The stock market continues to set new records and artificial intelligence (AI) stocks are booming for the third year in a row, but Sweetgreen (SG +0.40%) has been headed in the opposite direction this year.
Shares of the fast-casual salad slinger are now down 77% as seemingly everything is going wrong for the brand.
After a year of solid growth in 2024, Sweetgreen's comparable sales have turned negative through the first half of the year as the company dealt with wildfires in its home market of Los Angeles in the beginning of the year; a broader downturn in restaurant spending due to concerns about inflation, tariffs, and a weakening labor market; and a transition in its loyalty program that seems to have caused some temporary headwinds.
Meanwhile, the company remains unprofitable and is struggling to control costs as it faces complaints about its high price points.
In the second quarter, same-store sales fell 7.6%, compared to 9.3% growth in the quarter a year ago. Even as it opens new stores, revenue increased just 0.5% to $185.6 million.
Its generally accepted accounting principles (GAAP) operating loss fell from $16.2 million to $26.4 million, and its restaurant-level operating profit narrowed from 22.5% to 18.9%.
For the full year, it sees same-store sales falling 4% to 6% and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of just $10 million to $15 million.
Those numbers explain why the stock has fallen so sharply this year.
Can Sweetgreen turn it around?
Sweetgreen faces a mix of short-term and more sustained headwinds as well as internal and macro-level problems.
Sweetgreen is not alone in struggling. The fast-casual sector has experienced slower sales this year, virtually across the board as Chipotle Mexican Grill has posted declining sales and Cava Group has seen a significant slowdown in its growth.
That headwind appears to be a trend as inflation and a weak job market are causing consumers to cut back on some kinds of discretionary spending, including restaurants. Additionally, there are other self-inflicted short-term problems, such as a change in its loyalty program.
Sweetgreen switched from a tiered loyalty program to a points-based one in order to make it less complicated. However, that caused a 250-basis-point headwind in revenue from the high-frequency users who took advantage of the old loyalty program. Management did say that the early signs from the new loyalty program are "encouraging." Still, it's a risky move that seems to have turned off at least some loyal customers.
Additionally, the company may need to find a way to bring down its prices and better control costs as complaints about the high price tag are common online.
NYSE: SG
Key Data Points
Can it make you a millionaire?
For all of Sweetgreen's recent challenges, there is an argument for the stock to be a multibagger from here. Sweetgreen's market cap has fallen to less than $1 billion. The stock now trades at a price-to-sales ratio of just 1.4. For a company that still has a lot of growth ahead, aiming for 1,000 restaurants by 2032, that's a great price.
However, Sweetgreen needs to execute on that goal, get back to same-store-sales growth, improve its profitability, and ensure that it rolls out its automated Infinite Kitchen effectively.
Those are achievable goals, but it's understandable that investors are skeptical, especially as the company faces macro headwinds.
At the current price, Sweetgreen has the potential to deliver massive returns for investors, but I'd like to see some signs of a recovery before calling the stock a buy.
Sweetgreen is due to report third-quarter earnings on Nov. 6, and the company will have easier comps in the second half of the year. The stock is likely to swing big one way or the other.
An improvement from the first half of the year could be a sign that the stock is ready for a recovery.
