Breakfast restaurant chain First Watch Restaurant Group (NASDAQ: FWRG) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 19.1% year on year to $307.9 million. Its non-GAAP profit of $0.05 per share was $0.01 below analysts’ consensus estimates.

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StockStory’s Take

First Watch’s second quarter results were met with a positive market reaction, as management attributed performance to robust new restaurant openings, successful franchise acquisitions, and sequential improvement in same-restaurant traffic. CEO Chris Tomasso highlighted that the company’s strategic focus on pricing discipline and customer experience, including enhanced marketing efforts and menu innovation, helped drive 2% traffic growth and broadened the brand’s demographic appeal. Notably, First Watch achieved its busiest day ever on Mother’s Day, reflecting increased customer demand and operational execution.

Looking forward, First Watch’s guidance is underpinned by expectations for continued unit growth, moderated commodity inflation, and targeted investments in digital and marketing initiatives. CFO Mel Hope emphasized that relief from egg cost inflation is a key factor supporting improved full-year EBITDA guidance, while new digital waitlist and ordering tools are set to further enhance the guest experience. Management remains focused on maintaining pricing discipline and maximizing returns from both new restaurants and acquired franchise locations, with Tomasso stating, “We are right where we need to be as it relates to hitting our near and midterm unit growth targets.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to a combination of new restaurant development, franchise integration, and stronger marketing execution targeting younger demographics.

• New restaurant momentum: The company opened 17 new system-wide restaurants across 8 states, with recent classes tracking above internal return targets. This expansion is integral to First Watch’s strategy, as over 40% of recent openings leveraged second-generation restaurant sites, allowing for faster and more cost-effective scale-up without sacrificing quality.
• Franchise acquisitions drive scale: The successful acquisition and integration of 19 franchise restaurants in key states contributed incremental revenue and profit, demonstrating the company’s ability to expand its footprint through both organic and inorganic growth.
• Marketing and digital engagement: Enhanced marketing campaigns and a focus on digital channels were cited as key drivers in attracting a younger, more diverse customer base, particularly among Gen Z and millennials. Social media presence and targeted promotions have broadened appeal beyond First Watch’s traditional demographic.
• Third-party delivery optimization: Management reported material growth in third-party delivery traffic following program improvements, including reduced surcharges and better operational execution. These changes are viewed as additive rather than cannibalizing in-restaurant visits.
• Commodity and labor pressures: Elevated costs for core ingredients, such as eggs, bacon, and avocados, as well as higher labor and benefit expenses, weighed on margins. However, proactive commodity management and stable pricing philosophy helped partially offset these pressures.

Drivers of Future Performance

First Watch’s outlook is shaped by ongoing unit growth, easing commodity inflation, and strategic investments in digital and marketing initiatives.

• Sustained unit expansion: Management expects to open 62 to 67 new locations in 2025, with a significant portion utilizing second-generation sites. This approach supports accelerated growth and capital efficiency, while maintaining performance standards for average unit volumes and returns.
• Commodity cost relief: A reduction in egg price inflation is projected to ease cost pressures in the second half of the year, supporting improved margin expectations. Management continues to forecast commodity inflation in the 5% to 7% range, down from high single digits previously.
• Digital and marketing focus: The upcoming relaunch of customer-facing digital properties—including a new waitlist system and streamlined ordering—aims to enhance the guest experience and drive traffic. Marketing efforts will continue to target both existing and new customer segments, with particular emphasis on younger demographics and category users.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will watch (1) the pace and success of new restaurant openings, particularly the performance of second-generation sites; (2) the impact of digital enhancements on guest traffic and satisfaction; and (3) the ability to sustain margin improvement as commodity costs stabilize. Execution against these priorities, along with ongoing marketing traction among younger consumers, will be critical signposts for continued growth.

First Watch currently trades at $18.08, up from $17.23 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).

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