First Watch shifts its growth engine into high gear

The breakfast-and-lunch chain recently opened its 500th location and has many others under development as it works to expand its presence.
First Watch
First Watch recently opened its 500th location. | Photo: Shutterstock.

First Watch, the Bradenton, Fla.-based breakfast-and-lunch chain, recently opened its 500th restaurant. And it expects to open a lot more in the near future.

The chain opened 13 locations in the third quarter. It expects to open as many as 21 in the fourth quarter, which would make it “one of the most prolific in the company’s history,” CEO Chris Tomasso said on Wednesday.

“We have over 100 restaurants in various stages of development and more than 120 promotion-ready managers ready to lead them,” he analysts on the company’s third-quarter earnings call on Wednesday, according to a transcript on the financial services site AlphaSense. “We believe we are well-positioned to capitalize on the white space in front of us.”

First Watch has been one of the most consistent growth chains in the U.S. in recent years. For a time it grew in part by acquiring other family dining chains and converting their units but these days all its development is organic.  

It has also outperformed much of the full-service sector. It has not reported a negative same-store sales number since going public in 2021 and on Wednesday bested investor expectations for both revenue and net income. The company reported $219.2 million in revenue and $5.4 million in net income, or 9 cents per share. Both bested expectations according to the website Earnings Whispers.

Same-store sales rose 4.8% in the period, beating its competitors by 400 basis points, Tomasso noted. “My confidence in our ability to successfully navigate virtually any environment is higher than ever, especially in light of our consistent growth,” he added. First Watch also raised its expectations for sales, revenue and adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization.

Yet the company’s shares have been somewhat muted. The stock trades at just over $17 per share, which while up 2.5% on Wednesday and 27% for the year remains below its $18 IPO price.

A bigger presence could help that over time. First Watch units have traditionally been in the Southeast and Southwest. But the company appears intent on adding locations and believes those locations pay off. First Watch’s unit volumes average $2.5 million by their third year and operating margins range from 18% to 20%. Cash-on-cash returns typically exceed 35%.

Indeed, the company feels so strongly about its brand that it is acquiring franchised units. It recently acquired 17 locations in Milwaukee, Omaha, South Carolina and Georgia and expects to buy another six in Florida this month.

The company now has 11 franchisees that operate 97 restaurants, and 46 of those locations are subject to purchase options. “Converting franchises to company-owned restaurants is compelling from both a financial and strategic perspective and represents a significant growth opportunity for our entire enterprise,” Tomasso said.

Tomasso said its brand can thrive in both new and existing markets, and its top restaurants are in 10 states and 19 metro areas.

While First Watch has been growing aggressively, it could grow even faster. Tomasso noted that some developers have pushed some projects out into next year. “We’ve been seeing that leakage throughout the year,” Tomasso said. “We would hope to have more projects, spending more heavily in the projects in the pipeline right now, but it’s really the pace of developers delivering new sites so we can finish them out and open them faster.”

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