Sweetgreen saw a significant setback in the second quarter.
The fast-casual chain on Thursday reported a 7.6% slide in same store sales. That reflected a 10.1% decline in traffic and menu mix, offset by a 2.5% benefit from menu prices.
The average unit volume ticked down to $2.8 million, compared with $2.9 million a year ago, and restaurant level margins declined to 18.9%, compared with 22.5% (though that included some impact from tariffs).
The company’s net loss widened significantly to $23.2 million, compared with a net loss of $14.5 million in the second quarter last year. The metrics sent the chain’s stock price for a more than 24% tumble in after-hours trading.
And the news got worse.
The company restructured its Los Angeles-based support center team to eliminate 10% of open and existing jobs, though details were not given in the earnings report.
And, in what will likely be a blow to fans, the chain is eliminating the new air-fried Ripple Fries that were heavily promoted earlier this year.
Though guests loved them, CEO Jonathan Neman said the chain needs to focus on improving consistent operations across the menu, and the fries were a distraction. They will be dropped from the menu next week.
Neman said bluntly, “We are not satisfied with the results we’re reporting today.”
He blamed a convergence of the “subdued industry backdrop,” including a more-cautious consumer in the urban Northeast, as well as transition issues with the new loyalty program launched during the second quarter.
It was also a tough quarter for same-store sales comparisons. Last year, the chain reported a 9.3% increase in same-store sales during the second quarter, boosted by the launch of steak on the menu.
Still, Neman said restaurants across the more-than 260-unit chain have struggled with inconsistency and price perception, with about two-thirds of the fleet showing a need for operational improvement.
And though Neman also sees the challenges as temporary, he emphasized the need to focus on the customer experience to turn things around.
Here’s the plan to do that:
Bigger portions: Sweetgreen in July increased the portion size on chicken and tofu by 25%, a move that addresses a common complaint from protein-seeking consumers.
It also echoes a struggle seen at fast-casual competitor Chipotle, where customers have also raised portion complaints.
But Sweetgreen is already seeing a 30% improvement in consumer feedback as a result of the bigger scoops, he said. And the company has found ways to offset the increased food costs.
In addition, the chain is working on improving the taste and quality of both chicken and salmon dishes, and the company plans to address a price perception problem with strategic limited-time-offer pricing.
Sweetgreen's recent $13 menu bowl drops are driving traffic improvements in the third quarter, he said, along with the return of seasonal dishes. Two more seasonal promotions are coming this year, and the company has scheduled eight for next year.
“Our summer menu, which launched July 7, is mixing at 15% of all entrees,” said Neman. “And one in three customers who tried a seasonal entrée returned within two weeks.”
Operations: Sweetgreen announced it has hired Zipporah Allen as Chief Commercial Officer. Allen is a former chief digital officer at Taco Bell, and she later served as chief marketing officer at the sports-focused social media platform Strava.
Neman said she brings deep experience in brand building and customer engagement and will play a critical role in “sharpening our brand positioning and menu driving demand and strengthening the overall guest experience.”
The move follows the hiring earlier this year of Jason Cochran as chief operating officer. After spending time in the field, Cochran saw a “clear opportunity to raise the bar,” Neman said.
“Today, about one-third of our restaurants are consistently operating at or above standard, while the remaining two-thirds represent meaningful opportunity for improvement,” he added.
So Cochran has launched an initiative called Project One Best Way, setting clear operating standards, performance-based leadership, accountability and measured execution.
It’s not about reinventing the wheel, said Neman. “It’s about applying the standard of excellence with operational process, building on what’s already working and ensuring every restaurant delivers to our highest standards.”
Loyalty: Sweetgreen killed its subscription-based Sweetpass program earlier this year and replaced it with the more-traditional SG Rewards in April, which allows guests to earn points for dollars spent.
Coming later this year: the ability for loyalty members to scan and pay in one transaction, which will speed service time, he said.
There was some expected revenue loss as a result of the switch, and the chain lost some high-frequency customers that had bought into the Sweetpass Plus subscription, but Neman was confident the chain could win them back. Membership continues to grow at a rate of about 200,000 per week, he said.
“While we recognize that broadening benefits across a larger base of customers has brought some near-term headwinds, we’re confident this trade-off will deliver positive results, starting in the fourth quarter,” he said.
Amid all this, Sweetgreen is evaluating plans for driving growth to the 1,000-unit mark.
At least 40 net new restaurants are expected to open this year, with about half of those featuring the automated Infinite Kitchen make-lines. Sweetgreen will go into four new markets this year: Arkansas, Sacramento, Phoenix and Cincinnati.
The company closed two older units in New York City, where leases were up and guests could be redirected to three newer locations nearby that offered a better customer experience, Neman said.
For the year, Sweetgreen is now projecting same-store sales will decline between 6% to 4%. Earlier this year, the company projected sales would be flat.
But CFO Mitch Reback reiterated that Sweetgreen, which has yet to report a profit as a public company, will get back on track.
“As we get our operational standards to really, really drive them and improve the execution at the store level, return our menu to more of our seasonal core, we’re convinced that we will see the business get back to the trajectory we were on,” said Reback.
UPDATE: This article was updated to clarify that the job cuts impacted the support center specifically.
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