Q2 2022 Sweetgreen Inc Earnings Call
Covid cases are slower than expected return to office and an erratic urban recovery.
We are also experiencing a slower ramp in our class of 2021 urban stores, taking all of these unanticipated factors into account, we have adjusted our 2022 topline guidance down to $4 $80 million to $500 million.
Recognizing the shift in the external environment, we've taken steps to focus on our path to profitability.
This includes reducing open in existing head count as well as downsizing our la headquarters.
As a result, we expect our 2023 G&A spend excluding stock based compensation to be similar to 2022 spend.
We have proven we can leverage our G&A spend and are committed to continuing to do so as we scale our footprint.
We continue to balance operational discipline, while investing in our key strategic initiatives to drive long term growth and become a profitable national brand we.
We remain on track to double our footprint in the next three to five years and achieve a 1000 restaurants by the end of the decade.
I am confident in our go forward strategy and I want to reaffirm our commitment to our four strategic initiatives that position us for profitable growth.
One expand and evolve our footprint in new and existing market to connect more communities to real food.
To enhance our digital experience with a focus on owned digital relationships, allowing us to add new customer channels drive frequency and increase restaurant volume three solidify our brand as the industry leader and inspire consumers to live healthier lives and for create five star team member experiences.
Make sweet green the employer of choice.
Let me provide a brief update on each of these initiatives starting with our footprint in.
In Q2, we opened eight restaurants. This morning, we opened our <unk>, new restaurant of the year, and Birmingham, Michigan, a suburb of Detroit and a new market for us.
We now have a total of 170 restaurants, we remain on track with our new restaurant pipeline of at least 35, new restaurants this year.
In September we are opening our first digital only pick up kitchen, and the mountain Vernon area of Washington, DC and later this year, our first pull through in Schaumburg, Illinois.
With nearly two thirds of our sales already coming from digital channels, we have the unique opportunity to expand formats to create hyper convenience for our digital pickup and delivery customers.
Over the next several months, we are excited to bring sweet green to three additional new market, Minneapolis, Tampa and Indianapolis for a total of five new markets. This year.
As we continue to build our pipeline for 2023 and beyond we remain disciplined with our site and market selection continuing to target return metrics of year, two cash on cash returns of 42% to 50%.
Enhancing our digital experience with a focus on one digital relationships continues to be a priority for us after our successful Sui pass subscription trial in Q1, we launched another new engagement and promotional tool in July rewards and challenges.
As part of our path to our future loyalty program in 2023.
Our launch campaign the summer of rewards featured four weeks of often challenges with exciting offers to appeal to a broad base of customers such as buy one get 150% off.
Over 70000 customers participated in the challenge and during this period, we saw incrementally in both frequency and spend among participants.
Our trials of Sui pass and rewards and challenges were done to enhance our digital experience and will also inform our revamped loyalty program, we plan to launch in 2023.
We believe that our planned loyalty program combined with our healthy and habitual menu will provide a unique opportunity for incremental <unk> increased profitability and the opportunity for us to become a part of the daily ritual of an even larger number of customers.
Yes.
As noted in our last earnings call.
We have continued to grow our native delivery channel by making it available to more customers and with improved delivery times.
We also expanded our delivery availability up to 10 miles in January and quarter over quarter about 25% revenue growth among customers in these expanded delivery areas.
Our Outmost channel also continues to add accounts since our last earnings call. We added 123 outflows ending the quarter with 702.
Outflows continues to be seen as an important in office for employees as the company has returned to work post labor day.
Our brand is designed to inspire consumers to live healthier lives without compromising their values through our seasonal offerings digital exclusives and core menu, we continue to reinforce our commitment to our customer value proposition of making healthy food delicious and convenient.
Starting this Thursday, we are launching our late summer seasonal menu featuring one of our best sellers.
At a low table.
Which has been on our seasonal menu for the last eight years, it's our take on classic Mexican Street, corn, highlighting seasonal corn and heirloom Tomatoes, we're also bringing back another fan favorite the summer barbeque salad.
As part of this launch we are expanding our drink offerings, including adding bottles cold brew coffee.
We have an exciting and robust menu roadmap ahead of us, including launching a dessert later this year and testing Heartier dinner options and kids' meals in select markets. This fall.
This will help us to broaden our customer base as well as expand day parts indications.
As much as we are a food company. We are a people company. Our success is the result of our team members and they shined once again shown their commitment to delivering on our customer promise of fast fresh and friendly.
We are always investing in creating five star experiences for our team members today, we offer attractive benefits and wages. We've established a clear career pathway to general manager that supported by training and development of both technical and soft skills.
Based on team member feedback, we're making the following additional investments to enhance our employee value proposition.
We're offering more paid time off to our assistant coaches and head coaches starting in Q4.
We're introducing tipping by the end of 2023 across the fleet. We are building out the framework and technology solutions for our customers to tip. Our team members for exceptional service across our own digital and in store channels.
And recently, we relaunched shades of Green, our rewards and recognition program that celebrates moments that matter, including recognizing exceptional leadership welcoming new hires and celebrating anniversaries and important milestone.
We believe these investments will further improve attraction and retention of our team members as part of creating a five star team member experience. We are constantly simplifying our operations to make their work easier and improve our team members' speed to competency we have been on a multiyear journey to simplify the execution of our menu redefine our.
Labor deployment model and create proprietary tools to enhance our training effectiveness speed of service and labor productivity.
Wanted to share two operational areas. The team has been focused on this quarter streamlining the preparation of our cold ingredients and revamping our kitchen layouts.
Currently deciding what ingredients the prep is done manually and each of our restaurants multiple times a day, our new proprietary cold prep tool auto generates a list of what youre prepare and how much by incorporating multiple data points in a real time algorithm to predict future consumption of ingredients.
This tool eliminate the guesswork and what to prepare reducing food waste and ensuring we always have fresh ingredients ready to serve our guests.
We are currently testing the tool and six restaurants across the country and it will be operational across all our restaurants by the end of the year.
This tool complements our hot prep tool, which guides our team members on what how much and when to Cook, our hot items optimizing for both taste and efficiency.
And our business every second and every step counts, so we're reimagining and optimizing our kitchen design to improve the team member experience and productivity.
Our new optimized kitchen features a redesigned frontline now operational in our long Island City restaurant and a revamped digital make line now deployed in our Williamsburg restaurant.
Lines have been ergonomically designed with our frontline featuring more space for mixing and POS systems historically two of our biggest bottlenecks with our in store experience.
Both restaurants have experienced significant efficiency improvements at long Island city, we've been able to almost double frontline throughput and in Williamsburg, The digital make line throughput increased by over 30%.
The new frontline and digital make lines will be rolled out as part of our new market openings. Starting this month and we will continue to optimize other areas of the kitchen, we believe consistent improvement in kitchen operation will be a force multiplier and should improve store efficiency labor productivity and the team member experience and thus restaurant level.
Overtime.
I want to conclude by reaffirming my belief that our strategic pillars fuel our flywheel for growth and profitability.
Despite some external challenges that are causing us to reduce our outlook in the near term we have never been more excited about our long term growth plans. We remain confident that our model will continue to elevate and expand our mission of building healthier communities by connecting people to real food, we believe that our value and brand proposition Omnichannel model.
Domestic sourcing strategy and very strong balance sheet will allow us to not only weather the storm, but take advantage of opportunities that may present themselves in the future.
I'm really proud of the team and what we've accomplished this quarter together now I'll hand, it over to Mitch to review, our Q2 financial results.
Thank you Jonathan and good afternoon, everyone. We had a strong second quarter. Despite the sales softness we began to see around memorial day.
Total revenue for the quarter reached $124 9 million up from $86 $2 million into the second quarter of 2021 growing 45% year over year. This includes same store sales growth of 16% consisting of a 10% increase in transactions mix and the benefit from a price increase.
6% taken in January 2022.
Our average unit volume grew to $2 9 million up from $2 4 million in Q2 2021.
Digital revenue in Q2 was 62% of total revenue and our owned digital revenue that is a transaction rate on the sweep print app or website with 40% of revenue Q2 total digital dollars grew 31% year over year.
We opened eight new restaurants in this quarter for a total of 16, new restaurants in the first half of 2022, ending the quarter with 166 as of today. We have opened 20 restaurants. So far this year and now operate a total of 170 restaurants, we remain on track to achieve our guidance of at least <unk>.
35, new restaurants this year.
Restaurant level margins in the second quarter were 18, 5% up from 14, 9% in the second quarter of 2021, our margin grew five five points from Q1 2022 over the past few years. The team has simplified our operations as well as made adjustments to our delivery agreements and <unk>.
Price and structure.
Chris are reflected in our improved margins and margins are showing greater consistency across markets for a reconciliation of restaurant level margins to comparable GAAP figures. Please refer to the earnings release.
Food and beverage and packaging costs were 27% of revenue, which is consistent with the comparable period. In 2021, we continue to see more inflationary pressure building at our cost of goods, particularly in chicken and avocados as a percent of sales, we expect that our food beverage and packaging costs for 2022.
<unk> will be in line or slightly better than full year, 2021, which was 28% of revenue.
Labor and related costs were 30% of revenue an improvement of over 100 basis points from the comparable periods. In 2021. This margin improvement resulted from greater sales leverage and simplification of our operating model during.
During the quarter average wage rates were 17 tenant hour up four.
Since Q1.
Recruiting has gotten somewhat easier.
We're in the process of rolling out new applicant tracking systems to personalized streamlined and automate the hiring process to be sure we can effectively higher at scale.
Our restaurants remain 95% staffed although in recent weeks, we have seen a rise in COVID-19 call outs, which has put some pressure on our throughput.
We expect labor and related costs as a percentage of revenue will be in line or slightly better than full year, 2021, which was 32% of revenue.
Occupancy and related expenses were 13% of revenue an improvement of 100 basis points from the second quarter. In 2021. This improvement is a result of sales leverage from higher volumes and the increase in our menu prices.
Our G&A expense for the quarter was $51 3 million compared to $26 1 million in Q2 2021. This $25 2 million increase in G&A is primarily attributable to a $21 $3 million increase in stock based compensation expense $3 5 million of costs related.
To our investment in space and an increase of $1 7 million and public company expenses. Excluding these items G&A for the quarter was $22 7 million compared to $24 million in the comparable period. In 2021. This was a 5% improvement as revenues increased 45 <unk>.
We expect that we will continue to gain meaningful leverage in our G&A.
Our net loss for the quarter was $40 million compared to $26 $9 million in the comparable period of 2021. This change was primarily attributable to a $21 3 million increase in stock based compensation, partially offset by the increases in revenue noted above.
Adjusted EBITDA for the quarter was a loss of $7 4 million narrowing the year over year quarterly loss from $13 8 billion. This improvement is the result of higher sales and improved restaurant level margins I am, particularly pleased that our adjusted EBITDA quarterly loss of $7 4 million more than cut in half to Q.
One loss of $16 five.
We ended the second quarter with $407 million of cash we have a strong capital position that allows us to continue to expand our mission and provides us with flexibility during these uncertain times.
A number of people have asked that we provide an update on our expansion the suburban markets, while im going to share with you. Some numbers the business makes new store selection based upon individual sites and their return on capital and not on an urban or suburban dichotomy.
At the end of 2019, our footprint with 65% urban 35% suburban.
Today, It's 50 50 at.
At the end of 2019, our urban restaurants had an <unk> of $3 1 million and our suburban restaurants had an <unk> of $2 7 billion at the end of the second quarter of 2020 to be slipped urban <unk> are now $2 7 billion and suburban <unk> our $3 one.
The restaurant level margins for our suburban cohort now exceed our urban stores our success over the past two and a half years and suburban trade areas gives us great confidence in our model and our pipeline, which is now over 85% suburban.
As John spoke earlier in the call we took steps to manage our corporate overhead costs in the third quarter, we recalculated, our la office with adjacent smaller facility and yesterday, we reduced our workforce at the support center by approximately 5%.
Support Center is now running with almost 20% fewer heads and planned for 2022.
Made these changes to lower our operating expenses and protect our path to profitability in this uncertain environment. We are committed to continuing to deliver meaningful leverage in our G&A, excluding stock based compensation and public company costs.
Now turning to our outlook to a range of second quarter. Our revenue growth was strong in April and May.
Sales growth decelerated the week preceding Memorial day. These trends have continued into August to Dimensionalize. This in April and May we had same store sales growth of 21% and in June and July our same store sales growth was 7%.
<unk> 15 year history of sales patterns, we've never seen this before our historical seasonality always showed growth during this period.
We believe looking at internal and external data that the slowdown in our growth is the result of an unprecedented increase in summer travel a recent wave of Covid cases, and slower than expected return to office and an erratic urban recovery.
Additionally, our class of 2021 restaurants underwritten pre pandemic recently has taken longer to ramp than expected sales growth lag a site specific largely in the urban stores, making up 45% of the class. These restaurants are impacted by the erratic urban recovery.
We feel confident in these stores over the long term. However, we are making short term adjustments to our projections for full year 2022, we now anticipate.
At least 35, new restaurants in 2022 revenue in the range of 480 million to 500 million same store sales growth of 13% to 19% restaurant level margins of 15% to 17% adjusted EBITDA of a loss of $45 million to a loss of <unk>.
$35 million.
The strength of our brand product digital platform and team gives us confidence in reaching our goal of 1000 restaurants across the United States by the end of the decade, we will continue making investments to improve our customer team members' experiences, while maintaining a disciplined approach to margins and G&A to drive the company's path.
The profitability, we continue to believe our long term investments will enable us to drive industry, leading performance with that I'll turn the call back to the operator to start Q&A.
Thank you Ms Rebecca ladies and gentlemen at this time any questions. Please press star one and you can remove yourself from the queue by pressing star one eight subsequent times also we would like to remind you. Please limit yourself to one question we.
We'll take our first question. This afternoon from John Glass of Morgan Stanley .
Thanks, very much can you first just talk about the comp slowdown we've experienced by suburban versus urban many of the things. We've talked about maybe returned to office and travel had more to do with the urban markets give us a sense of what the split is or the actual same store sales by those cohorts.
Can you also just clarify your comments or Johns comments about DNA levels in 'twenty, three or even in 'twenty. Two as a result of these reductions that you are currently undertaking.
John John Thanks, very much for the question.
Let me start with the second half G&A levels for the company.
The company is very committed to continuing to get leverage out of its G&A and.
When we look at the G&A, let me for the moment excludes stock based comp in that number.
For 2022 for the full year, we now expect that G&A number to be approximately $107 million.
And that would include a brown $2 million from an accounting change from the adoption of lease hold standards, requiring us to not capitalized legal fees for 2023, we would see the G&A excluding stock based comp is no higher than the $107 million.
Okay, and then on the comp question.
On the comp question on the urban suburban split.
Correct.
Yeah.
Right.
Really.
What we see in the urban suburban split as the <unk> between the two stores really slipped, but we continue to see is that the urban stores are comping at a higher rate than the suburban stores.
Right now.
Yeah.
Urban stores are currently comping at around 26% and the.
Suburban stores are comping around 6%.
That's for the second quarter of the year.
The urban stores are showing faster recovery than the suburban stores, although they are coming at it from a much much lower base.
I'm sorry, just one clarifying question the rate of decline what I'm trying to understand is going back to your logic about urban recovery is taking longer has that been.
The relative change in urban comps versus the second quarter or second quarter into the third quarter greater than.
The suburban stores more stable, let's say sort of underscoring. The fact that this is in fact more of an urban recovery issue.
Yes, yes, yes, looking forward that is a correct statement.
Steve.
Let me take a minute on that John you kind of elaborate I think when we look back over the past two years.
Constantly prognosticated, a stronger urban recovery then materialized. So when we looked at our business now in terms of our guidance, we kind of reflected on where the business was trending in July and we've talked to you prognosticate that post labor day things accelerate or if things remained flat and what we did is we took the.
Assumption going forward on the low end of our guidance as though the urban.
Recovery remains exactly where it is today.
That is no improvement from where we're at.
We hope this is a conservative estimate, but if you look back over the past two years, we think that we've just been wrong on so many of these calls.
Okay. Thank you.
Thank you we'll go next matching John <unk> at Jpmorgan.
Hi, Thank you looking at the 35 units that are expected to open. This year, obviously hearing what you've talked about in terms of the suburban urban mix throughout excuse me around $50 50, 85% of teacher stores being suburban but it is I think a point worth mentioning 50% of your store.
<unk> really have not not recovered to the extent, where you'd expect it from an average unit volume perspective at least and perhaps a margin perspective as well how does that influence your thinking on 'twenty, three and 'twenty four development.
Is there enough.
I guess that changed relative to expectations that it might make sense to do.
Fewer stores of higher quality of a higher average volume just to make sure that we have this model.
Lately right going forward or are you just you're kind of viewing this as a summer slowdown thats going to rectify itself and we should.
And the previous unit growth projections, I think most of US previously had.
Hey, John Thanks for the question so.
I want to talk a little bit.
The classic stores, where we've seen some performance Opex spectation. It was really a number of stores that were approved either right before the onset of the pandemic or right right at the beginning of the pandemic, where our models had an adjusted to what the new World would look like.
Kind of consider a little air pocket there were.
We expect that the world as it was pre Covid those have all been adjusted for a while now so the stores. We're now seeing that we're opening in 'twenty two 'twenty three and beyond we're not only seeing a lot more success, because theyre suburban but also because our models on what the world would look like our adjusted to the reality that we're in today gives us a lot more confidence in it.
We're doing and we're seeing the class of 22 stores has been really fantastic I mean, just today we opened.
New market and Detroit, Birmingham, Michigan sitting here right now just just through launch and the stores that over $13000 for lines. So last week, we opened in Shrewsbury.
He is very in new Jersey. It again, another suburban location did about $15000 in day, one so the models working on but we're very confident in the model long term and we were committed to our long term pipeline of growth, having said that where we're taking a more disciplined approach and improving site and I would say.
It's focused on more quality than quantity, but with that we do believe we can still achieve our targets that we set out both in the next three to five years and definitely by the end of the decade to achieve without them.
John Let me kind of make the slight build on John's comments.
We disclosed that our target ROIC see for new stores year, two is 42% to 50% what we find in the urban stores. When we adjusted our models to kind of a pad, Denmark based model as opposed to pre pandemic that many of those urban scores volumes declined as you correctly point out.
What we're finding in the marketplace as their rents have not declined proportionately. So those urban stores actually failed to meet the threshold and the suburban stores are doing much better. So I don't think there I think that we will achieve kind of the target units, but I think that what youll see is the suburban stores get larger is there a return.
<unk> stay higher reasonably the urban stores until the occupancy or the <unk> adjusted the urban markets.
Thank you.
Thank you we'll go next now to Sharon Zackfia William Blair.
Hi, Good afternoon, I guess a question on the the workplace reduction in the office move can you dimensionalize the annualized savings from those two moves and I think it was mentioned in the release, obviously to accelerate the path to EBITDA positivity.
What is your timeline at this point, where you would project positive EBITDA based on the current sales run rate.
So sure.
Let me first day that we.
<unk> got really given a timeline on that positive adjusted EBITDA, but if I was to flow. It through right now I would probably tell you that should happen early in 2024.
2023, we would anticipate to be very close to a breakeven year.
In terms of the reduction in force in the company.
<unk> been working on driving down our G&A and as we kind of discussed earlier, where we see the levels coming in 2023 and the actual cost reduction. It was approximately 20 people in the support center and as John mentioned and move to a smaller facility.
Change would probably generate approximately $4 million.
The annual savings from G&A.
Thank you.
Okay.
Okay.
Thank you. We'll go next now to Jared Garber at Goldman Sachs.
Great. Thanks for thanks for the question.
On restaurant level margins met you talked about inflation still being a pressure point through the model not surprising with what else. We've heard through earnings season from some of your peers can you talk about your outlook on pricing and if there's any expectation to flow some incremental pricing through the model in the back half of the year.
Thanks Jared.
We are taking.
Let me proceed with our.
Our last earnings call, we stated that if our cost of goods and labor as a percent of revenue stayed in line with 2021 that we didn't anticipate any major price moves later in the year as we've said we expect these ratios to actually come in slightly favorable so in a sense, we're not taking a major price move we have seen.
Our chicken go up recently and we are adjusting our premium chicken.
Add on to $3 25 to <unk>.
Thursday, and it used to be $3 I should point out that the.
Chicken add on was $3 25, and 2020 and then in 2021, we lowered it to $3 and now we're bringing it back to 325. This week, that's the only price move we anticipate making for the rest of the year.
Just just to build on.
We don't we're not taking any price on our core menu and one of the things that we think gives us. Some advantages here is is the more plant leaning plant base leaning menu. So we do have exposure to chicken and certain commodity inflation parts of the basket that are growing but given that most of most of our spend is on <unk>.
<unk> it Insulates us from some of those inflationary pressures.
Thanks, and if I can just follow up on one on the unit growth I know you reaffirmed that.
Which was encouraging to see that 35 at least 35 units on the year can you just talk about what gives you confidence that you can achieve that number some of your peers have pushed out unit growth expectations into 'twenty three regarding some supply chain issue. So just any color there would be great. Thanks.
Yes, I just wanted to give a shout out to our team really worked tirelessly to make this happen and I think we foresaw some of the supply chain challenges around equipment, and we're able to do some math buying last year to get ahead of a lot of this and the confidence really comes from the fact that leases are signed and the deals are in construction.
So.
Sure.
We are very very high confidence in the at least 35 this year and we have a very healthy and robust pipeline next year with just some great great science, great deals and many leases already signed so so the development is very much on track and as I mentioned on the prepared remarks.
Core model is being we're continuing to develop the core model, while we optimize it with some of the improvements around the kitchen, which we think will help us from a productivity and store level margin perspective, but we're also excited to learn from some of these new tests that these new formats that we're launching so.
Coming months are going to be launching our pickup kitchen, and Washington D. C. A digital only store and then at the end of this year, our first drive or pull through location outside of outside of Chicago, So really positive developments on the on the new New unit front and feel really confident about the pipeline looking forward.
Great. Thanks.
And next we go to Katherine Griffin at Bank of America.
Hi, Thanks for taking my question I wanted to ask another question just about the plan.
Terms of workforce reduction and like generally reducing G&A.
Just if the if the return to office is it perhaps more delayed than even we are expecting now what other levers do you have to Paul.
I'm, assuming potentially like further head count reduction or just like any other element of G&A that we can.
Just trying to put a finer point on it as we think about.
Kind of places, where you can lean out.
<unk> tried to get to EBITDA profitability. Thank you.
Yeah. Thanks for the question so.
Perfect. Thank sweet Green as a growth company and we're really building. This for the long term at the same time, we want to take a really disciplined approach around our investments and our G&A and so when you look at our G&A, we're going to we're going to be running 23, similar to similar to 'twenty two lever levels and if you look back in our history and you take out the investment.
In spite and some of the public company costs, we're not very far off from 2019 level spend with over two times the number of stores. So a lot of confidence in our ability to leverage the investments we've made and we're fiercely committed to continuing that operational discipline.
We're very much focused on our growth right now we have a number of growth levers broke both on the comp base as well as as well as continuing to open new stores in new markets. So on the comp base, we have a number of exciting things, whether it be new menu rollouts, including dessert wider drink selection and our push into Hardy food.
Some really exciting sub brand kitchen optimization that I mentioned and a planned loyalty launch, which we think will be a huge huge sales driver.
At the beginning of 'twenty three having.
Having said all that we are fiercely committed to to our profitability, we do not foresee the need to take additional cuts from a G&A perspective, but I'd say, we're being very cautious in additional head count and any other investments just to make sure that that we do turn profitable.
Really as soon as we can and it's just all part of being a sustainable business. So I'll stop there.
Yes.
Thank you we take our next question now from Chris <unk> at RBC capital markets.
Hi, Thanks for taking the question.
Just on the revenue guidance can you expand a bit more on just kind of your expectations for how the remainder of the year plays out and what that implies for <unk> you detailed the magnitude of the slowdown that you've seen and I think the guide would suggest some improvement through the <unk>. So.
So really just trying to understand the improvement implied by the updated revenue guidance versus the typical seasonality that you did note earlier.
Thanks, Chris for the question, let me spend a minute on it because I think it is severity important top or the guidance that we gave really took us a lot of thought and part of the reason for that was we had a very good five months this year.
And then the business as I said slowed down around Memorial day, we believe that these factors as we went through our urban Budd.
Uneven office recovery and a high degree of travel when we thought about that the logical conclusion was many of these things reverse themselves as we get past the summer months. So the question that we faced was does the company anticipate these things reversing in the sales trends improving or going back.
Back to their pre memorial day levels or do you lock the guidance in around what you see in July and quite frankly that was a very difficult conversation.
I want to say that one of the characteristics of <unk> as we believe in radical transparency in our relationships, we've maintained that with our customers with sourcing boards in our restaurants with our farmers with our team members and frankly, Jon and I have always tried to do that with the investment community. So when we looked at it we decided that the.
Low end of the guidance should reflect exactly where the businesses today in July . So what we found is that the low end of <unk> reflects the same store sales growth in the back half of the year running 5% and a new stores from the class of 2021 remaining exactly flat revenue.
With where they are in July .
I understand that that could be viewed as very conservatively because certainly we have some college stores one viewpoint as to college stores. For example, UCLA should pick up when school comes back the other view would be the three stores in New York World Trade Center Spring and Hudson, 52nd Lex all in that class.
2021 should improve post labor day however.
We would tell you in all candor, we felt that way a year ago.
<unk> felt that way two years ago. So the low end of the guidance of 480 is the world in July 5% same store sales and no change in the class of 2021 average weekly revenue.
High end of $500 million reflects a second half same store sales growth rate of 15% and again, we just held the new stores flat.
Our hope in all candor is that the low end is certainly a conservative projection, but I think like many people were a little bit scarred by chasing a view of an ever improving external environment only to find new things coming our way.
Got it thanks for all the detail Matt.
And ladies and gentlemen, just to reminder, star one please for questions. We'll go next now to Andrew Charles with Cowen.
Great. My question is a follow up on the previous questions. Just obviously you called out that the rate of deterioration you saw the business in June July is the most pronounced you've seen in <unk> history and so.
I appreciate how thoughtful you guys are around guidance, but why why towards the low end. It's just this trend continuing rather than thinking that havent forbid it gets worse or just perhaps at the middle point of the range being that this trend would under this underlying trend will continue.
Yeah.
Thanks, Andrew.
Yeah.
I'm smiling thinking great question, because we've asked ourselves that question provide a month. So let me just give you a little bit of the detail and say while the low end of the guidance is a 5% same store sales growth walnuts had brief period through August same store sales growth is actually 7% so beginning to show some upward.
I think in a normal period, we probably would have done exactly what you said and go onto some middle type of range I think the reason we didn't as I said is that we felt that we were always scarred that thinking that in Austria holiday or memorial day, or labor day things can always improve and what we have found is that nature.
That recovery has just been so erratic.
That it was very difficult to kind of call. It in terms of when it would happen where it would happen and quite frankly, how large it would be.
Yeah, Let me just give a little bit more color on this so.
As we shared in our remarks, we do believe the slowdown in sales is largely attributable to our footprint and our customer being missing for a lot of the summer so call. It a summer lull and a lot of ways with people traveling ryzen, COVID-19 and and the delay in return to office, which we all looked at the data.
So we do believe September post Labor day week is going to be much better and some of our internal data around outposts launch planned launches already proves that that.
Everything we see and I'm sure you all see that more people are expecting both companies that already back in the office and going back to their normal routines, but also.
New companies, establishing rich at back to office routine so.
Generally optimistic about what September beyond looks like but as we all know we're in kind of choppy waters from a macroeconomic perspective, and just trying to be conservative in terms of definitely see some tailwind, but don't know what the headwinds have to offer and so we.
We're just trying to be conservative in the guide.
Having said all that you just extreme confidence in the model long term and our goal of a 1000 by the end of the decade, and really just creating a brand that brand that makes an impact on our consumer. So we see a lot of this is a.
It'll bumped in the macro environment, but I believe we're really well situated to grow through this.
That's helpful. I appreciate the transparency. My other question was just going to be if I look at the <unk> growth and it's about 18% and <unk> that exceeded 16% same store sales growth can you flesh out a bit more what's driving that my guess would be a function of robust new store openings that are predominantly skewed and stronger suburban markets, but any any help kind of flushing that out would be helpful.
No that's exactly it it's just the difference in the <unk>.
Base of stores that go into it so we picked up some stores as we do every quarter.
Very good thanks, guys.
And ladies and gentlemen, it appears we have no further questions. This afternoon, Mr. Ian I'd like to turn things back to you for any closing comments.
Okay.
Okay.
I just want to thank everyone.
And we'll see it we'll see you next quarter.
Thank you very much ladies and gentlemen that will conclude todays <unk> second quarter earnings conference call I'd like to thank you all so much for joining us and wish you all engraving goodbye.
Okay.
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