Q2 2024 Sweetgreen Inc Earnings Call

We do request for today's session that you please let me yourself to one question and one follow-up.

Operator: If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. You may begin.

If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Rebecca Nounou, Vice President, Head of Investor Relations, you may begin.

Rebecca Nounou: Thank you and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, co-founder and chief executive officer, and Mitch Reback, chief financial officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release also applies to our comments made during the call.

Rebecca Nounou: Thank you and good afternoon everyone. Speaking on today's call, we'll be Jonathan Neman, co-founder and chief executive officer and Mitch Reback, chief financial officer.

Both will be available for questions during the Q&A session following the prepared remarks.

Rebecca Nounou: Today's call is being webcast live and recorded for replay. I'd like to remind everyone that the information under the heading forward-looking statements included in our earnings release also apply to our comments made during the call.

Rebecca Nounou: These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise these forward-looking statements. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website. With that, it's my pleasure to turn the call over to Jonathan to kick things off.

These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements.

We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.

Rebecca Nounou: Our earnings release can be found on our Investor website. With that, it's my pleasure to turn the cult over to Jonathan to kick things off.

Jonathan Neman: Thank you, Rebecca, and good afternoon, everyone. We had a strong second quarter, a testament to the groundwork we laid in 2023, the impact of our growth strategies, and the strength of our team. We reported sales of $184.6 million, representing 21% year-over-year growth. Game store sales grew 9%.

Jonathan: Thank you, Rebecca, and good afternoon everyone. We had a strong second quarter, a testament to the groundwork we laid in 2023, the impact of our growth strategies and the strength of our team.

Jonathan: We reported sales of $184.6 million, representing 21% year-over-year growth. Game store sales grew 9%. This consisted of a 5% benefit for menu price and 4% positive traffic and mix.

Jonathan Neman: This consisted of a 5% benefit for menu prices and 4% positive traffic. Restaurant level margin for the second quarter was 22.5%, expanding over 200 basis points year over year, making this one of the highest restaurant level margin performances in the company. Additionally, we generated an adjusted EBITDA of $12.4 million for the... We delivered a strong second quarter due to several factors, including the launch of caramelized garlic steak, disciplined operational execution, and strong restaurants, all part of our simple two-pronged strategy. One, continue building our brand by creating great products and getting, to expand our connection to guests by building and operating great hotels. Let me share some of the highlights from this course.

Restaurant-level margin for the second quarter was 22.5%, expanding over 200 basis points year-over-year, making this one of the highest restaurant-level margin performances in the company's history.

Rebecca Nounou: Additionally, we generated an adjusted EBITDA of $12.4 million for the quarter.

Rebecca Nounou: We delivered a strong second quarter due to several factors, including the launch of caramelized garlic steak, disciplined operational execution, and strong restaurant openings, all part of our simple, true-pronged strategy.

Rebecca Nounou: One, continue building our brand by creating great products and guest experiences.

Rebecca Nounou: Two, expand our connection to guests by building and operating great restaurants.

Jonathan Neman: During the second quarter, we opened four new restaurants, one in Washington, D.C., Chicago, Morristown, New Jersey, and Salem, New Hampshire; New Hampshire being a new market. Our 2024 cohort of new restaurant openings is ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average. As we shared a few quarters ago, we relaunched our Intimacy at Scale playbook to execute new openings. This playbook prioritizes choosing the best real estate, having the right leaders in place, and strategically investing in brand awareness, which is paying dividends. Additionally, we saw strong top-line performance in emerging markets such as the Midwest, Texas, and the South.

Rebecca Nounou: Let me share some of the highlights from this quarter.

Rebecca Nounou: During the second quarter, we opened four new restaurants, one in Washington, D.C., Chicago, Morristown, New Jersey, and Salem, New Hampshire, New Hampshire being a new market for us.

Rebecca Nounou: Our 2024 cohort of new restaurant openings are ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average.

Rebecca Nounou: As we shared a few quarters ago, we relaunched our intimacy at scale playbook to execute new openings. This playbook prioritized choosing the best real estate having the right leaders in place, and strategically investing in brand awareness, which is paying dividends.

Rebecca Nounou: Additionally, we saw strong top-line performance in emerging markets such as the Midwest, Texas, and the Southeast.

Jonathan Neman: Our results continue to show that our brand's relevancy extends far beyond our current locations, with considerable white space in both new and existing buildings. Sweetgreen's high-quality offering and compelling value is clearly resonating with consumers in today's industry backyards. On July 15th, we completed our first Infinite Kitchen retrofit at Penn Plaza, which is now the fastest way to get Sweetgreen in New York City. The retrofit began in June and took seven weeks to complete. We were able to keep the restaurant partially open during six of the seven weeks of renovation for online ordering and delivery, while the restaurant was fully closed.

Rebecca Nounou: A results continue to show that our brand's relevancy extends far beyond our current footprint.

Rebecca Nounou: with considerable white space in both new and existing markets.

Speaker Change: Sweetgreen's high quality offering and compelling value is clearly resonating with consumers in today's industry backdrop.

Speaker Change: On July 15th, we completed our first infinite kitchen retrofit at Penn Plaza, which is now the fastest way to get to be green in New York City.

Speaker Change: The retrofit began in June and took seven weeks to complete. We were able to keep the restaurant partially open during six of the seven weeks of renovation for online ordering and delivery.

Jonathan Neman: It is the first infinite kitchen made by our contract manufacturer, which was delivered on time and on target. Since reopening, we are seeing some of the highest throughput levels we have seen at the store. While less than a month in operation, we are pleased with the performance of the store. We remain on track to open a total of seven new restaurants featuring the Infinite Kitchen, as well as retrofitting two to three existing restaurants with the Infinite Kitchen in 2020.

Speaker Change: The restaurant was fully closed for one week.

Speaker Change: It is the first Infinite Kitchen made by our contract manufacturer, which was delivered on time and at target cost.

Speaker Change: Since reopening, we are seeing some of the highest throughput levels we have seen at the store. While less than a month in operation, we are pleased with the performance of the restaurant.

Speaker Change: We remain on track to open a total of 70 restaurants featuring the infinite kitchen, as well as retrofitting two to three existing restaurants with the infinite kitchen in 2024.

Jonathan Neman: Looking ahead, we are resuming a new unit growth rate of 15 to 20% annually, with 2025 being at the lower end of this range and 2026 and beyond targeting the upper end. The majority of our 2025 pipeline is identified, and we are working on our 2026. Our menu innovation has attracted new guests, driving traffic and check sites. Caramelized Garlic Steak, which launched in May, and Protein Plates have been particularly successful at driving same-store sales at dinner and on weekends in the second. Dinner now represents 40% of sales, excluding the 2 to 4 p.m. midday period. This was an expansion of three percentage points year over year. Additionally, in June, weekend same-store sales grew by double digits.

Speaker Change: Looking ahead, we are resuming a new unit growth rate of 15-20% annually, with 2025 being at the lower end of this range and 2026 and beyond targeting the upper end of the range.

Speaker Change: The majority of our 2025 pipeline is identified and we are working on our 2026 pipeline.

Speaker Change: For many innovation has attracted new guests driving traffic and check sizes.

Speaker Change: Caramelized Garlic Steak, which launched in May, and Protein Plates have been particularly successful at driving same-store sales at dinner and on weekends in the second quarter.

Bittner: Bittner now represents 40% of sales excluding the 2 to 4 p.m. midday day part.

Speaker Change: This was an expansion of 3 percentage point year over year. Additionally, in June, we can same source sales grew by double digits. We've also seen our share of nail guests acquired steadily increased since the fourth quarter of last year.

Jonathan Neman: We've also seen our share of male guests acquired steadily increase since the fourth quarter of life. We believe our culinary innovation will allow us to further grow our dinner mix as well as be a driver of long-term. With respect to operations, our teams remain focused on prioritizing the guest experience and increasing throughput. We saw progress across the fleet, and it reflected in our results this quarter. This will continue to be an area of focus for us moving forward. Part of our culture is creating an ownership mindset, and our incentives are aligned to these values. These incentives include bonuses and equity grants for our head coach.

Bittner: We believe our culinary innovation will allow us to further grow our dinner mix as well as be a driver of long-term traffic.

Bittner: With respect to operations, our teams remain focused on prioritizing the guest experience and increasing throughput. We saw progress across the fleet and it reflected in our results this quarter.

Bittner: This will continue to be an area of focus for us moving forward.

Bittner: Part of our culture is creating an ownership mindset and our incentives are aligned to these values.

Jonathan Neman: As we prepare for more restaurant openings in the coming years, we are building a solid pipeline of future head coaches and are thrilled about the growth opportunities for all of our team members. This is why we've been focused on investing in the employee experience, including upgrading our learning path with an emphasis on leadership skills like performance management, culinary skills, and hospitality. We believe that Sweetgreen offers a career and not just a job. Many of our best head coaches are developed from within, and we are proud that over 50% are promoted from within.

Bittner: These incentives include bonuses and equity grants for our head coaches.

Bittner: As we prepare for more restaurant openings in the coming years, we are building a solid pipeline of future head coaches and are thrilled about the growth opportunities for all of our team members.

Bittner: This is why we've been focused on investing in the employee experience, including upgrading our learning path with an emphasis on leadership skills, like performance management, culinary skills, and hospitality. We believe that SweetGrain offers a career and not just a job.

Bittner: Many of our Best Head Coaches are developed from within and we are proud that over 50% are promoted from within. As we move forward, our goal is to increase this percentage.

Jonathan Neman: As we move forward, our goal is to increase this. We've been focused on investing in head coaches to improve stability, because keeping leaders in place can reduce restaurant turnover, which has stabilized at a new low. Last week, Sweetgreen turned 17. Since day one, we've had a vision to redefine fast food by creating a concept that is committed to being fresh, craveable, convenient, and sustainable. Our unique sourcing model, partnering with farmers and suppliers we know and trust, combined with our commitment to delivering compelling value at scale, has made Sweetgreen a category leader.

Bittner: We've been focused on investing in head coaches to improve stability, because keeping leaders in place can reduce restaurant turnover, which has stabilized at a new post-pandemic low.

Speaker Change: Last week, sweet green turn 17.

Speaker Change: Since day one, we've had a vision to redefine fast food by creating a concept that is committed to being fresh, craveable, convenient, and sustainable.

Bittner: Our unique sourcing model, partnering with farmers and suppliers we know and trust, combined with our commitment to delivering compelling value at scale, has made Sweetgreen a category leader.

Jonathan Neman: We plan to continue to lead and define this category by thoughtfully expanding our menu, building out our digital program, introducing new formats, and innovating how restaurants of the future will operate via the Internet. I want to thank all of our team members for their hard work. Over the past two years, we've been focused on strengthening our operations and financial model and positioning ourselves to accelerate profitable growth. Now, I will turn the call over to Mitch to review our financial results in further detail. Thank you.

Bittner: We plan to continue to lead and define this category by thoughtfully expanding our menu, building out our digital program, introducing new formats, and innovating how restaurants of the future will operate via the Infinite Kitchen.

Bittner: I want to thank all of our team members for their hard work. Over the past two years we've been focused on strengthening our operations in financial model and positioning ourselves to accelerate profitable growth. Now I will turn over the call to Mitch to your financial results in further detail.

Mitch Reback: Thank you, Jonathan, and good afternoon everyone. As Jonathan just shared, our hard work over the past several quarters and commitment to disciplined capital efficient growth are demonstrated in our second quarter results. We achieved our 13th consecutive quarter of over 20% revenue growth, with same store sales reaching their highest level in two years. This flowed through to restaurant level margin and adjusted EBITDA. For 2024, we remain on track to be adjusted EBITDA positive on an annual basis.

Mitch Reback: Thank you, Jonathan, and good afternoon, everyone. As Jonathan just shared, our hard work over the past several quarters and commitment to disciplined, capital-efficient growth is demonstrated in our second quarter results.

Mitch Reback: We achieved our 13th consecutive quarter of over 20% revenue growled with same store sales reaching as highest level in two years.

Mitch Reback: This flowed through the terrestrial level margin and adjusted EBITDA. For 2024, we remain unscracted to be adjusted to the EBITDA positive on an annual basis.

Mitch Reback: Total revenue for the quarter was $184.6 million, up from $152.5 million in the second quarter of 2023, growing 21% year-over-year. For the second quarter, same store sales grew 9% year-over-year. This consisted of a 5% benefit from increased menu prices and a 4% increase due to positive traffic and mix. All markets performed positively, with very strong growth led by newer markets, Texas, Florida, Atlanta, and the Upper Midwest. Year to date, same store sales change is running at 7%. Our average unit volume in the second quarter was 2.9 million.

Speaker Change: Total revenue for the quarter was $184.6 million, up from $152.5 million in the second quarter of 2023, growing 21% year-over-year.

Mitch Reback: For the second quarter, same-store sales grew 9% year over year. This consisted of a 5% benefit from increased menu prices and a 4% increase due to positive traffic and mix.

Mitch Reback: All markets comped positively, with very strong growth led by newer markets, Texas, Florida, Atlanta, and the Upper Midwest.

Mitch Reback: Year-to-date same-store sales change is running at 7%.

Mitch Reback: Our average unit volume in the second quarter was 2.9 million.

Mitch Reback: Restaurant level profit margin in the second quarter was 22.5% compared to 20.4% a year ago. This is more than a 200 basis point improvement from the second quarter of 2023. Margins were strong across all regions and age codes.

Mitch Reback: Restaurant level profit margin in the second quarter was 22.5% compared to 20.4% a year ago. This is more than a 200 basis point improvement from the second quarter of 2023.

Mitch Reback: Margins were strong across all regions and age cohorts.

Mitch Reback: Here today, restaurant level profit margin is 20.5%.

Mitch Reback: Restaurant-level profit for the second quarter was $41.5 million, a more than 30% increase year-over-year. For a reconciliation of restaurant-level margin to comparable gap figures, please refer to the earnings release.

Mitch Reback: Here today, the restaurant-level profit margin is 20.5%. Restaurant-level profit for the second quarter was $41.5 million, a more than 30% increase year-over-year. For a reconciliation of restaurant-level margin to comparable gap figures, please refer to the earnings release. In the second quarter of 2024, we opened four restaurants, including restaurants in Washington, DC, Chicago, Morris County, New Jersey, and Salem, New Hampshire, a new market for

Mitch Reback: In the second quarter of 2024, we opened four restaurants, including restaurants in Washington, DC, Chicago, Morris Town, New Jersey, and Salem, New Hampshire, a new market for us. We ended the quarter with a total of 231 restaurants.

Mitch Reback: We ended the quarter with a total of 231 restaurants. Our infinite kitchens continue to deliver on our financial, operational, and customer service. Naperville just crossed its one-year anniversary in May with $2.8 million in sales.

Mitch Reback: Our infinite kitchens continue to deliver on our financial, operational, and customer service metrics.

Mitch Reback: Naperville just crossed its one-year anniversary in May with $2.8 million in sales.

Mitch Reback: For the second quarter of the restaurant's opening, the level of restaurant margin was 31.3%. In its first year, team member turnover was around 45% less than what we see in a classic restaurant at a similar stage. Our Huntington Beach IK is six months old and following a similar trajectory.

Mitch Reback: For the second quarter of the restaurant level margin was 31.3%. In its first year, team member turnover was around 45% less than what we see in a classic restaurant at a similar stage. Our Huntington Beach IK is six months old and following a similar trajectory.

Mitch Reback: Our Penn Plaza retrofit, open for a few weeks, has shown strong performance. On its second day, the Infinite Kitchen produced nearly 200 bowls in 30 minutes with 100% on-time reliability and has the potential to reach 500 bowls per hour. As Jonathan mentioned, Penn Plaza offers the fastest way to get Sweetgreen, with an average order completion time of just under three and a half minutes.

Mitch Reback: Our Penn Plaza retrofit, open for a few weeks, has shown strong performance.

Mitch Reback: On its second day, the Infinite Kitchen produced nearly 200 bowls in 30 minutes with 100% on-time reliability and has the potential to reach 500 bowls per hour.

Mitch Reback: As Jonathan mentioned, Penn Plaza offers the fastest way to get Sweetgreen, with an average order completion time of just under three and a half minutes.

Speaker Change: For 2024, we are on track to open between 24 and 26 new restaurants, seven of which will contain the Infinite Kitchen.

Mitch Reback: For 2024, we are on track to open between 24 and 26 new restaurants, seven of which will contain the Infinite Kitchen. These seven restaurants are scheduled to be opened in Q3 and Q4 of 2024, one of which was opened this week at Fashion Island in Newport Beach, California. Food, beverage, and packaging costs were 27% of revenue for the quarter, flat year-over-year. Labor-related expenses were 27% of revenue for the second quarter, a 200 basis point improvement year over year.

Speaker Change: These seven restaurants are scheduled to be opened in Q3 and Q4 of 2024, one of which was opened this week in Fashion Island in Newport Beach, California.

Speaker Change: Food, beverage, and packaging costs were 27% of revenue for the quarter, flat year-over-year.

Speaker Change: Labor-related expenses were 27% of revenue for the second quarter, a 200 basis point improvement year-over-year. While we experienced wage rate increases, this is more than offset with improvements to labor optimization.

Mitch Reback: While we experienced wage rate increases, this was more than offset by improvements to labor optimization. Occupancy and related expenses were 8% of revenue, a 100 basis point improvement year over year. General and administrative expenses $39.2 million, or 21% of revenue for the second quarter of 2024, as compared to $40.4 million, or 26% of revenue in the prior year period. The decrease in general and administrative expenses was primarily due to a $3.6 million decrease in stock-based compensation expense, which was partially offset by an increase in our investment in advertising.

Speaker Change: Occupancy and related expenses were eight percent of revenue, a hundred basis point improvement year over year.

Speaker Change: General and administrative expenses $39.2 million or 21% of revenue for the second quarter of 2024, as compared to $40.4 million or 26% of revenue in the prior year period.

Speaker Change: The decrease in general in administrative expenses was primarily due to a 3.6 million decrease in stock-based compensation expense, which was partially offset by an increase in our investment in advertising.

Mitch Reback: The net loss for the second quarter of fiscal 2024 was $14.5 million, as compared to a loss of $27.3 million in the prior year period. The decrease in net loss is primarily due to a 10.4 million increase in our restaurant level profit and a 4.5 million decrease in restructuring, a 1.2 million decrease in pre-opening, and a 1.1 million decrease in general and administrative expenses, as described above. These decreases were partially offset by an increase in depreciation and amortization expense, primarily associated with an increase in restaurants as well as an increase in other expenses related to the change in fair value of our contingent consideration.

Speaker Change: Net loss for the second quarter of fiscal 2024 was $14.5 million, as compared to a loss of $27.3 million in the prior year period.

Speaker Change: The decrease in net loss is primarily due to a $10.4 million increase in our restaurant level profit and a $4.5 million decrease in restructuring, a $1.2 million decrease in pre-opening, and a $1.1 million decrease in general and administrative expenses described above.

Speaker Change: These decreases were partially offset by an increase in depreciation and amortization expense primarily associated with an increase in restaurants as well as an increase in other expenses related to the change in fair value of our contingent consideration.

Mitch Reback: Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $12.4 million for the second quarter, an improvement of $9.1 million from the second quarter of 2023. We ended the quarter with a cash balance of $245 million.

Speaker Change: Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $12.4 million for the second quarter, an improvement of $9.1 million from the second quarter of 2023.

Speaker Change: We ended the quarter with a cash balance of $245 million. During the first six months of 2024, we generated a positive operating cash flow of $22.5 million.

Mitch Reback: During the first six months of 2024, we generated a positive operating cash flow of $22.5 million. Now, turning to guidance. For fiscal year 2024, the raising of guidance reflects our strong performance in the first half of the year. However, we remain cautious for the second half of the year, given what we are reading about the uncertain U.S. economic backdrop. Additionally, our guidance reflects the retrofitting of two high-volume restaurants with the Infinite Kitchen, including Willis Tower in Chicago.

Speaker Change: Now turning to guidance.

Speaker Change: For the fiscal year 2024, the raising guidance reflects our strong performance in the first half of the year.

Speaker Change: We remain cautious for the second half of the year given what we are reading about the uncertain U.S. economic backdrop.

Speaker Change: Additionally, our guidance reflects the retrofitting of two high-volume restaurants with the Infinite Kitchen, including Willis Tower in Chicago.

Mitch Reback: 24 to 26 net new restaurant openings, revenue ranging from $670 to $680 million, same-store sales growth between 5 and 7 percent, restaurant-level margins between 19 and 20 percent, and adjusted EBITDA between 16 and 19 million dollars. As we shared before, we remain committed to disciplined capital efficient growth and driving profitability so that we can accelerate the Sweetgreen flywheel. We remain focused on building our brand, culinary innovation, leveraging our unique supply chain, and delivering operational excellence. With this focus, we believe we are well positioned to deliver long-term growth for our state. With that, I'll turn the call back to the operator to start Q&A.

Speaker Change: 24 to 26 net new restaurant openings, revenue ranging from $670 to $680 million.

Speaker Change: The same store sales growth between five and seven percent, restaurant level margins between 19 and 20 percent, and adjusted EBITDA between 16 and 19 million dollars.

Speaker Change: As we shared before, we remain committed to disciplined, capital-efficient growth and driving profitability so that we can accelerate the Sweetgreen flywheel.

Speaker Change: We remain focused on building our brand, culinary innovation, leveraging our unique supply chain and delivering operational excellence. With this focus we believe your world position to deliver long-term growth for our stakeholders.

Speaker Change: With that, I'll turn the call back to the operator to start Q&A.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the conversation. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Operator: Again, we do request for today's session that you please limit yourself to one question and one follow-up. Your first question comes from the line of Sharon Zackfia with William Blair. Please go ahead. Hi, thanks for taking the question.

Speaker Change: Thank you. The floor is now open for questions.

Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Speaker Change: If you would like to withdraw your question, simply press star 1 again.

Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, we do request for today's session that you please limit yourself to one question and one follow-up.

Speaker Change: Your first question comes from the line of Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia: You know, the quarter comp was really impressive and obviously had this nice uptick sequentially in transaction and mix. Can you talk about what was the primary driver between those two components? Because I recognize that stake was probably a mixed benefit, so I'm not sure how much we should really attribute to traffic versus mix. And then, Mitch, you know, when you're talking about the uncertainty in the macro environment, it doesn't seem like you're seeing anything, but I just want to clarify if that is in fact the case.

Sharon Zackfia: Hi, thanks for taking the question.

Speaker Change: You know, the quarter comp was really impressive and obviously had these nice uptick, sequentially in transaction and mix.

Sharon Zackfia: Can you talk about what was the primary driver between those two components because I recognize as stake was probably an extent of it, so I'm not sure how much we should really be able to drop like versus mix, and then secondarily.

Speaker Change: Mitch, you know, when you're talking about the uncertainty in the macro environment, it doesn't seem like you're seeing anything, but I just want to clarify if that is in fact the case.

Speaker Change: Hello, I'm Jonathan Neman, I'm Jonathan Neman, I'm

Mitch Reback: Thank you very much, Sharon, for the question. So let me break the question apart into two months and take the first one, which was about the second quarter. Do we have any kind of comments about the traffic and mix and how it's sequentially built? Let me just say that for the quarter, our traffic was positive, and it sequentially built each month during the quarter. The mixed benefit was largely attributable to the launch of stay.

Speaker Change: Thank you very much, Sharon, for the question. So let me break the question apart in the two buttons to take the first one, which was on the second corner, we have any kind of comments about the traffic and mix and how it's sequentially built.

Speaker Change: Let me just say that for the quarter, our traffic was positive and it sequentially built each month during the quarter. The mixed benefit was largely attributable to the launch of stake.

Mitch Reback: Your second question, I believe, was what we were seeing in terms of the cautious guide, and I guess I'll translate that a little bit to what we were seeing early on in Q3. Like a lot of other people have reported, the first week of the quarter was soft around the 4th of July.

Speaker Change: Your second question I believe was what are we seeing in terms of the cautious guide and I guess I'll translate that a little bit to what are we seeing early on in Q3.

Speaker Change: Like a lot of other people have reported the first week of the quarter was soft around the fourth to July.

Mitch Reback: As we moved away from the 4th of July, our business picked up, and for the last three weeks of July, our business com comped at the top end of our guidance. I think what I would say, in a kind of making an overall comment, is that we feel really happy and comfortable with the things that we control in our business. We're very happy with the menu innovation and, more importantly, the customer acceptance of our new items.

Speaker Change: As we moved away from the 4th of July , our business picked up, and for the last three weeks of July , our business comped at the top end of our guidance.

Speaker Change: I think what I would say in a kind of making an overall comment is we feel really happy and comfortable with the things that we control in our business. We're very happy with the menu innovation and more importantly the customer acceptance of our new items.

Speaker Change: We're very happy with the marketing that we've moved to more out of home and have shown very strong results.

Speaker Change: We talked in the past about improving our labor scheduling and deployment in order to improve hospitality and lower labor costs as a percent of revenue, and we're very pleased with our results.

Speaker Change: We lead it to when the script repeats with our new market response and the strong comp growth rates we're seeing across all of our new markets and the class of 2024 opened up very strong with higher weekly revenue than we're seeing in the fleet.

Mitch Reback: And the class of 2024 opened up very strong with higher weekly revenue than we're seeing in the fleet. However, we feel like we do not control the outside world. And we kind of read the same stuff and the same papers everybody reads and reports on, and I think we have a degree of kind of cautiousness around the external environment. Having said that, we are pleased with the fact that July, and the last three weeks of July, came in at the top end of our guidance.

Speaker Change: However, we feel like we do not control the outside world and we kind of read the same stuff and the same papers everybody reads and reports on

Speaker Change: and I think we have a degree of kind of cautiousness around the external environment. Having said that, we are pleased with the fact that July last three weeks of July came at the top end of our rodents.

Jonathan Neman: Thanks for that. And as a follow-up on the IK at Penn, are you seeing customers discover the improved throughput via walk-in, or does it happen more in the digital channel first? Thanks. Hi Sharon.

Speaker Change: Thanks for that, and as my follow-up on the IK at Penn, are you seeing customers discover the improved throughput via walk-in or doesn't happen more in the digital channel first? Thanks.

Jonathan Neman: Hi Sharon, good to hear from you and thank you for the question. So just before I begin, I'd love to just thank the whole Sweetgreen team for a phenomenal quarter. A lot of hard work to get to this point, and I just want to take a moment to thank every single person, you know, especially our frontline team members, our head coaches that really bring the Sweetgreen mission to life every day. As it relates to Penn Plaza, I think if you go and experience it, it's pretty amazing.

Speaker Change: Hi Sharon, good to hear from you and thank you for the question. So just before I begin, I'd love to just thank the whole Sweetgreen team for a phenomenal quarter. A lot of hard work to get to this point and I just want to take a moment to thank

Speaker Change: As it relates to Penn Plaza, you know, I think if you go and experience it, it's pretty, it's pretty amazing. I mean, we're, we're delivering food in under an under three and a half minutes.

Jonathan Neman: I mean, we're delivering food in under three and a half minutes. If you had gone to that store before at peak times, you would have waited in line for 10 to 15 minutes, and then once you started your order, probably, you know, you're about another three minutes until you get your food. So you can now pretty much walk in. There's almost, you know, the way we've designed it with the kiosk ordering as well as the concierge ordering, practically zero wait to order, and your food is out in three and a half minutes. So that is aside from the digital orders, which again are, you know, if you're ordering on your phone, it's also that fast.

Speaker Change: If you had gone to that store before at peak, you would have waited in line.

Speaker Change: You know, 10 to 15 minutes, and then once you've started your order, probably, you know, you're about another three minutes until you get your food.

Speaker Change: So you can now pretty much walk in, there's almost, you know, the way we've designed it with the kiosk ordering as well as the concierge ordering, practically zero wake to order and your food is out in three and a half minutes.

Speaker Change: That is aside from the digital orders, which, again, if you order on your phone, it's also that fast. So, very encouraged. We're seeing some really positive feedback.

Katherine Griffin: So, very encouraged. We're seeing some really positive feedback from consumers. Also, we're seeing some great positive feedback from our team members, which is really important. This is the first restaurant where we had team members that worked in an old, you know, an existing Sweetgreen that are now working in the new model. So we get an interesting test on seeing how they view the experience, and they're really thrilled. It's just a lot more fun, and, you know, it's an easier place to work for them.

Speaker Change: from Consumers. Also seeing some great positive feedback from our team members, which is really important. This is the first restaurant where we had team members that worked in an old rest, you know, old and existing Sweetgreen that are now working in the new model. So we get an interesting test on seeing how they.

Speaker Change: view the experience, and they're really thrilled. It's just a lot more fun, and you know, it's an easier place to work for them. And so really excited about it. I think it's early, but encouraging, and I think over time as customers

Katherine Griffin: And so, I'm really excited about it. I think it's early but encouraging, and I think over time, as customers understand how fast they can get through and get their Sweetgreen, I think we will continue to see some traffic-driving potential there.

Speaker Change: Understand how fast it can get through and get their sweet green, I think we will continue to see some traffic driving a potential there.

Katherine Griffin: Your next question comes from the line of Katherine Griffin with Bank of America. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Katherine Griffin with Bank of America. Please go ahead.

Jonathan Neman: Hi. Thanks for the question.

Katherine Griffin: Hi, thanks for the question. First, I wanted to ask another question I guess on marketing, and it's been a different tax for sweet green, the advertising around the caramelized.

Jonathan Neman: First, I wanted to ask another question, I guess, on marketing. It's been a different tack for Sweetgreen, the advertising around the caramelized garlic steak launch. It's clearly been successful. It seems like you're seeing a return on it. So I'm curious if this is something you're thinking about incorporating in your, you know, go-forward strategy, or if it's more something that's reserved for, you know, a big, you know, culinary launch. Just any thoughts, I guess, on advertising for Sweetgreen going forward.

Katherine Griffin: Garlic Steak Lunch. It's clearly been successful. It seems like you're seeing a return on it. So I'm curious if this is something you're thinking about incorporating in your, you know, go forward strategy or if it's

Katherine Griffin: for something that's reserved for a big, you know, culinary launch to many thoughts I guess on advertising for as we can going forward.

Jonathan Neman: Sure, thank you for the question. I'd say it's much more of how you can expect us to go forward. We've made some good investments in the talent around our marketing team. So shout out to our marketing team, they did a great job. Really taking, really thinking about 360 campaigns, including how we leverage out of home, digital, and community, and we're seeing some really great results around that. So we will be incorporating this into our go forward strategy. We've also, You know, many people still think about Sweetgreen as a salad. We've never viewed it that way.

Speaker Change: Sure, thank you for the question. So I'd say it's much more of how you can expect us to go forward. We've made some good investments in the talent around our marketing team, so shout out to our marketing team, done a great job.

Speaker Change: Really thinking about 360 campaigns, including how we levered out a home, digital community, and we're seeing some really great results around it. So we will be incorporating this into our GoFour strategy. We've also, you know,

Speaker Change: Many people still think about Sweetgreen as a salad company.

Jonathan Neman: From the very beginning, the idea was to create a company that leveraged a really unique, fresh supply chain, focusing on how we make our food, and then apply that to different types of food. Of course, we started with salads, and that's what we're very much known for. But as you're seeing, we're starting to branch out and leverage that license the brand has around quality, craveable, fresh food and then apply it to plates.

Katherine Griffin: We've never viewed it that way. From the very beginning, the idea was to create a company that leveraged in a really unique, fresh supply chain.

Katherine Griffin: Craft around how we make our food and then apply that to different types of food. Of course, we started with salads and that's what we're very much known for. But as you're seeing, we're starting to branch out and leverage that license.

Speaker Change: The brand has around the quality craveable fresh food and then apply it to plates and over the next year or so you're going to see a lot more menu innovation.

Jonathan Neman: And over the next year or so, you're gonna see a lot more menu innovation. And one of the things that we're really excited about that we saw in this quarter, which is something we've been working on for a while, is that broadening of our consumer and broadening of our daypart. So we've seen a nice shift in dinner with a huge growth in that dinner day part. We've broadened the consumer. And some of the results we've seen; a lot of the success was actually from a lot of the emerging markets that at one point were a little bit questionable for us. We saw some massive comps in those markets, and I attribute that to a combination of the great culinary innovation we've had with this new approach to marketing.

Speaker Change: And one of the things that we're really excited about that we've, you know, that we've seen in this quarter, which is something we've been working on for a while, is that broadening of our consumer and broadening of our day part.

Speaker Change: So...

Speaker Change: You know, we've seen a nice shift in dinner with the huge growth of that dinner day part. We've brought in the consumer and some of the

Speaker Change: Some of the results we've seen, a lot of the success was actually from a lot of the emerging markets that at one point were a little bit questionable for us. We saw the massive comps in those markets, and I attribute that to a combination of the great culinary innovation we've had with this new approach to marketing.

Jonathan Neman: That's great, thank you. And then on the menu innovation that Sweetgreen's been executing, I'm curious how it's responding with your existing, you know, more like habitual customer base, and I guess what that means for how you're thinking about balancing menu innovation going forward in order to appeal to your, you know, new cohorts versus your existing ones.

Speaker Change: That's great, thank you. And then on the menu innovation that Sweetgreen's been executing, I'm curious how it's resonating with your existing, you know, more like habitual customer base, and I guess what that means for how you're thinking about balancing menu innovation going forward in order to appeal to your, you know, new cohorts versus existing.

Jonathan Neman: Yeah, we've seen success across both. You know, if we look at both the customer acquisition and the frequency trends, we've been pretty pleased about both how it's brought in new customers and removed that veto vote in many ways and created that occasion where I want that sweet green experience. I may not want a bowl full of greens, but now I can get a steak bowl with wild rice and caramelized garlic steak.

Speaker Change: Yeah, we've seen success across both, you know, if you look at, if we look at the both the customer acquisition and the frequency trends, we've been pretty pleased about.

Speaker Change: both how it's brought in new customers and removed that veto vote in many ways and created that occasion where I want that sweet experience, I may not want a bowl full of greens, but now I can get a steak bowl with wild rice and caramelized garlic steak and it's a really hearty dinner option with a really great value, especially in this environment. And our existing guests are loving it too. So I'd say we're seeing it in both existing and with new customers.

Jonathan Neman: And it's a really hearty dinner option with really great value, especially in this environment. And our existing guests are loving it, too. So I'd say we're seeing it both with existing customers and with new customers.

Brian Mullan: Your next question comes from the line of Brian Mullan with Piper Sandler. Please go ahead.

Jon: Great. Thanks, Jon.

Speaker Change: Your next question comes from the line of Brian Mullan with Piper Sandler. Please go ahead.

Jonathan Neman: Thank you. Just a question on development. You know, as you look to next year, do you have visibility yet in terms of how many of those locations might have infinite kitchens, or is that still yet to be determined? And really just wondering if that answer has more to do with the way you're constructing your pipeline, or if there are any contract manufacturer constraints to think about as well.

Brian Mullan: Thank you. Just a question on development. As you look to next year, do you have visibility yet in terms of how many of those locations?

Brian Mullan: might have infinite kitchens, or is that still yet to be determined, and really just wondering if that answer has more to do with the way you're constructing your pipeline, or if there are any contract manufacturer constraints to think about as well.

Jonathan Neman: Sure, so the short answer is expect a much higher percentage of infinite kitchens in the pipeline. We're not yet disclosing exactly how many as we're finalizing designs, but expect, you know, I'd say a majority, more than 50% of new units would include an infinite kitchen.

Speaker Change: Sure, so the short answer is you expect a much higher percentage of infinite kitchens in the pipeline.

Speaker Change: We're not yet disclosing exactly how many as we're finalizing designs, but expect, you know, I'd say a majority, more than 50% of new units would include an infinite kitchen next year.

Jonathan Neman: Okay, thank you. And then, just to follow up, Jon, more of a strategic question for you, but, you know, if Infinite Kitchen continues to progress the way you hope, you just talk about the strategic optionality that it gives the company over the next five, ten years, or even longer. What does that help you do with development, and does it also give you opportunities to do anything with the value perception of consumers and the value proposition? Uh, yeah, absolutely. I mean...

Brian Mullan: Okay, thank you. And then, just to follow up, Jon, more of a strategic question for you, but, you know, if the Infinite Kitchen continues to progress the way you hope,

Jon: You just talk about the strategic optionality that gives a company over the next.

Speaker Change: 5, 10 years or even longer, you know, what does that help you do with development and does it also give you opportunities to do anything with the value perception with consumers and the value proposition.

Jonathan Neman: Yeah, absolutely. One of the reasons we were so excited about this is that we saw this as a huge tool for us, especially as labor becomes more challenging and more expensive. And today we're seeing a lot of success, but to your point, over time, there's a lot of optionality, whether that be things we do from a price value perspective, the unlock in CAM that it allows us for with the margin increase and the fewer employees that we can run it with. It should unlock a lot of white space for us.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to the channel.

Speaker Change: Yeah, absolutely. I mean, one of the reasons for the reason we were so excited about this is, is we saw this as,

Speaker Change: This is a huge tool for us, especially as labor becomes more challenging and more expensive.

Speaker Change: Today, we're seeing a lot of success, but to your point, over time, there's a lot of optionality, whether that be things we do from a price-value perspective, the unlock in CAM that it allows us for with the margin increase and the fewer employees that we can run it with. It should unlock a lot of white space for us, and the way it's been designed and the innovation team we have.

Jonathan Neman: And the way it's been designed and the innovation team we have around automation, we believe that there are applications outside of this core bowl application as well. So, you know, I'd say there's a lot of option value around automation and what we built with the Infinite Kitchen. And I just want to take a moment to thank the whole SPICE team, who did an incredible job leading this project.

Speaker Change: around automation is we believe that there's applications outside of this core bowl application as well.

Speaker Change: You know, I'd say there's a lot of option value around automation and what we built with the Infinite Kitchen and I just want to take a moment to thank the whole Spice team who've done just an incredible job leading this project.

Speaker Change: [inaudible]

Logan Reach: Your next question comes from the line of Logan Reach with RBC Capital Markets. Please go ahead. Hey, thanks for taking the question.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: Your next question comes from the line of Logan Rage with RBC Capital Markets. Please go ahead.

Logan Reach: Hey, thanks for taking the question. Congratulations on the really solid results.

Mitch Reback: My question was on restaurant margins, obviously really impressive growth this quarter, or margin expansion this quarter, year over year. You know, obviously steak is coming into the mix, more so going forward. But I guess just like, how do you sort of think about restaurant level margins, sort of trending, and what are the puts and takes beyond sort of this year that you guys are most looking out for? And then I have a follow-up. Thanks, Logan.

Logan Rage: Hey, thanks for taking the question and congrats on the really solid results. My question was on restaurant margins, obviously really impressive growth, this quarter, or margin expansion, this quarter, year over year.

Speaker Change: You know, obviously steak is coming in the mix more so going forward, but I guess just like how do you sort of think about restaurant level margins sort of trending and what are the puts and takes beyond sort of sort of this year that you guys are most looking out for? And then I have a follow up.

Mitch Reback: You know, I think, you know, let me answer that question more in the broader term over the next few years since I think that's the way the question was phrased. We continue to see our margins expanding in the near term. And I think most of that is going to come from a few areas, continuing to see more improvements around labor and labor deployment. And I think we've seen great success in the past few years, but we could see a lot of opportunity coming forward.

Logan: Thanks, Logan.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: I think the answer to that question more and they broader term over the next few years. Since I think that's the way the question was phrased, we continue to see our margins expanding in your term.

Speaker Change: And I think most of that is going to come from a few areas, continuing to see more improvements around labor and labor deployment. And I think we've seen great success in the past few years, but we could see a lot of opportunity coming forward.

Mitch Reback: There's going to be some opportunity, of course, in our occupancy. You know, as a small company, our occupancy was heavily influenced by deep urban areas. And as we grow and grow in newer markets, our occupancy will steadily come down. And I think the other area, the P&L, basically in the area of other expenses, we continue to find leveraging opportunities throughout them. And you'll see us continue to drive some of those. So I believe over the next few years, you'll see our margins increase.

Logan: There's going to be some opportunity, of course, in our occupancy. You know, as a small company, our occupancy was heavily influenced by deep urban areas.

Logan: As we grow and grow and newer markets, our occupancy will steadily come down. And I think the other area, the P&L, basically, in the area of other expenses, we continue to find leveraging opportunities throughout them, and you'll see, um, we'll see us continue to drive some of those.

Mitch Reback: I want to caution you, it may not be exactly on a quarter by quarter basis, but on an annual basis, they should improve over the next few years. And this is without the deployment of the IK. The IK, I believe, will supercharge the margin expansion, particularly if we can retrofit very high volume stores rapidly. Great, thanks. And then on the Penn Plaza retrofit, I guess, what are the sort of key learnings there that sort of affect your views going forward on the retrofits, whether that be sales performance through that six or seven week period? How does that sort of impact your guys' views on the retrofits going forward?

Logan: So I believe over the next few years you'll see our margins increase.

Logan: I want to caution, it may not be on an exactly out of quarter by quarter basis, but on an annual basis.

Logan: They should improve over the next few years, and this is absolute deployment of the I.K. The I.K. I believe will supercharge the margin expansion, particularly if we can retrofit a very high volume source rapidly.

Grace: Grace, thanks, and then...

Grace: I'm on the pen, plug a retro fit

Grace: I guess we're going to sort of key learnings there.

Speaker Change: That sort of instructs your views going forward on the retro sense, whether that be sales performance through that six or seven week period, and how does that sort of impacts your guys views on the retro sense going forward?

Mitch Reback: So the question is, what did we learn or what are we trying to learn?

Mitch Reback: Yeah, I guess, like, what were your learnings relative to expectations during that race? Yeah, I'd say, well, first of all, I think...

Speaker Change: is the question, what did we learn or what are we trying to learn?

Speaker Change: Yeah, I guess, like, what were your learnings relative to expectations during that retrofit?

Mitch Reback: Yeah, I'd say, well, first of all, I think it was impressive that we were able to keep the store operating during that time. So we were able to do the, for the first one, we were able to turn that store around in seven weeks and keep it running from a digital ordering system. So delivery and pickup running during that time for six of the seven weeks, we made the decision to close for one week to really focus on hospitality training for the team during that week.

Speaker Change: Yeah, I'd say, first of all, I think it was impressive that we were able to keep

Speaker Change: the store operating during that time.

Speaker Change: So we were able to do the first one, we were able to turn that store in seven weeks

Speaker Change: And keep it running from a with a digital ordering. So delivery and pick up running during that time for six of the seven weeks. We made the decision to close for one week really to

Mitch Reback: So it was an encouraging start for us, and I think over time, we should be able to bring that down. Other learnings, I think we're under, we're learning continuously with each new Infinite Kitchen. We just opened one this week on Tuesday.

Speaker Change: to focus on hospitality training for the team in that week. But I think it was an encouraging start for us, and I think over time we should be able to bring that down.

Speaker Change: Other learnings, I think we're learning continuously with each new Infinite Kitchen. We just opened one this week on Tuesday.

Mitch Reback: Like I've said many times in the past, we feel very good about the technology and that will continue to improve and will continue to scale the cost down. We're still working to perfect the overall experience. And I think with each new one you see, you'll, you'll notice a lot of things that we're trying and testing as we start to really perfect the, it's really that feeling that you get the look and feel the vibe of that restaurant when you walk in, as well as the team member experience and making sure we just nail down all the, the, the right adjacencies from a labor perspective and the right flow from a customer perspective, all while trying to bring our, our build out costs down pretty significantly as we look to accelerate opening.

Speaker Change: Like I've said many times in the past, we feel very good about the technology and that will continue to improve and will continue to scale the cost down. We're still working to perfect the overall experience. And I think with each new one you see, you'll notice a lot of things that we're trying and testing as we start to really perfect.

Speaker Change: It's really that feeling that you get the look and feel, the vibe of that restaurant when you walk in, as well as the team member experience, and making sure we just nailed down all the right agencies from the labor perspective, and the right flow from a customer perspective, all while trying to bring our build out costs down pretty significantly as we look to accelerate opening. So it's a huge focus area for us, we're learning both about new builds and retros, but I can, you know, with four under our belt, we've learned a ton, and I'm very pleased.

Mitch Reback: So it's a huge focus area for us. We're learning both about new builds and retros, but I'd say, you know, with four, four under our belt, we've learned a ton and I, and I'm very pleased with the results thus far, which is what has given us the confidence to continue to accelerate this year, seven more, you know, we'll open a bunch more this year and next year we're going, we're going to open a lot more and we wouldn't have that confidence if we didn't see the results we're seeing.

Speaker Change: the results thus far, which is what has given us the confidence to continue to accelerate this year, seven more, you know, open a bunch more this year and next year we're going to open a lot more and we wouldn't have that confidence if we didn't see the results we're seeing today.

Speaker Change: Thank you very much.

Rahul Crow: Your next question comes from the line of Rahul Crow with J.P. Morgan. Please go ahead.

Speaker Change: Your next question comes from the line of Rahul Kroh with J.P. Morgan. Please go ahead.

Rahul Crow: Good evening, guys. Congratulations on excellent results and execution. As Sweetgreen expands from being regional to truly national over time, can you share some of your early thoughts or your philosophy of reinvesting some of the margins you realize back into customer balls or menu prices? How are you as an organization thinking about this today as you build out into your time? And I have a follow-up question.

Rahul Kroh: Good evening guys, congrats on excellent results and execution.

Rahul Kroh: As Sweet Green expands from being regional to truly national all the time, can you share some of your little thoughts or your philosophy of reinvesting some of the margins you realize.

Speaker Change: back into customer balls or menu prize. How are you as an organization thinking about this today as you build out into your time? And I have a follow-up.

Mitch Reback: Sure. So thanks for the question, Raul.

Speaker Change: Sure, so thanks for the question Raul. So to your point, one of the one I think for me one of the most encouraging things that we've seen over the past couple quarters has been the momentum

Speaker Change: across the company, the breadth and depth.

Speaker Change: of the sales growth, specifically a lot of the momentum we've seen in the emerging markets and the upper Midwest where we grew a lot, we planted a lot of restaurants last year in Texas and Florida and Atlanta, all markets that we're seeing really robust growth.

Mitch Reback: So to your point, one of the most encouraging things that we've seen over the past couple of quarters has been the momentum across the company, the breadth and depth of the sales growth, specifically a lot of the momentum we've seen in the emerging markets in the upper Midwest, where we grew a lot; we planted a lot of restaurants last year in Texas and Florida and Atlanta, all markets that we're seeing really robust growth. I think that, you know, once we get to a scale, people have a different number, whether that's four or 500 units in national.

Speaker Change: I think that, you know, once we get to a scale, I mean, people have a different number, whether that's 400 or 500 units in national, I think it does unlock a lot of marketing efficiencies as we're able to advertise more nationally. We're still a couple years away from that, but we do think that over time, we are seeing a lot of success with our marketing activities and brand awareness, and as we continue to drive our margin to get scale, I think there's a lot of opportunity to get more people aware in trying Sweetgreen, because one thing that we know is once consumers try Sweetgreen, they're very stable.

Mitch Reback: I think it does unlock a lot of marketing efficiencies as we're able to advertise more nationally. We're still a couple of years away from that, but we do think that, over time, we are seeing a lot of success with our marketing activities and brand awareness. And as we continue to drive our margin against scale, I think there's a lot of opportunity to get more people aware of trying Sweetgreen. Because one thing that we know is once consumers try Sweetgreen, they're very There is a natural flywheel built in, given the habitual nature of the food.

Mitch Reback: Something that we just have to do is just get more people to know who we are and give us a try.

Speaker Change: Keefe. There is a natural flywheel built in given the habitual nature of the food. Something that we just got to do is just get more people to know who we are and give us a try.

Rahul Crow: Perfect. And then considering the labor savings we discussed in the past on the infinite kitchen, longer term, would you expect to build any stores without an infinite kitchen?

Keefe: Perfect. And then, considering the labor savings we discussed in the past on the infinite kitchen, longer term, would you expect to build any stores without infinite kitchens at all?

Mitch Reback: So I think I heard the question being, would you build any stores without an infinite kitchen? You know, the way to answer that question.

Speaker Change: So I think I heard that question being, would you build any stores without an infinite kitchen? You know the way it ends with like a question being.

Mitch Reback: Is that correct, Raul? Yes. Yeah, so I'd say the vision would be to get to a place where all stores in the future do feature an. At this moment, we're still learning a lot, and we're trying to make sure we meet our capital return threshold. So you're seeing it put into more stores that have higher volume or higher throughput needs or maybe have more challenges from a labor perspective are where you'll see us prioritize.

Speaker Change: Is that correct, Raul? Yes.

Speaker Change: Yeah, so I'd say the vision would be to get to a place where all stores in the future do feature an Infinite Kitchen.

Speaker Change: At this moment, we're very, we're still learning a lot and we're trying to make sure we meet our capital return threshold.

Speaker Change: So you're seeing it put into, you know, more, more stores that have higher volume or higher throughput needs or maybe have more challenges from a labor perspective, is where you'll see us prioritize, but over time as we bring down the overall build out costs.

Mitch Reback: But over time, as we bring down the overall build-out costs for not just Infinite Kitchen, the cost of the automation, but the entire build, I think it will unlock the ability for it to be in really most and eventually all restaurants.

Speaker Change: around that's not just in the kitchen, the cost of the automation, but the entire build. I think it will unlock the ability to be in really most and eventually all restaurants.

Jonathan Neman: Thank you, Jonathan

Jon Tower: Your next question comes from the line of Jon Tower with Citi. Please go ahead. Great, thanks.

Speaker Change: Your next question comes from the line of John Tower with City, please go ahead.

Mitch Reback: Great, thanks. Maybe just a little bit more on the kitchen and one other after that. Just on the retrofit itself, can you maybe give us a range of the cost to retrofit the store? Obviously, you gave us the timing and specifically on the machine. I think you had mentioned that you've now moved on due to the contract manufacturer, and originally, you talked about a cost of roughly $400 to $550K for the machine itself. Are you seeing that it begins to bend a little bit lower?

John Tower: Great, thanks. Maybe just a little bit more on the kitchen and one other after. Just on the retrofit itself, can you maybe give us a range of the cost to retrofit the store? Obviously, you gave us the timing and specifically on the machine, I think you had mentioned that you've now moved on due to the contract manufacturer.

Speaker Change: Originally, you talked about a cost of roughly $400,000 to $550,000 for the machine itself. Are you seeing that begin to bend a little bit lower?

Mitch Reback: Hi Jon. Let me say that the costs are coming in right in line with the guidance that we gave. These are early machines, you know, that are just kind of rolling off the production line. In fact, I think Penn Plaza was the first unit made at the contract manufacturer. So, by no means have we achieved any type of scale in manufacturing. We would anticipate some of that to come down the road. In terms of the total cost of Penn, you know, we really don't want to give out the CapEx numbers on an individual store by store basis, but the number you have is what IKGIT costs. There were, of course, other modeling jobs done at the same time when we had the store available.

John Tower: Hi, John.

John: Let me say the cluster coming in right in line with the guidance that we gave.

John Tower: These are early machines, you know, that are just kind of rolling off for the fact that I think Penn Plaza was the first unit made at the contract manufacturer. So, by no means have we obtained any type of scale and manufacturing, we would anticipate some of that to come down the road.

Speaker Change: In terms of the total cost of PEN, you know, we really don't want to give out the CapEx numbers on an individual store-by-store basis, but the number you have is what the IKGIT costs. There were, of course, other remodeling done at the same time when we had the store available.

Mitch Reback: Okay, and then maybe pivoting to pricing. I know this year, you're running about 5% on price, given some of the inflation that you're seeing across the model. But I'm just curious, as you alluded to earlier, Mitch, there is some softness seemingly forming with the consumer. And you know, how do you guys think about pricing in 2025 if we're kind of in a backdrop where consumers are, you know, a little bit more pinched on their spend?

Speaker Change: Okay, and then just maybe pivoting to pricing.

Speaker Change: I know this year you're running about 5% price given some of the inflation that you're seeing across the model, but I'm just curious as you alluded to earlier Mitch, there is some softness seemingly forming with the consumer.

Speaker Change: How do you guys think about pricing into 2025 if we're kind of in a backdrop where consumers are a little bit more pinched on their spend?

Mitch Reback: Here, Jon. Yeah, first, let me just make a comment that in the month of July, we did have one point to price roll off. So we're currently running at about four points in price. We really haven't begun to finalize our view of 2025, or certainly at the pricing level. But I can certainly say that from this vantage point today, we take a slightly more cautious view than maybe we have in the past couple years, like a lot of people and reflected in our guidance for kind of watching the outside world pretty closely.

Mitch Reback: Here, Jon, first let me just make a comment that in the month of July we did have one point to price roll off, so we're currently running at about four points in price.

Jon: We really haven't begun to finalize our view of 2025, or certainly at the pricing level, but I can certainly say that we take a, from this vantage point today, taking a slightly more cautious view than maybe we have in the past couple years.

Speaker Change: Black a lot of people and reflected in our guidance for kind of watching the outside world pretty closely.

Jon Tower: Got it. Awesome. Thanks for taking the question.

Speaker Change: Got it. Awesome. Thanks for taking the questions.

Brian Bittner: Your next question comes from the line of Brian Bittner with Oppenheimer & Co. Please go ahead.

Speaker Change: [inaudible]

Speaker Change: Your next question comes from the line of Brian Bittner with Oppenheimer Co. Please go ahead.

Mitch Reback: Thanks. On the restaurant margins, the upside that you're demonstrating on restaurant margins relative to expectations, it's continuing to be driven by significant leverage on labor. As it relates to this quarter and moving forward, is that just a result of the strengthening same store sales? Or are there maybe some other strategic factors that keep you optimistic about this line item as you execute moving forward? And secondly to that, Mitch, can you help us understand what's going on with the other restaurant operating expense line item? There is some deleverage there this quarter despite the very strong comp.

Brian Bittner: Thanks. On the restaurant margins, the upside that you're demonstrating in restaurant margins relative to expectations, it's continuing to be driven by significant leverage on labor.

Brian Bittner: As it relates to this quarter and moving forward, is that just a result of the strengthening same-store sales? Is there maybe some other strategic factors that keep you optimistic about this line item as you execute moving forward?

Speaker Change: And secondly to that, Mitch, can you help us understand what's going on with the other restaurant operating expense line item? There was some deleverage there this quarter despite the very strong comp.

Mitch Reback: Yeah, so I'll let me talk about labor for a minute and some of the things that we're seeing. So, obviously, we're seeing some leverage with sales. We're also We've also seen the addition of stakes and a lot of positive developments there. But beyond that, we've been very, very focused on finding and developing the best head coaches and improving the retention of our teams. And we really believe by having the greatest, the best head coaches that stay with us and that are promoted from within, they create a stable, great working environment for their teams, and that reflects in the results.

Mitch Reback: Yeah, so let me talk about labor for a moment.

Mitch Reback: and some of the things that we're seeing. So yes, obviously we're seeing some leverage with sales. We're also, we've also seen the addition of stake and a lot of positive developments there. But beyond that, we've been very, very focused.

Mitch Reback: on finding and developing the best-head coaches and improving our retention of our teams. And we really believe by having the greatest, the best-head coaches that stay with us and that are promoted from within. They create a stable, great working environment for their teams and that reflects in the results. And we had a lot of improvements over the past year there.

Mitch Reback: And we have made a lot of improvements over the past year there. So our turnover has continued, and it has stabilized at low levels. We continue to see our head coach stability grow and our head coach tenure grow. And we're working on some very exciting things that we think can continue to drive that. Beyond that, we're working on some things around labor deployment that we think can help us, not just in terms of hospitality and throughput, making sure we're staffing the peaks properly, but also in terms of continuing to leverage that labor line. So all to say, I think we have some really exciting things in the works to continue to drive leverage on labor and drive our restaurant level margin.

Mitch Reback: Our turnover has stabilized at lows.

Mitch Reback: We continue to see our head coach stability grow and our head coach tenure grow.

Speaker Change: and we're working on some very exciting things that we think can continue to drive that. Beyond that, we're working on some things around labor deployment that we think can help us.

Speaker Change: not just on hospitality and throughput, making sure we're staffing the peaks properly, but also in terms of continuing to leverage that labor line. So also, I think we have some really exciting things in the work to continue to drive leverage on labor and drive a restaurant level margins.

Mitch Reback: And Brian, I'll take the second part of your question, which was on the other expenses. The other expenses were largely the result of channel mix shifts in the business and really a higher level of repair and maintenance, particularly around HVAC, not unlike what other people have reported as things have heated up across the country.

Speaker Change: And Brian , I'll take the second part of your question, which I think was on the other expenses.

Speaker Change: The other expenses were largely the result of channel mix shifts in the business and really a higher level of repair and maintenance, particularly around HVAC, not unlike what other people have reported as things have heated up across the country.

Brian Bittner: Okay, thanks for that and for my follow-ups on Infinite Kitchen. Surprise, surprise. I know the math behind this basically says every store you open should be an Infinite Kitchen and, you know, ultimately, even Jonathan, you just said to a question, yeah, you know, that's true.

Speaker Change: Okay, thanks for that and my follow-ups on Anthony Kitchen's surprise surprise.

Speaker Change: I know the math behind these basically says every store you open should be an Infinite Kitchen. And, you know, ultimately, you know, even Jonathan, you just said to a question. Yeah, you know.

Jonathan Neman: But I guess the question is, you know, we're obviously still in the early stages of the learnings here, but are you starting to gain more and more confidence that this prototype can work in more and more trade areas than maybe you originally thought? And I just think it's an important thing to understand because, at only 230 units, the vast majority of the scaling of this brand remains in front of us. And the portability of this prototype is how you're thinking about the portability of this prototype is obviously very important to the long-term future of the company. Absolutely.

Speaker Change: That's true, but I guess the question is, you know, we're obviously still in the early stages of the learnings here.

Speaker Change: But are you starting to gain more and more confidence that this prototype can work in more and more trade areas than maybe you originally thought? And I just think it's an important thing to understand because it's only 230 units.

Speaker Change: The vast majority of the scaling of this brand remains in front of us, and the portability of this prototype is, how you're thinking about the portability of this prototype is obviously very important to the long-term future of the company.

Jonathan Neman: Absolutely. And I say that the short answer is yes.

Speaker Change: Absolutely, and I say that the short answer is yes, and I think you'll start to see that this year. So already, very intentionally, with the deployments of the Infinite Kitchen, we've piloted in very unique environments and neighborhoods. So whether it be Penn Plaza, heavily urban, fast-paced environment, just this week in Fashion Island, and then Huntington Beach in Naperville being more suburban.

Jonathan Neman: And I think you'll start to see that this year. So already, very intentionally with the deployments of the Infinite Kitchen, we've piloted them in very unique environments and neighborhoods. So whether it be Penn Plaza, a heavily urban, fast-paced environment, just this week in Fashion Island, and then Huntington Beach in Naperville, which is more suburban, you'll see us this year try to open in a new market, the first store in a market with an Infinite Kitchen.

Jonathan Neman: We'll open in other more urban markets, more suburban markets, really perfect this, and we do believe it's going to help us a lot with portability. And I think what we're really waiting to learn is, again, less about the technology, more about perfecting the overall experience, including how we make sure we get the experience right with the broadening of the menu and the broadening of the brand position that we're pushing for beyond salad.

Speaker Change: You'll see this year open, try it, try to open in a new market. First store in a market with an infinite kitchen. You know, we'll open another more urban markets, more suburban markets really.

Speaker Change: perfect this. And we do believe it's going to it's going to help us a lot on the portability. And I think it's, you know, what we're really waiting to learn is, is, again, less about the technology, more about perfecting the overall experience, including how we how we

Speaker Change: Make sure we get the experience right with the broadening of the menu.

Jonathan Neman: So we're excited to share more about where that's going in coming quarters, but with the success of plates and steak, expect us to continue to push to broaden what really Sweetgreen needs from a format perspective for consumers and how we can leverage the Infinite Kitchen to power that.

Speaker Change: and the broadening of the brand position that we're pushing for beyond salad.

Speaker Change: You know, we're excited to share more about where that's going and coming quarters but

Speaker Change: With the success of Plates and Steak, expect us to continue to push to broaden what really Sweetgreen needs from a format perspective to consumers and how we can leverage the Infinite Kitchen to power that.

Andrew Charles: Your next question comes from the line of Andrew Charles with TD Cowan. Please go ahead. Great, thanks.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Andrew Charles with TD Cowan. Please go ahead.

Andrew Charles: Great, thanks. Mitch, on the positive track for the quarter, I'm curious if first you can just disclose what that was within the 4% combined mixed traffic. I know you said it was positive and picked up the quarter, but first off, we could skip a number. And second, can you help just rank one of the drivers of positive traffic? It's obviously a rarity right now in the industry, but you've got a couple of tailwinds between outside contributions from new store sales ramps that historically grow substantially in their second year, the buzz around stake, and speed of service improvements from more streamlined operations. So how do you help rank order what drivers of that positive traffic were in the quarter?

Andrew Charles: Great, thanks. Mitch, on the positive track for the quarter-unforced, I'm curious if first you can just disclose what that was within the 4% combined mix traffic. I mean, he said it is positive and picked up the quarter, but first of all, we could skip a number. And in second, can you help just rank order drivers a positive traffic? You know, it's obviously a rarity right now in the industry, but you've got a couple of tailwinds between outside contributions from new store sales ramps that historically grow. Just ganching their second year, the buzzer on stake.

Speaker Change: to be to service improvements from more stringent operations. So how do you help rank order, what drivers of that positive traffic was in the quarter?

Mitch Reback: Now, thank you, Andrew. Let me say that, at a high level, I think you kind of hit it, that everything that we seem to have fired on all cylinders, as they say, in the second quarter. The stores that came into our comping base were very, very positive. Our new markets had very strong comp growth and very strong traffic. The menu was very well received and broadly well received, and I think it was really just a combination.

Mitch Reback: Now thank you Andrew. Let me say that in a high level I think you kind of hit it that everything that we we seem to have fired on all cylinders as they say in the second quarter.

Speaker Change: The stores that came into our comping base were very, very positive. Our new markets had very strong comp growth and very strong traffic.

Mitch Reback: The menu was very well received and broadly well received.

Mitch Reback: And of course, the labor deployment picked up on our throughput. And I think it was just a question of all of these things kind of coalescing and having very positive traffic. And as I said earlier on the call, the traffic grew sequentially throughout the quarter, something that we're really happy with.

Mitch Reback: And I think it was really just a combo, and of course the labor deployment picked up on our throughput. And I think it was just a question that all of these things kind of coalesced and had very positive traffic. And as I said earlier on the call, the traffic grew sequentially throughout the quarter, something that we're really happy with.

Mitch Reback: Gotcha. And then just a follow-up question is around that labor deployment, you know, driving speed of service enhancement. Can you help us quantify what you're seeing there? You know, transactions per peak labor hour, peak 15 minutes? You know, how are you monitoring this, and what kind of improvement did you see to help us better understand how those efforts are responding? Well, Andrew, I think it's a little bit.

Josh: Josh, and then just about questions around that labor deployment, you know, driving speed of service enhancement. Can you help us quantify what you're seeing there? You know, is it transactions per peak labor hour or peak 15 minutes? You know, how are you monitoring this and what what kind of improvement did you see to help us better understand how those efforts are resonating?

Mitch Reback: Andrew, I'd say it's a little bit too early. I'd like to come back and share more on that, but we would expect to see higher throughput at peak, as well as overall labor leverage through better scheduling. You see things like less overtime, better management around the Fair Work Week, et cetera. So I think we can see a lot of benefits from this new way of deploying labor. We've also really done a lot of work, as we talked about in the past, around simplifying both the role in the restaurant, whether it be at the head coach level, how do we make that job easier, more joyful across everything they do, whether that be administrative tasks or in-store tasks, and similarly, for our team members, how can we make that job a little bit easier to do? And that's through micro-changes, things like up So we see, as Mitch mentioned earlier, a steady path to continue to leverage our margin over the next few years.

Josh: Andrew I say it's a little bit too early. I'd like to come back and share more more on that, but we do we would expect to see higher throughput at peak.

Speaker Change: as well as a full overall labor leverage through better scheduling. You see, you know, things like less over time.

Mitch Reback: Better Management around Fair Work Week, etc. It's a lot, I think we see a lot of benefits from this new way of deploying labor. We've also really done a lot of work we talked about in the past around simplifying.

Mitch Reback: Both the role in the restaurant, whether it be at the head coach level, how do we make that job easier, more joyful across everything they do, whether that be administrative tasks or in-store tasks, and similarly for our team members.

Mitch Reback: How can we make that, continue to make that job a little bit easier to do and that's through

Speaker Change: You know, microchanges like we could be things like upstreaming tool systems, layout, adjacencies, you know, the restaurant business is a game of inches and we just continue to optimize and look to be better every single day. So we see, as Mitch mentioned earlier, you know, steady path to continue to leverage our margin over the next few years.

Speaker Change: Very good. Thank you.

Christine Cho: Your next question comes from the line of Christine Cho with Goldman Sachs. Please go ahead. Hi, thank you.

Speaker Change: Your next question comes from the line of Christine Cho with Goldman Sachs, please go ahead.

Christine Cho: Hi, thank you. First off, congrats on a great quarter. Firstly, could you help us bridge the gap between kind of really solid Same Street sales growth, averaging kind of 6% in the last four quarters, versus kind of a flattish AUV of $2.9 million since the second quarter of last year? I think, you know, I would imagine some of this is coming from the new store dynamics, but if you look at the new store mix, it's actually coming down a bit on a

Christine Cho: Hi, thank you. First off, I congratulate on a great quarter. Firstly, could you help us under a bridge of the gap between, kind of, really solid, seems to be those groups, averaging kind of six percent in the last four quarters versus kind of a slattish AUV of 2.9 million since second quarter of last year? I think, you know, I would imagine some of this is coming from the new store dynamics, but if you look at the new store mix, it's actually coming down a bit on a year basis. So, it would be great if you can help us understand the factors that are rising that, and also what you need to see.

Christine Cho: So it would be great if you could help us understand the factors that are driving that and also what you need to see in terms of AUV increasing again. That's the first question, and then I'll do a follow-up.

Christine Cho: That's the first question and then I'll do a follow-up.

Mitch Reback: Thank you, Christine. You're right; same store sales have grown about 6% over the trailing 12 months. It's been up 7% in the first half of 2024, and our EUVs remained at about $2.9 million. It's really just two factors. One is the one you articulated. It's just a new store dynamics as we're bringing in more stores every quarter into that comping base. And the second one is just the degree of rounding and the fact that we take it to $2.9 million. There is some work to be done underneath it, and we are mindful of it.

Christine Cho: Thank you, Christine.

Speaker Change: You're right. The same-store sales has grown about 6% over the trailing 12 months. It's been up 7%.

Speaker Change: first half of 2024, and our EUVs remained at about $2.9 million. It's really just two factors. One is the one you articulated. It's just a new store dynamics as we're bringing in more stores every quarter into that comping base.

Speaker Change: And the second one is just the degree of rounding and the fact that we take it to $2.9 million. There is some build underneath it and we are mindful of it.

Christine Cho: Great, thank you. And Jon, I think I've heard you highlight attachments as kind of a largely untapped opportunity for Sweetgreen. Is this something that you're increasingly thinking about? And are there any kind of specific products or marketing initiatives we can look forward to in the near future? Thank you. Absolutely. I don't want to share too much.

Speaker Change: Great, thank you. And Jon, I think I've heard you highlight attachments as kind of a largely untapped opportunity for Sweetgreen. Is this something that you're increasingly thinking about and whether there are any kind of specific products or marketing initiatives we can look forward to in the near future? Thank you.

Jonathan Neman: Absolutely not. I don't want to share too much because we're not quite ready to announce everything, but we do have a very robust culinary roadmap, and some of that includes how we tackle both attachments, whether that be a signature side dish, how we think about beverages, which if you look at our business, we do not index near the industry where we should from a beverage perspective, and we think there's opportunity around kind of like the treat occasion as well.

Jon: Thank you.

Jon: Absolutely. I don't want to share too much because we're not quite ready to announce everything, but we do have a very robust culinary roadmap, and some of that includes how we tackle both attachments, whether that be a signature side dish, how we think about beverage, which

Speaker Change: If you look at our business, we do not put index near the industry where we should from a beverage perspective and we think there's opportunity around kind of like treat the treat occasion as well. So all things that we have really nice robust innovation going on, lot of testing and piloting across the country that we're learning from and expect to see some exciting things next year. We're both within the core kind of core on-tray format of innovation there but also as you mentioned kind of outside of the bowl around size and beverage and treat.

Jonathan Neman: So all things that we have really nice, robust innovation going on, a lot of testing and piloting across the country that we're learning from and expect to see some exciting things next year, both within the core kind of core entree format of innovation there, but also, as you mentioned, kind of outside of the bowl around size, beverage, and treat.

Dennis Giger: Your next question comes from the line of Dennis Giger with UBS. Please go ahead. Your next question comes from the line of Dennis Geiger with UBS. Please go ahead. Your next question comes from the line of Brian Harbour with Morgan Stanley. Please go ahead.

Speaker Change: Your next question comes from the line of Dennis Gugger with UBS. Please go ahead.

Speaker Change: [inaudible]

Speaker Change: Your next question comes from the line of Dennis Geiger with UBS. Please go ahead.

Speaker Change: Hello everyone, I'm Jonathan Neman, I'm Jonathan Neman, I'm Jonathan Neman, I'm Jonathan

Speaker Change: Episode 2

Speaker Change: Hello, I'm Jonathan Neman, I'm Jonathan Neman, I'm Jonathan Neman, I'm

Christine Cho: [inaudible]

Speaker Change: Your next question comes from the line of Brian Harbour with Morgan Stanley. Please go ahead.

Brian Harbour: Yeah, hey guys, good afternoon. A quick one, Mitch, would you mind citing wage and food inflation in 2Q4?

Mitch Reback: Thanks, Brian, by the way. What we really saw was a very low level of inflation in the second quarter. Wages were in; both wages and COGS were in very low single digits.

Speaker Change: Yeah, um...

Speaker Change: Thanks, Brian, by the way. What we really saw was very low level of inflation in in the second quarter. Wages were in, both wages and COGS, were in very low single digits.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Brian Harbour: Great, thanks. Curious about Salem, New Hampshire. I think you should call it a new market because it's sort of on the periphery of one of your existing strong markets. How's that one done, kind of out of the gate? How much of your pipeline is sort of that, you know, expansion into kind of, peripheral towns of some of your core markets as you think about this year and next year? Are you finding it, you know, easier to open some of those units given your scale in New England? Yeah, I'm actually glad you asked. It's actually something that I do.

Brian Harbour: Okay, thanks.

Speaker Change: Jonathan Neman, Rebecca Nounou

Speaker Change: I'm curious about Salem, New Hampshire. I think you call it New Market. It's sort of on the periphery of one of your...

Speaker Change: existing strong markets. How's that one done kind of out of the gate?

Speaker Change: How much of your pipeline is sort of that, you know, expansion into kind of peripheral towns of some of your core markets as you think about this year and next year? Are you finding it, you know, easier to open some of those units given your scale in New England?

Jonathan Neman: Yeah, I'm actually glad you asked. It's actually something that we're seeing a lot of success in as we think about how to expand out of really strong core markets. And if you look at Sweetgreen today, we're in, you know, most major, major metros at this point. And very intentionally, when we set out, we wanted to build a national brand as a category leader. And so we went out, and we planted flags across all these major cities. But if you look at a lot of them, you know, you've got, you're very, very, you know, you're just really not dense in a lot of these places.

Speaker Change: Yeah, I'm actually glad you asked. It's actually something that we're seeing a lot of success in as we think about how to expand out of really strong core markets. And if you look at Sweetgreen today, we're in, you know, most major, major metros at this point. And very intentionally, when we set out, we wanted to build a national brand as a category leader. And so we went out and we planted flags across all these major cities. But if you look at a lot of them...

Christine Cho: You know, you're just really not dense in a lot of these places. You know, in all of Texas, we have sub-20 restaurants.

Jonathan Neman: You know, all of Texas, we have under 20 restaurants. And, you know, if you look at the Midwest, it's just brand new, and there's so much room to run. So as we look forward, we actually see a huge opportunity to densify existing markets and tackle more of the adjacent markets. And the benefits there are we will see a lot of leverage around our food costs, our supply chain, a lot of the economies of scale happen regionally, so we'll see some leverage there.

Christine Cho: And, you know, if you look at the Midwest, it's just brand new and there's so much room to run. So as we look forward, we actually see a huge opportunity of densifying existing markets and tackling more of the adjacent markets.

Christine Cho: And the benefits there is we will see a lot of leverage around our food costs, our supply chain. A lot of the economies of scale happen regionally, so we'll see some leverage there. Obviously, anyone in the restaurant business knows opening in existing markets is a lot easier from an operations perspective. We'll be able to leverage management and build a really robust bench of leaders. And we also get to leverage a lot of our marketing spending within those markets and kind of the overlapping eyeballs between places like Boston and New Hampshire. So we think that in some ways we did the hard part first, planting flags in all these places. And as we look forward,

Jonathan Neman: Obviously, anyone in the restaurant business knows opening in existing markets is a lot easier from an operations perspective. We'll be able to leverage management and build a really robust bench of leaders. And we also get to leverage a lot of our marketing spending within those markets and kind of the overlapping eyeballs between places like Boston and New Hampshire. So we think that, in some ways, we did the hard part first, planting flags in all these places.

Jonathan Neman: And as we look forward, you'll see fewer new markets and more going back and, you know, going deep in existing markets where we see a lot of room and kind of expanding, you know, just out into these other adjacent markets. So I'm actually quite excited about this, and it's how we think we can accelerate our footprint and do so in a really profitable and disciplined way.

Christine Cho: You'll see fewer new markets and more going back and, you know, going deep in existing markets where we see a lot of room and kind of expanding.

Christine Cho: you know, just out into these other adjacent markets. So I'm actually quite excited for this way. And it's how we think we can accelerate our footprint and do so in a really profitable and disciplined way.

Christine Cho: [inaudible]

Operator: And your last question?

Speaker Change: And your last question comes from the line of Dennis Geiger with UBS. Please go ahead.

Operator: Can you hear me? I can hear you. Can you?

Dennis Geiger: Hi guys, can you hear me?

Operator: Oh, great. Terrific. Congratulations to the team. Two quick questions. The first one, as it relates to the IK margin versus the non-IK, helpful to get the Naperville solid number there. Sounds like Huntington Beach is seeing something, I assume, probably somewhat similar.

Speaker Change: We can hear you.

Dennis Geiger: Can you, a great terrific. Congrats to the team. Two quick questions. The first one as it relates to the I.K. margin versus the non-I.K. helpful to get the neighborhood solid number there. Sounds like hunting to be seeing something I assume probably somewhat similar. Just wanted to get a sense on sort of that margin.

Dennis Giger: Just wanted to get a sense on sort of that margin spread, if it's sort of in the ballpark of what we saw in the last quarter, how you'd kind of frame that up, if there's anything more to add there. Thanks, Dennis. I would say it is certainly in the ballpark or slightly better than we thought in all of our modeling and what we've seen in the past, largely coming out of the labor line, obviously, which you can see when you visit an IK store with some additional benefits and cost of goods.

Speaker Change: Spread. If it's sort of, you know, in the ballpark of what we've what we saw the last quarter, how you'd kind of frame that up, if there's anything more to add there.

Speaker Change: Thanks, Dennis. I would say it is certainly in the ballpark or slightly better than we thought in all of our modeling and what we've seen in the past, you know, largely coming out of the labor line, obviously, which you can see when you visit an IK store, with some additional benefits and cost of goods. So, very pleased with the early results.

Dennis Giger: So very pleased with the early results. Appreciate that. And then just a second one just as relates to thoughts on average unit volumes in the IK stores. Now that we have another quarter kind of under your belt, I know it's early days, but thinking about

Speaker Change: Appreciate that. And then just a second one, just as it relates to thoughts on average unit volumes on the IK stores, now that we have another quarter kind of under your belt. I know it's early days.

Dennis Giger: Kiosk, Thinking About Throughput, any kind of latest views on on the

Dennis Giger: Thank you. Yeah, I'd say so on.

Speaker Change: But thinking about keyoffs, thinking about throughput, any kind of latest views on where that potential could go at this early juncture from an AUB to non-IK and AUB purpose.

Jonathan Neman: Yeah, I'd say on the suburban stores. We continue to see similar trends with the higher ticket. We do believe, you know, with the better experience that customers are having, it's more accurate, and it's on time. We're, you know, we just have Naperville as the first store to now hit a year to start to see comp numbers, but we do, you know, expect based on a better experience to see some comp opportunities in those restaurants that will drive AUV.

Speaker Change: Thank you.

Speaker Change: Yeah, I'd say on the Suburban stores, on the two original pilots, we continue to see similar trends with the higher ticket. We do believe, you know, with the better experience that customers are having, it's more accurate, it's on time. We're, you know,

Speaker Change: We just have Naperville as the first store to now hit a year to start to see comp numbers. But we do expect, based off a better experience, to see some comp opportunity in those restaurants that will drive AUV.

Jonathan Neman: The real test of this is when we go into urban environments where we do have long lines, and we can capture more customers. And the first time we're seeing this is now at Penn Plaza. Fashion Island should be a pretty heavily trafficked store as well. But I think that's when we're really going to start to understand in these high-traffic locations, can we get an AUV lift just by serving more customers in those peak periods? So, in some ways, I'd say we're very encouraged, think better experience will help us continue to drive comps and in more high-traffic locations. Definitely an opportunity, but pretty early to say for now.

Speaker Change: The real test of this is when we go into urban environments where we do have long lines and we can capture more customers.

Speaker Change: And that first time we're seeing this is now with the Penn Plaza. Fashion Island should be a pretty heavily trafficked store as well.

Speaker Change: But I think that's when we're really going to start to understand in these high traffic locations.

Speaker Change: Rebecca Neman, Rebecca Nounou

Speaker Change: It's definitely an opportunity, but pretty early to say for now.

Rebecca Neman: It's great, thank you.

Operator: This concludes today's Q&A session and today's conference call. Thank you for attending. You may now disconnect.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: This concludes today's Q&A session and today's conference calls. Thank you for attending. You may now disconnect.

Speaker Change: Hello, I'm Jonathan Nounou, I'm Jonathan Nounou, I'm Jonathan Nounou, I'm Jonathan Nounou, I'm

Mitch Reback: We're very happy with our marketing that we've moved to more out of home, and it's showing very strong results. We talked in the past about improving our labor scheduling and deployment in order to improve hospitality and lower labor costs as a percent of revenue. And, as we alluded to in the script, we're very pleased with our new market response and the strong comp growth rates we're seeing across all of our new markets.