First Watch Restaurant Group, Inc.

First Watch Restaurant Group, Inc. operates in the intensely competitive and fragmented restaurant industry, specifically pioneering the "Daytime Dining" segment, serving made-to-order breakfast, brunch, and lunch. The company's business model is centered on operational excellence, a culinary mission focused on fresh, seasonal ingredients, and a "You First" culture that prioritizes employees and customers. As of December 28, 2025, First Watch had a total of 633 restaurants across 32 states, with 560 company-owned and 73 franchise-owned locations ¹. The company emphasizes its "No Night Shifts Ever" approach as a competitive advantage for attracting and retaining employees, and its restaurants generate an average unit volume (AUV) of $2.3 million per restaurant in 2025 ² operating only 7.5 hours per day. The company views its primary competition as a network of independent restaurants serving breakfast and lunch across the United States, rather than a comparable offering operating at its scale within its segment.

The core business model revolves around generating revenue from company-owned restaurant sales and franchise revenues. Restaurant sales are derived from in-restaurant dining, third-party delivery, and take-out. Franchise revenues consist of sales-based royalty fees, system fund contributions, and the amortization of upfront initial franchise fees. The company's "Follow the Sun" culinary philosophy drives its menu, which changes four to five times per year, featuring seasonal items alongside chef-driven classics. Technology is also a key component, with platforms for direct takeout ordering, third-party delivery integrations, and a redeveloped app offering features like auto check-in from waitlists, nutrition filters, and mobile wallets. Off-premises sales accounted for 19.0% of total restaurant sales in 2025, up from 17.5% in 2024 ³.

For the fiscal year ended December 28, 2025, total revenues increased by 20.3% to $1.222 billion ⁴ from $1.016 billion in 2024 ⁵. Restaurant sales, the primary revenue driver, grew by 20.7% to $1.212 billion ⁶ from $1.004 billion in 2024 ⁷. Franchise revenues, however, decreased by 10.6% to $10.3 million ⁸ from $11.6 million in 2024 ⁹. Gross profit, calculated as total revenues less food and beverage costs, was $942.4 million ¹⁰ in 2025, resulting in a gross margin of 77.1% ¹¹. Operating income decreased by 29.3% to $27.5 million ¹² from $38.9 million in 2024 ¹³, with the operating margin declining to 2.3% ¹⁴ from 3.9% ¹⁵. Net income increased by 2.7% to $19.4 million ¹⁶ from $18.9 million in 2024 ¹⁷, yielding a net income margin of 1.6% ¹⁸. Diluted EPS for 2025 was $0.31 ¹⁹, compared to $0.30 in 2024 ²⁰. Adjusted EBITDA increased by 6.2% to $120.9 million ²¹ from $113.8 million in 2024 ²², though the Adjusted EBITDA margin decreased to 9.9% ²³ from 11.2% ²⁴. Cash and cash equivalents stood at $21.2 million ²⁵ as of December 28, 2025, while total long-term debt, net, was $269.1 million ²⁶.

Comparing 2025 to 2024, total revenues increased by 20.3% ⁴. Restaurant sales saw an 20.7% increase ⁶, driven by new restaurant openings, acquisitions, and a positive same-restaurant sales growth of 3.6% ²⁷ and same-restaurant traffic growth of 0.5% ²⁸. In-restaurant dining sales increased by 18.5% to $982.3 million ²⁹, third-party delivery sales surged by 46.0% to $142.3 million ³⁰, and take-out sales grew by 12.5% to $87.6 million ³¹. Conversely, franchise revenues decreased by 10.6% ⁸, primarily due to the acquisition of 19 franchise-owned restaurants in 2025 ³² and 22 in 2024 ³³, partially offset by new franchise openings. Food and beverage costs as a percentage of restaurant sales increased to 23.1% ³⁴ from 22.2% ³⁵, mainly due to 5.0% commodity inflation ³⁶ and increased portion sizes, partially offset by menu price increases. Labor and other related expenses as a percentage of restaurant sales slightly increased to 33.5% ³⁷ from 33.4% ³⁸, driven by wage increases and higher health insurance costs, largely offset by menu price increases and improved hourly labor efficiency. Operating income margin decreased by 1.6 percentage points to 2.3% ¹⁴, and Restaurant level operating profit margin decreased to 18.5% ³⁹ from 20.1% ⁴⁰.

During 2025, First Watch opened 64 new system-wide restaurants across 23 states ⁴¹, comprising 55 company-owned and 9 franchise-owned locations ⁴². The company also acquired 19 operating restaurants from its franchisees ³². Three company-owned restaurants were closed in 2025 ⁴³. The company completed the roll-out of pay-at-the-table technology at all company-owned restaurants in February 2024 and relaunched its customer-facing technology platforms in 2025, including a new ordering system, waitlist experience, and a redeveloped app ⁴⁴. These innovations are aimed at enhancing accessibility, removing bottlenecks, and providing a better customer experience. The company also increased investment in targeted digital marketing channels in 2025 to accelerate brand awareness and grow penetration with Millennial and Gen Z segments ⁴⁵.

First Watch expects annual same-restaurant sales growth in 2026 to be between 1% and 3% ⁴⁶. Commodity prices are anticipated to increase approximately 1% to 3% in 2026 compared to the prior year, primarily driven by coffee costs ⁴⁷. Labor inflation at the restaurant level is projected to be between 3% and 5% in 2026 ⁴⁸.

The company's primary growth area is new restaurant openings, with a belief in the potential for more than 2,200 restaurants in the continental United States ⁴⁹. For 2026, First Watch intends to open between 59 to 63 net new system-wide restaurants ⁵⁰, specifically targeting 53 to 55 new company-owned restaurants and 9 to 11 new franchise-owned restaurants ⁵¹. Three company-owned restaurants are also planned for closure in 2026 ⁵². This growth strategy is supported by a disciplined approach to real estate selection, focusing on market characteristics, demographics, traffic patterns, co-tenants, and growth potential, which has historically resulted in new restaurants achieving consistent and strong average unit volumes across geographies ⁵³. The company also has over 100 managers staffed at year-end, ready to lead and operate future new company-owned restaurants ⁵⁴.

Another key growth area is the acquisition of franchise-owned restaurants. This strategy is considered a long-term growth driver, providing substantial opportunity to realize new company value through direct operation and development in reacquired territories ⁵⁵. As of December 28, 2025, 12 franchise-owned restaurants were subject to the company's option to purchase ⁵⁶.

Operationally, the company aims to drive restaurant traffic and build sales through an excellent on-premise dining experience, continued menu innovation, and increased brand awareness. The company plans to relaunch both a new seasonal and core menu in early 2026, based on feedback from employees and customers ⁵⁷. Investments in digital marketing channels, such as paid social media, connected TV, paid search, programmatic digital, and digital out-of-home, will continue to be deployed to reach attractive customer segments and build top-of-mind awareness ⁵⁸. The company's customer technology platforms, including a new ordering system, waitlist experience, and redeveloped app, are viewed as critical for maintaining relevancy across generations and evolving with societal trends ⁵⁹.

Planned capital allocation for 2026 includes estimated capital expenditures totaling approximately $150.0 million to $160.0 million ⁶⁰. These expenditures are primarily allocated to new restaurant projects and planned remodels ⁶¹. The company intends to fund these capital expenditures primarily with cash generated from operating activities and borrowings under its Credit Agreement ⁶². The company does not anticipate paying any cash dividends on its common stock in the foreseeable future, as it intends to invest cash generated by operations in the growth of its business ⁶³.

First Watch faces several material risks, including vulnerability to changes in consumer preferences and economic conditions such as inflation and recession, which can reduce consumer traffic or limit pricing flexibility. The company's inability to successfully open new restaurants or establish new markets, or if new restaurants perform below expectations, could materially affect results. Geographic concentration of system-wide restaurants in the southeast portion of the United States, with approximately 41% ⁶⁴ as of December 28, 2025, makes the company disproportionately susceptible to adverse conditions in that region. Food safety and food-borne illness concerns, even if unwarranted or occurring at competitors, could decrease sales and increase costs, particularly given the company's greater use of fresh, unprocessed produce and meats. The company relies on a limited number of suppliers for key ingredients, including substantially all pork from two suppliers, substantially all eggs from one supplier, and all coffee from one supplier ⁶⁵, making it vulnerable to supply shortages or cost increases. Information technology system failures or breaches of network security, including those involving third-party providers, could interrupt operations, cause reputational harm, and lead to litigation or regulatory actions. Compliance with evolving federal and state laws and regulations relating to privacy, data protection, advertising, and consumer protection, such as the CCPA and similar state laws, could incur additional costs and expose the company to penalties. Labor shortages, increased labor costs (including minimum wage increases and healthcare costs), and potential unionization activities could significantly increase operating expenses. The company's level of indebtedness, with $267.6 million ⁶⁶ in outstanding term loans as of December 28, 2025, could limit its ability to borrow additional funds or dedicate cash flow to growth, and failure to comply with credit facility covenants could result in default.

Management's message emphasizes a continued focus on growth and operational excellence, despite facing inflationary pressures. The company successfully executed its growth strategy in 2025 with 55 new restaurant openings and the acquisition of 19 operating restaurants from franchisees ³². For 2026, management explicitly guides for annual same-restaurant sales growth between 1% and 3% ⁴⁶, anticipates commodity price increases of approximately 1% to 3% ⁴⁷, primarily due to coffee, and expects labor inflation of 3% to 5% ⁴⁸. Strategic priorities include aggressive new restaurant development, with plans to open 59 to 63 net new system-wide restaurants in 2026 ⁵⁰, continued investment in technology to enhance customer experience and operational efficiency, and ongoing menu innovation rooted in customer and employee feedback. Management also highlights its "You First" culture and "No Night Shifts Ever" model as key to attracting and retaining talent, contributing to turnover rates below the industry average.