What Happened?
Shares of casual salad chain Sweetgreen (NYSE:SG) fell 19.9% in the morning session after the company reported weak third-quarter earnings. Its revenue, EBITDA, and EPS missed analysts' expectations along with its full-year EBITDA guidance.
The quarter revealed a number of indicators pointing to decelerating growth. First, the company opened only 5 new restaurants in the quarter, compared to 15 during the same period last year. Additionally, digital sales, which tend to be more efficient and profitable, fell to 55% of sales, down from 58% in the previous year. Also, rising labor and protein costs contributed to the margin decline recorded in the quarter.
On the bright side, management is forecasting slightly more revenue than anticipated. Overall, this was a challenging quarter with little reasons for investors to stay positive.
Following the underwhelming results, Goldman Sachs downgraded the stock from Buy to Neutral adding "Following YTD outperformance in SG (+273% vs. S&P 25%), we believe the shares are fairly valued at current levels."
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What The Market Is Telling Us
Sweetgreen’s shares are extremely volatile and have had 60 moves greater than 5% over the last year. But moves this big are rare even for Sweetgreen and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 44.6% on the news that the company reported strong first-quarter earnings. Sweetgreen blew past analysts' revenue expectations as its same-store sales grew 5%, enabling it to raise its full-year revenue guidance. Its gross margin also outperformed Wall Street's estimates.
On the other hand, its EPS missed analysts' expectations, but the market focused more on its upbeat outlook. Overall, we think this was a good quarter that should please shareholders.
Sweetgreen is up 250% since the beginning of the year, and at $38.85 per share, it is trading close to its 52-week high of $42.20 from November 2024. Investors who bought $1,000 worth of Sweetgreen’s shares at the IPO in November 2021 would now be looking at an investment worth $783.44.
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