Q2 2026 First Watch Restaurant Group Inc Earnings Call Transcript
Key Points
- Total revenue increased 15.2% in Q2 2026, driven by positive same-restaurant sales growth of 3.4% and strong new restaurant performance.
- Same-restaurant traffic improved sequentially through the quarter, turning positive in June, and outperformed the casual dining segment and industry overall.
- Marketing investments are driving brand awareness, with unaided awareness up over 50% and aided awareness up 15% since early last year, and 17% of new customers are returning for a second visit.
- The new core menu and seasonal LTOs (e.g., Chimichurri Steak & Egg Hash, Chipotle Steak and Queso Hash) are driving positive sales mix and higher check averages, with per-person check growth outpacing pricing.
- New restaurant openings are performing well, with 2025 and 2026 classes exceeding sales volumes and underwriting targets, and the company is on track to open 60-62 net new restaurants in 2026.
- Restaurant-level operating profit margin improved 20 basis points to 18.8%, driven by labor efficiencies and sales leverage.
- Commodity deflation of 1.6% in Q2, driven by eggs, avocados, and bacon, helped offset some cost pressures.
- The company is revising long-term targets to generate positive free cash flow starting in 2027, with a more balanced growth strategy.
- Adjusted EBITDA grew 13.5% to $34.5 million in Q2, and the company raised its full-year same-restaurant sales growth guidance to 1.5%-3.0%.
- The company is expanding its geographic footprint, with successful entries into new markets like New Hampshire, and has a robust pipeline of over 100 projects.
- Same-restaurant traffic was slightly negative at -0.4% in Q2, impacted by planned sales transfer from new restaurant openings.
- Stronger-than-anticipated demand for premium beef-based menu items increased COGS by nearly 100 basis points year-over-year, pressuring margins.
- Full-year Adjusted EBITDA guidance was lowered to $133-$136 million due to the higher cost of beef offerings, despite strong demand.
- Commodity inflation is expected to return in the second half of 2026, with full-year inflation now projected at flat to up 1.5%.
- Labor costs remain elevated with 4.1% wage inflation in Q2, partially offsetting operational efficiencies.
- G&A expenses increased due to higher marketing spend and headcount to support growth, impacting overall profitability.
- The company faces a challenging Q3 comparison, with same-restaurant sales growth expected to be at or below the low end of the annual range.
- The company is reducing its long-term unit growth target to 50 company-owned openings annually, which may slow revenue growth momentum.
- Capital expenditures are expected to be lower at $145-$150 million, reflecting timing delays in development spend.
- The company's marketing spend is increasing to about 2% of revenue, up 40 basis points, which could pressure near-term margins.
Welcome to First Watch Restaurant Group, Inc.'s second quarter earnings conference call occurring today on August 4, 2026, at 8:00 AM Eastern Time. (Operator Instructions) 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 call over to Stephen Marotta.
Hello everyone. I am joined by First Watch's Chief Executive Officer and Presiden, 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.
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