Q2 2025 Sweetgreen Inc Earnings Call

Hello, and thank you for standing by. My name is Lacey and I will be your conference operator today.

at this time I would like to welcome everyone to the Sweet green Inc, second quarter 2025 earnings call

Alliance have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again, please limit yourself to 1 question. Thank you. I would now like to turn the conference over to Rebecca Nunu. You may begin

Thank you and good afternoon. Everyone speaking on today's call will be Jonathan Neman, co-founder and chief executive officer and make react to 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.

the earnings release is available on the investor relations section of sweet Green's website, at

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, please forward-looking statements are based on information as of today. And we assume no obligation to publicly update or advise, 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 Gap measures.

Our earnings release can be found on our investor website and now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon.

For the past 18 years we've been building a generational brand 1 that reimagines fast food to be healthy craveable and rude in the highest standards of sourcing.

The brand resonates broadly across geographies demographics and day Parts reinforcing our conviction in the significant whites space ahead and our long-term potential.

For the second quarter, we reported sales of 185.6 million and the same store sales, decline of 7.6%.

Restaurant level margin for the quarter was 18.9%, and we posted an adjusted ibida of 6.4 million.

Let me be clear. We are not satisfied with the results we're reporting today. These results reflect the convergence of several external headwinds and internal actions, which were a more cautious consumer environment starting in April, lapping, a tough comparison with last year's successful, stake launch and the transition of our new loyalty program at the beginning of the quarter.

I want to take a moment to provide more context around these Dynamics, and the steps we're taking in response.

In the second quarter, we operated in a subdued industry backdrop, particularly in several of our largest urban markets.

To address this, we've made thoughtful changes to enhance our value proposition, including increasing our chicken and tofu portioning by 25%, updating our chicken, and salmon recipes. To improve, taste and quality and addressing price perception. Through strategic. Lto pricing menu board architecture and loyalty exclusive 13 menu Bowl drops.

These initiatives are already driving an impact in the third quarter, our summer menu, which launched July. 7th is mixing at 15% of all entree and 1 in 3 customers, who try to seasonal entree returned within 2 weeks.

We've also seen a meaningful uptick in guest satisfaction, with the 30% Improvement in feedback related to our new protein portion sizes.

We are focused on elevating the quality and freshness of every item we serve by reducing whole times and improving consistency.

To support this, we're thoughtfully evolving our menu strategy to balance Innovation with operational excellence.

Looking ahead, we have 2 more seasonal menus slated in 2025 and are planning, at least 8 seasonal or lto moments in 20126.

We remain focused on, strengthening our value proposition and driving frequency, through both menu Innovation and our reimagine loyalty program, which launched at the start of the second quarter.

The transition to SG rewards created around 250 basis. Point headwind to our second quarter, same Source sales

This was driven by 2 factors first, deferred revenue, recognition tied to the structure of the new program and second a fall-off in revenue from a small. But highly important cohort of former sweet Pass Plus members following the discontinuation of the subscription program.

We believe these impacts from the Loyalty program are temporary active membership. In the program is growing and 90-day frequency Trends have steadily improved

We're also seeing early signs of frequency recovery. And our former sweet Pass Plus cohort, as a result of our personalized CRM offers.

Invasive customers have brought some near-term headwind. We're confident this trade-off will deliver positive results starting in the fourth quarter.

In the last 100 days we made 2 significant highs to our executive team. On September 2nd, we will welcome Zapora Allen as our new Chief commercial officer. Support brings deep experience in brand building and customer engagement. Having LED digital at Taco Bell and marketing at Strava

She will play a critical role in sharpening our brand positioning and menu, driving demand and strengthening the overall guest experience.

In May Jason Cochran, joined us as Chief Operating Officer, and his positive impact is being felt all across the organization.

As Jason has spent time in the field, he's been inspired by the strength of our team and the culture we've built at the same time. He sees clear opportunities to raise the bar.

The fundamentals, like sourcing, cooking, and throughput, are there, but they're not always delivered with the consistency our guests expect or deserve.

Today, about 1, third of our restaurants are consistently operating at or above standard. While the remaining 2/3 represent a meaningful opportunity for improvement.

Jason's assessment is grounded in a set of 6, operational, metrics related to p&l, people customer health, and throughput. That allow a subjectively mejor Restaurante performance and identify where support and focus are most needed.

He has launched project 1 best way, a systemwide effort to elevate. Operational excellence by implementing clear, operating standards performance-based, leadership accountability and measured execution project 1. Best way isn't about Reinventing our operations. It's about applying the standard of Excellence with operational process.

Thank you, Jonathan, and good afternoon everyone.

Total revenue for the quarter is 185.6 million up from 184.6 million in the second quarter of 2024.

Same store sales for the quarter decline 7.6%, compared to the prior year period. This reflects a 2.5% benefit from menu price increases and a negative 10.1% impact from traffic and mix.

Our average unit volume in the second quarter was 2.8 million.

We opened 9 restaurants 4 of which were infinite kitchens ending. The second quarter was 260 restaurants

Notably Forest Hills in Queens. New York opened as 1 of the strongest in the company history.

Our 2024 class of new restaurant continues to track towards its year 2 metrics in year 1. Delivering a second quarter margin. Well above deplete average go to the 40% of this class is located in Legacy markets and 60% in New Markets. This reaffirms our confidence in the effectiveness of our real estate strategy and the significant long-term growth opportunity that lies ahead.

Larger restaurants nearby in just a few weeks. Those receiving locations have seen same store sales increased by 15 to 20% in early sign that we've successfully. Recapturing, demand what we've done relatively little to our footprint in New York City since the pandemic. We're now actively reinvesting in the market.

This summer, we opened Forest Hills Park Slope and 23rd in park with the Lower East Side. Expected this fall.

We're also relocating Union Square, which opened in 2015 and Nomad, our first New York City location which opened in 2013, we are relocating them to improved locations and both will contain infinite kitchens.

as leases mature on a small number of older locations, we see opportunities to consolidate volume into newer units, particularly in the established Urban markets, where the footprint no longer aligns with our strategy,

We expect this disciplined approach will strengthen auvs. Same store sales and margins as we scale towards a thousand domestic locations.

For 2025 we anticipate opening at least 40 new restaurants and plan to enter 4 new markets Arkansas Sacramento. Phoenix and Cincinnati

We continue to expect at least 20, new restaurants will have the infinite kitchen with an additional 2 relocations that will be upgraded with the infinite kitchen.

This year's pipeline also includes 2. New sweet, Lane locations, 1, classic, and our first. With an infinite Kitchen, restaurant level profit margin for the quarter was 18.9% compared to 22.5% a year ago, primarily driven by sales leverage and some tariff impact restaurant level profit. For the second quarter was 35.1 Million down 15% year-over-year.

For a Reconciliation of restaurant level profit, and restaurant level margin to comparable gaap figures. Please refer to the earnings release.

Food, beverage and packaging costs for 27.7% of revenue for the quarter, roughly 70 basis points, above the prior year period primarily driven by a 40 basis, point increase, due to tariffs and duties on packaging. This is a level we expect to persist in the near term.

Labor related expenses were 27.5% of revenue. For the second quarter, a 60 basis point increase year-over-year, this year-over-year increases attributable to The Leverage from the change in sales volume and wage rate, increases offsetting. These pressures is improvements in our labor optimization.

Occupancy and related expenses were 8.9% of Revenue, 80 basis points higher than the prior year period.

Operating support center costs in the second quarter, decreased versus the prior year period on a dollar basis as a percent of Revenue year-over-year. Operating Support Center cost for the second quarter decreased to 14.1% from 15.2%.

In the third quarter, we restructured parts of our team and eliminated 10% of open and existing roles.

Net loss for the quarter was 23.2 million as compared to a loss of 14.5 million in the prior year period.

The increase in net loss is primarily due to a 6.4 million. Decrease in our restaurant, level prophet and a 5.3 million impairment charge due to the closure of 2 restaurants and 3. Other restaurants, that we will continue to operate

Adjusted to the job, which excludes stock-based compensation. And certain other adjustments, was 6.4 million dollars for the second quarter compared to 12.4 million in the prior year period.

We ended the quarter with a cash balance of $168 million.

now, turning to our fiscal year 2025 Outlook,

For the fiscal year 2025, we are anticipating the following at least 40 net, new restaurant, openings Revenue ranging from 700 million to 715 million negative. Same store sales of 6% to 4%

Restaurant restaurant level margin of approximately 17.5%.

And adjusted EBA between 10 and 15 million.

On the development front, half of the 2025 pipeline is opening in the fourth quarter.

We do not anticipate any price increases for the rest of the year.

We brought back fan, favorite seasonals and Chef collaborations. Introduced more moderate price points to strengthen value perception made strategic adjustments to our New York City footprint. And we are making improvements in our operations. On the Loyalty front, we're seeing steady weekly Improvement in guest frequency since the April we launched and encouraging sign.

While we're not yet where we want to be, we're confident that these actions positions sweet green to emerge, stronger, more focused and better aligned with what our guests and investors expect from us.

And now, I'll turn the call back to the operator to start Q&A.

Your first quite.

Again, if you would like to ask a question, please press star then the number 1 on your telephone keypad. Your first question comes from the line of Sharon Zack via with William Blair, you may go ahead

Hi, good afternoon. Um I guess maybe 2 questions first. There, there was a lot in in the prepared commentary that kind of indicated reasons for Hope if you will. And I'm wondering if you are actually seeing comps improve, you know, so far in the third quarter and then secondarily Jonathan. You you had a lot there about operations and it sounds like the bulk of units are not kind of hitting the standards where you want them to be. I guess at this point, what is the, the the biggest issue is it?

Is that accuracy is a portion, it is at speed and is there incremental labor that you need to invest to kind of get to where you want to be at those units. Thank you.

Thank you, Sharon. So on your first question, um, the answer is yes, we see some encouraging signs, um, it so far in Q3, we have seen a modest Improvement in same Source sales. And I think a lot of that has been due to this the role, a lot of the seasonal menu, as well as the Loyalty program. So, um, that's 1 in terms of comp. And and, you know, despite despite, you know what, we see as a really, really rough quarter. I am very confident in the plan ahead um as your second question. Um, absolutely believe that us, delivering an excellent. Guest experience is how we're going to win and for us that means a few things 1. It's a focus on people and culture. I've said many times the head coach is our general manager is the most important role inside of our restaurants. A huge focus on hiring training and developing the best head coaches today. Um, some you know some kind of early indicators of that success is our head coach stability is is higher than it's ever been. Its continued to increase head coaches in

Enroll or for over a year, our stability. Uh, our metric is up to 57%. So some early indications of that working, we're also seeing team member turnover at its historic low. We should end the year, um, in somewhere in the 80 80, ish percent range. Um, so huge, huge focus on people and culture and we believe that that is going to be the number 1 driver of delivering, an excellent guest experience. Um, with that, a huge focus on internal development because we know when we develop leaders internally, not only do they deliver better against experiences, it creates a great culture and it creates that people flywheel, um, second, I want to talk about project 1, best way, and Jason, uh, Jason Jason Cochran. Our new coo. So we're very encouraged. He's been here just 90 days but already his impact has been solved and we've launched what we call Project 1 best way really, uh, 2 major part, 2, major focuses, their 1 is throughput and for us the reason throughput is so important is it's not just the

About the speed of service, but in order to deliver fast throughput, it means you have to be fully staffed trained properly, deployed food prepped and energized to deliver for our guests.

So we have goals of increasing, our throughput for every, you know, 10% increase in our Peak, throughput. We see about a 1% Comp lift. And we know there's a lot of room for us to increase our speed of service.

How do we make sure and and all of our recipes and making sure that we're delivering our best, we buy the best food from great farmers and the idea is we need to make sure we are delivering on that on that promise. And the stores that we are doing this are doing fantastically well, we see them comping. So when you have that all working, and we're delivering an excellent guest experience, we're seeing comps and transactions grow. So that, you know, if I could leave with 1 Thing, our main main focus is on executing brilliantly with a focus on people throughput and quality food standards.

Thank you.

Your next.

Question comes from the line of John Tower with City. You may go ahead.

Thanks for taking the questions. Um, maybe just a couple real quick. Hopefully, um, you know, Mitch, I think you touched on something earlier in the commentary prepared, remarks regarding labor. Um, and I'm just curious, if you could follow up on it because your, your labor costs per store week were down pretty nicely year over year, um, obviously you delivered on um, sales being down but I'm just hoping you could flesh out, you know, what's going on there. And if we can expect that to continue going forward this year and in the next year, and what those driving forces are

Hey, thank you, John. So we're real happy with the improvements we've seen in labor. Our workforce management is working really, really well. And as you commented, our productivity, the second quarter actually held with where we were last year. Despite some of the challenges in sales, we're seeing the lowest level of turnover. The business has seen since Co and some of the higher end, we've done is really driven up our retention at the team member level. And our head coach stability is probably at an all-time high. So we're just very encouraged by the systems. We put in place the processes, the hiring and the head coach stability. And we anticipate further gains as we kind of look out on the future. But uh, really pleased with the progress. We've been able to make and I think it would only improve as we get to our sales flywheel a little bit faster.

Got it. Okay. And, and um, you had spoke to, in Manhattan, um, closing down a few Stow stores and hopefully, consolidating, some of the sales into, um, other stores in the market. But, you know, as you look across the rest of your store base, other other kind of troubled markets or maybe markets, where you feel like there's a few more stores that perhaps need in that. Yeah, you know, bottom uh, 2/3 of the uh, underperforming um store base in terms of um, you know, the operations that you feel like might be on that that chopping block for closure.

Uh, John, let me qualify that a little bit. I don't think the store closure was related to problems in the market. I think the store closures were related to the fact that the stores were coming up on 10 years and most of our leases are 10 years. And in this particular instance, our roughly, the stores are approximately 1500 square feet. So we had newer larger locations that were, uh, when I did it probably within a 5 minute, walk of these stores. So it was more of a function of moving the volume to newer stores that would have a better customer experience and a better. Team member experience and closing the older smaller footprint stores. I would say is we look out there remains opportunity to do that particularly in the urban centers that were opened up around 10 years ago, but you're probably on balance talking. You know, if I had a guess, a handful of stores, not a dramatic change in the footprint and we're very pleased with

What we're seeing right now is I think, was in the prepared remarks, the volume is transferring to the 3 nearby stores. So instead of having 5 stores, we now have 3, very strong stores.

Great. Thanks for taking the questions.

Your next question comes from the line of Andrew Charles with TD Cohen. You may go ahead.

Great, thank you very much. Uh, John, despite the strong performance of new stores and the guidance for 40 openings in 25, that was maintained, you know, why not consider a Slowdown in to focus more intensely on the same store sales turnaround and to help better preserve cash.

To run them and also have a huge focus on buildout costs. Um, so as we uh, we believe, as we're able to continue to drive down buildout costs, we'll be able to, uh, we'll be able to continue to drive our return on Capital all to say. Um, going to be super disciplined, we'll come back more on what our pipeline is for 2026. But the focus is only on doing stores that that meet our thresholds. And hopefully we're, we can actually improve our Unity economics as we continue to grow.

Okay, and then uh, Mr. The follow up, you know, can you help contextualize what's driving the restaurant on a margin guidance, down by 200 base points, you know, is this more of a function of sales to leverage? Or would you attribute more to the portioning investment or or perhaps something else?

No, I Andrew I think you called it. It would be largely salesy leverage. Uh the portioning impact is roughly 120 basis points and we are continuing to look for offsets to that. Both in the Restaurant level uh margin area, as well as CNA and there were 40 basis points for tariffs.

Thank you.

Your next question comes from the line of Sarah Senator, with Bank of America. You may go ahead.

Um, thank you, I guess. Maybe. I, I just wanted to go back to um, maybe the the 2 2 Trend. I know, you know, you're making investments in in portion. Uh, it looks like some of the margin compression was actually from higher restaurant level advertising spend, um, but but you didn't see it in in transaction growth. And I guess, I'm, I'm trying to understand, you know, do you think that, the, the issue was that people didn't recognize the portion Investments and the, the marketing prefs didn't work, you know, it's typically, I would have expected maybe a little bit of a sequential Improvement, um, but actually, you know, Trends got worse on a, a stack basis. You know, even after you had some of these idiosyncratic headwinds in the first quarter. So if you could maybe talk about what, maybe what didn't work. If you think about the traffic driving initiatives, you had in place, um, versus your expectations and then I do have 1 more follow-up, please.

Sure. Thank you Sarah. So um first of all the the protein increase was made in July so it was not something that we saw in Q2. Um and from since July with both the protein portioning loyalty and frequency continuing to increase as well as the roll out of our seasonal menu. We, we have started to see sequential Improvement.

Okay? But the advertising piece that was present in the quarter, right? Yeah. So I want to make a comment on the advertising. The total advertising in the company was up. Marginally in the quarter, the amount of advertising through, the 4-wheel margin went up a lot more as the allocation between G and a and 4 Walls. Switched this quarter as more of the advertising was geared towards local stores versus National brand.

Okay. And I guess on that point, you know do you rethink how you allocate National versus local again just um you know it doesn't seem like you have a lot of payoff from that um whether it's by Channel or or dollar amount.

Yeah, I say, you know, I mentioned in the prepared remarks, we have a new, uh, new head of marketing joining in September. And, you know, we're really continue to look at our marketing mix. I think 1 of the shifts that you know, 1 of the things we're seeing is Much More Much Greater Roi on social um kind of influencer lead marketing. And so you'll see us continue to lean in there more. Um but you know, we'll come back with more on that in future calls.

Okay, thanks. And then sir, just a quick follow-up, um, last year and I apologize, I joined late on the call last year. I mean last quarter you talked about sort of, maybe pressure on white collar workers, how the Central Business was doing, you know, perhaps more pressure than, than, um, farther out in the suburbs, do those Dynamics, uh, persist, um, trying to reconcile those with maybe some of what we've heard from from your peers.

Yeah, I'd say uh our Trends probably similar to what you've seen across the industry where we've seen most of the pressure in the urban Northeast environments. Very similar, you know, again very similar to others and we do see you know kind of like you said pressure on you know on consumer spending for many of our consumers has persisted longer than we expected.

Thanks.

Your next question comes from the line of Rahul crossup poly with JP Morgan. You may go ahead.

You have a new executive coming on board, but is there a thought process to rethink the strategy, uh, or the approach to broaden the brand appeal? Uh, were you able to see and dissect? What is landing or resonating with the Target demographic? Um, and then also like get them into the store before getting on the app uh and and I have a follow-up. Thank you.

Yeah, we we we are continuously looking at our marketing strategy, 1 of the things, you know, and I mentioned on calls before is moving away from our seasonal menu is something that we really missed and and our customers have told us that we've seen again huge engagement on our seasonal menu and we think 1 of the best ways for us to drive acquisition.

Acquisition and frequency of our guests is newness on our menu. But we've learned a lot about what kind of newness works and how we can, what we can put on our menu, that we can consistently execute. So that's where you'll see us. Do 2 more, uh, seasonal menus this year with a 2-fold beat. We have a great lineup so newness and great menu items work. Um, the code, you know, we we did see, you really great reaction with our coat, uh, kbbq as well. And as I mentioned on the prepared remarks, we're expecting at least 8 moments next year. Again, leaning into what people love about us, we will continue to, you know, broaden you know from salads and kind of continue to introduce other warm bowls as well which have resonated uh really well.

But if I get take it really back, you know, the number 1 thing we can do is create excellent. Guest experiences in our restaurants our number 1 driver, our best marketing is word of mouth and creating great experiences. You did mention um an opportunity around getting people to eat more in stores. We do see that as an opportunity. You know, like most restaurants when you eat dining in, it is probably the best experience as the food is you know made fresh right in front of you. So the Loyalty program is 1 way of continuing to do that and driving more customers. Um, to try our product in store before they become a digital customer. So that is another Focus area for us.

Thank you uh and the follow-up is on the Loyalty headwind. Uh you guys discussed at 250 bips headwind in second quarter. How did this trend as we moved across the quarter and exit rate of it? And what are we currently seeing on the headwind today? Uh, given like some of the reversals should have been happening as people are coming back. Thank you.

Hey Raul. Um yeah we did talk about the Loyalty headwind coming in 2 big areas 1 was the deferred revenue and the second 1 was a decline in frequency from sweet Pass. Plus that small group of customers that were high frequency. Um, what we really find is the deferred revenue piece which was negative in the um, second quarter. When we started the program, they'll turn more neutral as we get to the back half of the Third.

Third quarter and will be a Creed of thereafter and that is largely just the timing and accounting issue with starting up the program and pretty much as we expected so that piece will dissipate and we're finding with our frequency with our uh, former sweet Pass Plus members. As we continue to re-engage them, we continue to see them and have them as customers, and their frequency appears to be moving up. So, as we look out over the following quarters, we believe that the Loyalty impact will move from a headwind in the business to a Tailwind certainly, as we get closer to year end.

Thank you.

Your next question comes from the line of Brian Bittner with Oppenheimer. You may go ahead.

Thank you. Um I I just I think the primary question on on investors Minds is is ultimately. Do you believe the sales weakness that you've you've witnessed this year is anything to do with degradation in the price value? Perception of sweet green. I realized there's a lot of external headwinds, um, but it does sound like you're pivoting towards trying to put more value on the menu. You're creating bigger portion sizes Etc. So I do think it's worth further unpacking, whether your data and your insights suggests that this is a dynamic that is a headwind to demand trends that you're trying to improve.

Experience in stores. But the number 1 thing is going to be just delivering great, guest experiences, which again starts with an amazing team, and leaders in our stores, a great culture, us driving throughput and elevating our food standards. That's really going to be, you know, how we how we continue to drive our price value. And then things like our seasonal menu, um, again reinforce our positioning what we do, you know, the product we serve is, you know, Superior to much of our competition. Both from how we Source it and how we make it in store. It's mostly, you know, it's almost entirely made from scratch, and it's a very high quality product, that not only tastes good, but makes you feel good. And I think our opportunity is just executing more consistently, um, so we can deliver on that promise. So I'll just say, we don't see it as a large price value issue. We see it more of executing to our standards.

Okay, thanks for that. And and Mitch. Um, I appreciate the, EBA tablet, change for 25. Kind of marking the market just for the current environment. But how are you positioning the model for 2026? Because I think consensus have been modeling a pretty dramatic.

Step Up in Iva generation in 26 relative to 25 and look I know you're not giving me 26 guidance, but any guard rails, you can put on consensus for next year would would probably be helpful.

Um, thanks for the question, you know. Uh, let me first begin by saying what you commented on that. We generally give our 2026 guidance on the, um, I believe the February earnings call for year end. So we'll have a lot more to say at that point in time. Uh, let me just speak for a minute about 2025, which may help shape the thoughts on 2026. We think a lot of what we're seeing in 2025 in our business today, has temporary. Headwinds is the business kind of adjust its loyalty program comps over certainly the second quarter where we had our fastest comp growth in 2024, in Q2, with the launch of stake, all coinciding with really a very significant change in the external environment, which happened kind of suddenly around the beginning of April.

Uh, what we believe happens to the business, you know, kind of looking out is that the company grows through these things and that these headwinds proved to be more temporary in the business and many of them like loyalty convert the tailwind. And I think echoing, with John said, as we get our operational standards to really, really drive them and improve the execution at the store level return, our menu to more of our seasonal core. We're convinced that we will see the business kind of get back to the trajectory we were on.

Hey, thank you.

Your last question comes from the line of Logan, ree, with RBC Capital markets, you may go ahead.

Hey, good afternoon, thanks for taking my question. I was curious what the uh sort of average cost would be for those relocations. I don't know if you're able to provide any sort of estimate um or or color on what we should be putting in their models for for those relocations.

Uh, the, the... are you talking about the...

Yeah. And sort of the other handful of stores that Mitch alluded to that are in other Urban centers.

It it I'm trying to love it. I want to be sure. I understand the average cost of them.

uh,

yeah, for for the reopening.

Um, you know, I think what I would typically say is there is no cost to the call that receiving or beneficiary store; they just continue to carry on as they were previously operating. The closure cost for these stores is directly related to whether there was any outstanding leases on them or if they were at the terminal value with the end of their 10-year lease.

So long, we're just saying, um, it really depends upon the rent structure and the fixed asset, but generally, um, no real cost to the movement of the store. Yeah. And just the just to add, if you, if you're referring to the the stores that were relocating, those are stores where the lease is up. And this the new stores will be just you know, the cost of any store in that market. We don't we don't Guide to the exact you know cost per store. Um but both of those stores will be infinite kitchen stores and they would they should be within the average of what those stores usually cost.

Got it. Okay, that's helpful. And then, I guess just on the same-source sales in Q2, is there any way you can sort of break that out between maybe income cohorts, urban versus suburban? Any way you can provide some additional color on where the weakness is coming from, or if it's more just fraud-based across the entire portfolio?

How long, I think, what we could tell you is that what we found was, is that we're in the prepared remarks, about 250 basis, point impact from, um, the Loyalty change over and certainly a more pronounced impact in the Northeast, there's other people have stated and largely that coming through the macro environment that customer, uh, concerns that we saw.

Got it. Super helpful. Thanks.

Your next question comes from the line of Brian Harper with Morgan Stanley. You may go ahead.

Yeah, thanks guys. I wanted to to come back to just the operations question. Um,

you know, you mentioned that sort of people and

Training manager. Stability is, is key to it. It's something that's actually pretty good though, right? So I guess the question is what do you think is is sort of lacking um, currently and then, you know, in the

These 2/3 of of stores that are sort of below standard. I guess I'm curious as to, whether does that include a lot of new stores. Do you think, to some extent? There's like a lack of consistency in the newer stores you've opened. Or, you know, is that not the case, perhaps?

Yeah, so in terms of, in terms of your first question, yes, we've seen improvements in terms of our stability and, and, and turnover, which you've seen in some of our productivity. But there's been a lack of clear standards, um, and a real focus on the 2 things I mentioned, which is throughput and food quality. And so, as we really double down on those things under new leadership, you know, we believe that the people component is going to be a leading indicator for what we should see, um, with the performance of those stores, that's typically what we've seen. As stores get stable to, you know, once you know a head coach, for example, hit the year to store begins to perform better. So we we feel, you know, we believe strongly that as we continue to stabilize our people and drive more, internal promotion that will continue to seek better experiences in our stores, which will lead to transaction growth. Um as it relates to the the second part of your question around the 2/3. Um yes, obviously many of those are newer stores that are still

Ramping. Um, so some of that is, is is normal and expected. But our goal is to tighten the variance between our best and restore significantly by the end of the year. And we have action plans in place to get that done.

Um, if I could just mention 1, other thing is, you know, no 1's asked about Ripple fries, but I do think I, I, I it's important to bring it up, you know, Ripple freeze is something that we've learned consumers. Love, we had a great reaction from

But as we start, as we studied what it was doing, to the restaurant, operation and the distraction, for our teams, we realized that it became a complex fire for us to delivering on our core. So 1 of the other big changes we've made is starting next week. We will be discontinuing Ripple fries in order to focus on our core and in stores where we have tested this we've seen huge improvements in customer satisfaction because um again teams can really focus on the core products, making sure, you know, all of our hot food, whether it be our chicken, our, you know, our cooked vegetables Etc. Are we're cutting our whole times and as we cut our hole times as the product quality improves. So just you know, the focus is really focusing in our core and delivering on that with a focus on, you know what we can control within our 4 Walls.

Your next question comes from the line of Brian mullet with Piper Sandler. You may go ahead.

Hey, thanks. Uh, just follow up on a prior price, value question. Um, can you just talk about the Monday? Lto you ran in June, what you saw from the consumer Behavior perspective. You know, I'm wondering if you could like this price point,

And this price point to be a traffic driver or motivator for your guests. But I'm also wondering if it causes any kind of trade down from those digital guests that are getting the offer, any color would be great.

Focus on bringing more newness to guests. You got to, you know, I think 1 of the interesting things about the sweet remodel is it's a very high frequent habitual model. So offering ways to offer, figuring out ways to offer newness to our frequent guests without complexify. Our operations is something that can drive frequency. And we did see this newness and these Monday drops dry frequency for our guests and again, very high. Um, very high mix. So, it's something we're going to continue to push on and it can be a good way for us to offer a value lever for our guests as well.

Okay, thank you. And then a question about menu Innovation. Um,

Just talk about the opportunity. You might see on on beverages or desserts or handhelds over time and and you might have answered this with the Ripple fry commentary but I was curious. If you could test anything at the same time you have project 1 best way going on or or would you want to kind of pause on all new innovation for a bit if you focus on the operations?

Yeah, yeah, yeah, great question. So, um, we do believe that menu Innovation is going to be very important for us. And under Jason's leadership, we've re uh, rebuilt, our stage gate process. So how we how we test things and understand both the consumer,

Consumer reaction to it. But also, what are the second order effects to the rest of the operation. So, if anything, we're actually increasing our, you know, top of the funnel menu, Innovation, but being much more thoughtful in how we test and truly understand it. Um, as it relates to house-made beverage, we actually are live. And I believe, you know, by this, this September will be um, in in 3 months, uh, on a house-made beverage test. Um, it's for a house-made beverages. They're doing really, really well. We're very encouraged by it. And it is something that we will uh, continue to roll out over the balance of this year and through 2026. Um, as it relates to, uh, other sorts of menu Innovation and things like wraps again. Those are things that, uh, we we will continue to test. We will get it. Uh, we will do, we will follow our stage gate process, we do see a huge customer, uh, desire for us to continue to expand our menu, but the focus on is to make sure whatever we put in our menu, we can execute really, really well and continue to execute.

The rest of the menu, really learning from a lot of the Innovation we've done. So we've gotten much clearer on what our what the op sandbox is for us. What can we execute? And how can we equip our teams with the right tools and trainings to execute whatever we do? Um so expect a lot more menu Innovation but expect uh a much tighter stage gating process for us to make sure that not only does it work from a consumer perspective but we can continue to deliver excellent. Guest experiences within our 4 Walls

Thank you.

Your next question comes from the line of Christine Cho, with Goldman Sachs you may go ahead.

Great. Thank you for taking my question. Uh, so in the last call, I think you mentioned about 20,000 new loyalty members joining each week. Uh as of May I was wondering if there are any updates, you can share on kind of customer acquisition and how its fairing versus your prior expectation. Uh, and more importantly, how do you plan to kind of convert those signups into more sustained increases and guests? Frequency are there any specific customer cohorts that are responding more positively to the revamped uh loyalty program. Thank you.

Thank you for the question. So yes. We uh We've continued to see um, around 20,000 new members joining. So it's been strong. Um, like most restaurants 1 of our uh, 1 of our best, uh, acquisition drivers is in the store. So we continue to push that in store and convert in-store, customers into loyalty, 1 of the, uh, 1 of the big improvements that we will be rolling out, uh, very in, you know, later this year, we'll be the ability to scan and pay in store. So today, it's 2. It's, you know, you have to scan and then pay, um, we will be moving into a scan, pay single transaction, which again will help our throughput. But also gives another reason for our guests to sign up for loyalty and get through our lines quicker. Um, and we've been very encouraged as I mentioned, uh, earlier and I think Mitch spoke about his

As well around the Loyalty program and the increases in frequency. Um, we continue to test and learn all sorts of different canvases and Journeys, and are getting more and more. Personalized on what is, what are the different types of offers we can, uh, leverage for different cohorts in order to drive frequency. So we've learned a ton and we're, you know, you know, doubling down on the things that are working and do expect loyalty to create this digital flywheel for us as we continue to perfect it.

Thank you.

Your next question comes from the line of Jeffrey Bernstein with Barkley so you may go ahead.

Thank you very much. Uh, my first question is just on the restaurant margin, um, and we mentioned earlier, kind of the the back half reduction that's implied based on your guidance. I know it's in large part due to de-lever. I'm just wondering as you think about it over the next few years.

Your confidence in that re acceleration back towards the the 20% or maybe past margins you've maybe over earned a little bit and it would be wise to maybe reinvest more in the operations and the execution you're talking about how you think about the balance of getting back to the hurom margin versus investing for the long term and then I had 1 follow-up.

Uh, thank you very much. Um, now I would say we see the margin expanding over the next several years, and continuing to grow, we think a lot of that's going to come from improved operations as John's been talking about during the call, as well as the re acceleration in the growth in sales that we see happening as we get past some of these near-term headwinds. So as we look out on the business, we think we still remain with a lot of opportunity for margin expansion in our core operations and that will also happen, uh, be accelerated by the deployment of the infinite kitchen. So just an even the classic stores we think that the margin trajectory remains pretty good.

Understood and then just following up on a comment. You guys made earlier about the the new units that you're opening and kind of stepping up the scrutiny. In terms of these new units to increase the likelihood of success and being a lot more diligent and careful just wondering if there's any current learnings that help drive that decision, or maybe change your decisions in terms of uh, new units and whether they're a new versus existing markets, I got the impression that you were maybe implying that for next year.

It could potentially fall to sub 15% to 20%. If you know this added scrutiny leads to a few less potential sites. Thank you.

Well, 1 of the things that we're really, there's a couple of things that we're really focused on their 1 is, um, the actual store design and experience we've made, uh, we've done a lot of work, um, over the past year and are going to be opening stores with updated designs and flows for both our classic restaurants, as well as our infinite kitchen restaurants. These are the idea with with these designs is to create not only a better customer experience, but a better experience and easier flow for our team members, which should lead to both better food quality, as well as better labor deployment. Given some of the adj adjacencies put in. So we're very excited about those. And then there's been a huge focus on buildout costs. Um, we think that there's an opportunity to really Drive buildout costs down, some of that is going to be through these new prototypes as well as um

As well as attacking our, our size of store, 1 of the lessons has been, you know, smaller, you know, kind of keeping our stores on the smaller side, um, actually they do better. Um, it creates a better environment, the teams teams are happier and the stores are less expensive to build. So a huge focus on targeting uh, stores. You know, a bit smaller square foot um, with lower cost to to really focus on expanding the return on capital of our investments.

Got it. But the idea of getting back to or being married to that 15 to 20%, you don't see a problem in being able to achieve that next year, even with this greater scrutiny.

You know, we're still building the pipeline. So, you know, I do believe that can be, that is the long term algorithm. Um, we have a very robust pipeline but we're looking at it very carefully and making sure that every single store is vetted. And we we can deliver on our return on Capital. So we'll be coming back more on that. Um, in future quarters.

Thank you.

Your final question comes from the line of Chris. Carroll with KeyBank. You may go ahead.

Hi thanks for taking my questions. Um, so could you talk maybe a bit more about what you're seeing in ick stores relative to your classic Stores um particularly from a sales perspective. And if there is a meaningful, Delta between the performance of ich versus classic, is there anything there that informs your thought process and strategies?

You're moving forward.

Have the volume where the return on Capital makes sense. But overall we're we're very encouraged. And as I mentioned on the previous question, um, some new updated designs with featuring The I the infinite kitchen that we think are going to create an even better uh store experience. So stay tuned for some more on that as those begin to open.

Um, and then just following up on Jeff's question. Uh, you know, what's your latest thinking about development for

In light of the changes that you're making in the New York Market. Specifically, um, how are you thinking about those opportunities for further growth in your core Legacy, markets versus newer, sweet green markets

Um we continue to see opportunities in our core Legacy, as well as new markets, you know, new markets have done really well for us over the past few years, 1 of the I think changes in some of the markets that we had opened years ago is we have now we have delivery in the business. So now you know, a lot of those stores share delivery radiuses and so we're much more careful about the dilution of stores in existing markets. So looking kind of for net new white space, but there's plenty of white space for us in all of our Legacy markets and some of that may not be all in the downtown core but kind of expanding out from the core and that's where we've seen a lot of success. So going from Boston to the suburbs of Boston, for example, it's been very successful for us, similar to, you know, similar in the Bay Area. You know, very successful in the bay and extremely successful.

We've worked our way down the peninsula in the East Bay. So really leveraging. The brand we built in these core, Urban markets and kind of expanding out from those still within those markets, but out into the suburbs.

Got it. Thank you.

Thank you for joining this. Concludes today's conference call. You may now disconnect