Shares of the fast-casual restaurant chain Sweetgreen (NYSE:SG) closed about 13% higher on Wednesday, driven by the company’s ongoing expansion of its robotic kitchen system called the Infinite Kitchen. According to a report by Barron’s, Sweetgreen plans to introduce these automated kitchens in almost a dozen locations this year, with several already operational.
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Sweetgreen strategically introduced these automated kitchens to cut labor costs and enhance the guest experience. The savings from lower labor costs and increased efficiency offset the capital costs associated with these kitchens. Moreover, the company continues to drive down the costs of the machines deployed in its kitchens and plans to significantly increase the use of machines in new locations.
Sweetgreen to Offset Labor Cost Headwinds
Rising labor costs, particularly in California due to the new California Wage Act, have made Sweetgreen’s focus on automation even more appealing to investors. Until now, the company has primarily relied on menu price increases to counter these rising labor expenses.
The company expects labor costs to rise in Q2 due to the California Wage Act. However, on the positive side, Sweetgreen’s leadership said during the Q1 2024 conference call that they do not expect significant labor pressure in other regions for the rest of the year.
It’s worth noting that Sweetgreen’s stock is up over 209% year-to-date, reflecting the expansion of its menu, higher pricing, and improving restaurant profit margin. The company is moving towards profitability, which is positive.
Is Sweetgreen a Good Stock to Buy?
Wall Street is cautiously optimistic about Sweetgreen stock, given the significant rally in its share price. It has four Buy, two Hold, and one Sell recommendations for a Moderate Buy consensus rating. The analysts’ price target on SG stock is $29, implying 17.10% downside potential from current levels.
