Dive Brief:

• First Watch hit $1 billion in sales last year with $99.5 million in EBITDA, a 43% jump from its 2022 adjusted EBITDA total of $69.3 million, according to the chain’s earnings release. 
• The breakfast chain opened 51 new restaurants in 2023 and repurchased 23 franchised stores, which helped bolster revenue. It plans to enter the New England and Las Vegas metro markets. 
• Despite its growing sales in 2023, First Watch wasn’t immune to the overall slowdown in casual dining traffic that’s dragged rivals Denny’s and Dine Brands, with same-restaurant traffic down 1.3% in Q4. Q4 2023 was the third consecutive quarter marked by a year-over-year traffic decline, according to a presentation accompanying First Watch’s earnings call.

Dive Insight:

While structural changes in consumer behavior have helped turn breakfast into a booming daypart, casual dining as a whole has had a rough few months. First Watch’s traffic dip is linked to an anticipated slump in off-premise traffic, CFO Mel Hope said on the company’s earnings call, though he didn’t specify what caused the slowdown. 

The company expects flat or negative traffic through 2024, but anticipates same-restaurant sales growth, which could imply moderate price increases. First Watch’s footprint is growing, as well — the chain plans to acquire an additional 21 franchised restaurants this year, Hope said. Those acquisitions, and the 23 completed last year, spanned 17 designated market areas.

“Where the franchisee had the rights to grow in those markets, we take that back as part of our franchise acquisition,” Christopher Tomasso, First Watch’s CEO, said on the Q4 earnings call. “That obviously, increases our ability to open more company-owned restaurants.”

First Watch has already “identified the long-term unit potential” in Las Vegas and New England, Tomasso said. “We are already deep into negotiations for multiple locations in both markets and expect a material percentage of our growth to come from these two areas in the coming years.”

Tomasso said the Vegas market in particular is known for its high volumes. While New England’s market poses some challenges — one analyst cited development costs that were too high for the resultant unit volumes — First Watch’s focus on suburban markets could alleviate some of those challenges, he said.

“We go into the suburbs predominantly first, before we enter the urban areas or city centers. And so we build up that brand recognition, we build up that trial,” Tomasso said.

While First Watch plots growth, many casual competitors have recently shrunk their footprints. Bloomin’ Brands is closing dozens of units as traffic remains weak. Denny’s closed 57 restaurants last year and is projecting flat same-store sales for 2024, while Dine Brands saw Applebee’s unit count shrink by 36 stores. First Watch has been largely immune to unit closures on that scale, and its mostly company-operated footprint, which includes 425 company-owned and 99 franchise-owned stores, could insulate it against the impacts of franchisee bankruptcies to which systems like Denny’s are exposed. 

On March 5, First Watch announced that its co-founder Ken Pendery had died at the age of 70. Pendery led the company as CEO from about 50 units in the 1990s to 330 units on his retirement in 2018, according to a press release announcing his death.