Sweetgreen Inc. slashed its sales guidance after a second straight quarter of disappointing results, highlighting the salad chain’s struggles to sell $15 salads to budget-strained diners.
The company now anticipates that sales at restaurants open for at least a year will drop between 4% and 6% this year, a big step down from prior expectations that the measure would be flat.
Sweetgreen’s reduced outlook follows a slump in comparable sales of 7.6% in the second quarter — much steeper than analysts polled by Bloomberg expected and a deterioration from the previous three-month period.
The quarter’s performance reflected macroeconomic challenges and subdued trends in the industry, particularly in several of the company’s biggest urban markets, Chief Executive Officer Jonathan Neman said. Sweetgreen was also up against strong results from a year ago.
In May 2024, the chain launched steak as a protein option, which drew in diners and boosted sales numbers thanks to its higher price tag. This time around, traffic declined and people switched to cheaper alternatives, according to the company.
Sweetgreen shares fell as much as 26% in extended trading in New York. If the decline holds, it would be the biggest on record. The stock had already lost about 61% of its value this year through Thursday’s close, compared with a decline of less than 1% for the Russell 2000 Index.
In the second quarter, the company launched a Korean-inspired menu for a limited time to entice diners, as well as a new loyalty program featuring discounts.
Sweetgreen is focused on improving how customers perceive the value of its meals, Neman said on a call with analysts. It increased chicken and tofu portions by 25%, upgraded some recipes to improve taste and quality, and started $13 limited-time offers, he added. In July, it reintroduced its seasonal menu after finding that the novelty appeals to frequent customers.
Comparable sales have improved modestly so far in the third quarter, Neman said. In the company’s statement, he predicted better performance in the second half of the year and said the summer menu is increasing customer visits. The loyalty program is also starting to show promise, he added.
Sweetgreen is discontinuing its ripple fries, Neman said, citing the complexity the menu item added to kitchens.
Weakening Economy
The results highlight how cautious US diners have become in light of signs that economic activity is weakening. Sweetgreen rivals such as Chipotle Mexican Grill Inc. have blamed weak results on the uncertainty, while several fast-food chains that are pushing value meals have managed to post sales growth. Cava, another competitor for the lunch crowd, reports earnings next week.
Sweetgreen, whose salads generally cost around $15 before tax, is taking a hit as consumers seek out more affordable meals. The chain’s products are seen as more discretionary in such an economic environment, RBC Capital Markets LLC. analyst Logan Reich wrote in a note to clients ahead of the earnings release.
Moreover, the earlier focus on pricier proteins such as steak likely eroded the chain’s value image, William Blair & Co LLC. analyst Sharon Zackfia wrote in a note before the results.
In the latest quarter, Sweetgreen posted a bigger earnings per share loss than anticipated, and revenue also lagged expectations.
Written by: Daniela Sirtori @Bloomberg
The post “Sweetgreen Sinks on Fewer Diners Splurging for Pricey Salads” first appeared on Bloomberg