First Watch (NASDAQ: FWRG) reported Q2 2026 revenue of $354.7 million, up 15.2% from $307.9 million a year earlier, while diluted EPS increased to $0.04 from $0.03. Same-restaurant sales rose 3.4% despite a 0.4% decline in quarterly traffic, and management said traffic turned positive in June. Restaurant-level profitability improved modestly, but consolidated operating and adjusted EBITDA margins edged lower.

Core earnings data

The results cover the 13 weeks ended June 28, 2026 and were released on August 4. System-wide sales increased 14.7%, while adjusted EBITDA grew 13.5% to $34.5 million.

Net income rose by about 11%, slower than revenue, and adjusted EBITDA margin declined by 20 basis points. This indicates that First Watch generated more sales and restaurant-level profit without obtaining comparable margin leverage at the consolidated level.

*Restaurant-level operating profit and adjusted EBITDA are non-GAAP measures.

Business and restaurant trends

Restaurant sales increased to $351.5 million from $305.0 million, while franchise revenue rose to $3.2 million from $2.9 million. System-wide sales include sales from franchise restaurants that First Watch does not recognize as revenue.

First Watch opened 18 system-wide restaurants across 15 states during the quarter. It finished the period with 665 restaurants, comprising 586 company-owned locations and 79 franchise-owned locations, and also identified one planned closure.

Comparable restaurant performance was more mixed than the headline revenue growth. Same-restaurant sales increased 3.4%, but traffic declined 0.4% for the quarter. The 3.8-percentage-point gap between sales and traffic was not broken down into pricing or mix in the release. CEO Chris Tomasso said traffic improved sequentially and turned positive in June.

Restaurant-level gains did not fully reach consolidated margins

Restaurant-level operating margin increased by 20 basis points to 18.8%, showing a modest improvement in store-level economics. Below that level, however, operating margin slipped to 2.3% and adjusted EBITDA margin declined to 9.7%.

General and administrative expenses rose to $38.7 million from $33.2 million, while depreciation and amortization increased to $21.8 million from $18.1 million. Both grew faster than revenue, limiting consolidated margin expansion. Interest expense also increased to $4.9 million from $4.0 million, contributing to a decline in pretax income to $3.4 million from $3.6 million.

Net income still increased because income tax expense declined to $1.0 million from $1.5 million. The GAAP net margin remained 0.7%, unchanged from the prior-year quarter.

Fiscal 2026 guidance

Based on the second-quarter results and current trends, First Watch updated its outlook for the 52-week fiscal year ending December 27, 2026. The release did not provide the previous guidance ranges, so the direction and size of the revisions cannot be determined from the supplied information.

The restaurant target consists of 53 to 54 new company-owned locations and nine to 10 new franchise-owned locations before the two planned company-owned closures.

Recent insider transactions

The supplied six-month summary categorized 677,933 shares across 16 transactions as purchases and 107,966 shares across 14 transactions as sales, producing net purchases of 569,967 shares. However, nine of the latest 10 reported transactions were zero-price stock awards without disclosed share counts in the supplied data, so the aggregate should not be interpreted as evidence of open-market buying.

Risks investors should monitor

• Comparable traffic remains a key test. Quarterly traffic was still down 0.4%, despite turning positive in June. If that improvement does not continue, comparable sales would remain more dependent on average spending rather than customer visits.
• Consolidated margins remain thin. Operating margin was 2.3%, while G&A, depreciation and interest expense increased faster than revenue. Continued growth in these costs could offset restaurant-level gains.
• Expansion requires substantial execution and capital. First Watch plans 60 to 62 net new system-wide restaurants and $145 million to $150 million of capital expenditures in fiscal 2026. New-location performance and spending discipline will therefore be important to the financial outcome.

Summary

First Watch’s Q2 2026 revenue growth reflected both continued restaurant expansion and positive same-restaurant sales, while June’s return to positive traffic provided an encouraging end to the quarter. Store-level margins improved slightly, but higher corporate, depreciation and interest costs prevented broader margin expansion. The main items to monitor are whether positive traffic persists, whether consolidated expenses begin to show operating leverage, and how effectively the company executes its capital-intensive restaurant opening plan.

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