10-Q: Sweetgreen Q2 Loss Widens Amid Sales Decline, Higher Costs

Sweetgreen reported a significantly wider net loss and negative same-store sales in the second quarter of 2025, despite opening more new restaurants.

Summary

• Sweetgreen's net loss for the thirteen weeks ended June 29, 2025, widened to $23.2 million, a 60.2% increase from $14.5 million in the prior year period.
• Revenue saw a marginal increase of 0.5% to $185.6 million for the thirteen weeks ended June 29, 2025, compared to $184.6 million in the prior year.
• Same-store sales decreased by 7.6% for the thirteen weeks ended June 29, 2025, reflecting a 10.1% decrease in traffic and product mix, partially offset by a 2.5% benefit from menu price increases.
• Restaurant-Level Profit declined by 15.4% to $35.1 million, with the margin decreasing to 18.9% from 22.5% in the prior year period.
• Adjusted EBITDA decreased by 48.1% to $6.4 million, with the margin falling to 3.5% from 6.7% in the prior year period.
• The company opened 9 net new restaurants during the thirteen weeks ended June 29, 2025, bringing the total to 260 restaurants.
• Cash used in operating activities for the twenty-six weeks ended June 29, 2025, was $2.7 million, a significant shift from $22.5 million provided in the prior year period.
• Non-cash impairment charges of $5.3 million were recognized for five restaurant locations, two of which were subsequently closed in July 2025.

Sentiment

Score: 3

Explanation: The company reported significantly wider losses, negative same-store sales, and declining profitability margins. While new restaurant openings and digital growth are positive, they are overshadowed by the poor performance of existing stores and negative cash flow from operations. The macroeconomic headwinds and tariff impacts add further pressure.

Positives

• Net new restaurant openings increased to 9 for the thirteen weeks and 14 for the twenty-six weeks ended June 29, 2025, indicating continued expansion.
• Total Digital Revenue Percentage increased to 60.8% (from 55.7%) and Owned Digital Revenue Percentage increased to 33.4% (from 30.5%) for the thirteen weeks ended June 29, 2025, showing strong digital channel growth.
• The new SG Rewards loyalty program, launched nationwide in Q2 2025, is expected to further drive Owned Digital sales.
• Management is actively pursuing cost-optimization strategies to mitigate tariff impacts and evaluating organizational structure to lower administrative headcount.

Negatives

• Net loss significantly widened by 60.2% to $23.2 million for the thirteen weeks ended June 29, 2025.
• Same-store sales experienced a substantial decline of 7.6% for the thirteen weeks and 5.5% for the twenty-six weeks ended June 29, 2025, indicating weakness in existing restaurant performance.
• Restaurant-Level Profit and Adjusted EBITDA margins decreased significantly, reflecting higher operating costs relative to revenue.
• Cash flow from operating activities turned negative, with $2.7 million used for the twenty-six weeks ended June 29, 2025, compared to $22.5 million provided in the prior year.
• Impairment and closure costs surged to $5.3 million for the thirteen weeks ended June 29, 2025, up from $0.1 million in the prior year, indicating underperforming assets.
• Pre-opening costs increased by 129.5% for the thirteen weeks ended June 29, 2025, due to accelerated new restaurant growth, impacting profitability.
• The company was impacted by a decrease in consumer spending during Q2 2025 and continues to see variability in customer traffic patterns due to remote/hybrid work models and extreme weather.

Risks

• Changes in food and supply costs or failure to receive frequent deliveries of food ingredients and other supplies could adversely affect business, financial condition, and results of operations.
• Reliance on localized and single regional distributors for produce and grocery products makes the supply chain difficult to manage and vulnerable to disruptions.
• Farmers and suppliers may have low inventory levels and limited ability to mitigate supply disruptions, and some may not maintain food safety certifications.
• Volatility in ingredient markets (e.g., avocados) due to factors like limited supply sources, crop yield, seasonal shifts, climate conditions, and government regulations.
• International supply chain subjects the company to tariffs and duties, particularly for bowls and plates produced outside the United States (e.g., China), increasing costs.
• Inability to fully offset inflation and other cost increases (e.g., wage increases, cost of goods sold) by increasing menu prices without impacting customer demand.
• Macroeconomic conditions, including decreased consumer spending and shifts to less expensive alternatives, can negatively impact revenue.
• Variability in customer traffic patterns due to fluctuations in return-to-office trends and impacts from severe weather conditions or natural disasters.
• Shift in sales mix towards Native Delivery, Outpost and Catering, and Marketplace Channels, which have higher third-party fees and historically lower margins, could further decrease overall margins.
• Potential privacy and cybersecurity incidents, and restrictions/costs imposed by privacy, data protection, and data security laws, regulations, and industry standards.

Future Outlook

The company expects to open at least 40 new restaurants in fiscal year 2025, including at least 20 new Infinite Kitchen units integrated into its fleet. It anticipates a net tariff-related increase of approximately 5% on the $1.4 to $1.5 million average unit cost for new restaurant development, starting in the fourth quarter of 2025, and a 5% price increase on Infinite Kitchen units due to tariffs, though 10 of the 20 units for 2025 are insulated. Management remains committed to mitigating cost impacts through sourcing and cost-optimization strategies. The company expects continued variability in customer traffic patterns due to hybrid/remote work and macroeconomic conditions.

Management Comments

• We were impacted by a decrease in consumer spending during the second quarter of 2025, and we may continue to be impacted by this decrease.
• We continue to see variability in our customer traffic patterns, including as a result of fluctuations in return to office as a result of many workplaces adopting remote or hybrid models, and we expect this variability to continue for the foreseeable future.
• Management remains committed to further mitigating the impact of such costs across our supply chain, restaurant build-outs and Infinite Kitchen equipment through ongoing sourcing and cost-optimization strategies.
• We continue to evaluate our organizational structure and may implement additional changes to lower our administrative headcount.

Industry Context

The fast-casual restaurant industry is experiencing shifts in consumer behavior, including decreased spending on food away from home during weaker economic periods and continued variability in traffic due to hybrid/remote work models. Sweetgreen, as a premium offering, is particularly exposed to consumers trading down to less expensive alternatives. The industry also faces ongoing challenges from inflation, rising labor costs, and supply chain disruptions, including the impact of tariffs on imported goods.

Comparison to Industry Standards

• The significant negative same-store sales change of -7.6% for the quarter is a notable underperformance compared to many established fast-casual chains that have reported positive, albeit sometimes modest, same-store sales growth in recent periods.
• The decline in Average Unit Volume (AUV) to $2.831 million from $2.925 million suggests a weakening performance at existing locations, contrasting with some industry leaders who maintain or grow AUVs.
• The increase in digital revenue percentage aligns with broader industry trends of increased digital adoption and off-premise dining, indicating the company is keeping pace in this area.
• The substantial increase in impairment and closure costs, along with restructuring charges, suggests the company is facing more significant operational challenges and underperforming locations than many peers, who might manage closures more incrementally or without such large write-downs.

Management Changes

Legal Proceedings

• The company is subject to various claims, lawsuits, governmental investigations, and administrative proceedings that arise in the ordinary course of business. Management does not believe the ultimate resolution will have a material effect on financial position, results of operations, liquidity, or capital resources, but acknowledges that an increase in claims or successful claims could adversely affect the business.

Related Party Transactions

• The company's founders and Chief Financial Officer hold indirect minority passive interests in Luzzatto Opportunity Fund II, LLC, which holds indirect equity interests in Welcome to the Dairy, LLC, the owner of properties leased for the company's principal corporate headquarters.
• Total payments to Welcome to the Dairy, LLC, for the thirteen weeks ended June 29, 2025, were $1.2 million (compared to $1.1 million in prior year).
• Total payments to Welcome to the Dairy, LLC, for the twenty-six weeks ended June 29, 2025, were $2.7 million (compared to $2.1 million in prior year).

Stakeholder Impact

• Shareholders: Negative impact due to widening net losses, declining same-store sales, and reduced profitability margins, leading to a decrease in total stockholders' equity.
• Employees: Workforce reductions at the Sweetgreen Support Center and potential future administrative headcount reductions indicate job insecurity for some employees.
• Customers: Potential impact from menu price increases to offset rising costs, and possible disruptions or changes in product availability due to supply chain issues and tariffs.
• Suppliers: Continued reliance on localized and single regional distributors, with potential for increased scrutiny on food safety certifications and standards. Tariffs on imported items may affect international suppliers.
• Creditors: The expiration of the credit facility and negative cash flow from operations could be a concern, though the company believes existing cash is sufficient for the next 12 months.

Next Steps

• Open at least 40 new restaurants in fiscal year 2025, including at least 20 new Infinite Kitchen units.
• Continue to integrate Infinite Kitchen technology into new restaurants.
• Mitigate the financial impact of tariffs and duties across the supply chain, restaurant build-outs, and Infinite Kitchen equipment through sourcing and cost-optimization strategies.
• Evaluate organizational structure and potentially implement additional changes to lower administrative headcount.

Key Dates

Recommendation

The filing reveals a significant deterioration in Sweetgreen's financial performance, marked by a widening net loss, substantial negative same-store sales, and a sharp decline in Restaurant-Level Profit and Adjusted EBITDA margins. The shift to negative cash flow from operations is a critical concern, indicating the core business is burning cash. While new restaurant expansion and digital channel growth are positive, they are insufficient to offset the fundamental weaknesses in existing store performance and overall profitability. The high impairment and restructuring costs further highlight operational challenges. For a seasoned investor, these trends signal a strong 'sell' as the company faces significant headwinds and its current strategy is not translating into improved financial health.

Keywords

Sweetgreen, Restaurant, Fast Casual, SEC Filing, 10-Q, Financial Results, Net Loss, Same-Store Sales, Digital Sales, Infinite Kitchen, Tariffs, Supply Chain, Restaurant Expansion, SG Rewards, Operating Costs, Impairment, Restructuring