First Watch Restaurant Group, Inc. (FWRG) Earnings

Management highlights

Good morning, everyone. Thank you for joining us to discuss our first quarter results as well as our plans for the balance of 2026. We're pleased with our first quarter performance as several of our key growth initiatives supported solid financial results. We delivered same restaurant sales growth of 2.8%, generated the restaurant level operating profit margin of 18.5%, and expanded the system to 648 restaurants with the opening of 16 new locations. Early last year, we began investing in digital marketing programs and accelerated that effort in Q1 2026. We expanded the rollout of our digital marketing campaign to approximately 75% of our restaurant base, up from roughly one-third in 2025. We're also pleased with the performance of our new core menu. We rolled out the new core menu system-wide by late February. Early reads have been positive across a host of KPIs. We also made a tactical decision to extend the duration of our jumpstart seasonal menu from the traditional 10 weeks to 20 weeks. Successful innovations in our restaurants, like those I've been sharing on this call, illustrate the power of the entrepreneurial first watch culture. Shifting the spotlight to development and growth. We remain the fastest growing full-service restaurant brand in the United States, and the success of our recent classes reflects the benefits of following our disciplined real estate site selection criteria and our broad appeal.

Guidance

We are reiterating the 1% to 3% range of same restaurant sales growth, and we continue to expect positive same restaurant sales growth in each quarter of 2026. Our guidance includes carry pricing of around 4% in the first half of the year, which blends to 2% for the full year. We continue to expect total revenue growth of 12 to 14 percent with around 100 net basis points of impact from acquisitions. We are reaffirming a total of 59 to 63 net new system-wide restaurants, which will result from 53 to 55 company-owned restaurants and 9 to 11 franchise-owned restaurants. We also plan to close three company-owned restaurants this year. We're raising the lower end of our 2026 adjusted EBITDA guidance. Our new range is 133 million to 140 million, up from 132 million to 140 million previously. We continue to expect four-year commodity inflation of 1% to 3%. Restaurant-level labor cost inflation is expected to be in the range of 3% to 5%. We continue to expect capital expenditures of 150 to 160 million.

Segment performance

Total first quarter revenues were $331 million, an increase of 17.3% with positive same restaurant sales growth of 2.8%. Same restaurant traffic growth was negative 2%, with weather negatively affecting the quarter by around 100 basis points in addition to customary plan sales transfer. Food and beverage expense was 22.6% of sales compared to 23.8%. Labor and other related expenses were 33.7 percent of sales in the first quarter, a 90 basis point improvement from 34.6 percent in Q1 2025. Realized restaurant-level operating profit margin of 18.5% in Q1 2026. Adjusted EBITDA increased 22.2% to $27.8 million, with adjusted EBITDA margin of 8.4%. Opened 16 new system-wide restaurants during Q1, ending with 648 restaurants across 32 states.

Risks & headwinds

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 condition of the company's industry and its operations, performance and financial conditions, 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-K and quarterly reports on Form 10-Q.

Analyst Q&A

• Q: Jim Solera with Stevens, Inc. asked about outperformance relative to broader breakfast category and potential impacts on pricing due to energy costs increase.

  A: Chris Tommaso said it comes down to experience, execution, and value; they consider pricing pressures on customers.

• Q: Jeffrey Bernstein with Barclays asked about comp trend and sequential trends related to gas price spike.

  A: Chris Tommaso said traffic pressure was more impacted by weather than gas prices; they're pleased with consumer interaction despite macro.

• Q: Brian Vaccaro with Raymond James asked about first watch value proposition, menu pricing, commodity inflation, G&A.

  A: Chris Tommaso talked about evaluating mid-year price increase; Mel Hope discussed commodity inflation and G&A not being guided to.

• Q: Andrew Charles with TD Callen asked about mix driven by new menu and class of 2026 performance.

  A: Chris Tommaso said mix is driven by new menu and seasonal menu; class of 2026 is performing better.

• Q: Sarah Senator with Bank of America asked about marketing pull forward, G&A expectations.

  A: Chris Tommaso and Mel Hope discussed marketing pull forward and G&A not being guided.

• Q: Brian Mullen with Piper Sandler asked about marketing benefits over time and delivery channel growth.

  A: Chris Tommaso said marketing benefits are sustained; delivery channel growth is in base now.

• Q: John Tower with Citi asked about development commitment and customer base complexion.

  A: Chris Tommaso talked about development outlook and customer base mix change.

• Q: Todd Brooks with Benchmark Stone X asked about Q1 performance and opening cadence.

  A: Chris Tommaso and Mel Hope discussed Q1 performance and opening cadence.

• Q: Gregory Frankfurt with Guggenheim Partners asked about labor growth and stock buyback.

  A: Chris Tommaso and Mel Hope talked about labor and capital allocation.

• Q: Chris O'Cole with Stifel asked about eliminating COO position and operations opportunities.

  A: Chris Tommaso explained the elimination of COO position and operations opportunities.