First Watch Restaurant Group, Inc.

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with these consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q and our audited consolidated financial statements and notes included in our 2025 Form 10-K. As discussed in the “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in our 2025 Form 10-K, including under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II, Item 1A. Risk Factors” of this Form 10-Q.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included in Part I, Item 1 of this Form 10-Q and our audited consolidated financial statements and notes included in our 2025 Form 10-K. As discussed in the “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified in our 2025 Form 10-K, including under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in “Part II, Item 1A. Risk Factors” of this Form 10-Q.

Previous wording

First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. Our common stock trades on Nasdaq under the ticker symbol “FWRG”. A recipient of many local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites for breakfast, brunch and lunch. For four consecutive years, First Watch has been named a Top 100 Most Loved Workplace® by the Best Practice Institute, and in 2025, was named the #1 Most Loved Workplace for the second year in a row, as featured in The Wall Street Journal.

Current wording

First Watch is an award-winning Daytime Dining concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. Our common stock trades on the Nasdaq under the ticker symbol “FWRG.” A recipient of many local “Best Breakfast” and “Best Brunch” accolades, First Watch’s award-winning chef-driven menu includes elevated executions of classic favorites alongside innovative dishes and fresh juices. For four consecutive years, First Watch has been named a Top 100 Most Loved Workplace® by the Best Practice Institute, and in 2025, was named the #1 Most Loved Workplace for the second year in a row, as featured in The Wall Street Journal.

Previous wording

We operate and franchise restaurants in 32 states under the “First Watch” trade name and as of March 29, 2026, the Company had 572 company-owned restaurants and 76 franchise-owned restaurants.

Current wording

We employ more than 18,000 employees, operate and franchise restaurants in 33 states under the “First Watch” trade name and, as of June 28, 2026, had 586 company-owned restaurants and 79 franchise-owned restaurants.

Previous wording

Financial highlights for the thirteen weeks ended March 29, 2026 (“first quarter of 2026”) as compared, unless otherwise indicated below, to the thirteen weeks ended March 30, 2025 (“first quarter of 2025”) reflect the continued momentum of our operating performance and include the following:

Current wording

Financial highlights for the thirteen weeks ended June 28, 2026 (“second quarter of 2026”) as compared, unless otherwise indicated below, to the thirteen weeks ended June 29, 2025 (“second quarter of 2025”) reflect the continued momentum of our operating performance and include the following:

Previous wording

•Opened 16 system-wide restaurants in 11 states, with 1 planned closure, resulting in a total of 648 system-wide restaurants (572 company-owned and 76 franchise-owned) across 32 states as of March 29, 2026

Current wording

•Opened 18 system-wide restaurants in 15 states, with 1 planned closure, resulting in a total of 665 system-wide restaurants (586 company-owned and 79 franchise-owned) across 33 states as of June 28, 2026

Previous wording

•Same-restaurant traffic growth of negative 2.0%

Current wording

•Same-restaurant traffic growth of negative 0.4%

Previous wording

•Income from operations margin decreased to 0.3% during the first quarter of 2026 from 0.4% in the first quarter of 2025

Current wording

•Income from operations margin decreased to 2.3% from 2.4%

Previous wording

•Restaurant level operating profit margin* increased to 18.5% in the first quarter of 2026 from 16.5% in the first quarter of 2025

Current wording

•Restaurant level operating profit margin* increased to 18.8% from 18.6%

Previous wording

In the first quarter of 2026, we experienced same-restaurant sales growth of 2.8% and same-restaurant traffic growth of negative 2.0%. We expect annual same-restaurant sales growth to be between 1% to 3%.

Current wording

In the second quarter of 2026, we experienced same-restaurant sales growth of 3.4% and same-restaurant traffic growth of negative 0.4%. We expect annual same-restaurant sales growth to be between 1.5% to 3.0%.

Previous wording

We experienced commodity deflation of 1.6% in the first quarter of 2026, primarily due to lower costs of eggs, avocados, and bacon, partially offset by an increase in the cost of coffee. We expect our full year commodity inflation to be approximately 1% to 3%.

Current wording

For the second quarter in a row, we experienced commodity deflation of 1.6%, primarily due to lower costs of eggs, avocados, and bacon, mostly offset by the demand for newly introduced higher cost beef offerings and an increase in coffee prices. We expect our full year commodity inflation to be approximately zero to 1.5%.

Previous wording

Restaurant-level wage inflation during the first quarter of 2026 was 3.7% and full year inflation is expected to be approximately 3% to 5%.

Current wording

Restaurant-level wage inflation during the second quarter of 2026 was 4.1% and full year inflation is expected to be approximately 3.5% to 4.5%.

Previous wording

Same-Restaurant Sales Growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”). For the thirteen weeks ended March 29, 2026 and March 30, 2025, there were 454 restaurants and 383 restaurants, respectively, in our Comparable Restaurant Base. Measuring our same-restaurant sales growth allows management to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors to provide a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of store openings, closings, and other transitional changes.

Current wording

Same-Restaurant Sales Growth: the percentage change in year-over-year restaurant sales (excluding gift card breakage) for the comparable restaurant base, which we define as the number of company-owned First Watch branded restaurants open for 18 months or longer as of the beginning of the fiscal year (“Comparable Restaurant Base”). For the thirteen and twenty-six weeks ended June 28, 2026 and June 29, 2025, there were 454 restaurants and 382 restaurants, respectively, in our Comparable Restaurant Base. Measuring our same-restaurant sales growth allows Management to evaluate the performance of our existing restaurant base. We believe this measure is useful for investors to provide a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of store openings, closings, and other transitional changes.

Previous wording

Adjusted EBITDA: represents Net income (loss) before depreciation and amortization, interest expense, income taxes, and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of Net loss, the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below.

Current wording

Adjusted EBITDA: represents Net income (loss) before depreciation and amortization, interest expense, income taxes, and items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of Net income (loss), the most directly comparable measure in accordance with GAAP, to Adjusted EBITDA, included in the section Non-GAAP Financial Measure Reconciliations below.

Previous wording

Adjusted EBITDA Margin: represents Adjusted EBITDA as a percentage of total revenues. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Net loss margin, the most directly comparable GAAP measure.

Current wording

Adjusted EBITDA Margin: represents Adjusted EBITDA as a percentage of total revenues. See Non-GAAP Financial Measure Reconciliations below for a reconciliation to Net income (loss) margin, the most directly comparable GAAP measure.

Previous wording

(2) Reconciliations from Net loss and Net loss margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are set forth in the schedules within the Non-GAAP Financial Measures Reconciliations section below.

Current wording

(2) Reconciliations from Net income (loss) and Net income (loss) margin, the most comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are set forth in the schedules within the Non-GAAP Financial Measures Reconciliations section below.

Previous wording

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Loss in relation to Total revenues or, where indicated, Restaurant sales for the thirteen weeks ended March 29, 2026 and March 30, 2025:

Current wording

The following table summarizes our results of operations and the percentages of items in our Consolidated Statements of Operations and Comprehensive Income in relation to Total revenues or, where indicated, Restaurant sales for the thirteen and twenty-six weeks ended June 28, 2026 and June 29, 2025:

Previous wording

The increase in total restaurant sales as compared to the same period in the prior year was due principally to (i) a higher number of restaurants from new openings and 2025 franchise acquisitions and (ii) positive same-restaurant sales growth of 2.8%.

Current wording

The increase in total restaurant sales during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year was due principally to (i) a higher number of restaurants from new openings, (ii) the acquisition of 19 franchise-owned restaurants during the thirteen weeks ended June 29, 2025 and (iii) positive same-restaurant sales growth of 3.4%, partially offset by the 0.4% decrease in same-restaurant traffic.

Previous wording

The increase in franchise revenues during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was due to an increase in the system fund contribution rate, partially offset by a decrease in franchise-owned restaurants from 86 to 76.

Current wording

The increases in franchise revenues during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year was due to (i) an increase in the system fund contribution rate during the first quarter of 2026 and (ii) 11 new franchise-owned restaurant openings between June 29, 2025 and June 28, 2026. These increases were partially offset by our acquisitions of 19 franchise-owned restaurants during the thirteen weeks ended June 29, 2025.

Previous wording

Food and beverage costs as a percent of restaurant sales decreased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily as a result of (i) menu price increases and (ii) commodity deflation due to a decrease in the cost of eggs, avocados, and bacon, partially offset by an increase in the cost of coffee.

Current wording

Food and beverage costs as a percentage of restaurant sales decreased during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year primarily as a result of (i) menu price increases and (ii) the lower cost of eggs, avocados and bacon, mostly offset by the demand for newly introduced higher cost beef offerings and an increase in coffee prices.

Previous wording

Food and beverage costs increased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily as a result of the 58 new restaurant openings and 19 restaurants acquired from franchisees between March 30, 2025 and March 29, 2026. This increase was partially offset by commodity deflation.

Current wording

Food and beverage costs increased during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year primarily as a result of the 57 new restaurant openings between June 29, 2025 and June 28, 2026 and the 19 franchise restaurants acquired during the thirteen weeks ended June 29, 2025. These increases were partially offset by commodity deflation.

Previous wording

Labor and other related expenses as a percentage of restaurant sales decreased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily as a result of the leverage associated with menu price increases, partially offset by wage increases.

Current wording

Labor and other related expenses as a percentage of restaurant sales decreased during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year primarily as a result of the leverage associated with menu price increases, partially offset by wage increases.

Previous wording

The increase in labor and other related expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to (i) the increase in the number of company-owned restaurants and related headcount and (ii) wage increases.

Current wording

The increases in labor and other related expenses during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were primarily due to (i) the increase in the number of company-owned restaurants and related headcount and (ii) wage increases.

Previous wording

The increase in other restaurant operating expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants driving increased expenses, including (i) $2.6 million related to utilities, repair and maintenance expenses, (ii) $2.2 million in operating supplies, (iii) $1.6 million in third-party delivery fees and (iv) $1.0 million in credit card fees.

Current wording

The increase in other restaurant operating expenses during the thirteen weeks ended June 28, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants driving increased expenses, including (i) $3.4 million related to utilities, repairs and maintenance expenses, (ii) $2.4 million in operating supplies, (iii) $1.6 million in third-party delivery fees and (iv) $0.9 million in credit card fees.

Previous wording

The increase in occupancy expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to the increase in the number of company-owned restaurants.

Current wording

The increases in occupancy expenses during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were primarily due to the increase in the number of company-owned restaurants.

Previous wording

The increase in pre-opening expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to the higher number of new restaurants opened during the period.

Current wording

The increase in pre-opening expenses during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year was primarily due to the higher number of new company-owned restaurants opened during the period.

Previous wording

The increase in general and administrative expenses during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was mainly due to (i) a $4.0 million increase related to 2026 leadership conference expenses, (ii) a $3.5 million increase in compensation expenses related to stock compensation, bonus expenses and additional employee headcount to support growth, (iii) a $1.7 million increase in marketing expenses and (iv) a $0.5 million increase in licenses and fees including information technology related expenses for an increased number of restaurants.

Current wording

The increase in general and administrative expenses during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year was mainly due to (i) a $5.7 million increase in marketing expenses, (ii) a $4.5 million increase in compensation expenses related to stock compensation, bonus expenses and additional employee headcount to support growth, (iii) a $3.9 million increase related to 2026 leadership conference expenses and (iv) a $1.1 million increase in licenses and fees including information technology related expenses for an increased number of restaurants. The increase was partially offset by a decrease in consulting and other professional services fees.

Previous wording

The increase in depreciation and amortization during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.

Current wording

The increases in depreciation and amortization during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were primarily related to depreciating and amortizing the assets of NROs and of acquired restaurants, including reacquired rights from franchisees.

Previous wording

Transaction and restructuring expenses, net principally include (i) incremental severance costs resulting from organizational optimization, (ii) costs incurred in connection with the acquisition of franchise-owned restaurants and (iii) costs related to secondary equity offerings completed in 2025.

Current wording

Transaction and restructuring expenses, net principally include (i) incremental severance costs resulting from organizational optimization, (ii) costs incurred in connection with the 2025 acquisitions of franchise-owned restaurants and (iii) costs related to secondary equity offerings completed in 2025.

Previous wording

The increase in transaction and restructuring expenses, net during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was mainly due to a $1.1 million increase in incremental severance costs resulting from organizational optimization. The increase was partially offset by (i) a $0.4 million decrease in costs incurred in connection with acquisitions and (ii) a $0.4 million reduction in secondary equity offering costs.

Current wording

The decrease in transaction and restructuring expenses, net during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year was due to decreases in costs incurred in connection with (i) 2025 acquisitions and (ii) 2025 secondary equity offering costs. The decrease was partially offset by an increase in organizational optimization costs.

Previous wording

Income from operations and income from operations margin decreased during the thirteen weeks ended March 29, 2026 compared to the same period in the prior year, as revenue increases were exceeded by increases in (i) general and administrative expenses, (ii) depreciation and amortization expense and (iii) occupancy expenses.

Current wording

Income from operations margin decreased during the thirteen and twenty-six weeks ended June 28, 2026 compared to the same periods in the prior year due to increases in expenses as a percentage of sales, primarily (i) general and administrative expenses, (ii) other restaurant operating expenses and (iii) depreciation and amortization expense.

Previous wording

The increase in interest expense during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to increased borrowing associated with 2025 franchise acquisitions, partially offset by lower interest rates.

Current wording

The increases in interest expense during the thirteen and twenty-six weeks ended June 28, 2026 as compared to the same periods in the prior year were due to increased debt.

Previous wording

Other income, net decreased during the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year primarily due to a decrease in insurance proceeds.

Current wording

Other income, net decreased during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year primarily due to a decrease in insurance proceeds.

Previous wording

The change in the effective income tax rate and provision for income taxes for the thirteen weeks ended March 29, 2026 as compared to the same period in the prior year was primarily due to (i) the changes in the loss before taxes, (ii) the benefit of FICA tax credits and (iii) the impact of executive compensation.

Current wording

Income tax expense and the effective income tax rate decreased for the thirteen weeks ended June 28, 2026 as compared to the same period in the prior year, primarily due to the benefit of federal FICA tax credits and changes in executive compensation related tax impacts.

Previous wording

Net loss and net loss margin during the thirteen weeks ended March 29, 2026 increased as compared to the same period in the prior year primarily due to (i) the decrease in income from operations as expenses increased at a higher rate than revenue and (ii) an increase in interest expense associated with increased borrowings to fund 2025 franchise acquisitions.

Current wording

Net income (loss) and net income (loss) margin decreased during the twenty-six weeks ended June 28, 2026 as compared to the same period in the prior year primarily due to an increase in interest expense associated with increased borrowings, partially offset by the increase in income from operations and a decrease in income tax expense.

Previous wording

Restaurant level operating profit margin during the thirteen weeks ended March 29, 2026 increasedas compared to the same period in the prior year primarily due to (i) favorable labor and other related expenses as a percent of sales and (ii) favorable food and beverage costs as a percent of sales.

Current wording

Restaurant level operating profit margin during thethirteen and twenty-six weeks ended June 28, 2026 increased as compared to the same periods in the prior year primarily due to (i) favorable labor and other related expenses as a percentage of restaurant sales and (ii) favorable food and beverage costs as a percentage of sales, partially offset by the increase in other restaurant operating expenses as a percentage of restaurant sales.

Previous wording

Restaurant level operating profit for the thirteen weeks ended March 29, 2026 increased as compared to the same period in the prior year due to sales growth driven by increases in (i) restaurant locations and (ii) same-restaurant sales. This was partially offset by increases in expenses associated primarily with an increase in the number of company-owned restaurants, including (i) labor and other related expenses, (ii) food and beverage costs, (iii) other restaurant operating expenses, (iv) occupancy expenses and (v) pre-opening expenses.

Current wording

Restaurant level operating profit for the thirteen and twenty-six weeks ended June 28, 2026 increased as compared to the same periods in the prior year due to sales growth driven by increases in (i) restaurant locations and (ii) same-restaurant sales. This was partially offset by increases in expenses associated primarily with an increase in the number of company-owned restaurants, including (i) labor and other related expenses, (ii) food and beverage costs, (iii) other restaurant operating expenses and (iv) occupancy expenses.

Previous wording

Adjusted EBITDA margin increased during the thirteen weeks ended March 29, 2026 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit margin, partially offset by an increase in general and administrative expenses as a percentage of revenues.

Current wording

Adjusted EBITDA margin increased during the twenty-six weeks ended June 28, 2026 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit margin, partially offset by an increase in general and administrative expenses as a percentage of revenues.

Previous wording

Adjusted EBITDA increased during the thirteen weeks ended March 29, 2026 compared to the same period in the prior year primarily due to an increase in restaurant level operating profit, partially offset by an increase in general and administrative expenses including (i) expenses related to the leadership conference held in the first quarter of 2026 and (ii) an increase in compensation expenses.

Current wording

Adjusted EBITDA increased during the thirteen and twenty-six weeks ended June 28, 2026 compared to the same periods in the prior year primarily due to an increase in restaurant level operating profit, partially offset by an increase in general and administrative expenses.

Previous wording

Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net loss and Net loss margin, the most directly comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods indicated:

Current wording

Adjusted EBITDA and Adjusted EBITDA margin - The following table reconciles Net income (loss) and Net income (loss) margin, the most directly comparable GAAP measures to Adjusted EBITDA and Adjusted EBITDA margin, respectively, for the periods indicated:

Previous wording

(1) Represents costs related to process improvements and strategic initiatives. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Loss.

Current wording

(1) Represents costs related to process improvements and strategic initiatives. These costs are recorded within General and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income.