Healthy fast-casual restaurant operator Sweetgreen Inc. (NYSE: SG) reported stellar metrics on its Q2 2024 earning report, causing shares to spike 29%. The healthy lifestyle salad and bowl restaurant chain saw a solid boost in traffic and sales. On the surface, the company missed bottom-line estimates by 4 cents and is still not profitable. However, a deeper look under the hood reveals an incredible improvement in same-store sales (SSS), jumping 9% YoY, causing adjusted EBITDA to surge to $12.4 million, up from just $3.3 million in the year-ago period. Investor sentiment turned sharply positive.
Sweetgreen operates in the retail/wholesale sector, competing with fast-casual restaurants like Chipotle Mexican Grill Inc. (NYSE: CMG), CAVA Group Inc. (NYSE: CAVA) and El Pollo Loco Inc. (NASDAQ: LOCO).
Blame it on the Steak
Sweetgreen had already hinted at the strong performance of its grass-fed Caramelized Garlic Steak addition to menus in Q1 2024. The game-changer addition to the menu resulted in 20% of all its dinner orders, including steak. The steak rollout occurred in the middle of Q1 2024. The full impact of the success of the steak wouldn't be revealed until the Q2 2024 quarter.
Stunning SSS Growth of 9% in Q2 2024
Meanwhile, Sweetgreen had seen a surprise jump in SSS to 5% in the quarter, and they raised Q2 2024 SSS guidance to the 4% to 6% range. Sweetgreen crushed that estimate with 9% YoY SSS in Q2 2024, comprised of 5% benefit from menu pricing and 4% benefit from positive traffic and mix. A large part of that was indeed the addition of the Caramelized Garlic Steak. Protein plates really flexed their muscle during dinner and weekends. Adding protein significantly expanded its addressable market beyond vegetarians. Restaurant-level margin rose over 200 bps to 22.5%, marking it as one of the highest margin performances in its company history.
SG Triggers a Diamond Breakout
The daily candlestick chart for SG triggered a diamond breakout following a series of bear flags. The breakout occurred on a gap-up following its stellar Q2 2024 earnings performance and raised guidance. The stock reaction to earnings was déjà vu with its Q1 2024 performance. SG formed gap-fill levels at $26.45 and $31.51. The daily relative strength index (RSI) surged through the 70-band. Pullback support levels are at $31.51, $29.02, $26.45 and $24.03.
Headline Numbers Are a Diversion
Upon initial glance, the headline numbers on Sweetgreen’s Q2 2024 weren’t too impressive. Sweetgreen reported an EPS loss of 13 cents, which missed consensus analyst estimates for a loss of 9 cents by 4 cents. Revenues grew 21% YoY to $184.6 million, beating $180.79 million consensus estimates.
However, the SSS growth of 9% tripled the growth of 3% in the previous year. Average unit volume (AUV) was $2.9 million, unchanged from a year ago. Total digital revenue grew to 56% of total sales. The restaurant chain isn’t profitable because of its strong pace of expansion. While other restaurants are dealing with softening consumer demand as consumers seek value and eat out less, Sweetgreen is in the enviable position of growing same-store sales despite premium pricing.
Infinite Kitchen is Proving Successful
Sweetgreen’s AI-powered robotic 500 salad, an hour-making machine called the Infinite Kitchen, is proving to be very successful. Its first location in Naperville, Illinois, achieved $2.8 million in its first year of sales with an impressive 31.3% restaurant-level margin. Sweetgreen plans to open 7 Infinite Kitchens in 2024.
Sweetgreen Takes a Conservative Approach to FY 2024 Guidance
Sweetgreen issued in-line guidance for the full year 2024, with revenues of $670 million to $680 million versus $674.25 million consensus estimates. SSS is expected to be between 5% and 7%, up from the previous forecast of 4% to 6%. Sweetgreen expects to open 24 to 26 new restaurants in 2024. It currently has 225 restaurant locations.
Sweetgreen Co-Founder and CEO John Neman commented, “Our menu innovation has attracted new guests, driving traffic and check sizes. Caramelized Garlic Steak, which launched in May, and protein plates have successfully driven same-store sales at dinner and on weekends in the second quarter. Dinner now represents 40% of sales, excluding the 2 p.m. to 4 p.m. midday day part. This was an expansion of 3 percentage points year-over-year.”
Sweetgreen analyst ratings and price targets are at MarketBeat. There are 11 analyst ratings comprised of 8 buys and 2 holds. Sweetgreen stock has a 13.89% short interest.
