Sweetgreen records its biggest same-store sales decline as a public company in 1Q

Sweetgreen reported its biggest same-store sales decline as a public company in the first quarter. But CEO Jonathan Neman said the fast-casual chain is still in early innings of its attempted turnaround.

The Los Angeles-based chain on Thursday said same-store sales plummeted 12.8% for the March 29-ended quarter, including an 11.2% decline in traffic and a 2.3% decrease from product mix that was partially offset by a 0.7% benefit from menu price increases last year.

The results were even worse than the 11.2% same-store sales decline seen in the fourth quarter last year.

Bad winter weather was partly to blame, the company said, as was the comparison with the launch of Ripple fries in the first quarter last year, which drove traffic at the time, though the fries were later taken off the menu because they were seen as mucking up operations.

In addition, the decrease in menu mix was blamed on promotional activity in the first quarter, and the transition from a subscription-based loyalty program to the new SG Rewards, which is points-based.

Turnaround efforts

But Neman, who is also a co-founder, said sales trends began to improve in April, which he said reflected early progress resulting from the execution of a Sweet Growth Transformation Plan, launched last year.

“While the quarter was pressured, we saw improvement as the quarter progressed, with a further step up in April,” he said.

Same-store sales in the second quarter are expected to still be negative, though less so. CFO Jamie McConnell said they expect same-store sales to land around down 4% for that quarter.

The chain this week launched a new wrap category systemwide, the most significant menu expansion Sweetgreen has attempted in years, he said.

The wraps are getting love on social media, with about 85% indicating positive sentiment about the value of the sandwiches, which start at about $10.45 in some markets and are mostly under $15.

In test markets, the wraps brought in new and lapsed customers, and showed strong repeat behavior, Neman said. And more innovation with wraps is coming this year.

Sweetgreen is also planning to start testing a new pricing architecture that will create more entry-level price points on the menu, Neman said. The move will also be designed to give guests more price transparency as they build their own bowls (or wraps).

Financial results

Sweetgreen’s revenues for the quarter were down 2.9% to $161.5 million, despite the opening of 39 net new restaurants.

And net income was positive, $125.8 million in the first quarter, compared with a loss of $25 million a year ago. But that increase reflected the company’s sale of the Spyce technology behind its Infinite Kitchen automated makelines to Wonder last year, which brought in a $160.6 million gain that was partially offset by a $5.8 million increase in the loss from operations.

Restaurant-level margins during the quarter were down nearly 800 basis points to 10%, driven by higher food costs and more promotional activity through the loyalty program. Last year, in an effort to appeal to protein seekers, Sweetgreen increased portions of chicken and tofu.

For the year, Sweetgreen reiterated expectations that same-store sales would decline between 4% to 2%.

The chain, however, said it expects a net of 13 new restaurant openings this year, down from 15 new openings projected earlier. That growth rate for this year reflects 18 new openings planned, along with five closures of lower-performing restaurants.