After nearly two years of declining same-store sales, Sweetgreen (NYSE:SG) has returned to growth.
While the company’s third-quarter performance was marred by the Cyclospora outbreak, management said that October results were positive, with same-store sales up 5% and traffic up 4%. The company also raised its full-year guidance, showing that it may have finally emerged from a long retreat over the last two years.
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Is this a buy signal for the fast-casual stock? Let’s take a look at the third-quarter results and discuss the company’s prospects moving forward.
Image source: The Motley Fool.
Sweetgreen’s latest results
Sweetgreen’s third quarter was reminiscent of the brand’s recent struggles, though most of the numbers can be pinned on the Cyclospora outbreak, which did not directly affect Sweetgreen but dissuaded consumers from visiting salad chains. Sweetgreen was implicated by association.
Same-store sales in the quarter fell 6.4%, and revenue ticked up 2.1% to $176 million, which beat estimates at $169.4 million. Restaurant-level profit margin fell from 13.1% to 10.4%, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss expanded from $4.4 million to $6.8 million.
On a generally accepted accounting principles (GAAP) basis, its per-share loss narrowed from $0.31 to $0.26, which was slightly better than expectations of a loss of $0.27 per share. CEO Jonathan Neman redirected investor focus to the future, saying, “We believe our Sweet Growth Transformation Plan is beginning to take hold, with sales improving through the quarter and positive comparable sales in October, primarily driven by transaction growth.”
Sweetgreen raised its guidance for the full year, calling for same-store sales to be down 5.5%, better than a previous range of -7% to-8%, implying 3.4% growth in the fourth quarter. It sees 10 net new restaurant openings and an adjusted EBITDA loss of $20 million-$23 million, compared to an earlier range of a $23 million-$27 million loss.
Where Sweetgreen stands today
Now that Sweetgreen has returned to same-store sales growth, the next goal is to return to margin growth, assuming it can maintain the comparable sales growth.
The company is still significantly underwater from its peak in 2024. Its average unit volume (sales per restaurant) clocked in at $2.47 million in the third quarter, down from $2.92 million at the end of 2024. To get back there, Sweetgreen will have to grow same-store sales by nearly 20%, which could take several years, and open new stores with solid AUVs. Sweetgreen reported a restaurant-level profit margin of 17% in 2024 and expected it to rise to 20% in 2025, before it ran into a raft of challenges, causing the stock to plummet.
