First Watch benefits from summer slowdown with 8% traffic growth

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First Watch traffic grew 8.1% in the second quarter. / Photo courtesy of First Watch

If you’re wondering if the United States is heading into a recession — or even already in one — you won’t get much help from First Watch.

The 449-unit breakfast and lunch chain continued to see strong consumer demand in its latest quarter, driving same-store sales up 13.4% year-over-year thanks to to an increase in traffic of 8.1%.

Unlike many of its full-service counterparts, which reported declining sales and traffic in June, First Watch said transactions were consistent throughout the quarter and increased in all three periods.

“At times like this, the consumer is looking for quality and consistency,” CEO Chris Tomasso told analysts Tuesday morning. “We really believe in brand and offering differentiation and being affordable luxury.”

The strong results prompted First Watch to update its outlook for the year. It now expects annual same-store sales growth of 13% to 15%, up from the low-single digits, and revenue growth of 20%, up 15%.

First Watch’s traffic growth goes to the heart of the brand, Tomasso said: its fresh ingredients and innovative menu items, as well as its focus on service, “all resonate with the consumer.”

As customers continue to flock to its restaurants, they’re also spending more: Menu mix grew by low-single digits for the quarter. Executives pointed to First Watch’s LTOs, such as Benedict’s seasonal quesadilla barbacoa, as well as its fresh juice program for this growth.

And the chain thinks there’s still room for improvement on the menu, especially on the alcohol side. More than 75% of the chain’s restaurants now serve alcohol, and the share of alcohol sales has increased to 6.5% from just under 4% during the 16-month rollout.

“We’re really excited about the opportunity around alcohol and beverages in general,” Tomasso said.

Although the Bradenton, Fla.-based chain has seemingly been immune to consumer economic woes, it has struggled with commodity inflation along with most other restaurants. Egg costs in particular have posed a challenge, with a global outbreak of bird flu driving up costs.

To help offset some of the inflationFirst Watch raised its prices by 3.9% in July, bringing its total price for the year to just under 8%.

The chain has always been cautious about price increases and executives said they did not expect a negative impact on traffic from the increase. Tomasso pointed out that take-home food inflation continues to outpace restaurant menu prices.

For the full year, the channel predicted commodity inflation of 15% to 17% and labor inflation of 8% to 10%.

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