First Watch (FWRG) Q4 2025 Earnings Transcript

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Date

Tuesday, Feb. 24, 2026 at 8 a.m. ET

Call participants

• Chief Executive Officer & President — Christopher A. Tomasso
• Chief Financial Officer — Henry Melville Hope
• Vice President, Investor Relations — Steven Marotta
• Chief Brand Officer — Matt Eisenacher

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Takeaways

• Total revenue -- $316.4 million in fiscal Q4 (period ended Dec. 28, 2025), representing a 20.2% increase, driven by positive same-restaurant sales and 179 non-comp restaurants, including 78 company-owned new restaurant openings and 19 franchise locations acquired since 2024.
• Same-restaurant sales -- Up 3.1% in fiscal Q4 and 3.6% for the fiscal year, reflecting both positive traffic and pricing impact.
• Same-restaurant traffic (fiscal Q4) -- Decreased by 1.9%.
• Restaurant-level operating profit margin -- 19% in fiscal 2025, up 20 basis points from fiscal 2024.
• Fiscal Q4 operating income margin -- 2.9%.
• Adjusted EBITDA -- $33.7 million for fiscal Q4, up 38.7% year over year; margin grew to 10.6% from 9.2% last year.
• Net income -- $15.2 million with a net income margin of 4.8% for fiscal Q4.
• G&A expenses -- $31.8 million in fiscal Q4, 10.1% of revenue, improving by 160 basis points, mainly due to the timing shift of the leadership conference and leveraged home office expenses.
• Food and beverage expense -- 22.9% of sales, up 20 basis points due to 5% pricing offset by 1.1% commodity inflation.
• Labor and related costs -- 33.5% of sales in fiscal Q4, a 20 basis point improvement despite 3.1% labor inflation.
• New restaurants opened -- 13 in fiscal Q4 (12 company-owned, 1 franchise-owned), 64 system-wide for the fiscal year, the largest new restaurant class in company history.
• Restaurant count -- Ended fiscal 2025 with 633 restaurants in 32 states.
• Full-year tax benefit -- $10.7 million, including a non-cash benefit from better future realization of FICA tip credits and net deferred tax asset recognition.
• Acquisition impact -- Acquisitions in the past 12 months added ~$9 million to fiscal Q4 revenue and $1.5 million to fiscal Q4 adjusted EBITDA; full-year impact was ~$35 million revenue and $6 million adjusted EBITDA.
• 2026 guidance: Same-restaurant sales -- Forecasted growth of 1%-3% with no initial fiscal 2026 price increase, and carried price of ~4% in H1 blending to 2% for the year.
• 2026 guidance: Total revenue -- Expected to grow 12%-14%, with ~100 basis points contributing from acquisitions.
• 2026 guidance: New units -- 59-63 net new system-wide locations expected (53-55 company-owned, 9-11 franchise, and 3 company-owned closures).
• 2026 guidance: Adjusted EBITDA -- Projected range of $132 million-$140 million, including $2 million estimated from the 19 restaurants acquired in April.
• 2026 guidance: Capital expenditures -- Set at $150 million-$160 million.
• 2026 guidance: Commodity inflation -- Expected between 1%-3%, with inflation in coffee and bacon, and deflation in eggs and avocados.
• 2026 guidance: Labor cost inflation -- Projected in the 3%-5% range.
• Menu innovation -- Rolled out a redesigned core menu in February, incorporating popular seasonal items and reducing back-of-house complexity.
• Digital marketing -- New digital initiative covered approximately one-third of the comp base in fiscal 2025, generating positive returns and planned to scale to a majority in fiscal 2026.
• 2025 restaurant class performance -- First-year sales trends for new openings ran 19% above underwriting targets.
• Flagship performance -- Costner's Corner, Virginia restaurant achieved record opening week sales exceeding $90,000.
• Market entry -- Entered five new markets in fiscal 2025: New England, Las Vegas, Salt Lake City, Boise, and Memphis, with up to a 155-unit expansion potential in these locations.
• Employee & talent metrics -- Turnover declined and applicant volume increased 40% over the prior year.
• Industry traffic context -- Management cited Black Box fiscal 2025 industry traffic was negative and projects a 3% decline in fiscal 2026; company outperformance against industry trends was highlighted.
• CFO transition -- CFO Henry Melville Hope will retire later in fiscal 2026; a search for a successor has commenced, and he will remain in an advisory capacity during transition.
• Equity compensation -- Expanded eligibility for equity-based incentives to divisional operators, aligning senior leadership with shareholder interests; impact remains non-cash and appears solely in G&A.

Summary

First Watch Restaurant Group (NASDAQ:FWRG) reported record fiscal Q4 and full-year performance, fueled by accelerated new unit development, resilient same-restaurant sales, and disciplined cost management despite ongoing industry headwinds. The fiscal 2025 restaurant cohort delivered results significantly above underwriting targets, and new menu innovations were deployed system-wide, aiming to support future sales mix. Management’s fiscal 2026 guidance reflects cautious optimism, balancing continued acquisition and market densification initiatives with tempered forecasts for sales and cost inflation, and a major CFO transition was detailed with continuity plans in place.

• Digital marketing test regions experienced a several hundred basis point increase in traffic, with a full system rollout planned in fiscal 2026.
• Recent acquisitions boosted both fiscal Q4 and annual revenue and adjusted EBITDA, with further contributions from integration expected in guidance.
• Weekday breakfast and weekend segments both recovered and outperformed earlier periods, showing renewed traffic momentum compared to fiscal 2024.
• The company confirmed no incremental menu pricing will be implemented at the start of fiscal 2026, aiming to defend value amid expected cost increases.
• Expansion in five major metropolitan markets in fiscal 2025 opens the pathway for significant incremental unit growth with up to 155 additional locations projected long-term in new geographies.
• Labor efficiency remained flat year over year, with wage inflation offset by pricing and a marked decline in employee turnover attributed to enhanced hiring and management practices.

Industry glossary

• AUV: Average unit volume, representing annualized sales per restaurant location.
• NRO: New restaurant opening, referencing newly launched company or franchise units.
• Black Box: Industry data analytics provider benchmarking restaurant traffic and sales trends.
• FICA tip credit: Federal tax credit relating to employer-paid Social Security and Medicare (FICA) taxes on tipped employee wages.
• Comp base: Stores included in same-restaurant sales comparisons, generally open for 18+ months.
• IRR: Internal rate of return, a metric evaluating profitability of potential investments.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to the First Watch Restaurant Group, Inc. Fourth Quarter Earnings Conference Call occurring today, 02/24/2026 at 8:00 AM Eastern Time. Please note that all participants are currently in a listen-only mode. Following the presentation, the conference call will be open for questions, and instructions on how to ask a question will be given at that time. 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 call over to Steven Marotta, Vice President of Investor Relations at First Watch Restaurant Group, Inc. to begin. Hello, everyone.

Steven Marotta: I am joined by First Watch Restaurant Group, Inc.'s Chief Executive Officer and President, Christopher A. Tomasso, and Chief Financial Officer, Henry Melville Hope. This morning, First Watch Restaurant Group, Inc. issued its earnings release for the full year and 2025 on GlobeNewswire and filed its annual report on Form 10-K 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, financial condition, outlook, growth plans and strategies, and future expenses.

Any such statements should be considered in conjunction with the 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 Restaurant Group, Inc. 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 reference 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 the comparable GAAP results contained in the company's earnings release filed this morning. Any reference to percentage growth when discussing the fourth quarter or full year performance is a comparison to 2024 and fiscal 2024, respectively, unless otherwise indicated. And with that, I will turn the call over to Christopher A. Tomasso. Thanks, Steve. Good morning, everyone. Thank you for joining us to discuss our 2025 results as well as our plans for 2026 and beyond. 2025 was noteworthy for First Watch Restaurant Group, Inc. and I am proud of our team's performance throughout the entire year.

Our total revenue growth was more than 20% and same-restaurant sales grew by 3.6% with positive same-restaurant traffic. We also opened 64 new restaurants across the system. Our 2025 new restaurant class represents the most openings in our company's more than 40-year history and exemplifies the depth of our development pipeline and our ability to execute against our growth opportunity. As always, I want to thank our more than 17,000 employees nationwide without whom this would not be possible. I am particularly pleased with the results considering that, according to Black Box, industry traffic was negative and casual dining was only slightly positive as a result of macro environment pressure throughout the year.

Despite the headwinds, our teams effectively executed on our growth strategies, and we excelled by focusing on controlling what we can control, and by playing the long game. For example, we successfully and patiently navigated through soaring commodity inflation early in the year. We were able to balance preserving the value proposition for our customers by carrying moderate pricing while still delivering restaurant-level operating profit margins of 18.5%, well within our targeted long-term range. To strengthen our performance in the third-party delivery channel, we enhanced our key partnerships with two primary goals in mind. First, to drive traffic in that channel, and second, to do so profitably. We achieved both.

We also successfully launched our new digital marketing initiative to roughly one third of our comparable restaurant base, generating a positive return on our investments. The results were compelling in building brand awareness and driving traffic, and we are excited about rolling it out to a wider base of restaurants in 2026. Stepping even deeper into marketing and our focus on the customer, throughout 2025, we advanced our multiyear effort to enhance our paid marketing and customer analytics capabilities. Following disciplined testing in 2024, we deployed a more sophisticated marketing strategy across select geographies, and drove consistent increases in both aided and unaided awareness, and increased customer visits.

These results have given us the confidence to expand the program further to the majority of the comp base in 2026, and we are excited to continue leveraging this evolving competency. Our marketing strategy is data and audience driven, with heightened personalization from what might not have been possible for us just a few years ago. We segment our markets using population data, market awareness, and competitive intensity. Our objective is to serve the right message to the right consumer at the right time, to nurture that relationship into a first-party connection and ultimately a restaurant visit.

Tangible benefits have been realized from connected TV, online video, paid search, and programmatic digital that connects to households and transaction insights as well as our owned data. Along with our focus on staying top of mind is our obsession with delighting customers the moment they walk into our restaurants. This comes to life through our innovative seasonal menus, warm hospitality, and concerted effort to make days brighter. We are proud to see this focus pay off. And in 2025, our restaurants earned a range of awards and accolades that underscore the strength of our execution. We were pleased to be named to Yelp's Most Loved Brands, ranking number four among other highly distinguished and well-known consumer brands.

This recognition validates that we have created a welcoming environment known for great food and great service. In the spirit of continuing to raise the bar, I am happy to announce that earlier this month, we rolled out a new core menu to all First Watch Restaurant Group, Inc. restaurants, the first significant redesign and reengineering of our menu in almost ten years. Our overarching objective with this redesign is to meaningfully elevate the experience for our teams and our customers. This effort again reflects the extensive feedback we have gathered over the past several years, reinforcing our commitment to continuous improvement and ensuring the long-term relevance of our brand.

We added some of our most popular seasonal menu items to the core menu, including two dishes that feature a premium protein in the form of barbacoa.

Steven Marotta: The barbacoa breakfast tacos,

Christopher A. Tomasso: and my favorite, the barbacoa chilaquiles breakfast bowl. Other permanent additions include our best performing sweet item, strawberry tres leches French toast, and an additional shareable, the Holy Donuts. We know our customers will be excited by the return of these beloved items and will also appreciate the work we did to improve menu navigation and add common customer-requested add-ons. At the same time, we used this effort as an opportunity to address slow-moving items, eliminate single-use SKUs, and reduce complexity for our back-of-house teams. We are very optimistic about this initiative. In addition to improving our core menu, we also took the opportunity to elevate the design of our seasonal menu as well.

With inspiration from our food ethos of “Follow the Sun,” we introduced more color, vibrancy, and thoughtful illustrations each season to better tell the story of our rotating menu and the innovative items that we introduced. Currently, we are featuring the chimichurri steak and egg hash, as well as the return of the bacon, egg, and cheddar sandwich, otherwise known as the BEC, served on thick artisan sourdough. Our new core and seasonal menu initiative is comprehensive and was vetted and tested for more than one year at a meaningful number of First Watch Restaurant Group, Inc. restaurants. One final marketing topic related to our delivery channel. As our industry has continued to rapidly evolve, we too have evolved.

Christopher A. Tomasso: We are committed to meeting our customer where they are. Our delivery efforts in 2025 reflected that principle. And our digital marketing priorities illustrate our primary focus on the direct relationship with our customers. Our information indicates that the delivery occasion is largely incremental, but likely not always with a unique customer. Said differently, we believe consumers and our customers specifically seek a variety of occasions in their everyday lives, and by leaning into delivery, we are better positioned to stay top of mind for an eventual in-restaurant occasion. We continue to test and measure a variety of ways to grow our share of total occasions while driving positive margin dollars. Shifting to real estate development and growth.

2025 was yet another record-setting year, highlighted by our high number of openings and strong new restaurant performance. As a group, the 2025 restaurant class is exceeding our expectations, with first-year sales trends running 19% above their underwriting target. We also achieved the highest opening week sales on record at our Costner's Corner, Virginia restaurant, which generated more than $90,000 in first-week sales, reinforcing the strength of our model. In Boston, we followed our initial suburban entry with a high-profile flagship opening on Boylston Street in January, helping establish brand visibility in one of the most dynamic urban centers in the country.

Our disciplined approach to market analytics and site selection allowed us to confidently enter five major markets in 2025: New England, Las Vegas, Salt Lake City, Boise, and Memphis, each of which represents a meaningful long-term growth opportunity for our brand. In fact, as a group, these markets as of today represent up to a 155-unit opportunity. Our class of 2026 restaurants are essentially scheduled and we are already deep into 2027 and 2028 site selection. We remain the fastest growing full-service restaurant brand in the United States and are exceptionally well positioned to build on our record performance.

Our priorities for the year include deepening our presence in newly entered markets as we shift from market entry to market densification while continuing to strategically fill in core and emerging markets. We know and have demonstrated for many years that when we adhere to our disciplined, data-driven approach to site selection, we can meet and even exceed our investment return metrics. These plans, combined with the strength of our team and the proven effectiveness of our development strategies, give us confidence in our ability to continue to deliver sustainable, best-in-class growth as we march toward our target of 2,200 restaurants.

Also, in 2025, we continued to make significant investments in our talent pipeline and leadership development, aligning with our strategic growth priorities. As I mentioned on last quarter's conference call, First Watch Restaurant Group, Inc. was named America's number one Most Loved Workplace by the Best Practice Institute for 2025, a recognition we also earned in 2024. And just last month, based solely on employee voting, we were named in Glassdoor's list of 25 Best Places to Work in Consumer Services in 2026. These accolades are welcome, but what matters most is that they represent direct employee feedback and experiences at First Watch Restaurant Group, Inc. Our general managers play a crucial role in our success.

In 2025, we updated the GM job description to reflect a renewed focus on operational excellence and people development, providing robust tools, techniques, and best practices for managing employee development. This comprehensive approach ensures our restaurant-level leaders are empowered to nurture talent and maintain high standards throughout our operations. These initiatives, among others, further strengthen our organization as the results have made clear. Restaurant-level employee turnover declined in 2025 and we realized a 40% increase in applicant volume compared to the prior year. Looking ahead, industry data from Black Box continues to point to yet another challenging year, with their current outlook calling for a roughly 3% industry-wide same-restaurant traffic decline in 2026.

Despite that backdrop, we remain confident that the initiatives we have put in place position First Watch Restaurant Group, Inc. to once again outperform the industry just as we did in 2025. We believe our disciplined execution and strategic investments will continue to drive market share gains in 2026. There is no one in our daypart with the combination of scale, operational acuity, proven growth, and total addressable market as First Watch Restaurant Group, Inc. In fact, with consideration to those attributes specifically, no one even comes close. We are the segment leader, and we will continue to increase our share.

There is a lot to be excited about in 2026 and beyond, and we look forward to making days brighter for our employees and our customers every day.

Christopher A. Tomasso: Now before I pass it over to Henry Melville Hope, I want to address the announcement we made this morning regarding Mel's decision to retire later this year. This transition to retirement is much deserved and will be well planned. Mel has been with First Watch Restaurant Group, Inc. since 2018 and was a critical part of our IPO in 2021. While he will certainly be missed, I am optimistic about our company's promising future and next steps related to his retirement, including an executive search that will start immediately. Mel will continue as CFO until we have a successor in place and onboarded.

He also plans to stay on as an adviser into 2026 to ensure a completely seamless transition. Mel, I want to thank you for your dedicated service and partnership for all these years. We wish you and Trish nothing but the best in this next stage of life. And with that, I will pass it over to Henry Melville Hope. Thank you, Chris. That is very generous. I am proud and grateful to be a member of your team. And I am glad to play a role in facilitating a smooth transition. Let us return to the discussion of the company's performance. Total fourth quarter revenues were $316,400,000, an increase of 20.2% with positive same-restaurant sales growth of 3.1%.

Our top line growth in the fourth quarter is attributed to positive same-restaurant sales growth and 179 non-comp restaurants, including the 78 company-owned new restaurant openings and the 19 franchise locations acquired since 2024. Same-restaurant traffic growth was negative 1.9%. Food and beverage expense was 22.9% of sales compared to 22.7%. As a percent of sales, costs benefited from carried pricing of around 5%, partially offset by commodity inflation of 1.1%. Excluding vendor contributions related to our 2024 leadership conference, which were reported in the prior year results, food and beverage expense, as a percent of sales for 2025, would have been lower versus 2024.

Labor and other related expenses were 33.5% of sales in the fourth quarter, a 20 basis point improvement from 33.7% reported in 2024. Carried pricing offset the impact of 3.1% labor inflation in the fourth quarter while our labor efficiency was essentially flat compared to the fourth quarter last year. We realized restaurant-level operating profit margin of 19% in 2025, a 20 basis point improvement compared to 2024. Our income from operations margin was 2.9%. At $31,800,000, general and administrative expenses were 10.1% of fourth quarter revenue, which was a 160 basis point improvement versus the prior year.

The favorability as a percent of total revenue was largely driven by the timing shift of our leadership conference and also benefited from levering certain home office expenses. Later on this call, I will share a bit of good news about our expanded equity compensation program. Adjusted EBITDA increased 38.7% to $33,700,000, a $9,400,000 increase versus the $24,300,000 reported last year. Adjusted EBITDA margin grew to 10.6% compared to 9.2% we realized in 2024. Our 2025 income tax benefit was $10,700,000 and includes a sizable non-cash benefit. Specifically, our year-end 2025 assessment of the future realization of the company's accumulating FICA tip credits was more favorable than in years prior.

The recognition of our net deferred tax assets includes the effect of this year-end determination. Net income was $15,200,000 and net income margin was 4.8%. We opened 13 new system-wide restaurants during the fourth quarter, of which 12 are company-owned and one is franchise-owned. And we finished 2025 with 633 restaurants across 32 states. The net effect of acquisitions, which includes only the impact of purchases made within the last twelve months, increased fourth quarter revenue by about $9,000,000 and adjusted EBITDA by about $1.5 million, and full year by about $35,000,000 and $6,000,000, respectively. For further details on the fourth quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link.

Now I will provide our initial outlook for 2026. We are expecting same-restaurant sales growth to be between 1% and 3%. As a reminder, our pricing philosophy is such that we evaluate menu pricing at the beginning of the year and again around midyear with the objective of offsetting what we view as permanent inflationary pressures. We manage the business with a disciplined focus on sustaining same-restaurant sales growth while protecting the long-term health of the brand. Given our current outlook for commodity inflation and, importantly, in keeping with what we believe is in the best interest of our customers, we elected not to take any pricing at the outset of 2026.

Therefore, our guidance includes carried pricing of around 4% in the first half of the year which blends to about 2% for the full year. We expect total revenue growth of 12% to 14% with around 100 basis points impact from acquisitions. We expect a total of 59 to 63 new system-wide restaurants including 53 to 55 company-owned restaurants and nine to 11 franchise-owned restaurants with three planned company-owned restaurant closures. Our company-owned new restaurant development pipeline is somewhat weighted to 2026, the fourth quarter in particular. We expect full-year commodity inflation of 1% to 3% driven by increases in coffee and bacon, partially offset by expected deflation in eggs and avocados.

Restaurant-level labor cost inflation is expected to be in the range of 3% to 5%. Our adjusted EBITDA guidance range is $132,000,000 to $140,000,000 including the net impact from 19 restaurants we acquired in April which are expected to contribute about $2,000,000 to our adjusted EBITDA this year. We expect capital expenditures of $150,000,000 to $160,000,000. While we do not typically provide quarterly earnings guidance, we believe you may find a few considerations helpful to your models. We expect positive same-restaurant sales growth in each quarter of the year, including our third quarter when we will face our most robust comp comparison.

Second, as it relates to the first quarter, we elected not to take price in January and experienced several weather-related disruptions during the month which reduced operating days in our comp base. And third, as noted on our last call, we held our leadership conference in January 2026 and accordingly expect G&A expense to be materially higher in the first quarter than any other quarter this year. Lastly, as was mentioned earlier, we strengthened the alignment of our operational senior leadership incentives with the interests of our shareholders by enhancing our equity-based compensation and expanding eligibility to include our divisional operators.

These actions reinforce accountability across the organization and better position the company to attract and retain talented colleagues who drive results. The equity compensation program does not impact our adjusted EBITDA and the related accounting charges associated with the incremental non-cash awards will be recognized in G&A, which may limit our ability to leverage G&A this year. Four years after our IPO, I am proud of the results our company has delivered and we remain fully committed to driving similarly strong performance ahead. We have grown our system from 428 restaurants at the time of our IPO to 633 at the end of 2025 and nearly doubled adjusted EBITDA along the way.

Compelling evidence that the growth strategy is working and that our execution remains both disciplined and consistent. These milestones reflect the strength of our model, the quality of our teams, and the momentum we have built. Our real estate and talent pipelines are the healthiest they have ever been, giving us confidence in our ability to achieve our growth objectives for both 2026 and beyond. And with that, operator, will you please open the line for questions?

Operator: We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that analysts limit themselves to one question and a follow-up so that others have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from James Ronald Salera with Stephens. Please proceed with your question.

James Ronald Salera: Hey, Chris and Mel. Good morning. Thanks for taking our question.

Christopher A. Tomasso: Mel, first of all, it has been great working with you. Congratulations on an incredibly successful career, and I wish you all the best, whatever comes up next for you.

Henry Melville Hope: Thanks, Jim.

James Ronald Salera: I wanted to maybe drill down a little bit on the commentary for FY 2026. I appreciate the commentary around pricing and how that should flow through the year. Can you just give us a sense for what you are underwriting for the industry for 2026 and kind of how your expectations layer on top of that? And maybe if you could also provide some color on the mix component of your tickets.

Henry Melville Hope: When you say underwriting for the industry, I just think you asked me to speculate about the climate that we are going to be operating. Yeah. So I think that your guide kind of implies, you know, sort of down modest traffic for the industry, and you guys being, you know, in line to modestly better. Can you just, any details on that you could provide? Yeah. I think you know, Jim, I think there is reason to be cautious about the environment that we are operating in now. I think, historically, for our particular category and different cohorts of peer comparisons, against Black Box data, we seem to outperform that quarter over quarter.

So, I do not expect that particular characteristic to come to an end, but I do think that the entire category has reason to be cautious here in February about what is going to ensue for the balance of the year.

James Ronald Salera: And then mix as a component. I know you gave us some details on pricing, but just how should we think about mix progressing through the year? Would that be a relative headwind still or maybe some opportunity for that to turn positive?

Henry Melville Hope: Yeah. In our guidance, we do not typically project where the different components would come out for the year. What you know, what we do with our same-restaurant sales is what we are guiding to is that 1% to 3% for the full year, and we will take a read on how we defend within that range as the year progresses.

Christopher A. Tomasso: Jim, I can also give some insights there. I think we saw positive mix from our core menu test rollout. And so taking that to the entire system we believe we have some mix upside there, which was one of the consideration factors with not taking price in Q1 like we have in years past. And then on the Black Box, to be more specific, in my commentary, I talked about their current projection for the year is roughly a 3% industry-wide same-restaurant traffic decline. So as we have done in the past, we have outperformed the industry and that is kind of the position we are taking now. Mel is exactly right.

There is a reason to be conservative based on what the industry-wide impact in Q4 specifically and even more specifically in December. But we have been able to outperform the overall industry, and there is no reason for us to believe that we will not do that again for 2026.

Operator: Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with your question.

Jeffrey Bernstein: Great. Thank you very much. And I echo the congratulatory comments for Mel. Hope you get to enjoy retirement.

Henry Melville Hope: Thanks, Jeff.

Jeffrey Bernstein: Sure. My question is just on the 2026 unit growth looks like we are looking for maybe 9% to 10% net growth another long-term algo has been for many years kind of low double digits. I am just wondering you know, maybe how you think about the constraint to greater growth, whether it is real estate or people. It just seems like on an ever larger base, maybe before considering lowering the long-term guidance to maybe more of the high single digit range because the focus is really on getting the operations right. It is really not about the speed of openings considering you have so much runway ahead.

So just wondering whether we should expect more tempered growth or whether there is some reason why 2026 might be a little bit more subdued? And then I had a follow-up.

Christopher A. Tomasso: This is Chris. I think our long-term targets of around, you know, a low double-digit unit growth, we have exceeded that in the last couple of years. There will be ebbs and flows as it relates to that. The reality is the absolute number of restaurants continues to increase when you stick to that percentage. So we are always going to look at it in terms of what is best for the overall organization. The number one priority is the health and performance of the core system. And so as we continue to grow and that number continues to go up, we will monitor it and make sure that it is not putting any undue strain on the system.

But I will say that, regardless of the actual number or the percent, we are delivering quality growth year after year. Our 2024 and 2025 NRO classes are delivering average weekly sales that are higher than their underwriting targets. And our comp base and the class of 2025 alone is 19% higher than their underwriting targets. So we are really focused on the quality growth and the number will ebb and flow, like I said, year to year. But I also think that is a good long-term target for us, and that is why we kind of restated that.

Henry Melville Hope: This is a good time for me to just slip in here real quick that our earnings release was a little bit awkwardly worded about our new restaurant opening guidance, which was 59 to 63 net system-wide restaurants, and the net includes three restaurants that are company-owned that we expect to close this year.

Jeffrey Bernstein: Understood. And my follow-up, Chris, in your prepared remarks, or I should say even in the press release, you talked importantly about the evolving digital marketing platform. I know it is more focused on direct marketing. But I just wondering if you could share maybe, since that seems like that is the biggest initiative for this year to drive comp, maybe greater learnings from the tests, the greatest opportunity this year, maybe the dollars spend, any kind of broad brush commentary you can share on the excitement around the evolution of that program? Thank you.

Christopher A. Tomasso: Sure. Thanks, Jeff. I will let Matt talk about the specifics. But I just want to make it clear. I am excited about a number of levers we have this year. Marketing is certainly one of them. What we saw in the test was very, very encouraging to us, and we are excited to expand it to a majority of the system this year. I have to say I am just as excited about our new core menu rollout. When you think about the transformation of First Watch Restaurant Group, Inc. over the years and the acceleration of our growth, it came about ten years ago when we did a similar exercise.

What we have seen in test there is also why I am encouraged about 2026. And, Matt, if you want to get some specifics on the marketing.

Matt Eisenacher: Yeah. Sure. Hey, Jeff. It is Matt Eisenacher. So as Chris said, there is a variety of levers I echo his sentiment that we are really optimistic about the new core menu. Obviously, we are excited to be able to scale our marketing program from last year where we focused on particular geographies, and now we will be scaling that to the vast majority of our comp base. And it allows us to continue to use those things that worked last year and amplify those, starting to put more emphasis into video and driving awareness. Last year, we saw in those geographies an increase in both aided and unaided awareness.

And so you have that and then the relaunch of all of our new digital platforms like our new app, you start to see how you can drive trial, then you have the analytics to be able to get more efficient with that media spend over the long term. So all of those things kind of play together.

Operator: Our next question comes from Sara Senatore with Bank of America. Please proceed with your question.

Sara Senatore: Thank you. Maybe just a couple of questions on the commentary about the comp expectations through the year. Not necessarily looking for kind of quarter-by-quarter guidance, but you mentioned that you expect comps to be positive in the first quarter even with the kind of weather, and I assume that is kind of calendar only as opposed to taking into consideration the current weather impact. But I just wanted to clarify as you think through the doors being closed, you know, presumably, traffic will be, you know, be ahead on which of five points of price. So, you know, I guess, is it safe to assume that it is sort of modestly positive?

And then as you get through the year, you mentioned that the toughest compare in the third quarter, but I think your pricing implication was that price might be the low single digits in the second half of the year just given the average of around two. So, again, I wanted to understand kind of your confidence or how you are thinking about the drivers of traffic both with the headwind earlier in the year and then more difficult traffic compares at least in the third quarter. And then I do have one quick follow-up, please.

Henry Melville Hope: So the full-year guidance at 1% to 3% already incorporates what we are seeing sort of in the current environment as you mentioned. We are deliberately guiding only to same-restaurant sales because we have different timing coming on board with regard to the new menu, with regard to rolling some fairly robust third-party delivery sales last year, and then just the general environment. So you know, a little bit harder for us to be confident in exactly what the cadence is going to be. But I do think that we are probably currently looking at, you know, maybe a more challenged quarter by weather than the rest of the year.

And then we do have some, you know, it does get a little bit tougher in the third quarter. I will say that our year-to-date trends are improved versus December. And so, we believe we are on track to meet our annual same-restaurant sales guidance when you carry that forward.

Sara Senatore: Okay. Thank you. So just sort of thinking about the cadence. I appreciate the color. And then just the follow-up was on the new, you know, the 2025, and I apologize if I have missed this somewhere. I know you mentioned you are 19% higher than underwriting targets. I know your sort of underwriting targets are, I think, the bar is a little bit lower than what we have been seeing in the past. So how do the AUVs compare, I guess, to previous cohorts to earlier years? Are you still seeing kind of increasing new unit volumes?

And is that largely with kind of the size of the footprint or anything different there as you think about the returns on the new units?

Christopher A. Tomasso: As you know, we have grown AUV significantly over the years. And just a reminder of our 2026 unit economics, you know, third-year sales expectations of $2,800,000. The 18% to 20% restaurant-level operating profit margins, you know, that we talk about, that penciling out to an 18% IRR and a 35% actualized cash-on-cash return. So yes, the AUVs continue to increase. So when we talk about you know, a class being higher than their underwriting targets, I cannot think of a year where that number has not been higher than the year before from an AUV and underwriting standpoint. So just healthy underlying growth for us on a new unit standpoint.

As far as what is driving that, we have talked about the bigger footprints. We have not necessarily seen a correlation on size of the restaurant, per se, but we know that when we stick to our underwriting criteria, our site selection criteria, the data that we use, that it sets us up for success. And we have proven that year over year, and we feel that we will be able to do that in 2026 and like I said on the call, or Mel said, we are well underway for 2027 and 2028. So if anything, growth is a strength for us, the unit growth and the performance. Again, it is quality growth.

Operator: Our next question comes from Andrew Charles with TD Cowen. Please proceed with your question.

Andrew Charles: Great. Thank you. And, Mel, best wishes for retirement. Hope the next chapter gives you more time for golf.

Andrew Charles: Chris or Matt, on marketing, you guys talked about a positive return on spend. Can you help us understand what you are observing with the same-store sales outperformance at those one-third of stores that are utilizing marketing efforts versus the two-thirds that are not? And just really looking ahead, I think you said the vast majority of the comp base will benefit from marketing. How soon is that planned to scale? Is that more of a first half or a second half driver?

Matt Eisenacher: Yeah. Sure. Happy to take those. So I think as we stated last year in those select geographies, we did see a several hundred basis point lift in traffic, pre/post test-control. And so we would be applying the same playbook and strategies to this year, with a couple optimizations. So it is not like we are deploying radically different strategies than we did last year. We are just scaling it to more restaurants. To your second question on the cadence of the spend, we actually just started moving into markets. Obviously, that takes time to build. And like last year, that will extend throughout the year. We do try to align that with our seasonality.

So you can think about the spend following our seasonality. So, obviously, you probably have more in the back half of the year, and then would taper down as you go throughout the rest of the year.

Andrew Charles: Okay. And then, Mel, if you could just help us understand the cadence of commodity and labor inflation as we think about 2026. I was thinking on the commodity side, theoretically, you should see more tame first half of the year just given what you are lapping over. On the labor side, you have the Florida minimum wage increase going on for September 30, but any help on the cadence there would be helpful.

Henry Melville Hope: I think that we expect the inflation to be somewhat higher in the second half of the year, so quarters three and four, than we are experiencing right now and in the second quarter.

Operator: Our next question comes from Jon Michael Tower with Citi. Please proceed with your question.

Jon Michael Tower: Thanks, and Mel congrats. Maybe starting off, Chris, you had mentioned, obviously, the new menu, or the core menu improvements you are excited about. I think you had talked about even ten years ago or so, seeing some fairly strong growth post changes. So I am curious, from obviously hitting on things that consumers want more of, are there actual operational improvements as well? It sounds like you reduced some of the SKUs, but should we expect, you know, better speed of service, any other benefits that you could speak to from this core menu enhancement?

Christopher A. Tomasso: Yeah. A lot of those efforts we talked about a lot in 2024 and 2025 with the back-of-house improvements, improving our throughput, especially during peak sales hours. The efforts around the menu will definitely deliver some efficiencies like I talked about. You know, removing some single use item SKUs. Bringing back some of these favorites and things that the teams have executed before as seasonal menu items. So there is a muscle memory there that will help them execute that. But, really, this is much more heavily weighted toward the consumer side and the appeal and bringing back some of these favorites. But it does it does have some back-of-house benefits like reducing prep time and things like that.

But that was not the main focus.

Jon Michael Tower: Got it. Makes sense. And maybe just kind of flipping to the backdrop, curious, in your guidance for the year, Mel, how you are thinking about tax refunds and how that might be impacting your business? Or asked differently, in the past when you have seen elevated tax refunds, how has the business responded?

Henry Melville Hope: Yeah. That is interesting. Historically, we have believed that our typical customer does not react necessarily to tax refunds in terms of attendance in our restaurants. But we are certainly aware of it, and it is just going to be easier for us to read after it occurs. But our customer demographic tends to skew a little bit higher on the household income scale. And as a consequence, we have oftentimes been a little bit insulated from certain cost pressures in terms of going down, and when there is a windfall or tax refunds, we may not benefit quite as much as you see in quick service restaurants.

Jon Michael Tower: Great. Thanks for taking the questions.

Operator: Our next question comes from Andrew Marc Barish with Jefferies. Please proceed with your question.

Andrew Marc Barish: Hey, guys, and congrats, Mel. Just trying to frame up how we should think about the delivery business within the context of your guidance? I know I have seen some free delivery offers and things like that. Can you maintain sales in 2026 versus the big growth that you saw in 2025? And one quick follow-up as well.

Christopher A. Tomasso: Sure. Andy, this is Chris. Obviously, we have been really pleased with our progress in this channel over the past year. Our teams worked really hard to create a true partnership with those vendors that we work with. And so we are happy with the third party where it is and direct off-premise as a percentage of our overall mix. And, we are not specifically commenting on future traffic assumptions in that channel. But we also did not fund free delivery. I mean, it was a much deeper partnership on how we got together and aligned on goals. It really is about transactions for both of us and then margin for us.

And we achieved both of those, and we will continue to work to build on that.

Andrew Marc Barish: Gotcha. And then on the new unit growth, so just want to be clear. On the company-owned side, it will be 56 to 58 gross and then the three closures that had been primarily contemplated?

Henry Melville Hope: That is right.

Andrew Marc Barish: Okay. And is the kind of market densification, I guess, implying you are not going to go into five new major markets as you did in 2025. Is there a little bit of an NRO margin benefit that we should see? Or is it not as material just given the size of the company now?

Christopher A. Tomasso: Are you talking about, when you say margin benefit, can you expand on that?

Andrew Marc Barish: Yeah. Just densifying existing markets, which is obviously positive, and not going into, I am presuming, as many new markets, which is also obviously positive as it takes a little time to ramp margins in those newer markets.

Christopher A. Tomasso: Yeah. If you will recall, we have very similar performance for our NROs across geographies. So that is not really a large consideration. Where that really shows up, though, Andy, is in pre-opening costs and training costs. If we do it in a core market, we can pull trainers and staff from around the region. Whereas if we are going remote like we did in Las Vegas or when we entered Boston or New England, the pre-opening costs are higher. But the margin performance is pretty similar across geographies and the maturity of the market.

Henry Melville Hope: Hey. And, Andy, I think I misspoke in response to your question. The range of new company restaurants, which is what I think you were asking about, is net of the three closures that we expect to execute this year. So that range at 53 to 55 is the net range. So it considers the closings.

Andrew Marc Barish: Okay. Thank you. Sorry about that.

Operator: Our next question comes from Todd Morrison Brooks with Benchmark. Please proceed with your question.

Todd Morrison Brooks: Hey, thanks. And, Mel, I add my congratulations on your upcoming retirement. Couple more follow-up type questions here, but wanted to dig in on the enhanced marketing efforts, and correct me if I am wrong, but my understanding of the focus in 2026 in the test kind of third of the base was finding breakfast daypart users that were not necessarily First Watch Restaurant Group, Inc. customers and stimulating them to try the brand. Was that the case for the entire year?

And is there another lever that gets pulled as you broaden the program out where we actually use the enhanced marketing efforts into the existing First Watch Restaurant Group, Inc. customer base in an effort to drive additional frequency there as well?

Matt Eisenacher: Yeah. Hey, Todd. It is Matt Eisenacher again. So it is a good question. What I was saying, we are really taking the playbook of what we saw work last year and applying that this year. The strategy would be the same as you stated where we are using information and customer data to target those that are already active in the breakfast daypart. We are still in the early stages of a marketing lever here at First Watch Restaurant Group, Inc., and so we see that as a responsible way to be efficient with our dollars. Now, again, if you look many years out, eventually, you can start to move outside and start to grow the overall occasion.

But, as we all know, that could be a little bit more difficult. So we are, for this year. And, yes, to answer your question, that was the focus all of last year as well and will be this year as well.

Todd Morrison Brooks: So, Matt, any pivot to some of the effort being against existing First Watch Restaurant Group, Inc. customers versus just overall category users, or does that measure of overall category users include your existing customer base?

Matt Eisenacher: Yeah. So as we talked about before, we apply different strategies, channels, and creative if we have not seen you before or if you are part of our customer base. If we are trying to introduce the brand to you, we want to establish that we are a great place for everyday breakfast. As we start to get more information on you, we will start to pulse through our seasonal menu program, given that you know who we are. So we have a variety of segmentations and cohorts, and our first-party audience is part of that as well.

Operator: Our next question comes from Brian Hugh Mullan with Piper Sandler. Please proceed with your question.

Brian Hugh Mullan: Hi. Thanks. I would just like to echo, Mel, congrats on the retirement.

Henry Melville Hope: Thank you.

Brian Hugh Mullan: So question, no problem. Can you just comment on what you have seen lately across the dayparts, between weekday breakfast, weekday lunch, and the weekend business? Just curious if there are any notable differences or if they are more behaving similarly, and how you expect those to behave in 2026.

Christopher A. Tomasso: So we talked about, I think, on the last call that we saw strength in the weekday breakfast segment, and we certainly saw that in Q4 and all of last year. And then in Q4, also, weekends also slightly outperformed. Sorry. Not just Q4, but also for 2025 as well. So whereas we saw some weakness, I think, back in 2024 in weekday breakfast, we recovered that in 2025. Specifically.

Brian Hugh Mullan: Okay. Thanks. And then, follow-up, just menu innovation, just high level, the beverage offerings. Just wondering what the team is working on, if anything, and what the biggest opportunity is over the next few years.

Christopher A. Tomasso: Yeah. The beverage category for us continues to be a big driver. We launched our fresh juice program, I think, almost ten years ago now, and it still continues to blow us away at the mix of those items. We have a new juice on every seasonal menu. And, thoughtfully, over the years, we have added a couple of those juices to the core menu. We have also innovated around cold, carbonated beverages, which is now a permanent part of our menu. And those do well. So absolutely looking at the beverage category as an opportunity, in addition to the alcohol platform that we rolled out a couple years ago. So we see opportunity there in our innovation pipeline.

Operator: Our next question comes from Gregory Francfort with Guggenheim Partners. Please proceed with your question.

Gregory Francfort: Hey, thanks for the question. I guess my first question is just on the pricing. I think you guys evaluate pricing twice during the year. And I am just wondering, as you looked at the guidance, what you embedded? I guess there is no incremental pricing in the first half, but do you embed an assumption for a pricing increase in the second half?

Christopher A. Tomasso: So we talked about the carried pricing that will end up being 2% blended for the year. But honestly, for our same-restaurant sales guidance, the 1% to 3%, it is really based on a combination of a number of potential impacts this year that we may not have had in years past, and a number of levers that we have, whether it is the new core menu, the increased marketing activity, mix upside from our seasonal menus, and pricing is one of those levers as well. But we will look at that and see where we are midyear and make that decision.

But I think, based on the consumer environment right now, and doing what is right for the customer, that is why we elected not to take any price at the beginning of this year.

Henry Melville Hope: In other words, we will not make that call until the second quarter.

Gregory Francfort: Oh, okay. Got it. And then just on your margin outlook, I think the implied assumption is maybe just a little bit under 19% for the year. What would it take, I guess, to get back towards the high end of the 18% to 20% long-term range that you guys have targeted? Maybe in 2027 or 2028?

Henry Melville Hope: Thanks. There is a lot of influence on the overall margin based on the number of juvenile restaurants that we have in the mix. So our legacy cohort, the comp cohort, consistently delivers 200 or more basis points above the consolidated average. And then because we have such high-volume new restaurants that are getting to mature margins, they currently are on the road to that. They have an impact on the margin and it is outsized because their sales are so large. They tend to over-index on the average.

So, really, probably the immediate driver to get margins, as you said, to the upper end of the range would be to accelerate the growth of the more juvenile restaurants in terms of their margin production during the year. And we see a lot of opportunity in that, but also there is sort of a natural curve when you have a new restaurant and have new crews, and you are operating in new areas. We press to get them to mature margins as swiftly as possible, but they also have a life cycle and we do not want to tarnish the customer experience by being too hasty.

Christopher A. Tomasso: And, Greg, I think if you think about our philosophy of pricing to defend margins, if there ever was a year where that was challenged, it was last year, and we were able to deliver 19% margins in Q4, 18.5% for the year, right smack in the middle of that range. And so we have got some relief, hopefully, this year on the commodity side. But I think our ability to hit in that range and our history of doing that is well documented, and I think we will continue to be able to do that when we leverage our philosophy.

Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from Brian Michael Vaccaro with Raymond James. Please proceed with your question.

Brian Michael Vaccaro: Thanks. And, Mel, congrats on your retirement. I am still going to email you on egg inflation, so I hope that is okay.

Henry Melville Hope: Good. I am here.

Brian Michael Vaccaro: But just two quick ones for me. On the G&A side, you have leveraged that line, I think, about 60 bps in 2025. And you did mention the new executive comp plan as well. So could you just level set or give us a ballpark on your G&A in 2026 just to make sure we are all on the same page? Any guardrails you could provide there?

Henry Melville Hope: So we do not guide to G&A, but I would say that we continue to expect to lever our cash-based G&A as we continue to grow, and the non-cash piece is what would be challenged in order for us to overcome the increase this year. But we will try and communicate that clearly as we publish our results going forward so that people understand how we are looking at that cash-based leverage.

Brian Michael Vaccaro: Okay. Alright. Thank you. And on the commodity inflation outlook, the up 1% to 3% for the year, maybe just unpack that a little bit further, just kind of the puts and takes, what that might embed for eggs or other key commodities. And I guess the other question I had, as you lap, I think, around 8% in the first half, and obviously, you finished with close to 1%. But as you lap that 8%, are there any quarters that you would expect to see deflation on a year-over-year basis?

Henry Melville Hope: Among some of our commodities, I do expect that we are going to see some deflation. We are deflating on avocados. But we have not seen a lot of relaxation in the inflation in terms of our coffee or our pork prices at this point. So we do have some favorability in a couple of big things. Still having to wait out what is happening with the market on a couple of others.

Operator: We have now reached the end of our question and answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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