Everything seems to be working for First Watch these days.
Same-store sales at the breakfast-and-lunch chain jumped by 7.1% year over year last quarter on 2.6% higher traffic. It was the chain’s best same-store sales and traffic result in over two years, and was an acceleration over the previous three months, when same-store sales rose 3.5%.
Asked what drove the improvement, CEO Chris Tomasso said it was a combination of multiple strategies the brand has put in place over the past year: conservative pricing, better value, and enhanced service and consistency—“all the things that, in a turbulent economic environment, that consumer really puts an extra value on,” he said.
For instance, First Watch has increased portion sizes in certain dishes and has empowered staff to give away occasional freebies, while also keeping price hikes in check. Prices were 4.5% higher year over year in the quarter and will be about 3.5% higher for the full year.
One sign that those moves are paying off: First Watch’s fastest-growing daypart last quarter was weekday breakfast, a reversal from a year ago. It’s an occasion that consumers often replace by eating at home, especially in hard times. But they have been increasingly opting to go out to First Watch.
“As we continue to improve our value proposition, the consumer misses that occasion after a while,” Tomasso said. “Yes, you can make oatmeal at home or whatnot, but it’s just not the same.”
Third-party delivery also continues to be an area of strength for the brand. Delivery traffic increased “substantially," during the quarter, executives said, though they did not provide specific figures.
First Watch’s momentum has carried into the current quarter. Same-store sales are in the mid-single digits to date, Tomasso said.
The sales growth along with tighter operations drove an 80-basis point improvement to First Watch’s restaurant-level margins, which rose to 19.7%. The chain said it now expects to reach annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $123 million, the high end of its guidance for the year.
Total revenue leapt by 25.6%, to $316 million, thanks to that same-store sales growth as well as strong new resaturant openings and the acquisition of some formerly franchised locations.
First Watch stock surged by nearly 10% on Tuesday after the results were published.
The performance stood out in a weakening economic environment in which consumers continue to navigate inflation and the effects of the ongoing government shutdown. Lower-income consumers have been especially impacted, which has hurt many restaurant chains, but not so much First Watch, where the average customer tends to be higher-income, Tomasso said.
Meanwhile, the 620-unit Bradenton, Florida-based chain continues to open new restaurants at a rapid clip, including 21 in the third quarter alone. It expects to finish the year with 63 to 64 openings.
These new stores are opening stronger than ever. Nine of the chain’s 10 highest opening-week sales ever happened within the past 12 months, and the reception in new markets like Boston, Las Vegas and Memphis has been better than anticipated. Some locations are opening at 190% of the chain's average unit volumes, the company said.
Tomasso credited First Watch’s increasing brand awareness for the success of new locations, even in new markets.
“At this point we’re at now where we have more than 600 restaurants, there are more and more people who have experienced First Watch, and they get excited about it when we’re coming to their market,” he said. “They want to be the ones to tell their friends about it.”
He also noted that the strong openings are not simply a honeymoon effect. “Our history has been wherever they start they just grow from there,” he said. The strong demand bodes well for First Watch’s ultimate plans to eventually have 2,200 restaurants nationwide.
Next up for the brand is an overhaul of its core menu, which it has been testing in some restaurants and will roll out systemwide next year. The update will bring some of the chain’s most popular seasonal items to the permanent menu, replacing some lower-selling products.
Though it only revamps the menu every five to 10 years, First Watch does seasonal menus five times a year, so customers are used to change, Tomasso said.
“The evolution of our menu, it’s actually something that they expect from us and look forward to,” he said. “So we don’t get the customer rejection that maybe some other concepts have seen with remodels or relaunches of menus and things like that.”
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