Tuesday, Nov.
3, 2026 CALL PARTICIPANTS Vice President of Investor Relations - Steven MarottaChief Executive Officer and President - Christopher TomassoChief Financial Officer - Ashlee Weisser Total Revenues -- $349.9 million, representing a 10.7% increase compared to $316.0 million in the prior year.Same-Restaurant Sales -- 1.0% growth, aligning with management expectations despite facing a significant 7.1% comparison from the prior year.Same-Restaurant Traffic -- 1.9% decline, reflecting planned strategic sales transfer as the brand broadens its reach in existing markets.Net Income -- $4.8 million, or $0.08 per diluted share, increasing from $3.0 million, or $0.05 per diluted share, in the third quarter of 2025.Adjusted EBITDA -- $39.7 million, a 17% increase reflecting disciplined expense management and restaurant-level efficiencies.Adjusted EBITDA Margin -- 11.4%, improving from 10.8% in the third quarter of 2025.Restaurant-Level Operating Profit Margin -- 19.4%, a 30-basis-point decrease from 19.7% due to higher food costs and controllable expenses.G&A Expenses -- 10.1% of total revenue, a 60-basis-point leverage improvement from 10.7% driven by scaling existing headcount.Wage Inflation -- 4.1%, occurring alongside efforts to improve labor efficiency through management staffing alignment.Commodity Deflation -- 40 basis points, primarily driven by lower prices for bacon and avocados.Pricing Contribution -- 3.6% carried pricing, which is expected to step down to approximately 2.9% in the fourth quarter.New Restaurant Openings -- 16 system-wide restaurants across 11 states, bringing the year-to-date total to 53 openings.Full Year 2026 Same-Restaurant Sales Guidance -- Approximately 2.0%, updated from the previous range of 1.5% to 3.0%.Full Year 2026 Total Revenue Guidance -- Approximately 13.5%, updated from the previous range of 12.5% to 14.0%.Full Year 2026 Adjusted EBITDA Guidance -- Approximately $136.0 million, targeting the high end of the previous $133.0 million to $136.0 million range.Full Year 2026 Capital Expenditures Guidance -- Approximately $145.0 million, compared to the prior range of $145.0 million to $150.0 million.2027 Development Outlook -- Approximately 55 system-wide restaurants, as management moves toward a more flexible annual opening target beyond 2027.Long-term Adjusted EBITDA Target -- Greater than 15% annual growth through 2028, raised from the prior range of 11% to 14%.Food and Beverage Costs -- 22.3% of sales, representing a 10-basis-point increase reflecting higher turkey sausage prices and the steak limited-time offering.Labor and Other Related Expenses -- 32.6% of sales, remaining unchanged year over year.System-wide Sales -- $391.2 million, increasing 10.9% from $352.7 million in the third quarter of 2025.Total Restaurant Count -- 681 system-wide locations, consisting of 601 company-owned and 80 franchise-owned restaurants across 33 states.
Need a quote from a Motley Fool analyst? Email [email protected] Weisser stated, "the potential effects of rising rates, together with our floating rate borrowing exposure, reinforce the value of preserving optionality as it relates to our pace of development," indicating potential headwinds for capital costs.Weisser noted that "the past couple of Q4s have been a little unpredictable," leading the company to project a step down in fourth-quarter performance trends.
First Watch Restaurant Group, Inc.
(FWRG +6.18%) reported third-quarter revenue growth of 10.7% and updated its full-year 2026 guidance, targeting the high end of its previous adjusted EBITDA range.
Management reported a strategic shift toward a more flexible development pace beyond 2027 to optimize capital returns and accelerate free cash flow generation in a changing interest rate environment.
The company continues to widen its lead in the daytime dining segment, with recent restaurant classes outperforming financial underwriting targets across an increasingly diverse geographic footprint.
Strategic initiatives for the remainder of the year focus on broadening consumer awareness through digital pilots and television media testing while maintaining disciplined restaurant-level margins and corporate efficiency.
Tomasso stated, "we view this relationship as a progressive way to enhance our ability to reach new audiences," regarding a fourth-quarter pilot with TikTok GO aimed at local discovery.The company expanded its linear television advertising pilot to a second market after initial results showed it to be an efficient complement to targeted digital investments for building brand awareness.Management reported that contraction among competitors in the daytime dining segment has allowed the brand to secure premier real estate sites while maintaining its aggressive growth lead.The updated long-term algorithm raises the adjusted EBITDA growth target to over 15% through 2028 by leveraging existing G&A and improving the maturity ramp for new restaurants.Management reported that same-restaurant sales remained in line with expectations despite the quarter representing the toughest year-over-year sales comparison of the fiscal year.
INDUSTRY GLOSSARY Adjusted EBITDA: A non-GAAP measure representing net income before interest, taxes, depreciation, and amortization, adjusted for nonrecurring or non-core items.CPM: Cost Per Mille, a marketing metric representing the cost an advertiser pays for every 1,000 impressions of an advertisement.LTO: Limited Time Offering, a seasonal or temporary menu item used to drive traffic and engagement.Sales Transfer: The planned redirection of customer traffic from an existing restaurant to a newly opened location nearby, also known as cannibalization.Same-Restaurant Sales: The percentage change in year-over-year revenue for restaurants open for 18 months or longer as of the beginning of the fiscal year.System-wide Sales: The total restaurant sales from both company-owned and franchise-owned locations.TikTok GO: A digital service pilot aimed at encouraging local discovery and driving offline traffic to physical restaurant locations.
Full Conference Call Transcript Operator: Thank you for standing by, and welcome to the First Watch Restaurant Group, Inc.
Third Quarter Earnings Conference Call occurring today, November 3, 2026, at 8:00 a.m.
Eastern Time.
[Operator Instructions] This call will be archived and available for replay at investors.firstwatch.com under the News and Events section.
I would now like to turn the conference over to Steven Marotta, Vice President of Investor Relations at First Watch, to begin.
Steven Marotta: Hello, everyone.
I am joined by First Watch's Chief Executive Officer and President, Chris Tomasso; and Chief Financial Officer, Ashlee Weisser.
This morning, First Watch issued its earnings release for the third quarter of fiscal year 2026 on Globe Newswire and filed its quarterly report on Form 10-Q with the SEC.
These documents can be found at investors.firstwatch.com.
This conference 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 conditions of the company's industry and its operations, performance and financial condition, 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.
First Watch assumes no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.
Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit, restaurant-level operating profit margin, adjusted EBITDA and adjusted EBITDA margin.
Investors should review the reconciliation of these non-GAAP measures to comparable GAAP results contained in the company's earnings release filed this morning.
Any reference to percentage growth when discussing the third quarter performance is a comparison to the third quarter of 2025, unless otherwise indicated.
The format for today's call will begin with Chris, our Chief Executive Officer, who will provide a review of our operational highlights from the third quarter as well as an overview of the business.
Ashlee, our Chief Financial Officer, will then discuss our financial results for the quarter, provide the outlook for the balance of 2026, and then we will open the line for questions.
And with that, I will turn the call over to Chris.
Christopher Tomasso: Good morning, and thank you for joining our third quarter earnings call.
As always, I'd like to acknowledge our entire team across 33 states for delivering best-in-class experiences and making days brighter for our customers and each other.
In the third quarter, we delivered total revenue growth of 10.7%, reflecting positive same-restaurant sales in comparable restaurants and continuing strong performance in our non-comp restaurants.
Same-restaurant sales increased 1%, while same-restaurant traffic was down 1.9%, largely reflecting planned strategic sales transfer from our broadening of the brand's reach and serving a growing customer base in increasingly more convenient ways.
Q3 represents our strongest quarterly sales comparison of the year as same-restaurant sales in the same quarter last year increased 7.1%.
Our top line results are even more compelling over a 2-year horizon, with same-restaurant sales increasing 8.1% and same-restaurant traffic up 0.8%.
We believe that our top line results effectively demonstrate the long-term resilience of our business model.
Same-restaurant sales growth in the third quarter was essentially in line with our original expectations, both when we reported our second quarter results and when we provided our initial outlook at the beginning of the year.
We're pleased with our consistent performance in what remains a highly dynamic consumer environment.
We're especially encouraged by the progress we're making across the organization to further advance strategic initiatives designed to strengthen brand awareness, broaden consumer consideration, create more opportunities for customers to engage with the brand and support future growth.
As we continue to grow, expanding our customer base is vital.
Equally important is maintaining a disciplined approach to improving profitability.
This is increasingly evident in our financial results.
During the third quarter, a broad set of initiatives spanning restaurant-level operations and corporate efficiencies contributed to restaurant-level operating margins of 19.4%, G&A expense leverage of 60 basis points and an overall 17% increase in adjusted EBITDA.
Our efforts are delivering results across the income statement and reflect consistent execution and diligence from our teams even as we continue scaling the business.
The benefits are even more visible over a longer period with both restaurant-level operating profit and adjusted EBITDA increasing at high teens percentage rates year-to-date.
The consumer landscape continues to evolve, and we are continuing to build strategies that evolve with it.
First Watch offers a differentiated and highly relevant menu with a selection that translates naturally into engaging content across digital platforms where more and more consumers are turning for exploration and connection.
Our seasonal innovations and quality ingredients provide a steady stream of compelling stories to tell across these emerging content and social platforms.
Against that backdrop, we're excited to start testing the online to offline services with TikTok GO in the U.S.
aimed at encouraging local discovery.
Together, we are working on a pilot in Q4.
Considering that TikTok attracts 200 million active monthly users, we're proud to have been invited as one of the restaurants in their first group for their test.
This new relationship will introduce First Watch and our differentiated menu to a highly engaged audience.
While we're not able to share further details at this stage, we view this relationship as a progressive way to enhance our ability to reach new audiences and it complements the investments we have already made across paid social, online video, connected television and influencer marketing while creating an additional opportunity to turn awareness and engagement into traffic and transactions.
Turning to another early-stage pilot.
We're encouraged by the initial performance of an additional demand generation tactic that reaches a meaningfully distinct audience.
As part of our 2026 media testing, we added local linear television in one of our larger markets where building awareness has historically been more challenging.
The channel's broad reach and efficient CPM made it an attractive complement to our targeted digital investments.
Following encouraging initial results, we expanded the pilot to a second market where early performance has been similarly positive.
We believe linear television could provide another efficient way to build awareness and support traffic in select markets.
Moving on to development.
First Watch remains America's fastest-growing full-service restaurant brand.
In the third quarter, we opened a total of 16 new system-wide restaurants across 11 states and have opened 53 restaurants across 22 states year-to-date.
Our real estate pipeline continues to be robust, and we are already developing sites for opening in the back half of 2028.
As has been the case all year, the sales volumes of our 2025 and 2026 restaurant classes are outperforming both the comp restaurant base and our financial underwriting targets.
We continue to perform consistently across geographies and markets, which provides us with a high degree of flexibility for new restaurant planning.
In fact, 2 of our top 3 2026 NRO first week performances occurred in the third quarter, one in Attleboro, Massachusetts and the other in Jackson, Tennessee.
We have the operating talent pipeline to support our growth and a proven restaurant-level operating model to execute our strategy and advance toward our total addressable market of more than 2,200 restaurants in the continental United States.
Considering that our recent restaurant classes continue to deliver compelling sales volumes and returns across an increasingly diverse footprint, our conviction in the portability of the brand has reinforced the value in allocating capital towards new unit investment and ultimately, our ability to reach our total addressable market.
We are on track to open approximately 55 system-wide restaurants in 2027.
Beyond that, we plan to be nimble and adaptable as it relates to future capital allocation with a focus on optimizing both capital returns and free cash flow.
We're excited to share the financial and operational advantages of our plan more fully during our Investor Day in Boston next week.
In short, the new plan benefits the income statement, accelerates free cash flow generation and strengthens the balance sheet.
We can do all of that while maintaining our position as an aggressively growing full-service restaurant brand, extending our lead in the daytime dining segment and building an even stronger, more durable and financially flexible company.
And with that, I'll turn the call over to Ashlee.
Ashlee Weisser: Thank you, Chris.
As Chris mentioned, our third quarter results reflect the strength of our organization and are exemplified by positive same-restaurant sales growth that closely align with both our original expectations for the year and the updated outlook we provided to you on our second quarter call.
We also delivered strong overall revenue and adjusted EBITDA growth while maintaining our underwriting discipline across our entire development pipeline.
Total third quarter revenues increased nearly 11% to $349.9 million, with same-restaurant sales growing 1%.
Our top line growth was driven by positive same-restaurant sales growth and the contributions of 147 non-comp restaurants, including 54 company-owned new restaurant openings since the third quarter of 2025.
Same-restaurant traffic declined 1.9%, including the impact of planned sales transfer associated with new restaurant openings.
Sales transfer incorporated into our underwriting requirements has remained relatively consistent and continues to be well within our expectations.
Carried pricing was 3.6% in the third quarter.
Mix was slightly negative and comps and promos were modestly higher than in the prior year, driven by a stronger response to our annual e-mail campaign.
Food and beverage expense was 22.3% of sales, 10 basis points higher than the third quarter of 2025.
Commodity deflation of approximately 40 basis points was driven primarily by bacon and avocados, partially offset by an increase in turkey sausage prices.
The year-over-year comparison as a percent of sales included lapping the benefit from vendor credits that were captured in the third quarter of 2025.
And as communicated previously, COGS was impacted by the steak LTO that ended in mid-August.
Labor and other related expenses were 32.6% of sales in the third quarter, unchanged from the same quarter last year.
Our more balanced spread of new restaurant openings across quarters creates opportunities to improve labor efficiency, including better alignment of....