Shares of fast-casual salad chain Sweetgreen (SG 1.48%) have been sinking since the end of 2024, and September continued the trend. A disappointing earnings report in August led to a steep one-day drop, and some turnover in the C-suite in early September didn't stop the bleeding. Sweetgreen stock shed 12.3% of its value in September, according to data provided by S&P Global Market Intelligence, and the rout may not be over, as the restaurant chain faces continued challenges.
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Expensive salads are falling out of style
Sweetgreen enjoyed a period of strong growth after it went public a few years ago, but economic realities are now catching up with the pricey salad chain. Same-store sales plunged 7.6% in the second quarter, restaurant-level profit slumped, and the company posted a larger operating loss than in the prior-year period. Overall sales edged up slightly, but only because Sweetgreen opened new restaurants.
The economy is likely the largest factor driving this sales decline. Inflation, tariffs, a job market that appears to be slowing down, and an elevated level of layoffs are conspiring to put pressure on household budgets. While more value-oriented fast-casual chains may fare better in this environment, Sweetgreen and its $16 salads are suffering.
The company pointed to a few other factors as well, including a tough comparison to the prior-year period and loyalty program changes. For the full year, Sweetgreen now expects same-store sales to slump by as much as 6%.
In early September, Sweetgreen announced that CFO Mitch Reback was retiring. Reback had served as CFO since 2015, guiding the company through the IPO process. While retirements and leadership changes are often routine, Reback's departure came amid a steep drop in sales.
While Sweetgreen's earnings report landed in early August, the weak results and lackluster outlook continued to weigh on investors' minds in September.
Economic headwinds
Sweetgreen stock is now down about 84% from its all-time high, but value investors shouldn't get too excited. The company isn't profitable, and economic headwinds will be tough to endure. Other fast-casual chains, including Chipotle and Cava, offer more attractive value propositions. Sweetgreen's premium pricing wasn't a problem in the immediate post-pandemic period, but it's a big problem now.
Sweetgreen stock trades for about 1.4 times forward sales, compared to 4.6 for Chipotle and 6.2 for Cava. If the company can engineer a turnaround and boost investor sentiment, there's certainly plenty of potential upside. However, given the state of the economy, a turnaround looks like a tall order. For now, it appears that Sweetgreen's growth story is on hold.
