Sweetgreen, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. The 13-week quarter ended June 26, 2022; year-to-date figures cover 26 weeks. Sweetgreen operated 166 restaurants in 13 states and Washington, D.C., and opened 8 net new restaurants in the quarter and 16 year to date. The company operates a single reportable segment, primarily selling food and beverages through company-owned restaurants.
Key financial results
| Metric | Q2 2022 | Q2 2021 | 26 weeks 2022 | 26 weeks 2021 |
|---|---|---|---|---|
| Revenue | $124.9m | $86.2m | $227.5m | $147.6m |
| Operating loss | $(42.2)m | $(24.2)m | $(91.8)m | $(54.3)m |
| Net loss | $(40.0)m | $(26.9)m | $(89.2)m | $(56.9)m |
| Adjusted EBITDA (non-GAAP) | $(7.4)m | $(13.8)m | $(23.9)m | $(34.8)m |
| Restaurant-Level Profit margin (non-GAAP) | 18% | 15% | 16% | 10% |
Quarterly revenue rose 45%; year-to-date revenue rose 54%. Net loss per share was $(0.36) in Q2 and $(0.81) year to date, compared with $(1.55) and $(3.32), respectively, in the prior-year periods. Weighted-average shares increased substantially following the 2021 IPO, so per-share comparisons are affected by the larger share count.
- Q2 same-store sales increased 16% (versus 86% in the prior-year quarter); year-to-date same-store sales increased 24% (versus 9%). The company attributes growth to transaction recovery and menu price increases. Prior-year comparable metrics were adjusted for certain pandemic-related closures.
- Average Unit Volume was $2.881m, up 18% from $2.447m. Revenue growth also reflected 46 net new restaurants opened during or after the comparable quarter.
- Q2 sales mix: Owned Digital Channels $50.5m, non-digital in-store $47.9m, and Marketplace $26.6m. Total digital revenue was 62% of sales versus 68%; owned digital was 40% versus 47%.
- General and administrative expense nearly doubled to $51.3m in Q2 and rose to $100.9m year to date. Stock-based compensation was $23.2m in Q2 and $45.4m year to date, versus $1.9m and $3.1m, respectively, in 2021; this was a major driver of the increase.
Cash, liquidity, and obligations
- Cash and cash equivalents were $407.0m at June 26, 2022, down from $472.0m at December 26, 2021. Six-month operating cash use was $17.9m, investing cash use was $50.1m, and capital expenditures for property and equipment were $46.6m.
- No borrowings were outstanding under the $35m revolving facility; $34.1m remained available after a $0.95m letter of credit. The company reported compliance with its liquidity covenant. The revolving facility matures December 14, 2022.
- Undiscounted operating lease commitments were $436.7m, plus $2.9m of purchase obligations. The company expected adoption of the lease accounting standard to add approximately $295m–$345m of lease liabilities and $240m–$290m of right-of-use assets to the balance sheet.
- Stockholders’ equity was $612.2m; accumulated deficit was $565.4m. Total liabilities were $115.3m. The filing reports no material outstanding debt.
Changes, outlook, and risks
- Restaurant operating costs increased in dollars with restaurant growth and higher sales. Food, beverage, and packaging remained 27% of revenue; labor declined to 30% from 31% in Q2; occupancy declined to 13% from 14%; and other restaurant costs declined to 12% from 14%. Management cited sales leverage and pricing, partly offset by inflation, wage pressure, and freight surcharges.
- Management said sales growth began slowing in June 2022 and could slow further or decline, citing increased summer travel, a new COVID wave, a slower-than-expected return to offices, and uneven urban recovery. Inflation, higher interest rates, commodity and labor costs, and potential consumer trade-down remain risks. The filing provides no specific revenue, earnings, or margin guidance.
- The company reiterated its long-term aspiration to operate 1,000 restaurants by the end of the decade. It expects growth from new restaurants, menu expansion, and investment in owned digital channels; third-party delivery fees and refunds can weigh on margins, and management expects channel economics to improve with scale and fee negotiations.
- On August 8, 2022, after quarter-end, Sweetgreen announced Support Center workforce reductions affecting approximately 5% of employees and a move to a smaller office. It expected $8.9m–$10.7m of pretax charges, primarily in Q3 2022, including $8.4m–$9.9m of non-cash office-move costs. Actual costs depend in part on subleasing the vacated space.
- Management stated existing cash and available borrowing capacity should fund operating lease obligations, capital expenditures, and working capital for at least 12 months under its current operating plan. The company cautioned that continued losses could require additional financing, which may not be available on acceptable terms.
- Other notable items include $3.3m of Spyce-related research and development cost in Q2, a $0.2m charge from closing a Spyce location, and a $1.9m year-to-date gain from remeasurement of Spyce contingent consideration. Management reported no impairment charge in the first half despite conducting impairment reviews for certain restaurants.
Investor verification priorities
- Track monthly and same-store sales trends after the June slowdown, including whether urban traffic and office returns recover and how pricing affects transactions.
- Assess whether restaurant-level margin gains persist as food, labor, occupancy, and delivery costs evolve, and whether Adjusted EBITDA improvement translates into progress toward GAAP profitability.
- Monitor cash burn, restaurant-opening capital needs, the December 2022 revolving-facility maturity, and the effect of lease accounting adoption on reported assets and liabilities.
- Verify actual restructuring charges, sublease recovery, and whether the Support Center cost reductions achieve the stated Adjusted EBITDA objective without disrupting growth or operations.
- Evaluate dilution and comparability implications of substantial stock-based compensation, outstanding awards, and the transition out of emerging growth company status.