Sweetgreen Q3 Earnings Call Highlights

Key Points

• Sales showed signs of recovery: Third-quarter revenue rose 2% to $176 million, although comparable sales fell 6.4%. Comps grew about 5% in October, and Sweetgreen expects roughly 4% comparable-sales growth in Q4.
• Margins remain under pressure: Restaurant-level margin declined to 10.4% from 13.1% a year earlier, while the adjusted EBITDA loss widened to $6.8 million. The company is targeting cost efficiencies in food preparation and labor, but expects compensation initiatives to weigh on margins in 2027.
• Expansion plans are slowing as Sweetgreen focuses on restaurant economics: For fiscal 2026, it projects a 5.5% comparable-sales decline and 10 net new openings. It expects about half as many net new openings in 2027, before increasing development in 2028.

Sweetgreen NYSE: SG reported higher third-quarter revenue despite a decline in comparable sales, as executives said customer traffic recovered through the quarter and continued to improve in October.

Revenue rose approximately 2% to $176 million from $172.4 million a year earlier, driven by new restaurant openings. Comparable sales fell 6.4%, reflecting a 4.9% decline in traffic and a 2.1% headwind from sales mix, partly offset by 0.6% in pricing.

Chief Financial Officer Jamie McConnell said the company estimated that a summer sales disruption reduced traffic by approximately 500 basis points. Co-Founder and Chief Executive Officer Jonathan Neman said Sweetgreen believed it had moved past the sales impact of Cyclospora headlines.

Comparable sales increased approximately 5% in October, with transactions up about 4%. Neman said momentum had stepped up a little further into November. For the fourth quarter, Sweetgreen expects comparable sales growth of about 4%, including a 150-basis-point headwind from a one-time gift card benefit in the prior year.

Returning Customers and Menu Innovation

Neman said the traffic recovery was driven primarily by more frequent visits from existing customers and the return of lapsed guests, although customer acquisition also improved. He credited better restaurant execution, faster service and menu innovation, including the company’s collaboration with chef Molly Baz.

Wraps have remained in the high teens as a share of orders since launch, with a recent increase following the Baz collaboration, Neman said. He added that Sweetgreen had seen meaningful acceleration among Gen Z customers and that its Chicken Caesar wrap had the highest customer return rate among its menu items.

Sweetgreen is also preparing to put its Plates offerings back in the spotlight as it seeks to expand dinner sales, which currently account for about one-third of its business. Neman said the relaunch will include a rotisserie-style chicken portion weighing 150 grams, about 50% larger than the current chicken portion, alongside a marketing campaign.

The company has been testing a create-your-own pricing approach in approximately 70 restaurants. Neman said the results were encouraging, including an increase in customer frequency, but the company wanted more time to assess changes in sales mix and behavior. He said Sweetgreen would probably roll out the approach sometime in the first quarter, while emphasizing that it would proceed carefully.

Margin Pressure and Cost-Saving Plans

Third-quarter restaurant-level margin fell to 10.4% from 13.1% a year earlier. Labor and related expenses rose to 30.5% of revenue from 29.1%, reflecting sales deleverage, labor inefficiencies and wage inflation. Other operating expenses also increased as a percentage of revenue, partly because of higher repair, maintenance and delivery costs.

Food, beverage and packaging costs improved to 28.8% of revenue from 30.7%. McConnell attributed the improvement partly to prior-year costs that did not recur and lower ingredient costs from supply chain initiatives.

For the fourth quarter, Sweetgreen expects a restaurant-level margin of approximately 11%, including about 60 basis points of one-time costs related to a head coach bonus and an inventory adjustment. After adjusting for typical seasonality and excluding those costs, McConnell estimated an underlying annualized restaurant-level margin of approximately 14%, before additional labor and food-cost efficiencies or further sales leverage.

McConnell said changes to food ordering, inventory and preparation could improve restaurant-level margins by approximately 150 basis points in 2027. She also identified roughly a couple hundred basis points of labor efficiency opportunity over time, while saying the company would move carefully to protect the customer experience.

Sweetgreen has introduced a compensation program under which qualifying head coaches with at least three years at the company who lead its highest-volume restaurants can earn more than $200,000 annually in total compensation, including equity and a revenue-share bonus. McConnell said the head coach incentives and annual salary increases for team members are expected to reduce restaurant-level margin by approximately 25 basis points in 2027.

Outlook and Restaurant Development

Sweetgreen reported an adjusted EBITDA loss of $6.8 million for the third quarter, compared with a $4.4 million loss a year earlier. It ended the quarter with $119.8 million in cash and cash equivalents and 290 restaurants, including 36 Infinite Kitchen locations.

For fiscal 2026, the company expects comparable sales to decline about 5.5%, restaurant-level margin of 11% to 11.5%, and an adjusted EBITDA loss of $20 million to $23 million. It expects approximately 10 net new restaurant openings for the year.

For 2027, McConnell said net new openings are expected to be about half the 2026 level as Sweetgreen focuses on improving its existing restaurants’ economics. Neman clarified that the company plans approximately 10 new restaurant openings next year but expects a few closures, primarily at the end of leases. He said Sweetgreen expects to increase development in 2028 and reach a 10% unit growth rate by 2029.

About Sweetgreen (NYSE:SG)

Sweetgreen, Inc operates a fast-casual restaurant company focused on fresh, customizable meals. Its menu includes salads, grain bowls, protein plates, sides, and beverages made with seasonal produce and other ingredients. Customers can order in restaurants or through Sweetgreen's website and mobile application, with options for pickup and delivery.

Founded in 2007 by Nicolas Jammet, Jonathan Neman, and Nathaniel Ru, Sweetgreen began as a single restaurant in Washington, DC The company has expanded its restaurant network across metropolitan areas in the United States, with locations concentrated in major markets on the East and West coasts and in other regions.

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