Raymond James, we're excited to conclude day two of our conference with the team from First Watch. First Watch is one of the most interesting and really underappreciated growth stories in the restaurant space in our view. We've got the company CEO, President and CEO, Chris Tomasso, and then also SVP of FP&A, Ashlee Weisser We're thankful for your time today. I need to read a quick disclosure statement here, and then we'll dive right in. Please see First Watch Restaurant Group's forward-looking statements disclaimer in its Q4 2025 earnings release available on its investor relations website at investors.firstwatch.com. For those in the room, this disclaimer can be accessed from your mobile devices as well.
Lastly, management's remarks today may 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 the comparable GAAP results contained in the company's Q3 earnings release. Unfortunately, we're out of time. And we'll wrap there.
Nice job. Nice job.
All right. Well, thank you for your time today. Chris, we'll start sort of high level for anyone that might be new to the story, you know, First Watch is a brand that's 40 years young, as you like to say.
Yeah.
Over 600+ restaurants. Maybe just kick us off with a 60-second overview of the company, again, for anyone that might be new to the story.
Yeah, sure. Thanks, Brian. First Watch is a daytime only restaurant concept serving breakfast, brunch and lunch made to order, using high quality fresh ingredients. We don't have deep fryers, heat lamps, or microwaves in our restaurants. Our hours are 7:00 A.M. to 2:30 P.M. In about a half hour, all of our employees will be home enjoying time with their families. Well, I'll be here with you. We're 43 years old. We're the fastest growing full service restaurant company in America. We entered about five new markets this past year. We don't position ourselves as a health food restaurant, we're known for having a health halo and a fresh approach to our menu, high quality ingredients, like I said, cage-free eggs, organic mixed greens, antibiotic-free chicken, things like that.
We've been growing at about, you know, low double-digit unit growth for a number of years and entering new markets and taking over existing spaces, you know, we are the leader in our segment, daytime dining. We had it to ourselves for many, many years, decades, if you will. I think some people took notice of our success, entered the space, we've been able to continue to take market share as we've grown.
All right. That's a great overview. Last week, you reported your fourth quarter results. You also provided some thoughts on your 2026 outlook that included comps up 1%-3%. Can you just talk about some of the key drivers that you think can generate some more positive traffic in 2026 or drive traffic in 2026? How are you thinking about pricing in the year as well?
Yeah. We finished 2025 with positive same-restaurant traffic and positive same-restaurant sales. Going into this year, some of the things I'm really excited about is we've been talking a lot about our marketing initiatives that we tested in 2024, expanded in 2025, and really looking forward to taking that to about 75% of the system this year. It's definitely a new area for us. We're in the early innings of it, but have been really pleased with what we've seen from that. What I'm most excited about is our new menu. We've launched actually just a month ago, a couple of weeks ago, our new core menu, which we haven't really done in about 10 years.
We're known for our menu innovation and our culinarily forward menu, and we have five seasonal menus a year, but this is the first time in 10 years that we've actually revisited and re-engineered and relaunched our core menu. We tested that for over a year. You know, if you aren't catching on, we like to test things and make sure that we have no surprises in what we do going forward. We did the same with the media. We're doing the same with the marketing. From our perspective, those two things, knowing what we know about how they performed while we tested them, are levers that we're excited about for this year. The unknown obviously is the consumer environment and what happens there.
But we think we're well-positioned. What we said on the call was that you can expect us to outperform the industry again like we did in 2025. As it relates to price, what we talked about on the call was we look at pricing 2 times a year, at the beginning of the year and the middle of the year. Typically, our philosophy is to price to cover inflation. We had outsized inflation last year, so we didn't do that. Really, we look at it for permanent inflation. You know, we had some avian influenza impacts and some certain crop issues with avocados and things like that.
What we saw as permanent inflation, we priced too, but there was a gap between what our actual inflation was and what we took in price. What I said on the call this year was that we looked at the beginning of the year and we decided not to take any price in January. You know, we'll look at it again mid-year, but we wanna see where the consumer is. We wanna be able to measure and evaluate the impacts of those two key levers that I talked about, which were the menu and the marketing, and see where we are mid-year. We'll manage to our same-restaurant sales guidance, and I'm pretty confident that we'll get there. That's our outlook for the year.
All right. That's great. Maybe we could double-click. You know, obviously value is a critically important component and sort of dynamic in the current consumer backdrop. How do you think about First Watch's pricing power? You know, on the one hand it seems like you've taken a lot less pricing versus peers. Maybe as much as 10% or 15% less.
Mm-hmm
if you know, kinda stacked it versus 2019. On the other hand, your average check I think is in the $17 sort of range. Which some may view as maybe on the upper end of the spectrum for breakfast, within the breakfast category. Just how do you balance those two dynamics? What are some of the puts and takes there for you?
Yeah. First of all, I would say that our philosophy is, you know, on frequency. We don't wanna be a special occasion brunch restaurant. We're also not interested in being a value player. If you think about that pendulum, we wanna sit right in the middle where we get the frequency, but the food quality is such that it matches any, you know, local chef-driven brunch specialty brunch restaurant, but we want a more frequent occasion. We have been conservative on pricing. It's, it's not that we don't believe we have pricing power. Matter of fact, our research tells us just the opposite. We've taken about 15% less than others since 2019, that's intentional.
I think that's one of the reasons why we were able to drive positive traffic in 2025. You know, as difficult as the environment gets, you have to make sure that you're maintaining value to the consumer. We believe the other key element to that is consistency in execution and high quality execution. Those are the things that we're focused on. I mean, what you just said is the exact reason why we chose not to take price in Q1. Doesn't mean we won't take it midyear, but we just felt like you know, where the consumer was, what we were seeing, and then really feeling confident in these levers that we're putting in place, just, you know, give the consumer a break and then see where we are.
All right. That's great. Maybe we'll just double-click back to the marketing initiatives that you mentioned. Maybe give us a flavor of what you're doing? There's several different silos of your digital strategy. Can we talk a little bit about that and also how it's benefiting? I think you did it in about a third of your footprint. You've rolled it about a third. How is that benefiting those stores versus the rest of the country?
Well, I'll say this. 20 years ago, I joined First Watch as chief marketing officer, all along the path I was asked a lot about, you know, when did I think First Watch would be media efficient. I said probably not for a long time. Now with digital and other ways to target consumers literally to the household, we're able to play in that space where probably we couldn't have 10 years ago. Our team's done an amazing job of accumulating consumer data, leveraging third-party data, our credit card data, and putting programs in place that we, again, tested for a long time, throughout a number of restaurants, then expanded to about a third of the system in 2025. For 2026 you can expect that to be in about 75% of the system.
The neat thing about it and the actionable part of it is, it's almost immediate as far as feedback goes, and Ashlee and her team and how quickly they can measure it and give our marketing team information that's actionable for tweaks and adjustments and just making the whole process iterative. We were really happy with the returns and the results we saw both in the small tests and in the larger tests, and now we're excited about taking it to the majority of the system.
Yeah. That's great. That's great. you know, back to just your strategy, staying away from price point promotions historically and making investments in other areas of the guest experience, whether it be within the menu like you did in 2025, I think, but also just a real focus on operational execution, and really elevating that guest experience. I know there's a lot there, but maybe talk about some of the bigger investments you made in the guest experience in 2025. Are there any tools or other operational changes that are on your radar that you're thinking about, you know, next 12, 18 months that are worth noting?
Yeah, I can take that one. You're right. As Chris mentioned in his comments on pricing, we are not discount-driven promoters, right? We are focused on driving frequency, and we do that by creating value in a different way. Instead of value being solely focused on price, we find value focused in the experience and the food. In 2025, as you mentioned, Brian, we invested back in the customer experience by increasing portion size on some of our key items. We also introduced digital guest-facing tools that are making the experiences frictionless, maybe I should say, maybe have less friction.
As we look to 2026, we're going to have continued investment on the digital front, a new menu that will allow for simplification both for our customers and also for our front of house and back of house team members. From that regard, we're also investing in operational technology that will help make the experience of the employee side wonderful that they can better serve the customer.
If you remember in 2023 and 2024, our focus was on, you know, our ability to serve more demand. Whether it was the rollout of the KDS system-wide, or table optimization, dining room optimization, or optimizing the back of house to be able to accommodate what was a growing third-party delivery channel, we kinda set that foundation. Now with the marketing, the menu, and all of that, we're on a create more demand now that we know that we can accommodate it through our operations. We've had some of our highest peak sales hours, record-setting sales hours, you know, on big days like Mother's Day, and our new restaurants are performing really well.
Mm-hmm.
They have those components in there that are allowing them to also deliver higher sales.
All right. That's great. Maybe we'll pivot back to the 2026 outlook on inflation a little bit. Maybe Ashlee, bring you in again. You guided commodity inflation up 1% to 3%. That was following 5% inflation in 2025, historic inflation on eggs, no bird flu, knock on wood. And pressure in other categories as well. Maybe just walk us through kinda the basket and not all the items, et cetera, but just where are the puts and takes within the basket for 2026?
Yeah, for sure.
Yeah, that'd be great.
AI is a scary word for First Watch, not from artificial intelligence, but avian influenza, which just crushed us in 2025. This year, barring that AI is now just artificial intelligence, we're actually expecting deflation on eggs. As we think about the balance of the basket, we've got about 70% of our basket that is made up of lots of little things like the fresh produce that we use to make our juices, the Barbacoa that's in one of our new menu items that Chris talked about on the call. That's expected to see a normal level of inflation, but it's 70%, so that adds up on the total. Within the remaining 30%, we've got great visibility on a lot of that.
Like I said, eggs will be deflationary, as will avocados. We are still seeing inflation in bacon and primarily in coffee. We've got a great Project Sunrise coffee that we bring from Huila, Colombia. We've got a partnership with the Mujeres en Café, it's a women grown farming. They, that coffee does come at a slight premium. Coffee in general, as anybody that's watching the market knows, it's quite inflated this year as well.
All right, great. I guess back to the overall store margins for 2026. Your guide would seem to embed sort of flattish store margins to RI. Just wanted to confirm ballpark that's the case. Thinking about the line items, is there anything labor or other OpEx worth calling out as you kinda pick through the line items?
Okay. Yeah, I think for the most part, flattish is probably fair. Part of that is Chris's comment earlier of no embedded pricing in the back part of the year.
Mm-hmm.
And we're expecting the 1%-3% in commodity inflation, about 3%-5% in labor. Other than that, I don't think there's anything very specific in the other line items that you'd wanna adjust the model for.
Okay. Great, great. Well, obviously, unit growth, a very important piece of your story, over 600 units, coming in on 700, I think, on the company side.
Yeah.
You know, and your new unit sales performance has exceeded expectations for the last few years and your internal targets. Maybe just talk about the new unit growth pipeline. What's driving some of that outperformance on sales and kind of how you see the next year or two playing out from a new unit growth perspective?
Sure. I mean, we've been really pleasantly surprised by the reception to First Watches in new markets. You know, we talked about on the call, we set a couple of new restaurant opening sales, first week sales records. We entered five new markets last year, and, you know, the classes have just been performing exceptionally well, exceeding both our average unit volumes and our underwriting targets. When you look at 2024 and 2025 was better than 2024 better than 2023. Our class of 2025 is actually performing about 19% above our underwriting targets.
We've had that luxury for a long time of consistent new restaurant opening volumes, which is a rarity and a blessing for a restaurant concept that's high growth because typically you'd have to open restaurants in markets where you know you're gonna do well to offset, maybe new market entries where you might come out of the gates a little slower or lower, and we haven't seen that. It gives us the flexibility to have a pipeline, a robust pipeline for growth that is pretty well dispersed. The other benefit of that it is it doesn't put any kind of undue pressure on any one or two markets from a, from a restaurant-level oversight perspective. Opening new restaurants and markets is, you know, it's not easy. It takes a lot of people to do that.
We seeded five new markets last year. You'll see us continue to grow those markets to get them to what we call operational efficiency, which typically takes about four or five restaurants to start leveraging that above restaurant operational leadership. You'll see us continue to fill in core markets. You know, we do have strategic cannibalization that we deal with, but that's pretty common for a high growth concept. I mean, Our new unit growth has been a strong point for us for a lot of years, and we have a extremely robust real estate pipeline and the people pipeline to support it.
I guess following up on that, just how you think about balancing existing versus new market entries, and I think Las Vegas, Boston, maybe touch on kinda the intention and the different sort of opportunities you see for the brand in some of these different markets that you're entering?
Yeah. I think we talked about the five new markets that on the call represent a, you know, an opportunity for about 125-130 restaurants. You know, we entered Chicago a couple years ago. We're still building out that market, and we still have a lot of opportunity in the Sun Belt, whether it's Florida, Texas, Arizona. We continue to fill out those markets. New trade areas continue to pop up in Arizona and Florida, as growth, you know, population growth continues to migrate there. That said, some of our highest volume restaurants are in the Mid-Atlantic, in the DMV. We've been extremely well-received in the DMV, which if you've been in the restaurant industry, you know that's a difficult market to break into.
It did take us a little while, but, sure enough, once we got over that hump, it's, you know, our number one volume restaurant there and is there, and so is our, I think our, two of our top five are there. There's a lot of opportunity for growth in that market. Yeah, we, I mean, it'll be a well-balanced mix of openings across the country and in the different classifications of the vintage of the market, if you will.
Well, maybe we'll go high level for a second here, and maybe just talk about what you're seeing high level, sort of the health of your consumer. Any, any differences you're seeing, age cohorts, income bands, that's worth highlighting. Then maybe not just your consumer, but how you assess the overall breakfast category. You're obviously gaining share, but maybe just broaden that out a little bit for the group.
I'll start, then I know you have some perspective too. What I would say is from a consumer standpoint, it's been really interesting for us, despite all the challenges and headwinds that the consumer is facing, we still haven't seen check management in our system. At least the consumer that we are attracting comes in and opts for the full experience. We're typically a multi-beverage occasion, coffee and a fresh juice, coffee and an orange juice, something like that. That would typically be where you would see check management. We're not seeing that. We know we appeal to a higher income, higher educated demographic that probably isn't experiencing the same pressures that other demographics and therefore other concepts who skew more to that demographic have. We've been insulated there a little bit.
I think, you know, you know, we fought really hard for positive traffic last year. Really what it's come down to is I think the consumer is, you know, perhaps dining out less, and it's really important for us to, A, stay top of mind, which is why we're doing the marketing that we're doing, but, B, execute at a really high level and execute consistently because what we know the consumer doesn't wanna do is put their dollars at risk, and have a bad experience if they're going out less. That's just a hallmark for us. We're known for that. We've received hundreds of accolades over the years and a lot over the last couple of years, and we just know we have to keep operating at a really high level.
Something as simple as opening the door, doing what Ashlee talked about, increasing portion sizes, putting out free coffee when we're on a wait. Just these hospitality touches that we believe other concepts are kind of cutting.
because they have to. If we can stand out that way and create the loyalty and create the frequency, then that's what we wanna do.
Yeah. When we look across our restaurant base, we look at the income around our restaurants, and we see pretty similar traffic around all of the deciles of income. I think we feel pretty good in general. Now, we do skew to a higher income consumer in general, but even at lower income areas where some of our restaurants are seeing consistent performance.
All right. Great. We're almost out of time, but we have a few minutes left. Are there any questions from the audience before we wrap up? All right. We'll follow up in the breakout session then.
Great. Thank you.
All right. Thanks so much.
Thanks.