Salad chain Sweetgreen (SG) continues to capture investors’ attention and serve up continued growth, boasting a remarkable 209% year-to-date increase. Impressive second-quarter earnings report shows the firm surpassing Wall Street expectations yet again, with a reported revenue of $184.64 million, a 21% year-over-year increase. Seemingly unstoppable, the company plans to further solidify its presence by opening up to 28 new stores in 2024, including nine automated restaurants.
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The stock trades at a premium, likely reflecting growth expectations, making it an appealing option for investors willing to pay for a compelling growth story.
Sweetgreen’s Value Proposition
Sweetgreen, a distinctive restaurant and lifestyle brand, stands out in the market with its unique value proposition. The company’s focus on healthy food, particularly its emphasis on plant-based, seasonal, and earth-friendly meals, along with its commitment to sourcing organic and local ingredients, sets it apart.
Sweetgreen’s decision to incorporate automation into its operations is a strategic move aimed at addressing the rising labor costs in the restaurant industry. The company anticipates that the labor cost savings, improved efficiency, and increased speed resulting from this automation will offset the initial capital expenditure. Moreover, automation is expected to bring several other benefits, including quicker service, consistency in portion sizes, and reduced employee turnover.
Sweetgreen’s Recent Financial Results & Outlook
Sweetgreen recently reported its Q2 results for the Fiscal year 2024. The company’s revenue was $184.64 million, surpassing analysts’ estimates of $180.91 million, marking 21% year-over-year growth. Same-store sales saw a notable increase of 9% year-over-year. Furthermore, the company’s EBITDA, excluding certain items, went up to $12.4 million, a significant increase from $3.3 million in Q2 2023.
Also, the company’s loss from operations lessened to $16.2 million, while its net loss was $14.5 million, an improvement from the $27.3 million net loss of the prior year.
Sweetgreen’s profit margins also improved during the quarter, with the restaurant-level profit margin increasing from 20% in the previous year to 22%. This growth is primarily attributed to the 36 net new restaurant openings during or following Q2 2023, menu price increases, and a favorable product mix. Earnings per share (EPS) of -$0.13 were slightly below the analysts’ estimates of -$0.10.
Following the second quarter results, management has revised guidance for the Fiscal year 2024 due to strong performance in the first and second quarters. Expected new restaurant openings range from 24 to 26, with revenue projections between $670 and $680 million. Same-store sales changes are anticipated to land between 5-7%, and restaurant-level profit margin is predicted to be within 19-20%. The adjusted EBITDA is forecasted to fall between $16 and 19 million.
What Is the Price Target for SG Stock?
The stock has been on an upward trajectory over the past year, climbing 149%. It trades at the high end of its 52-week price range of $8.64 – $36.72 and shows positive price momentum, trading above its 20-day (27.77) and 50-day (27.82) moving averages. The stock trades at a premium, with a P/S ratio of 6.1x, sitting well above the Restaurant industry average of 2.7x.
Analysts following the company have been mostly optimistic about the stock. For instance, UBS analyst Dennis Geiger recently raised the price target from $31 to $37 while keeping a Buy rating on the shares. He noted the strong same-store sales and traffic, solid margin expansion, and encouraging progress on Infinite Kitchen plans, which support a compelling long-term growth outlook.
Sweetgreen is rated a Moderate Buy overall, based on nine analysts’ recommendations and price targets recently issued. The average price target for SG stock is $32.89, representing a potential -6.06% change from current levels.
Sweetgreen in Summary
Rooted in healthy, sustainable food and state-of-the-art technology, Sweetgreen continues to convert investors into believers, with a robust 209% year-to-date increase and outstanding Q2 results. Sweetgreen’s inventive business model, consistent financial performance, and upward stock momentum underscore its potential as an attractive investment opportunity for investors interested in a growing restaurant concept.
