Yes, First Watch is still growing: fiscal 2025 revenue rose 20.3%, and revenue was up another 15.2% in the second quarter of 2026. But expansion has outpaced improvement in consolidated operating profit. The company’s GAAP operating margin was 2.3% in fiscal 2025 and again in Q2 2026, while same-restaurant traffic was only 0.5% higher for 2025 and fell 0.4% in the latest quarter reported here.
Is First Watch still growing?
Yes. First Watch Restaurant Group increased fiscal 2025 revenue 20.3% to $1.2 billion. System-wide sales—sales at both company-owned and franchise-owned restaurants—reached $1.4 billion, up from $1.2 billion. At year-end, the company had 633 restaurants across 32 states: 560 company-owned and 73 franchise-owned. It opened 64 system-wide restaurants during the year and acquired 19 operating restaurants from franchisees. First Watch’s fiscal 2025 Form 10-K reports these figures.
Those results establish that the chain expanded quickly. They do not mean revenue growth came solely from stronger sales at restaurants that were already operating. New openings add sales, as can acquired locations; comparable-store results measure a narrower part of the business.
How did established restaurants perform?
First Watch reported 3.6% same-restaurant sales growth for fiscal 2025, alongside same-restaurant traffic growth of 0.5%. The company defines this sales measure using company-owned First Watch restaurants that had been open at least 18 months at the beginning of the fiscal year. It excludes sales from new and transitioning restaurants.
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The distinction matters: sales can rise through a combination of more customer visits and higher spending per visit. With traffic up only slightly, the 3.6% sales increase should not be read as evidence of a comparable increase in customer counts.
Why did revenue grow while operating income fell?
Revenue is the amount generated by sales; operating income is what remains after operating costs. In fiscal 2025, First Watch’s income from operations fell to $27.5 million from $38.9 million in 2024, even as revenue increased. Its GAAP operating margin—operating income divided by revenue—declined to 2.3% from 3.9%.
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Costs provide context, though the reported figures do not isolate how much each cost caused the margin decline. First Watch reported 5.0% commodity inflation in 2025, citing eggs, coffee, avocado and bacon as major drivers, and 3.7% restaurant-level labor inflation. Those pressures accompanied rapid expansion, but they do not by themselves establish the contribution of any one factor to the change in operating income.
Keep the profit measures separate
Other measures showed a different picture, but they are not substitutes for GAAP operating income. Restaurant-level operating profit, a company-defined non-GAAP measure, rose to $224.1 million in fiscal 2025; its margin nevertheless fell to 18.5% from 20.1%. Net income was $19.4 million, compared with $18.9 million in 2024, and adjusted EBITDA was $120.9 million, compared with $113.8 million.
These measures describe different layers of performance. Restaurant-level operating profit focuses on restaurant operations, while operating income reflects the company’s consolidated results under GAAP. Adjusted EBITDA is another adjusted, non-GAAP measure. Their higher dollar totals do not erase the decline in GAAP operating income or margin.
What changed in the latest reported quarter?
For Q2 2026, the quarter ended June 28, First Watch reported revenue of $354.7 million, up 15.2%, and system-wide sales of $397.0 million, up 14.7%. Same-restaurant sales rose 3.4%, but same-restaurant traffic declined 0.4%.
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Operating margin was 2.3%, versus 2.4% a year earlier. Restaurant-level operating-profit margin was 18.8%, compared with 18.6%; net income was $2.3 million, versus $2.1 million. The quarter therefore continued the pattern of strong sales growth alongside a thin consolidated operating margin, with traffic slightly down.
Cost trends shifted from the prior year: First Watch reported commodity deflation of 1.6% in Q2 2026, for a second consecutive quarter, mainly reflecting lower egg, avocado and bacon costs. Higher coffee prices and new, higher-cost beef offerings partly offset those decreases. Restaurant-level wage inflation was 4.1% in the quarter. These figures describe company-reported cost trends, not a complete explanation of the quarter’s margins.
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What does management expect for fiscal 2026?
In an outlook issued August 4, 2026, management forecast same-restaurant sales growth of 1.5%–3.0%, total revenue growth of 12.5%–14.0%, adjusted EBITDA of $133–$136 million, and 60–62 net new system-wide restaurants. These are forecasts, not achieved results. Management said the outlook includes the net impact of completed acquisitions, estimated to contribute approximately 1 percentage point of revenue growth and $2 million of adjusted EBITDA.
The company did not reconcile its adjusted EBITDA guidance to GAAP because it said it could not reasonably predict all reconciling items. Management also estimated full-year 2026 labor inflation of approximately 3.5%–4.5% and commodity inflation of approximately 0%–1.5%; these are dated estimates, not independently verified forecasts.
How to read First Watch’s growth story
- Expansion: New restaurants and acquired franchise locations helped drive revenue growth, so topline growth is not a pure measure of established-store progress.
- Established-store demand: Same-restaurant sales were positive, but traffic growth was modest in fiscal 2025 and negative in Q2 2026.
- Profit conversion: GAAP operating income and margin fell in fiscal 2025 and the margin remained 2.3% in Q2 2026, despite higher revenue.
- Guidance: Fiscal 2026 ranges are management’s outlook as of August 4, 2026, and include acquisition effects; they should not be treated as reported performance.
CEO and President Chris Tomasso described 2025 as a year of significant progress, citing nearly 11% new-restaurant growth, revenue growth above 20%, same-restaurant sales growth of 3.6% and positive traffic. That is management’s characterization; the operating-income and margin figures show why growth should also be judged by how effectively it converts into consolidated profit. See the company’s February 24, 2026 results release for the statement and fiscal 2025 context.
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