First Watch Restaurant Group, Inc. Common Stock 2026 Q2 Earnings Call

Hello, everyone. I am joined by First Watch's Chief Executive Officer and President, Chris Tomasso, and Chief Financial Officer, Ashlee Weisser. This morning, First Watch issued its earnings release for the second quarter of fiscal year 2026 on GlobeNewswire and filed its quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com. This conference 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 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 risks factor disclosures in the company's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. First Watch assumes no obligation to update these forward-looking statements, whether 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 profits, 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 references to percentage growth when discussing the second quarter performance is a comparison to the second quarter of 2025, unless otherwise indicated.

The format for today's call will begin with Chris, our Chief Executive Officer, who will provide a review of our operational highlights from the second quarter, as well as an overall overview of the business. Ashlee, our Chief Financial Officer, will then discuss our financial results for the quarter and provide the outlook for the balance of 2026. Following these remarks, Chris and Ashlee will jointly provide an update on our long-term targets before we open the call for questions. And with that, I will turn the call over to Chris.

Thanks, Steve. Good morning, and thank you for joining our second quarter earnings call. Before I begin, I'd like to express our gratitude to our team of more than 18,000 employees for bringing our You First culture to each of our 665 restaurants across 33 states. We are pleased to report another strong quarter of growth for First Watch, led by a total revenue increase of 15.2%, supported by positive same-restaurant sales growth of 3.4% and the continued strong performance from our new restaurant openings. Our comparable restaurant traffic improved sequentially through the quarter, culminating with positive traffic for the month of June. For the quarter, same-restaurant traffic growth was essentially flat but represented a 160 basis point improvement versus the first quarter. We outperformed both the casual dining segment and the industry overall, according to Black Box. Benefits from our marketing investments were a significant contributor to our Q2 performance.

Since implementing an expanded marketing strategy early last year, brand awareness has been building and, we believe, contributing to our improved same-restaurant traffic trends and overall same-restaurant sales growth. Our marketing objectives are focused on driving at least one more visit from existing customers while also positioning First Watch squarely in the consideration set for new customers. That focus is showing up in customer behavior. In targeted acquisition campaigns run this year, 17% of new customers have already returned for a second visit, which is tracking higher than average. We are not just reaching new customers, we are bringing them back. To do that effectively, we are leaning into targeted data-informed marketing tactics that allow us to reach consumers where they are, speak to them with greater relevance, and evaluate the return on that spend with more precision than traditional broad-based marketing alone.

We have built a foundational capability that will continue to serve us well as we grow. A key aspect of our brand-building strategy is the expanded use of video, including YouTube and connected television. These channels enhance our ability to target specific demographic groups within markets, tailoring the message at a more localized level, and tracking response with better visibility down to the restaurant level. Utilizing this test, learn, and act model, we have richness of data to analyze, allowing us to evaluate the performance of each tactic. With this knowledge, we are able to shift dollars toward the channels, markets, and messages that are demonstrating the highest levels of performance. Finally, we are continuing to enhance our capabilities when using influencer and social media tactics, allowing us to showcase the brand in a more authentic and customer-centric way.

We view these efforts as important building blocks to create awareness, deepen engagement, and ultimately to convert that into restaurant traffic over time. First Watch continues to rank among the top tier of customer favorites, placing in the top decile for future purchase intent among well-recognized national and regional breakfast competitors. These results demonstrate that our marketing investments are not only increasing awareness of the First Watch brand but also strengthening occasion consideration and supporting conversion of potential customers into regular customers. We are encouraged by the performance, as indicated by unaided brand awareness increasing more than 50% and aided brand awareness increasing 15% since early last year. This remains a very large opportunity for First Watch, as overall awareness of our brand is relatively low from an industry standpoint. We will continue to monitor our suite of metrics, including ROI, to determine the effectiveness of our spend.

Our new core menu, launched in February 2026, is contributing to positive sales mix, validating the work we've done to evolve and optimize the menu. From improving navigation to enhancing offerings, we are giving our customers even more reasons to visit. The new menu delivers precisely the kind of meaningful contribution we anticipated. We find customers engage more broadly across our offerings, with increased participation in add-on items and a higher propensity to select more premium options throughout the meal occasion. As a result, we experienced positive menu mix with per person check average growth outpacing carried pricing in the second quarter as it did in the first quarter. Layered on top of a highly productive and optimized core menu is our seasonal menu strategy, which gives us a fresh platform multiple times per year.

This allows us to tell a highly relevant and engaging brand story by highlighting the flavors of the season and presenting compelling limited-time-only offerings that create menu news and excitement while driving mix. Culinary innovation remains a significant competitive advantage at First Watch. We believe this helps keep the brand fresh and relevant and differentiates us from others in our category. Our seasonal jumpstart menu, which ran from early January to late May, featured our best-selling LTO entree of all time, the Chimichurri Steak & Eggs Hash, and contributed to our positive mix of 50 basis points in the second quarter. We are now in the final weeks of our summer menu. Our data shows that the Chipotle Steak and Queso Hash will be our second best-selling LTO item of all time when this menu concludes in mid-August.

It also features our newest shareable, Honey Butter Biscuit Bites, which is trending to be our highest mixing shareable since Million Dollar Bacon. These are great examples of our culinary team's ability to create menu excitement that our customers love. It also provides compelling content for our marketing team to leverage across all channels. Looking ahead, if you follow our social channels, you'll see our customers are eagerly awaiting the return of our fall seasonal hit, Pumpkin Pancakes. Behind the scenes, innovation remains an important driver of growth and differentiation for First Watch. Our culinary operations and marketing teams collaborate to develop, test, and refine ideas that are both compelling for our customers and practical for our restaurants. We are particularly excited about a handful of innovative tests focused on higher capacity day parts currently in the works. I'd like to shift to new restaurant growth.

First Watch remains America's fastest growing full service restaurant brand. Our real estate pipeline is as robust as ever, with more than 100 projects in various stages of development. In the second quarter, we opened a total of 18 new system-wide restaurants across 15 states, reaching new, emerging, and core markets. We also continued to expand our geographic footprint during the quarter. We opened in Nashua, New Hampshire, which not only marks our initial entry into the Granite State, but also represents our third restaurant in the Boston DMA since we entered the market in January 2025. This restaurant has generated weekly sales volumes materially above our expectations since opening. First Watch's growth and infrastructure remain strong. I'm particularly pleased with the performance of our newest restaurants.

The sales volumes of our 2025 and 2026 restaurant classes continue to outperform both the comp restaurant base and, importantly, their underwriting targets. We have the people pipeline to support our real estate pipeline and the right formula to execute our strategy at the restaurant level to reach our total addressable market of more than 2,200 locations. We believe First Watch occupies a truly distinctive place in casual dining. We're the leader in daytime dining, a category that has disrupted a large segment within casual dining and is expected to continue to experience substantial growth according to Technomic Inc. Our unique position continues to strengthen as more customers discover the brand and we capture additional market share. Importantly, there is no other concept in daytime dining that brings together our level of national scale, innovation, operational consistency, proven unit growth capability, and meaningful long-term development opportunity.

Before I close, I'd like to again thank Mel Hope for his leadership as CFO over the past eight years. His contributions are too numerous to list, and we look forward to leveraging his experience as he continues to serve in an advisory role in the months ahead. I also welcome Ashlee to her first quarterly conference call as CFO. Since joining First Watch, Ashlee has made a tremendous impact throughout the entire organization through her disciplined financial leadership, sound strategic judgment, and clear focus on execution. We're delighted to have her lead our value creation strategy during our next phase of growth.