Sweetgreen, Inc. Announces Second Quarter 2023 Financial Results

Sweetgreen, Inc. (NYSE:SG) (the "Company"), the mission-driven, next generation restaurant and lifestyle brand that serves healthy food at scale, today announced financial results for its second fiscal quarter ended June 25, 2023.

Second quarter 2023 financial highlights

For the second quarter of fiscal year 2023, compared to the second quarter of fiscal year 2022:

• Total revenue was $152.5 million, versus $124.9 million in the prior year period, an increase of 22%.
• Same-Store Sales Change of 3%, versus Same-Store Sales Change of 16% in the prior year period.
• AUV of $2.9 million was consistent with the prior year period.
• Total Digital Revenue Percentage of 59% and Owned Digital Revenue Percentage of 37%, versus Total Digital Revenue Percentage of 62% and Owned Digital Revenue Percentage of 40% in the prior year period.
• Loss from operations was $(31.2) million and loss from operations margin was (20)%, versus loss from operations of $(42.7) million and loss from operations margin of (34)% in the prior year period.
• Restaurant-Level Profit⁽¹⁾ was $31.1 million and Restaurant-Level Profit Margin was 20%, versus Restaurant-Level Profit of $23.1 million and Restaurant-Level Profit Margin of 19% in the prior year period.
• Net loss was $(27.3) million, versus net loss of $(40.5) million in the prior year period.
• Adjusted EBITDA⁽¹⁾ was $3.3 million, versus Adjusted EBITDA of $(7.8) million in the prior year period; and Adjusted EBITDA Margin was 2%, versus (6)% in the prior year period.
• 10 Net New Restaurant Openings, versus 8 Net New Restaurant Opening in the prior year period.

^{(1) Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations of Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin to the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanying this release. See "Reconciliation of GAAP to Non-GAAP Measures."}

"As we entered 2023, we doubled down on our commitment to durability – balancing high growth and profitability – and our second quarter performance put that commitment into action," said Jonathan Neman, Co-Founder and Chief Executive Officer. "In the second quarter, we recorded our ninth consecutive quarter of over 20% sales growth year over year. We delivered a restaurant level margin of over 20% as well as achieved Adjusted EBITDA profitability of $3.3 million. I could not be more optimistic about the future of Sweetgreen as we continue to execute on our mission and invest in profitable growth."

"The investments we've made in adapting our operating model to this new environment resulted in positive Adjusted EBITDA for the first time as a public company," said Mitch Reback, Chief Financial Officer. "We believe the changes we have made will continue to drive improvements in our model well into the future."

Results for the second quarter ended June 25, 2023:

Total revenue in the second quarter of 2023 was $152.5 million, an increase of 22% versus the prior year period, primarily due to an increase in incremental revenue associated with 47 Net New Restaurant Openings during or subsequent to the second fiscal quarter of 2022 through the end of the second fiscal quarter of 2023 and Same-Store Sales Change of 3%. These increases were partially offset by the negative impact from restaurant closures and remodels that occurred subsequent to prior year period. The Same-Store Sales Change of 3% consisted of a 4% benefit from menu price increases that were implemented subsequent to the prior year period, partially offset by a 1% decrease from traffic/mix.

Our loss from operations margin was (20)% for the second quarter of 2023 versus (34)% in the prior year period. Restaurant-Level Profit Margin was 20%, an increase of 186 basis points versus the prior year period, due to the impact of menu price increases, labor optimization, and improvements in supply chain sourcing.

General and administrative expense was $40.4 million, or 26% of revenue for the second quarter of 2023, as compared to $51.8 million, or 41% of revenue in the prior year period. The decrease in general and administrative expense was primarily due to an $8.8 million decrease in stock-based compensation expense. Additionally, we experienced a decline in marketing and advertising costs, rent and related costs, liability insurance costs, travel related expenses, legal costs, and research and prototyping costs. These decreases were partially offset by an increase in management salaries and benefits and expenses related to the amortization of costs associated with the implementation of our cloud computing arrangements in relation to our new ERP.

Net loss for the second quarter of 2023 was $(27.3) million, as compared to $(40.5) million in the prior year period. The decrease in net loss was primarily due to an $8.8 million decrease in stock-based compensation expense, as well as a $7.9 million increase in our Restaurant-Level Profit and a $2.7 million increase in interest income. The decrease in net loss was partially offset by a non-cash restructuring charge associated with our former Sweetgreen Support Center and an increase in depreciation and amortization associated with additional restaurants. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $3.3 million for the second quarter of 2023, as compared to $(7.8) million in the prior year period. This improvement was primarily due to an increase in Restaurant-Level Profit and a decrease in general and administrative expenses, as described above.

2023 Outlook

For the fiscal year 2023, we are updating our fiscal year 2023 guidance to reflect a higher Restaurant-Level Profit Margin and a lower Adjusted EBITDA loss. We now anticipate:

• 30-35 Net New Restaurant openings
• Revenue ranging from $575 million to $595 million
• Same-Store Sales between 2% and 6%
• Restaurant-Level Profit Margin between 16% and 18%
• Adjusted EBITDA between $(10) million and $(0) million

We have not reconciled our expectations as to Restaurant-Level Profit Margin and Adjusted EBITDA to their most directly comparable GAAP measures as a result of uncertainty regarding, and the potential variability of, reconciling items. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to our results computed in accordance with GAAP.

Conference Call

Sweetgreen will host a conference call to discuss its financial results and financial outlook today, July 27, 2023, at 2:00 p.m. Pacific Time. A live webcast of the call can be accessed from Sweetgreen's Investor Relations website at investor.sweetgreen.com. An archived version of the webcast will be available from the same website after the call.

Forward-Looking Statements

This press release and the related conference call, webcast and presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may relate to, but are not limited to, statements regarding our financial outlook for the full fiscal year 2023, including the expected number of Net New Restaurant Openings, expected revenue, expected Same-Store Sales Change, expected Restaurant-Level Profit Margin and expected Adjusted EBITDA; our expectations regarding our future Adjusted EBITDA profitability; our expectations regarding the success of our loyalty program and broadened menu offerings and their impact on our balances throughout the year; operational changes and the expected benefit thereof; our growth strategy and business aspirations; our expectations regarding the impact of automation on our operating model; our ability to achieve or maintain profitability; our vision of being as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect; and management's plans, priorities, initiatives, and strategies. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. In some cases, you can identify forward-looking statements because they contain words such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "toward," "will," or "would," or the negative of these words or other similar terms or expressions. You should not put undue reliance on any forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved, if at all.

Forward-looking statements are based on information available at the time those statements are made and are based on current expectations, estimates, forecasts, and projections as well as the beliefs and assumptions of management as of that time with respect to future events. These statements are subject to risks and uncertainties, many of which involve factors or circumstances that are beyond our control, that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this press release and the related conference call may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. These risks and uncertainties include our ability to compete effectively, the impact of pandemics or disease outbreaks, such as the COVID-19 pandemic, uncertainties regarding changes in economic conditions and the customer behavior trends they drive, including long-term customer behavior trends during and following the COVID-19 pandemic, our ability to open new restaurants, our ability to effectively identify and secure appropriate sites for new restaurants, our ability to expand into new markets and the risks such expansion presents, the profitability of new restaurants we may open, and the impact of any such openings on sales at our existing restaurants, our ability to preserve the value of our brand, food safety and foodborne illness concerns, the effect on our business of increases in labor costs, labor shortages, and difficulties in hiring, training, rewarding, and retaining a qualified workforce, our ability to achieve profitability in the future, our ability to identify, complete, and integrate acquisitions, the effect on our business of governmental regulation and changes in employment laws, the effect on our business of expenses and potential management distraction associated with litigation, potential privacy and cybersecurity incidents, the effect on our business of restrictions and costs imposed by privacy, data protection, and data security laws, regulations, and industry standards, and our ability to enforce our rights in our intellectual property. Additional information regarding these and other risks and uncertainties that could cause actual results to differ materially from the Company's expectations is included in our SEC reports, including our Annual Report on Form 10-K for the fiscal year ended December 25, 2022 and subsequently filed quarterly reports on Form 10-Q. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments, or otherwise.

Additional information regarding these and other factors that could affect the Company's results is included in the Company's SEC filings, which may be obtained by visiting the SEC's website at www.sec.gov. Information contained on, or that is referenced or can be accessed through, our website does not constitute part of this document and inclusions of any website addresses herein are inactive textual references only.

Glossary

• Average Unit Volume ("AUV") - AUV is defined as the average trailing revenue for the prior four fiscal quarters for all restaurants in the Comparable Restaurant Base.
• Comparable Restaurant Base - Comparable Restaurant Base for any measurement period is defined as all restaurants that have operated for at least twelve full months as of the end of such measurement period, other than any restaurants that had a material, temporary closure during the relevant measurement period. A restaurant is considered to have had a material, temporary closure if it had no operations for a consecutive period of at least 30 days.
• Net New Restaurant Openings - Net New Restaurant Openings reflect the number of new Sweetgreen restaurant openings during a given reporting period, net of any permanent Sweetgreen restaurant closures during the same period.
• Same-Store Sales Change - Same-Store Sales Change reflects the percentage change in year-over-year revenue for the relevant fiscal period for all restaurants that have operated for at least 13 full fiscal months as of the end of such fiscal period; provided, that for any restaurant that has had a temporary closure (which historically has been defined as a closure of at least five days during which the restaurant would have otherwise been open) during any prior or current fiscal month, such fiscal month, as well as the corresponding fiscal month for the prior or current fiscal year, as applicable, will be excluded when calculating Same-Store Sales Change for that restaurant. During the thirteen and twenty-six weeks ended June 25, 2023, one and two restaurants were excluded from the calculation of Same-Store Sales Change, respectively. Such adjustments did not result in a material change to Same-Store Sales Change.
• Total Digital Revenue Percentage and Owned Digital Revenue Percentage - Our Total Digital Revenue Percentage is the percentage of our revenue attributed to purchases made through our total digital channels (which includes our owned digital channels and our marketplace channel). Our Owned Digital Revenue Percentage is the percentage of our revenue attributed to purchases made through our owned digital channels (which includes our pick-up channel, native delivery channel, and outpost and catering channel, as well as purchases made in our in-store channel via digital scan-to-pay).

Non-GAAP Financial Measures

In addition to our consolidated financial statements, which are presented in accordance with GAAP, we present certain non-GAAP financial measures, including Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin. We believe these measures are useful to investors and others in evaluating our performance because these measures:

• facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or NOL), and the age and book depreciation of facilities and equipment (affecting relative depreciation expense);
• are widely used by analysts, investors, and competitors to measure a company's operating performance; are used by our management and board of directors for various purposes, including as measures of performance, and as a basis for strategic planning and forecasting; and
• are used internally for a number of benchmarks, including to compare our performance to that of our competitors.

We define Restaurant-Level Profit as loss from operations adjusted to exclude general and administrative expense, depreciation and amortization, pre-opening costs, loss on disposal of property and equipment, and, in certain periods, impairment and closure costs and restructuring charges. Restaurant-Level Profit Margin is Restaurant-Level Profit as a percentage of revenue. As it excludes general and administrative expense, which is primarily attributable to our Sweetgreen Support Center, we evaluate Restaurant-Level Profit and Restaurant-Level Profit Margin as a measure of profitability of our restaurants.

We define Adjusted EBITDA as net loss adjusted to exclude income tax expense, interest income, interest expense, depreciation and amortization, stock-based compensation expense, loss on disposal of property and equipment, other (income) expense, Spyce acquisition costs, ERP implementation and related costs, legal settlements, and, in certain periods, impairment and closure costs and restructuring charges. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue.

Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, Restaurant-Level Profit and Adjusted EBITDA should not be viewed as substitutes for, or superior to, loss from operations or net loss prepared in accordance with GAAP as a measure of profitability. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Restaurant-Level Profit and Adjusted EBITDA do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Restaurant-Level Profit and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
• Restaurant-Level Profit and Adjusted EBITDA do not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;
• Restaurant-Level Profit and Adjusted EBITDA do not consider the potentially dilutive impact of stock-based compensation;
• Restaurant-Level Profit is not indicative of overall results of the Company and does not accrue directly to the benefit of stockholders, as corporate-level expenses are excluded;
• Adjusted EBITDA does not take into account any income or costs that management determines are not indicative of ongoing operating performance, such as stock-based compensation, loss on disposal of property and equipment, certain other expenses, Spyce acquisition costs, ERP implementation and related costs, legal settlements, and, in certain periods, impairment and closure costs and restructuring charges; and
• other companies, including those in our industry, may calculate Restaurant-Level Profit and Adjusted EBITDA differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, loss from operations, net loss, and our other GAAP results.

About Sweetgreen

Sweetgreen (NYSE:SG) passionately believes that real food should be convenient and accessible to everyone. Every day, across its 200+ restaurants, their team members create plant-forward, seasonal, and earth-friendly meals from fresh ingredients and produce that prioritizes organic, regenerative, and local sourcing. Sweetgreen strongly believes in harnessing the power of technology to enhance the customer experience, and leverages their app to create an omnichannel experience to meet their customers where they are. Sweetgreen's strong food ethos and investment in local communities have enabled them to grow into a national brand with a mission to build healthier communities by connecting people to real food.

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