Shares of salad restaurant chain Sweetgreen (SG +0.37%) plunged 30.9% in February, according to data provided by S&P Global Market Intelligence. The company did report financial results for the fourth quarter of 2024 during the month, but that report didn't come until Feb. 26. Sweetgreen stock was already down by about 30% by then, meaning the report wasn't the problem per se.
Perhaps some commentary from analysts can help explain what was going on with Sweetgreen stock in February. On Feb. 11, analysts at Citi lowered its price target for Sweetgreen from $49 per share to $43 per share, according to The Fly. The analysts basically said that an expensive stock and slowing sales growth don't mix, leading them to lower expectations ahead of the Q4 report.
This appears to have been the general investor sentiment for Sweetgreen stock in February -- worried that it was getting too expensive and would soon drop. With analysts, such as those from Citi, supporting this belief, the sell-off with Sweetgreen stock seemed to pick up steam.
NYSE: SG
Key Data Points
In this instance, investors' fears regarding Sweetgreen weren't irrational. The Q4 report and outlook for 2025 showed quite a disappointing trend in the company's same-store sales, which could keep the stock grounded in the near term.
Sweetgreen's outlook didn't inspire investors
Sweetgreen ended 2024 with 246 locations. Once one of its restaurants has been open for 13 months, it gets included in the same-store restaurant base. Management measures the change in sales for this group to understand sales trends. Looking at revenue growth alone isn't enough because revenue gets a boost from the initial opening of new restaurants.
Through the first three quarters of 2024, Sweetgreen's same-store sales increased by 7% compared with just a 4% increase in the comparable period of 2023. But in Q4, same-store sales were up only by 4%. And for the upcoming first quarter of 2025, management expects a 3% to 5% drop.
This is particularly problematic for Sweetgreen because it has never turned a profit. And when sales per location go down, profits usually come under greater pressure.
For perspective, Sweetgreen stock was up over 180% in 2024, which likely already had investors on edge wondering whether it was overpriced. And with this weak forecast for Q1, investors were quick to sell.
Sweetgreen isn't hopeless
For what it's worth, Sweetgreen's management expects things to pick up later in 2025. The company has thought outside the box when it comes to being a salad chain. Launching caramelized garlic steak in 2024 helped drive traffic. And on March 6, it launched what it calls "Ripple Fries," which it hopes will also drive traffic.
Moreover, Sweetgreen is cognizant that its profits need help. Management believes its Infinite Kitchen robotic automation will help drive long-term efficiency, and half of the new openings in 2025 will have these enhancements.
Trading at 4 times sales, Sweetgreen might still be a little expensive. But it still has long-term promise if it makes the right moves.
