Sweetgreen: Is There Meat Behind the 30% Earnings Surge?

May 13, 2024 at 08:30 AM EDT

Sweetgreen stock forecast

Fast casual restaurant chain Sweetgreen Inc. (NYSE: SG) shares catapulted 34% on its Q1 2024 earnings report. While the retail/wholesale sector company still lost money and missed earnings estimates, losing 5 cents more than the loss of 18 cents consensus estimates, shares still skyrocketed to the bewilderment of bears. The question arises as to why the shares reacted the way they did. The retail/wholesale sector company has a 12.54% short float.

Sweetgreen competes with fast-casual restaurants like Chipotle Mexican Grill Inc. (NYSE: CMG) and CAVA Group Inc. (NYSE: CAVA).

Sweetgreen Transformation

Sweetgreen is a fast-casual restaurant specializing in healthy salads and bowls that places heavy emphasis on fresh, sustainable and locally sourced real food. Their goal is to become carbon neutral by 2027. The staff chops up 30 fresh ingredients daily to prepare their premium, high-quality salads. The goal is also to become carbon neutral by 2027.

In October 2023, the company made a major pivot to include proteins like salmon and meats, including steak and chicken options, to appeal to a wider audience. The test launch of its caramelized garlic steak across the Boston market in February 2024 was an overwhelming success that was indicated in its Q1 earnings.

There’s the Beef

The caramelized garlic steak became a dinner-time favorite. It was included in nearly one in five dinner orders. The company began rolling out steak on its menus. These are 1005 grass-fed, pasture-raised steaks from ranches that are aligned with the company's high quality and sourcing standards.

Sweet Green Stock chart

Daily Ascending Triangle Breakout Pattern

SG formed a daily ascending triangle breakout pattern. The ascending trendline commenced at $18.44 on May 2, 2024. The flat-top resistance was at $24.07. The breakout triggered the earning gap to $30. The daily relative strength index (RSI) surged to the 75 band. Pullback support levels are at $16.56, $15.51, $13.72 and $12.30.

Looking Below the Headline Numbers

While the headline EPS of a 5-cent miss wasn't very impressive, the company was able to turn an adjusted EBITDA of $100,000, which was a vast improvement from a loss of $6.7 million in the year-ago period. Revenues surged 26.2% YoY to $157.85 million, beating $152.02 million consensus analyst estimates.

Most impressive was the comparable store sales growth of 5%, which was above the 3% comp guidance. In fact, the comps improved each month sequentially in the quarter, especially after the caramelized garlic steak launch. Average unit volume (AUV) was $2.9 million, consistent with the year ago period.

Surprising Digital and Online Order Growth

Sweetgreen's loyalty program is a hit. Its digital orders grew to 59% of total sales. Of those sales, 56% came from within its digital channels. This rate of digital orders is exceptionally high among any restaurant and fast food brands. The company opened 6 net new restaurants in the quarter.

Raising Guidance

Sweetgreen raised its full-year 2024 sales guidance to $660 million to $675 million, up from $655 to $670 million. Adjusted EBITDA was raised from $10 million to $19 million, up from $8 million to $15 million. Sweetgreen raised its comp guidance to 4% to 6%, from 3% to 5%. The company expects to add 23 to 27 new restaurants in 2024. In 2025, it plans to return to a net unit growth rate of 15% and above 20% in 2026 and beyond.

AI and Robotics in the Future

Sweetgreen is also planning to implement artificial intelligence (AI) for predictive options and recommendations and robots that will make fresh salads in under 3 minutes. This will cut down on labor costs, one of the company's largest expenses.

CEO Insights

Sweetgreen CEO and Co-Founder Johnathan Newman commented, “Restaurant-level profit for the first quarter was $28.5 million, a nearly 70% increase from a year ago. Additionally, we generated positive adjusted EBITDA for the quarter. As I shared on our last call, our strategies are simple: continue building our brand by creating great products and guest experiences, and expand our connection to guests by building and operating great restaurants.”

Sweetgreen stock forecast and price targets are at MarketBeat.

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