Shares of salad restaurant chain Sweetgreen (SG 5.95%) popped on Friday after the company beat expectations across the board for its first quarter of 2024. As of 10 a.m. ET, Sweetgreen stock was up a stunning 40% and hitting 52-week highs.
Sweetgreen starts the year off strong
Sweetgreen underpromised and overdelivered for its Q1. The company opened six new restaurants during the quarter, and same-store sales increased 5%, as opposed to management's guidance of 3%. This led to Q1 revenue of $158 million, which was better than management's guidance of $154 million at best.
Higher sales supported better restaurant-level profit margins for Sweetgreen in Q1. Its Q1 restaurant-level profit margin of 18% was up meaningfully from 14% in the prior-year period. This led to positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $100,000.
The adjusted EBITDA profit isn't much for Sweetgreen. That said, the company is forecasting its first profitable year this year for adjusted EBITDA. Investors, therefore, are encouraged by the notion that Q1 set the pace for the rest of the year.
Was Sweetgreen's quarter really that good?
I did a double take with Sweetgreen stock this morning. I'm not surprised to see it up. But a 40% jump is surprising. Management did raise its full-year revenue guidance to $660 million-$675 million. But this represents a guidance raise of less than 1% -- the 40% jump looks out of place in comparison.
It was a good quarter for Sweetgreen, to be sure. But now, with a market capitalization of $3.7 billion, the stock is priced at nearly six times its projected sales for 2024. That's a little pricey, and I wouldn't be surprised if shares gave back some of today's gains.
Of course, the long term is a different story. Sweetgreen is growing in popularity and has strong restaurant-level financials. If the company can keep this up while opening new locations, it can still make for a good investment.
