Sweetgreen - Earnings Call - Q3 2025

Executive Summary

• Q3 underwhelmed on comps and profitability: revenue $172.4M (-0.6% y/y), same‑store sales -9.5% (traffic/mix -11.7% offset by +2.2% pricing), restaurant-level margin compressed to 13.1% (from 20.1%), and GAAP EPS of -$0.31; management cited macro softness, loyalty transition, protein portion investment, tariffs, and one‑time write‑offs as drivers.
• Guidance cut materially: FY25 revenue trimmed to $682–$688M (from $700–$715M), SSS to -(8.5)% to -(7.7)% (from -(6)% to -(4)%), restaurant-level margin to 14.5%–15% (from ~17.5%), and Adjusted EBITDA to -$13M to -$10M (from +$10M to +$15M).
• Strategic move: SG will sell Spyce/Infinite Kitchen development to Wonder for $186.4M (≈$100M cash + ≈$86.4M Wonder preferreds), retain access via supply/license, and expects ≈$8M annualized G&A savings; management frames this as liquidity and focus benefit without losing IK advantages.
• Operations reset underway (Project One Best Way) with throughput, food quality/portioning, value communication, and loyalty/CRM as key levers; dinner softness and pressure on 25–35 cohort persist, especially in Northeast and LA (≈60% of comp base).
• Near‑term stock catalysts: depth of guide cut and margin reset, Spyce sale/IK partnership economics, Q4 new unit cadence (17 openings incl. first Sweetlane+IK), and traction on marketing/value/loyalty initiatives.

What Went Well and What Went Wrong

• What Went Well

  • Strategic refocus with monetization of Spyce: $186.4M transaction adds ≈$100M liquidity, retains IK via cost+5% supply/license, and reduces G&A by ≈$8M annual run‑rate.
  • Operational discipline building: share of restaurants meeting standards improved from ≈33% to ≈60%; throughput initiatives and scan‑to‑pay rolling out to lift speed and data capture.
  • Digital engagement: Total Digital 61.8% (Owned 35.3%) vs 55.1%/29.2% y/y; loyalty sign‑ups ≈20K/week with rising usage after scan‑to‑pay; plan to lean into targeted CRM/promo.

• What Went Wrong

  • Comp and traffic deterioration: SSS -9.5% driven by -11.7% traffic/mix; macro slowdown amplified by loyalty program transition away from Sweetpass+.
  • Margin compression: restaurant-level margin fell 700 bps y/y to 13.1% due to sales deleverage, 140 bps protein portioning investment, ≈50 bps tariffs on packaging/menu items, and a ≈60 bps one‑time write‑off.
  • FY25 outlook reset: revenue, comps, margins, and Adj. EBITDA all cut; unit growth slowed in 2026 to 15–20 net openings (≈half IK) to preserve cash and focus on returns.

Transcript

Operator (participant)

Thank you for standing by. My name is Jon, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Incorporated third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I would now like to turn the call over to Rebecca Nounou, head of investor relations. You may begin.

Rebecca Nounou (Head of Investor Relations)

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, co-founder and chief executive officer, and Jamie McConnell, chief financial officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release and today's announcement regarding the sale of Spice are available on the investor relations section of Sweetgreen's website at investor.sweetgreen.com. I'd like to remind everyone that the information under the heading "Forward-looking Statements" included in our earnings release and Spice announcement also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements.

We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website. And now I'll turn the call over to Jonathan to kick things off.

Jonathan Neman (Co-Founder and CEO)

Thank you, Rebecca, and thank you all for joining us this afternoon. We are addressing the headwinds from the current operating environment with agility and focus. We are tightening operations, accelerating menu innovation, and deepening guest engagement. The team is focused on delivering an exceptional guest experience, improving operational execution, and serving delicious, high-quality food in every restaurant. The actions we're taking are designed to expand our value proposition, strengthen transactions, enhance restaurant performance, and position Sweetgreen for a return to profitable growth. For the third quarter, we reported sales of $172.4 million and a same-store sales decline of 9.5%. Restaurant-level margin was 13.1%, and Adjusted EBITDA was a loss of $4.4 million. Performance was impacted by softer sales trends in our Northeast and Los Angeles markets, which together represent about 60% of our comp base.

This was coupled with lighter spending among younger guests, particularly the 25 to 35-year-old age group, where we over-index. As we look to Q4 and beyond, our new leadership team has taken the learnings from the year and focused our actions around five key strategies to transform our business. We're calling it the Sweet Growth Transformation Plan. Our strategies are: one, operational excellence; two, brand relevance; three, food quality and menu innovation; four, personalized digital experience; and five, disciplined, profitable investment. Now, let me share some of the work being done under each of these strategic priorities, starting with operational excellence. Since joining earlier this year, our COO, Jason Cochran, has been instrumental in leading the work to strengthen operational execution. He's brought greater accountability and a new culture to how we run our restaurants.

Building on the foundation we introduced last quarter, Jason and his team are continuing to deploy Project One Best Way, our system-wide effort to elevate operational excellence through clear operating standards, performance-based leadership, and measured execution. As part of this project, we launched Sweetpath, a framework that helps every team member understand what running a great restaurant looks like at Sweetgreen. The Sweetpath breaks each restaurant into clear zones, from the front line to the back of house, with simple, consistent behaviors and standards for how we show up every day. Jason also introduced a new restaurant scorecard this quarter. It gives our teams greater visibility into performance across a streamlined set of metrics: sales, throughput, customer satisfaction, food quality, and labor performance. It helps our team celebrate wins, bought opportunities, and focus on what drives results.

In mid-September, we kicked off a new throughput initiative that defines what it means to be ready for peak lunch and ties progress directly to the scorecard. Early results are encouraging, showing improved peak hour throughput and building momentum toward the operational excellence we expect from ourselves. To improve throughput further, our technology team has begun rolling out scan-to-pay for a faster and simpler frontline checkout experience. With a single app scan, guests can pay, earn, and redeem rewards instantly using saved payment methods, including credit cards, Sweetgreen credits, and gift cards. These disciplined, system-level changes under Project One Best Way will take time to mature, but they're already building the structure and habits that will define how we operate going forward. As we shared last quarter, about one-third of our restaurants met or exceeded our internal operational standards. Today, that number is approximately 60%, an important step forward.

Additionally, turnover and retention continue to improve, and we expect this progress to translate into stronger restaurant-level performance over the year ahead. Now, turning to brand relevance, I'm excited to welcome Zipporah Allen, our chief commercial officer, who leads marketing, menu innovation, and the overall customer experience. In our first two months, Zipporah has brought new energy and focus to our marketing team, shaping the strategy that positions Sweetgreen as a lifestyle brand with a focus on acquiring and inviting more customers to live the sweet life. In the near term, we have redirected marketing to support New York, our most challenged market. We are optimizing our media investments to drive new guest acquisition and expand our share of voice. In the long term, we are focused on creating culture through distinct brand moments.

This will include a more structured approach to engagement with content creators that have an authentic connection with Sweetgreen, as well as brand partnerships that will broaden awareness with new audiences. For our food quality and menu innovation pillar, we are focusing our attention on driving awareness around the quality of our ingredients. Next week, we're launching a protein-focused campaign highlighting the real fuel that our customers get when they choose one of our nine chef-curated menu items with more than 30 g of protein. We are also introducing a new macros calculator in our digital experience. This protein campaign gives us a great opportunity to educate customers about our larger protein portions and is the first step to broadly communicating the key differentiators that make our menu distinct in the market. You'll see us continue to message our high-quality ingredients into next year.

Claims that differentiate us from our competition, such as made from scratch, chicken, steak, and salmon raised responsibly with no antibiotics ever, feed oil-free proteins, grains, and roasted vegetables, no artificial flavors, colors, or dyes, and sourcing organic and local produce from farmers and partners we know and trust. These will take a more prominent role in our messaging going forward. Additionally, in two weeks, we will launch a new steak bowl and steak plate to strengthen variety and value. We continue to strengthen our menu innovation muscle with a pipeline of menu items entering our new staging process in Q4. This is a cross-functional testing process that we will use for every menu item going forward. This will give us more precision and predictability in the results that we can expect from our menu development efforts.

We continue to leverage seasonal menus to drive frequency with our existing customers, and we have right-sized our marketing investment to reflect the role that these menu items play on our menu. At the same time, we are expanding our core menu offering to be relevant for more occasions and consumer needs through our pipeline tests. Our new handheld product will go into market tests in early 2026. In Q4 and heading into Q1, we are also reviewing our menu and pricing architecture as we continue to strengthen our value proposition. We know that we can do a better job of creating clear entry prices and logical trade-off opportunities across our create-your-own and chef-curated menu options so that our customers understand the value across every menu tier. When guests know what they're getting and feel good about it, it builds trust and drives loyalty over time.

Now, turning to personalized digital experience. Earlier this year, we launched S3 Rewards to create a platform for a more personalized experience powered by enhanced customer data. We just reached the six-month mark of this program and are continuing to see positive trends on frequency among our most loyal guests. The program unlocks the ability to leverage the data to drive frequency and retention through our CRM efforts. And during the fourth quarter, you will see us leverage this channel to invest more in targeted discounts and promotions to improve value perceptions and drive increased frequency with lighter users. Shifting to our last pillar, which is disciplined, profitable investment. In the third quarter, we opened eight restaurants, including six infinite kitchens. We also entered a new market, Arizona, with our Scottsdale location, delivering the second strongest opening of the year.

Following the quarter, we added a second Arizona location, further deepening our presence. The continued success of these openings reinforces our confidence in the white space opportunity ahead. In the fourth quarter, we will open 17 new restaurants and enter three new markets: Sacramento, Cincinnati, and Northwest Arkansas. Our Q4 openings include our first Sweet Lane featuring the infinite kitchen in Costa Mesa. Altogether, we expect to complete construction of 40 new restaurants this year, ending 2025 with 37 net openings. This reflects the closures of our Bleeker and Aster Place restaurants in the third quarter. It also includes shifting two restaurant openings into early 2026 to ensure the best possible experience for our guests and team members, though construction will be completed this year. We expect to open our relocated Nomad restaurant in December and Union Square in January.

Both locations are being relocated to stronger sites and will include infinite kitchens. We're prioritizing the strength of our financial position by improving cash flow and maintaining greater discipline in how we invest, which will include a slowdown of new restaurant openings. Looking ahead to 2026, we plan to open 15-20 net new restaurants, with about half featuring infinite kitchen technology, and enter two to three new markets, including Salt Lake City. We believe this strikes the right balance between growth and financial discipline as we focus on lowering capital expenditures and driving strong returns. We remain focused on quality growth and continue to target cash-on-cash returns above 40%. As announced today, we've made the strategic decision to sell Spice, our business unit responsible for developing the infinite kitchen, to Wonder.

This will allow us to unlock greater scale, lower operating costs, and strengthen our financial foundation for the future. First and foremost, the infinite kitchen remains central to Sweetgreen's future. The technology has consistently proven its ability to deliver faster throughput, improved accuracy and consistency, and elevated food quality. In the third quarter, the infinite kitchen restaurants continue to realize approximately 700 basis points of labor savings and nearly 100 basis points of COGS improvement compared to restaurants of similar age and volume. Under our agreement with Wonder, Sweetgreen will continue to utilize and expand infinite kitchen technology across our restaurants. Partnering with Wonder enables us to leverage their manufacturing scale, R&D investments, and shared innovation, accelerating the refinement and rollout of additional IK units.

This transaction also allows us to sharpen our focus on our core restaurant business, allocating more of our talent and financial resources toward accelerating growth and achieving profitability. The $186.4 million sale is expected to infuse our balance sheet with approximately $100 million in liquidity, strengthening our financial position and enhancing our flexibility to fund future growth initiatives. We're incredibly proud of the work the Spice team has done to develop, scale, and commercialize one of the world's most advanced food automation technologies under Sweetgreen. I want to especially thank Spice co-founders Michael Farid, Kale Rogers, Brady Knight, and Luke Schlueter for their vision and phenomenal technical execution. We look forward to partnering with you and the Wonder team as we enter this next chapter of innovation together.

From menu development to our app to the infinite kitchen, we've always been pioneers in reimagining how real food is sourced, prepared, and served. That spirit of innovation is core to our DNA and will continue to guide us. Before I conclude my prepared remarks, I want to take a moment to recognize Mitch Reback, who retired in September as our CFO and expressed my deep gratitude for everything he's done for Sweetgreen. Mitch joined us when we were still a small regional brand over 10 years ago and has been a driving force behind our growth ever since. He built the financial foundation that supports our business today, guided us through our IPO, and has been a true partner, mentor, and friend. His impact on Sweetgreen and on all of us personally can't be overstated.

We're deeply grateful for his leadership and wish him all the best in his retirement. We are also excited to welcome Jamie McConnell as our new Chief Financial Officer. In her short time, she's already brought a sharp focus on financial discipline, returns, and efficiency. Her background and experience in high-growth, operationally disciplined businesses will be instrumental as we strengthen our operating model and position Sweetgreen for long-term success. Over the years, Sweetgreen has navigated some of the toughest moments, from growing through the Great Recession to leading through COVID. Through it all, I've never wavered in my belief in our vision or the impact we can make. We've proven that our brand resonates across markets and demographics, and the opportunity ahead remains significant. Our focus now is combining the creativity and cultural relevance that make Sweetgreen unique with greater discipline and a continued focus on the guests.

The Sweetgreen brand remains strong and continues to deeply resonate with our guests. We know the work we need to do to raise our execution and reignite our flywheel to drive traffic and set the stage for long-term profitable growth. We are taking the steps needed to get back on track and position Sweetgreen for long-term success. I want to thank every Sweetgreen team member for their focus, resilience, and commitment to excellence. Together, we're positioning Sweetgreen to reach its full potential. All while staying true to our purpose of connecting people to real food. Now, I'll turn over the call to Jamie to review our financial results in detail.

Jamie McConnell (CFO)

Thank you, Jonathan, and good afternoon, everyone. As a long-time Sweetgreen guest, I could not be more excited to join the team. This is an important time for the brand, and I'm grateful for the trust Jonathan, the board, and the company have placed in me to help shape the next chapter. Over the past few weeks, I've spent time in our restaurants listening and learning from our teams. What stood out immediately was the care our people bring to the food we serve and the ingredients we source. I met Yuri, who began as a dishwasher six years ago and now leads her own restaurant as a head coach. Seeing how she has grown within Sweetgreen and her pride in the restaurant showed me what makes this company so special. Since stepping into the CFO role a little over six weeks ago, I've been focused on gaining a clear understanding of our economic model and the levers that drive our results. It's clear there's meaningful work ahead.

I've launched a full review of our restaurant-level expenses and G&A structure to ensure we're operating as efficiently as possible, identifying savings, simplifying processes, and investing only in what drives the business forward. Over time, this work will drive margin improvement, stronger cash flow, and tighter financial discipline across the company to deliver steady, stable results. I will have more to share in future quarters. I'll now walk you through our third-quarter results. Third-quarter sales were $172.4 million compared to $173.4 million last year, with same-store sales declined of 9.5%. Restaurant-level margin was 13.1%, down from 20.1% a year ago. Adjusted EBITDA was -$4.4 million compared to positive $6.8 million last year. The comp decline reflects an 11.7% decrease in traffic and MIX, partially offset by a 2.2% benefit from menu price increases.

The comp decline reflects softer sales trends and the transition from Sweetpass+ to our new rewards program, which eliminated subscription revenue and includes a loyalty deferral. Third quarter, food, beverage, and packaging costs were 30.7% of revenue, a 320 basis point increase year-over-year. The benefit from pricing was more than offset by higher protein costs, reflecting our investment in increased chicken and tofu portions to reinforce the value for our guests and higher ingredient usage. We expect to offset the 140 basis point portion investment through a combination of in-restaurant and supply chain initiatives, with savings beginning in 2026 and fully realized in the second half of the year. The quarter also included a 50 basis point impact related to imposed tariffs and duties on our packaging and other menu items. This is a level we expect to continue in the near term.

Additionally, the third quarter was impacted by a one-time 60 basis point write-off of discontinued materials. Third quarter labor and related expenses were 29.1% of revenue, an increase of 170 basis points from last year. The increase was primarily driven by deleverage from lower sales volumes and higher wage rates, partially offset by menu price increases. Other operating expenses were 17.6% of revenue, an increase of 130 basis points from last year. Third quarter operating support center costs decreased $2.3 million from last year on a dollar basis. As a percent of revenue, operating support center costs improved to 14% from 15.2% last year. The decrease was primarily driven by lower bonus expense due to company performance. As a reminder, we streamlined parts of our organization during the quarter, eliminating roughly 10% of open and existing roles to drive greater focus and efficiency.

Third quarter net loss was $36.1 million compared to a net loss of $20.8 million last year. The higher net loss primarily reflects a $12.4 million decrease in restaurant-level profit and increased impairment charges, driven by a $4.3 million impairment charge for four underperforming restaurants. This was partially offset by lower stock-based compensation as IPO-related grants continued to roll off. Adjusted EBITDA was a loss of $4.4 million compared to positive $6.8 million last year. The decline was primarily driven by lower restaurant-level profits. During the quarter, we opened eight restaurants, six of which were infinite kitchens. We closed two restaurants during the quarter, Bleeker and Aster Place, for a third-quarter net interim count of six, and we ended the quarter with 266 restaurants. We ended the quarter with a cash balance of $130 million.

As you heard earlier from Jonathan and read in our release this afternoon, the strategic sales of Spice to Wonder marks an exciting milestone for Sweetgreen. From a financial standpoint, this transaction reflects a disciplined capital decision that both strengthens our liquidity position and enhances our path to profitability. The sale is expected to infuse our balance sheet with approximately $100 million in cash upon closing. We expect the Spice sale to close in either the fourth quarter of 2025 or early in the first quarter of 2026. We also expect to realize approximately $8 million in annualized G&A savings as the Spice team transitions to Wonder. Together, these actions are being taken to create meaningful leverage in our model and reinforce our focus on balancing growth with disciplined cost management.

Through our ongoing collaboration with Wonder, we have found a way to continue to benefit from the long-term success of the platform while keeping our focus on expanding and enhancing the Sweetgreen experience. Now, turning to guidance, we are updating 2025 guidance to the following: 37 net new restaurant openings, revenue ranging from $682 to $688 million, negative same-store sales of 8.5%-7.7%, restaurant-level margin of 14.5%-15%, and adjusted EBITDA between -$13 and -$10 million. As Jon said, we plan to slow new unit growth next year to approximately 15-20 net new restaurants, with about half featuring the infinite kitchen. We'll continue to evaluate opportunities to increase development as operating cash flow improves. To close, I came to Sweetgreen because I believe in what we're building and the impact this brand can have.

I'm incredibly passionate about our mission and confident in the opportunity ahead. And now, I will turn the call over to the operator to begin Q&A. Operator.

Operator (participant)

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And for today's session, we do request that you please limit yourself to one question. Your first question comes from a line of Brian Mullen of Piper Sandler. Your line is open.

Brian Mullen (Director and Senior Research Analyst)

Okay. Thank you. In the prepared remarks, you mentioned starting to evaluate Sweetgreen's menu and pricing architecture, I think you said, in Q4 and into Q1. So, Jonathan, can you just give a sense of the scope of what you're looking at, what you're hoping to accomplish? Maybe you could characterize how difficult you think this will or won't be. And I ask because I know absolute price points, it's only one part of the value equation, but it's an important one. So we'd just love to get your thoughts on what you think needs to be done.

Jonathan Neman (Co-Founder and CEO)

Absolutely. Thank you, Brian. So, yes, we're looking at menu and pricing architecture, as we mentioned. And I think there's a few ways that we're considering it. First is our pricing ladders and new entry points. As you know, in the quarter, we tested a few things around $13 bowl drops.

We saw, really, to understand the price elasticity. We saw a lot of engagement around it, but given the fact that it was mostly marketed to existing customers, a relative high degree of cannibalization. But it did show us that there is a real opportunity around more entry price points around our menu. As we look at menu innovation, we also see opportunities to create different price points and, again, entryways into the brand. We've also looked at how we present menu price points on our menu boards, again, to really show the different pricing options we have. Lastly, I'll just follow up on the things that I talked about in the prepared remarks. We can do a much better job of talking about the value we provide, whether it be made from scratch or our proteins cooked without seed oils or all of our proteins having no antibiotics ever.

There's a much better job we can do around really delivering on the value message that we are offering. Lastly, we have increased our protein portions by about 25%. And we've been relatively quiet on that, but starting next week, we have a big campaign around the increased portioning around protein. And with all the craze around protein, we think that will also do well. So I'll close with, on this, a lot of the pricing work is going into SageGate in the coming months, and we do think that there's going to be a lot of opportunity around these different pricing tiers.

Brian Mullen (Director and Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from a line of Jon Tower of Citi. Your line is open.

Jon Tower (Equity Research Analyst)

Great. Thanks for taking the question. I guess maybe. I'm just looking at the guidance for the balance of the year or the implied guidance for the balance of the year, and it's effectively suggesting the fourth quarter is taking a step down. I don't think that's really too much of a surprise to people on the line. But I'm just curious if you could kind of walk through what you're seeing in the current environment. And specifically, I would think, given where your stores are located in the Northeast and what's going on with the government shutdown, if you've seen anything. Worse in the most recent months with respect to consumer demand. And frankly, how it's showing up in your business? Are you seeing it specifically during certain parts of the week. Or lunch or dinner getting hit more so than other day parts, and how people are spending at your stores relative to the past?

Jamie McConnell (CFO)

Hi, Jon. Yeah, you're right. We are seeing a step down. So in July, we saw a slight pickup from Q2, and that was due to the seasonal menu rolling out. However, in August, we saw a step down of about 200 basis points, and then we saw another step down in September of about 200 basis points. October is holding flat to September, so we're running at low negative double digits right now. I will tell you, you're absolutely right about the consumer. So the 25-35 consumer is the most under pressure, and they make up about 30% of our consumer base, and they're down about 15%. And then our Northeast and LA markets make up about 60% of our base, and they're making up about 800 basis points of negative comp compared to the rest of the fleet. So we're definitely seeing that impact. And then we are seeing some declines in dinner.

Jon Tower (Equity Research Analyst)

Okay. Thank you. And maybe just in terms of the infinite kitchen agreement that you guys made today, can you just walk us through how that's going to impact you going forward? Obviously, it sounds like in a license agreement. But will there be any incremental costs that you'll have to pay going forward, like a royalty for the technology into the future?

Jonathan Neman (Co-Founder and CEO)

Yeah, Jon, I'll take that. So we think that this strategic agreement with Wonder is really a win-win-win for the business. Not only do we infuse the company with about $100 million in cash and another $86 million in Wonder stock, we also reduce our G&A by about $8 million and allow us to focus more of our time and resources on the customer and really on the food and the experience. Beyond that, around IK going forward, it will continue to be a huge part of our business. Like we said, it's continuing to scale in many of our new stores, and we're pleased with the results. And we've formed. A really favorable agreement with Wonder where we're able to have the units add about around cost +5% and then maintain the current costs around delivery, install, and service. So. It's just a huge win for us and able to still use that technology as we continue to scale. But at pretty much the same cost that we've had so far without the financial burden that it was causing.

Jon Tower (Equity Research Analyst)

Got it. Thank you.

Operator (participant)

Your next question comes from a line of Andrew Charles of TD Cowen. Your line is open.

Andrew Charles (Managing Director and Senior Research Analyst)

Great. Thanks. Just first, one quick bookkeeping. On the 15-20 net openings for 2026, what's contemplated number of closures for next year? And my real question is, it's good to hear the handheld is making a reappearance after you first talked about it around a year ago. What were the key unlocks in the operational side to get it to the market test? I know you're going to figure out more on the operational side, but what were the key unlocks you did in this planning phase to get it to the market test?

Jamie McConnell (CFO)

I'll start with the net 15 store openings. So we've identified two that are going to close, and then we're also looking at lease expirations and being really diligent on if we should renew those leases. So we still expect about net 15. We've identified two, but net 15 is our number.

Jonathan Neman (Co-Founder and CEO)

And on the unlocks, I think we've tested this with consumers. We know we have a really, really killer product. The point of the market test is to make sure that we can operationalize it and really understand any impacts to throughput. So it's a bit early to talk about it, but we've run some internal testing and are very confident that we can come up with something that is accretive and incremental to the business, unlock new day parts, and really be a big acquisition driver for us. So it's something that we've known for a while. Jason, our COO and team, are very confident that this is something that we can operationalize. But as I mentioned in the prepared remarks, the SageGate process is really critical to getting this right, and that's why we are not rushing this out. We want to make sure both the product offering and the menu assortment is right, the pricing is right, and most importantly, that we can operationalize this.

Andrew Charles (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from a line of Rahul Agarwal of JPMorgan. Your line is open.

Rahul Agarwal (Executive Director and Equity Research Analyst)

Good evening, guys. Firstly, kudos on making the changes to the protein portion increases, Jonathan. They are quite visible and consistently hitting the 100 g scope. Happy to see that being executed well. The question is, on the net cash proceeds after any tax components associated with the. Spice sale, given the cost basis and factoring in stock in the initial purchase price of spice, can you give us a detail on the actual cash that would be realized on the balance sheet? And. Also, does it impact the future IK mix given the hurdle rate, given the cost +5% comment you made, Jonathan? Any color on that would be great.

Jonathan Neman (Co-Founder and CEO)

I'll take the second part of the question, and I'll let Jamie take the first. So in terms of the actual cost, I think it's actually a huge benefit to us because today, at our scale, there's only so many. So much economies of scale we can achieve with the machine. At a cost-plus model, at just a very small 5%, which would be about $25,000 on the cost of the machine, we benefit from the economies of scale as they begin to scale production and also have access to future technologies. So we actually think this will help us bring the unit cost down, have them invest more in the R&D and innovation of potentially cheaper. And more effective. Automation units. And so. Overall, a win-win in that scenario.

Jamie McConnell (CFO)

And then following up on the cash, we're still going through the tax analysis and the valuation. So I don't expect it to be a material amount of tax that we are going to pay. And then we're still going through the tax and legal fees, etc., but I don't expect any of them to be material.

Rahul Agarwal (Executive Director and Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from a line of Sara Senatore of Bank of America. Your line is open.

Sara Senatore (Senior Research Analyst)

Oh, thank you. Jamie, I guess one confirmation or clarification and then a question. I think you said that dinner is where you're seeing some softness. So I guess, does that mean sort of disproportionate? Some of what I've seen is that lunch has actually been more vulnerable just because it's something where people can kind of pack and bring from home. So I wanted to understand the day part. Impact if you kind of control for sort of suburban or urban mix.

Jamie McConnell (CFO)

Yeah. Hi, Sarah. We actually are not seeing a slowdown in our lunch quarter over quarter. We're actually seeing a slight decrease. So really, it's the dinner time that we're seeing that decrease.

Sara Senatore (Senior Research Analyst)

Okay. Thank you. And then the question was on, again, on the sort of sale. What, I guess, is the impetus to doing that now? I mean, other than perhaps your cash position, I guess I ask because. To your point about being kind of subscale. My sense is that a lot of restaurants generally will outsource technology unless they're really big. And so I just wanted to understand kind of the thought process of developing tech in-house versus maybe just going forward. Just deciding to just to the outsourcing approach.

Jonathan Neman (Co-Founder and CEO)

Yeah, absolutely. So when we bought spice originally, there was no automation. Platform that we could have. Bought from there. And so we took what was a nascent idea, really a prototype in a couple of stores. We perfected it for Sweetgreen. We've commercialized it. We've gotten the manufacturing set up, and we've now scaled it. And it's now, this year, over half of the new NROs, again, next year. And we're really at that point where us fully owning it is not needed as long as we have a level of control and license around the technology. And now we can benefit from the economies of scale and future innovation under Wonder. So. It not only provides cash and lowers our G&A in this critical moment, it allows us to focus on our business. And we believe over time, it'll actually bring the unit cost of the technology down so we can put it in more and more restaurants.

Sara Senatore (Senior Research Analyst)

Thank you.

Operator (participant)

Your next question comes from a line of Logan Reich of RBC Capital Markets. Your line is open.

Logan Reich (Lead Analyst)

Hey, good. Good afternoon. Thanks for taking my question. I just had one on the unit growth guidance for next year and the pipeline. Obviously, pulling back a little bit on unit development here. But I guess the question is, is there any potential for. That number to creep a little bit higher in a scenario where. Same-store sales gets back to growth and you guys feel comfortable about the operations? Curious if there's any flexibility in the pipeline to maybe scale that number up a little bit higher for next year.

Jonathan Neman (Co-Founder and CEO)

Yeah, absolutely, there is. The decision was made one from a financial discipline perspective, but also a focus perspective as we really focus on menu innovation and store experience in order to inflect our transaction comp. We do have a very robust pipeline over the next couple of years, and we made the strategic decision to kind of cherry-pick the best. Approximately 20 restaurants, but do have some flexibility depending on how things go to accelerate. And we are planning a re-acceleration into 2027. Not all the way to the. 15% unit growth, but do expect some reasonable step up from the 20-ish stores in 2026 into 2027. So if we are able to. Inflect comp and feel really good about our overall operations and how we're delivering on the experience, we do have the potential to slightly increase next year's unit count.

Operator (participant)

Your next question comes from a line of Brian Harbor of Morgan Stanley. Your line is open.

Kelly Merrill (Vice President and Research Analyst)

Hi, thank you. This is Kelly Merrill on for Brian. I'm just curious, can we get an update on loyalty and where that stands today? I think on the last call, you noted it as an uplift to the beginning of Q3. So just wondering if that's sustained throughout the quarter or if you're seeing anything different now.

Jonathan Neman (Co-Founder and CEO)

Yeah, we've been generally pleased with loyalty. We just hit our six-month mark. We are seeing continued activations that are almost 20,000 per week in terms of new customers. And we have seen some frequency increases of those loyalty members. We are right now in the process of really perfecting the different customer journeys and how we can get them to be more personalized and really understanding the different promo levers. One of the things you will see us do, especially in this. Kind of cost-conscious environment for consumers, is lean a bit more uncertain kind of breakthrough promos to drive acquisition. So you'll see us trying and testing a bunch more things.

With a lot of discipline, making sure that it can be accretive. But still, I'd say very early stages of the loyalty program. And over the next six months, we expect that to be more of a comp driver for us, especially as some of the overhang from the Sweetpass+ starts to fall off. And then again, it's really about how we leverage that data. Very excited about Zipporah, we call Zip, being here and her expertise and loyalty in CRM. And again, we see a lot of opportunity to kind of leverage that digital flywheel.

Operator (participant)

Your next question comes from a line of Jeff Bernstein of Barclays. Your line is open.

Anisha Datt (Equity Research Analyst)

Hi, this is Anisha on for Jeff. With only one quarter remaining in the year, restaurant-level margins were cut significantly. Can you break down what's driving that, if it's labor deleverage, commodity inflation, or other factors?

Jamie McConnell (CFO)

Yeah. So you're right. It's about half of sales deleverage. And then the next biggest piece is the protein increase. So we have about 140 bits in protein related to the increased portions of chicken and tofu. Those we plan to offset with supply chain initiatives and restaurant initiatives. And then we have tariffs, which we expect to hold at about 50 bits.

Anisha Datt (Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from Teddy Farley of Goldman Sachs. Your line is open.

Teddy Farley (Equity Research Analyst)

Thanks for taking the question. One more on the loyalty program for me. Is the pricing and menu architecture review inclusive of a review of the rewards redemption stack for ST rewards? Just kind of making sure that you're competitive versus peers with value, not only on the core menu, but also with regards to the point redemption opportunities. Thanks.

Jonathan Neman (Co-Founder and CEO)

Yes, absolutely. It's a really good point. We've gone in with relatively modest. Programmatic benefits. So it gives us a lot of opportunity to move up and also leverage more on the personalized offers in CRM. So we are evaluating all of it, including the potential for tiers and other benefits for members. So. The loyalty program will be a huge lever for us. The one thing I will add on loyalty. Which it was in the prepared remarks, but we recently rolled out the ability to scan to pay. And the good thing about that is you're now able to very seamlessly use loyalty in store. So we're capturing more since we've done that, we are seeing a step up of customers using loyalty in restaurants. It also helps us from a throughput perspective. So a lot more improvements coming on that side.

And generally, in our digital experience, we have a lot of exciting things planned over the next six to 12 months to continue to drive that digital flywheel.

Teddy Farley (Equity Research Analyst)

Awesome. Thanks.

Operator (participant)

With no further questions, that concludes our Q&A session and today's conference call. We thank you for your participation. You may now disconnect.