Sweetgreen, Inc. (SG) Earnings

Management highlights

- Food Safety Updates: Management confirmed Sweetgreen does not use iceberg lettuce linked to the ongoing cyclospora outbreak, and no connection to the outbreak has been identified. A separate voluntary jalapeno recall from a specific supplier prompted proactive removal of all jalapenos from that supplier in affected regions; jalapenos represent a very small portion of overall sales, and impact estimates are not yet available as the recall was issued just one day prior to the call. - Strategic Priorities: The company is executing a transformation plan centered on 5 core priorities: operational excellence, food quality and menu innovation, brand relevance, personalized guest experiences, and disciplined profitable investment. - Operational Excellence Progress: Throughput and rush readiness during peak periods are the top operational priorities. Elevated field leadership and improved head coach stability have already delivered results, with New York and Seattle returning to positive transaction comps in Q2. A new structured throughput process rolled out to highest-volume locations in June raised average peak entrees prepared per hour from the low 50s to the low 60s, with top locations exceeding 250 entrees per hour on busy days. Redesigned training programs for all restaurant roles are being rolled out to reduce turnover and deepen leadership benches. - Menu Innovation: The national launch of wraps delivered a 200 bps comparable sales uplift and 500 bps transaction improvement, with 20% customer incidence exceeding internal expectations. Wraps have driven higher repeat frequency, with more than half of wrap customers returning within 30 days, outperforming the brand's historically top-performing Harvest Bowl. Wraps have also improved accessibility for lower-income and Gen Z customer cohorts. A relaunched hot honey chicken plate has delivered higher reorder rates, and the company is building a consistent seasonal menu cadence with brand collaborations, including an upcoming fall collaboration with a prominent chef. A redesigned Create Your Own (CYO) ordering test is ongoing, with results expected next quarter. - Brand & Personalization: The company is shifting marketing investment to top-of-funnel channels and local community marketing to expand awareness, as current brand resonance is strong among existing guests but underpenetrated with potential new customers. The SG Rewards loyalty program updated its points structure and redemption options after one year of operation, with early data showing positive customer response. An AI-powered personalization engine is now being tested in the CRM channel. - Development Strategy: The company opened 4 new restaurants and closed 2 in Q2, with a continued disciplined approach to new store growth. A new chief development officer is refining prototype design, construction costs, market selection, and unit economics, with a focus on high-quality, high-return sites.

Guidance

- Full-year 2026 guidance has been updated to incorporate the expected impact of the cyclospora outbreak, which reduced July comparable sales by approximately 600 bps. Guidance assumes a 600 to 700 bps comparable sales impact in Q3, with a range of outcomes spanning partial recovery to a full return to pre-outbreak trends by the start of Q4. - Full-year 2026 comparable restaurant sales are now expected to decline between 8% and 7%, a downward revision from prior guidance. - Full-year 2026 restaurant-level profit margin is guided to a range of 10.5% to 11%, a downward revision from prior outlook. - Full-year 2026 adjusted EBITDA is now expected to be a loss between $27 million and $23 million, a downward revision that incorporates a $7 to $10 million EBITDA impact from the cyclospora outbreak.

Segment performance

Sweetgreen operates a single business segment of fast-casual restaurant locations. For the second quarter of 2026: total revenue was $192.7 million, a 4% year-over-year increase. Comparable restaurant sales declined 6.2% YoY, driven by a 2% transaction decline and 4.2% product mix headwind. Restaurant-level profit was $25.2 million, with a restaurant-level profit margin of 13.1% (down from 18.9% YoY). Food, beverage, and packaging costs were 29.8% of revenue, up 210 bps YoY. Labor and related expenses were 29.2% of revenue, up 170 bps YoY. Other restaurant operating expenses were 18.5% of revenue, up 150 bps YoY. G&A expense was $29.7 million, down $4.8 million YoY. Adjusted EBITDA was a loss of $0.2 million, compared to a $6.4 million profit YoY. The company ended the quarter with 287 total restaurants, 35 of which are Infinite Kitchen locations, after adding 2 net new restaurants in Q2.

Risks & headwinds

- The ongoing cyclospora outbreak linked to fresh produce has created heightened consumer concern that disrupted sales momentum built through Q2 and early July, creating near-term sales and profitability uncertainty. - The recently announced jalapeno recall creates unquantified near-term uncertainty that is not reflected in current guidance, with potential for additional negative consumer sentiment or sales impact. - Persistently weak transaction growth and negative comparable sales have pressured margins and adjusted EBITDA, requiring operational and marketing overhauls to return to profitable growth. - Inflationary pressures on wages and utilities continue to pressure operating costs, with sales deleverage amplifying margin compression. - Menu mix shifts toward lower-priced offerings such as wraps have created ongoing product mix headwinds that have pulled down overall comparable sales performance.

Analyst Q&A

• Q: Wraps have strong customer resonance but have contributed to product mix headwinds from their lower price point. Is this tradeoff acceptable, and are they delivering the expected incremental traffic and repeat growth? /

  A: Management reports wraps are exceeding expectations, holding a steady 20% customer incidence, and delivering a 5 percentage point increase in purchase frequency. Wraps have the highest 30-day return rate of any menu item, outperforming the Harvest Bowl, and have driven strong growth among Gen Z customers. Throughput concerns were resolved within four weeks of launch, and wraps have repositioned Sweetgreen as a more accessible, craveable option. Management will continue to innovate the wrap category and leverage it to drive new customer acquisition.

• Q: What is the status of the CYO pricing test, and how can it work with wraps to improve value perception in H2 2026? /

  A: The CYO pilot launched one month ago, starting in Indianapolis, expanding to DC DMV, and most recently expanding to Southern California. Early customer feedback is positive, as the new structure (protein included in base pricing, clearer premium add-on pricing) eliminates price shock and improves perceived value. Management says it is too early to measure transaction or frequency lift, but if results remain positive, full national rollout is planned by the end of 2026.

• Q: What is the outlook for new store growth next year, following the hire of a new chief development officer? /

  A: Management plans to continue new store openings at a conservative pace, similar or slower than 2026's current rate, focused exclusively on high-confidence, high-return "home run" sites that meet strict return thresholds. The new development team is using this period to refine prototype design, lower construction costs, and optimize site selection, in preparation for accelerated growth once the core business recovers. Management describes this as a "slow down to speed up" phase.

• Q: What specific initiatives will the company use to expand brand awareness and attract new customers, which has historically been a brand opportunity? /

  A: First, management is expanding menu diversification beyond wraps, with a full plates relaunch planned for late 2026 focused on high-protein hot dishes that have already shown strong reorder performance. Second, the marketing mix is shifting from primarily bottom-funnel engagement with existing customers to increased top-of-funnel investment, larger brand tentpole events, and a renewed focus on local community marketing. The entire brand and marketing leadership team has been rebuilt in the past six months with new creative talent, and a robust marketing calendar is in place for H2 2026 and 2027.