Sweetgreen, Inc. — Q3 2022 Form 10-Q
Reporting period: Unaudited third quarter ended September 25, 2022 (13 weeks), with year-to-date comparisons covering 39 weeks. Sweetgreen operated 176 restaurants across 16 states and Washington, D.C.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | 39 weeks 2022 | 39 weeks 2021 |
|---|---|---|---|---|
| Revenue | $124.0 million | $95.8 million | $351.5 million | $243.4 million |
| Net loss | $47.4 million | $30.1 million | $136.6 million | $87.0 million |
| Adjusted EBITDA (non-GAAP) | $(6.8) million | $(14.1) million | $(30.7) million | $(48.9) million |
| Restaurant-Level Profit margin (non-GAAP) | 16% | 14% | 16% | 12% |
| Adjusted EBITDA margin (non-GAAP) | (5)% | (15)% | (9)% | (20)% |
Q3 revenue increased 29%, driven primarily by $22.7 million from 47 net new restaurants opened during or after the comparable quarter; comparable-restaurant revenue added $5.5 million. Same-store sales increased 6% in Q3 and 17% year to date. Management attributed the year-to-date comparable-sales increase to 10% transaction growth and 7% menu-price increases; it noted Q3 growth was affected by softening demand and slower-than-expected return to offices. Average unit volume was $2.892 million, up 18% year over year.
Q3 restaurant operating costs were 84% of revenue, compared with 86% a year earlier. For the 39-week period, those costs were 84% of revenue versus 88%. General and administrative expense rose 43% in Q3 and 82% year to date; stock-based compensation was $17.6 million for Q3 and $63.0 million year to date, contributing to higher GAAP losses despite improved Adjusted EBITDA.
Total digital revenue was 60% of Q3 revenue, down from 63%; owned digital revenue was 40%, down from 43%.
Cash, liquidity, debt, and commitments
- Cash and cash equivalents were $381.0 million at September 25, 2022, versus $472.0 million at December 26, 2021.
- Year-to-date operating cash use was $24.1 million; investing cash use was $71.0 million, including $66.0 million of property and equipment purchases. Financing provided $4.0 million. Cash, cash equivalents, and restricted cash declined $91.1 million.
- No borrowings were outstanding under the $35 million revolving credit facility. After a $950,000 letter of credit, $34.1 million was available. The revolver was scheduled to mature December 14, 2022; the filing reports compliance with its liquidity covenant at quarter-end.
- Management said available cash and revolver capacity were expected to fund operating leases, capital expenditures, and working capital for at least 12 months, based on its current operating plan.
- Operating lease commitments totaled $444.0 million and were excluded from the balance sheet under the then-applicable lease accounting. The company expected adoption of ASC 842 to add approximately $263–$291 million of lease liabilities and $222–$246 million of right-of-use assets, before fiscal 2022 lease activity.
Material changes, outlook, and risks
- On August 8, 2022, the company began a cost-management plan aimed at reaching Adjusted EBITDA profitability. It recorded $11.1 million of restructuring charges: chiefly $9.8 million of non-cash costs related to reducing Support Center office space, plus severance affecting approximately 5% of Support Center employees and costs to abandon prospective restaurant sites.
- Management cited inflation in wages and food costs, higher interest rates, softer consumer demand, and slower office returns—including remote and hybrid work—as pressures on sales and restaurant-level profit. Further cost reductions may be needed.
- The company expects growth from new restaurants, menu expansion, and digital-channel investment; its stated ambition is 1,000 restaurants by the end of the decade. No specific near-term revenue or earnings guidance is provided in the filing.
- Management warned that further price increases could weaken customer demand and that third-party delivery fees can weigh on margins. It also flagged possible supply disruptions and higher costs for ingredients including romaine, arugula, and tomatoes.
- Impairment testing reflected weaker near-term store cash-flow expectations and anticipated closures; the company recorded $1.7 million of Q3 impairment charges. It also closed one Spyce location during the year-to-date period.
- Ordinary-course legal claims and proceedings are disclosed; management did not expect their resolution to materially affect the company, while cautioning that adverse outcomes could do so.
Important facts for investors to verify
- Whether sales and traffic can hold up as price increases, inflation, and consumer spending pressures continue.
- Progress toward Adjusted EBITDA profitability, including the effect of the cost-reduction plan and recurring stock-based compensation.
- Cash burn, planned restaurant investment, and the status and terms of the revolving facility after its stated December 2022 maturity.
- The final balance-sheet and earnings effects of ASC 842 lease adoption and the company’s substantial lease commitments.
- Restaurant-opening execution and whether supply-chain disruptions or delivery-channel mix further affect costs and margins.