Sweetgreen (SG +5.77%) may be on its way to having one of the worst years in restaurant stock history. Year to date through Nov. 10, shares of the fast-casual salad chain are down 83% for the year, and down 88% from its peak last November.
It's unusual for a restaurant stock to suffer such a rapid decline, especially when there isn't an obvious culprit. There hasn't been a crushing recession or a blunder like Chipotle's E. coli crisis back in 2015 that's weighed on Sweetgreen. Instead, the company seems to be facing multiple challenges that have torched its once-promising growth and combined to shave nearly 90% off the stock in less than a year.
In 2024, Sweetgreen reported same-store sales growth of 6%, an increase in revenue of 16% to $676.8 million, and improved profitability metrics, as its generally accepted accounting principles (GAAP) net loss narrowed by 20% to $90.4 million. It reported an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of $18.7 million compared to a loss of $2.8 million in 2023. In other words, it wasn't long ago when the business was on a solid growth track.
Image source: Sweetgreen.
What went wrong in 2025?
Sweetgreen has faced several challenges this year, including sector-level headwinds, a transition in its loyalty program, the L.A. wildfires, and rising costs for buying protein. However, the biggest of those seems to be the slowdown in spending at fast-casual chains like Sweetgreen.
In what some have dubbed the "slop-bowl recession," Sweetgreen and peers like Chipotle and Cava have all seen sales growth slow this year, though Sweetgreen has been the hardest hit. However, they've all identified the same culprit. Sweetgreen CEO Jonathan Neman noted "lighter spending among younger guests, particularly the 25-to-35-year-old age group, where we over-index." Additionally, the company's stores in the Northeast and L.A. have seen sales fall sharply.
Chipotle and Cava felt similar pressures, but both managed to eke out positive comparable sales growth in the third quarter, while Sweetgreen's fell 9.5%, compared to 5.6% growth in the quarter a year ago. The rest of the numbers only underscored how the business has deteriorated this year.
Revenue ticked down 0.6% to $172.4 million, despite a significant number of store openings over the last year. Average unit volumes fell from $2.9 million to $2.8 million, and restaurant-level profit margin tumbled from 20.1% to just 13.1%. Finally, its GAAP net loss nearly doubled from $20.8 million to $36.1 million.
Additionally, the company is facing headwinds from the end of its Sweetpass+ program as it switched to a new, more traditional rewards program, and it had a 320-basis point increase in food, beverage, and packaging costs. Protein costs also rose as it increased portions of chicken and tofu. Finally, there was a 50-basis point increase from tariffs on packaging and other items.
NYSE: SG
Key Data Points
Are Sweetgreen's problems temporary?
The most important news from Sweetgreen didn't come in the earnings report. Sweetgreen surprised investors by announcing the sale of Spyce, the subsidiary behind the Infinite Kitchen, to Wonder, a food delivery platform founded by Marc Lore, the serial entrepreneur who previously ran Walmart's e-commerce business.
Sweetgreen sold Spyce for $186.4 million, including $100 million in cash and $86.4 million in stock, and the move will both fortify its balance sheet and lower its operating expenses going forward. Sweetgreen will also retain the rights to use the Infinite Kitchen and expects to continue rolling it out in new restaurants.
Additionally, Sweetgreen will also scale back its new restaurant openings next year to 15 to 20, another effort to conserve and improve margins.
Those moves make sense, as the company has just $130 million in cash on its balance sheet, and is on track to have a net loss near that for the full year.
Most of the challenges facing Sweetgreen seem short-term in nature, but the company will need to survive the downturn in consumer spending to see brighter days. At this point, the stock has fallen far enough that it's attractive as a turnaround opportunity, but the company needs to demonstrate progress in order for the stock to begin to recover.
Keep your eye on margins next year, as a narrowing loss would serve as a sign that management is following through on its efforts to control costs. A return to comparable sales growth would be nice to see as well, but management has less control over that.
The good news is that after a dismal 2025, comparisons will be easier next year, and that could favor a comeback at some point next year.
