Sweetgreen, Inc. — Q1 2022 Form 10-Q
Business context and period. The quarter comprised 13 weeks ended March 27, 2022; comparisons are with the 13 weeks ended March 28, 2021. Sweetgreen operated 158 restaurants across 13 states and Washington, D.C., after eight net openings in the quarter. It operates as one reportable segment.
Financial and operating highlights
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $102.6 million | $61.4 million |
| Net loss | $49.2 million | $30.0 million |
| Net loss per share, basic and diluted | $0.45 | $1.77 |
| Restaurant-level profit and margin (non-GAAP) | $13.3 million; 13% | $2.1 million; 3% |
| Adjusted EBITDA and margin (non-GAAP) | $(16.5) million; (16)% | $(21.0) million; (34)% |
| Cash used in operating activities | $16.8 million | $16.5 million |
| Cash used in investing activities | $19.6 million | $17.9 million |
- Revenue grew 67%, reflecting a 35% same-store sales increase, including 25% transaction growth and a 10% benefit from menu price increases, plus 39 net openings during or after the prior-year quarter. Prior-year AUV and comparable results exclude 19 temporarily closed restaurants.
- Revenue by channel: owned digital $43.9 million, non-digital in-store $34.4 million, and third-party marketplace $24.2 million. Total digital revenue was 66% of sales versus 77%; owned digital was 43% versus 53%.
- Restaurant operating costs were $89.3 million, or 87% of revenue, compared with $59.3 million, or 97%. Food, labor, occupancy, and other restaurant costs were respectively 26%, 33%, 14%, and 13% of revenue, each lower as a share than in the prior-year quarter.
- General and administrative expense rose 112% to $49.7 million, primarily due to stock-based compensation of $22.2 million versus $1.2 million. Depreciation and amortization was $10.7 million; pre-opening costs were $2.5 million.
- Cash and cash equivalents were $436.5 million at quarter-end, down from $472.0 million at fiscal year-end. Operating cash use was broadly stable year over year; capital spending included $18.1 million for property and equipment.
- Total assets were $737.7 million and stockholders’ equity was $626.9 million. The company had no borrowings under its credit facility, which provides a $35 million revolver; it reported compliance with its liquidity covenant.
Material changes, outlook, and risks
- Net loss increased by $19.2 million year over year despite higher restaurant-level profit and improved Adjusted EBITDA. General and administrative costs, particularly equity compensation, were a major factor.
- Management said the Omicron variant materially reduced transaction volume during the first six weeks of the quarter, with improvement in the latter half. Customer traffic remains variable.
- The company targets 1,000 restaurants by the end of the decade and expects revenue to benefit from new restaurants, digital investment, and menu pricing. The filing provides no specific numerical full-year 2022 financial guidance.
- Management highlighted inflation, wage and commodity costs, supply-chain pressures, and the possibility that price increases may affect customer visits. Delivery and marketplace channels carry third-party fees and can weigh on margins; management expects potential improvement through scale and fee negotiations.
- Operating lease commitments totaled $410.7 million, with $34.2 million scheduled for the remainder of 2022; purchase obligations were $5.1 million. The company expected adoption of lease accounting rules to materially increase reported assets and liabilities, without a material expected impact on the income statement or cash flows.
- Other notable items include a $20.2 million Spyce contingent-consideration liability, remeasured using significant unobservable inputs, and a $2.5 million deferred payroll-tax obligation due at the end of 2022. The company recorded no long-lived asset impairment in the quarter. Ordinary-course legal matters were not expected to have a material effect, though adverse outcomes could be consequential.
- Management stated existing cash and available revolver capacity should cover operating leases, capital expenditures, and working capital for at least 12 months. The revolver matures December 14, 2022.
Important facts for investors to verify
- Whether traffic recovery and same-store sales growth persist, particularly after the Omicron-related disruption and the impact of menu price increases.
- Whether restaurant-level margin gains continue as inflation, labor costs, delivery fees, and channel mix evolve.
- The scale and timing of stock-based compensation and potential dilution; 23.8 million common-stock equivalents were excluded from diluted loss per share as anti-dilutive.
- Restaurant-opening pace, capital requirements, and progress toward the long-term 1,000-restaurant goal.
- Cash burn, the revolver’s near-term maturity and renewal or refinancing, lease commitments, and the final balance-sheet effect of lease accounting adoption.
- Assumptions underlying Spyce milestone consideration and any potential legal or other contingencies.