Sweetgreen, Inc. — Q1 2024 Form 10-Q
Reporting period: Thirteen weeks ended March 31, 2024; compared with the thirteen weeks ended March 26, 2023. Sweetgreen operated 227 company-owned restaurants across 19 states and Washington, D.C., at quarter-end.
Financial performance
| Metric | Q1 2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $157.9 million | $125.1 million | +26% |
| Same-store sales change | 5% | 5% | Unchanged |
| Average unit volume | $2,889 | $2,932 | -1% |
| Restaurant-level profit and margin (non-GAAP) | $28.5 million; 18% | $16.9 million; 14% | Improved |
| Loss from operations | $(26.9) million | $(35.3) million | Loss narrowed |
| Net loss | $(26.1) million | $(33.7) million | Loss narrowed |
| Adjusted EBITDA and margin (non-GAAP) | $0.1 million; approximately 0% | $(6.7) million; -5% | Improved |
| Operating cash flow | $3.4 million | $(3.1) million | Improved |
| Capital expenditures for property and equipment | $13.4 million | $30.9 million | Lower |
Restaurant operating costs were $129.3 million, or approximately 82% of revenue, versus $108.1 million, or approximately 86%. Food, beverage and packaging costs were 28% of revenue in both periods; labor declined to 29% from 31%, occupancy to 9% from 10%, and other restaurant costs to 16% from 17%. General and administrative expense was $36.9 million, or 23% of revenue, versus $34.9 million, or 28%. These non-GAAP restaurant-level and EBITDA measures have limitations and should be considered alongside GAAP results.
Financial position and liquidity
- Cash and cash equivalents were $243.8 million at March 31, 2024, down from $257.2 million at December 31, 2023. Cash, cash equivalents and restricted cash decreased $13.5 million during the quarter.
- No borrowings were outstanding under the $45 million revolving credit facility; $43.1 million was available after the outstanding letter of credit. The facility matures December 13, 2024. The company reported covenant compliance.
- Management believes existing cash and revolver availability will fund operating lease obligations, capital expenditures and working capital needs for at least the next 12 months. The company cautions that additional financing could be needed if it cannot generate positive operating cash flows.
- Operating lease liabilities totaled $304.4 million. The company also disclosed $24.0 million of additional lease commitments for leases without a possession date.
- Total liabilities were $372.4 million and stockholders’ equity was $470.3 million. Net loss per share was $0.23, compared with $0.30.
Material changes and notable items
- Revenue growth reflected $21.1 million from 41 net new restaurant openings during or after the prior-year quarter, $6.4 million attributed to 5% same-store sales growth and menu price increases, and $5.3 million of additional comparable-restaurant growth not captured in the reported same-store metric because of fiscal-week alignment adjustments.
- There were six net new restaurant openings in Q1 2024 versus nine in Q1 2023. The company had nine facilities under construction at quarter-end, expected to open during 2024.
- Digital channels represented 59% of revenue versus 61%; owned digital channels represented 33% versus 39%. Marketplace revenue increased to $41.1 million from $27.4 million.
- Operating cash flow improved, while investing cash outflow declined to $15.0 million from $32.4 million, primarily reflecting lower property and equipment purchases. Q1 2024 financing cash outflow included a $3.9 million cash payment for the Spyce acquisition milestone.
- The company recorded $2.0 million of expense from the increased fair value of contingent consideration. The first Spyce milestone was satisfied with $2.1 million in stock and $3.9 million in cash; remaining contingent consideration was valued at $10.4 million at quarter-end.
- Prior-year comparisons were affected by a packaging-supply disruption and $6.9 million of employee-retention-credit benefits recorded in 2023 ($1.8 million in labor and $5.1 million in general and administrative expense).
Outlook, commentary and risks
- The company plans to integrate its Infinite Kitchen automation system into more new restaurants during 2024 and 2025. It plans to return to annual restaurant growth of 15%–20% beginning in 2025, targeting the low end in 2025 and upper end in 2026.
- Sweetgreen plans to introduce steak in Q2 2024 and noted potential for higher commodity costs. Management expects restaurant growth and menu, digital-channel and pricing initiatives to support revenue; the filing does not provide clear numerical full-year revenue or earnings guidance.
- Management cited inflation in wages and food costs, possible customer sensitivity to price increases, competition, supply-chain constraints, weather, seasonality, and execution risks in restaurant openings and new markets. Third-party delivery channels carry fees and have historically pressured margins.
- Ordinary-course claims, lawsuits, investigations and administrative proceedings are disclosed; management does not expect their resolution to materially affect the company, while acknowledging adverse outcomes could have a material impact. No material changes to previously disclosed risk factors were reported.
- On April 30, 2024, the company entered into a sublease for its former and current support-center space, with the sublease term running from May 1, 2024 through February 28, 2032, subject to the agreement’s terms.
Important facts for investors to verify
- Whether restaurant-level margin and Adjusted EBITDA improvement is sustained, given the continuing GAAP operating and net losses.
- Same-store sales, traffic and AUV trends, including the effects of pricing and fiscal-week comparability adjustments.
- Restaurant-opening pace, new-store economics, capital spending and Infinite Kitchen deployment plans.
- Cash use, access to the revolving facility, and the facility’s December 2024 maturity and covenant requirements.
- Exposure to lease commitments, delivery fees, wage and commodity inflation, and the remaining Spyce contingent consideration.