For Sweetgreen, margins remain a big obstacle

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Margins remain a major issue for Sweetgreen.

The fast-casual salad chain released its first results as a public company on Thursday, reporting restaurant-level margins of 13% for the quarter ended Dec. 26.

But Sweetgreen, which went public in November, said it expects margins between 10% and 11% for the first quarter, given pressures from omicron and inflation on its business. For 2022, the chain said it expects to see margins between 16% and 17%, “assuming there are no additional headwinds related to COVID-19.”

This would bring Sweetgreen back to pre-pandemic levels, in which margins were 16%.

The 156-unit chain raised prices by 6% at the start of the year.

“We think we have a lot of pricing power,” Sweetgreen chief financial officer Mitch Reback told analysts. “We would like our prices to be accessible.”

For the quarter, Sweetgreen recorded average unit volumes of $2.6 million, up approximately $400,000 from the prior year. Before the pandemic, however, the chain said it had AUVs of $3 million.

Sweetgreen, which has yet to make a profit, posted a loss of $47.8 million in the fourth quarter. Total revenue was $96.4 million, up 63% from the prior year. Comparable store sales increased 36% over the prior year.

The strong sales apparently impressed investors. The company’s stock closed more than 11% on Wednesday. But it soared more than 17% in after-hours trading.

The chain has set ambitious growth targets, saying it has the space to reach 1,000 restaurants by the end of the decade and plans to double its units over the next few years. next three to five years.

“We’ve certainly had challenges with new openings, with construction and labor,” said CEO Jonathan Neman.

Neman said work has also been a challenge, largely due to pandemic outbreaks and wage inflation.

Last year, Sweetgreen streamlined operations from 25 job codes to four and trained all employees on all tasks.

“It created a much more resilient work model,” he said.

Sweetgreen dropped its loyalty program in 2021 but tested a new subscription program called Sweetpass.

Customers paid $10 for a monthly pass that gave them a $3 credit on every purchase.

“The results really exceeded our expectations,” Neman said, adding that new, returning and low-frequency customers were particularly drawn to the subscription.

Executives said they hoped Sweetgreen’s margins would improve, especially as COVID becomes less of an issue.

Reback noted that the company operates five sales channels: in-store, pickup, third-party delivery, native delivery, and deliveries to Outpost office buildings.

“We’ve never operated all five channels in a non-pandemic environment,” he said. “We see the company continuing to grow its margins over the next few years.”

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