What happened

Shares of Sweetgreen (SG -4.55%) are falling 10.9% lower this week compared to where they closed last Friday, according to data from S&P Global Market Intelligence, after the restaurant operator reported disappointing earnings results last week.

Although Sweetgreen reported generally improved metrics from the year-ago period, the results came in lower than what Wall Street was expecting. And though guidance for the coming first quarter was substantially better than analyst forecasts, the restaurant stock's full-year outlook was decidedly below what they were anticipating.

Person eating a bowl of salad.

Image source: Getty Images.

So what

Restaurants have struggled mightily since the pandemic, when consumer dining habits were dramatically altered. For many chains, that hasn't improved in the reopened economy; labor shortages, rising commodity costs, and higher expenses make it difficult for many to profit. Trendy, fast-casual outfits like the salad-oriented Sweetgreen are having an even more difficult go of it.

Although fourth-quarter revenue was up 23% year over year to $118.6 million and comparable-store sales rose 4% -- a fine achievement considering comps had surged 36% higher in the year-ago period -- operating losses didn't improve, and restaurant-level profit margins declined.

Adjusted losses before interest, taxes, depreciation, and amortization worsened to $17.9 million compared to $14.2 million a year ago, although adjusted EBITDA margin for both periods was negative 15%.

Restaurant-level profit margins declined by about 200 basis points to 11% as the costs of food, beverage, and packaging for romaine lettuce soared. The business also experienced shortages of arugula and tomatoes.

Now what

The degraded performance isn't deterring Sweetgreen from opening more restaurants, however, and it is still planning for 30 to 35 new locations in 2023, though that's about 10 to 15 fewer than previously expected. And though it is expecting comps to grow between 2% and 6% again, revenue is only forecast to rise to between $575 million and $595 million, a 24% gain.

That is below the 35% increase in sales Wall Street was expecting. Analysts were looking for $629.3 million in full-year revenue and for Sweetgreen to generate an EBITDA loss of $10.6 million versus the $10 million to $20 million EBITDA loss the restaurant is guiding toward.

The outlook also didn't offer much hope for investors as the company continues to focus on "efficiency" to pull its way out of the deep hole it finds itself in. Last quarter, it also announced it was firing 5% of its workforce and looking for cheaper corporate digs.