointed out that a lot of this was tested kind of late Q3 and into Q4 last year and refined.

I guess, I don’t know if Matt’s there to speak to it or if you

Chris Tomaso, Chief Executive Officer and President, FirstWatch: want to speak to it.

Todd Brooks, Analyst, The Benchmark Company: But I’m just wondering where you’re seeing traction and how and maybe if you can quantify for us how that effort is really aiding that growth in traffic that you’re seeing in the recent quarter.

Matt Gray, Chief Brand Officer, FirstWatch: Yes. This is Matt. It’s Matt Gray. I’ll take that, Chief Brand Officer. Chris said in the script, we did focus a lot of our efforts in certain geographies, really corresponding to some of our largest markets.

And we’ve seen tangible traction in those geographies. And just like anyone would, we compare that to the rest of the system in certain control markets. And so when you ask where the confidence comes in, we’ve just been really pleased with the results we’ve seen in those markets versus the

Stephen Marotta, Vice President of Investor Relations, FirstWatch0: rest of the system.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: And I think it’s also important to talk about who we’re targeting. We’re targeting our customers for increased frequency. We’re targeting users of the category where we believe that we have opportunities to gain another visit. So and we’ve seen success across that as well. So it’s the who and the where and the how that’s getting us there.

Todd Brooks, Analyst, The Benchmark Company: Perfect. And then just a second not related question, but I was surprised when you were talking about in the pipeline of openings and out of the last 80 openings that 40% of those have been second generation locations just because I know that typically you’re getting those A plus sites when you’re going in and opening new units now. Can you walk through when you’re looking at the build build cost for a second generation reclaim versus a typical first watch build? Thanks.

Mel Hope, Chief Financial Officer, FirstWatch: So our building average average across all of our restaurants After TI dollars generally runs about $1,000,000 along that order. Oftentimes with second generation space, there’s an eagerness of a developer or the landlord to get a new national credit like us into the space and operating using the facility quickly and effectively. And so as a consequence, the net doesn’t really change that much. And then the square footage, we oftentimes are for larger footprints are able to we might be because we’re paying for more square footage, we might get a little bit of break on the average rate per square foot, something like that. It actually comes out, actually blends out pretty close to just the first generation space that’s an end cap with great access and egress and those things that we always characterize for our first generation space.

Todd Brooks, Analyst, The Benchmark Company: Okay, perfect. Thanks, Mel.

Conference Operator: Moving on to Jon Tower with Citi.

Stephen Marotta, Vice President of Investor Relations, FirstWatch1: Yeah, hey, thanks for taking the question. Maybe, morning. Thanks for taking the questions. Maybe kind of hitting on both of those questions again, different tax. The media spending and specifically the traffic that you’re seeing coming to your stores in response to the media spend that you’re getting.

Are you seeing an increase in customer frequency from existing customers? Are you drawing new customers to the brands? And I’m curious to the brand that is and across both the in store and the three PD channel or I’m just kind of curious if you could parse that out for us?

Mel Hope, Chief Financial Officer, FirstWatch: I think given our the frequency and full service restaurants that probably we need a longer cohort to see how much repeat business we’re getting or whether we’re accelerating visits.

Stephen Marotta, Vice President of Investor Relations, FirstWatch1: Okay, and then maybe just going back to the last question regarding the second gen, you know, you talked about the pipeline being pretty solid over the next twelve months. I think roughly, what, a 130 stores or so in the pipeline today. I apologize if I’m off a little bit there.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yep. Yep. That’s right.

Mel Hope, Chief Financial Officer, FirstWatch: That’s right.

Stephen Marotta, Vice President of Investor Relations, FirstWatch1: Okay. When thinking about that and even going beyond that, and I think there was even an article yesterday one of the trade rags talking about the amount of property sales and casual dining plummeting over the past few years and, you know, second gen real estate really, you know, topping up for casual dining. Is this, you know, something as a a multi year driver for you guys? So, like the mix of new stores popping up as second gen, today 40%, is this gonna persist at 40% or do you see it running at a forty, fifty, maybe 60% of new stores over the next several years versus ground up brand new builds?

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yeah. It’s hard to tell, but I’ll tell you, at least for the next few years, because we know it already, because our pipeline is such. But we’re getting first calls, is what I’ll tell you, on these sites that become available. And so we get to choose which ones we want to move forward with and which ones we don’t. So I guess it depends on the health of, call it, casual dining in general.

And we’re seeing a lot more of these sites than we’ve seen in the past. And because of the success we’ve had in converting them, and again, the flexibility that we have to put a really high performing first watch in almost any kind of footprint at this point has that high on our list from target standpoint. So I don’t know what the percentage will look like, say after ’27, but for the next few years it’s going

Mel Hope, Chief Financial Officer, FirstWatch: to be a big part of our development mix. But really conforming those larger spaces and second generation space has been something that is on muscles that we’ve been able to exercise a great deal over the course of the last three or four years. And as a consequence, I think we’re really good at it now. And restaurants, those restaurants as we convert them, we can do it rapidly. We can train our staff and the choreography in the restaurants of these larger footprint dining rooms.

All of that’s been helpful to us and it’s a I applaud our development team for their work with our operations crew and really helping us to move into those places profitably and quickly. But John, the central theme here is that these are high quality locations. And

Chris Tomaso, Chief Executive Officer and President, FirstWatch: so when they check all our boxes for our the discipline that we follow for site criteria, I mean, they’re again top of the list.

Stephen Marotta, Vice President of Investor Relations, FirstWatch1: Got it. Thanks for taking the questions.

Conference Operator: Moving on to Brian Mullen with Piper Sandler.

Stephen Marotta, Vice President of Investor Relations, FirstWatch0: Hey, thanks. You’ve been asked about marketing and the impact to traffic already. I wanted to ask on some of the actions you’ve taken inside of the restaurants. Last quarter you talked about improving the value to the consumer for the trifecta. That’s a high selling item.

You reintroduced the surprise and delight acts of kindness from the GMs. My question is, do you think the consumer is noticing and appreciating this? Are there any other similar moves you could look to make just to continue to make sure the guests appreciate your total value proposition?

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yeah, I think they’re absolutely noticing it in these times And more than so we’re really, really leaning into that. And I referenced the article in FSR Magazine that came out, I think, yesterday or the day before. Just they really keyed in on that. And we’re keyed in on it from an organization. So we really believe that the consumer now is at a place where they’re looking to be they’re looking for hospitality.

They’re looking for high quality ingredients. They’re looking for consistency and value. I mean, those are always themes that the consumer looks for. But I think there was a period of time where the consumer may have given up on that a little bit in exchange for value and price. But we’re definitely seeing that the consumer is responding well to that.

So it’s interesting when we get asked about the impact of the marketing and other things, we really we look at it holistically. Like we really think that we’re trying to do the right thing by the consumer across all of our touch points from being conservative around pricing at times where they’re feeling crunched, raising the level of hospitality at the same time, increasing portion size. I mean, you just don’t hear about restaurant companies doing that right now. And so we think it’s an opportunity for us to stand out and we absolutely believe that the consumer is recognizing that.

Stephen Marotta, Vice President of Investor Relations, FirstWatch0: Okay, thanks. And then just wanted to ask about the mix. I think it was down about 100 basis points in the quarter. Just remind us the contributing factors and then talk about how to mix for the back half of the year and what we might expect. We

Chris Tomaso, Chief Executive Officer and President, FirstWatch: actually had slightly positive mix. The impact on the PPA comes from the some of the efforts that we’ve done around the in restaurant what we’re talking to. And really it’s related primarily to the reduction of the third party surcharge. But we did not see a negative mix effect. In fact, it was ever so slightly positive.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Okay. Thank you.

Conference Operator: Our next question comes from Brian Vaccaro with Raymond James.

Stephen Marotta, Vice President of Investor Relations, FirstWatch2: Hi. Thanks and good morning. I wanted to just ask about your raised EBITDA guidance for the year. I think at the midpoint, it implies about $68,000,000 and and a return to significant year on year growth. Could you provide any guardrails on on your expectations for third quarter and fourth quarter given all the moving pieces?

And if not, maybe just walk through some of the key moving dynamics supporting that improvement in EBITDA. Obviously, you talked about the pricing and easing of food inflation, but anything else we should keep in mind as we model out the second half?

Mel Hope, Chief Financial Officer, FirstWatch: I would say the adjusted EBITDA that we expect for the back half of the year to be about even between quarters three and four. Technically, don’t know that we have any other real guardrails to provide.

Stephen Marotta, Vice President of Investor Relations, FirstWatch2: Okay. Even that is helpful. So thank you for that. And Mel, you touched on tariffs at one point. Could you just elaborate on your latest thinking on the tariff impact this year and any color there would be great.

Mel Hope, Chief Financial Officer, FirstWatch: Well, it’s certainly gone from being a headline for us in the first quarter to being less impactful. It’s been a choppy topic for us. I think we have about 10% maybe built in for the balance of the year, but it’s kind of thinking it might be 10% in terms of just cost items, it’s getting immaterial for this year.

Stephen Marotta, Vice President of Investor Relations, FirstWatch2: Okay. So just to clarify that about 10% of your basket might have some impact, but it’s an immaterial I dollar

Mel Hope, Chief Financial Officer, FirstWatch: think we’ve kind of counted it as about 10 basis points or something like that in terms Okay, of the full

Jeff Bernstein, Analyst, Barclays: excellent.

Stephen Marotta, Vice President of Investor Relations, FirstWatch2: Okay, thank you.

Mel Hope, Chief Financial Officer, FirstWatch: I’m sorry, I said 10%, but 10 bps.

Conference Operator: Moving on to Andrew Charles with TD Cowen.

: Thank you. This is Zach Ogden on for Andrew. I just wanted to follow-up surprise and delight and the increased portioning. How much of a drag are these still having on margins relative to the margins margin headwinds you saw in 1Q? And is there anything else from the 1Q headwinds you called out last time as you would say is notably improved since 1Q?

Mel Hope, Chief Financial Officer, FirstWatch: So those aren’t headwinds. Those are actually how we conduct business in the restaurant and so we view it as something that to which the guests respond positively and as a consequence, it’s built into our expectations for the year. What we spoke to in the first quarter, particularly as it pertained to some of the promotions in the restaurants was that we had enthusiasm from our teams. We’ve now improved some of the tools that they have to monitor that and our training has helped them in that area too. But we’re pleased with what it is.

But it’s built into the structure of the company.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: That said, we did see improvement from Q2 in Q2 from Q1 through increased communication with the restaurants about the execution of it.

: Got it. Okay. Thank you. And then just based on our math, it looks like the third party delivery volumes per store were up almost, I guess, over 20% in 2Q. So could you speak to what’s working so well for that part of the business and why it was such a so much larger of an increase in 2Q relative to the increase you saw in 1Q?

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yeah. I mean, it’s we’ve talked about it. It’s we basically optimized our relationship with our providers there and optimized kind of the business model such that we’ve reduced the surcharge. And our performance, frankly, in executing the third party experience has helped with how we show up in the queue and when people are looking for places to order from. So that’s a key component.

Accuracy, speed, quality, those type of things. And so all of that combined, I think, has led to that increase in the third party channel for us.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Okay. Great. Thank you.

Conference Operator: And Andy Barish with Jefferies has our next question.

Stephen Marotta, Vice President of Investor Relations, FirstWatch3: Hey, Good morning. Just wanted to double click on that for a second. So, was that kind of KDS related and reduced ticket times where you can kind of get under that magical sort of thirty minute mark that is sort of that barrier for a lot of the delivery stuff?

Chris Tomaso, Chief Executive Officer and President, FirstWatch: I mean, look, I’ll say that KDS helps us execute on any kind of occasion that we have just for more efficiency in the kitchen. But it’s the whole cocktail of reducing the surcharge. Also, communication with our teams about how to manage that channel during peak hours and things like that. So yeah, it’s all part of it. But keeping the channel open at all times and being able to execute it at a high level.

So the good news is we had a couple of challenges to address, like Mel mentioned in his prepared remarks. We did address them and we’re really happy with how that channel performs for us now and how we perform executing that channel.

Stephen Marotta, Vice President of Investor Relations, FirstWatch3: And just refresh my memory. I think it was last quarter or last year in the 3Q that you guys made some of those changes. So is that kind of year over year mix headwinds approaching the lapping when you put it put that into place?

Mel Hope, Chief Financial Officer, FirstWatch: In the third quarter last year, what you may be referring to is the fact that we piloted some of the marketing tactics that we’ve implemented on a broader basis this year, but we were not weren’t adjusting third party delivery until the first quarter of this year.

Stephen Marotta, Vice President of Investor Relations, FirstWatch3: Okay, understood. And just finally on dine in traffic, is it reasonable to think that could be flat to positive in the back half of the year or does rolling over some of the pilot testing give you a little bit of a headwind?

Mel Hope, Chief Financial Officer, FirstWatch: Yes, I mean, we certainly like the trend in the dining room traffic just like we like the overall trend. We haven’t been breaking it down too much by sales channel.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Thanks guys.

Conference Operator: We’ll go next to Chris O’Cull with Stifel.

Stephen Marotta, Vice President of Investor Relations, FirstWatch4: Great. Thanks, guys. Good morning. This is Patrick on for Chris. I just had a quick follow-up on the marketing.

Chris, I know you said you were targeting both existing FirstWatch users and new guests that you know are daytime users, but not necessarily guess the first watch yet. So I was curious how does that lean in dollar terms and in terms of the investment one to the other where the majority of the funds are going and then are there any particular channels like programmatic TV or paid advertising on social media that are particularly effective? And just how you’re thinking about the trajectory of that spend relative to what you did in the first half over the second half of the year?

Matt Gray, Chief Brand Officer, FirstWatch: Yes. This is Matt Eisner. I’ll take that one. Yes. As Chris said, we have seen it as a good first step to really focus on this category users largely because it’s just more effective and efficient spend.

As you know, going after and finding brand new customers take time consistent investment. And so we saw it as a prudent investment to start and really identify those category users. And yes, it’s been much more of an efficient spend for us. All of those channels that you mentioned are ones that we’ve employed in the first half of the year. Again, all of it is digital related.

And I think the benefit is that we’re able to target individuals uniquely. So we know from a one to one basis who we’re targeting versus going after big broad audiences.

Stephen Marotta, Vice President of Investor Relations, FirstWatch4: Got it. That’s helpful. And then, Mel, I know you mentioned at least in the first quarter that new unit drag played a little bit of a role in the margin results. And you guys opened quite a few units again this quarter. And so I was just curious kind of how that’s trending.

I know top line is looking pretty good. And so if you had any comments you could make on just sort of how that margin ramp up is looking and how to think about any sort of drag you’ve built in from that dynamic in the restaurant margin over the remainder of

Mel Hope, Chief Financial Officer, FirstWatch: Yeah, that’s a good question. We always have that phenomenon, That our mature restaurants operate at margins that are a few 100 basis points higher than the new restaurants that are on the maturity curve. We don’t generally break them out by group because we know we’re always going to have highly productive new restaurants and the fact is that because of their sales level, they tend to over index at the margin level because they’re outperforming the legacy fleet in term at the top line. And so we’ll always have that. So I think there’s generally you can count on a pretty similar spread from quarter to quarter in terms of the impact on the overall consolidated margin.

Stephen Marotta, Vice President of Investor Relations, FirstWatch4: Great. Thanks. Appreciate it.

Conference Operator: We’ll go next to Sarah Senatore with Bank of America.

Stephen Marotta, Vice President of Investor Relations, FirstWatch5: Hi. Thanks for taking my questions. This is Isaiah on for Sarah. Just a quick question when we look at COGS versus expectations. Just curious how you guys were able to do better than expected just given that inflation was at its peak in 2Q?

And then a quick follow-up after that.

Mel Hope, Chief Financial Officer, FirstWatch: So improvements in our we’re still a couple of 100 basis points lower than this time last year. So I would say that inflation still took its bite out of our COGS margin. We’re happy with where it is and some of the impacts are just being more mindful of it. And generally speaking, we have a broad enough basket where when we have heightened inflation in one or two commodities, we’ll have a little bit of favorability in a couple of others as it happened this quarter. And last quarter two, our highest all of our high use commodities were very, very high.

But I think what you’re seeing in terms of doing a little bit better than probably we expected has more to do with just managing it as opposed to actually seeing some decline in the overall cost.

Stephen Marotta, Vice President of Investor Relations, FirstWatch5: Got it. Very helpful. And then just unrelated, but when thinking about the drivers of top line just going into the second half of the year, do you see things as more segment specific as you know, relating to breakfast or more company specific? And if it’s the former, does any improvement in breakfast kind of signal anything about how the consumer is reacting to things or maybe if weekday breakfast is improving, you know, to the level of weekends? Just any color that you have over there.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Yeah. Again, we saw improvement in all of our dayparts, which was very encouraging. I can’t speak to the rest of the segment, but I know that we’re really pleased with our underlying trends and our performance and how that’s continued. So I’ll go back to my point about the consumer seeking hospitality and quality and all the attributes I listed before. And again, I think we show up perfectly right in the center of all of that.

And so I think that’s the benefit we’re seeing. Plus the proactive nature of things we’re doing from an operations execution standpoint, from a unit growth standpoint, helping raise our brand awareness, and then from a culinary standpoint as well.

Conference Operator: Our next question comes from Greg Francfort with Guggenheim.

Stephen Marotta, Vice President of Investor Relations, FirstWatch6: Hi, good morning. This is Aryan Rizai for Greg. Thanks for taking our questions. Can you please expand on regional performance? Like did you see any pockets of weakness in the quarter?

And maybe into the third quarter, do you see any impact from recent devastating floods in Texas? Like, anything on that will be super helpful for us. And I wanted to follow-up on the second Jan. You said CapEx is is pretty similar, but anything you can add on ROI and cash on cash just like to further understand the structure there? Thank you.

Mel Hope, Chief Financial Officer, FirstWatch: Okay. All right. Regionally, was no weakness in any region in terms of performance. Our trade areas generally perform fairly similarly across geographies as it goes to the just the site selection disciplines. As long as we observe our site selection disciplines, the restaurants are fairly consistent without regard to regions.

No, we didn’t see a lot of impact from floods in Texas. And then, what was the second question? Second gen. On second gen space, we don’t relax the underwriting criteria for our new restaurants regardless of their size or what kind of space it is. We’re always underwriting for them to get to about $2,700,000 in sales by year number three.

Mature margins in the 18% to 20% range, which generally comes to an ROI of about 18% to 20% as well and a cash on cash return

Chris Tomaso, Chief Executive Officer and President, FirstWatch: at 35% or thereabouts. And I’ll just remind you that our top to SL restaurants are in 14 states and 22 DMAs that kind of puts a finer point on Mel’s comment. And we see similar performance with our new restaurant openings too, even when we’re going into new markets. So we love that flexibility of being able to open across geographies and have the same expectations around performance.

Stephen Marotta, Vice President of Investor Relations, FirstWatch6: Got it. Thank you so much.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Thank you.

Conference Operator: This now concludes our question and answer session. I would now like to turn the floor back over to Chris Tomaso for closing comments.

Chris Tomaso, Chief Executive Officer and President, FirstWatch: Great. Thanks everybody for joining us on the call this morning. We really appreciate it. Appreciate all the questions. As always, we’re grateful for the dedication shown by our entire team, and we’re really looking forward to building on this strong foundation throughout the rest of 2025 and beyond.

Have a great day, everybody.

Conference Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines, and have a wonderful day.

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