Q3 2025 First Watch Restaurant Group Inc Earnings Call
Thank you for standing by and welcome to the First Watch Restaurant Group Inc, third quarter earnings conference call occurring. Today, November 4th 2025 at 8:00 a.m. eastern time. Please note that all participants are currently in a listen-only mode. Following the presentation, the conference call will be opened for analyst questions and instructions on how to ask a question will be given at that time.
This call will be archived and available for replay at investors firstwatch.com under the news and events section.
I would now like to turn the conference over to Stephen marada vice president of investor relations at First Watch. Please go ahead.
Hello everyone. I am joined by first watch's, chief executive officer and president, Chris tommaso, and Chief Financial Officer Mel hope.
This morning, First Watch issued its earnings release for the third quarter of fiscal 2025 on Globe Newswire and filed its quarterly report on Form 10-Q with the SEC. These documents can be found at investors.firstwatch.com.
this conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements such statements include without limitation. Statements concerning the conditions of the company's industry and its operations performance and financial condition, Outlook growth plans, and strategies and future expenses. Any such statements should be considered in conjunction with cautionary statements in the company's earnings release and the risk factor disclosure in the company's filings, with the SEC, including our annual report on form, 10K, and quarterly reports on form 10q.
First Watch assumes, no obligation to update these while we're looking statements. Whether as a result of new information, future developments or otherwise, except as may be required by law.
Lastly, management's remarks today will include references to various non-GAAP measures, including restaurant-level operating profit.
Restaurant level, operating profit margin adjusted ibaa, and adjusted ibaa margin.
Investors should review the reconciliation of these non-gaap measures to the comparable. Gaap results contained in the company's earnings release filed this morning,
Any reference to percentage growth when discussing the third quarter performance, is a comparison to the third quarter of 2024 unless otherwise indicated. And with that, I will turn the call over to Chris.
Good morning everyone. We appreciate your joining us to discuss our third quarter performance.
We're pleased to report strong financial results with same restaurant traffic growth and same restaurant sales, growth sequentially higher for the fourth consecutive quarter and restaurant level operating profit margin materially improving from earlier this year.
These results are made possible by our more than 16,000 employees Nationwide and we are truly grateful for their commitment.
Total revenue increased 25.6% compared to the third quarter of last year, fueled by three growth drivers. Strong new restaurant opening performance, positive same restaurant sales of 7.1%, and creative strategic franchisee acquisitions contributed to this growth.
Restaurant level operating profit margins, expanded reflecting solid, operational execution across our entire organization.
Notably, sales for newly opened restaurants continue to be very strong across all geographies, with some of our newest locations setting first-week sales records.
Simply put, despite an increasingly difficult environment, First Watch delivered solid top and bottom line results. We continue to strengthen our leadership position in daytime dining, placing us among casual dining's strongest performers.
Our third quarter, Financial results are representative of our long-standing approach to growth.
Total revenue, increasing more than 25% crowns. Nearly 5 years of double-digit percentage. Quarterly growth.
Across 14 States during the third quarter.
We are on Pace to meet our Target of 63 to 64. New restaurant openings for the year. Representing, nearly 11% systemwide growth in 2025
At first launched, we are constantly evolving to ensure long-term relevancy and meet the needs of both the consumer and our employees.
We are focused on delivering steady thoughtful Enterprise wide progress. Built on a solid operational Foundation. Giving us the confidence in our ability to continue delivering on our high growth algorithms
We prioritize our long-term Market position and traffic growth over short-term margin protection.
This is particularly evident in menu pricing.
With a volatile commodity environment in early 2025, we quickly evaluated the prospects of short and long-term commodity inflation and carefully considered our competitive value proposition. As a result, we chose not to implement pricing actions that would have offset what we viewed as transitory increases in commodity costs.
The positive results, we reported last quarter and today reinforce our confidence in those pricing decisions. There aren't many metrics where we lag but we're pleased to be lagging when it comes to pricing.
The result of a steadfast pricing strategy is that our long-term margin profile is and always has been secure.
We may experience variances from time to time or in any given quarter, but we're confident in our ability to deliver annual restaurant level margins of 18 to 20% over the long term.
Our sustained High return Capital Investments continue to deliver and we are opening restaurants that meet or exceed, our underwriting targets.
This is a compelling way to use our Capital with average cash on cash returns of approximately 35%.
In addition to those Superior returns our aggressive unit. Growth is increasing our market, share by expanding our brand presence and overall awareness. Thereby widening, our competitive mode
As I mentioned, our new restaurants are opening stronger than ever in both new and existing markets. In fact, 9 of our 10 highest opening week sales in company history were achieved in restaurants that opened within the last 12 months in new markets, too, like Boston, Las Vegas, and Memphis. We've opened stronger than anticipated, and it's clear that our brand and our unique offering have enviable, broad appeal and proven portability.
1 of the many strengths of our business is that unlike some other restaurant Concepts, our new restaurant openings and both new and Emerging Markets are performing exceptionally well.
I spoke last quarter about the strategy of converting second-generation sites into highly productive First Watch restaurants.
Of the 21 restaurants we opened in Q3, 13 were second-generation sites. Of the 10 highest opening week sales, our roads in 2025 included 9 second-generation sites.
For reference purposes. Some of these restaurants are opening at volumes that are more than 190% of our average unit volume.
Which is a powerful proof point for the benefits of this approach and in our ability to operate higher and higher aub's, powering the brand forward.
I want to highlight 1 particular nro that exemplifies the ongoing strength of our brand and our disciplined execution.
Our new First Watch location in Dover, Delaware, situated in the state capital and the state's second-largest city, opened during the final week of the third quarter.
This location had opening week sales that exceeded 185% of our comp base average underscoring, the strong demand for our concept and their strategic value of the site.
We signed the lease for this restaurant, in January of 2025 and advanced it through our standard construction timeline without delay.
The fact that we successfully opened a short 8 months after a lease signing reflects the operational rigor, and efficiency of our entire team and demonstrates 1 of the many benefits of these second generation sites.
These historic opening week sales, performances are a result of the alignment of our real estate construction, talent, and development teams. Bolstered by the heightened pre-opening, consumer interest, and demand generated by our efficient, Andro related marketing initiatives, in short our teams collaborate well to ensure that our restaurants are go for launch and that we enter markets trade areas and neighborhoods in a way that establishes a high Baseline that we can build upon for many years to come.
Across the organization, our teams are now even more skillful at opening new locations in core emerging in new markets and we remain highly confident in our expansion strategy for 2026 and Beyond.
No, full service restaurant company is opening at anything close to our Pace, making it daunting for Segment competitors to enter markets where we have an established presence.
Furthermore, even in markets that we have yet to penetrate, our eventual entry often positions them in short order.
And the breadth of our new restaurant. Opening successes can be seen in the first 3 quarters of 2025, where we opened 51 new restaurants in 30 markets across 21 states,
I've shared this before, but I think it Bears repeating that our top decile restaurants, span. 14 States and 22 dmas with consistent auvs, across all 32 states. Giving us confidence in our ability to grow to a total addressable Market of 2,200 locations within the continental United States.
Our people platform continues to reach new heights as well. Restaurant-level employee turnover, a critical industry metric, has improved for 10 consecutive quarters and continues to outperform industry benchmarks.
We recently completed our annual why tour and the feedback was overwhelmingly positive with employee satisfaction tying directly to our culture, the quality of life offered and the extensive benefits available to them.
There's no question that, our daytime dining single shift, scheduling model, remains a standout feature.
Our distinctive benefits, such as backup childcare, elder care, complimentary personal and professional coaching, and free telemedicine services, also mean a tremendous amount to our team. We believe these offerings differentiate us from other food service employers.
Team members, consistently share that working at First Watch, enhances their mental and physical well-being.
Among all of the numerous advantages already cited, the opportunity for career growth most often tops the list.
As the fastest-growing full-service restaurant concept in the United States, we believe we provide career paths that are simply unmatched anywhere else in the industry.
So where have our efforts LED? Well, first watch was just recently named America's number 1, most loved workplace, by the best practices Institute for 2025. A recognition. We also achieved in 2024
Achieving top honors in any year is a significant accomplishment. Earning this distinction. 2 years consecutively is unprecedented.
I'd like to extend my gratitude to our entire organization for their efforts in making this possible and modeling our you first culture day in and day out.
By prioritizing our employees and creating an environment that attracts the best and brightest in our industry, we are proud to provide a wide array of personal and professional growth opportunities. This is a remarkable achievement of which we are all extremely proud.
The performance of our enhanced marketing investments in 2025 has been highly encouraging.
This marks the third consecutive quarter of increased marketing spend versus last year, providing us with 3 full quarters of compelling evidence.
Our integrated campaigns spanning connected TV, paid search, social media, and other channels are intentionally coordinated, driving, higher aided, and unaided brand awareness.
Notably the markets, we targeted for investment in 2025 represent, less than 1/3 of our overall restaurant portfolio, providing us an opportunity to significantly expand our reach in the future.
Building on the insights gained, from the year's activities, we are optimistic about expanding marketing programs in 2026.
We're also in the midst of a comprehensive, relaunch of our digital platform, encompassing both consumer-facing enhancements and back at house improvements.
As an example, our newly relaunched app introduced in the second quarter has already garnered thousands of positive ratings and reviews and currently maintain the 5-star ranking support a favorable customer response to the new interface, we're in the very early Innings of capitalizing on our digital platform.
Behind the scenes were collecting valuable data on a granular level.
We are also making significant upgrades to our customer data platform, geolocation capabilities, order experience, and CRM systems. Our database of identified customers now sits at around 7 million, the majority of which are connected to various social media and online presence platforms, enabling us to better execute targeted micro-marketing campaigns.
Technology advancements across our marketing department, contributed to the exceptional performance of a targeted digital campaign launched in September, which despite hitting less than half of last year's recipients delivered more than 2 times the response rate engagement to last year's campaign.
Depending on where you live or which of our residents, you may have visited recently. You may have seen our Newport menu that's been in test for some time.
This new menu has been redesigned and re-engineered to improve readability. Broadening appeal, optimize mix and streamline operations.
It features High performing previous seasonal menu specials, which replace some lower mix items.
The qualitative and quantitative metrics thus far have been encouraging, and we are expecting to roll this menu out systemwide early next year.
We're acutely aware of recent headlines across the restaurant sector regarding a slowdown in consumer activity, specifically tied to discrete demographics.
Our brand continues to be over-indexed to a more fluent consumer, and we remain underexposed to current demographic pressures.
For an unparalleled customer experience.
in short, our platform has supported quarterly, double-digit total revenue growth for the better part of The Last 5 Years,
During that same time period, we've opened more than 230 restaurants, delivering on our same goal of low, double digit percentage annual unit growth. Our 3 year, nro AT&T targets have risen from 1.6 to 2.7 million and we were recognized as America's most loved workplace twice.
Our expansion from a little known Regional restaurant. Brand is 10 short years ago to a national chain with dominant segment market, share was accomplished by an organization focused on and dedicated to consistent reliable and quality growth. Considering our proven track record and ability to cross the entire Enterprise combined with a total addressable Market. That is over 3 times, our current size, we remain committed to that same consistent, reliable and quality growth for years to come.
And now I'd like to turn it over to Mel.
Thank you, Chris and good morning.
Total third quarter revenues were 316 million an increase of 25.6% our third quarter Revenue. Growth was driven by positive, same restaurant sales, growth of 7.1%, including positive traffic up 2.6%, and the contribution of 167 non-comp restaurants, including 66 company-owned, new restaurant, openings and 19 locations.
we've acquired since the second quarter of 2024,
Our same restaurant traffic growth, and same restaurant sales, growth in the third quarter. Represent our best quarterly result for both metrics and over 2 years.
Our end restaurant traffic improved. Once again, marking the strongest performance in 7 orders.
Traffic growth in the third-party delivery Channel, increased substantially during the third quarter, a continuation of recent Trends and a direct result of the changes we made to that program earlier this year.
The month of September represented, our highest rate of same restaurant sales, growth of the entire year.
Concurrent with the launch of our fall seasonal menu in late August, we instituted a price increase of 1.1% bringing our full year carry pricing to around 3 and a half percent.
We again, experienced positive sales, mix during the quarter.
Food and beverage expense in the third quarter was 22.2%. A decrease of 20 basis points from the third quarter last year, benefiting from carrying pricing, partially offset by 3% commodity inflation in the quarter.
Bacon and coffee were the primary drivers of commodity inflation.
Labor and other related expenses in the third quarter or 32.6% of sales of 100 basis. Point decrease from the third quarter of 2024
Restaurant level labor, inflation was 3.6% a combination of carried pricing out, stripping labor, inflation and marginal labor efficiency contributed to the Improvement as a percent of sales.
Restaurant level, operating profit margin was 19.7% in the third quarter and 8 basis. Point improvement from the third quarter last year.
General and administrative expenses increased to 33.7 million from 27.7 million in the third quarter of 2024.
As a percentage of total revenue, these expenses decreased to 10.7%, representing 30 basis points of leverage when compared to the same quarter last year.
The income from operations margin was 3.2%.
Adjusted IA was 34.1 Million 8 and a half million dollars higher than last year with adjusted to be the dime margin, increasing to 10.8% from 10.2% a 60 basis. Point improvement from the third quarter last year.
We reported net income of $3 million.
We opened 21 new systemwide restaurants. During the third quarter of which 18 were company-owned and 3 were franchise owned and we ended the quarter with 620 systemwide restaurants.
The effect of our franchisee acquisitions, which includes only the impact of purchases made within the last 12 months, increased our third quarter revenue by about $9.1 million and adjusted EBITDA by about $1.6 million.
You are supplemental materials deck, on our investor relations website. Beneath the webcast link.
Based on our quarter-to-date Trends and plan for the balance of the year. I'd now like to provide our updated outlook for 2025.
We are updating our guidance for same restaurant, sales growth to approximately 4%.
From positive low single digits in our prior guidance.
We estimate same restaurants traffic of approximately 1%.
From Flat to slightly positive in our broader guidance.
We expect total revenue growth in the range of 20 to 21% with a net 400 basis point impact from completed acquisitions.
We expect 63 to 64. New systemwide restaurants, including 55 new company-owned restaurants, and 8 to 9 new franchise owned restaurants with 3 planned company-owned restaurant closures.
We took advantage of the opportunity to pull forward, a few openings into the third quarter. And at the same time, push a couple of projects into the new year.
We're now guiding fiscal year 2025 commodity cost inflation. To be approximately 6% from a range of 5 to 7% and our prior guidance and restaurant level labor cost. Inflation to be approximately 4% from a prior range of 3 to 4%,
Our annual adjusted EBA projection is now approximately $123 million. The high end of our prior guidance range was $119 to $123 million.
This includes the expected, net contribution of approximately 7 million from acquired restaurants.
In an effort to assist you in your near-term modeling of our GNA, our annual leadership conference will be held in the first quarter of 2026, compared to our previous conference, which was held in the fourth quarter of 2024.
This is equivalent to just under 100 basis points in quarterly GNA expenses as a percent of sales.
Please note our initial fiscal year, 2025 guidance contemplated this timing shift.
We expect a blended income tax rate of approximately, 45%, we are a narrowing, our expectations for Capital expenditures to approximately 150 million.
From 148 million to 152 million in our prior guidance.
This does not include the capital allocated to franchisee acquisitions.
since our initial public offering 4 years ago,
we expanded the total of systemwide restaurants from 428 locations to 620 at the end of the third quarter.
In that same period of time, our adjusted ibida has more than doubled.
We're proud of the many growth milestones we've surpassed and are similarly excited to close out a strong 2025.
Both our real estate and our people pipelines have never been healthier. Providing a high degree of confidence in our ability. To execute our near-term and long-term growth strategies.
And with that, operator, would you please open the line for questions?
Thank you. We will now be conducting a question and
Answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star 2. If you'd like to remove your question from the queue, we do ask to please limit to 1 question and 1 follow-up for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Jim solero with Stephen's Inc. Please go ahead.
Hey Chris. Good morning. Thanks for taking our morning.
Sure. Oh, go ahead. So with regard to the second part of the question first, the, um,
You know, full service restaurants, generally have a frequency that would suggest that we probably need a longer period of time to really read.
What the, uh, response to marketing has been regarding whether or not we've got repeat visits versus, uh, you know, versus new customers, the the, um, our marketing programs have been targeted at increasing occasions without regard to, you know, without regard to, um, whether or not their new visits or or recurring visits. So, um, I don't, I don't have a lot of data on that for you yet. We met over time. But it we, we just need a larger cohort. And, and Jim once again, we did see, uh, Improvement in in restaurant dining, it's continued to improve quarter over quarter. Um, and obviously we we have the benefit of the third party traffic increases as well. So, uh, I, you know, I would say both channels, uh, contributed to the growth.
Great. And and then as a follow-up, if you could just speak to, what's helping bolster the results? At some of these new openings, you mentioned Dover uh significantly ahead of the the overall kind of Fleet average. Is it just that these are really Primo locations that real estate partners are coming to you with? Are you doing um some action.
To work kind of on the front end to make sure there's a lot of fanfare around the restaurant opening. There's anything, you can kind of give us there to to explain the strengths
Yeah, we, you know, this is our our new restaurants, outperforming the, the core have has been a trend for us for a number of years now. But, um, you know, we talked this quarter about some record setting locations and we talked constantly about how we're evolving our, our um, you know, real estate site selection process um, evolving the the, the facility itself. So, yeah, some of these second generation sites specifically are, you know, they're larger, they're right up front on the road. Um, we're really making the patio a significant feature that is, um, you know, inviting from the road. And so, we've benefited from that, um, that said we have some restaurants that aren't bigger. Um, and are more you maybe, uh, endcaps that we've done, that are achieving High volumes too. So, I think it's also a Confluence of, um, our brand recognition expanding the sites themselves acting as Billboards. I think are the, you know,
The work our marketing team has done on the social, and digital channels to create that buzz. Before we open. You know, I use the term in the prepared remarks of go for launch, like I just feel like in every aspect of these new restaurants, we're, we're, uh, set up really well to to a build that pre-opening demand and then from an operational perspective, really deliver when they come in the restaurant, and
It's really important. When you're doing those kinds of outside volumes uh to wow people. Uh, those first reviews are really, really important and uh, our teams have done, just an amazing job of all that. So, yeah, this is this comes from many years of of opening. A lot of restaurants. We, we talk about it as being, you know, 1 of our strongest muscles and we just continue to flex it and it continues to to, uh, you know, Drive value for us.
Great. I appreciate the thoughts. I'll hop back in with you.
Thank you. Our next question comes from the line of Jeff Bernstein with Barkley. Please go ahead.
Hi. This is Anisha dot on for Jeff Bernstein. I wanted to ask a question on marketing. What are your plans to expand marketing efforts in 2026? And can you share specifics on the strategy? Do you need to reach greater scale in some of your newer markets? Before rolling out, broader marketing initiatives? Given that about 1, third of store is benefit from your initial efforts this year.
We haven't done any indication about 2026 with regard to the overall plans for the company. So,
Probably need to steer clear of that 1 for the time being. But uh, you know, the marketing, obviously, the more density you have in in markets and in more markets you, uh, the marketing can become, uh, more efficient, uh, in some, you know, in some types of marketing. But, uh,
Our, you know, our Focus has been very much on social and digital type marketing which is very targeted. And our team is, um,
We're very pleased with it. We've only deployed it to, uh, a minority of our markets. And so the opportunity to for us to invest, um, and expand that in 2026 and Beyond is is very encouraging to us and something we're really excited about.
Great. Thank you.
Our next question comes from the line of Andy Bearish with Jefferies. Please go ahead.
Hey guys. Um, nice results. And, um, I I just want to go back to that as well. I, I think September was your
Your toughest lap. Um, and, you know, you still hurdle that, uh, as you mentioned with the best best quarter, how how does? And, and I think the marketing in the 3Q, you know, was a little bit lower because of auvs, can you just kind of
Um, you know, let us know what, what, the fourth quarter plan, on that is a little bit more of um, you know, sort of the near-term look.
Yeah, actually that comment, um, about the lower, um, spend really had more to do with Q4 because of the seasonality of our business, uh, when we talked about it last quarter, but Q3 was pretty consistent, um, with the, um, first 2 quarters. So, um, uh, you know, know know step up or, or step down there.
Gotcha. Okay. And then, um,
You know, on the operations side, I mean a lot of things were put in place, you know, kind of going back over the last few years. What what sort of
You know, really showing through that you would highlight, you know, as more demand is now generated and you're obviously handling it with, you know, with 1 of the best comps in the industry.
Um, certainly, the kdf, the, the implementation of the KDs system. Um, but I also, you know, don't want to Short, change the consumer-facing, uh, Investments, we made around the app and, and weightless management and some operational things we did. So, um, you know, Andy, you've heard us talk about this since we since we first announced that we were rolling out Cadiz. We don't, we don't look at at, I mean, we look at each 1 individually from a return standpoint. But as far as what's driving the business, we think it's all of those things, whether it goes back to, um, touches like the, the complimentary coffee the, uh, our pricing strategy, you know, the way we've increased portion sizes, they're over this time and that type of thing. So, we're really trying to just make it so that everywhere the consumer and specifically, our customer, looks our value gets better and better. Whether it's, um, whether it's the, the time it takes for their food to get to the table, uh, the the visibility, they have into the weight process. Uh, opening the front door just just efficiency and and execution and can
Consistency. And and we think in, in turbulent times like this, those are the things that the consumers really value and then, uh, turn to specifically the consistency part. They just don't want to put their dollars at risk. And our, our operators really have focused a great deal on
You know, I'd call it blocking and tackling in terms of the, um, Labor Management and focusing on on execution, in the restaurant. And when you see, uh, Rising transactions, you know, the labor really benefits from that and a Growth Company like ours, where, where, uh, that transaction growth trickles down to more efficient labor.
yeah, and and just finally what was, you know, actual menu price in the 3Q and then
Does that look like about 4% in the 4 e?
So in Q3 the carry pricing, uh, of all pricing events, what carried about 5% overall, and we're 3 and a half percent or roughly for the full year.
Um,
So what in about 5 for the fourth quarter and about 5 and the fourth quarter, okay?
Thank you guys.
Our next question comes from the line of Todd Brooks with Benchmark. Stone X. Please go ahead.
real positive outlier results here in the quarter.
Thank you. Um,
Wanted to Chris dig in a little bit more on the second generation site. So, if you look at the 2025 what was the mix of second gen and then, if you start to look out to the pipeline for 26, are we inflecting second gen openings, higher. If you look at the the mix of total openings
A similar percentage for 26.
Okay.
And is the competition. I'm I'm hearing other Concepts try to talk about second generation as well. Does the the benefits to the the first watch has as a brand as far as landlord desire for First Watch to be a tenant.
Are you getting first? Looks at these type of locations versus kind of new development where they want you in the center or is it more competitive to to land these sites in this environment?
I think as a as a national credit. Now in our performance, we um, we're probably on the
Rolodex of every commercial developer. If Rolodex still exists anymore.
So I do, I do think we get, I do think we get first calls.
Okay, great. And then um just wanted to to loop back on on the marketing. I know we're not going to get detailed 26 plans yet. But is there a
You guys are very thoughtful in what you've done to drive the growth of the brand. Is there a thought of this being a...
A third, a third, a third type of process. As far as how much of the bass gets touched or how do, how do we iterate out of kind of the, I think that year was Florida. Plus the Southeastern markets, I guess, tactically. How do we iterate this in 26? If we don't want to talk about how we
How we spend against it in 26.
Yeah, I I think, um, we'll take the learnings that we've, uh, We've um, you know, gotten from this year's efforts. And and look at next year, um, look at the markets obviously, still efficiency and density is is a factor, um, seasonality and other things. So, um, you know, it's not necessarily a third, a third, a third, we're not approaching it that way. We're really just looking at it from an Roi perspective and where we can make the most impact, um, get the returns we want and, and drive the traffic. So, um, it's it's the best thing I can tell you is that it's it's fluid, but it's going to, it's going to all be based on, uh, the learnings that we've that we've uh, you know, received so far.
Okay, and just a quick follow-up there, Chris sir. I don't know if Matt's there as well, but the the biggest kind of surprises out of the first real 3 quarters of Leaning into this effort. If you're, if you're looking at, um, where the efficacy of the program has been
The biggest positive surprises. The biggest surprise is so this is, this is Matt, she's brand officer. So, um, you know the biggest surprise is I think, you know, we have seen a lot of um, success in targeting our media within the category and using transactions to identify people, that are already active in the category and may have lapsed or have you know not been to a First Watch in a while. So when you ask about kind of the momentum, I think, you know, we've built a Playbook on on on, you know, not trying to convince people.
Necessarily build a new occasion within this day part but I think there's a lot of low-hanging fruit by being the leader in the category and simply being top of mind for those that are already you know going out to full service and especially full service breakfast. So it's it's very database and gives us a lot of confidence.
I think as you as you thought about strategies, to go into next year, I think we think we've built a Playbook over the last 3 quarters and that's giving us confidence. So, you know, we don't see a lot of derivation in the short term unchanging, those strategies. The opportunity is really taking it to more geographies and I think we'll talk about that over the next few quarters. And Todd, you might remember that we piloted these last year, so um, in terms of surprises, I think, you know the the reason we piloted them was to um, so that we could select those things that would perform predictably and I think I think they've been predictably positive.
That's great. Thank you all, and congrats again.
Thanks.
Our next question comes from the line of Brian, M. Vaccaro with Raymond James, please go ahead.
Uh, thanks and good morning. Just on the third quarter of cops. Um, can you elaborate a little bit on the impact? You talked a lot about the new marketing efforts, but just elaborate a little bit more on the impact. You think the marketing is having on your sales Trends and I heard you say that it covered about a third of your footprint, if I heard correctly. So I was thinking maybe some more color on sort of the regional Trends you're seeing, or what, that scatter plot might look like kind of mapped against the new advertising initiative.
Initiatives.
Consistent results and that'll inform how we think ahead to 2026.
All right, that's helpful. Thanks, Matt. And I want to ask on commodity inflation as well. I think it was around 3%. You said in the third quarter and the guidance implies that, that kind of steps back up maybe into the mid single digit range in 4 q. Uh, am I reading that right? And, and maybe you could just walk through some of the puts and takes uh, within your basket uh, at moving through the rest of the year.
so, um,
it does step up a little bit in the fourth quarter. Um,
kind of the general Trend Brian, this year has been that
We started.
With our 4 largest Commodities, all being at historic highs. And we've seen
we've seen some, you know, moderation in
Most of those less. So in bacon and coffee.
but a great deal in, in terms of the cost we were paying
For our, uh, show in eggs and for our avocados.
And that.
That trend has held pretty steady through the year. You know, this, the, the moderating
Commodities that continued to moderate and the um, and the um,
All right. Thank you very much.
Our next question comes from the line of John Tower with uh City. Please go ahead.
Hey, good morning. Um, I'm gonna go back to the marketing because why not? Um I'm just curious, you know, in terms of what you're seeing with these new customers that are coming in in response to the marketing. So far are, are they using the brand differently than how you've seen? Um,
You know, other customers come in, say the first time when when they are introduced to the brand. So for example, you know, are they coming in and say you're Marketing in these, you know, the over social channels are certain pieces of the menu, whether it's value Centric or a seasonal piece, are they coming in response to that in ordering that immediately when they come in first time or they choosing different pieces of the menu versus what you normally see. So I'm curious to see if it's kind of your pushing 1 thing and they're going after that or they're just getting introduced to the brand and coming because they're seeing the brand for the first time and utilizing it differently than what you normally see in the past from other consumers that aren't getting, you know, haven't been marketed to
Yeah, I'd say it's more of the latter, but with a clarification that we're not seeing any difference in in behavior. Um, it's more of a reminder, top of Mind brand brand awareness, uh, getting them in the door but our our mix hasn't changed much at all. Um, matter of fact we're still seeing positive mix. Like we have um you know, for a while now. No, no signs of check management all healthy healthy signs for us. It's just that we're raising our awareness and getting more customers in the door, man. I don't know if you want to add something there. Yeah. John. So you know, Chris is right.
We don't see much.
difference in mix, but what
Strategy of. You know, we're we're tracking people and and staying top of mind for category users. So if you're someone who hasn't been to First Watch in a while, we're not necessarily speaking to you about our seasonal menu. We're we're establishing you know that that we are, you know, breakfast. You know, we try to communicate breakfast and then as as we see you transact and you you moved into our own audiences, then we start to talk to you about our seasonal menus. So I just wanted to make sure it was clear. It's not necessarily that we're we're trying to drive new users in behind the seasonal menu, and that might be why we're not seeing a large uh fluctuation in mix.
Okay, thank you. I appreciate that. And and then maybe on the new stores and I appreciate all the color around. The second gen locations are you guys doing anything differently? You know, as you're moving into these new markets
Um, and you're building out, I believe somebody, you know, in the past you'd spoken to having slightly bigger footprints on these locations, the back of the house, are you doing anything differently? Uh, with respect to the kitchen to handle, perhaps, uh, you know, more capacity, uh, with seating in the front of the house or maybe new equipment or anything like that. Uh, in these new stores, particularly as you maybe move into markets that are slightly denser than what you've had in the past.
I mean, so the encouraging part is these, we realize now and know that these lines can do very high volumes uh really high sales hours. Um but when we're taking over these spaces to be honest with you, most of the time they have much larger back of houses than than we're accustomed to. But we put our standard line in there, but what it does afford US is a larger walk-in cooler, a bigger dish area, more prep area, so just not as congested perhaps as it as if we were building our, you know, a 3,800 square foot restaurant. But no, the the the the line itself being able to, to handle these types of volumes, um, you know, gives us a lot of encouragement about our ability to do these high unit volumes, um, for a long time to come.
Cool. Thanks. And and then just lastly, you know, you've picked off a bunch of stuff with respect to technology in the past several years. Whether it's, the KDs, whether it's the, um, consumer-facing technology on, you know, the weight list or the app, it is there anything else that we should be thinking about in the next several? Maybe even in the next 12 months or 24 months that you guys are tackling uh to either improve the guest experience or the employee experience.
I feel like you're leading me to say AI, so I'm just going to say AI, you know, it's not it's not um uh look we're we're constantly innovating looking at every aspect of our business and and some things are big. Some things seem small, but have great impact. And so, um, we're we'll just continue to evolve we. We don't have anything teed up that we're ready to talk about right now. Uh, our our Focus as as we teased last time was on, uh, a new menu, um, and we talked about it a little bit here, so, um, you know, uh, optimizing the menu and it it's a big Focus for us for 2026.
Thanks for taking the questions.
Our next question comes from the line of Sarah Senator, with Bank of America. Please go ahead.
Hey, good morning. Thanks for the question. This is Isaiah Austin on for Sarah. Um, just brought up. Hey, how are you? Um, just a broad question about the breakfast Day part. Um, I think earlier, we saw signs that it was stabilizing this year, uh, is, is that something that you guys continue to see and kind of, in the same vein? Um, I I think previously we had heard from you all that. You, you guys weren't seeing the same kind of trade down benefit, you know, from dinner to breakfast and brunch that you guys experienced during the great financial crisis. Um, do you feel like you're starting to see signs of that now? And then I have a quick follow-up after
Actually, for us. Weekday breakfast, was the standout Day part in our growth in Q3, it was the best traffic of, of all our day, all 3 of our day Parts, which as a reminder, we look at weekday breakfast. Weekday lunch. And then weekends, we just call brunch. So, um, we've we've been very encouraged by the by what we saw. A weekday breakfast.
Got it. Thanks. Um and anything on the trade down just that you guys were experiencing a little like a couple decades ago versus now. Do you see similar trends?
I don't think we, I don't think we have evidence of that, the, the don't really know. I mean, some some of the
um, some of the direct data associated with that, I don't think we see the same thing today.
Perfect, thank you. And then, um just you know, just in light of the, the great quarter, uh, is there anything that you all are seeing as far as your customer metrics like higher frequency or improved value scores. Maybe if you have any measure of awareness, just kind of, thinking about the drivers behind this quarter and you know, where it can go from here. Thanks. Yeah. Hey, this is, this is Matt Aizen hacker again. Um, you know, you you asked, uh, about awareness. We have, uh, encouragingly seen a, a, a steady increase in Awareness, which is again encouraging for us. Given our, you know, our known low awareness. So every quarter, we've seen sequential Improvement in awareness and moderation and improvement in our in our value scores as well. I mean, may I mentioned it earlier,
You know we we are a little bit more cautious in reporting on frequency you know in full service. I think you want a longer time Horizon but we have been able to test the post period in a variety of the channels and tactics. We've been employing and we've seen some indications of positive lift following those which would tell us that there's there's likely a resulting improved frequency but again I think it takes more time to be definitive in that but we've seen a lot of a lot of encouraging signs across all those metrics.
Thank you.
Oh our next question. Comes from the line of Greg Frankfurt, with Guggenheim, please go ahead.
It accelerated from the last quarter, can you talk about how demand has built in that channel? Um since you made that pricing adjustment? Maybe like any other changes in promotional activity in that channel.
Sure. Uh, just to clarify. Did you say how demand is affected in that channel?
Correct.
Yeah, we've we've seen demand increase significantly over the past. Uh, Call It 2 or 3/4. Um, and that trend is held. So, uh, we keep we, you know, we we talked about, um, the positive impacts of the, of the changes we made to that program. Uh, and again, that's continued
Their uh this this is Matt Chris is made a good point that we did see Improvement once we made the changes to the program earlier in the year, but the results have been fairly consistent. There wasn't a meaningful increase in that channel in the third quarter that might have outside driven, the rest of the of the comp
Got it. Understood super helpful and a quick follow-up. Um, I know it's too early to talk about guidance in 2026 but maybe if you can touch on directionally on on labor and commodity Insight inflation, that will be super helpful.
Um, I can tell you that.
At present, we're talking with suppliers about, uh, our costing for some key commodities for next year. And so we'll probably have more information on that.
Later in terms of Labor inflation, I expect it to be or I'm hoping that it's a little bit more normal than, maybe we've seen the last few years. We have some built-in inflation as the regulatory minimum wages are increasing in some of our large markets by, you know, another dollar or so. Uh, so they'll be they're certainly some uh, labor inflation. Uh, but I'm not ready to really guide to what we're building into our models for 2026 yet.
Got it. Thank you so much.
Thank you.
Thank you as a reminder. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. If you'd like to remove your question from the queue 1 moment, while we pull for questions.
Our next question comes from the line of Andrew Charles with TD Cowen, please go ahead.
Great. Thank you. Um typically you guys visit pricing around January around July give or take, but I guess I'm curious. What drove the decision to take that incremental. 1.1% price increase that you mentioned in August following the 2.8% in July.
Yeah, Andrew, um, that that 1% was contemplated in our, in our, um, pricing strategy early in the year, however, uh, it affected some items that had a relation to, uh, the seasonal menu that we were rolling out. So we needed to time it, uh, with that. So that we maintain those relationships. Um, if that makes sense, there were some items. You know, we looked for certain spreads, um, between a seasonal item and a core menu item. Um, and there we had that particular um, situation here so we just held back 1% so that we could time it with this the with the launch of the seasonal menu.
Okay, I got you. And then, separately, Mel, the third party delivery AE. If we look at the queue looked up, be up about 40%. You know, in the quarter, can you speak to the, uh, the floats that you're seeing on that profitability? Um, you know, the impact that's having um, and driving profitability as well?
so, um,
The profitability on on, third-party delivery would be.
You know, we we generally view it as a transaction just like any other transaction with a, you know, different Topline. And so as as a result of the the, uh, fact that often times we have fewer beverage deliveries, uh, than we do in the restaurants, I think the profitability at least we are up level, probably runs pretty close to, uh, pretty close to the standard. And if you fully loaded, maybe it's a little bit more.
A little bit profitable, a little less. Okay, a little bit less.
But in that it's a I think you know we view it as an incremental occasion. Um, I think it's important to keep that in in perspective that that um
Majority of those transactions. We consider to be incremental
the truth is we I don't know that we've ever publicly talked about the Arlo on the different types of uh yeah different sales channels.
But it it is a big contributor to our just at IBA I bet.
Very good. Thank you.
Thank you. This now, concludes our question and answer session. I would like to turn the floor back over to Kristen mossell for closing comments.
Great. Thank you, thanks everybody for joining us on the call this morning, we really appreciate it. We're looking forward to connecting with uh most of you in the coming days and weeks. And as always we are grateful for the dedication, shown by our entire team. Many of whom I know are listening today. So a sincere. Thank you from all of us. Here we look forward to building on our strong Foundation throughout the balance of this year and our excited about our prospects for 2026. Have a great day everyone. Thank you.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference, you may disconnect your lines and have a wonderful day.