Operations

Sweetgreen inches closer to profitability

Despite flat traffic in the first quarter, the fast-casual salad chain raised guidance for the year, citing continuing momentum.
Sweetgreen's two Infinite Kitchen locations continue to outperform. Seven more are expected to open this year. | Photo: Shutterstock

Sweetgreen continued momentum into the first quarter with almost no talk of budget-strained consumers, though traffic was flat, the fast-casual salad chain reported Thursday. 

Same-store sales were up 5% for the March 31-ended quarter, largely as a result of menu pricing. But restaurant-level margins grew to 18%, compared with 14% a year ago, and revenues increased 26% to $157.9 million as the chain climbs closer to profitability.

Consumers are “increasingly selective about how they spend their discretionary income,” said CEO and co-founder Jonathan Neman. But he said they are choosing Sweetgreen for the quality of food and value, and there was otherwise little discussion of the challenging macro climate that other brands have cited during this first-quarter earnings season.

In fact, Sweetgreen appears bullish. For the year, the company upped its guidance, expecting same-store sales growth of between 4% and 6%, rather than the 3% to 5% projected earlier. Restaurant margins are expected to be between 18.5% and 20%.

The chain opened six new restaurants during the first quarter, including two in the new market of Seattle, for a total of 227. Other new openings were in San Francisco, Miami, Denver, and Austin, and those new units were outpacing the system in average weekly sales, said Neman. One of the Seattle locations had the strongest opening weeks in the company’s history.

Diners in the Southeast and Texas are particularly high on the line of protein plates introduced last year, which are successfully building dinner sales and broadening Sweetgreen’s audience, Neman said.

This week, for example, the chain rolled out a new Caramelized Garlic Steak, which became a dinnertime favorite during a test in Boston, chosen by one in five dinner guests. Overall, 35% of guests are now choosing Sweetgreen for dinner.

“The dinner and weekend growth we’re seeing is really, really promising,” Neman said. “We will continue to build on warm, hearty, craveable, but still healthy, offerings for our guests.”

But Neman also credited some of the unit performance to investments in staffing, with more disciplined labor deployment, bonuses for head coaches and tipping for hourly staff. Turnover has decreased 19 points and is the lowest it has been since pre-Covid, Neman said.

About 50% of head coaches are internal promotions, and the company is hoping to increase that number.

“It’s part of the American dream of starting somewhere, and within three years being a head coach making more than $100,000 a year,” said Neman.

The chain’s two automated Infinite Kitchen units continue to outperform, with a first quarter margin of 28%, 10 points above the system average.

The chain is on track to open seven more Infinite Kitchens this year, as well as retrofitting three to four existing units. The first retrofitted restaurant will be in New York City this summer, and Neman said learnings from that will shape the future pipeline as Sweetgreen accelerates growth next year.

“We think it will be a huge part of our go-forward strategy,” he said.

Overall, the chain expects to add 23 to 27 new restaurants in 2024.

Neman said the company is also working on a smaller format store, that will likely be tested next year. The chain is still planning to growth drive-thru units, including potential drive-thru/Infinite Kitchen locations, as well as potentially an Infinite Kitchen that is pickup-mobile-order-only.

The company continued to narrow its net loss to $26.1 million, compared with a loss of $33.7 million a year ago, with the help of a $11.6 million increase in restaurant-level profit and a $1.9 million decrease in pre-opening costs.

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