First Watch Restaurant Group, Inc. (FWRG): A Bear Case Theory 

We came across a bearish thesis on First Watch Restaurant Group, Inc. on Valueinvestorsclub.com by anonymouscashflow. In this article, we will summarize the bulls’ thesis on FWRG. First Watch Restaurant Group, Inc.’s share was trading at $16.49 as of December 17th. FWRG’s trailing P/E was 204.69 according to Yahoo Finance.

First Watch Restaurant Group, Inc., through its subsidiaries, operates and franchises restaurants under the First Watch trade name in the United States. FWRG recently reported a beat-and-raise quarter, driven largely by a ~$7 million one-time tailwind from falling egg prices rather than sustainable operational strength. Beneath the surface, unit economics are deteriorating, same-store-sales growth is decelerating, and franchisees are exiting, signaling structural challenges.

The company operates 600 locations, 85% of which are owned and concentrated in the Southeast, focusing on the premium daytime breakfast and brunch market. While average unit volumes are $2 million with historically strong restaurant-level margins, new unit growth into “A” markets like NYC, Boston, and Dallas is pressuring margins due to higher rents, larger store sizes, and rising capital expenditures, which have nearly doubled over four years to $1.8 million per location.

The aggressive rollout of large new units temporarily masks negative traffic trends, but as the tailwind from new store ramp-ups fades, same-store sales are expected to decelerate meaningfully. Franchisee buyouts at 55% premiums to build cost further strain the balance sheet, contributing to rising leverage of 2.4x EBITDA and limited free cash flow generation.

Consensus EBITDA expectations for FY26 appear overly optimistic given declining restaurant-level margins, stagnating traffic, and longer new-unit payback periods, with the base case projecting a 35% downside to $11.72 per share and potential 60% downside if multiples converge with peers.

Management incentives are tied to adjusted EBITDA growth rather than durable value creation, reinforcing a growth-at-any-cost strategy. Even under a scenario where consensus targets are met, upside is modest due to aggressive PE sponsor selling and a capital-intensive model. With negative cash flow trends, rising costs, and weakening fundamentals, FWRG represents a compelling asymmetric short, with multiple catalysts—including decelerating SSS, margin pressure, and Advent’s share liquidation—likely to drive a material rerating over the next twelve months.

Previously we covered a bullish thesis on The Cheesecake Factory Incorporated (CAKE) by TyNads in May 2025, which highlighted its transformation into a multi-brand restaurant platform with stable profitability and underappreciated growth assets like North Italia and Flower Child. The stock has appreciated approximately 1.22% since our coverage. The thesis still stands, while anonymouscashflow takes a contrarian view on First Watch (FWRG), emphasizing deteriorating unit economics and decelerating same-store-sales.

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Disclosure: None.