Sweetgreen, Inc. (NYSE:SG) Q1 2023 Earnings Convention Name Might 4, 2023 5:00 PM ET
Firm Members
Rebecca Nounou – Head of Investor Relations
Jonathan Neman – Co-Founder and Chief Govt Officer
Mitch Reback – Chief Monetary Officer
Convention Name Members
John Ivankoe – JPMorgan
Chris Carril – RBC Capital Markets
Sharon Zackfia – William Blair
Andrew Charles – TD Cowen
Katherine Griffin – Financial institution of America
Operator
Good afternoon. My title is Emma and I will be your convention operator immediately. Presently, I wish to welcome everybody to the Sweetgreen First Quarter 2023 Earnings Convention Name. All traces have been positioned on mute to forestall any background noise. [Operator Instructions]
Rebecca Nounou, Head of Investor Relations, you could start your convention.
Rebecca Nounou
Thanks, and good afternoon, everybody. Right here with me immediately are Jonathan Neman, Co-Founder and CEO; and Mitch Reback, Chief Monetary Officer. Earlier than we start, we have now a few reminders. Our earnings launch is obtainable on our web site at investor.sweetgreen.com.
Throughout this name, we shall be making feedback of a forward-looking nature. Precise outcomes could differ materially from these expressed or implied because of numerous dangers and uncertainties. For extra details about a few of these dangers, please assessment the corporate’s SEC filings, together with the part titled Danger Components in our newest Annual Report on Type 10-Okay submitting and subsequently filed quarterly report on Type 10-Q. These forward-looking statements are primarily based on data as of immediately, and we assume no obligation to publicly replace or revise our forward-looking statements.
Moreover, we shall be discussing sure non-GAAP monetary measures, that are along with and never an alternative choice to measures of economic efficiency ready in accordance with GAAP. A reconciliation of these things to the closest U.S. GAAP measure could be discovered on this afternoon’s press launch accessible on our IR web site.
And with that, it’s my pleasure to show the decision over to Jonathan to kick issues off.
Jonathan Neman
Thanks, Rebecca. And good afternoon, everybody. It is a actually thrilling time for Sweetgreen, and I am energized by all of the strategic updates we are going to share with you immediately. We imagine instances like these create alternatives for corporations with nice manufacturers, massive addressable markets and dependable clients. And we count on to look again on this era as a second that catalyzed our subsequent section of sturdy development. We acknowledge that nice companies must be and corporations balancing development and profitability. And I am assured that the actions we have now taken over the previous couple of quarters put it squarely on the trail to develop shareholder worth within the years forward. Changing into a big worthwhile firm begins with offering distinctive visitor experiences.
Our crew has achieved an amazing job considering by way of how we will higher serve all our friends. From our new loyalty applications to the previous to new menu gadgets just like the rooster in Chipotle pepper bowl to driving high-quality execution in our eating places. I’m happy with our efficiency. I wish to lengthen my gratitude to each Sweetgreen crew member for his or her dedication to our mission of constructing more healthy communities by connecting individuals to actual meals.
My co-founders and I collectively stay the most important shareholder of the corporate and we deal with each greenback as if had been are our personal. As we transition to working in an surroundings outlined by uncertainty and an elevated price of capital. We’re extremely targeted on driving excessive returns inside our present fleet and throughout new initiatives we undertake. The headstart we have now in constructing the class permits us to be disciplined throughout this era whereas remaining nimble sufficient to benefit from the alternatives that can undoubtedly come up.
We see our method paying off as we reported first quarter gross sales of $125.1 million representing 22% year-over-year development and similar retailer gross sales development 5%. Our similar retailer gross sales development was pushed by 2% development in site visitors and three% of value taken in January. Complete digital gross sales represented 61% of our Q1 income with roughly two thirds of these gross sales coming by way of our personal digital channels.
AUVs had been $2.9 billion and restaurant degree margin within the quarter was 14%. Our adjusted EBITDA loss for the quarter was $6.7 million down from a 2022 first quarter adjusted EBITDA lack of $17 million. Excluding the influence of worker retention tax credit score associated to the Cares Act, restaurant degree margin would have been 12% and adjusted EBITDA loss would have been $13.6 million on the high finish of our Q1 steering vary. Our help middle spend continues to trace $98 million for 2023. I am happy that throughout the first quarter gross sales grew 22% year-over-year whereas we operated the help middle 8% decrease than Q1, 2022.
We stay extremely targeted on driving substantial working leverage out of our help middle within the coming years. In 2019 our help middle prices for 30% of internet income. As we speak, we count on that our help middle prices which now contains public firm and spice associated prices shall be within the 16% to 17% vary of internet income. We are going to develop the help middle solely to the extent that additional investments drive tangible returns on capital.
We’re dedicated to repeatedly reunderwriting how we steward and allocate capital to ship returns and shareholder worth creation. Make no mistake, persevering with to drive working leverage on the help middle is a high precedence for our administration crew. As we have now mentioned prior to now, we function with 4 strategic priorities, that are the idea for driving robust high line development, buyer acquisition and loyalty and profitability. That is our flywheel.
As a reminder, our strategic priorities are; one, broaden and evolve our footprint in new and present markets to attach extra communities to actual meals; two, construct our model and digital expertise because the trade chief permitting us so as to add new buyer channels, thrive frequency and enhance restaurant quantity and margins; three, reinforce our dedication to credibility and encourage shoppers to stay more healthy lives by way of reimagining quick meals; and 4 run nice eating places with a individuals first tradition targeted on growing expertise for our future development.
Now, let me present an replace on every of those priorities. In Q1, we opened a complete of 12 new eating places ending the quarter with 195 eating places. Because the quarter ended, we have opened a further 5 eating places together with our first in Cranston, Rhode Island. We stay on tempo to open between 30 and 35 internet new eating places this yr with plans to enter three further new markets, Seattle, San Antonio and Milwaukee. Whereas early we’re happy with the category of 2023 openings. As we mentioned on our final name, our unit technique is targeted on disciplined capital environment friendly development. We wish to be sure that we’re selecting nice websites with the appropriate leaders and executing our confirmed playbook in a considerate method that protects our model.
As we share it on our final name this yr, we shall be introducing two eating places powered by our automated manufacturing line we name the Sweetgreen Infinite Kitchen. We’re excited to share that subsequent week on Might 10 we shall be opening our first Infinite Kitchen in Naperville, Illinois. Later this yr, we are going to open a second Infinite Kitchen retrofitting an present restaurant in order that we will learn the way greatest to combine the Infinite Kitchen in an present website. From these pilots, we hope to learn the way we will create a extra constant buyer expertise sooner throughput and make our crew members jobs simpler and extra dynamic. We imagine this new idea powered by automation unlocks effectivity that can allow us to develop extra rapidly and have increased revenue margins. Whereas we’re nonetheless testing and studying we count on the Infinite Kitchen shall be more and more built-in into our pipeline.
We look ahead to sharing extra of our learnings with you in future calls.
We proceed to construct our model and digital expertise. Final week we launched our loyalty program Sweetpass nationwide, which we imagine over time ought to drive considerably increased frequency in our buyer base. Members of Sweetpass obtain curated rewards and challenges, menu unique particular birthday items and extra. With a Sweetpass Plus membership members pay a $10 monthly subscription to entry a day by day $3 supply and different advantages like free supply, restricted version [indiscernible] outlets and extra. We had a really easy launch with nice buzz. We imagine this system will drive margin enhancements not solely from the underlying membership charges, which come at restricted prices, but in addition by way of incrementality throughout our buyer base.
By our seasonal choices, digital unique, chef collaborations and vital core menu we proceed to strengthen our dedication to our buyer worth proposition of constructing wholesome scrumptious meals craveable and handy. In March we launched the Hen Chipotle Burrito Bowl. This craveable approachable and hearty bowl is our tackle the beloved Burrito bowl made the Sweetgreen method that includes a roasted Chipotle salsa, lime, cilantro, black beans, black and chickens and a double rice base. Our clients find it irresistible. The bowl is outperforming our targets in addition to exceeding our objectives for brand new buyer acquisition.
As a part of the launch, we supplied a promo for nationwide burrito day to have fun the brand new providing exposing the model to each new and present clients. Past innovating on new restricted time menu gadgets, we’re additionally persevering with to evolve our signature menu with new flavors which might be extremely requested by our clients. We introduced again humus in each a brand new signature salads the hummus crunchy salad, and for the primary time as a aspect of hummus and focaccia. We proceed to broaden our beverage providing and lately launched a number of wholesome soda choices in addition to chocolate treats. Whereas nonetheless early, we have seen attachment {dollars} develop almost 25% within the first three weeks of launch. We imagine the margin alternative with attachments presents one other vital alternative for Sweetgreen within the coming years; a simple technique to fulfill buyer requests and drive gross sales effectively by way of our footprints.
A part of what makes Sweetgreen particular are the partnerships we imagine we will uniquely create given the power of our model. For instance, in mid April, we launched Boia De bowl a collaboration with Michelin starred Miami restaurant Boia De. The bowl is vibrant and briny Italian impressed creation with thoughtfully sourced elements and craveable stracciatella cheese on high. It is accessible to order from all seven South Florida areas by way of June 12. We’re extremely proud of buyer reception to our innovation and clients ought to count on extra from us within the coming quarters. Our strong menu roadmap contains persevering with to check into further heartier and extra craveable grains and proteins, extra collaborations with influential cooks, and increasing savory and candy attachments, together with increasing our dessert providing.
[indiscernible] nice eating places is the foundational component to creating our enterprise thrive. We proceed to see executional enhancements in our enterprise because of our regional normal supervisor mannequin we carried out originally of the yr. Our metrics are exhibiting an enchancment in throughput, notably throughout peak interval instances. Through the first quarter, we enhance our digital throttle ranges 20% throughout the fleet, and we proceed to see improved Entrance of Home throughput throughout commerce areas. Our eating places are totally staffed and we proceed to give attention to hiring and retaining people who work full time. Our knowledge reveals those that are scheduled to work full time name out much less and have increased tenure. Within the first quarter we noticed decrease turnover attributable to those scheduling practices. By the top of the yr, we are going to launch tipping throughout the fleet, which we imagine will enhance crew member turnover and in flip create a greater general buyer expertise. We additionally lately adjusted head coaches schedules to present them extra time on the ground to have interaction with our friends and crew members, guaranteeing that we’re delivering on our buyer promise of contemporary, quick and pleasant.
This goes again to our intimacy at scale playbook and particularly one in all our core values of including the candy contact. I am excited for the continued influence these initiatives may have on our potential to drive higher enterprise outcomes and create a win-win-win for the shopper, the corporate and for you, our shareholders. Earlier than I conclude, I wish to take a second and lengthen my gratitude to our Chief Advertising and marketing Officer Daniel Schlossman, who after 5 years at Sweetgreen shall be leaving the corporate. Daniel performed key roles within the launch of latest channels, and most lately crafting our loyalty program. Nathaniel Ru my co-founder and Chief Model Officer shall be absorbing Daniels duties, Sweetgreen is enjoying to win. Our clients stay core to all the pieces we do as we give attention to disciplined capital environment friendly development and our path to profitability. We now have a strong model with a large market alternative and I am assured the steps had been taking will guarantee our potential to sustainably additional our mission of connecting individuals to actual meals.
And now I am going to flip it over to Mitch to stroll by way of the quarters financials.
Mitch Reback
Thanks, Jonathan. And good afternoon, everybody. We’re happy with our monetary outcomes for the primary quarter with income ending inside our anticipated vary. Complete income for the primary quarter was 125.1 million, up from 102.6 million within the first quarter of 2020 to rising 22% year-over-year. Identical retailer gross sales grew 5% reflecting a 3% value enhance tokens subsequent to March 2022 and a 2% enhance in transactions. Our common unit quantity was 2.9 million up from 2.8 million in Q1, 2022 nearing our pre-COVID AUVs. We opened 12 new eating places this quarter. As shared on our final earnings name we closes three eating places within the first quarter, one in Los Angeles, one in Boston and one in New York. All three of those eating places had neighboring eating places that had higher buyer and crew member expertise.
Moreover, we can drive incremental profitability by shifting quantity from one retailer to a different. We ended the quarter with 9 internet new eating places and a complete of 195 eating places. Restaurant degree margin within the first quarter was 14%. This features a 1.8 million profit associated to the worker retention tax credit issued as a part of the Cares Act. Excluding this credit score, our margin was 12% which is on the high finish of our steering. This enchancment was primarily on account of gross sales leverage. For a reconciliation of restaurant degree margin to comparable GAAP figures please consult with the earnings launch. Meals, beverage and packaging prices are 28% of income for the quarter, which is 200 foundation factors increased than 2022. As talked about on our final earnings name, beginning in January, we skilled a packaging disruption which resulted in elevated packaging prices all through the quarter. Labor and associated prices had been 31% of income for the primary quarter, down 200 foundation factors from the comparable interval in 2022. We acknowledge 1.8 million profit associated to the worker retention tax credit as a part of the Cares Act. Our eating places are totally staffed and we’re happy with the standard of expertise we’re in a position to entice. Moreover, we have seen an easing of wage pressures.
Occupancy and associated bills had been 10% of income in line with the primary quarter of 2022. G&A expense for the quarter was 34.9 million in comparison with 50.2 million in Q1, 2022. The 15.3 million lower is primarily attributable to a 7.9 million lower in inventory primarily based compensation expense, a 5.1 million profit associated to the worker retention tax credit score and a lower in administration salaries and advantages. Through the first quarter our G&A expense excluding inventory primarily based comp and retention credit score was 8% decrease than 2022. Our internet loss for the quarter was 33.7 million in comparison with a lack of 49.7 within the prior yr interval. The lower in internet loss is primarily as a result of decreases in G&A as beforehand mentioned in addition to a 2.9 million enhance in curiosity earnings and a rise in our restaurant degree revenue. These decreases in expense had been partially offset by a rise in depreciation and amortization related to further eating places and a rise in pre-opening prices as a result of timing of latest restaurant openings.
Adjusted EBITDA which excludes inventory primarily based compensation and sure different changes was a lack of 6.7 million for the primary quarter of 2023 as in comparison with a lack of 17 million within the prior yr interval. This enchancment was primarily on account of a rise in restaurant degree revenue and a lower typically and administrative bills as described above. Excluding the good thing about the worker retention tax credit score, adjusted EBITDA was a quarterly lack of 13.6 million and enchancment of greater than 3 million in comparison with the year-over-year quarterly loss.
We ended the primary quarter with a money steadiness of just below 300 million. We proceed to have a powerful capital place that permits us to proceed to broaden our mission and offers us with flexibility. We’re fiercely dedicated to disciplined capital environment friendly development and defending our robust steadiness sheet. I’m happy with the progress we’re making on our path to profitability as we delivered increased than anticipated restaurant degree margins and decrease help middle prices. Our adjusted EBITDA losses will slender considerably in 2023 as we change into worthwhile on an adjusted EBITDA foundation in 2024.
Now turning to our outlook. For the fiscal yr 2023 we reiterate our full yr steering excluding adjusted EBITDA loss, which now contains the 6.9 million profit from the worker retention credit, 30 to 35 internet new restaurant openings, income starting from 575 million to 595 million, similar retailer gross sales between 2% and 6%, restaurant degree margin of 15% to 17% and adjusted EBITDA lack of between 13 million to three million. Our loyal model following mixed with a localized provide chain designed for freshness and style, propelled by a extremely passionate crew positions us to seize a large market alternative making for a helpful and scalable mannequin. The steps we’re taking will enable us to additional lengthen our management and sturdy aggressive benefit as we construct the class.
With that, I am going to flip the decision again to the operator to begin Q&A.
Query-and-Reply Session
Operator
Thanks. [Operator Instructions] Your first query comes from the road of John Ivankoe with JPMorgan. Your line is open.
John Ivankoe
Hello, thanks, I hoped we might spend just a few extra minutes speaking about what you outline as city shops simply type of indicators of restoration, I suppose or lack thereof and the way you is perhaps adjusting what you are promoting mannequin to what at this level within the Might of ’23 is perhaps outlined as the brand new regular and possibly elaborating on that to some extent are you able to speak about how the aggressive market ’23 over 90 could also be evolving, whether or not that’s in these city areas both higher or worse or simply completely different in some methods better depend, lesser depend no matter you may say concerning the aggressive panorama? And likewise speak about who you are working into as you go extra into the suburban areas that is the kind of aggressive set that you simply anticipated to compete in opposition to. Thanks.
Jonathan Neman
Hello, John, thanks for the query. We’re actually beginning to see the city shops and significantly the central enterprise district shops come again and are available again pretty strongly on a 4 day per week foundation. I might say Mondays immediately are beginning to degree off on the similar quantity we see Tuesday by way of Thursday. And by way of the type of a comp development charge actually got here out within the first quarter, it is simply, in double digit vary at this cut-off date. So we’re truly fairly happy with what we have been seeing within the city shops. When it comes to what we’re doing we talked a bit of bit earlier on the decision round broadening our menu, our loyalty program, which is actually designed to drive frequency and boot any massive quantity catering channel, and we see these as methods we seize the amount that we could have missed off on a Friday and weekends in comparison with pre-COVID. All issues thought-about, we’re truly fairly happy with what we’re seeing proper now. There was a lessening of competitors and we see that coming primarily from type of independence, significantly in markets like New York.
Operator
Your subsequent query comes from the road of Chris Carril with RBC Capital Markets. Your line is open.
Chris Carril
Hello, good afternoon, Jonathan, you highlighted enchancment in turnover and throughput in your ready remarks. So to what extent do you suppose enhancements in these areas helped to flip site visitors again to constructive within the 1Q? And the way a lot of a tailwind do you see simply ongoing enchancment in labor effectivity and throughput offering going ahead right here? Thanks.
Jonathan Neman
Sure. Hey, Chris, thanks for the query. So throughput has been an enormous focus for us over the previous six months. I imply, it is all the time one thing crucial for us as velocity of service is simply vital to our friends. As our staffing and labor environments gotten higher, we actually targeted on each growing our throttles on our digital make traces, and we shared the stat. We had been in a position to cross the fleet elevated throttles by 20%, which implies we’re serving the flexibility to serve 20% extra individuals on our digital make traces. And that was a contributor in our city development.
As Mitch talked about, city, and particularly, our central enterprise districts had been robust and the throttle growth was a part of that. Secondly we’re targeted on the entrance traces, entrance traces. Entrance traces have been an enormous development driver for us as properly, as you’d count on with the world opening up, we’re seeing far more site visitors in our eating rooms, which could be very encouraging for us is that these clients that begin in our eating rooms, usually transfer into our digital ecosystem and change into very helpful clients for us. So big development on the entrance traces and a giant give attention to growing our throughputs on the entrance traces as properly. So I believe there’s extra to do there.
We have performed with completely different line codecs that we have been testing, some that are in numerous shops, that are seeing sooner throughput. We shared some particulars on our optimized kitchen format earlier than. And in order we open new shops with this format, we’re seeing even sooner throughputs and higher productiveness. So anticipated to proceed to push right here, each on the digital traces and our entrance traces to proceed to drive velocity of service.
Operator
Your subsequent query comes from the road of Sharon Zackfia with William Blair. Your line is open.
Sharon Zackfia
Hello, good afternoon. I needed to the touch base on pricing. I believe you will have taken a value enhance earlier this quarter. I am unsure in the event you talked about that. Are you able to speak about type of the drivers of the worth enhance type of what you are seeing in ongoing commodity inflation? And the way the patron has reacted to that value enhance?
Jonathan Neman
Effectively, thanks Sharon. We took roughly a 3% value enhance originally of the yr. And originally of the second quarter, we took simply round 1%, which was very focused in a handful of very choose shops. What we actually have discovered just isn’t loads of softness from the shopper and/ or resistance from the worth will increase we have taken. And we actually haven’t got actually a powerful value actions plan for the rest of the yr.
Mitch Reback
Sharon simply if I might add something to that we’re truly type of inspired on our relative value worth in comparison with the competitors. The trade has taken a lot value over the previous few years. And this quarter, we took three factors the remainder of we all know what our opponents did. And so we really feel fairly good about our relative worth and suppose that is going to be a giant alternative for us as we proceed to develop.
Operator
Your subsequent query comes from the road of Andrew Charles with TD Cowen. Your line is open.
Andrew Charles
Nice. Thanks, Mitch, you noticed similar retailer gross sales of 5%, which was close to the excessive finish of steering whereas reported income got here in close to the low finish of 1Q steering. And in order we take into consideration that dichotomy, are you able to communicate to what you are seeing with new retailer gross sales volumes?
Mitch Reback
Sure, thanks, Andrew. Let me say that we’re very proud of the category of 2023 and we’re getting out the gates, and I am very inspired by them. The category of 2022 which we spoke about in earlier calls, we have seen some acceleration in sure markets as they’ve gone again or intimacy and scale playbook. Different shops have taken a bit of bit long run. And I believe that is a bit of bit the place you are seeing type of this small change in gross sales quantity.
Operator
Your subsequent query comes from the road of Brian Harbour with Morgan Stanley. Your line is open.
Unidentified Analyst
Hey, nice. That is Matt onto Brian Harbour. You make notable current efforts to broaden the menu past the salads, extra hearty choices. Are you able to discuss concerning the friends response to this? How’s this altering? Who’s coming into the model? And possibly any day half influence? Thanks.
Jonathan Neman
Sure. So we have talked about this for some time actually are targeted on assembly clients the place they’re with a broader menu driving completely different events and actually bringing completely different broader buyer base into Sweetgreen. So actually this concept of crave potential and a candy Greenway. As you recognize, we launched our Hen Chipotle Pepper Bowl this quarter. And it was acquired very well. It has been one in all our high 5 gadgets, high 5 launch a high 5 bowl for us ton of brand name buzz, and is buying loads of clients. It is nonetheless very early, however we have now loads of new different catalysts from a menu perspective enroute. So count on just a few extra launches all through this yr, actually pushing into that scorching and hearty type of meals, making Sweetgreen extra fascinating, a special day elements in numerous shoppers. So general, very inspired with the menu work and count on much more to return.
Operator
Your subsequent query comes from the road of Jon Tower with Citi. Your line is open.
Unidentified Analyst
Hey, good afternoon. That is Karen [indiscernible] on for Jon. I do know it is early days, however are you able to communicate to your what you are seeing within the loyalty program? Your relaunch possibly relative to what you anticipated? And have you ever type of explicitly constructed a contribution from that into the way you’re interested by the identical retailer sale steering for a yr? Thanks.
Jonathan Neman
Sure. So I am going to begin off. General actually inspired. It is solely been on [indiscernible] 9 days because it launched final Monday. However general, and it was in pilot for a bit of bit. Thus far, exceeding our expectations and all of our key metrics. So we really feel very enthusiastic about it. Prospects are loving each the free model, in addition to the paid subscription right here. We are going to come again with extra particulars on the way it’s performing. However general, I believe on this surroundings, not having a loyalty program was one thing that I believe shoppers had been asking for. And so we’re actually excited to have it on the market and have or not it’s very uniquely in-built a Sweetgreen method. So one factor I might say is the way in which we constructed, it offers us loads of personalization levers round this round Sweetpass. So we could be very environment friendly in our advertising and marketing and promo spend and the way we truly enhance the frequency of get with out a one dimension matches all method.
Mitch Reback
Simply commenting on the second a part of your query, given how early we’re in this system, we have now not explicitly constructed any upside into our similar retailer gross sales steering for.
Operator
Your subsequent query comes from the road of Katherine Griffin with Financial institution of America. Your line is open.
Katherine Griffin
Hello, thanks. So I needed to ask truly simply concerning the revised steering. So I believe given the truth that excluding the credit score, Q1 adjusted EBITDA got here in on the high quality. You may have a lot of high line drivers in place, it looks as if USDA charges are low what’s in your management you are ready to try this, you recognize very properly, whether or not it is on the G&A aspect, or simply price management usually. And so I am type of I am questioning what’s embedded at this level within the low finish of the revised steering vary type of what are some offsets, I suppose, to what in any other case appears to be like an excellent working surroundings.
Jonathan Neman
Katherine thanks for the query. We really feel actually constructive concerning the issues we management. We’re very proud of the loyalty program, our class of ’23, the menu gadgets had been setting up. A few of our channel growth was catering. What we’re actually a bit of bit involved about is the exterior surroundings that we do not management. And I believe in the event you ask what’s on the backside finish of the steering, it is actually simply trying on the exterior world and questioning what it should ship to us as we undergo the following 9 months. However we really feel very assured concerning the applications and initiatives that we have now in place.
Operator
This concludes immediately’s convention name. Chances are you’ll now disconnect.
