Los Angeles-based Sweetgreen Inc. (SG) is one of the unlikelier breakout growth stock stories on Wall Street this year. While artificial intelligence (AI) stocks and central bank moves continue to dominate the storyline, Sweetgreen is different - it's a fast-casual restaurant chain that's delivered the kind of explosive growth investors more often associate with blockbuster weight-loss drugs or essential AI hardware.
Instead, Sweetgreen is more in the Chipotle (CMG) model, with the salad-focused chain offering its consumers a variety of customizable choices, such as frozen yogurts, seasonal selections, nutritional specialties, drinks, and warm bowls. It is a next-gen restaurant that makes its food in-house from scratch using produce delivered in the morning.
The concept has caught on, and Sweetgreen’s stock has shot higher this year. SG is up 216.5% on a YTD basis, and down just 7% from the all-time highs set in late August.
Sweetgreen Hikes Its Forecast
Sweetgreen reported its Q2 results last month, with total revenue of $184.6 million rising 21% YoY and beating analysts' estimate of $179.77 million. Same-store sales increased 9%, led by an increase in prices of 5%.
SG is not yet profitable, and the company lost $0.13 per share during the quarter. That was narrower than last year’s loss of $0.24 per share, but failed to beat Wall Street’s $0.11 per share estimate.
"Despite a heightened uncertain economic backdrop for the consumer, we are raising our guidance for 2024 given our results during the first half of the year,” said Mitch Reback, Chief Financial Officer.
Management is now targeting same-store sales growth between 5% to 7%, revenue between $670 million to $680 million, and adjusted EBITDA of $16-$19 million, with a restaurant-level profit margin of 19-20%. Sweetgreen is targeting a total of 24 to 26 new store openings.
Notably, Sweetgreen isn't just a restaurant stock; it's also something of a robotics play. The company's Infinite Kitchen initiative turns the fast-casual kitchen into an automated endeavor, and the results so far have been compelling.
“Our Infinite Kitchens continue to deliver on our financial, operational and customer service metrics," said CFO Reback on the Q2 conference call, where “Infinite Kitchens" were mentioned no fewer than 27 times. “Naperville just crossed its one year anniversary in May, with $2.8 million in sales. For the second quarter, the restaurant level margin was 31.3% in its first year team member turnover was around 45% less than what we see in a classic restaurant at a similar stage.”
What's the Analyst Forecast for SG Stock?
UBS raised its price target on Sweetgreen stock to $37 after earnings, with analyst Dennis Geiger writing, “Second quarter results highlighted strong [same store sales] and traffic, solid margin expansion, and encouraging progress on Infinite Kitchen plans which support a compelling long-term growth outlook.”
More recently, TD Cowen upgraded the stock to “Buy” from “Hold,” with the firm predicting that Infinite Kitchens will contribute to above-consensus annual margin expansion from 2025 through 2029, and significantly boost the total addressable market for Sweetgreen. TD Cowen has a $43 price target for SG stock.
Overall, analysts have a “Moderate Buy” consensus rating on SG, with 7 “Strong Buys,” 1 “Moderate Buy,” and 3 “Holds.” There are zero “Sell” ratings.
The mean 12-month price target for SG is $38.30, only about 7.3% north of current prices. The Street-high price target is $45, which represents a premium of 26%.
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