Sweetgreen, Inc. — Q2 2023 Form 10-Q
Business context and period: The quarter ended June 25, 2023, covered 13 weeks; year-to-date covered 26 weeks. Sweetgreen operated 205 restaurants across 18 states and Washington, D.C., and opened 10 net new restaurants in the quarter and 19 year to date.
Financial performance
| Metric | Q2 2023 | Q2 2022 | 26 weeks 2023 | 26 weeks 2022 |
|---|---|---|---|---|
| Revenue | $152.5 million | $124.9 million | $277.6 million | $227.5 million |
| Net loss | $27.3 million | $40.5 million | $60.9 million | $90.2 million |
| Adjusted EBITDA (non-GAAP) | $3.3 million | $(7.8) million | $(3.4) million | $(24.8) million |
| Restaurant-Level Profit (non-GAAP) | $31.1 million | $23.1 million | $48.0 million | $36.5 million |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $4.8 million | $(19.0) million |
- Quarter revenue increased 22%; same-store sales increased 3% versus 16% a year earlier. Menu pricing contributed 4%, partly offset by a 1% decline in traffic/mix. AUV was $2.92 million, up 1%.
- Quarter restaurant-level profit margin was 20% versus 19%; Adjusted EBITDA margin was 2% versus negative 6%. GAAP operating loss was $31.2 million, or 20% of revenue, compared with $42.7 million, or 34%.
- For the first half, same-store sales rose 4% versus 24%; restaurant-level profit margin was 17% versus 16%, while Adjusted EBITDA margin was negative 1% versus negative 11%.
- Q2 restaurant costs were $121.4 million (80% of revenue). Food, beverage and packaging were 27% of revenue; labor 29%; occupancy 9%; and other restaurant costs 15%.
- Cash and cash equivalents were $280.3 million at June 25, down from $331.6 million at December 25, 2022. First-half capital expenditures were $55.8 million; investing cash outflow was $58.4 million.
- No borrowings were outstanding under the $45 million revolving credit facility; $43.1 million was available after letters of credit. The facility matures December 13, 2024. Operating lease liabilities totaled $303.0 million; undiscounted future operating lease payments were $396.8 million.
Material changes and notable items
- Revenue growth primarily reflected new restaurants: 47 net openings since the comparable quarter contributed approximately $26.2 million of incremental quarterly revenue. Comparable restaurant revenue also increased, but same-store sales growth slowed substantially.
- General and administrative expense fell 22% in Q2, primarily due to lower stock-based compensation and reduced support-center spending. First-half G&A also benefited from $5.1 million of employee retention credits; labor expense benefited from a further $1.8 million of credits.
- Q2 restructuring charges were $5.0 million, including a $4.3 million noncash impairment related to the vacated former support center. First-half restructuring charges were $5.6 million.
- First-half packaging supply disruption led to store disruption and higher material costs. Food, beverage and packaging costs were 28% of revenue for the first half, up from 27%.
- Owned digital revenue was 37% of Q2 revenue and total digital revenue was 59%, down from 40% and 62%, respectively, a year earlier.
Outlook, risks and contingencies
- Management said existing cash and available revolver capacity should fund operating lease obligations, capital expenditures and working capital for at least the next 12 months. It noted that additional financing could be needed if positive operating cash flow is not achieved.
- No specific full-year revenue, profit or cash-flow guidance is stated in the supplied filing text. For fiscal 2024, management expects restaurant openings not to exceed its forecasted fiscal 2023 opening range, as it integrates Infinite Kitchen into more new restaurants; the numerical range is not provided here.
- Management cited softening consumer demand, inflation, wage and commodity costs, uncertain return-to-office patterns, hybrid work, and supply-chain constraints. Premium pricing may be harder to sustain if consumers trade down or cook at home. Delivery-channel growth can pressure margins because of third-party fees.
- The company is exposed to commodity-price and interest-rate risk. It reported ordinary-course legal claims and proceedings, but did not expect their resolution to materially affect its financial position; adverse outcomes could nevertheless be material.
- The credit facility requires minimum liquidity tied to trailing 90-day cash burn; the company reported compliance with financial covenants at quarter-end. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether same-store sales and customer traffic stabilize, and how much future growth depends on new openings versus existing restaurants.
- Whether restaurant-level margin gains persist after accounting for pricing, wage and packaging inflation, and the mix of third-party delivery sales.
- Cash burn, capital spending and liquidity runway relative to the opening plan and substantial lease commitments.
- The sustainability and timing of employee retention credit benefits, and the full costs associated with the support-center restructuring.
- Progress integrating Infinite Kitchen and the effect of the planned rollout on restaurant openings, costs and operating performance.