Sweetgreen Inc.’s stock shot up 37% before the market opened on Friday. This was due to analysts’ positive assessment of the fast-casual restaurant chain’s first-quarter earnings, which included a mention of this week’s nationwide launch of steak dinners.
The stock was expected to surpass the 28% gain it saw on March 1 and set a record for its largest-ever one-day gain. With this move, its gains for the year have increased to 187%, significantly outpacing the 9.8% gain of the S&P 500 SPX.
Amidst the COVID-19 pandemic, the company SG, 1.42%, went public in November 2021 and reported better-than-expected revenue and 5% growth in same-store sales. This lessened the impact of a loss that was marginally larger than anticipated but still within the range of the previous year.
The company increased its revenue guidance for the entire year from $655 million to $670 million, or $660 million to $675 million.
Rahul Krotthapalli, an analyst with J.P. Morgan, increased his price target for the stock from $28 to $30 and maintained his overweight rating.
“The 1Q24 beat + F24 raise reaffirms this standing as the company steadily rebuilds credibility after a tough post-COVID/post-IPO period,” the analyst wrote in a note to clients, citing the numbers as evidence of the momentum the brand has been building since late last year.
Promotion
The note stated that management has returned to aggressively executing growth strategies, as opposed to playing defense as it was immediately following the IPO, and has successfully adjusted to the new normal of the operating and consumer environment.
Among them is the business’s Infinite Kitchens initiative, which puts salads and bowls together robotically. CEO Jonathan Neman stated during the company’s earnings call that the two Infinite Kitchens the company has opened in suburban areas produced an average first-quarter margin of 28%, or 10 points higher than the fleet average. In 2024, the business intends to open seven more Infinite Kitchens.
“We are committed to staying at the forefront of this unique and captivating growth story, which offers investors a chance to gain exposure to automation in the fast-growing fast-casual industry,” stated Krotthapalli.
The numbers also pleased William Blair analysts, who rate the stock with an outperform rating. They pointed out that the revenue beat expectation even though the company increased menu prices. Regarding the future of the new steak plates, they are optimistic.
After testing the idea in Boston, Sweetgreen began to offer steak nationwide on Tuesday. The steak is available in three different dishes: a protein plate with caramelized garlic steak, a chopped bowl with steakhouse flavor, and a salad made with kale Caesar steak. According to Neman, the test was successful because one out of every five dinner orders included steak.
In a note to clients, William Blair analysts Sharon Zackfia and Matthew Curtis stated, “With only a few days since the national rollout (not yet supported by marketing), the impact of adding steak did not materially influence raised comp guidance, making steak a de facto positive wildcard for the remainder of the year given potential mix benefit from its premium price point (our research suggests $1 to $2 price premium versus other proteins across most markets) and its opportunity to expand Sweetgreen’s customer base and meal consideration set.”
Another benefit that TD Cowen analysts emphasized was a redesigned loyalty program. Launching in 2025, that program is anticipated to increase traffic.
In a note to clients, analysts led by Andrew Charles stated, “We continue to have confidence in 2024 restaurant level margin nearing the high end of guidance as the “really LSD% (low single-digit)” inflationary backdrop seems to have persisted, if not improved.”
The stock has a hold rating from TD Cowen.
