Sweetgreen Q2 2024 Earnings Report

Sweetgreen EPS Results

• Actual EPS: -$0.13
• Consensus EPS: -$0.11
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: -$0.20

Sweetgreen Revenue Results

• Actual Revenue: $184.60 million
• Expected Revenue: $180.79 million
• Beat/Miss: Beat by +$3.81 million
• YoY Revenue Growth: +21.00%

Sweetgreen Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: After Market Closes
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 5:00PM ET

Sweetgreen (NYSE:SG) is a fast-casual restaurant chain specializing in salads, grain bowls and warm bowls that emphasize fresh, locally sourced ingredients. Since its founding in 2007 by Jonathan Neman, Nicolas Jammet and Nathaniel Ru, Sweetgreen has focused on sustainable agriculture, working with regional farmers across the United States to provide seasonal produce and promote environmentally responsible sourcing practices. The company’s menu features a variety of plant-forward options, including custom-build salads, chef-curated bowls and limited-time offerings that reflect changing harvests.

Sweetgreen operates a technology-driven service model that combines in-store experiences with digital ordering through its mobile app and website. Customers can customize their meals, schedule pickup or delivery, and participate in a loyalty program designed to reward frequent visitors. The company has invested in its digital platform to streamline kitchen operations, enhance order accuracy and collect insights on consumer preferences, positioning itself as a leader in the intersection of food, technology and sustainability.

Headquartered in Los Angeles, California, Sweetgreen has expanded from its original Washington, D.C., location to more than 100 restaurants across major metropolitan areas in the United States. In November 2021, Sweetgreen completed its initial public offering and began trading on the New York Stock Exchange under the symbol SG. The company is led by co-founder and CEO Jonathan Neman, with Nicolas Jammet serving as president and chief marketing officer and Nathaniel Ru overseeing operations as chief operating officer.

Sweetgreen Q2 2024 Earnings Call Transcript

Key Takeaways

• Strong Q2 revenue and same-store sales growth: Total sales grew 21% year-over-year to $184.6 M, with same-store sales up 9% driven by a 5% menu price increase and 4% traffic/mix benefit.
• Restaurant-level margin expanded over 200 basis points to 22.5%, one of the highest in company history, and adjusted EBITDA reached $12.4 M for the quarter.
• The first Infinite Kitchen retrofit at Penn Plaza opened on time and on budget, delivering sub-3.5-minute order times and record throughput; Sweetgreen plans seven new IK units plus 2–3 retrofits in 2024.
• Menu innovation, led by the May launch of caramelized garlic steak and protein plates, boosted dinner sales to 40% of revenue (up 3 ppt) and drove double-digit weekend comps, broadening the brand’s daypart appeal.
• Despite raising full-year guidance (revenue $670–680 M, same-store sales +5–7%, adjusted EBITDA $16–19 M), management remains cautious on H2 performance given macroeconomic uncertainty.

Presentation

[Operator]

Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen, Inc. Q2 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. We do request for today's session that you please limit yourself to one question and one follow-up. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. You may begin.

[Rebecca Nounou, Head of Investor Relations at Sweetgreen]

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, Co-founder and Chief Executive Officer, and Mitch Reback, 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. I'd like to remind everyone that the information under the heading "Forward-Looking Statements" included in our earnings release, 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'd 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.

[Rebecca Nounou, Head of Investor Relations at Sweetgreen]

With that, it's my pleasure to turn the call over to Jonathan to kick things off.

[Jonathan Neman, CEO at Sweetgreen]

Thank you, Rebecca, and good afternoon, everyone. We had a strong Q2, a testament to the groundwork we laid in 2023, the impact of our growth strategies, and the strength of our team. We reported sales of $184.6 million, representing 21% year-over-year growth. Same-store sales grew 9%. This consisted of a 5% benefit from menu price and 4% positive traffic and mix. Restaurant-level margin for the Q2 was 22.5%, expanding over 200 basis points year-over-year, making this one of the highest restaurant-level margin performances in the company's history. Additionally, we generated an Adjusted EBITDA of $12.4 million for the quarter.

[Jonathan Neman, CEO at Sweetgreen]

We delivered a strong Q2 due to several factors, including the launch of Caramelized Garlic Steak, disciplined operational execution, and strong restaurant openings, all part of our simple two-prong strategy. One, continue building our brand by creating great products and guest experiences. Two, expand our connection to guests by building and operating great restaurants. Let me share some of the highlights from this quarter. During the Q2, we opened four new restaurants, one in Washington, D.C., Chicago, Morristown, New Jersey, and Salem, New Hampshire. New Hampshire being a new market for us. Our 2024 cohort of new restaurant openings are ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average. As we shared a few quarters ago, we relaunched our Intimacy at Scale playbook to execute new openings.

[Jonathan Neman, CEO at Sweetgreen]

This playbook prioritized choosing the best real estate, having the right leaders in place, and strategically investing in brand awareness, which is paying dividends. Additionally, we saw strong top-line performance in emerging markets such as the Midwest, Texas, and the Southeast. Our results continue to show that our brand's relevancy extends far beyond our current footprint, with considerable white space in both new and existing markets. Sweetgreen's high-quality offering and compelling value is clearly resonating with consumers in today's industry backdrop. On July 15th, we completed our first Infinite Kitchen retrofit at Penn Plaza, which is now the fastest way to get Sweetgreen in New York City. The retrofit began in June and took seven weeks to complete. We were able to keep the restaurant partially open during six of the seven weeks of renovation for online ordering and delivery. The restaurant was fully closed for one week.

[Jonathan Neman, CEO at Sweetgreen]

It is the first Infinite Kitchen made by our contract manufacturer, which was delivered on time and at target cost. Since reopening, we are seeing some of the highest throughput levels we have seen at the store. While less than a month in operation, we are pleased with the performance of the restaurant. We remain on track to open a total of seven new restaurants featuring the Infinite Kitchen, as well as retrofitting two to three existing restaurants with the Infinite Kitchen in 2024. Looking ahead, we are resuming a new unit growth rate of 15% to 20% annually, with 2025 being at the lower end of this range and 2026 and beyond targeting the upper end of the range. The majority of our 2025 pipeline is identified, and we are working on our 2026 pipeline.

[Jonathan Neman, CEO at Sweetgreen]

Our menu innovation has attracted new guests, driving traffic and check sizes. Caramelized Garlic Steak, which launched in May, and Protein Plates, have been particularly successful at driving same-store sales at dinner and on weekends in the Q2. Dinner now represents 40% of sales, excluding the 2 to 4 P.M. midday daypart. This was an expansion of 3 percentage points year-over-year. Additionally, in June, weekend same-store sales grew by double digits. We've also seen our share of male guests acquired steadily increase since the Q4 of last year. We believe our culinary innovation will allow us to further grow our dinner mix, as well as be a driver of long-term traffic. With respect to operations, our teams remain focused on prioritizing the guest experience and increasing throughput. We saw progress across the fleet, and it reflected in our results this quarter.

[Jonathan Neman, CEO at Sweetgreen]

This will continue to be an area of focus for us moving forward. Part of our culture is creating an ownership mindset, and our incentives are aligned to these values. These incentives include bonuses and equity grants for our Head Coaches. As we prepare for more restaurant openings in the coming years, we are building a solid pipeline of future Head Coaches and are thrilled about the growth opportunities for all of our team members. This is why we've been focused on investing in the employee experience, including upgrading our learning path with an emphasis on leadership skills like performance management, culinary skills, and hospitality. We believe that Sweetgreen offers a career and not just a job. Many of our best Head Coaches are developed from within, and we are proud that over 50% are promoted from within. As we move forward, our goal is to increase this percentage.

[Jonathan Neman, CEO at Sweetgreen]

We've been focused on investing in Head Coaches to improve stability, because keeping leaders in place can reduce restaurant turnover, which has stabilized at a new post-pandemic low. Last week, Sweetgreen turned 17. Since day one, we've had a vision to redefine fast food by creating a concept that is committed to being fresh, craveable, convenient, and sustainable. Our unique sourcing model, partnering with farmers and suppliers we know and trust, combined with our commitment to delivering compelling value at scale, has made Sweetgreen a category leader. We plan to continue to lead and define this category by thoughtfully expanding our menu, building out our digital program, introducing new formats, and innovating how restaurants of the future will operate via the Infinite Kitchen. I want to thank all of our team members for their hard work.

[Jonathan Neman, CEO at Sweetgreen]

Over the past two years, we've been focused on strengthening our operations and financial model and positioning ourselves to accelerate profitable growth. Now, I will turn over the call to Mitch to review our financial results in further detail.

[Mitch Reback, CFO at Sweetgreen]

Thank you, Jonathan, and good afternoon, everyone. As Jonathan just shared, our hard work over the past several quarters and commitment to disciplined capital-efficient growth is demonstrated in our Q2 results. We achieved our thirteenth consecutive quarter of over 20% revenue growth, with same-store sales reaching its highest level in two years. This flowed through to restaurant-level margin and Adjusted EBITDA. For 2024, we remain on track to be Adjusted EBITDA positive on an annual basis. Total revenue for the quarter was $184.6 million, up from $152.5 million in the Q2 of 2023, growing 21% year-over-year. For the Q2, same-store sales grew 9% year-over-year. This consisted of a 5% benefit from increased menu prices and a 4% increase due to positive traffic and mix.

[Mitch Reback, CFO at Sweetgreen]

All markets comped positively, with very strong growth led by newer markets, Texas, Florida, Atlanta, and the Upper Midwest. Year to date, same-store sales change is running at 7%. Our average unit volume in the Q2 was $2.9 million. Restaurant level profit margin in the Q2 was 22.5%, compared to 20.4% a year ago. This is more than a 200 basis point improvement from the Q2 of 2023. Margins were strong across all regions and age cohorts. Year to date, restaurant level profit margin is 20.5%. Restaurant level profit for the Q2 was $41.5 million, a more than 30% increase year-over-year. For a reconciliation of restaurant level margin to comparable GAAP figures, please refer to the earnings release.

[Mitch Reback, CFO at Sweetgreen]

In the Q2 of 2024, we opened 4 restaurants, including restaurants in Washington, D.C., Chicago, Morristown, New Jersey, and Salem, New Hampshire, a new market for us. We ended the quarter with a total of 231 restaurants. Our Infinite Kitchens continue to deliver on our financial, operational, and customer service metrics. Naperville just crossed its one-year anniversary in May with $2.8 million in sales. For the Q2, the restaurant-level margin was 31.3%. In its first year, team member turnover was around 45% less than what we see in a classic restaurant at a similar stage. Our Huntington Beach IK is six months old and following a similar trajectory. Our Penn Plaza retrofit, opened for a few weeks, has shown strong performance.

[Mitch Reback, CFO at Sweetgreen]

On its second day, the Infinite Kitchen produced nearly 200 bowls in 30 minutes with 100% on-time reliability and has the potential to reach 500 bowls per hour. As Jonathan mentioned, Penn Plaza offers the fastest way to get Sweetgreen, with an average order completion time of just under 3.5 minutes. For 2024, we are on track to open between 24 and 26 new restaurants, seven of which will contain the Infinite Kitchen. These seven restaurants are scheduled to be opened in Q3 and Q4 of 2024, one of which was opened this week in Fashion Island in Newport Beach, California. Food, beverage, and packaging costs were 27% of revenue for the quarter, flat year-over-year. Labor and related expenses were 27% of revenue for the Q2, a 200 basis point improvement year-over-year.

[Mitch Reback, CFO at Sweetgreen]

While we experienced wage rate increases, this was more than offset with improvements to labor optimization. Occupancy and related expenses were 8% of revenue, a 100 basis point improvement year over year. General and administrative expense was $39.2 million or 21% of revenue for the Q2 of 2024, as compared to $40.4 million or 26% of revenue in the prior year period. The decrease in general and administrative expenses was primarily due to a $3.6 million decrease in stock-based compensation expense, which was partially offset by an increase in our investment in advertising. Net loss for the Q2 of fiscal 2024 was $14.5 million, as compared to a loss of $27.3 million in the prior year period.

[Mitch Reback, CFO at Sweetgreen]

The decrease in net loss is primarily due to a $10.4 million increase in our restaurant level profit, and a $4.5 million decrease in restructuring, a $1.2 million decrease in pre-opening, and a $1.1 million decrease in general and administrative expenses described above. These decreases were partially offset by an increase in depreciation and amortization expense, primarily associated with an increase in restaurants, as well as an increase in other expenses related to the change in fair value of our contingent consideration. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $12.4 million for the Q2, an improvement of $9.1 million from the Q2 of 2023. We ended the quarter with a cash balance of $245 million.

[Mitch Reback, CFO at Sweetgreen]

During the first six months of 2024, we generated a positive operating cash flow of $22.5 million. Now turning to guidance. For the fiscal year 2024, the raise in guidance reflects our strong performance in the first half of the year. We remain cautious for the second half of the year, given what we are reading about the uncertain U.S. economic backdrop. Additionally, our guidance reflects the retrofitting of two high-volume restaurants with the Infinite Kitchen, including Willis Tower in Chicago. 24-26 net new restaurant openings, revenue ranging from $670 million to 680 million, same-store sales growth between 5% to 7%, restaurant-level margins between 19% to 20%, and Adjusted EBITDA between $16 million to 19 million.

[Mitch Reback, CFO at Sweetgreen]

As we shared before, we remain committed to disciplined, capital-efficient growth and driving profitability so that we can accelerate the Sweetgreen flywheel. We remain focused on building our brand, culinary innovation, leveraging our unique supply chain, and delivering operational excellence. With this focus, we believe we are well positioned to deliver long-term growth for our stakeholders. With that, I'll turn the call back to the operator to start Q&A.

[Operator]

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 your 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. Again, we do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Sharon Zackfia with William Blair. Please go ahead.

[Sharon Zackfia, Partner/Head of Consumer Equity Research at William Blair]

Hi, thanks for taking the question. You know, the quarter comp was really impressive and obviously had this nice uptick sequentially in transaction and mix. Can you talk about what was the primary driver between those two components? Because I recognize steak was probably a mixed benefit, so I'm not sure how much we should really attribute to traffic versus mix. And then secondarily, Mitch, you know, when you're talking about the uncertainty in the macro environment, it doesn't seem like you're seeing anything, but I just wanna clarify if that is in fact the case.

[Mitch Reback, CFO at Sweetgreen]

Thank you very much, Sharon, for the question. Let me break the question apart into two buckets. To take the first one, which was on the Q2, we have any kind of comments about the traffic and mix and how it sequentially built. Let me just say that, for the quarter, our traffic was positive and it sequentially built each month during the quarter. The mix benefit was largely attributable to the launch of Steak. Your second question, I believe, was what are we seeing in terms of the cautious guide? I guess I'll translate that a little bit to what are we seeing early on in Q3. Like a lot of other people have reported, the first week of the quarter was soft around the 4th of July.

[Mitch Reback, CFO at Sweetgreen]

As we moved away from the 4th of July, our business picked up, and for the last three weeks of July, our business comped at the top end of our guidance. I think what I would say, and, and kind of making an overall comment, is we feel really happy and comfortable with the things that we control in our business. We're very happy with the menu innovation and most importantly, the customer acceptance of our new items. We're very happy with our marketing, that we've moved to more out of home, and it's showing very strong results. We talked in the past about improving our labor scheduling and deployment in order to improve hospitality and lower labor costs as a % of revenue, and we're very pleased with our results.

[Mitch Reback, CFO at Sweetgreen]

As we alluded to in the script, very pleased with our new market response and the strong comp growth rates we're seeing across all of our new markets, and the class of 2024 opened up very strong, with higher weekly revenue than we're seeing in the fleet. However, we feel like we do not control the outside world, and we kind of read the same stuff in the same papers everybody reads and reports on, and I think we have a degree of kind of cautiousness around the external environment. Having said that, we are pleased with the fact that July, the last three weeks of July, came in at the top end of our guidance.

[Sharon Zackfia, Partner/Head of Consumer Equity Research at William Blair]

Thanks for that. As my follow-up, on the IK at Penn, are you seeing customers discover the improved throughput via walk-in, or does it happen more in the digital channel first? Thanks.

[Jonathan Neman, CEO at Sweetgreen]

Sure. Hi, Sharon. Good to hear from you, and thank you for the question. Just before I begin, love to just thank the whole Sweetgreen team for a phenomenal quarter. A lot of hard work to get to this point, and I just wanna take a moment to thank every single person, you know, especially our frontline team members, our Head Coaches, that really bring the Sweetgreen mission to life every day. As it relates to Penn Plaza, you know, I think if you go and experience it, it's pretty amazing. I mean, we're delivering food in under 3.5 minutes.

[Jonathan Neman, CEO at Sweetgreen]

If you had gone to that store before at peak, you would have waited in line, you know, 10 to 15 minutes, and then once you started your order, probably, you know, you're about another three minutes until you get your food. So you can now pretty much walk in. There's you know, the way we've designed it, with the kiosk ordering as well as the concierge ordering, practically zero wait to order, and your food is out in three and half minutes. So, that is aside from the digital orders, which again, are, you know, if you're ordering on your phone, it's also that fast. So very encouraged. We're seeing some really positive feedback from consumers. Also seeing some great positive feedback from our team members, which is really important.

[Jonathan Neman, CEO at Sweetgreen]

This is the first restaurant where we had team members that worked in an old—an existing Sweetgreen—that are now working in the new model. So we get an interesting test on seeing how they view the experience, and they're really thrilled. It's just a lot more fun and, you know, it's easier place to work for them. And so really excited about it. I think it's early but encouraging. And I think over time, as customers understand how fast it can get through and get their Sweetgreen, I think we will continue to see some traffic driving potential there.

[Sharon Zackfia, Partner/Head of Consumer Equity Research at William Blair]

Thank you.

[Operator]

Your next question comes from the line of Katherine Griffin with Bank of America. Please go ahead.

[Katherine Griffin, Stock Analyst at Bank of America]

Hi, thanks for the question. First, I wanted to ask another question, I guess, on marketing. And it's been a different tack for Sweetgreen, the advertising around the caramelized garlic steak launch. It's clearly been successful. It seems like you're seeing a return on it. So I'm curious if this is something you're thinking about incorporating in your, you know, go-forward strategy, or if it's more something that's reserved for, you know, a big, you know, culinary launch. Just any thoughts, I guess, on advertising for Sweetgreen going forward?

[Jonathan Neman, CEO at Sweetgreen]

Sure. Thank you for the question. So I'd say it's much more of how you can expect us to go forward. We've made some good investments in the talent around our marketing team, so shout-out to our marketing team, done a great job. Really taking you know, really thinking about 360 campaigns, including you know, how we leverage out of home, digital, community, and we're seeing some really great results around it. So we will be incorporating this into our go-forward strategy. We've also you know, many people still think about Sweetgreen as a salad company. We've never viewed it that way. From the very beginning, the idea was to create a company that leveraged in a really unique, fresh supply chain, craft around how we make our food, and then applied that to different types of food.

[Jonathan Neman, CEO at Sweetgreen]

Of course, we started with salads, and that's what we're very much known for. But as you're seeing, we're starting to branch out and leverage that license the brand has around the quality, craveable, fresh food and then apply it to plates. And over the next year or so, you're gonna see a lot more menu innovation. And one of the things that we're really excited about that we've, you know, that we've seen in this quarter, which is something we've been working on for a while, is that broadening of our consumer and broadening of our day part. So, you know, we've seen a nice shift in dinner with a huge growth of that of that dinner day part.

[Jonathan Neman, CEO at Sweetgreen]

We've broadened the consumer and some of the results we've seen, a lot of the success was actually from a lot of the emerging markets that at one point were, you know, a little bit questionable for us. We saw some massive comps in those markets, and I attribute that to a combination of the great culinary innovation we've had with this new approach to marketing.

[Katherine Griffin, Stock Analyst at Bank of America]

That's great. Thank you. And then on the menu innovation that Sweetgreen's been executing, I'm curious how it's resonating with your existing, you know, more like habitual customer base. And I guess what that means for how you're thinking about balancing menu innovation going forward in order to appeal to your, you know, new cohorts versus existing.

[Jonathan Neman, CEO at Sweetgreen]

Yeah, we've seen success across both. You know, if you look at both the customer acquisition and the frequency trends, we've been pretty pleased about both how it's brought in new customers and removed that veto vote in many ways, and created that occasion where I want that Sweetgreen experience. I may not want a bowl full of greens, but now I can get a steak bowl with wild rice and Caramelized Garlic Steak, and it's a really hearty dinner option with a really great value, especially in this environment. And our existing guests are loving it too. So I'd say we're seeing it in both existing and with new customers.

[Katherine Griffin, Stock Analyst at Bank of America]

Great. Thanks, Sean.

[Operator]

Your next question comes from the line of Brian Mullan with Piper Sandler. Please go ahead.

[Brian Mullan, Director and Senior Research Analyst at Piper Sandler]

Hey, thank you. Just a question on development. You know, as you look to next year, do you have visibility yet in terms of how many of those locations might have Infinite Kitchens, or is that still yet to be determined? And really just wondering if that answer has more to do with the way you're constructing your pipeline, or if there are any contract manufacturer constraints to think about as well.

[Jonathan Neman, CEO at Sweetgreen]

Sure. So, the short answer is we expect a much higher percentage of Infinite Kitchens in the pipeline. We're not yet disclosing exactly how many, as we're finalizing designs, but expect, you know, I'd say a majority, more than 50% of new units would include an Infinite Kitchen next year.

[Brian Mullan, Director and Senior Research Analyst at Piper Sandler]

Okay, thank you. And then just to follow up, Jonathan, more of a strategic question for you, but, you know, if the Infinite Kitchen continues to progress the way you hope, can you just talk about the strategic optionality that gives the company over the next 5, 10 years, or even longer? You know, what does that help you do with development, and does it also give you opportunities to do anything with the value perception with consumers and the value proposition?

[Jonathan Neman, CEO at Sweetgreen]

Yeah, absolutely. I mean, one of the reasons—the reason we were so excited about this is we saw this as a huge tool for us in, as especially as labor becomes more challenging and more expensive. And today, we're seeing a lot of success, but to your point, over time, there's a lot of optionality, whether that be things we do from a price value perspective, the unlock in TAM, that it allows us for with the margin increase and the fewer employees that we can run it with, it should unlock a lot of white space for us. And the way it's been designed, and the innovation team we have, around automation, is we believe that there's applications outside of this core, this core bowl application as well.

[Jonathan Neman, CEO at Sweetgreen]

So, you know, I'd say there's a lot of option value around automation and what we've built with the Infinite Kitchen. And I just wanna take a moment to thank the whole Spice team, who've done just an incredible job leading this project.

[Operator]

Your next question comes from the line of Logan Reich with RBC Capital Markets. Please go ahead.

[Logan Paul Reich, Stock Analyst at RBC Capital Markets]

Hey, thanks for taking the question, and congrats on the really solid results. My question was on restaurant margins. Obviously, really impressive growth this quarter, or margin expansion this quarter, year over year. You know, obviously, steak is coming in the mix more so going forward. But I guess just, like, how do you sort of think about restaurant-level margins sort of trending, and what are the puts and takes beyond sort of this year that you guys are most looking out for? And then I have a follow-up.

[Mitch Reback, CFO at Sweetgreen]

Thanks, Logan. You know, I think, you know, let me answer that question more in the broader term over the next few years, since I think that's the way the question was phrased. We continue to see our margins expanding in near term, and I think most of that is gonna come from a few areas. Continuing to see more improvements around labor and labor deployment, and I think we've seen great success in the past few years, but we could see a lot of opportunity coming forward. There's going to be some opportunity, of course, in our occupancy. You know, as a small company, our occupancy was heavily influenced by deep urban areas. As we grow and grow in newer markets, our occupancy will steadily come down.

[Mitch Reback, CFO at Sweetgreen]

I think the other area of the P&L, basically in the area of other expenses, we continue to find leveraging opportunities throughout them, and you'll see us continue to drive some of those. So I believe over the next few years, you'll see our margins increase. I wanna caution it may not be on an exactly at a quarter-by-quarter basis, but on an annual basis, they should improve over the next few years, and this is absent the deployment of the IK. The IK, I believe, will supercharge the margin expansion, particularly if we can retrofit very high volume stores rapidly.

[Logan Paul Reich, Stock Analyst at RBC Capital Markets]

Great, thanks. And then, on the Penn Plaza retrofit, I guess what are the sort of key learnings there, that sort of instruct your views going forward on the retrofits, whether that be, sales performance, through that 6 or 7-week period? And how does that sort of impact your, your guys' views on, on the retrofits going forward?

[Jonathan Neman, CEO at Sweetgreen]

So is the question, what did we learn or what are we trying to learn?

[Logan Paul Reich, Stock Analyst at RBC Capital Markets]

Yeah, I guess, like, what were your learnings relative to expectations during that retrofit?

[Jonathan Neman, CEO at Sweetgreen]

Yeah. I'd say, well, first of all, I think it was impressive that we were able to keep the store operating during that time. So we were able to, for the first one, we were able to turn that store in 7 weeks and keep it running with digital ordering, so delivery and pickup, running during that time for 6 of the 7 weeks. We made the decision to close for 1 week, really to focus on hospitality training for the team in that week. But I think it was an encouraging start for us, and I think over time, we should be able to bring that down. Other learnings, I think we're learning continuously with each new Infinite Kitchen. We just opened one this week on Tuesday.

[Jonathan Neman, CEO at Sweetgreen]

Like I've said many times in the past, we feel very good about the technology, and that will continue to improve, and we'll continue to scale the cost down. We're still working to perfect the overall experience. I think with each new one you see, you'll notice a lot of things that we're trying and testing as we start to really perfect the. It's really that feeling that you get, the look and feel, the vibe of that restaurant when you walk in, as well as the team member experience, and making sure we just nail down all the right adjacencies from a labor perspective and the right flow from a customer perspective, all while trying to bring our build-out costs down pretty significantly as we look to accelerate opening. It's a huge focus area for us.

[Jonathan Neman, CEO at Sweetgreen]

We're learning both about new builds and retros, but I'd say, you know, with four under our belt, we've learned a ton, and I'm very pleased with the results thus far, which is what has given us the confidence to continue to accelerate this year. Seven more, you know, we'll open a bunch more this year, and next year, we're gonna open a lot more, and we wouldn't have that confidence if we didn't see the results we're seeing today.

[Logan Paul Reich, Stock Analyst at RBC Capital Markets]

Okay. Thank you very much.

[Operator]

Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Please go ahead.

[Rahul Krotthapalli, Vice President of Equity Research at JPMorgan]

Good evening, guys. Congrats on the excellent results and execution. As Sweetgreen expands from being regional to truly national over time, can you share some of your early thoughts or your philosophy of reinvesting some of the margins you realize back into customer bowls or menu price? How are you as an organization thinking about this today as you build out into your TAM? And I have a follow-up.

[Jonathan Neman, CEO at Sweetgreen]

Sure. So, thanks for the question, Rahul. So, to your point, I think for me, one of the most encouraging things that we've seen over the past couple of quarters has been the momentum across the company, the breadth and depth of the sales growth. Specifically, a lot of the momentum we've seen in the emerging markets, in the Upper Midwest, where we grew a lot. We planted a lot of restaurants last year in Texas and Florida and Atlanta, all markets that we're seeing really robust growth. I think that, you know, once we get to a scale, I mean, people have a different number, whether that's 400 or 500 units in national, I think it does unlock a lot of marketing efficiencies as we're able to advertise more nationally.

[Jonathan Neman, CEO at Sweetgreen]

We're still a couple of years away from that, but we do think that over time we are seeing a lot of success with our marketing activities and brand awareness. And as we continue to drive our margin to get scale, I think there's a lot of opportunity to get more people aware and trying Sweetgreen. Because one thing that we know is once consumers try Sweetgreen, they're very sticky. There is a natural flywheel built in, given the habitual nature of the food. Something that we just got to do is just get more people to know who we are and give us a try.

[Rahul Krotthapalli, Vice President of Equity Research at JPMorgan]

Perfect. And then considering the labor savings we discussed in the past on the Infinite Kitchen, longer term, would you expect to build any stores without Infinite Kitchens at all?

[Jonathan Neman, CEO at Sweetgreen]

I think I heard the question being, would you build any stores without an Infinite Kitchen?

[Rahul Krotthapalli, Vice President of Equity Research at JPMorgan]

That's right.

[Jonathan Neman, CEO at Sweetgreen]

The way I'd answer that question. is that correct, Rahul?

[Rahul Krotthapalli, Vice President of Equity Research at JPMorgan]

Yes.

[Jonathan Neman, CEO at Sweetgreen]

Yeah. So I'd say the vision would be to get to a place where all stores in the future do feature an Infinite Kitchen. At this moment, we're still learning a lot, and we're trying to make sure we meet our capital return thresholds. So you're seeing it put into, you know, more stores that have higher volume or higher throughput needs or maybe have more challenges from a labor perspective, is where you'll see us prioritize. But over time, as we bring down the overall build-out costs around the, not just the Infinite Kitchen, the cost of the automation, but the entire build, I think it will unlock the ability to be in really most and eventually all restaurants.

[Rahul Krotthapalli, Vice President of Equity Research at JPMorgan]

Thank you, Jon.

[Operator]

Your next question comes from the line of Jon Tower with Citi. Please go ahead.

[Jon Michael Tower, Director in Equity Research at Citigroup]

Great. Thanks. Maybe just a little bit more on the Infinite Kitchen and one other after. Just, on the retrofit itself, can you maybe give us a range of the cost to retrofit the store? Obviously, you gave us the timing and specifically on the machine, I think you had mentioned that you've now moved on due to the contract manufacturer. And, originally, you talked about a cost of roughly $400,000 to 550,000 for the machine itself. Are you seeing that begin to bend a little bit lower?

[Mitch Reback, CFO at Sweetgreen]

Hi, Jon. Let me say, the costs are coming in right in line with the guidance that we gave. These are early machines, you know, that are just kind of rolling off. In fact, I think Penn Plaza was the first unit made at the contract manufacturer. So by no means have we obtained any type of scale in manufacturing. We would anticipate some of that to come down the road. In terms of the total cost of Penn, you know, we really don't want to give out the CapEx numbers on an individual store-by-store basis, but the number you have is what the IK did cost. There were, of course, other remodeling done at the same time when we had store available.

[Jon Michael Tower, Director in Equity Research at Citigroup]

Okay. Then just maybe pivoting to pricing. I know this year you're running about 5% price given some of the inflation that you're seeing across the model. But I'm just curious, as you know, you alluded to earlier, Mitch, there is some softness seemingly forming with the consumer and, you know, how do you guys think about pricing into 2025 if we're kind of in a backdrop where consumers are, you know, a little bit more pinched on their spend?

[Mitch Reback, CFO at Sweetgreen]

Yeah, Jon, yeah, first, let me just make a comment that in the month of July, we did have one point, the price roll-off, so we're currently running at about four points in price. We really haven't begun to finalize our view of 2025 or certainly at the pricing level, but I can certainly say that we take a, from this vantage point today, taking a slightly more cautious view than maybe we have in the past couple of years. Like a lot of people and reflected in our guidance, we're kind of watching the outside world pretty closely.

[Jon Michael Tower, Director in Equity Research at Citigroup]

Got it. Awesome. Thanks for taking the questions.

[Operator]

Your next question comes from the line of Brian Bittner with Oppenheimer & Co. Please go ahead.

[Brian John Bittner, Managing Director and Senior Analyst at Oppenheimer]

Thanks. On the restaurant margins, the upside that you're demonstrating in restaurant margins relative to expectations, it's continuing to be driven by significant leverage on labor. As it relates to this quarter and moving forward, is that just a result of the strengthening same-store sales? Is there maybe some other strategic factors that keep you optimistic about this line item as you execute moving forward? And secondly, to that, Mitch, can you help us understand what's going on with the other restaurant operating expense line item? There was some deleverage there this quarter, despite the very strong comp?

[Jonathan Neman, CEO at Sweetgreen]

Yeah. So let me talk about labor from a labor and some of the things that we're seeing. So yes, obviously, we're seeing some leverage with sales. We're also we've also seen the addition of steak and a lot of positive developments there. But beyond that, we've been very, very focused on finding and developing the best Head Coaches and improving our retention of our teams. And we really believe by having the greatest, the best Head Coaches that stay with us and that are promoted from within, they create a stable, great working environment for their teams, and that reflects in the results. And we had a lot of improvements over the past year there. So our turnover has continued. It has stabilized at lows.

[Jonathan Neman, CEO at Sweetgreen]

We continue to see our Head Coach stability grow and our Head Coach tenure grow, and we're working on some very exciting things that we think can continue to drive that. Beyond that, we're working on some things around labor deployment that we think can help us, not just on hospitality and throughput, making sure we're staffing the peaks properly, but also in terms of continuing to leverage that labor line. So all to say, I think we have some really exciting things in the works to continue to drive leverage on labor and drive our restaurant-level margins.

[Mitch Reback, CFO at Sweetgreen]

And Brian, I'll take the second part of your question, which I think was on the other expenses. The other expenses were largely the result of channel mix shifts in the business and really a higher level of our repair and maintenance, particularly around the HVAC, not unlike what other people have reported as things have heated up across the country.

[Brian John Bittner, Managing Director and Senior Analyst at Oppenheimer]

Okay. Thanks for that. My follow-up's on Infinite Kitchen. Surprise, surprise. I know the math behind these basically says every store you open should be an Infinite Kitchen. You know, ultimately, you know, even Jonathan, you just said to a question, yeah, you know, that's true. But I guess the question is, you know, we're obviously still in the early stages of the learnings here, but are you starting to gain more and more confidence that this prototype can work in more and more trade areas than maybe you originally thought? And I just think it's an important thing to understand, because at only 230 units, the vast majority of the scaling of this brand remains in front of us.

[Brian John Bittner, Managing Director and Senior Analyst at Oppenheimer]

How you're thinking about the portability of this prototype is obviously very important to the long-term future of the company.

[Jonathan Neman, CEO at Sweetgreen]

Absolutely. I'd say that the short answer is yes, and I think you'll start to see that this year. So already, very intentionally, with the deployments of the Infinite Kitchen, we've piloted in very unique environments and in neighborhoods. So whether it be Penn Plaza, heavily urban, fast-paced environment, to just this week in Fashion Island, and then Huntington Beach and Naperville being more suburban. You'll see us, you know, this year, open, try to open in a new market, first store in a market with an Infinite Kitchen. You know, we'll open in other more urban markets, more suburban markets, really perfect this, and we do believe it's gonna help us a lot on the portability.

[Jonathan Neman, CEO at Sweetgreen]

I think it's you know, what we're really waiting to learn is, again, less about the technology, more about perfecting the overall experience, including how we make sure we get the experience right with the broadening of the menu and the broadening of the brand position that we're pushing for beyond salad. You know, we're excited to share more about where that's going in coming quarters. You know, with the success of plates and steak, expect us to continue to push to broaden what really Sweetgreen means from a format perspective to consumers and how we can leverage the Infinite Kitchen to power that.

[Brian John Bittner, Managing Director and Senior Analyst at Oppenheimer]

Thank you.

[Operator]

Your next question comes from the line of Andrew Charles with TD Cowen. Please go ahead.

[Andrew Michael Charles, Research Analyst at TD Cowen]

Great. Thanks. Mitch, on the positive track for the quarter, I'm curious if first you can just disclose what that was within the 4% combined mixed traffic. I know you said it was positive and picked up for the quarter, but first off, we could skip the number. And then second, can you help just rank order the drivers of positive traffic? You know, it's obviously a rarity right now in the industry, but you've got a couple of tailwinds between outsized contributions from new store sales ramps that historically grow substantially in their second year, the buzz around Steak, speed of service improvements from more streamlined operations. So how do you help rank order what the drivers of that positive traffic was in the quarter?

[Mitch Reback, CFO at Sweetgreen]

Thank you, Andrew. Let me say that in a high level, I think you kind of hit it, that everything we seem to have fired on all cylinders, as they say, in the Q2. The stores that came into our comping base were very, very positive. Our new markets had very strong comp growth and very strong traffic. The menu was very well received and broadly well received. And I think it was really just a combination and of course, the labor deployment picked up on our throughput. And I think it was just a question that all of these things kind of coalesced and had very positive traffic. And as I said earlier on the call, the traffic grew sequentially throughout the quarter, something that we're really happy with.

[Andrew Michael Charles, Research Analyst at TD Cowen]

Gotcha. Then just a follow-up question is around that labor deployment, you know, driving speed of service enhancement. Can you help us quantify what you're seeing there? You know, is it transactions per peak labor hour or peak 15 minutes? You know, how are you monitoring this, and what kind of improvement did you see to help us better understand how those efforts are resonating?

[Jonathan Neman, CEO at Sweetgreen]

Andrew, I'd say it's a little bit too early. I'd like to come back and share more on that, but we would expect to see higher throughput at peak as well as overall labor leverage through better scheduling. You see, you know, things like less overtime, better management around Fair Workweek, et cetera. So I'd say there's a lot. I think we see a lot of benefits from this new, you know, new way of deploying labor. And we've also really done a lot of work, we've talked about in the past, around simplifying both the role in the restaurant, whether it be at the Head Coach level, how do we make that job easier, more joyful across all their everything they do, whether that be administrative tasks or in-store tasks?

[Jonathan Neman, CEO at Sweetgreen]

And similarly, for our team members, how can we make that continue to make that job a little bit easier to do? And that's through, you know, micro changes, like we could do things like upstreaming tools, systems, layouts, adjacencies. You know, the restaurant business, it's a game of inches, and we just continue to optimize and look to be better every single day. So we see, as Mitch mentioned earlier, you know, a steady path to continue to leverage our margin over the next few years.

[Andrew Michael Charles, Research Analyst at TD Cowen]

Very good. Thank you.

[Operator]

Your next question comes from the line of Christine Cho with Goldman Sachs. Please go ahead.

[Christine Cho, Vice President and Equity Research Analyst at Goldman Sachs]

Hi, thank you. First off, congrats on a great quarter. Firstly, could you help us bridge the gap between kind of really solid same-store sales growth, averaging kind of 6% in the last four quarters, versus kind of a flattish AUV of $2.9 million since Q2 of last year? I think, you know, I would imagine some of this is coming from the new store dynamics, but if you look at the new store mix, it's actually coming down a bit on a year-over-year basis. So, it'd be great if you can help us understand the factors that are driving that, and also, what you need to see in terms of AUV increasing again. That's the first question, and then I'll do a follow-up.

[Mitch Reback, CFO at Sweetgreen]

Thank you, Christine. You're right. The same-store sales has grown about 6% over the trailing twelve months. It's been up 7% in the first half of 2024, and our AUVs remained at about $2.9 million. It's really just two factors. One is the one you articulated. It's just a new store dynamics as we're bringing in more stores every quarter into that comping base. And the second one is just a degree of rounding, and the fact that we take it to $2.9 million. There is some build underneath it, and we are mindful of it.

[Christine Cho, Vice President and Equity Research Analyst at Goldman Sachs]

Great. Thank you. And John, I think I've heard you highlight attachments as kind of a largely untapped opportunity for Sweetgreen. Is this something that you're increasingly thinking about? And whether there are any kind of specific products or marketing initiatives, we can look forward to in the near future? Thank you. Thank you.

[Jonathan Neman, CEO at Sweetgreen]

Absolutely. I don't want to share too much, because we're not quite ready to announce everything, but we do have a very robust culinary roadmap, and some of that includes how we tackle both attachments, whether that be a signature side dish, you know, how we think about beverage, which, if you look at our business, we're, you know, we do not index near the industry where we should from a beverage perspective. And we think there's opportunity around kind of like treat, the treat occasion as well.

[Jonathan Neman, CEO at Sweetgreen]

So all things that we have really nice, robust innovation going on, a lot of testing and piloting across the country that we're learning from and expect to see some exciting things next year, both within the core, kind of core entree format of innovation there, but also, as you mentioned, kind of outside of the bowl, around sides and beverage and treats.

[Operator]

Your next question comes from the line of Dennis Geiger with UBS. Please go ahead. Your next question comes from the line of Dennis Geiger with UBS. Please go ahead. Your next question comes from the line of Brian Harbour with Morgan Stanley. Please go ahead.

[Brian James Harbour, Equity Research Analyst at Morgan Stanley]

Yeah. Hey, guys. Good afternoon. A quick one, Mitch, would you mind citing wage and food inflation in Q2 for us?

[Mitch Reback, CFO at Sweetgreen]

Yeah. Thanks, Brian, by the way. What we really saw was very low level of inflation in the Q2. Both wages and COGS were in very low single digits.

[Brian James Harbour, Equity Research Analyst at Morgan Stanley]

Okay, thanks. Yeah, curious about Salem, New Hampshire. I know you call it a new market. It's, it's sort of on the periphery of one of your existing strong markets. How, how's that one done, kind of out of the gate? How, how much of your pipeline is sort of that, you know, expansion into kind of, peripheral towns of, of some of your core markets as you think about this year and next year? Are you finding it, you know, easier to open some of, some of those units, given your scale, kind of in New England?

[Jonathan Neman, CEO at Sweetgreen]

Yeah, I'm actually glad you asked. It's actually something that we're seeing a lot of success in as we think about how to expand out of really strong core markets. And if you look at Sweetgreen today, we're in, you know, most major metros at this point. And very intentionally, when we set out, we wanted to build a national brand as a category leader, and so we went out and we planted flags across all these major cities. But if you look at a lot of them, you know, you got, you're very, very, you know, you're just really not dense in a lot of these places. You know, in all of Texas, we have sub-20 restaurants. And, you know, if you look at the Midwest, it's just brand new, and there's so much room to run.

[Jonathan Neman, CEO at Sweetgreen]

So as we look forward, we actually see a huge opportunity of densifying existing markets and tackling more of the adjacent markets. And the benefits there is we, we'll see a lot of leverage around our food costs, our supply chain. A lot of the economies of scale happen regionally, so we'll see some leverage there. Obviously, anyone in the restaurant business knows opening an existing market is a lot easier from a from an operations perspective. We'll be able to leverage management and build a really robust bench of leaders. And we also get to leverage a lot of our marketing spend in within those markets and kind of the overlapping eyeballs between places like Boston and New Hampshire. So we think that in some ways, we did the hard part first, planting flags in all these places.

[Jonathan Neman, CEO at Sweetgreen]

And as we look forward, you'll see fewer new markets and more going back and go, you know, going deep in existing markets where we see a lot of room, and kind of expanding, you know, just out into these other adjacent markets. So, I'm actually quite excited for this way, and it's, it's how we think we can accelerate our, our footprint and do so in a really profitable and disciplined way.

[Operator]

Your last question comes from the line of Dennis Geiger with UBS. Please go ahead.

[Dennis Geiger, Executive Director and Senior Equity Analyst at UBS]

Hi, guys. Can you hear me?

[Jonathan Neman, CEO at Sweetgreen]

We can hear you.

[Dennis Geiger, Executive Director and Senior Equity Analyst at UBS]

Can you. Oh, great. Terrific. Congrats to the team. Two quick questions. The first one, as it relates to the IK margin versus the non-IK, helpful to get the Naperville solid number there. It sounds like Huntington Beach is seeing something, I assume, probably somewhat similar. Just wanted to get a sense on sort of that margin spread, if it's sort of, you know, in the ballpark of what we saw the last quarter, how you'd kind of frame that up, if there's anything more to add there.

[Mitch Reback, CFO at Sweetgreen]

Thanks, Dennis. I would say it is certainly in the ballpark or slightly better than we thought in all of our modeling and what we've seen in the past. You know, largely coming out of the labor line, obviously, which you can see when you visit an IK store, with some additional benefits and cost of goods. So very pleased with the early results.

[Dennis Geiger, Executive Director and Senior Equity Analyst at UBS]

Appreciate that. And then just a second one, just as it relates to thoughts on average unit volumes on the IK stores now that we have another quarter kind of under your belt. I know it's early days, but thinking about kiosks, thinking about throughput, any kind of latest views on where that potential could go at this early juncture from an AUV to non-IK AUV? Thank you.

[Jonathan Neman, CEO at Sweetgreen]

Yeah. I'd say on the suburban stores, we continue. On the two original pilots, we continue to see similar trends with the higher ticket. We do believe, you know, with the better experience that customers are having, it's more accurate, it's on time. We, you know, just have Naperville as the first store to now hit a year to start to see comp numbers. But we do, you know, expect, based off a better experience, to see some comp opportunity in those restaurants that will drive AUV. The real test of this is when we go into, you know, urban environments where we do have long lines and we can capture more customers. And that first time we're seeing this is now with Penn Plaza. Fashion Island should be a pretty heavily trafficked store as well.

[Jonathan Neman, CEO at Sweetgreen]

But I think that's when we're really gonna start to understand, in these high traffic locations, can we get an AUV lift just by serving more customers in those peak periods? So in some ways, I'd say we're very encouraged, think better experience will help us, help us continue to drive comps and in more high, high traffic locations. Definitely an opportunity, but pretty early to say, for now.

[Dennis Geiger, Executive Director and Senior Equity Analyst at UBS]

Great. Thank you.

[Operator]

This concludes today's Q&A session and today's conference call. Thank you for attending. You may now disconnect.

Participants

Executives

• Jonathan Neman, CEO
• Mitch Reback, CFO
• Rebecca Nounou, Head of Investor Relations

Analysts

• Andrew Michael Charles, Research Analyst at TD Cowen
• Brian James Harbour, Equity Research Analyst at Morgan Stanley
• Brian John Bittner, Managing Director and Senior Analyst at Oppenheimer
• Brian Mullan, Director and Senior Research Analyst at Piper Sandler
• Christine Cho, Vice President and Equity Research Analyst at Goldman Sachs
• Dennis Geiger, Executive Director and Senior Equity Analyst at UBS
• Jon Michael Tower, Director in Equity Research at Citigroup
• Katherine Griffin, Stock Analyst at Bank of America
• Logan Paul Reich, Stock Analyst at RBC Capital Markets
• Rahul Krotthapalli, Vice President of Equity Research at JPMorgan
• Sharon Zackfia, Partner/Head of Consumer Equity Research at William Blair