Shares of the salad chain soared on a strong earnings report.
Shares of Sweetgreen (SG 0.58%), the fast-casual salad chain, were surging again last month after the company posted another strong earnings report and talked up its expanding robotic kitchen program, known as Infinite Kitchen.
According to data from S&P Global Market Intelligence, the stock finished last month up 37%. As you can see from the chart, all the stock’s gains came on the earnings report in the middle of the month. In fact, the stock actually fell slightly toward the end of the month as Sweetgreen stock gave back some of the earnings-related gains.
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Sweetgreen is sizzling
Sweetgreen stock initially struggled after its IPO in late 2021 as it went public just as the pandemic-driven bull market was peaking, but after a long slide, the stock has found its footing, delivering solid growth and enticing investors with the promise of disruptive technology.
The stock jumped 34% on May 10 after Sweetgreen posted strong first-quarter results. Revenue in the quarter jumped 26% to $157.9 million, which beat estimates at $152 million. Sweetgreen posted 5% comparable sales growth, showing it’s improving its performance at existing stores and by growing revenue by expanding its footprint.
Its average unit volume, or the average annual revenue from its restaurants, remained strong at $2.9 million, which is on par with Chipotle and other top restaurant operators.
Sweetgreen continues to lose money, but its margins are improving. It reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $0.1 million, compared to a loss of $6.7 million in the quarter a year ago. Restaurant-level profit margin also increased from 14% to 18%, and its generally accepted accounting principles (GAAP) per-share loss improved from $0.30 to $0.23, though that was worse than estimates at a per-share loss of $0.16.
Analysts responded positively to the update, and Sweetgreen was one of several restaurant stocks to move higher last month, including Cava Group, as investor interest seems to be returning to the sector after several years of weakness.
Image source: Getty Images.
What’s next for Sweetgreen?
Looking ahead, Sweetgreen raised its guidance for the year, calling for revenue of $660 million to $675 million, up from a previous range of $655 million to $670 million. It also raised its same-store guidance from 3%-5% to 4%-6% and hiked its restaurant-level profit margin forecast to 18.5%-20%.
Sweetgreen’s unit economics are clearly improving, and the business has a long growth runway if it can turn profitable, as the fast-casual salad space is still wide open. If it can maintain its current momentum, the stock could move a lot higher.
Jeremy Bowman has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen. The Motley Fool has a disclosure policy.