This fast food restaurant operator, known for its focus on salads and bowls, is trading sharply higher post-earnings for the third quarter in a row following its Q2 report. Sweetgreen (SG, Financial) reported a larger-than-expected loss but beat revenue estimates and raised FY24 sales guidance to $670-680 million from $660-675 million. Adjusted EBITDA guidance also improved to $16-19 million from $10-19 million.
- Despite the larger-than-expected loss, investors are focusing on the significant jump in adjusted EBITDA to $12.4 million, up from $3.3 million a year ago. Adjusted EBITDA margin increased to 7% from 2% in the prior year period. The company is not yet profitable due to rapid expansion, but positive adjusted EBITDA is a good sign.
- The improvement in adjusted EBITDA was driven by higher Restaurant-Level Profit and lower pre-opening and G&A expenses. Q2 restaurant-level margin was 22.5%, up over 200 basis points year-over-year, marking one of the highest performances in the company's history.
- Q2 comparable sales (comps) stood out at +9%, with a +5% benefit from menu price and +4% from positive traffic and mix. SG raised its FY24 comp guidance to +5-7% from +4-6%. The Caramelized Garlic Steak and protein plates have been particularly successful, driving comps at dinner and on weekends. Dinner now represents 40% of sales, excluding the 2-4 PM mid-day period.
- SG opened four new restaurants in Q2, including one in New Hampshire, a new market for Sweetgreen. The 2024 cohort of new restaurant openings is ramping nicely, with average weekly revenue already outpacing the existing fleet average. SG expects to add 24-26 new restaurants in 2024, bringing its total to 225 locations.
Overall, this was another impressive quarter for Sweetgreen. Investors are reacting positively to the strong comps and the substantial increase in adjusted EBITDA. The raised full-year comps are also a positive sign. While other fast food chains struggle with consumers focusing more on value and eating out less, Sweetgreen has posted an enviable comp despite its premium pricing.
Sweetgreen generated significant excitement when it made its IPO debut in November 2021. The concept is compelling, offering a healthier eating option with the convenience of a quick meal. Although poor earnings results initially sent shares to a low of $6.10 by March 2023, the last three quarters have shown that the brand is turning around.
