Q4 2024 Sweetgreen Inc Earnings Call
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Jeanne: Thank you for standing by. My name is Jeanne and I will be your conference operator today.
Speaker Change: At this time, I would like to welcome everyone to the Sweet Grain, Inc. 4th Quarter 2024 Earnings Call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Rebecca Nounou. Please go ahead.
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.
Speaker Change: Both will be available for questions during the Q&A session following the prepared remarks.
Speaker Change: Today's call is being webcasted live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 the corresponding GAAP measures. Our earnings release can be found on our investor website.
Jonathan Neman: And now, I'll turn the call over to Jonathan to kick things off.
Thank you, Rebecca, and good afternoon, everyone.
Jonathan Neman: At Sweetgreen, we're redefining fast food through superior sourcing, culinary excellence, innovative technology, and a consistent hospitable experience. In 2024, we expanded our menu, opened 25 new restaurants, and ended the year with 12 Infinite Kitchens.
Jonathan Neman: We elevated our sourcing and culinary practices, as well as took meaningful steps to improve the team member experience, leading to the lowest turnover levels in company history.
Jonathan Neman: Sales grew over 15% to $676.8 million, and restaurant-level margin expanded more than 200 basis points year-over-year to 19.6%.
Jonathan Neman: Adjusted EBITDA of $18.7 million was a $21.5 million improvement over the prior year period.
Jonathan Neman: Since our IPO in 2021, we have delivered four consecutive years of double-digit revenue growth. Our restaurant-level margin has expanded from 12% to 20%, and G&A, excluding stock-based compensation, has gone from 28% of sales to 16% of sales in 2024.
Jonathan Neman: Most importantly, 2024 marked the first full year of positive adjusted EBITDA in our company's history.
Jonathan Neman: a key milestone that confirms our strategy is working. We are committed to leveraging our GNA all while we scale our real estate footprint with the Infinite Kitchen, increase the pace of menu innovation, and strategically invest in additional marketing.
Jonathan Neman: Looking ahead, we see significant opportunities to optimize operations, broaden our customer base, grow guest frequency, and expand our footprint.
Jonathan Neman: With these focus areas in mind, our three strategic pillars for 2025 are one, revolutionizing fast food through menu and technology innovation.
Jonathan Neman: Two, strengthening guest connection and operational excellence. And lastly, strategically expanding and evolving our footprint.
Jonathan Neman: These strategies are designed to increase traffic and expand restaurant-level margin.
Jonathan Neman: In 2024, we introduced grass-fed pasture-raised steak, which quickly became a guest favorite and helped drive traffic in check.
Jonathan Neman: We deployed the Infinite Kitchen in seven new restaurants and retrofitted three existing restaurants, leveraging automation to improve speed and consistency, all while reducing labor intensity.
Jonathan Neman: We continued expanding menu relevancy and building brand awareness as evidenced by double-digit comps in the Midwest, Texas, and the Southeast.
Jonathan Neman: Furthermore, the strength of our 2024 restaurant class has laid a solid foundation for continued footprint expansion.
Jonathan Neman: We opened 25 new restaurants last year, bringing our total to 246.
Jonathan Neman: 12 of which are now Infinite Kitchens. We also expanded into three new markets with some of the strongest opening weeks in our history.
Jonathan Neman: Seattle, the short north area of Columbus, and uptown Charlotte. Our 2024 class of new restaurants is on track to hit $2.8 million in year one sales, right in line with our year two target.
Jonathan Neman: This reaffirms our confidence in our real estate strategy and the long-term opportunity ahead.
Jonathan Neman: We're also pleased with the financial and operational performance of our Infinite Kitchens.
Jonathan Neman: These locations are delivering at least 7 percentage points in labor savings and 1 point in improved COGS, compared to restaurants of similar age and volume.
Jonathan Neman: Additionally, our class of Infinite Kitchens is driving higher native digital sales due to their high throughput and consistency, which leads to a better guest experience. We believe that Infinite Kitchen, together with our revamped loyalty program launching this year, can accelerate our industry-leading digital presence.
Jonathan Neman: While we don't disclose individual store-level performance, we have seen some standout proof points.
Jonathan Neman: For example, our Hingham, Massachusetts Infinite Kitchen had a 30% margin in its first full month, compared to 26% for Naperville in its first full month in 2023.
Jonathan Neman: We continue to see proof points of operational efficiency, throughput, and improved guest experience from the Infinite Kitchen.
Jonathan Neman: This is reflected in our January guest survey, with 90% of guests surveyed expressing a positive overall experience, including the food and ingredient quality at Infant Kitchen locations.
Jonathan Neman: As we move into 2025, we plan to accelerate unit growth by at least 15%.
Jonathan Neman: Our 2025 pipeline includes three new markets, Sacramento, Phoenix, and Cincinnati, and we are opening at least 40 new restaurants. Half of the 40 will have infinite kitchens, and we are planning on one to three infinite kitchen retrofits of existing restaurants.
Jonathan Neman: Last year we had two major launches, caramelized garlic steak and air-fried Brussels sprouts with six weeks of heightened marketing support.
Jonathan Neman: During that time, the business saw highly incremental and accelerated same-source sales contributing to sustained momentum beyond the initial launch.
Jonathan Neman: As a result, in 2025, we are significantly increasing the pace of innovation across multiple areas of the business to create a steady drumbeat of newness to increase frequency, broaden our customer base, and deepen brand loyalty.
Jonathan Neman: This includes an accelerated approach to menu innovation and the introduction of a new loyalty program supported by strategic investments in personalized CRM and paid media.
Jonathan Neman: These efforts will ensure we remain top of mind for our guests while creating more meaningful touch points throughout their journey with Sweetgreen.
Jonathan Neman: Let me take a moment to share with you one of the most exciting things we are rolling out next month, Ripple Frys.
Jonathan Neman: Over the past year, we've been hard at work reimagining fries, a fast food classic, in a way that is authentically Sweetgreen.
Jonathan Neman: Made with just five simple ingredients, ripple fries are hand cut daily in our restaurants and air fried in avocado oil. We are excited to lead the movement away from the deep frying of french fries. Each order comes with a side of new house made pickled ketchup or garlic aioli.
Jonathan Neman: Fries and salads have long been an iconic duo. Ripple fries are Sweetgreen's take on this classic pairing, offering our guests a signature craveable side that complements our vibrant, produce-driven menu.
Jonathan Neman: In 2025, we're building on our layered menu calendar with exciting new additions, starting with ripple fries and a collaboration with a Michelin-starred chef.
Jonathan Neman: We're also reintroducing three to four seasonals across summer and fall.
Jonathan Neman: Another big moment for us in 2025 is the launch of our reimagined loyalty program, SG Rewards, rolling out nationwide in April. SG Rewards is our points-based loyalty program where customers earn 10 points for every eligible dollar spent, with opportunities to redeem free menu items and access unique offers and member exclusives.
Jonathan Neman: We designed these changes based on customer feedback that offers more compelling benefits to a broader set of customers.
Jonathan Neman: As we look forward, we have shifted capital internally towards more menu innovation and strategic media investment. We believe this, combined with personalized CRM and our revamped loyalty program, will accelerate transactions.
Turning to operations.
Jonathan Neman: We have made great strides over the past couple of years. In 2024, our progress is evidenced by expanding margins 200 basis points and improving the team member experience. Our focus on our team members has resulted in strong stability and tenure at the head coach level and the lowest turnover levels in company history.
Jonathan Neman: Having stability at the head coach level and a strong pipeline of future leaders gives us a solid foundation as we continue to grow our footprint.
Jonathan Neman: We've designed a clear and structured career path that creates opportunities for professional development and advancement, allowing us to promote high-performing talent while scaling Sweetgreen's culture.
Jonathan Neman: Our team members can grow into a head coach in as few as three years. This year, more than half of our open restaurant leadership roles were filled from within, reinforcing our commitment to developing and growing our people.
Jonathan Neman: Our goal is to increase this percentage even further as we continue investing in internal talent and leadership development.
Jonathan Neman: In 2024, we made significant improvements to our labor optimization and deployment practices, and we see further opportunities for improvement in 2025.
Jonathan Neman: A key part of this is our new AI-powered workforce management system.
and Charlotte Cade.
Jonathan Neman: This system gives team members an optional, user-friendly mobile platform to manage their schedules, aligning their availability with restaurant needs.
Jonathan Neman: By leveraging AI, we are streamlining labor planning and improving shift coverage, freeing up our head coaches to focus more on team development and the guest experience.
Jonathan Neman: We've already deployed this system across nearly half our fleet, and the early results are promising.
Jonathan Neman: Additionally, absentee rates have dropped by a third. Initial results like these reinforce our commitment to using technology to create a better, more seamless experience for our teams. We're on track to complete the rollout of our tool across all locations by the end of the second quarter.
Jonathan Neman: At Sweetgreen, technology and innovation have always been at the heart of our DNA, driving us to create smarter, more connected experiences for our guests and team members.
Jonathan Neman: We're always looking for ways to raise the bar on the quality and convenience a guest can expect from Sweetgreen while strengthening our financial performance.
Jonathan Neman: For example, we continue to selectively upstream parts of our cold prep. These changes may seem small, but they free up our team to focus on service and speed, helping us drive throughput.
Jonathan Neman: In addition, we continue to make investments in elevating our culinary pro position along with optimized cooking recipes and hot holding times to elevate the quality and freshness of our food.
A Key to Driving Frequency
Jonathan Neman: As we continue to refine our operational strategy, we see significant opportunities to capture additional peak demand across both our front and digital make lines.
Jonathan Neman: We have a number of initiatives designed to improve throughput while also improving consistency and portioning in our non-IK restaurants.
Jonathan Neman: While we've made progress, further executional improvements are needed to fully unlock this potential and we have several initiatives underway.
Speaker Change: Before I turn over the call to Mitch, I want to acknowledge the devastating wildfires in Southern California and the impact on our community.
Speaker Change: As a Los Angeles native, this is deeply personal to me.
Speaker Change: Our team members are safe, and our restaurants are fully operational again. However, we recognize the challenges facing the local restaurant industry and community.
Speaker Change: In response to the fires, we have provided fresh meals for first responders and those displaced.
Speaker Change: We continue to work with local partners to support recovery efforts.
Speaker Change: Just as we did last year with our support of LA's local farmers markets, we're committed to standing by the farmers, team members, and guests who make up our community.
Speaker Change: Because food is about more than what's on the plate. It's about the people behind it.
Speaker Change: From day one, our mission has been about more than just serving food. It's about creating a better future by putting health, quality, and communities at the center of our food system.
Speaker Change: We believe fast food should mean convenient access to real, high-quality food that's both nourishing and sustainable. That's why we remain committed to sourcing from farmers we know and trust, supporting their transition to organic and regenerative practices, and ensuring the integrity of the land and food we serve.
Speaker Change: Most importantly, we do all of this because it makes our food taste better.
Speaker Change: As we look forward, we believe that our culinary pipeline, loyalty launch, and strategic investments in media and marketing will help us drive sales.
Speaker Change: Our focus is clear. Strengthen the brand, drive guest engagement, expand our footprint strategically, and operate with excellence.
Speaker Change: We believe that by staying true to our mission and executing with discipline, Tuegrin will continue to redefine fast food for years to come.
Speaker Change: I'd like to thank our team for their hard work and dedication in 2024. Now I'll turn the call over to Mitch, who will take you through our financials in more detail.
Mitch Reback: Thank you, Jonathan, and good afternoon everyone. Total revenue for the quarter was $160.9 million, up from $153 million in the fourth quarter of 2023.
Mitch Reback: Same-store sales for the fourth quarter grew 4% against the prior year period. This consisted of a 4% benefit from menu price increases and flat traffic and mix. Our fourth quarter results lapped the highly successful protein plates launch in Q4 of 2023.
Mitch Reback: For the fiscal year 2024, same-store sales grew 6%. This consisted of a 4% benefit from menu price increases and 2% traffic and mix.
Mitch Reback: Our average unit volume in the fourth quarter was 2.9 million.
Mitch Reback: During the quarter, we opened 10 restaurants, almost half of which opened during the holiday season. We ended the year with a total of 246 restaurants.
Mitch Reback: Additionally, in the fourth quarter, we retrofitted two high-volume restaurants with the Infinite Kitchen, Willis Tower in Chicago and Wall Street in New York City. At the end of 2024, we operated 12 Infinite Kitchens.
Mitch Reback: Restaurant level profit margin for the quarter was 17.4% compared to 16.2% a year ago, a more than 100 basis point improvement.
Mitch Reback: This marks our eighth consecutive quarter of year-over-year restaurant-level margin expansion.
Mitch Reback: For the fiscal year, restaurant-level profit margin was 19.6 percent, expanding over 200 basis points year over year.
Mitch Reback: Restaurant-level profit for the fourth quarter was $28 million, up 13% year-over-year. For a reconciliation of restaurant-level profit and restaurant-level margin, comparable gap figures, please refer to the earnings release.
Mitch Reback: Food, beverage, and packaging costs were 27% of revenue for the quarter, a 100 basis point improvement from the prior year period.
Mitch Reback: Labor and related expenses were 29% of revenue for the fourth quarter, favorable with the prior year period.
Mitch Reback: Occupancy and related expenses were 9% of revenue, remaining relatively consistent versus the prior year period.
Mitch Reback: As a percentage of revenue, year over year, Operating Support Center costs for the fourth quarter went down slightly to 16.3% from 16.7%.
Mitch Reback: Net loss for the quarter was $29 million, as compared to a loss of $27.4 million in the prior year period.
Mitch Reback: This change is mainly due to a 1.7 million increase in impairment associated with one restaurant and a 1.2 million rise in pre-opening costs with 10 new restaurant openings this year compared to just one last year.
Mitch Reback: Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was a loss of $600,000 for the fourth quarter, a $1.2 million improvement from the fourth quarter of 2023.
Mitch Reback: 2024 marked our first full year of adjusted EBITDA profitability. For the fiscal year, we delivered an adjusted EBITDA of $18.7 million versus a $2.8 million loss in 2023.
This is a $21.5 million improvement.
Mitch Reback: As a reminder, the 2023 loss of $2.8 million includes a one-time employee retention credit of $6.9 million. Adjusting for this retention credit, adjusted EBITDA grew by $28.4 million.
Mitch Reback: At the end of the year, we had an available cash balance of $215 million. We generated a positive operating cash flow of $43.4 million, an increase of $16.9 million year-over-year.
Now turning to our 2025 Outlook.
Mitch Reback: While the year started with many external challenges, including holiday shifts, extreme weather, and the impact of wildfires in Los Angeles, we remain confident in the fundamental strength of our business.
Mitch Reback: Our FUJA guidance reflects a first quarter shaped by these disruptions.
Mitch Reback: Extreme weather in January and February affected guest traffic across approximately 60% of our fleet.
Mitch Reback: The LA wildfires, while not causing physical damage to our locations, significantly disrupted operations.
Mitch Reback: Given that the Los Angeles market represents nearly 15% of our revenue, the temporary closures and ongoing shifts in customer behavior have created a near-term headwind.
Mitch Reback: To put this in perspective, LA delivered high single-digit comps in 2024, while quarter-to-date in 2025, we have seen a decline to negative double-digit comps.
Mitch Reback: Additionally, we've made the strategic decision to shift the nationwide launch of Ripple Fries and its associated marketing from late winter to early spring. We believe this decision will help maximize the impact of this menu innovation and effectiveness of the associated marketing.
Mitch Reback: For the fiscal year 2025, we anticipate the following. At least 40 net new restaurant openings.
Revenue ranging from $760 million to $780 million.
Mitch Reback: Same-store sales growth between 1 and 3 percent. Restaurant-level margins between 19.8 percent and 20.5 percent. Adjusted EBITDA between $32 million and $38 million.
Mitch Reback: On the development front, 20 of our 40 restaurants will feature the Infinite Kitchen. In terms of pipeline timing, 30 of our 40 planned new restaurants will open in the second half of the year.
Mitch Reback: For the first quarter, we anticipate five net new restaurant openings.
Revenue ranging from $163 million to $166 million.
Mitch Reback: Same-store sales declined between 5% and 3%. Restaurant-level margin between 16.4% and 16.8%. Adjusted EBITDA loss between $3 million to $1 million.
Mitch Reback: Despite the near-term challenges, we are confident in our ability to execute against our long-term strategy while continuing to leverage our G&A. Our focus on loyalty, menu innovation, and strategic investments in paid media position us to drive improved comps as the year progresses.
Mitch Reback: We have built a strong business, a differentiated brand, and a flexible omni-channel platform that allows us to adapt and drive sustainable growth.
Mitch Reback: 2024 was a strong year for Sweetgreen and our success would not have been possible without the dedication of our team members. And now I'll turn the call back to the operator to start Q&A.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad.
Again, press star 1 to join the queue.
Speaker Change: If you would like to remove your question, simply press star 1 again.
Speaker Change: And your first question comes from the line of John Tower with Citi. Please go ahead.
John Tower: how, you know, from a dollar basis that's going to end up impacting your P&L.
Hey John, good to hear from you.
Speaker Change: So, a lot of changes in marketing. I think one of the biggest lessons from 2024 was the importance of newness.
and creating that drumbeat specifically around new menu launches.
Speaker Change: As many of you know, we used to have a seasonal menu with five menu changes a year. Last year, we made the decision to go to two launches with steak and harvest and really use the rest of the time to stabilize.
Speaker Change: you know, a lot of the rest of the operation. What we realized is that our frequent users really do love that newness and that seasonal menu.
Speaker Change: And so this year we will be bringing back not only the seasonal menu, but a number of other big launches. So, chef collaborations, we have fries that we talked about coming.
Speaker Change: as well as a loyalty program that will underpin a lot of this.
Speaker Change: With that, from a capital perspective, while we've been able to hold G&A relatively flat year over year, we are shifting more dollars towards marketing.
Speaker Change: So each launch will get more support and you'll see a full funnel approach around that, you know, from, you know, top of funnel out of home to a lot of social and we've also made more investments in social media and own content, which we think can be a big lover for us.
Mitch Reback: So expect to hear a lot more from Sweetgreen, a lot more newness and a lot more new products, which we think our customers will really love. And John, it's Mitch.
Speaker Change: I just want to have one quick build on John's comment. Most of the increase in marketing support will begin in Q2 and run through the balance of the year. We were actually pretty light in Q1.
Got it. Thank you.
Speaker Change: Your next question comes from the line of Andrew Charles with TD Cowen. Please go ahead.
Andrew Charles: Great, thanks. Mitch, I was wondering if you could provide a little bit more textures around how 2025 is going to unfold. You know, it sounds like the devastation in L.A., you know, creating about a 300 base points overall headwind to start the year. You know, within that 3 to 5 percent, we'd love to better understand what you're seeing from weather that's been impacting 6 percent of stores.
Speaker Change: And then if I'm understanding it right, it sounds like you're expecting sales to build throughout the remainder of the year, just confirming that's the case. And Jon, just one question for you, you know, within the guidance, are you embedding a handheld later in the year? I know it's been talked about on past calls, but we're still in the recipe phase.
Speaker Change: Sure, I'll take the handheld. So, you know, one of the things, another change around our menu innovation is
Speaker Change: We've decided to really innovate a lot more, which means testing a lot more through our stage gate process. So handhelds are not built into the guide for the year. It is something that we will test this year. Depending on the success and how we can operationalize it, we may see that come in. But right now it is not built in at all. And, again, look forward to the test and learning more. Early tests with consumers have been very, very positive. We know it's a big opportunity for us. But, again, that is not built into the guide for the year.
I agree a lot. Mitch, thank you for the question.
Speaker Change: Let me begin by saying that I think in retrospect we were a little bit fortunate with our timing, but in the first quarter certainly in Jan-Feb company had very little to no new menu news and very little marketing support. We had pushed our calendar really starting in March to the back ten months of the year. In retrospect, I think that turned out to be a little fortuitous.
Speaker Change: In the first two months of the year, as everyone's articulated, we had a number of external factors that were honestly just much more severe than anything we've ever seen.
Speaker Change: started off with the holiday week shifting the first week of the year, moved on to the L.A. fires, which I'll comment on in a minute, and then the weather factors throughout February.
Speaker Change: What we saw with the L.A. fires, I commented in the script, was approximately 15% of our business and we went from really comping high single digits in 2024 to being negative double digits in the first month of January of 2025.
Speaker Change: When we look at the pace of where we're at, through February the business has comped negative six percent.
Speaker Change: And we believe 700 basis points of that is attributable to these three factors.
Speaker Change: So without any menu innovation or marketing, the business would have been positive around 1% through February.
Speaker Change: The business has improved considerably in February from January, and we see it sequentially building throughout the year. And to round out with your last comment, we do see Q2, Q3, and Q4 continuing to strengthen as we get further away from these events.
That's very helpful. Thanks for the color.
Speaker Change: Your next question comes from the line of Dennis Geiger with UBS. Please go ahead.
Great, good afternoon guys. I wanted to ask about throughput.
Speaker Change: I guess both throughput within the traditional stores and that opportunity, if there's any way, maybe I know it's early days, but any way to kind of contextualize.
Nounou, Jonathan Neman, Mitch Reback
Speaker Change: what throughput within IK could mean and what those AUVs might mean relative to a standard restaurant. Thank you.
Speaker Change: Sure, so, and hey Dennis, so on throughput, as you mentioned, we kind of look at it in two different ways. One is on the classic stores and then separately on the Infinite Kitchen restaurant.
Speaker Change: On the classic side, there's two things that we are working on to drive throughput. One is we've been changing a lot of our labor deployment, getting more labor at peak and moving around, getting prep done earlier so you have all hands on deck at peak.
Speaker Change: And we've seen some success in our test stores doing that. We've also been testing some planted positions, which we've seen some considerable benefits. It's what most of Fast Casual does, and it's something that we will do in many of our high-volume stores.
Speaker Change: The other thing that we're testing is something that we call Project Turbo, and the idea of Project Turbo is...
is being able to leverage.
Speaker Change: both the digital and front line at different points in the day. So take the morning period where you have high demand on the digital make line, but not a lot of demand on the front line.
Speaker Change: being able to leverage the front line to create, to make digital orders. Then moving into the lunch period.
Speaker Change: being able to leverage the digital line to line bus the frontline orders via handheld, and then as you go later in the day, being able to leverage the frontline again and find some labor efficiency as the digital orders drop off. So effectively being able to take
Speaker Change: advantage of the double engines in all of our restaurants and efficiently route the orders to where it makes sense. So it should allow us to capture more peak demand and do it in a more labor-efficient way.
Speaker Change: As it relates to the Infinite Kitchen stores, we've talked about it before that the IK can do about 500 orders per hour.
Speaker Change: So, you know, the throughput potential is amazing. We've done a lot of work on the finishing station.
Speaker Change: which is what every bowl has to be finished and that's really where sometimes the bottlenecks.
Speaker Change: arrived. We've actually redone our finishing stations, really kind of thinking about the ergonomics of those and how do we make it so we're more accurate and faster on those. And we've seen some really great results. So the throughput on the IK should be a huge benefit for us as we put it in some locations with higher volumes.
Speaker Change: And in many of the locations that we already have live with the IK, we're seeing that if you go to some of those restaurants.
Speaker Change: You go to Willis Tower today, you go to Penn Plaza, you'll see the ability for us to capture and get through a peak line quickly is pretty amazing. I mean, in those IK stores, even when you have tons and tons of demand, you're getting orders in sub-five minutes.
Speaker Change: And so, really excited about the potential that we'll offer as we continue to scale.
Good stuff. Thanks, Jonathan.
Thank you.
Speaker Change: Your next question comes from the line of Sharon Zaxia with William Blair. Please go ahead.
Hi, thanks for taking the question.
Speaker Change: I wanted to kind of double back to the 1% underlying comp trend through February. Was the delta between the 4% and the 1% that you've seen so far this year, is that all traffic that you've lost or did you roll off some price as well? As we entered 2025, I think you may have less price.
Speaker Change: Thanks, Sharon. We did roll off one point in price, and we'll continue to see some gradual roll off throughout the year.
Speaker Change: Okay, and then if I think about the bridge from that 1% underlying to kind of the implied 3 to 5 for the rest of the year, can you help us think about that bridge in terms of kind of marketing and loyalty and ripple fries and, you know, how that kind of builds and the what you expect for the benefit for those initiatives?
Speaker Change: Let me say at a high level, when we look out on the balance of the year, we have Ripple Fries launching in March, Loyalty launching in April, we are doing a major chef collaboration with the Michelin Starred Chef in the month of May.
Speaker Change: And then we are returning our summer seasonals, which we dropped last year in 2024. And these were consistently some of our biggest selling items. And then we will have seasonals for fall and winter.
Speaker Change: We believe as we return these items, that we know our customers have asked for, that the transactional side of the business will grow and lift the comps sequentially throughout the year.
Okay, thank you.
Speaker Change: Your next question comes from the line of Rahul Kothabali, J.D. Morgan. Please go ahead.
for organic traffic growth, and I have a follow-up.
Speaker Change: Hey Raul, good to hear from you. So, a couple things on that. One, you know, we feel very good about our price value, given what we do from a sourcing perspective and it made from scratch.
Speaker Change: We feel that we are offering terrific value, but we do see some opportunities to continue to improve there. One is going to be our loyalty program. The other is going to be how we start to introduce more menu items and kind of lower mid-tiers, and that's oftentimes where the seasonal menu played.
Speaker Change: So you'll see us, you know, with the seasonal menu, start to bring in some items kind of in more mid-tier price ranges, which we think will again offer some value to our customers.
Speaker Change: The other thing that was important about the seasonals was it was a huge part of the story and brand positioning.
Speaker Change: The fact that, you know, you're supposed to kind of eat food with the seasons, that's a huge part of the, you know, what the sweet green brand stands for, again, in terms of the resonance and a reason to talk to consumers and a positioning of.
Speaker Change: and how we can continue to deliver on price combined with loyalty will continue to make us competitive in this space.
Speaker Change: And the follow-up is on the ripple price test you have had. What were some of the learnings and what kind of attach rate did you see on the incidences from the customers and also did you test the loyalty app in those stores? Just curious to hear your thoughts here.
Speaker Change: So we're not commenting on the attach rate, but what I could say is it's the highest attach side that we've ever had and tested, and totally incremental. The feedback has been pretty amazing from consumers. It's craveable.
Speaker Change: It's a permissible indulgence where you can have your salad and get the fries on the side. And not only are the fries amazing and done only with five ingredients, no seed oils, cooked in olive oil, and baked and air fried.
Speaker Change: But we're also, you know, the price will be pretty attractive for those. So we feel good about the price value of those. I think some of the learnings around it, and I talked about this a little bit in my prepared remarks.
Speaker Change: was around the optimizations we're making around our culinary pro and our and how we
Speaker Change: more consistently cook food and hold it for less times. And I think that was one of the big lessons with Ripple Fries. You know, it's one of those products that we have to cook continuously throughout the day for them to be fresh.
Speaker Change: And what that has done is made the whole operation stronger because it's forced us to strengthen that muscle, really elevate that culinary proposition, certify them, and make sure that, you know, that cook and hold times are optimized.
Speaker Change: You know, we've seen some pretty, you know, we've seen a lot of delight from our customers as we continue to improve the quality of our food through the hot prep.
Thank you.
Catherine Griffin: Your next question comes from the line of Catherine Griffin with Bank of America. Please go ahead.
Catherine Griffin: Hi, thank you. Mitch, I was hoping you could walk through your expectations around the different components of restaurant level margin, maybe how, you know, how sustainable is 27%, you know, food costs and how, you know, how much more benefit can you get from some of the labor productivity and operational improvements that John was speaking to earlier, just trying to get a sense for, yeah, the components and I guess even the, how you
expect like sequential, you know, margin progression to play out.
Mitch Reback: Thanks, Catherine. Let me say that a restaurant level margins have increased.
Mitch Reback: Annually really since the company went public at a pretty fast pace and we feel pretty confident in maintaining increasing margins on an annual basis going forward and that is absent the infinite kitchen which are just being accelerator to that.
Mitch Reback: When we look at what's going to drive the margins, we break it into three big buckets – labor, cost of goods, and occupancy.
Mitch Reback: In labor, we see continued opportunities with improved scheduling and deployment of labor throughout the store, much of which we've seen in the past, and we have a lot of opportunity going forward.
Mitch Reback: We've seen our labor situation improve to really the best it's been in the several years with the lowest turnover and lowest absentee rate.
Mitch Reback: all which contributes to higher productivity in the store. Our cost of goods always improves as we obtain scale in markets.
Mitch Reback: And as our markets are developing and growing, and we're especially happy with the new market performance in the business right now.
Mitch Reback: As the company grows in areas outside of New York City, we see our occupancy continuing to come down over the next several years.
Mitch Reback: So we feel pretty good about where we're at, really at that 20% level, and see the opportunity for the margin, absent the IK, to continue to progress into the low 20s, and then getting a big acceleration as the IK gets deployed across the fleet.
Thank you.
Speaker Change: Your next question comes from the line of Brian Mullen with Piper Sandler. Please go ahead.
Brian Mullen: Thank you. Question on development. I think one of your goals is to get the cost to build down of the base store independent of whatever the additional Infinite Kitchen equipment might cost. So, can you just talk about where you are in those efforts? What's a good way to think about cost to build for the class of 25? And
Could that maybe even be lower in 26?
Brian Mullen: Yeah, great question. It's something we're hugely focused on. We, as you mentioned, we have about at least 40 stores planned this year. We've done a lot of work on our core build-out costs, really getting our core prototype right and allowing us to buy more in bulk as well as optimizing a lot of other pieces of the build-out. Our goal is we're tracking from somewhere between 1.4 and 1.5 on the core build-out. We do see opportunity to continue to bring that down and are
Brian Mullen: to see even more improvements there. So overall, really good progress and shout out to our development team that's been working really hard to continue to drive this down.
Speaker Change: Okay, thank you. And then a follow-up. You know, a lot of talk of menu innovation on this call, which is exciting. I'm wondering, do you need to kind of dual track any kind of
Speaker Change: menu simplification or SKU reduction, or if not that, you know, maybe accelerate some of the upstreaming you've been doing on the food prep side, really just asking for your assessment if the restaurants are set up to handle all this innovation that's coming.
Neman.
Jonathan Neman: Yeah, it's a great point. And the short answer is yes. We're always looking at how we can kind of simplify the restaurant and make room for some of the innovations. We have only so many hours.
Speaker Change: and so much complexity we have in the box. So whether it be upstreaming initiative, tools to make their job easier, or looking at other recipes.
Jonathan Neman: To kind of simplify, we constantly look at how we can better simplify and optimize the menu. And as we continue to innovate, expect more simplification to come to allow us to streamline the operation.
Thank you.
Unidentified: Your next question comes from the line of Christine Cho with Goldman Sachs. Please go ahead.
Christine Cho: Thank you for the opportunity to ask the question. So, now with 12 IKs live in different trade zones, I'm just wondering if there is any new learnings that you've took away. So, for instance, it seems like consumers now have the choice to decide whether they want their food prepped by an employee or an IK at the Willis Tower location. So, could you walk us through kind of the considerations in this decision and the impact on the margin,
Christine Cho: earlier, IKs. And lastly, just also any plans for retrofits this year in your plans. Thank you.
Christine Cho: Hi, Christine. Thanks for the question on the IK. Let me begin by saying the company remains very pleased with the IK and the IK performance.
Christine Cho: So we're particularly pleased at how we've been able to accelerate the pace of deployment.
Christine Cho: And you're correct, they're across a wide variety of geographies. They continue to show pretty consistently seven points of labor savings and one point of cost-of-goods improvement.
Christine Cho: and we're very pleased with them. In terms of customer satisfaction, we just did a survey and I believe we had a 90% customer favorable approval of the IK stores. So that's probably most important for us.
Christine Cho: We're seeing pretty decent cop growth in them. Our Penn Plaza, which is...
Christine Cho: A retro that was completed in mid-July is comping around 15%, I would say, on its digital lines, which is really the critical line for an IK.
Christine Cho: and the other stories are really a little bit too new to really add much about how they're performing from a comp perspective except to say that Willis Tower is just on pace to set all sorts of records for us.
Christine Cho: Very, very focused on where we deploy the IK in 2025. We have at least 20 new IKs being in new stores.
Christine Cho: and that's around 50% of the 40 new stores we're going to open. I should say the vast majority of those will be in the back half of the year. We have at least one to three retros coming and we plan on relocating two stores, both in New York and they will contain the IK in their relocations.
Christine Cho: So altogether, at least 25 new IKs being deployed in 2025.
Thank you.
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Christine Cho: Again, if you would like to ask a question, press star 1 to join the queue.
Speaker Change: Next question calls from line of Bryan Harbor with Morgan Stanley. Please go ahead.
Bryan Harbor: Yeah, thanks Jeff for you guys. Mitch, I guess just to that point, is there not...
a desire to
do some retrofits faster or
Hi, everyone. I'm Jonathan Neman. And I'm Mitch Reback.
Do you think that might be the case in 26-27?
Speaker Change: And I assume that, you know, kind of the margin number, you talked about kind of IK being an accelerant for margins. I assume the way you're talking about for this year includes, you know, all the IKs that are already operating and will be by the end of the year, right?
Speaker Change: Hi, Brian. Thanks for the question. Yeah, the guide on the margins certainly includes the IKs.
Speaker Change: I think it's really a few things. One is the amount of just constraints on the IK team with how fast they can deploy IKs and getting them better balanced throughout the years. I said, they're really backend loaded in 2025.
Speaker Change: And the second thing about the remodels is there is a disruption to the store for some period of time, and we're trying to balance that as we select exactly which stores to go into and how to do it in kind of slower time periods for the store, so we don't disrupt them in the height of their season. And that's because we really want to prioritize high volume stores for the remodeling.
Sounds good. Thanks.
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Speaker Change: There are no further questions at this time. This concludes today's call. Thank you all for joining. You may now disconnect.
Nice to see you for the third time