Operator of a healthy fast-casual restaurant Sweetgreen Inc. NYSE: SG reported stellar metrics in its Q2 2024 earnings report, causing shares to rise 29%. The healthy salad and bowl restaurant chain saw a significant increase in traffic and revenue. On the surface, the company missed earnings estimates by 4 cents and is still not profitable. However, a closer look under the hood reveals an incredible improvement in same-store sales (SSS), which rose 9% year-over-year, leading to an increase in adjusted EBITDA to $12.4 million, up from just $3.3 million in the year-ago period. Investor sentiment turned noticeably positive.
Sweetgreen operates in the retail/wholesale sector and competes with fast-casual restaurants such as Chipotle Mexican Grill Inc. NYSE: CMG, CAVA Group Inc. NYSE: CAVA And El Pollo Loco Inc. NASDAQ: LOCO.
The steak is to blame
Sweet green
(As of August 9, 2024, 8:54 p.m. ET)
- 52-week range
- $8.64
▼
$36.72
- Target price
- $33.60
Sweetgreen had already indicated that its grass-fed caramelized garlic steak would be well-received on the menu in the first quarter of 2024. The breakthrough menu addition resulted in 20% of all dinner orders containing steaks, with the steak launching in the middle of the first quarter of 2024. The full impact of the steak’s success would not be seen until the second quarter of 2024.
Stunning SSS growth of 9% in Q2 2024
Meanwhile, Sweetgreen had reported a surprise increase in SSS to 5% in the quarter and raised its SSS guidance for Q2 2024 to 4%-6%. Sweetgreen beat that estimate with 9% year-over-year SSS in Q2 2024, comprised of 5% benefits from menu pricing and 4% benefits from positive traffic and mix. A large portion of that was actually thanks to the addition of the caramelized garlic steak. Protein plates showed their true strength at dinner and on weekends. The addition of protein significantly expanded the addressable market beyond vegetarians. Restaurant-level margin increased over 200 basis points to 22.5%, representing one of the highest margin performances in the company’s history.
SG triggers a diamond eruption
The daily candlestick chart for SG triggered a diamond breakout after a series of bear flags. The breakout occurred on a gap-up following the stellar Q2 2024 earnings performance and increased guidance. The stock’s reaction to the results was déjà vu with the Q1 2024 performance. SG formed gap-fill levels at $26.45 and $31.51. The daily relative strength index (RSI) shot through the 70 band. Pullback support levels are at $31.51, $29.02, $26.45 and $24.03.
Headline numbers are a distraction
At first glance, Sweetgreen’s Q2 2024 numbers weren’t all that impressive. Sweetgreen reported an EPS loss of 13 cents, missing analysts’ consensus estimates of a 9-cent loss by 4 cents. Revenue rose 21% year over year to $184.6 million, beating consensus estimates of $180.79 million.
However, SSS growth of 9% tripled the 3% growth seen last year. Average unit volume (AUV) was $2.9 million, flat year-over-year. Total digital revenue increased to 56% of total revenue. The restaurant chain is not profitable due to its strong pace of expansion. While other restaurants are struggling with slowing consumer demand as consumers prioritize value and eat out less, Sweetgreen is in the enviable position of growing in-store sales despite higher prices.
Infinite Kitchen is a success
Sweetgreen’s AI-powered robot 500 Salad, a one-hour machine called the Infinite Kitchen, is proving to be very successful. The first location in Naperville, Illinois, generated $2.8 million in sales in its first year with an impressive 31.3% restaurant-level margin. Sweetgreen plans to open seven Infinite Kitchens in 2024.
Sweetgreen takes a conservative approach to forecasting for fiscal year 2024
$33.60
-4.03% downside potentialModerate purchase
Based on 11 analyst ratings
| High prognosis | 45,00 € |
|---|---|
| Average forecast | $33.60 |
| Low prognosis | 19,00 € |
Sweetgreen Stock Forecast Details
Sweetgreen provided guidance for full-year 2024 in line with revenue, with revenue of $670 million to $680 million versus consensus estimates of $674.25 million. SSS is expected to be between 5% and 7%, up from the previous guidance of 4% to 6%. Sweetgreen expects to open 24 to 26 new restaurants in 2024. The company currently has 225 restaurant locations.
John Neman, co-founder and CEO of Sweetgreen, commented, “Our menu innovation attracted new guests, increased traffic and increased bill sizes. The caramelized garlic steak and protein plates introduced in May successfully increased in-store sales during dinner and weekends in the second quarter. Dinner now accounts for 40% of sales, excluding the lunch portion from 2-4 p.m. This was a 3 percentage point increase year over year.”
Analyst ratings and price targets for Sweetgreen are at MarketBeat. There are 11 analyst ratings, including 8 buy recommendations and 2 hold recommendations. Sweetgreen stock has a short interest of 13.89%.
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