First Watch (FWRG) Q2 Sales Rise 19%

First Watch Restaurant Group (FWRG 5.49%), a daytime dining chain known for its breakfast, brunch, and lunch offerings, released its financial results on August 5, 2025, for the second quarter of fiscal 2025 (ended June 29, 2025). The company reported revenue of $307.9 million, narrowly beating analyst expectations of $306.6 million. Its diluted earnings per share (EPS) came in at $0.03, missing the $0.05 analyst estimate and declining sharply from $0.14 per diluted share in the prior year period. While sales growth remained strong, profitability lagged behind both last year’s results and market forecasts, leading to a mixed quarter overall for the growing restaurant group.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Company overview and focus areas

First Watch Restaurant Group operates a chain of sit-down restaurants specializing in breakfast, brunch, and lunch, with a unique emphasis on fresh, made-to-order dishes. The brand avoids microwaves, heat lamps, and deep fryers, focusing instead on chef-driven recipes and seasonal menus that rotate five times a year. With 600 system-wide restaurants across 31 states, First Watch aims to stand out through quality, innovation, and a strong daytime-dining niche.

The company has centered its strategy around aggressive growth through new restaurant openings and franchise acquisitions. First Watch also highlights its “Follow the Sun” menu philosophy, investment in digital ordering and marketing, and a company culture called “You First” that emphasizes employee retention and guest satisfaction. Key factors for ongoing success include maintaining high food and service standards, leveraging technology, and expanding the store base in both new and existing markets.

Quarter in review: Sales growth, margin pressures, and development

The quarter saw continued robust sales momentum, as total revenues increased 19.1% to $307.9 million. Revenue grew 19.1% compared to the same period in 2024, driven by system-wide sales growth of 15.8% and same-restaurant sales growth of 3.5%. Customer traffic also improved, marking a 2.0% rise in same-restaurant guest count. Notably, First Watch opened 17 new system-wide restaurants during the quarter, achieving the milestone of 600 total locations.

This consistent expansion strategy aligns with management’s long-range outlook of ultimately reaching more than 2,200 restaurants in the continental U.S. New locations are “consistent and a strong average unit volume,” a factor management cites as proof that the brand’s value proposition and operations can successfully adapt to new geographies. Acquisitions also continued, with only eight franchise stores now remaining under company purchase rights.

Despite these positives, cost inflation was a major theme. Income from operations margin fell to 2.4% from 6.4% in the same period of 2024, while net income dropped 76% to $2.1 million compared to the same period in 2024. Restaurant-level operating profit margin, which reflects individual store profitability, declined from 21.9% in the prior year period to 18.6%. Management attributed much of the margin pressure to high prices for commodity ingredients such as eggs, bacon, coffee, and avocados, as well as increased labor and health benefit expenses.

Strategic company initiatives, like increasing the portion size of the “Trifecta” breakfast meal without a corresponding price hike, and investment in “Surprise and Delight” loyalty programs, contributed to higher food costs per meal. These moves aim to boost customer loyalty and frequency, but their near-term effect has been additional compression on profit margins. Marketing investments and new digital engagement strategies produced positive results in targeted geographies, while Florida “outperformed the rest of the country,” according to management commentary during the first quarter fiscal 2025 earnings call.

First Watch continues to invest heavily in its organizational culture, maintaining historically low field-level employee turnover. This focus on staff engagement supports the brand’s consistency and service quality as it grows. Technology also plays a key role: digital ordering, app-based waitlists, and pay-at-the-table systems help manage restaurant throughput and customer satisfaction, even as volumes and store counts rise.

The margin contraction, while described by management as “transitory,” marks a sharp disconnect between topline growth and profitability. The gap between strong sales and compressed earnings reflects the challenge of driving both value and cost control in an inflationary input environment.

Looking forward: Guidance and what to watch

Looking ahead, management raised its guidance for full-year adjusted EBITDA to $119–123 million for fiscal 2025, up from $114–119 million after the first quarter. Revenue growth for fiscal 2025 is still expected to reach about 20%, with net new system-wide restaurant openings estimated at 59–64 locations. Management stated, “we anticipate stronger profitability in the second half of the year and have raised our annual outlook for adjusted EBITDA accordingly,” signaling that cost pressures could soon ease.

No specific EPS guidance was provided for the rest of the year, but leadership reiterated the plan for same-restaurant sales growth in the low single digits, driven by flat-to-slightly positive customer traffic. Management expects cost inflation, particularly in major commodities, to peak in the second quarter and moderate into the back half of the year. Florida remains a standout geography, and restaurant-level performance in new markets continues to meet or exceed internal expectations.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.