Q3 2023 Sweetgreen Inc Earnings Call
Okay.
This time I would like to welcome everyone to the Sweet Green, Inc. Q3, 2023 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one.
Rebecca New head of Investor Relations you May begin your conference.
Thank you and good afternoon, everyone here with me today are Jonathan Neiman co founder and Chief Executive Officer, and Missouri back Chief Financial Officer.
We begin we have a couple of reminders.
Our earnings release is available on our website at Investor <unk> see Green Dot com.
During this call we will be making comments of a forward looking nature actual results may differ materially from those expressed or implied as a result of various risks and uncertainties.
For more information about some of these risks. Please review the company's SEC filings, including the section titled Risk factors in our latest annual report on Form 10-K filing and subsequently filed quarterly report on Form 10-Q. These forward looking statements are based on information as of today and we assume no obligation to <unk>.
Buckley update or revise our forward looking statements.
Additionally, we will be discussing certain non-GAAP financial measures, which are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U S. GAAP measure can be found in this afternoons press release available on our IR website with that it's my pleasure to turn the call over to Jonathan.
Take things off.
Thank you Rebecca and good afternoon, everyone.
Together with my co founders Nicolas <unk>, we opened our first sweet Green and a 560 square foot old Burger Shack in Washington D. C. A little over 16 years ago with a vision to redefined fast food we.
We sourced fresh local and organic ingredients from local farmers market to serve the community healthy delicious meal. We worked alongside 10 team members to prep chop in roast everyday in the restaurant.
Fast forward to today, we source from over 200 farmers, we know and partners. We trust we work with over 6000 team members across our 220 restaurants nationwide and thoughtfully prepared these ingredients and cook from scratch to deliver food that is fresh craveable and nutritious with our signature suite touch hospitality two millions of devoted custom.
Around the country.
And while we have grown and evolved a lot a few things have not changed.
Our mission of building healthier communities by connecting people to real food and our long term commitment to being a positive for us on the food system, while creating a sustainable and durable brand and business.
For the past 16 years, we have been at the forefront of our industry pioneering a new category.
Our third quarter results demonstrated our continued commitment to building what we refer to as an and company one that balances growth and profitability.
We reported third quarter revenue of $153 $4 million generating 24% year over year revenue growth and same store sales growth of 4%.
Restaurant level margin in the third quarter was 19%, a 300 basis point improvement year over year.
Strong sales growth restaurant level margin expansion and disciplined support center spending resulted in an adjusted EBITDA of $2 5 million for the quarter.
It is also worth noting that on a year to date basis, our adjusted EBITDA loss is under $1 million.
This represents a $31 million improvement over the same period in 2022.
Said another way over 40% of each incremental dollar of revenue in 2023 is flowing through to the bottom line.
You know sometimes the progress in our business is not always visible to the outside world.
And in many ways off the back of Covid, we had to spend more time stabilizing our company than building it while we waited for the world to return, albeit somewhat slower than we would have liked we spend time strengthening the foundation of our business tackling our costs and focusing on driving margin expansion.
There is of course always more to do and we think you our partners and shareholders will see the fruit of that work in the coming quarters.
While we still find ourselves in a complex and shifting environment, what I can say for certain is that we are back on the offensive and believe the flow through at the unit level will drive significant returns on capital in the years ahead.
Now, let me provide an update on our strategic priorities starting with our footprint.
In the third quarter, we opened 15, new restaurants, including our first in Milwaukee in Orange County.
We ended the quarter with a total of 220 restaurants.
As a result of Frontloading our development this year in the fourth quarter, we will be opening one restaurant, our second infinite kitchen, and Huntington Beach, ending the year with 38, new restaurants.
We continue to be pleased with the class of 2023 openings performing in line with our financial expectations.
Our infinite kitchen pilot continues to deliver many benefits to our operating model such as increased throughput near perfect order accuracy portion and consistency a better team member experience improved restaurant level margins and an accretive return on capital.
The feedback we hear consistently is that we are delivering a much better customer experience.
Just last week the infinite kitchen was recognized by time as one of 2020 threes best inventions in the food and drink category. It was selected as one of 200 groundbreaking interventions for leveraging automation technology to create a speedier more precise way to assemble menu items, while bettering the customer and employee.
Yes.
I want to express my gratitude to the entire sweet Green team for making the infinite kitchen a reality.
Our confidence in the independent kitchen technology as our Assembly line engine in the future is very high as such we have moved into an initial production phase with an industry expert and equipment manufacturing.
Looking ahead in 2024, we anticipate deploying approximately seven to nine infinite kitchen into new unit and two to four retrofits.
In order to align the delivery schedule of infinite kitchens, with our real estate pipeline and to minimize future retrofits, we envision opening between 23 and 28 new stores during 2024.
The infinite kitchen will be weighted towards the back half of the year.
The retrofits will be in high volume urban stores, where we are most interested in understanding how faster throughput will translate into higher revenue and flow through and Thats a higher return on capital.
We remain focused on expanding our footprint in a capital efficient manner to capture the white space and expect to see our real estate pipeline resume on a higher trend line during 2025.
In Q3, we elevated our focus on building our brand we bolstered our team with two exceptional individuals to lead our multi dimensional traffic driving strategy, which includes menu expansion and innovation leveraging and strengthening our loyalty program suite past and amplifying our marketing efforts to drive brand awareness.
In August Michael codec joined as our head of marketing and Chad browse joined as our head of culinary collectively Michael and Chad will help lead the expansion of the <unk> brand and menu to reach a wider array of customers and drive additional guest occasions.
Last week, we marked a major milestone in our long term brand and menu strategy to unlock and capture broader consumer segments with the nationwide launch of protein plates, including MISO glazed salmon southwest chicken fajita, and our revamped hot honey chicken plate.
These protein placed feature between 30, and 50 grams of protein alongside a double portion of grain at a compelling value with approximately 35% of customers eating sweet Green for dinner, we're building out the place category to appeal to more customers, particularly at dinner time.
While a week into the launch customer reception has been fantastic with notable strength in Texas and the southeast.
As part of this rollout we were the first national fast casual restaurant chain to announce that we will be cooking all of our proteins grains, and vegetables and extra Virgin olive oil. We believe its important our customers have confidence that all sweet green ingredients down to our cooking oil meet our high sourcing standards and we will continue to double down on the quality of our firm.
Even as we scale.
Moving forward, we will continue to focus on broadening our menu with relevant new products that reinforces our reputation and ethos of the brand in order to drive traffic.
Our loyalty program <unk> launched at the end of April and continues to add members.
As a reminder, surpass the two tier loyalty program today with the free component and a paid component cost free pass plus where for $10 a month customers get $3 off daily as the hero.
Up until late September C pass was only available for for digital orders.
Adding the ability for our street pass members to scan to earn and redeem awards and restaurants by scanning a QR code at the register as an exciting expansion to our base loyalty program.
Through strategic enrollment programming with new lapsed and low frequency customers in the second half of 2023, we increased our Sui pass plus subscription membership by 25%, putting us on pace to achieve our internal 2023, Sui pass plus enrollment target.
These activations are helping us build a playbook to continue the growth of the strategic strategic pillar of the business.
Turning to another strategic priority running great restaurants, as part of creating a five star team member experience, we are constantly improving our operations to make the work easier simpler and faster. This includes simplifying the execution of our menu redefining our labor deployment model and creating proprietary.
Terry tools to drive productivity and ensure quality.
During the third quarter, we removed the prep of five of the most popular dressings from our restaurants to create a more consistent product while on the surface. It sounds like a small initiative.
Was a years long decision that was done with much thought and care without sacrificing quality taste and our food ethos. This move has allowed our team members to shift their focus away from prepping some of our most intensive recipes and instead focus on hospitality and throughput.
We see additional opportunities to improve throughput in the coming quarters through small tweaks and deployment.
We will be focusing on throughput, where we've seen tremendous growth on the frontline as well as re examining labor deployment at peak periods. Additionally, we've been investing in hospitality training. So that speed does not come at the expense of a great customer experience.
Our restaurants are fully staffed and we remain pleased with the high caliber of talent, we are able to attract.
As we work to improve our team member experience, we've seen turnover decline over 15 points from the start of the year and we'll continue to find ways to improve both the customer and team member experience through initiatives, both big and small.
In the third quarter, we delivered our 10th consecutive quarter of over 20% sales growth and significantly expanded our restaurant level margins year over year.
Our goal from here to continue to raise the bar as I mentioned at the beginning of the call I believe we have achieved great things in the face of an unprecedented environment. We have used this time to build a better business in ways that should become more obvious as we scale.
We have a category defining mission driven brand known for quality and transparency and what gets me excited today is the massive amount of innovation you are seeing from the company the infinite kitchens and our new menu options are just too powerful examples that when coupled with the significant improvements we have made to our operations have the potential.
To unlock significant shareholder value in the company in the years ahead now.
Now I will turn it over to Mitch to walk through the quarter's financials in further detail.
Thank you Jonathan and good afternoon, everyone total revenue for the third quarter was $153 4 million up from $124 million into third quarter of 2022 growing 24% year over year.
Same store sales grew 4%. This consisted of a 5% price flat traffic offset by a negative 1% index.
As shared on the last call the mix offset continues to be largely attributable to channel movement into the frontline and pickup from date of delivery.
Total digital sales represented 58% of our Q3 revenue with approximately two thirds of those sales coming from our owned digital channels.
Our average unit volume in the third quarter was $2 9 million.
In the third quarter, we delivered $2 5 million profit on an adjusted EBITDA basis, an improvement of $9 7 million from the third quarter of 2020 to loss of $7 2 million.
Our third quarter revenue increase of $29 4 million year over year was a significant driver of this improvement.
We opened 15, new restaurants this quarter for a total of 220 restaurants. This year. We've opened 34 net new restaurants year to date with one planned for the fourth quarter in line to achieve the top end of our fiscal year guidance of 35 net new restaurants.
As a reminder, we have a year to target <unk> of $2 $8 million to $3 million for new restaurants.
The class of 2021 restaurants underwritten pre pandemic are now on track to meet this goal.
The class of 2022 continues to ramp currently it's projected to hit our year to target <unk> in year three.
The class of 2023 openings are performing in line and are tracking to meet our financial targets.
Good point out nearly 50% of this class a space to new markets, such as Cranston, Rhode Island, but walk you, Wisconsin in Tampa, Florida.
Restaurant level margin in the third quarter was 19% a 300 basis point improvement from the third quarter of 2022.
Restaurant level profit for the third quarter was $29 million up over $9 million from a year ago.
A reconciliation of restaurant level margin to comparable GAAP figures. Please refer to the earnings release.
Food beverage and packaging costs are 27% of revenue for the quarter, a 100 basis point improvement from the third quarter of 2022. This improvement was primarily due to menu price increases and a decrease in both chicken and fish costs.
Labor and related costs were 29% of revenue for the third quarter down 200 basis points from the comparable period. In 2022. This improvement is primarily attributable to head coach schedule optimization, we implemented in the spring.
Our restaurants are fully staffed and we remain pleased with the quality of talent, we are able to attract additionally, we've generally seen an easing of wage pressures.
Occupancy and related expenses were 9% of revenue consistent with the third quarter of 2022.
General and administrative expense was $36 million or 23% of revenue for the third quarter of 2023, as compared to $42 million or 34% of revenue in the prior year period.
The decrease in general and administrative expense is primarily due to a $6 million decrease in stock based compensation.
We expect our stock based compensation for fiscal year 2023 to be in the low $50 million range declining to the mid $30 million range in 2024 and mid teens in 2025.
This significant reduction is primarily related to the accounting treatment.
<unk> related grants.
Our net loss for the quarter was $25 million compared to a loss of $51 million in the prior year period.
The $26 million improvement in net loss is primarily due to a $15 million decrease in noncash restructuring and impairment charges $9 million increase in our restaurant level profit.
$2 million increase in interest income as well as a decrease in G&A as previously discussed.
These decreases in expenses were partially offset by an increase in other expenses related to the change in fair value of our contingent consideration from our acquisition of Spice and an increase in depreciation and amortization associated with traditional restaurants.
Adjusted EBITDA, which excludes stock based compensation and certain other adjustments was $2 5 million for the third quarter of 2023 as compared to a loss of $7 2 million in the prior year period.
This $9 7 million improvement was primarily due to an increase in restaurant level profit and a decrease in general and administrative expenses as described previously.
We ended the quarter with a cash balance of $275 million down $5 million versus the second quarter.
Year to date, we've generated $18 million of positive operating cash flow a $43 million improvement over the same period in 2022.
Now turning to guidance, we anticipate finishing 2023 with 35 net new restaurant openings revenue ranging from $575 million to 585 million same store sales growth between 3% and 5% restaurant level margins between $16 five <unk>.
Sent in 17.5% adjusted.
Adjusted EBITDA loss between $8 million and $3 million.
This guidance reflects three holiday weeks in the fourth quarter for Thanksgiving Christmas and new year's which are extremely light volume weeks.
The fourth quarter also contains a 50 <unk> week, which is excluded from our same store sales calculation.
I am pleased that the progress we've made strengthening our financial model and one year, where our restaurant level margins grew 300 basis points and G&A as a percent of revenue decreased to 11 points.
As a result, our adjusted EBITDA loss is less than $1 million year to date. Additionally, we generated $18 million of positive operating cash flow.
We are set to reach our goal of generating positive adjusted EBITDA on a full year basis in 2024. This.
This will be a meaningful milestone for the company unlocking the <unk> flywheel and the ability to reinvest cash flow into the business to capture more white space.
I will turn the call back to the operator to start Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Your first question comes from the line of Brian Mullan with Piper Sandler Your line is open.
Hi, Thank you. Thanks for all the detail in the prepared remarks, just a question on the development guidance for next year you gave it sounds like at the midpoint you are going to open maybe.
<unk> 25, or 26 restaurants thinks you're about one third of those will have the infinite kitchen.
If that goes well would the plan be to reaccelerate openings in 2025 and.
If so would you expect the mix of infinite kitchens to increase over time as well and just are there any constraints in terms of what your manufacturing partner might be able to deliver.
Hi, Brian Thanks for the question. So you're correct. The reason the reasons for the slight slowdown is to better integrate the infinite kitchen technology into the pipeline as we mentioned on the comments, we will begin to deploy the infinite kitchen in the back half of the year and the pipeline and we wanted to better integrate.
That and so we don't have to go back and do do as many retrofits, we do expect to speed up the development in 2025 and hope based off of the success of the <unk>.
The success of the deployment to have a greater share of infinite kitchens in that 2025 pipeline.
Okay. That's great. Thank you and just as a follow up for those initial seven to nine and infinite kitchen units next year could you, perhaps just share what you're targeting.
For for <unk>, and our restaurant level margin and maybe compare that to what I believe is for traditional sort of two $8 million to $3 million on the SUV and maybe an 18% to 20% margin and then just related any way you could give a sense of what it might cost per unit for those first seven to nine units or a range.
So here's what I can tell you we've opened one unit so far and we're really pleased with the results. We're seeing we're really pleased first and foremost with the customer experience customers. All the feedback we get is people love it they love the speed they loved the cleanliness just the hospitality experience, we're able to bring in our team members love it as well, we see lower turnover.
It's a more enjoyable experience to work in and of course, we're seeing a lot of margin leverage in that restaurant as we've guided before we see significantly less labor and so we gave a number on the naperville margin.
Last quarter I am not going to report on every quarter, but significant margin leverage as well, while we're not going to talk about the exact cost what I can say is that the deployment of the infinite kitchen will be accretive to our return on capital. So whatever the incremental cost will be the gains from the leverage on the labor will will be.
Creatives to that return on capital and what we expect in a classic unit.
In terms of where we're going with them, we're still very much in a learning phase. So we're while we opened our first one trying to we opened in a suburban restaurant opening a second one here in Huntington Beach as we look at the pipeline for next year, we're trying a bunch of different types of restaurants, so whether that'd be opening a new market with an infinite kitchen and seeing how that goes.
Couple of urban deployment couple other suburban deployment really understanding how it works in different.
Different types of real estate, so we know where we go with it in the future obviously, the infinite kitchen, it does better with higher higher volume. So we would like to generally targeted into stores that have slightly higher higher volumes for us.
I think I covered all of your questions. There, yes, yes, yes. Thank you very much.
Of course.
Your next question comes from the line of Brian Bittner with Oppenheimer. Your line is open.
Thanks.
Just a follow up to that question I mean, I think the infinite kitchen dynamic is pretty popular just given.
How successful it's been early on even though it's only been in one unit can you help us understand maybe the longer term retrofit opportunity I know theres a big opportunity.
And your new unit pipeline, but what are the main restrictions or maybe even perhaps opportunities as it relates to this dynamic on being able to insert an infinite kitchens into existing legacy units.
Thank you for the question, Brian So as we as we mentioned on the prepared remarks, we plant. We're planning two to four retrofits next year, we do see a huge retrofit opportunity and that's again something we're looking to learn we're looking to learn.
Few things in a retro that is that I think will be different from a new store specifically, what does that Max throughput due to our AAV in that restaurant as we mentioned before the infinite kitchens can do about 500 boes per hour, so really fast production and so we want to understand you put in a high really high demand store think about legacy.
<unk> store that has really high peak demand can we can we not only get the margin leverage but could we capture more demand in those restaurants and have of course, a better consistent experience. So that's that's what the retrofit learnings will be for US next year in terms of where we'll go with it we do see a lot of restaurants that can eventually be retrofitted.
The way, we're thinking about the technologies, it's quite modular both in terms of layout.
It can be square or can be linear also can be modular in terms of components to scale cost up and down depending on the AAV.
So lot of flexibility with the machine and still I just wanted to have a lot of learnings to have we have one that we're really happy about but still a lot more to learn and I think next year, we'll start to provide a lot more of those learnings for us and the last thing I'll say is you know what's interesting about this in the kitchen.
The cost on the infinite kitchen, as we scale, we will go down as we as we start to see economies of scale will continue to scale down and we've already started to see that on the flip side as we've all seen labor is inflationary. So we have two cost curves going significantly inflationary on the labor side, while the cost of the technology will come down so over.
Time, Mr can become very really powerful tools tool for us, especially as we've seen significant wage increases around the country.
And.
I've seen wage increases, but one very positive dynamic this quarter is the leverage that you're getting on the labor line.
Third quarter couple of hundred basis points there.
No you slightly touched on some of the drivers of that but can you dive a little deeper into into how youre pulling this off.
I know youre getting tighter with operations, but is there maybe are some of the new stores that you've built just doing much better on labor is there anything else to unpack.
So help us better understand the drivers of the year over year leverage on the labor line.
Absolutely. So as you know our business is all about <unk>.
So we've really been working towards dry pulling all the levers we have in terms of the labor specifically the gains have been around better deployment.
Some of it has been having our head coaches working more time on the floor consistent with the rest of the industry otherwise just been getting tighter with our labor deployment models. We've also seen a pretty significant increase in our head coach stability and as I mentioned on the call. We've seen turnover come down 15 points. So we expect turnover to continue to improve in the back the biggest.
Kate are on productivity is a more stable team and teams that are more 10 years. So it's <unk>.
<unk>, we invest a lot in our teams and our training and our culture. It's a huge part of what we do to provide that tie to our customers and as our teams get more time enrolled they're more productive not only in providing a better experience, but a more profitable experience. So a lot of the gains have been just more stable teams and better leadership.
Just really strong head coach <unk>.
Really strong <unk> performance and we expect that to continue as you know COVID-19 brought a lot of noise around the labor market and we've now seen a stabilization.
And then the last thing I'll say on that as we introduce tipping.
This quarter and we've seen some really positive results. Our team members are loving it and we see that as a as another accelerant to start to continue to bring turnover down.
Okay.
Awesome. Thank you.
Okay.
Your next question comes from the line of Chris <unk> with RBC capital markets. Your line is open.
Hi, Jonathan This is continues on for Chris here.
Hello, everyone.
Has it gotten guys. My first question is just.
When thinking about your priorities around menu innovation can you talk about your current market share at different day parts in the specific opportunities the brand has to lean into that as it relates to the day part.
Sure.
One of the most exciting things you've done in a long time the biggest menu launch we've had in.
Years has been what we launched last Tuesday with protein place.
I mentioned on the call, it's a new category that.
I love the tagline the marketing tagline that we have with it which is you don't have to be a solid person to be a sweet green person and the goal. There is a few things one is to broaden the consumer because many people that want to eat healthy real delicious craveable food, but may not wanted to eat a salad all the time. So this really starts to capture that broader consumer it really wouldn't.
Moving to the veto vote in many cases, which were really focused on driving that with our kids meals.
It does help us on dinner as well.
We've talked about the fact that dinner is about 35% of our business today. So we see a huge opportunity in growing share at dinner and really balancing that out and that should be really accretive to our unit level economics, but I can share is it's only been 90 days, but really encouraged by the early buy by the launch of protein place one.
The feedback from guests has been just phenomenal people are loving it delicious craveable.
The product mix has exceeded our expectations and we are actually seeing it really over index in some of our southeastern markets almost doubling what we expected so certain markets like Texas and the southeast we're seeing really really strong receptivity to it the last thing I'll say on it is this is just the beginning of building out this category.
So we launched <unk>.
Three protein place last week, you could expect us over the coming quarters and years to continue to build on top of this so think about different different unique base options. Other proteins that will build onto it and over time I see protein place really broadening the consumer.
Hoping us wind dinner and really helping us increase the candle the company.
Great. Thanks, and last one from me is can you could you expand a bit more on fleet pass any detail around the frequency or spend versus non loyalty customers would be great.
How are you thinking about the next steps for growing the Sui pass user base.
Absolutely. So we launched <unk> earlier this year, it's been approximately six months since launch we've been very focused on enrollment in both tiers, both the free tier and the and the page here. The memberships here, we just launched as I mentioned the ability to use III pass in stores. So for the first for most of the history of C pass It was a digital only program.
Starting just a few weeks here about a month ago, you can now use it in restaurants. So you could scan to earn earn loyalty points and use rewards in store, which is a very important and large channel for us. So we're really starting to learn a lot more about what it can do what I can say is we.
We expect to beat our internal targets from an enrollment perspective on CPAP.
And we are seeing some nice increments holiday out of it. However, I do believe there's a lot of opportunity for us to make minor tweaks around how we leverage the CRM and the different customer journeys to see more incremental 80 out of that so as we look forward to 2024 and the comp drivers focused comp drivers for us continuing to optimize and leverage.
We passed was very high on the list.
Great. Thanks, guys.
Yeah.
Thank you.
Your next question comes from the line of Katherine Griffin with Bank of America. Your line is open.
Hi, Thanks for the question.
First I wanted to ask about just the increase and discounting on this quarter and sort of what youre seeing in terms of.
Customer sentiment right now is you can speak a little bit two quarter to date trends and if that's sort of why you're seeing a little bit more discounting is it a response to that or is that more about customer acquisition with loyalty I'm just sort of curious about the he says with discounting and I think well.
What we should think in terms of.
Maybe a headwind for them going forward just on on the next component.
From that.
Thanks Mitch.
I think what we would say is that were.
Really seeing no real change in kind of our customer sentiment, although we are watching very closely and.
Kind of in line with everything we read.
We have some degree of concern on the future.
Discounting is up slightly in the quarter largely due to the launch of sweep pass plus more than increased discounting by the company.
Okay. So yeah, I mean I guess the question then is just as you think about Iterating the loyalty program.
To what extent do you plan to incorporate discounting and I guess sort of how should we think about it.
Kind of how long that that sort of headwind exist before you start to see you know the the return on that in terms of your expectations for for loyalty.
No I would say at this point in time, we don't see.
The need to increase discounting for Sui pass plus.
Okay fair enough. Thank you. Thank you.
Your next question comes from the line of Matt Curtis with William Blair. Your line is open.
Hi, Thanks for taking the question just to follow up on this with past discussion.
I understand it's going to be.
An important driver of comps.
In the future.
But I was just wondering if you could talk about what the impacts are.
What impacts we've passed has had on comps so far or is it too early to say.
I think very marginal so far as I mentioned earlier, we're very much in the new enrollment and acquisitions. There is more of an investment period.
As we build that membership ways will move into leveraging it. So like I said, it's a huge focus for us to make some optimizations on on <unk>.
On the on the underlying framework, we're pretty happy with how that works, but I think there's some work we can do in terms of the journey and how we leverage the CRM.
Drive that frequency of gas and there's probably a few minor thing you can do in terms of driving better enrollment upfront. So expect to see some minor changes, but overall pleased with the pleased with the start and do you think this will be a big comp driver in the years ahead and has not been a huge huge impact for us thus far.
Okay. Thanks for that.
Just one other question.
On the quarter.
Like other restaurants of Opex was pretty significantly at least more than we were expecting can you just describe what drove that.
Okay.
And that again.
Yes, sorry.
It's just a question on third quarter other restaurant operating costs. It was up pretty significantly at least more than we were projecting.
I was just wondering if you could say what drove that.
Yeah.
No actually.
Difficult for me to explain why it was up versus what was expected we saw no significant change in our inside numbers or planning.
Okay. Thank you.
Okay.
Okay.
And your last question comes from the line of Andrew Charles with TD Cowen Your line is open.
Thank you this is actually <unk> on for Andrew.
Looking at the updated guidance relative to the start of the year. The store openings are at the high end.
And the same store sales are at the midpoint the midpoint of the same store sales was unchanged.
The revenue guidance was updated to lower half of that range. So can you talk about whats leading that if everything else is that the higher the midpoint or higher end of the ranch.
Yes, thanks for the question.
All I can really say about that is it kind of head into the fourth quarter is where kind of cognizant of all the consumer uncertainty that we hear and read about and as you know seasonally we're heading into our softest quarter of the year and it contains three holiday weeks and I think those factors all kind of play together to lead us to the guidance number.
Okay got it. Thank you and then just a question on the third quarter. So the same store sales for the full quarter. It seemed to exceed what you had disclosed for the July period.
So what is there that acceleration throughout the quarter and what do you attribute that to.
Yes. Thank you we saw our same store sales grow each month in the third quarter. So August is bigger than July and September was bigger than August. So we saw periods of sequential growth all quarter.
Okay, great. Thank you.
Yeah.
We do have another question from Brian Mullan with Piper Sandler Your line is open.
Hey, Thanks for taking a follow up just a question on the restaurant level margins. If we were to take the upper end of the guide this year and so you got to 17 five that's a lot of really good progress year on year.
If you put aside the infinite kitchen for a second do you think restaurant level margins could expand next year and I ask that within the context of <unk>.
I believe you still think there's a path to 20% over time without the infinite kitchen. So I'm just curious if you could kind of give some early thoughts.
On.
If you could expand them next year.
Great. Thanks for the question, Yes, we do see our restaurant level margins to continue to expand year over year. We believe next year in 2024, they will exceed 2023, and we clearly see a path to kind of that benchmark 20%.
We had a 20% margin in the second quarter of this year, we ran 19% in the third quarter.
Because we kind of look out on the things that we've discussed earlier both of them to cost structure side or on labor optimization and on the growth side around menus. We pass three pass plus that we actually see drivers to increase revenue and costs coming down and we think that's.
Clearly a path to 20% near term and Thats without any benefit from the U K, which quite frankly could be transformational over the next few years.
Okay. Thank you Mitch.
Okay.
This concludes today's call you may now disconnect.
Okay.
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