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Sweetgreen is introducing rotisserie-seasoned chicken and a sourdough chocolate chip cookie to its permanent menu. These items are part of a push into the "Plates" category, which offers more substantial meals than its traditional salad bowls. This move is an attempt to broaden the brand's appeal beyond lunch. By adding heartier proteins and its first-ever dessert, the company hopes to encourage more dinner visits and increase the average amount each customer spends. While new menu items are routine for a restaurant, these specific additions aim to fix the falling traffic and shrinking sales the company reported earlier this month.
Source: Business Wire
After Sweetgreen's November results, we cut our quality score to 2.1 to reflect lower ratings for sales growth, competitive protection, and the remaining room for the business to grow. We moved our call on the stock to Avoid as we reset our expectations for restaurant profits and sales at stores open more than a year. We have added the food safety outbreak and the customer shift toward cheaper menu items like wraps to our thesis. We also added the sale of the Spyce technology business to the factors we track, as the one-time gain from the deal masks a net loss for the quarter.
Sweetgreen reported a 6 percent drop in sales at stores open at least a year, a key measure of how well a restaurant is keeping its customers. While the company brought in $176 million in revenue, slightly more than analysts expected, it is still losing money. The net loss for the quarter was about $31 million, which is an improvement from the prior year but shows the business is still far from being self-sustaining.
The bigger concern for long-term owners is that restaurant-level profit margins, which measure the money left over after paying for food and labor at each location, fell to about 10 percent from 13 percent last year. This is well below the 20 percent level the company needs to hit to prove its business model works. While Sweetgreen is betting on robotic kitchens to lower these costs, these results show the core business is currently under pressure from falling customer traffic.
See the full quarter, and how our tracked metrics did
Source: Company earnings report
Sweetgreen is set to share its performance for the quarter, with analysts looking for revenue of about 170 million dollars. The focus for long-term owners remains on the rollout of the Infinite Kitchen, the company's robotic salad-making system designed to lower labor costs. We will be watching for updates on how many new stores are using this technology and whether the company is still on track to reach full profitability by 2026.
UBS raised its price target for Sweetgreen from $6.50 to $11. This move brings their target closer to where the stock is currently trading, which is about $11.50. While the target increase is large, the firm did not change its overall rating on the stock. The average target across all analysts who follow the company now sits at $9, suggesting that most professional researchers still think the stock is priced higher than its actual value.
Source: UBS
Management has missed expectations in six of the last eight quarters. This pattern suggests they are struggling to forecast their own business as sales growth slows and costs rise.
| Expectation | |
|---|---|
| EPS | $-0.25 |
| Revenue | $170M |