Investors are taking a stake in steak at Sweetgreen.
The salad chain on Thursday reported earnings that easily bested Wall Street expectations, and that plus the potential for steak this year sent the company’s shares into the stratosphere on Friday.
Sweetgreen’s shares were up as much as 45% during the day, closing up 34%, closing at $31.56.
Perhaps more important, the salad chain’s shares returned from the below-offering price purgatory where it had been for the past two-plus years.
Sweetgreen had been one of the highest profile IPOs in years when it went public in 2021, with a hot concept, a keen interest in robotics and backed by guys like Internet pioneer Steve Case.
Its shares started trading at $28 and traded as high as $53 in the opening days.
But profitability and sales questions, along with a stock market weakened by inflation and rising interest rates, hurt its stock price. By late 2022 and early 2023, its shares were trading in the single digits.
After languishing for much of last year, however, its shares have come roaring back so far in 2024. Sweetgreen’s stock is up 207% so far in 2024, and much of that came on Friday.
Same-store sales rose 5% in the first quarter. Restaurant-level margins increased 460 basis points to 18%.
Those numbers were better than Wall Street expected, and then the company raised its expectations for same-store sales for the year. All of that likely helped Sweetgreen’s stock. Yet steak was likely a big factor.
The chain tested Caramelized Garlic Steak in Boston earlier this year. One out of five customers chose the item for their dinner orders, and the company added the item to its permanent menu.
Yet that was not included in Sweetgreen’s same-store sales guidance, meaning investors are betting on better sales than the chain anticipates. The steak is sold at a price premium. “The impact of adding steak did not materially influence raised comp guidance, making steak a de facto positive wildcard for the remainder of the year,” William Blair analyst Sharon Zackfia wrote in a note on Thursday.
More to the point, Sweetgreen is finding a way to make its business work in the evenings. The chain now gets 35% of the chain’s orders at dinner. Building sales during dayparts other than lunch is key for the chain’s long-term sales success, particularly if the sales the company generates through those dayparts come with a premium price.
And then there’s the robotic Infinite Kitchen locations, which hold considerable promise for the chain’s ability to generate an investment on new units. The automated restaurants generate $2.6 million average unit volumes and their restaurant-level margins were 28% in the first quarter. Those sales are higher in part because service is faster at those units, and customer satisfaction is higher.
The company expects those locations to have profit margins 700 basis points higher than traditional locations. And Zackfia expects that to widen in the coming years, given rising labor costs in places like California.
So, Sweetgreen’s profitability is improving. And its robotic kitchens could potentially revolutionize the industry with a more profitable format that customers prefer. Investors are starting to see that promise, and they’ve sent the company’s shares up accordingly.