0001789940-25-000072
SEC filingRevenue grew 19.1% to $307.9M, but operating margin fell to 2.4% from 6.4% due to cost inflation and new restaurant openings.
For the second quarter of 2025, First Watch reported total revenues of $307.9 million, a 19.1% increase from $258.6 million in the prior-year quarter. This growth was primarily driven by contributions from 55 new restaurant openings (NROs) opened between June 30, 2024 and June 29, 2025, which added $30.1 million in sales, along with $7.0 million from 19 restaurants acquired from franchisees and menu price increases. Same-restaurant sales grew 3.5%, with traffic increasing 2.0%—the first positive traffic quarter since early 2023.
Despite revenue growth, profitability declined significantly. Income from operations fell 55.5% to $7.3 million, and operating margin contracted to 2.4% from 6.4%. The compression was driven by commodity inflation of 8.1% (particularly eggs, coffee, avocado, and bacon), wage inflation of 3.9%, and increased health insurance and pre-opening costs. Restaurant-level operating profit margin decreased to 18.6% from 21.9%, as food and beverage costs rose 180 bps to 23.6% of restaurant sales, labor costs increased 40 bps to 33.2%, and other restaurant operating expenses rose 60 bps.
Net income fell 76.3% to $2.1 million, or $0.03 per diluted share, compared to $8.9 million, or $0.14 per diluted share, in Q2 2024. Adjusted EBITDA decreased 14.0% to $30.4 million, with margin down 380 bps to 9.9%.
Company-owned restaurants generated $304.98 million in sales (up 19.4%), representing 99.1% of total revenues. Restaurant-level operating profit (non-GAAP) increased modestly by 1.5% to $56.8 million, but margin contracted to 18.6% from 21.9%, as expense growth outpaced sales. Franchise revenues decreased 6.4% to $2.9 million due to the conversion of 19 franchised units to company ownership, partially offset by nine franchise NROs.
Management expects positive traffic trends to continue into the second half of 2025. Commodity inflation is projected to moderate to 5-7% for the full year (down from earlier expectations) as egg costs ease following favorable avian influenza trends. Wage inflation is expected to remain in the 3-4% range. Capital expenditures for 2025 are estimated at $148-152 million, primarily for new restaurant projects and remodels. The company believes its liquidity—$19.2 million cash plus $87.4 million available under its $125 million credit facility—is sufficient for at least the next 12 months. Strategic priorities remain focused on unit growth, operational efficiency, and menu innovation to drive traffic and manage cost pressures.
As of June 29, 2025, First Watch reported cash and equivalents of $19.2M, down from $33.3M at year-end 2024, primarily due to heavy investing activities. Total assets increased to $1.68B from $1.51B, driven by goodwill and operating lease assets from acquisitions. Shareholders' equity remained relatively stable at $601.3M. The company's total debt rose to $261.8M, reflecting $154.5M in new borrowings (including $27.5M delayed draw and $127M revolver draws) partially offset by $95.7M in repayments. The debt structure includes $217.3M term loans at 6.90% and $35.5M revolver at 7.30%. The company maintains compliance with debt covenants.
No material purchase commitments or contractual obligations were disclosed in the notes beyond routine operating leases and debt obligations. Legal contingencies were deemed immaterial. Lease liabilities totaled $704.4M, including $696.9M in operating lease liabilities and $7.4M in finance leases. Weighted-average remaining lease term is 13.0 years for operating leases at a 7.7% discount rate.
Capital expenditures of $77.7M in the first half of 2025 (13.2% of revenue) were directed toward new restaurant openings and remodeling. No share buybacks or dividend payments were reported. The company funded acquisitions of 19 franchise restaurants for $56.2M through debt financing, including $27.5M delayed draw and $32.5M revolver draws. Net debt increase of $63.6M reflects aggressive growth spending.
The company operates as a single reporting segment. As of June 29, 2025, it ran 531 company-owned and 69 franchise restaurants across 31 states. Revenue is derived from restaurant sales (99% of total) and franchise fees. In Q2 2025, restaurant sales were $305.0M, with in-restaurant dining contributing $247.4M, third-party delivery $34.5M, and take-out $23.1M. Franchise revenues were $2.9M. The company did not disclose geographic mix by region or state-level performance.
Operating cash flow (CFO) of $59.6M for H1 FY2025 shows a slight year-over-year increase of $2.7M (5%) despite a dramatic decline in net income from $16.1M to $1.3M. The divergence is explained by large non-cash adjustments: depreciation and amortization ($34.7M), stock-based compensation ($5.0M), and non-cash operating lease costs ($15.8M) all increased. Additionally, working capital provided a net $2.1M (vs. $9.1M in prior year), with significant inflows from accrued liabilities ($8.8M) offset by deferred revenue outflows.
Capex intensity is very high at $77.7M (130% of CFO). Including $54.8M in acquisitions, total investing outflows reached $132.8M, far exceeding internal cash generation. Financing activities provided $59.1M, primarily through net revolver borrowings ($35.5M) and debt proceeds ($27.5M), to fund the deficit.
Net income quality is low due to large non-cash items. Working capital swings were less favorable than prior year, notably a decrease in accrued compensation and deferred payroll taxes. The cash conversion cycle remains strained. Overall, the company relies heavily on external financing to support aggressive expansion, raising leverage concerns.