Q1 2023 Sweetgreen Inc Earnings Call
We recognize that great businesses has to be and companies balancing growth and profitability and I am confident that the actions we have taken over the last few quarters put us squarely on the path to grow shareholder value in the years ahead.
Becoming a large profitable company starts with providing exceptional guest experiences.
Our team has done a tremendous job thinking through how we can better serve all our guests.
<unk> from our new loyalty programs three past two new menu items like the chicken and Chipotle Pepper Bowl to driving top quality execution in our restaurants I am pleased with our performance.
Want to extend my gratitude to every sweet Green team member for their dedication to our mission of building healthier communities by connecting people to real food.
My co founders and I collectively remain the largest shareholder of the company and we treat every dollar as though it were our own as we transition to operating in an environment defined by uncertainty and an increased cost of capital. We are incredibly focused on driving high returns within our existing fleet and across new projects we undertake.
The head start we have in building the category allows us to be disciplined during this period, while remaining nimble enough to take advantage of the opportunities that will undoubtedly arise.
We see our approach paying off as we reported first quarter sales of $125 1 million.
Representing 22% year over year growth in same store sales growth of 5%.
Our same store sales growth was driven by 2% growth in traffic and 3% of price taken in January total digital sales represented 61% of our Q1 revenue with approximately two thirds of those sales coming via our own digital channels.
<unk> were $2 9 million and restaurant level margin in the quarter was 14%.
Our adjusted EBITDA loss for the quarter was $6 7 million down.
Down from a 2022 first quarter adjusted EBITDA loss of $17 million excluding the.
The impact of the employee retention tax credit related to the cares Act restaurant level margin would have been 12% and adjusted EBITDA loss would have been $13 $6 million at the top end of our Q1 guidance range. Our support center spend continues to track to $98 million for 2023 <unk>.
I'm pleased that during the first quarter sales grew 22% year over year, while we operated the support center, 8% lower than Q1 2022.
We remain incredibly focused on driving substantial operating leverage out of our support center in the coming years in.
In 2019, our support center costs were 30% of net revenue today, we expect that our support center costs, which now include public company and Spice related costs will be in the 16% to 17% range of net revenue.
We will grow the support center only to the extent that further investments drive tangible returns on capital.
We are committed to continuously re underwriting how we steward and allocate capital to deliver returns and shareholder value creation make no mistake continuing to drive operating leverage at the support center is a top priority for our management team.
As we have discussed in the past we operate with four strategic priorities, which are the basis for driving strong top line growth customer acquisition and loyalty and profitability. This is our flywheel.
As a reminder, our strategic priorities are one expanded evolve our footprint in new and existing markets to connect more communities to real food.
To build our brand and digital experience as the industry leader, allowing us to add new customer channels drive frequency and increase restaurant volume and margins.
Three reinforce our commitment to crave ability and inspire consumers to live healthier lives through re imagining fast food.
And for run great restaurants, with a people first culture focused on developing talent for our future growth.
Now, let me provide an update on each of these priorities.
In Q1, we opened a total of 12, new restaurants, ending the quarter with 195 restaurants.
Since the quarter ended we've opened an additional five restaurants, including our first in Cranston, Rhode Island.
We remain on pace to open between 30% and 35 net new restaurants. This year with plans to enter three additional new markets Seattle, San Antonio in Milwaukee.
Early we are pleased with the class of 2023 openings.
As we discussed on our last call. Our unit strategy is focused on disciplined capital efficient growth, we want to make sure that we're choosing great sites with the right leaders and executing our proven playbook in a thoughtful way that protects our brand.
As we shared on our last call. This year, we will be introducing two restaurants powered by our automated production line, we call the sweet Green infinite kitchen.
We're excited to share that next week on May 10th we will be opening our first infinite kitchen in Naperville, Illinois Les.
Later this year, we will open a second infinite kitchen retrofitting an existing restaurant. So that we can learn how best to integrate the infinite kitchen and an existing site.
From these pilots we hope to learn how we can create a more consistent customer experience faster throughput and make our team members' jobs easier and more dynamic.
We believe this new concept powered by automation unlocks efficiency that will enable us to grow more quickly and at higher profit margins while.
While we are still testing and learning we expect the infinite kitchen will be increasingly integrated into our pipeline.
We look forward to sharing more of our learnings with you in future calls.
We continue to build our brand and digital experience last week, we launched our loyalty program suite passed nationwide, which we believe over time should drive significantly higher frequency in our customer base members of Sui pass received curated rewards and challenges menu exclusives special birthday gifts and more.
With the <unk> plus membership members pay of $10 per month subscription to access a daily $3 off Curt and other benefits like free delivery limited edition merge shops and more.
We had a very smooth launch with great Buzz we believe the program will drive margin improvements not only from the underlying membership fees, which come at limited cost, but also through incrementally across our customer base.
Through our seasonal offerings digital exclusive chef collaborations and signature core menu, we continue to reinforce our commitment to our customer value proposition of making healthy delicious food craveable and convenience.
In March we launched the chicken and Chipotle Pepper Bowl. This craveable approachable and Hardy Bowl is our take on the beloved Burrito Bowl made the sweet Greenway, featuring our roasted chipotle salsa limestone entre black beans, black and chickens and a double rye space.
Our customers love it the bullet outperforming our targets as well as exceeding our goals for new customer acquisition.
As part of the launch we offered a promo for national Burrito day to celebrate the new offering exposing the brand to both new and existing customers.
Beyond innovating on New limited time menu items were also continuing to evolve our signature menu with new flavors that are highly requested by our customers. We brought back hummus and both our new signature salad, the hummus crunch salad and for the first time as a site of homelessness a conscious.
We continue to broaden our beverage offering and recently introduced several healthy soda options as well as chocolate treats.
While still early we've seen attachment dollars grew nearly 25% in the first three weeks of launch.
We believe the margin opportunity with attachments presents another significant opportunity for <unk> in the coming years, and easy way to satisfy customer requests and drive sales efficiently through our footprint.
Part of what makes sweet Green special are the partnerships that we believe we can uniquely create given the strength of our brand.
For example in mid April we launched our boy enable a collaboration with Michelin starred Miami restaurant Boy a day.
The Bowl has brightened briny, Italian inspired creation with thoughtfully sourced ingredients and craveable Stracciatella cheese on top it's available to order from all seven South Florida locations through June 12.
We are incredibly happy with customer reception to our innovation and customers should expect more from us in the coming quarters, a robust menu roadmap includes continuing to test into additional hardware and more craveable grains and proteins more collaborations with influential chefs and expanding savory and sweet attachments, including expanding our dessert offerings.
Running great restaurants is the foundational element to making our business thrive we continue to see execution of improvements in our business as a result of our regional general manager model, we implemented at the beginning of the year.
Our metrics are showing an improvement in throughput, notably during peak period times.
During the first quarter, we increased our digital throttle levels, 20% across the fleet and we continue to see improved front of house throughput across trade areas.
Our restaurants are fully staffed and we continue to focus on hiring and retaining those that work full time.
Our data shows.
Those who are scheduled to work full time callout less and have higher tenure in the first quarter, we saw lower turnover attributable to these scheduling practices.
At the end of the year, we will launch chipping across the fleet, which we believe will improve team member turnover and in turn create a better overall customer experience.
We also recently adjusted head coaches schedules to give them more time on the floor to engage with our guests and team members ensuring that we are delivering on our customer promise of fresh fast and friendly.
This goes back to our intimacy at scale playbook, and specifically one of our core values of adding the sweet touch.
I am excited for the continued impact of these initiatives will have on our ability to drive better business results and create a win win win for the customer the company and for you our shareholders.
Before I conclude I want to take a moment and extend my gratitude to our chief marketing Officer, Daniel Schlossman, who after five years at Sweet Green will be leaving the company.
Daniel played key roles in the launch of new channels and most recently crafting our loyalty program.
Nathaniel Ru My co founder and Chief brand officer will be absorbing Daniels duties.
<unk> is playing to win our customers remain core to everything we do as we focus on disciplined capital efficient growth and our path to profitability.
We have a powerful brand with a massive market opportunity and I'm confident the steps, we're taking will ensure our ability to sustainably further our mission of connecting people to real food and now I'll turn it over to Mitch to walk through the quarter's financials.
Thank you Jonathan and good afternoon, everyone. We are pleased with our financial results for the first quarter with revenue, finishing between our expected range total revenue for the first quarter was $125 1 million up from 102 6 million in the first quarter of 2022 growing 22% year over year.
Same store sales grew 5%, reflecting a 3% price increase taken subsequent to March 2022, and a 2% increase in transactions or average unit volume was $2 9 million up from $2 8 million in Q1, 2022, nearing our pre Covid <unk>.
We opened 12, new restaurants this quarter as shared on our last earnings call. We closed three restaurants in the first quarter, one in Los Angeles, London, Boston and one in New York All three of these restaurants had neighboring restaurants that had better customer and team member experience. Additionally, we will be able to drive incremental.
Profitability by moving volume from one store to another.
We ended the quarter with nine net new restaurants in a total of 195 restaurants.
Restaurant level margin in the first quarter was 14%. This includes a $1 8 million benefit related to the employee retention tax credit issued as part of the cares Act. Excluding this credit our margin was 12% which is at the top end of our guidance. This improvement was primarily due to sales leverage.
For a reconciliation of restaurant level margin to comparable GAAP figures. Please refer to the earnings release.
Food beverage and packaging costs were 28% of revenue for the quarter, which was 200 basis points higher than 2022.
As mentioned on our last earnings call starting in January we experienced a packaging disruption, which resulted in elevated packaging costs throughout the quarter.
Labor and related costs were 31% of revenue for the first quarter down 200 basis points from the comparable period in 2022, we recognized a $1 8 million benefit related to the employee retention tax credits as part of the cares Act. Our restaurants are fully staffed and we are pleased with the quality of talent, we're able to attract.
Additionally, we have seen an easing of wage pressures.
Occupancy and related expenses were 10% of revenue consistent with the first quarter of 2022.
G&A expense for the quarter was $34 9 million compared to $50 2 million in Q1 2022, the $15 $3 million decrease is primarily attributable to a $7 9 million decrease in stock based compensation expense, a $5 1 million benefit related to the employee retention tax credit and <unk>.
The decrease in management salaries and benefits during the first quarter, our G&A expense, excluding stock based comp and retention credit was 8% lower than 2022.
Our net loss for the quarter was $33 7 million compared to a loss of $49 seven in the prior year period. The decrease in net loss is primarily due to the decreases in G&A. As previously discussed is real as a $2 9 million increase in interest income and an increase in our restaurant level profit these decreased.
As an expense were partially offset by an increase in depreciation and amortization associated with additional restaurants, and an increase in preopening costs due to the timing of new restaurant openings.
Adjusted EBITDA, which excludes stock based compensation and certain other adjustments was a loss of $6 7 million for the first quarter of 2023 as compared to a loss of $17 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 the.
Scribed above.
Excluding the benefit of the employee retention tax credit adjusted EBITDA was a quarterly loss of $13 6 million, an improvement of more than $3 million compared to the year over year quarterly loss.
We ended the first quarter with a cash balance of just under 300 million. We continue to have a strong capital position that allows us to continue to expand our mission and provides us with flexibility, we're fiercely committed to disciplined capital efficient growth and protecting our strong balance sheet.
I am pleased with the progress we are making on our path to profitability as we delivered higher than expected restaurant level margins and lower support central costs, our adjusted EBITDA losses will narrow significantly in 2023 as we become profitable on an adjusted EBITDA basis in 2024 now.
Now turning to our outlook for the fiscal year 2023, we reiterate our full year guidance with the exception of adjusted EBITDA loss, which now includes the $6 9 million benefit from the employee retention credits, 30% to 35, net new restaurant openings revenue ranging from 575% to 500.
$95 million same store sales between 2% and 6% restaurant level margin of 15% to 17% and adjusted EBITDA loss of between 13 million to $3 million.
Our loyal brand following combined with a localized supply chain designed for freshness and taste propelled by a highly passionate team positions us to capture our massive market opportunity, making for a valuable and scalable model. The steps. We are taking will allow us to further extend our leadership and durable competitive advantage.
As we build the category with that I'll turn the call back to the operator to start Q&A.
Thank you.
As a reminder, if you would like to ask a question today Press Star followed by the number one on your telephone keypad.
Again, we ask that you limit yourself to one question.
First question comes from the line John .
With J P. Morgan your line is open hi.
Hi, Thank you I was hoping we could spend a few more minutes talking about what you define as urban stores, just kind of signs of.
Recovery, I, suppose or lack thereof, and how you might be.
Adjusting your business model to what at this point in.
In may of 'twenty, three might be defined as a new normal and maybe elaborating on that to some extent can you talk about how the <unk>.
<unk> market 23 over 19, maybe evolving whether that is in those.
Urban areas, either better or worse or did.
Just different in some ways greater count lesser count whatever you can say about the competitive landscape and also talk about who you're running into.
As you go more into the suburban locations is that the type of competitive set that you expected to compete against thank you.
Hi, John Thanks for the question.
Really starting to see the urban stores, and particularly the central business district stores come back and come back fairly strongly on a four day a week basis I can say Mondays today are starting to level off at the same volume, we see Tuesday through Thursday, and in terms of a kind of a comp growth rate really came out.
In the first quarter just.
Double digit range at this point in time, so we're actually pretty pleased with what we've been seeing in the urban stores in terms of what we're doing we've talked a little bit earlier on the call around broadening our menu our loyalty program, which is really designed to drive frequency and the launching of our catering channel.
And we see these as ways to recapture the volume.
First off on a Friday weekends compared to pre Covid all things considered we're actually pretty pleased with what we're seeing right. Now there has been a lessening of competition and we see that coming mainly from kind of independents, particularly in markets like New York.
Your next question comes from the line of Chris Cornell.
BC market capital markets. Your line is open.
Hi, Good afternoon, Jonathan you highlighted improvement in turnover and throughput in your prepared remarks, so to what extent do you think improvements in these areas helped to lift traffic back to positive in the <unk> and how much of a tailwind do you see just ongoing improvement in labor efficiency and throughput providing.
Going forward here. Thanks.
Hey, Chris Thanks for the question. So throughput has been a huge focus for us over the past six months I mean.
There's always something very important for US is speed of service is just important to our guests as our staffing and labor environment has gotten better we've really focused on both increasing our throttles on our digital make lines and we shared the stat, we were able across the fleet increased throttled by 20%, which means or serving the ability to serve 20% more people on our digital may.
Clients and that was that was a contributor in our urban growth as Mitch mentioned urban and specifically our central business districts. We're strong in the throttle expansion was part of that secondly.
Secondly, we are focused on the frontline frontline's had been a huge growth driver for us as well as you would expect with the world opening up we're seeing much more traffic in our dining rooms, which is very encouraging for us is that those customers that start with our dining rooms, typically move into our digital ecosystem and become very valuable customers.
For us so huge growth on the Frontlines and a big focus on increasing our throughput on the front lines as well so I think theres more to do there.
We played with different line formats that we've been testing some which are in different stores, what youre seeing faster throughput. We shared some details on our optima optimize kitchen formats before and so as we open new stores with this format, we are seeing even faster throughput and better productivity. So expect us to continue to push here both.
On the digital lines and our front lines to continue to drive speed of service.
Your next question comes from the line of Sharon Zackfia with William Blair. Your line is open hi.
Good afternoon.
Wanted to touch base on pricing I think you may have taken a price increase earlier this quarter I am not sure. If you mentioned that can you talk about kind of the drivers.
The price increase kind of what youre seeing in ongoing commodity inflation and.
How the consumer has reacted to that price increase.
Thank you Sir.
We took a approximately a 3% price increase at the beginning of the year and at the beginning of the second quarter. We took just around 1%, which was very targeted in a handful of very select stores. What we really found is not a lot of softness from the customer and or resistance from the price increases we've taken.
Good.
And we really don't have really a strong price actions planned for the remainder of the year.
Sure and just if I could add anything to that we're actually kind of encouraged on a relative price value compared to the competition.
The industry has taken so much price over the past few over the past few years and this quarter. We took three points. The rest we know what our competitors did and so we feel pretty pretty good about our relative value and think thats going to be a big opportunity for us as we continue to grow.
Your next question comes from the line of Andrew Charles with TD Cowen Your line is open.
Great. Thank you Mitch you saw same store sales up 5%, which was near behind the guidance. While reported revenue came in near the low end of <unk> guidance and so as we think about that dichotomy can you speak to what youre seeing with new store sales volumes.
Yes, Thank you Andrew.
Let me say that we're very happy with the class of 2023, and how theyre getting off the gates.
Encouraged by them.
2022, which we spoke about on previous calls we've seen some acceleration in certain markets as we've gone back to our intimacy is scale playbook other stores have taken a little bit longer to ramp and I think thats, a little bit where you're seeing kind of the small change in the sales volume.
Your next question comes from the line of Brian Harbor with Morgan Stanley . Your line is open.
Hey, Gary This is Matt on for Brian Harbor.
You made some notable recent anchorage to broaden the menu beyond just solids more hearty options can you talk about the guest responses houses changing who's coming into the brand and maybe any day part impact.
Thanks.
Yes, so we've talked about this for a while really are focused on.
Meeting customers, where they are with a broader menu driving different occasions and really.
Bringing different broader customer base into sweet Green, So really this idea of crave ability in our sweet Greenway.
As you know, we launched our chicken and Chipotle Pepper Bowl.
This quarter and it was it was received really well, it's it's been one of our top five items top five launch a top five both for us ton of brand Buzz and is acquiring a lot of customers. It's still very early but we have a lot of new other catalysts from a menu perspective Andrew.
<unk>.
Expect a few more launches throughout this year really pushing into that Houghton Hardy sort of food, we're making sweet green more.
More desirable a different a different day parts and different consumers. So overall very encouraged with the menu work and expect a lot more to come.
Your next question comes from the line of Jon Tower with Citi.
Your line is open.
Hey, good afternoon. This is Karen holthaus on for John .
I know, it's early days, but can you speak to what youre seeing in the loyalty program.
You'll relaunch maybe relative to what you expected and have you kind of explicitly sales contribution from that into how you're thinking about the same store sales guidance for the year. Thanks.
So I'll start off overall really encourage it's only been nine days since it launched or launched last Monday, but overall and it wasn't pilot for a little bit so far it's exceeding our expectations in all of our key metrics. So we feel very excited about it customers are loving both the free version as well as the paid subscription tier.
We will come back with more details on how it's performing but overall I think in this environment not having a loyalty program with something that I think consumers are asking for and so we're really excited to have it out there and have it be very uniquely built in a suite greenway. The one thing I'll say is the way we built it gives us a lot of personalization levers.
Round around three path. So we can be very.
In our marketing and promo spend and how we actually increase the frequency of gas without a one size fits all approach.
Commenting on the second part of your question given how early we are in the program. We have not explicitly built any upside into our same store sales guidance for.
Your next question comes from the line of Katherine Griffin with Bank of America.
Your line is open hi.
Hi, Thank you.
So I wanted to ask actually just about the revised guidance. So I think given the fact that excluding the credit Q1 adjusted EBITDA came in at the top of the range you have a number of topline drivers in place. It seems like <unk>. These are low.
In your control you are able to.
To do that very well, whether it's on the G&A side, our <unk> cost control generally and so im sort of Im wondering whats embedded at this point and the low end of the revised guidance range kind of what.
What are the what are some offsets I guess too.
What otherwise since it seems to be like a very good operating environment.
Catherine Thank you for the question, we feel really positive about the things we control, we're very happy with the loyalty program. Our class of 23 menu items, we're putting in place.
Some of our channel development with catering.
What we're really a little bit concerned about is the external environment that we don't control and I think of you asked what's at the bottom end of the guidance. It's really just looking out at the outside world and wondering when it's going to deliver to us as we go through the next nine months, but we feel very confident about the programs and initiatives that we have in place.
Okay.
Okay.
Sure.