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First Watch Restaurant Group, Inc. (FWRG)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered strong top-line growth and traffic progress but margin compression: revenues rose 19.1% to $307.9M, same-restaurant sales +3.5% on traffic +2.0%, while income from operations margin fell to 2.4% and restaurant-level margin to 18.6% .
  • Against Wall Street consensus, revenue modestly beat, EPS missed, and EBITDA came in below S&P Global’s EBITDA consensus; the company raised FY25 Adjusted EBITDA guidance, citing relief in egg costs and improved trends (a potential stock catalyst) *.
  • Development remained a key strength: 17 openings in the quarter; system reached 600 restaurants with robust second-generation site pipeline and continued outperformance of new classes .
  • FY25 outlook updated: Adjusted EBITDA raised to $119–$123M, blended tax trimmed to 35–40%, and CapEx lowered to $148–$152M; revenue growth ~20% and unit opening targets maintained .
  • Management emphasized marketing traction, tech-enabled customer experience (waitlist geolocation, KDS), and demographic broadening toward Gen Z/millennial cohorts, underpinning confidence in H2 profitability .

What Went Well and What Went Wrong

What Went Well

  • Positive traffic and sales momentum: “We delivered both positive same restaurant traffic growth and same restaurant sales growth in the second quarter… three consecutive quarters of sequential improvement” .
  • Raised FY25 Adjusted EBITDA guidance on egg cost relief and operational trends: “We anticipate stronger profitability in the second half of the year and have raised our annual outlook for adjusted EBITDA accordingly” ; CFO added egg cost relief and pricing cadence underpin H2 .
  • Development execution and pipeline: 17 openings in Q2, system-wide restaurants hit 600; pipeline >130 sites with second-generation locations driving returns and AUV targets .

What Went Wrong

  • Margin compression: restaurant-level operating profit margin declined to 18.6% (from 21.9% YoY) and income from operations margin fell to 2.4% (from 6.4% YoY), pressured by commodity inflation (eggs, bacon, coffee, avocados) and higher G&A .
  • EPS and GAAP profitability down YoY: net income fell to $2.1M ($0.03 diluted EPS) from $8.9M ($0.14) in Q2 2024, reflecting cost pressures and investment levels .
  • Third-party delivery dynamics required remediation earlier in the year (surcharge reduction, operational optimization), though Q2 showed strong recovery; overall consolidated margins remain below prior-year levels .

Financial Results

Core Metrics vs Prior Periods (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$263.3 $282.2 $307.9
Net Income ($USD Millions)$0.7 $(0.8) $2.1
Diluted EPS ($USD)$0.01 $(0.01) $0.03
Income from Operations Margin (%)1.5% 0.4% 2.4%
Restaurant-Level Operating Profit Margin (%)18.8% 16.5% 18.6%
Adjusted EBITDA ($USD Millions)$24.3 $22.8 $30.4
Adjusted EBITDA Margin (%)9.2% 8.1% 9.9%

YoY Comparison (Q2 2024 → Q2 2025)

MetricQ2 2024Q2 2025
Revenue ($USD Millions)$258.6 $307.9
Net Income ($USD Millions)$8.9 $2.1
Diluted EPS ($USD)$0.14 $0.03
Income from Operations Margin (%)6.4% 2.4%
Restaurant-Level Operating Profit Margin (%)21.9% 18.6%
Adjusted EBITDA ($USD Millions)$35.3 $30.4
Same-Restaurant Sales Growth (%)(0.3)% 3.5%
Same-Restaurant Traffic Growth (%)(4.0)% 2.0%
System-Wide Sales ($USD Millions)$299.0 $346.2

Segment/Revenue Composition (Q2 2025)

ComponentQ2 2025 ($USD Millions)
Restaurant Sales$305.0
Franchise Revenues$2.9
Total Revenues$307.9

KPIs (Q2 2025)

KPIQ2 2024Q2 2025
System-Wide Restaurants (Total / Co-Owned / Franchise)538 / 459 / 79 600 / 531 / 69
Openings (Quarter)—17
System-Wide Sales ($USD Millions)$299.0 $346.2
Same-Restaurant Sales Growth (%)(0.3)% 3.5%
Same-Restaurant Traffic Growth (%)(4.0)% 2.0%

Performance vs S&P Global Consensus (Q2 2025)

MetricConsensusActualSurprise
Revenue ($USD Millions)$306.6*$307.9 +$1.3M (Beat)*
Primary EPS ($USD)$0.0619*$0.0513* (Company diluted EPS $0.03 )Miss vs SPGI Primary EPS*
EBITDA ($USD Millions)$30.33*$27.29* (Company Adjusted EBITDA $30.4 )Miss vs SPGI EBITDA*

Values retrieved from S&P Global*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($USD Millions)FY 2025$114–$119 $119–$123 Raised
Blended Tax Rate (%)FY 202545–50 35–40 Lowered
Capital Expenditures ($USD Millions)FY 2025$150–$160 $148–$152 Lowered
Same-Restaurant Sales Growth (%)FY 2025Positive low-single digits Positive low-single digits Maintained
Same-Restaurant Traffic Growth (%)FY 2025Flat-to-slightly positive Flat-to-slightly positive Maintained
Total Revenue Growth (%)FY 2025~20% ~20% Maintained
Net System-Wide Openings (Units)FY 202559–64 (net of 3 closures) 59–64 (net of 3 closures) Maintained

Note: Revenue and Adjusted EBITDA guidance include ~4% revenue impact and ~$7M Adjusted EBITDA from acquisitions .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Marketing/Demand GenerationTargeted campaigns tested; improving dining-room traffic late Q3 2024 ; Encouraging traffic trends exiting 2024; continued resilience highlighted in Q1 release Tangible traction in core geographies; focus on category users; digital-first, one-to-one targeting; broader demographics shift Improving effectiveness
Third-Party DeliveryDrag in mid-2024; plans to address dynamics Material traffic growth in Q2 from program changes (surcharge reduction, execution); occasions seen as incremental Recovery/optimized
Commodity Inflation (Eggs)FY 2024 commodity inflation ~3% Egg supply improving; FY25 commodity inflation lowered to 5–7% (from high-single digits) Moderating costs
Pricing StrategyModest, cadence twice yearly; targeted marketing impacted mix modestly in Q3 2024 ~2.8% price in July; carry pricing ~4% in H2; pricing aimed at permanent inflation Consistent, measured
Technology (Ops & Guest)Ticket times reduced; KDS, pay-at-table, POS, waitlist enhancements Relaunching customer-facing digital properties; geolocation waitlist automation; enhanced ordering and nutritional filtering Continued investment
Development Pipeline>120 projects; second-gen freestanding sites outperform 600 restaurants; >130 sites approved; ~40% of recent openings in second-gen spaces; ROI targets intact Scaling with quality
Tariffs/MacroAM daypart softness; market share gains despite macro Tariffs immaterial in 2025 (~10 bps) ; traffic growth across dayparts Reduced headwind
Regional TrendsStabilization in Florida; improving dining-room traffic late Q3 2024 No regional weakness; Texas floods immaterial; consistent performance across geographies Stable

Management Commentary

  • CEO framing of momentum and guidance raise: “We anticipate stronger profitability in the second half of the year and have raised our annual outlook for adjusted EBITDA accordingly” .
  • Traffic and demand generation: “April delivered the best monthly same restaurant traffic growth in more than two years… we are continuing to see tangible traction from our marketing efforts” .
  • Development strategy and returns: “NROs… continue to outperform our underwriting targets… year three AUVs of $2.7M, cash-on-cash ~35%, ROI >18%” .
  • Customer experience and tech: “Geolocation technology allows customers to be automatically checked in and notified as they approach the restaurant” .
  • CFO on cost outlook and guidance: “We are lowering our fiscal year 2025 commodity cost inflation guidance to a range of 5% to 7%… increasing our adjusted EBITDA guidance range to $119M to $123M” .

Q&A Highlights

  • Pricing and margin: Management reiterated long-standing pricing cadence (~2x/year) and pricing to offset “sticky” inflation; mid-year ~2.8% price action supports margins without chasing temporary cost spikes .
  • Third-party delivery: Fixes (surcharge reduction, operational optimization, accuracy/speed) drove over 20% per-store delivery volume increase in Q2; management views occasions as incremental, not cannibalizing dine-in .
  • Egg cost relief and tariffs: Egg cost normalization is the primary driver of H2 profitability guidance raise; tariffs a ~10 bps cost factor, now immaterial .
  • Second-generation sites: High-quality second-gen freestanding conversions keep net build costs comparable; pipeline mix likely elevated for “next few years,” with ROI and margins meeting underwriting .
  • Demographic shift and marketing ROI: Growing share of Gen Z/millennial customers; digital targeting of category users increases efficiency and frequency without deep discounting .

Estimates Context

  • Q2 2025 results modestly beat revenue consensus ($307.9M vs $306.6M*) but missed on Primary EPS ($0.0513* vs $0.0619*) and on EBITDA ($27.29M* vs $30.33M*). Company-reported diluted EPS was $0.03 and Adjusted EBITDA was $30.4M, underscoring differences between GAAP/Adjusted and SPGI definitions *.
  • Management raised FY25 Adjusted EBITDA to $119–$123M and lowered commodity inflation guidance, which likely supports upward revisions to H2 profitability forecasts; total revenue growth (~20%) and unit openings maintained .
  • Near-term quarterly consensus (reference): Q3 2025 Primary EPS 0.070* (actual later 0.0587*), revenue $309.6M*, EBITDA $32.5M*; Q4 2025 Primary EPS 0.083*; revenue $321.7M* (directionally consistent with guidance and development cadence)*.

Values retrieved from S&P Global*

Key Takeaways for Investors

  • Top-line growth and traffic are improving, but margin pressure from commodities and higher G&A weighed on EPS; H2 profitability inflection hinges on egg cost relief and pricing carry-through .
  • Raised FY25 Adjusted EBITDA guidance and lowered CapEx/tax-rate ranges are positive estimate-revision catalysts; maintain focus on H2 execution and commodity trajectory .
  • Development remains a structural advantage: robust pipeline, quality second-gen sites, and strong new-unit returns support mid-teens sales growth and long-term target of 2,200 U.S. locations .
  • Marketing and tech investments are bearing fruit across dayparts and demographics, supporting share gains without reliance on discounting; monitor continuing traction in Q3’s seasonally slower period .
  • Watch third-party delivery channel profitability and operational discipline: improvements are additive to traffic and profit dollars, but consolidated margin recovery depends on dine-in strength and cost moderation .
  • Guidance sensitivity: commodity volatility (eggs/other inputs), labor inflation (3–4%), and macro AM daypart trends remain key variables; tariff impact now de minimis .
  • Capital markets note: a secondary offering by a selling stockholder occurred post-release (Aug 6); no primary proceeds to the company—limited impact on fundamentals .

Additional detail and reconciliations:

  • Q2 2025 highlights including revenues ($307.9M), SSS (+3.5%), traffic (+2.0%), margins, net income ($2.1M), Adjusted EBITDA ($30.4M), and unit openings (17) .
  • Selected operating data and consolidated statements extracts provide component revenues, margins, and system metrics .
  • Prior periods used for trend analysis sourced from Q1 2025 and Q4 2024 filings .

Values retrieved from S&P Global*