First Watch (FWRG) Sets Unit Growth at 50 Openings a Year

First Watch Restaurant Group (FWRG) told investors on its FY2026 second-quarter earnings call, held on 2026-08-04, that it is replacing the low-double-digit percentage unit growth target it has used since its 2021 IPO with a flat 50 company-owned openings a year beginning in 2027. Management's stated reason is that holding the percentage target had begun to require drawing on the company's credit facility to pay for part of its capital expenditures [1]. This is the only company on the record with this disclosure.

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A percentage target applied to a restaurant base that keeps compounding

First Watch is a US all-day breakfast and brunch chain, and almost all of its restaurants are company-owned: First Watch pays to find the site, build the restaurant and operate it, with no franchisee capital involved. Every new company-owned restaurant therefore starts with a build cost, and that money comes either from cash the existing restaurants generate or from borrowing.

The old rule set annual openings at a low-double-digit percentage of the existing restaurant count. That rule has acceleration built into it. As the base grows each year, the same percentage translates into more openings and more absolute capital spending. Operating cash flow grows from same-restaurant sales and from new restaurants ramping, which is a slower curve. Once the two lines cross, the difference has to be funded on the revolving credit facility, a bank line the company can draw and repay repeatedly.

What changed is the variable that sets the opening count. Openings are no longer derived from a percentage; the company first asks how much its operating cash flow can self-fund, then writes the answer down as a fixed absolute number. Any chain that is mostly company-owned and expresses its growth target as a percentage runs into the same arithmetic.

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Capex up about 85% in two years, operating cash flow up 32%

The financial statements show how the two lines crossed. In FY2023, operating cash flow was $95.3 million against capital expenditures of $84.7 million, leaving free cash flow of positive $10.65 million. In FY2024, operating cash flow was $115.7 million and capex had risen to $127.9 million, turning free cash flow to negative $12.28 million. In FY2025, operating cash flow reached $125.9 million while capex reached $156.9 million, widening the deficit to negative $30.99 million [2]. Over those two years capex grew about 85% and operating cash flow grew about 32%.

The gap settled on the balance sheet. Total debt including lease obligations went from $607.0 million in FY2023 to $1.009 billion in FY2025 and $1.031 billion at the end of March 2026, while cash on hand fell from $49.6 million to $21.2 million, standing at $23.6 million at the end of March 2026 [3]. On the August call, the chief executive tied the opening target directly to that borrowing [1].

The revised targets carry their own numbers: roughly 55 system-wide openings a year with about 50 of them company-owned, same-restaurant sales growth of 2% to 4%, and positive free cash flow beginning in 2027 and increasing each year after that [1].

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The constraint on growth moves from the development pipeline to the balance sheet

Fixing openings at an absolute number caps capital spending in dollars while the restaurant base keeps compounding, which gives operating cash flow room to move back above capex. The old revenue and adjusted EBITDA targets were both mid-teens percentage growth. Revenue growth is now targeted at 10% to 13% and adjusted EBITDA growth at 11% to 14%, the higher of the two; management's explanation is that the development, training and new-restaurant-opening resources a faster opening pace would have required will now scale more slowly, moderating G&A [1].

This is one company's balance-sheet decision, and the evidence does not support reading it as an industry shift. Over the same season CAVA raised its full-year net new restaurant guidance to 75 to 77 openings [4], and Wingstop kept its global unit growth target at 15% to 16% [5]. Three months earlier, on the FY2026 first-quarter call, the then-CFO was still arguing that the right move was to keep building the company's cash-generating engine, and that a change in strategy would owe the market a full explanation [6].

Three things can be checked from here: whether free cash flow actually turns positive in 2027, whether absolute capex settles near its 2026 level, and where the surplus cash goes. Management has named debt paydown, further investment in the business and share repurchases as items under consideration, but has deferred the decision to a 2027 discussion with the board [1].

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Companies exposed to the same mechanism

• CAVA Group (CAVA): A US Mediterranean fast-casual chain that is also predominantly company-owned and funds its own builds, with a long-term opening target likewise expressed as a percentage, so the same compounding capex curve applies to it; it raised its opening guidance this quarter and has made no disclosure about a funding constraint.
• Wingstop (WING): A US chicken-wing chain whose restaurants are overwhelmingly opened with franchisee capital, so its own capital spending does not rise in proportion to openings and this constraint binds it far less; read alongside First Watch, it shows what the company-owned versus franchised split means for where opening capital comes from.

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Sources

[1] Drillr · First Watch Restaurant Group (FWRG) · 2026-08-04 · FY2026 Q2 earnings call

In recent years, however, maintaining these long-term unit growth targets has required us to access our credit facility in order to fund a portion of our capital expenditures.

[2] Drillr · First Watch Restaurant Group (FWRG) · 2026-08-04 · annual cash flow data, FY2023 to FY2025

[3] Drillr · First Watch Restaurant Group (FWRG) · 2026-05-05 · balance sheet data, FY2023 to March 2026

[4] Drillr · CAVA Group (CAVA) · 2026-05-19 · FY2026 Q1 earnings call guidance

[5] Drillr · Wingstop (WING) · 2026-07-29 · FY2026 Q2 earnings call guidance

[6] Drillr · First Watch Restaurant Group (FWRG) · 2026-05-05 · FY2026 Q1 earnings call

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