Sweetgreen, Inc. Q3 FY2025 earnings call

The management introduced the Sweet Growth Transformation Plan with 5 key strategies: 1. Operational excellence: COO Jason Cochran led Project One Best Way, launching Sweetpass framework, a new restaurant scorecard, and rolling out Scan to Pay. 2. Brand relevance: Redirected marketing to support New York, and focused on creating culture through engagement with content creators and brand partnerships. 3. Food quality and menu innovation: Launched a protein-focused campaign, introduced new steak items, implemented a stage-gate menu innovation process, and planned market test for new handheld product. 4. Personalized digital experience: SG Rewards program showed positive trends with continued activations and frequency increases. 5. Disciplined profitable investment: Opened 8 restaurants in Q3 including 6 Infinite Kitchen, sold Spyce to Wonder to strengthen financial position.

For the third quarter, Sweetgreen reported sales of $172.4 million. There was a same-store sales decline of 9.5%. The restaurant level margin was 13.1% and adjusted EBITDA was a loss of $4.4 million. Performance was affected by softer sales trends in the Northeast and Los Angeles markets, which together account for about 60% of its comp base. Additionally, spending was lighter among the 25 - to 35-year-old age group where Sweetgreen over-indexed.

Updated 2025 guidance: 37 net new restaurant openings, revenue ranging from $682 million to $688 million, negative same-store sales of 8.5% to 7.7%, restaurant level margin of 14.5% to 15%, and adjusted EBITDA between negative $13 million and negative $10 million. Plan to slow new unit growth in 2026 to approximately 15 to 20 net new restaurants with about half featuring the Infinite Kitchen.

Operating environment headwinds, softer sales trends in key markets, lighter spending among target age groups, potential challenges in executing operational and menu changes.

Q: In the prepared remarks, you mentioned starting to evaluate Sweetgreen's menu and pricing architecture. Can you give a sense of the scope of what you're looking at, what you're hoping to accomplish?

A: Jonathan Neman said they're looking at pricing ladders, new entry points, menu price point presentation, and better communication of value, with a protein campaign starting next week and pricing work in stage gate.

Q: I guess maybe I'm just looking at the guidance for the balance of the year or the implied guidance for the balance of the year, and it's effectively suggesting the fourth quarter is taking a step down. I don't think that's really too much of a surprise to people on the line. But I'm just curious if you could kind of walk through what you're seeing in the current environment?

A: Jamie McConnell said they saw a slight pickup in July due to seasonal menu, then step down in August and September, with 25 - 35 consumer most under pressure, and Northeast and L.A. markets making up 60% of base and 800 basis points of negative comp.

Q: On the Infinite Kitchen agreement that you guys made today, can you just walk us through how that's going to impact you going forward?

A: Jonathan Neman said the agreement is a win-win-win, infusing cash, reducing G&A, and allowing continued use of IK technology at about cost plus 5%.

Q: Just first, one quick bookkeeping. On the 15 to 20 net openings for 2026, what's contemplated the number of closures for next year? And then my real question is it's good to hear the handheld is making a reappearance after you first talked about around a year ago. What were the key unlocks in the operational side to get it to the market test where I know you're going to figure out more on the operations side, but what were the key unlocks you did in this planning phase to get it to the market test?

A: Jamie McConnell said they contemplated 2 closures for 2026 net openings, and Jonathan Neman said they tested with consumers, have a killer product, and the stage-gate process is critical for operationalizing it.

Q: Firstly, kudos on making the changes to the protein portion increases, Jonathan, they're quite visible and consistently hitting the 100-gram scope. Happy to see that being executed well. The question is on the net cash proceeds after any tax components associated with the Spyce sale. Given the cost basis and factoring in stock in the initial purchase price of Spyce, can you give us a detail on the actual cash that would be realized on the balance sheet? And also, like does it impact the future IK mix given the hurdle rate, given the cost plus 5% comment you made, Jonathan? Any color on that would be great.

A: Jonathan Neman said it's a benefit as they can benefit from economies of scale and future technologies with the cost-plus 5% model, and Jamie McConnell said they're still going through tax analysis.

Q: Jamie, I just -- I guess, one confirmation or clarification and then a question. I think you said that dinner is where you're seeing some softness. So I guess, does that mean sort of disproportionate? Some of what I've seen is that your lunch has actually been more vulnerable just because it's something where people can kind of pack and bring from home. So I wanted to understand the daypart impact, if you kind of control for sort of suburban or urban mix.

A: Jamie McConnell said they're not seeing a slowdown in lunch quarter-over-quarter, but seeing a decrease in dinner.

Q: One more on the loyalty program for me. Is the pricing and menu architecture review inclusive of a review of the rewards redemption stack for SG Rewards, just kind of making sure that you're competitive versus peers with value, not only on the core menu, but also with regards to the point redemption opportunities?

A: Jonathan Neman said the review includes evaluating all aspects, including rewards redemption stack for SG Rewards.