Updated Aug 12 at 4:03pm ET.
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Sweetgreen lost about 22 cents per share this quarter, which was worse than the 13 cents analysts expected. While total revenue rose slightly to $193 million, sales at stores open at least a year fell about 6 percent. This is a concern because the company needs steady sales growth to fund its expensive plan to automate its kitchens with robots.
Profitability at the restaurant level also dropped to 13 percent, down from nearly 19 percent a year ago. The company is spending heavily on its Infinite Kitchen technology, which uses automation to prepare salads, but these results show the core business is currently under pressure from lower customer traffic.
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Source: 8-K filing
Management lowered its expectations for the rest of the year, citing a multistate outbreak of cyclosporiasis, an illness caused by a parasite found in contaminated food. The company now expects sales at established locations to fall between 7 and 8 percent for the full year.
This lower outlook is a setback for the company's path to profitability. When fewer people visit the stores, it is harder for Sweetgreen to cover its high fixed costs and the capital needed to roll out its new automated salad-making machines.
Source: WSJ
The company removed jalapeños from its menu after they were linked to a second outbreak of cyclospora, a parasite that causes stomach illness. This health concern has already hurt customer demand, with sales at existing locations falling about 6 percent last quarter.
For a premium brand that sells health and freshness, food safety scares are particularly damaging. These recurring issues make it harder for the company to win back customers and reach its goal of becoming profitable by 2026.
Sweetgreen reports its latest results today, with analysts expecting a loss of about 13 cents per share on revenue of $190 million. The company has only beaten expectations once in the last two years, but the focus for long-term owners is less on the quarterly beat and more on the progress of its robotic salad makers.
We are watching for updates on the Infinite Kitchen rollout, which is the company's plan to automate its kitchens to cut labor costs. For the business to reach its goal of being profitable by 2026, it needs to show that these automated stores are actually delivering the higher profit margins management has promised.
Regulators have walked back their initial report that Taylor Farms, a supplier for several restaurant chains, provided lettuce contaminated with cyclospora. The original positive test was determined to be a false positive, meaning no link was found between the supplier and the intestinal illness outbreak.
This is a relief for Sweetgreen, as food safety scares can cause diners to avoid salad chains for months. While Sweetgreen was never directly tied to any cases, the general concern over contaminated greens had been weighing on the stock. This clearance helps remove a major cloud over the brand's reputation.
Source: Barrons
Analysts recently lowered their price targets following the company's latest earnings report and news of a health-related sales slump. Only 4 of 17 analysts rate the stock a buy, and the average target suggests 12% upside from current prices.
The company has missed analyst profit targets in seven of the last eight quarters. This suggests management is still struggling to accurately forecast its costs as the business scales.
| Expectation | |
|---|---|
| EPS | $-0.24 |
| Revenue | $170M |
