Casual salad chain Sweetgreen (NYSE:SG) missed Wall Street’s revenue expectations in Q3 CY2024, but sales rose 13% year on year to $173.4 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $677.5 million at the midpoint. Its GAAP loss of $0.18 per share was also 18% below analysts’ consensus estimates.

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Company Overview

Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.

Modern Fast Food

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years.

Sweetgreen is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, it can grow faster because it’s working from a smaller revenue base and has more white space to build new restaurants.

As you can see below, Sweetgreen’s 20.3% annualized revenue growth over the last five years (we compare to 2019 to normalize for COVID-19 impacts) was exceptional as it opened new restaurants and increased sales at existing, established dining locations.

This quarter, Sweetgreen’s revenue grew 13% year on year to $173.4 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 13.6% over the next 12 months, a deceleration versus the last five years. Still, this projection is healthy and illustrates the market is baking in success for its offerings.

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Restaurant Performance

Number of Restaurants

The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.

Over the last two years, Sweetgreen opened new restaurants at a rapid clip and averaged 20.5% annual growth, among the fastest in the restaurant sector. This gives it a chance to scale into a mid-sized business over time.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where the concept has few or no locations.

Note that Sweetgreen reports its restaurant count intermittently, so some data points are missing in the chart below.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth for restaurants open for at least a year.

Sweetgreen has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 5.2%. This performance along with its meaningful buildout of new restaurants suggest it’s playing some aggressive offense.

In the latest quarter, Sweetgreen’s same-store sales rose 6% annually. This growth was an acceleration from the 4% year-on-year increase it posted 12 months ago, which is always an encouraging sign.

Key Takeaways from Sweetgreen’s Q3 Results

We struggled to find many strong positives in these results as its revenue, EBITDA, and EPS missed analysts’ expectations along with its full-year EBITDA guidance. On the bright side, management is forecasting slightly more revenue than anticipated. Still, this quarter could have been better. The stock remained flat at $42.20 immediately after reporting.

Sweetgreen didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.