Restaurant chain Sweetgreen (SG) reported third-quarter results, slightly missing on top-and-bottom-line expectations while experiencing growth in same-store sales and updating its Fiscal year 2024 guidance positively. The company continues to expand, committing to open 40 new restaurants by 2025, half of which will feature its Infinite Kitchens. These establishments leverage advanced temperature control systems to provide a quick, high-quality dining experience. Additionally, the company is investing in an AI-driven labor scheduling system and promoting from within to boost team member retention.
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The stock has risen over 280% in the past year. It is an appealing concept, and the results have been promising, yet given its rich valuation, investors may want to look for a more advantageous entry point.
Sweetgreen Is Moving Forward with More Robotic Locations
Sweetgreen operates fast-food restaurants and differentiates itself in the restaurant industry by concentrating on healthy food options, specifically plant-based, seasonal, and environmentally friendly meals. The company is committed to using organic and local ingredients.
Sweetgreen is also a front-runner in the industry, employing advanced technology like robotic bowl-assembly machines. For Fiscal year 2025, it plans to open at least 40 new restaurants. Around half of these will be robotic-driven Infinite Kitchens, nearly tripling the number of Infinite Kitchens online. Alongside a revamped loyalty program launching in 2025, the company believes the Infinite Kitchen can accelerate its industry-leading digital presence.
In addition to expanding the number of Infinite Kitchens, the firm is strategically shifting from being recognized as a salad lunch destination to a diverse menu outlet with new protein varieties and chef-curated offerings designed to resonate with a broader customer base.
Sweetgreen’s Recent Financial Results
The company recently reported results for Q3 of FY2024. Revenue of $173.43 million missed analysts’ expectations by $2.07 million while marking a 13% increase compared to the same period last year. This growth was mainly due to $ 12.4 million in additional revenue from opening 31 new restaurants and a 6% same-store sales change due to menu price adjustments and increased customer traffic.
The company reduced its operational loss thanks to 6% same-store sales growth, optimized labor usage, and decreased occupancy rates in recently opened outlets. The net loss for Q3 FY 2024 was -$20.8 million, an improvement from -$25.1 million in the previous year, mainly due to a $5.8 million growth in restaurant-level profit. GAAP earnings per share (EPS) of -$0.18 fell short by $0.03.
Following Q3’s somewhat disappointing results, SG’s management has issued guidance for the Fiscal year 2024. The company plans to open 24-26 new restaurants. Revenue is projected to be between $675 million and $680 million, while the same-store sales change is anticipated to be 6-7% and a restaurant-level profit margin of 19.5%- 20%. The adjusted EBITDA is expected to fall between $18 million and $20 million.
What Is the Price Target for SG Stock?
The stock has been on a growth trajectory, recently climbing 45% over the past three months. It trades near the high end of its 52-week price range of $9.59 – $45.12 and shows ongoing positive price momentum as it trades above all major moving averages. Its P/S ratio of 6.53x sits well above the average P/S ratio of 0.98x for the Consumer Discretionary sector.
Analysts have had mixed options on SG stock. For example, TD Cowen has raised the price target from $43 to $45, maintaining a Buy rating. Meanwhile, Goldman Sachs has reassigned Sweetgreen’s status from Buy to Neutral, with a price target remaining at $40. Despite recognizing the long-term contribution of Infinite Kitchen to the company’s growth, Goldman Sachs believes current stock increases have already accounted for immediate catalysts, thus describing Sweetgreen as fairly valued.
Seven analysts recommend Sweetgreen as a Moderate Buy. The average price target for SG stock is $42.00, representing a 3.73% potential upside from current levels.
Sweetgreen in Summary
Sweetgreen has demonstrated promising growth. The company’s upside potential shines through its adoption of cutting-edge technologies and the expansion of its Infinite Kitchens, which transform the customer dining experience and improve work conditions, leading to reduced team turnover. Sweetgreen’s Fiscal year 2024 guidance has been positively updated, and the solid execution of its strategic growth plans is evident in its robust same-store sales growth and the reduction in operational losses. Yet, investors are advised to consider the stock’s rich valuation when considering an entry point.
