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    Sweetgreen Inc (SG)

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    Business Description

    Sweetgreen, Inc. (NYSE: SG) is a mission-driven, next-generation restaurant and lifestyle brand focused on serving healthy food at scale. The company operates company-owned restaurants across 22 states and Washington, D.C., offering customizable, plant-forward meals designed to empower customers to make healthier choices. Sweetgreen emphasizes sustainability, transparency, and quality in its menu offerings, which include salads, bowls, and protein plates made from fresh, locally sourced ingredients.

    1. Core Menu - Features 13 curated, signature items offered year-round, including salads, bowls, and protein plates made with fresh, high-quality ingredients.
    2. Customization Options - Allows customers to create personalized salads or bowls from over 40 fresh ingredients and made-from-scratch dressings.
    3. Seasonal Offerings - Highlights fresh, local ingredients through a smaller, curated menu that changes throughout the year to encourage repeat visits.
    4. Digital Exclusives - Offers exclusive menu items and curated collections available only through Sweetgreen's digital ordering platforms.

    Q3 2024 Summary

    Initial Price$30.21July 1, 2024
    Final Price$34.89October 1, 2024
    Price Change$4.68
    % Change+15.49%

    What went well

    • Strong Same-Store Sales Growth, Particularly in Emerging Markets: Sweetgreen reported same-store sales growth of 6% in the third quarter, with double-digit gains in emerging markets like the Midwest, Texas, and Southeast. The momentum continued into September and October, with September being the strongest month in the quarter.
    • Successful Expansion of Infinite Kitchens Leading to Improved Margins: The company is seeing significant benefits from its Infinite Kitchen technology, which is improving restaurant-level margins by approximately 700 basis points per store. The Infinite Kitchen enhances the guest experience by reducing order times to within 5 minutes and improving product quality and consistency. Sweetgreen plans to open at least 40 new restaurants in 2025, approximately half of which will be Infinite Kitchens.
    • Positive Trends in Labor Optimization and Cost Management: Sweetgreen achieved a more than 100 basis point improvement in labor expenses year-over-year due to labor optimization, which more than offset prevailing wage rate increases. Food and labor inflation ran at approximately 2%, which remains manageable.

    What went wrong

    • The company is not providing guidance for 2025 at this stage, deferring to the next earnings call, which may indicate uncertainty about future performance.
    • Infinite Kitchen units have higher build-out costs, approximately $0.5 million more than classic units, which could impact returns despite an expected 700 basis point margin improvement.
    • Same-store sales growth is 6%, led by double-digit growth in emerging markets, but the mature markets may be underperforming, as the company did not disclose specific comps for those regions.

    Q&A Summary

    1. Same-Store Sales Trends
      Q: How did same-store sales perform this quarter?
      A: Same-store sales grew by 6% in the third quarter, with September being the strongest month. This momentum continued into October, aligning with the revised upward guidance of 6% to 7% for same-store sales growth.

    2. Infinite Kitchen Rollouts
      Q: How are Infinite Kitchens affecting margins and future plans?
      A: Infinite Kitchens improve labor efficiency by approximately 700 to 800 basis points, allowing for faster throughput and higher customer satisfaction. The company plans to deploy more IKs, focusing on high AUV stores with tight lunch peaks and challenging labor markets. The incremental cost for IK is $450,000 to $550,000, but there are opportunities to reduce costs over time as manufacturing scales.

    3. Labor Optimization
      Q: What is driving labor cost improvements?
      A: Labor optimization results from changes in scheduling, deployment, and the introduction of AI scheduling tools. These tools help match labor to sales curves and enhance team member experience, offering considerable room to further optimize labor over the next several years.

    4. Menu Innovations Impact
      Q: How are new menu items like steak affecting sales and margins?
      A: New offerings like Caramelized Garlic Steak have performed well, driving dinner sales, broadening the customer base, and increasing check and transactions. Although steak has higher costs, it only adds slight upward pressure on overall COGS, and the impact is not overly significant.

    5. Unit Growth and Economics
      Q: How will unit growth and IK units affect unit economics?
      A: With plans to reaccelerate unit growth and over half of new units being IKs, the build-out costs will be higher by about $0.5 million, but IKs offer a 700 basis point improvement in store margins. The company sees opportunities to reduce build-out costs and improve overall economics over time.

    6. Labor and Food Inflation
      Q: What are the current labor and food inflation rates?
      A: Labor and food inflation rates ran at approximately 2%, and the company views inflation as relatively tame at this point in time.

    7. AUVs at Infinite Kitchens
      Q: How are sales at IK stores compared to traditional stores?
      A: IK stores like Naperville have higher AUVs, and the Penn Plaza retrofit has shown accelerated growth, outperforming other New York City locations in October. The company expects volumes at IK stores to grow over time due to faster throughput and higher customer satisfaction.

    8. Retrofit Plans and Downtime
      Q: What is the plan for IK retrofits and expected downtime?
      A: The company completed one retrofit at Penn Plaza with a downtime of about 6 to 7 weeks. Two more retrofits at Willis Tower and Wall Street are underway. Downtime depends on the specific store but is generally expected to be similar.

    9. Expanding Brand Appeal
      Q: How is the brand broadening its appeal beyond salads?
      A: Sweetgreen is expanding beyond salads with new menu items like Protein Plates, RippleFries, handheld wraps, and desserts. These innovations aim to disrupt fast food and attract a wider demographic, driving dinner sales, broadening the consumer base, and enhancing check and transactions.

    10. Marketing Strategy Shift
      Q: What changes are being made to the marketing approach?
      A: The company is evolving its marketing to a full-funnel approach, utilizing out-of-home, digital, social, influencer partnerships, and community events. A new loyalty program is set to launch in the first half of next year to deepen customer relationships.

    Key Metrics

    View all financials →

    Executive Team

    NamePositionStart DateShort Bio
    Jonathan NemanPresident, CEO, and ChairDecember 2017Jonathan Neman, age 39, is a founder of Sweetgreen, Inc. He has served as President since February 2018, CEO since December 2017, and a Board member since October 2009.
    Nicolas JammetChief Concept OfficerDecember 2017Nicolas Jammet, age 39, is a founder of Sweetgreen, Inc. He has been Chief Concept Officer since December 2017 and a Board member since October 2009.
    Nathaniel RuChief Brand OfficerDecember 2017Nathaniel Ru, age 38, is a founder of Sweetgreen, Inc. He has been Chief Brand Officer since December 2017, Treasurer since December 2020, and a Board member since October 2009.
    Wouleta AyeleChief Technology OfficerAugust 2021Wouleta Ayele has been Chief Technology Officer since August 2021. She previously held leadership roles at Starbucks Corporation from 2005 to 2021, including SVP of Technology.
    Adrienne GemperleChief People OfficerJuly 2020Adrienne Gemperle has been Chief People Officer since July 2020. She previously held leadership roles at SoulCycle, Plated, and Starbucks Corporation.
    Mitch RebackChief Financial OfficerMay 2015Mitch Reback has been Chief Financial Officer since May 2015. He previously served as CFO at Drybar, LLC and Neutrogena Company, and consulted for consumer product companies.
    Rossann WilliamsChief Operating OfficerFebruary 5, 2024Rossann Williams will serve as Chief Operating Officer starting February 5, 2024. She brings over 30 years of experience, including 18 years at Starbucks Corporation, where she was President of North American Retail.

    Questions to Ask Management

    1. Given that the build-out costs for Infinite Kitchen units are approximately $0.5 million higher than classic Sweetgreen locations, how does the company plan to fund the accelerated rollout of Infinite Kitchens while maintaining its financial health?

    2. With steak having higher cost of goods sold and causing slight upward pressure on overall COGS, how do you intend to balance menu innovation with maintaining restaurant-level margins?

    3. You mentioned that labor optimization has led to improved margins through changes in scheduling and deployment, but as you accelerate unit growth, how do you plan to ensure these efficiencies are replicated across new restaurants, especially with potential labor market challenges?

    4. As you broaden your menu to include items like RippleFries and handhelds, how will you manage the increased operational complexity to avoid negatively impacting speed and consistency in service?

    5. Considering that same-store sales growth is driven primarily by double-digit increases in emerging markets, what strategies are in place to boost sales in mature markets like the Northeast and Eastern Seaboard, where growth appears to be slower?

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      • Net New Restaurant Openings: 24 to 26 new restaurants
      • Revenue: $675 million to $680 million
      • Same-Store Sales Growth: 6% to 7%
      • Restaurant-Level Margin: 19.5% to 20%
      • Adjusted EBITDA: $18 million to $20 million
      • Additional Information: Retrofitting of two high-volume restaurants with Infinite Kitchen technology.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Net New Restaurant Openings: 24 to 26
      • Revenue: $670 million to $680 million
      • Same-Store Sales Growth: 5% to 7%
      • Restaurant-Level Margins: 19% to 20%
      • Adjusted EBITDA: $16 million to $19 million.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Net New Restaurant Openings: 23 to 27
      • Revenue: $660 million to $675 million
      • Same-Store Sales Growth: 4% to 6%
      • Restaurant Level Margin: 18.5% to 20%
      • Adjusted EBITDA: $10 million to $19 million.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024 and Q1 2024
    • FY 2024 Guidance:
      • Net New Restaurant Openings: 23 to 27
      • Revenue: $655 million to $670 million
      • Same-Store Sales Growth: 3% to 5%
      • Restaurant-Level Margins: 18% to 19.5%
      • Adjusted EBITDA: $8 million to $15 million
    • Q1 2024 Guidance:
      • Net New Restaurant Openings: 5 to 6
      • Revenue: $150 million to $154 million
      • Same-Store Sales Growth: Approximately 3%
      • Restaurant-Level Margins: 16% to 17%
      • Adjusted EBITDA: Loss between $4 million to a loss of $2 million.