First Watch’s first quarter was marked by steady revenue expansion but fell short of market expectations for profitability, prompting a negative share price reaction. Management pointed to persistent inflation in key commodities like eggs, bacon, coffee, and avocados, alongside higher healthcare and labor expenses, as primary drivers of margin compression. CEO Chris Tomasso acknowledged that “four of our top five commodities [are] under pressure at one time,” describing the environment as unprecedented in his tenure. The company also discussed the impact of new marketing efforts, third-party delivery partnerships, and surprise-and-delight customer initiatives, which have contributed to improved traffic trends but at the expense of profitability.

Is now the time to buy FWRG? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions First Watch’s Q1 Earnings Call

• Andrew Charles (TD Cowen) asked how the company balances driving traffic via third-party delivery and in-restaurant initiatives with the resulting lower margins. CEO Chris Tomasso replied that early results are “encouraging,” and the priority is on growing the top line, with confidence that cost pressures are not permanent.
• Jim Salera (Stephens Inc.) questioned the effectiveness and scalability of new marketing campaigns. Tomasso and CFO Mel Hope noted early traffic improvements and described the approach as iterative, with learnings from market responses guiding further investments.
• Jeffrey Bernstein (Barclays) pressed for the main drivers behind the lowered EBITDA guidance despite stable top-line expectations. Hope highlighted more persistent cost inflation and new tariffs as key reasons for the adjustment.
• Sara Senatore (Bank of America) inquired about planned restaurant closures and the margin impact of the surprise-and-delight initiative. Hope explained closures are typical lease expirations and Tomasso clarified that while the program raised costs, it is viewed as a long-term investment in loyalty.
• Gregory Francfort (Guggenheim Securities) sought clarity on long-term margin targets and third-party delivery consumer trends. Hope reaffirmed an 18–20% restaurant-level margin target and Tomasso said the DoorDash partnership is yielding benefits in a less crowded daypart without significant discounting.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will monitor (1) the persistence of positive traffic trends and customer engagement following new marketing and loyalty initiatives, (2) the trajectory of commodity and labor cost inflation, particularly for eggs, bacon, coffee, and avocados, and (3) execution on the planned pace of new unit openings in both established and new markets. The progress of recently acquired franchise locations and adjustments to menu pricing relative to industry peers will also be important factors.

First Watch currently trades at $16.91, down from $18.59 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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