Casual salad chain Sweetgreen (NYSE:SG) missed analysts' expectations in Q3 FY2023, with revenue up 23.7% year on year to $153.4 million. Its full-year revenue guidance of $580 million at the midpoint also came in slightly below analysts' estimates. Turning to EPS, Sweetgreen made a GAAP loss of $0.22 per share, improving from its loss of $0.43 per share in the same quarter last year.
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Sweetgreen (SG) Q3 FY2023 Highlights:
- Revenue: $153.4 million vs analyst estimates of $154.6 million (0.79% miss)
- EPS: -$0.22 vs analyst estimates of -$0.23 (2.36% beat)
- The company reconfirmed its revenue guidance for the full year of $580 million at the midpoint
- Gross Margin (GAAP): 19%, up from 16% in the same quarter last year
- Same-Store Sales were up 4% year on year
- Store Locations: 220 at quarter end, increasing by 45 over the last 12 months
Founded in 2007 by three Georgetown University alum, Sweetgreen (NYSE:SG) is a casual quick service chain known for its healthy salads and bowls.
Modern Fast FoodModern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.
Sales GrowthSweetgreen is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 45% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was incredible as it added more dining locations and increased sales at existing, established restaurants.
This quarter, Sweetgreen generated an excellent 23.7% year-on-year revenue growth rate, but its $153.4 million of revenue fell short of Wall Street's high expectations. Looking ahead, the analysts covering the company expect sales to grow 21.7% over the next 12 months.
Number of StoresWhen a chain like Sweetgreen is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, Sweetgreen's restaurant count increased by 45, or 25.7%, to 220 locations in the most recently reported quarter.
Taking a step back, Sweetgreen has rapidly opened new restaurants over the last eight quarters, averaging 24.7% annual increases in new locations. This growth is much higher than other restaurant businesses and gives Sweetgreen a chance to scale towards a mid-sized company over time. Analyzing a restaurant's location growth is important because expansion means Sweetgreen has more opportunities to feed customers and generate sales.
Same-Store SalesA company's same-store sales growth shows the year-on-year change in sales for its restaurants that have been open for at least a year, give or take. This is a key performance indicator because it measures organic growth and demand.
Sweetgreen's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 10.4% year on year. This performance gives it the confidence to rapidly open new restaurants. When a company has strong demand, more locations should help it reach more customers seeking its meals and boost revenue growth.
In the latest quarter, Sweetgreen's same-store sales rose 4% year on year. This growth was a deceleration from the 6% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from Sweetgreen's Q3 Results With a market capitalization of $1.17 billion and more than $274.7 million in cash on hand, Sweetgreen can continue prioritizing growth.
We struggled to find many strong positives in these results. Although its adjusted EBITDA and full-year adjusted EBITDA guidance beat analysts' estimates, its gross margin, revenue, and full-year revenue guidance fell short of Wall Street's expectations. Overall, this was a mediocre quarter for Sweetgreen. Investors were likely hoping for stronger top-line growth, especially since it opened more new restaurant locations than expected. The company is down 2.27% and currently trades at $10.78 per share.
The author has no position in any of the stocks mentioned in this report.
