Sweetgreen shares are recovering after tumbling on the chain's earnings miss. Sweetgreen Co-Founder and CEO Jonathan Neman joins Yahoo Finance Live to discuss the fast-casual restaurant's consumer spending, while managing costs on labor with automation and reducing costs of goods with improvements to its supply chain.
Video Transcript
- Well, Sweetgreen posted its second quarterly earnings last week and saw its shares tumble as the salad chain fell short of Wall Street's expectations. However, digging in, the company did see its losses narrow from a year prior. Its infinite kitchen proved successful for the brand and it raised its forecast for restaurant level margins saying that it would break even on adjusted EBITDA this year.
Let's head over to the NYSE where Sweetgreen's co-founder and CEO Jonathan Neman joins us now. Thank you for joining us this morning here. Taking a look at what we're seeing with the stock reaction here, do you think investors are missing something here, or do you think the stock is being unfairly punished?
JONATHAN NEMAN: Well, you know, I think we had a really great quarter. Overall, we grew 22%. We saw 3% comps with positive traffic, and we posted our first adjusted EBITDA profit as a public company. So I think-- I think our investors are pleased with the results. We're pleased with the results. And we have a number of drivers to continue to grow our Comp store sales.
- And when it comes to fast casual, obviously Sweetgreen, it's priced a little bit higher. A lot of these fast casual a price a little bit higher at a time when consumers are really looking for more of a value grab here. Are you seeing perhaps any trading down in how people are ordering or the types of things that they're ordering?
JONATHAN NEMAN: Our consumer seems very strong from all that we can tell. We've taken much less price than our competitors so far this year. We're running about four points of price with no plans on additional price this year. And on a relative basis, our competitors have taken significantly more price. So I think for what we offer, which is sustainably sourced food made from scratch every single day in our restaurants, I think you're getting a really good value that our consumers-- our consumers do appreciate.
- And when you look at the chain's sales, weaker than expected, but what do you attribute that to? Is it sort of an overall sort of general consumer malaise when it comes to spending on fast casual? Is it more of a blip, or do you see this as potentially a trend that might require some price adjustments?
JONATHAN NEMAN: While we miss revenue by about 1%, a lot of it had to do with the mix shift in the business as our in-store channel continues to grow significantly. So while in-store is growing at a faster pace than delivery as today, they have fewer transactions per order. So the sales were slightly lower than expected, although grew 22% year over year with positive traffic. And in this environment, it's something I think we should be very proud of.
- And certainly also, looking at the restaurant level margins as you mentioned there, those also improved. How are you able to manage that?
JONATHAN NEMAN: So there's a few things that we were able to do. One was sales leverage. The second was deployment of labor. So we were able to deploy our labor in a more efficient way, largely stemming from lower turnover and better stability at the head coach, which is our general manager level.
We've also made a number of improvements to our supply chain. As we continue to scale and achieve some of our economies of scale as a business, we're able to maintain the cost of goods in a much better way, all leading to an increase in our four-wall margin at restaurant-- our restaurant level margin above 20%.
And what we see are a lot of sustainable gains. So as you saw, we raised our guidance for the year in terms of margin and look to continue to drive capital efficient disciplined growth.
- And of course, we knew we were going to hear a lot about AI during this earnings season, and seeing some of these shifts to automation as well. Talk about this infinite kitchen and your plans to really perhaps expand beyond some of these current locations.
JONATHAN NEMAN: We opened our first restaurant featuring automation, what we call the Infinite Kitchen just a couple of months ago in Chicago, in a suburb called Naperville. So far, it's been incredibly successful. In our first month of being open, we ran a margin of 26% and the store is still really ramping. So very encouraging.
I think what's most exciting is the consumer experience is better. Consumers are telling us they're rating it better. They're telling us they're having a-- they're having a better experience, and that comes from perfect portioning, perfect accuracy, much faster service with the machine able to serve up to 500 customers per hour.
And our team members love it too. We're seeing less turnover. It's an easier and more enjoyable place to work. And so our plan is to continue to build on this technology and continue to build on this experience. We're opening a second unit featuring the Infinite Kitchen later this year. Next year, we'll begin slowly integrating it into our pipeline, and over time, see this playing a major role in our future development.
- And how else are you planning to innovate, and how much are you sort of setting aside for more R&D in things like perhaps generative AI or expanding the customer experience using automation and AI?
JONATHAN NEMAN: Yeah, innovation has always been at the core of what Sweetgreen does. And so there's a number of things that we have-- we're working on. We talked about automation being a huge driver. We have a number of other formats that we've tested that are going to be growth drivers for us. One is our drive-through concept also in the Chicago area called Sweet Lane, which we're planning on building upon.
Another is our pickup only kitchens, which we piloted also late last year, which has been very successful. Beyond that, a lot of innovation in the menu. So while Sweetgreen started more as a salad company, we've expanded our menu and our Cajun to broaden our consumers. So you're seeing a lot more hot and hearty, protein forward dishes coming out, with a lot of success and more to come there, and as well as some innovation on the digital and loyalty side.
This quarter, we also launched our loyalty program called Sweet Pass, which has a free program of rewards and challenges that anyone can sign up for, as well as a membership program where for $10 a month, you can get $3 off every day. We're seeing some really good growth on that program with some nice incrementality of our low frequency users who sign up and become frequent users through that. So we're going to continue to accelerate the pace of innovation on a number of these different verticals as we look to build the next generation of healthy fast food.
