Earnings call transcript: Sweetgreen Q2 2025 sees stock dip after earnings miss

Sweetgreen Inc. (SG) reported a larger-than-expected Q2 2025 loss, with EPS of -$0.20 against a -$0.09 forecast and revenue of $185.6 million missing $193.43 million expectations, leading to a 24.72% premarket stock decline. The underperformance was driven by a 7.6% same-store sales decline, loyalty program transition headwinds, and challenging urban market conditions. Despite these setbacks and a cautious FY25 outlook including negative same-store sales guidance, management is focused on operational improvements, strategic store relocations, and continued expansion with 40 new restaurants planned, aiming to return to growth.

Analysis

Sweetgreen Inc. reported a significantly weak second quarter for 2025, with both revenue and earnings falling substantially short of market expectations. The company posted an EPS of -$0.20, more than double the forecasted loss of -$0.09, while revenue of $185.6 million missed the consensus estimate of $193.43 million. This underperformance was driven by a sharp 7.6% decline in same-store sales, which management attributed to a confluence of external pressures, such as a cautious consumer environment in key urban markets, and internal strategic shifts, including a loyalty program transition that created a 250 basis point headwind. The financial impact was severe, with restaurant-level margins contracting to 18.9% from 22.5% a year prior, and adjusted EBITDA falling to $6.4 million from $12.4 million. The company's updated full-year guidance signals persistent challenges, projecting negative same-store sales of 4% to 6% and an adjusted EBITDA of only $10 million to $15 million. In response, management is implementing a turnaround strategy focused on operational execution under a new COO, admitting that two-thirds of its restaurants are currently underperforming. Key initiatives include increasing protein portions by 25% to enhance value perception, discontinuing complex items like RippleFries to improve focus, and strategically optimizing its New York City real estate portfolio. Despite these operational difficulties, the company maintains a healthy liquidity position with $168 million in cash and is proceeding with its plan to open at least 40 new restaurants in 2025, signaling continued conviction in its long-term growth thesis.

Key Decisions for Investors

• Given the substantial earnings miss, a 7.6% same-store sales decline, and a downward revision of full-year guidance, investors should anticipate continued near-term stock price volatility and pressure until there is clear evidence of a sales turnaround.
• Monitor the execution of the 'Project One Best Way' operational overhaul and track key performance indicators in the coming quarters, particularly customer traffic, satisfaction scores, and any recovery in restaurant-level margins, to gauge the effectiveness of the new management's strategy.
• Investors should weigh the company's long-term growth potential, supported by a $168 million cash balance and continued unit expansion, against the significant operational execution risk highlighted by management's admission that two-thirds of stores are underperforming.
• The transition of the loyalty program, which created a 250 basis point headwind in Q2, is expected to become a tailwind by year-end; confirmation of this shift in Q3 and Q4 results could serve as a key catalyst for the stock.