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spk07: Good afternoon, my name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc. First Quarter 2022 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, please press star one again. We do ask that you limit yourself to one question per analyst. Thank you. I would now like to turn the conference over to Ms. Rebecca Nunu. Please go ahead, ma'am.
spk01: Thank you, and good afternoon, everyone. Here with me today are Jonathan Neiman, co-founder and CEO, and Mitch Reback, CFO. Before we begin, we have a couple of reminders. Our earnings release is available on our website at investor.sweetgreen.com. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in our latest annual report on Form 10-K Filings and subsequently filed quarterly report on Form 10Q. These forward-looking statements are based on information as of March 27, 2022, and we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are an addition to and not a substitute for measures of financial performance prepared in accordance with GAAPs. A reconciliation of these items to the nearest USGET measure can be found in this afternoon's press release available on our IR website. With that, it's my pleasure to turn the call over to Jonathan to kick things off.
spk02: Thank you, Rebecca, and good afternoon, everyone. I want to start with a moment of gratitude and thank our restaurant teams for how they continue to deliver a win-win-win for our customers, communities, and stakeholders. I also want to give a shout out to the more than 200 sustainable farmers, producers, and distribution partners who supply us with fresh, local, and organic ingredients every day. Our differentiated and local supply chain is built on long-term partnerships that have continued to allow us to serve delicious, sustainable, and healthy meals amid global supply chain issues. Our sourcing approach is core to our fooditos and key to supporting the long-term growth and health of the planet.
spk10: our communities, and our business.
spk02: We are pleased to report another quarter of strong results. In the first quarter, we reported sales of 102.6 million, representing a 67% year-over-year growth, fueled by same-store sales growth of 35%. Total digital sales represented 66% of our Q1 total revenue, with approximately two-thirds of those sales coming via our own digital channels. Average unit volumes grew to $2.8 million, up from $2.1 million last year, and profitability improved. Restaurant-level margins were 13% for the quarter. Our operators did an incredible job leading their teams through COVID-driven turbulence and managing our restaurants efficiently. Our team remains focused on executing our vision to redefine fast food. Our four strategic objectives to achieve our vision include, one, Expand and evolve our footprint in new and existing markets to connect more communities to real food. Two, enhance our digital experience with a focus on own digital relationships, allowing us to add new customer channels, drive frequency, and additional restaurant volume. Three, solidify our brand as the industry leader and inspire customers to live healthier lives without compromising their values. Four, create five-star team member experiences and make Sweetgreen the employer of choice. Let me provide a brief update on each of these objectives, starting with our footprint. In Q1, we opened eight restaurants. Positive customer response to new openings, particularly in our suburban and residential markets, demonstrates the power and reach of our brand. We had a strong opening in San Diego, a new market in the quarter, and we are excited to bring Sweetgreen to four additional new markets this year. Tampa, Indianapolis, Detroit, and Minneapolis. Expanding our Midwest presence provides us with the opportunity to meet the growing national demand for healthy fast food. We remain on pace to open at least 35 new restaurants this year and have a robust and sustainable pipeline in both existing and new markets for the next few years. As we expand, we continue to innovate on restaurant formats to reach new customers and increase access, ease, and satisfaction. I'm excited to share two new formats we are testing that lean into our digital leadership and direct connection we have to our customers. This August, we will be opening our first Sweetgreen pickup kitchen in the Mount Vernon area of Washington, D.C., exclusively servicing digital orders placed ahead via the Sweetgreen app, website, or third-party platforms. While still offering an outdoor patio for dining, this location will have a smaller square footage than our typical store due to no front-line ordering or inside dining rooms. With two-thirds of our sales already coming from digital channels, we have the unique opportunity to use this format to create hyper-convenience for our digital pickup and delivery customers. Additionally, within the next year, we will be opening our first restaurant featuring the Suite Lane, an order-ahead drive-through pickup lane in Schaumburg, Illinois. To utilize the Suite Lane, customers will place orders in advance exclusively through our digital channels. As we continue our suburban and residential expansion, we believe SuiteLanes will unlock additional convenience with less friction for a diverse group of Sweetgreen customers. Both of these new formats highlight how we can expand our digital platform to reflect our commitment to a convenient multi-channel approach that meets our customers wherever they are. Investing in our digital experience with a focus on own digital relationships continues to be a key pillar for us. I'll share some of the results we are seeing from the team's work. Our native delivery channel was our fastest-growing channel in the quarter, outpacing third-party marketplace growth. Ordering delivery via our app is the best way to have tweaking delivered. It provides a superior ordering experience, a broader menu, and better value. Native delivery times are now faster, more reliable, and we have expanded delivery availability to as far as 10 miles. We marketed this improved delivery experience to customers in Q1, and early results are promising. we've seen a 20% average lift to revenue per user from those who redeemed a free delivery promotion. We've done all of this while improving Sweetgreen's cost per delivery by 20% to make the channel more profitable. Our outpost channel also continues to recover. Since the end of Q4, we added 98 outposts, ending the quarter with 579. We continue to be excited about the opportunity to expand outposts and connect more businesses to real food. A new loyalty program presents another huge opportunity to drive our digital flywheel, given the strength of our own digital channels, our healthy and craveable menu, and our highly engaged cohort of habitual Sweetgreen customers. We plan to develop a program that gives customers access to exclusive rewards and personalized offerings that align to their preferences and values. This is why we are testing various loyalty frameworks and features throughout 2022. In January, we piloted SweetPass, a limited-time subscription product where for $10, purchasers earned up to one $3 credit per day for 30 days. We wanted to learn who the pass resonated with and, most importantly, how it influenced their frequency. Despite the Omicron surge, we exceeded our target and sold 16,600 passes during the three-week purchase period. Ninety percent of customers surveyed indicated interest in purchasing the pass again. We were delighted with the response. particularly from new, lapsed, and low-frequency customers who made up 60% of total past purchasers. Compared to their average monthly frequency in Q4 of 2021, SweetPass users placed an additional five orders on average during their 30-day trial, almost tripling their frequency and more than doubling their spend. We're continuing to see positive results from these SweetPass purchasers even after the pilot program has concluded. We've retained more than half of the new lapsed and low frequency customers who bought a SweetPass, and they continue to engage with our brand more than they did prior to the program. We believe that a reimagined loyalty program that features both subscription and personalized promotional capabilities will have a force multiplier effect when you combine it with our healthy menu designed to be eaten every day. As we continue to build our brand awareness, I want to spend a moment celebrating our recently launched brand campaign and welcome Phoenix Sun's shooting guard and Sweetgreen customer Devin Booker as our latest partner in inspiring a healthier future. Together with Naomi Osaka, we are excited to highlight our menu versatility and seamless customization experience via Sweetgreen's digital channels. Our menu features over 40 freshly prepared or cooked ingredients, including our newest seasonal dressing, fresh and herby chimichurri. Customers can create millions of unique, customized orders to accommodate almost any flavor profile or dietary preference and make their bowl exactly how they like it. The Create Your Own Bowl is our most popular menu item, and over 75% of orders have at least one modification. Today, as part of the 2022 Create Your Own Brand campaign, you can go into our app and be inspired to create your own menu item, just like Naomi and Devin do, or try theirs. We are also proud to feature our Sweetgreen team members alongside Naomi and Devin in this brand campaign. Over the next several weeks, you'll be able to find their delicious custom orders on TikTok. Our team members are our best brand ambassadors and the foundation of our success. For many, a job at Sweetgreen is the beginning of a career journey, and we're proud to be part of that path to opportunity. Our growing pace of new restaurant openings means more opportunities for our team members to become a head coach in as few as three years. Today, about one-third of our store leadership started as hourly team members. One of our values at Sweetgreen is to act like an owner, and we are proud that all of our head coaches have Sweetgreen equity and, in total, earn a six-figure package. It's important to us that our head coaches are rewarded for Sweetgreen's growth and success. To attract and retain the best talent, we go beyond offering competitive wages and benefits. We invest in our team members' experience in other important ways. expanding rewards and recognition, continuing to advance diversity, equity, and inclusion to make sure we're broadening representation across the company, cultivating an inclusive culture built on trust and two-way communication, and investing in our training and development program to build an internal pipeline of restaurant leaders for tomorrow. We have a robust in-restaurant immersive training program that is complemented by online interactive training tools. We know that once we get our team members to stay 90 days, By creating a great onboarding experience, it is a great predictor of long-term retention. Since the end of Q4, 90-day team member retention has improved almost 10%. While our team has done a great job navigating short-term challenges, we are laser-focused on making decisions that position Sweetgreen for long-term, sustainable growth. We're continuing to expand Sweetgreen's footprint and fill our tremendous white space. We believe Sweetgreen is strongly positioned to reach our goal of 1,000 restaurants across the U.S. by the end of the decade. All of this is supported by our unique culture and best-in-class team. Thank you again to the whole Sweetgreen team for your focus on executing against our mission of building healthier communities by connecting people to real food. Now I'll hand it over to Mitch to review our Q1 financial results.
spk06: Thank you, Jonathan, and good afternoon, everyone. I'm pleased with our first quarter results. Total revenue in the first quarter reached $102.6 million, up from $61.4 million in the first quarter of 2021, growing 67% year over year. This growth is primarily driven by same-store sales growth of 35%, consisting of a 25% increase in transactions and mix, and a benefit from price increases of 10%. of which approximately 6% was taken in January 2022 and 4% in the first quarter of 2021. Like most businesses, during the beginning of the quarter, we saw significant impact from Omicron. The impact was felt across many areas, including lower demand, reduced staffing, and in some cases, temporarily leading to limited operating hours and reduced line capacity. Even with the impact of Omicron, Our average unit volume grew to 2.8 million up from 2.1 million in Q1 2021. Our AUVs now exceed our Q1 2019 pre-pandemic level of 2.7 million. Digital revenue in Q1 was 66% of total revenue, and our owned digital revenue, that is transactions made on the Sweetgreen APRA website, was 43% of revenue. Q1 total digital dollars grew 44% year over year. We opened eight new restaurants this quarter, up from one in the first quarter of 2021. We opened one new market, San Diego, with a very strong opening in Carlsbad. We are now on track to open at least an additional 27 new restaurants this year in both new and existing markets. We continue to be pleased with our performance of our suburban and residential new openings. giving us confidence in our suburban and residential focused development pipeline. Restaurant margins improved throughout the quarter as volumes recovered from the impact of Omicron. Restaurant level margins in the first quarter were 13%, rebounding from 3% in 2021. The margin improvement was largely the result of sales leverage, the impact of our price increases, and the reduction of our discount line. These factors led to an improvement across all major line items food and beverage labor occupancy and other costs for reconciliation of restaurant level margin to comparable gap figures, please refer to the earnings release. Food beverage and packaging costs for 26% of revenue and improvement of 200 basis points from 2021 we expect cost and inflationary pressures to increase throughout the remainder of 2022. we continue to believe that as a percent of sales, our food, beverage, and packaging costs for 2022 will be in line with 2021. Labor and related costs were 33% of revenue, an improvement of 300 basis points from 2021. This margin improvement resulted from greater sales leverage and simplification of our operating model. During the quarter, we increased the average wage rate 4% to just under $17 an hour. Additionally, we concluded our first quarter retention bonus program in January, and I'm pleased to say 88% of team members who received the bonus are still with us. We also saw a steady improvement in team member applicant flow. By the end of the first quarter, our stores were 95% staffed. We expect labor and related costs as a percent of revenue to be in line with 2021. Occupancy and related expenses were 14% of revenue. an improvement of 200 basis points from 2021. This improvement is the result of sales leverage from higher volumes. Our general and administrative expense for the quarter was 49.7 million compared to 23.4 million at Q1 2021. This $26.3 million increase in G&A is primarily attributable to a $21 million increase in stock-based compensation expense, $1.6 million of SPICE-related costs, and $1.3 million in public company expenses. Excluding these items, G&A for the quarter was $24.2 million compared to $21.7 million in 2021. This was an 11% increase compared to a revenue increase of 67%. We believe we will continue to experience meaningful leverage in GNA, excluding stock-based compensation, SPICE, and public company expenses as we move forward. Our net loss for the quarter was $49.2 million compared to $30 million in 2021. This change is primarily attributable to a $21 million increase in stock-based compensation. Adjusted EBITDA for the quarter was a loss of $16.5 million, narrowing the year-over-year quarterly loss by $4.5 million. This improvement is the result of higher sales and improved restaurant-level margins. For a reconciliation of adjusted EBITDA to comparable GAAP figures, please refer to our earnings release. Turning to guidance and our outlook, we are reiterating our recently provided 2022 fiscal year guidance. at least 35 new restaurant openings, revenue ranging from $515 million to $535 million, same store sales growth between 20% and 26%, restaurant-level margins of 16% to 17%, and adjusted EBITDA between a loss of $40 million to a loss of $33 million. The path to recovery has been neither linear nor consistent. We continue to see variability in our customer traffic patterns. While there are short-term challenges in the operating environment, we are focused on building the company for the long term. The strength of our brand, product, digital platform, and team gives us confidence in reaching our goal of 1,000 restaurants across the United States by the end of the decade. With our expanding restaurant-level profits and disciplined approach to G&A, we continue to make steady progress on our path to profitability. We are well-equipped and keenly focused on growing a profitable business. With that, I'll turn the call back to the operator to start Q&A.
spk07: Thank you, sir. And as a reminder, it is star one if you have a question, and we do ask that you limit yourself to one question. We will go first to Sharon Zaxia, William Blair.
spk03: Hi, good afternoon. I did not expect to be first, so thank you for that. Usually us Zs are last. So you sound kind of unusually confident about your new unit pipeline for 22. I mean, we're hearing a lot of companies talk about permitting delays and so on. So can you kind of help us understand what kind of cushion you've embedded in that guidance for 22 for at least 35 locations? And then separately but related, where are new unit costs likely to end up this year? And how do these new formats like Suite Lane or the pickup kitchen kind of compare in terms of what you would expect the build-out cost to be.
spk02: Yeah. Hi, Sharon. Happy to take that question. So from a new unit pipeline, I'd say we have a lot of confidence in the 35-store guidance that we've given. While it's been a very challenging environment, we've been ramping up development in our pipeline over the past couple of years, and I'd say we just have a pretty deep pipeline that gives us the confidence. So while permitting's hard, A lot of the costs around construction continue to be challenged. Our team has done an incredible job, which gives us the confidence to keep that guidance. In terms of cost, we have seen some inflation, but again, we're able to plan ahead with a lot of mass buying and procurement here. We're seeing new unit inflation in the mid-single digits compared to an industry that's seen probably somewhere in the teens. So feel pretty good about that and with that are able to maintain the return on capital that we've guided to. As it relates to the new store innovations, both Suite Lane and what we're calling our pickup kitchen, I'd say those are both very early pilots. So we're testing those really to understand both the consumer experience, the team member experience, and of course ultimately the return on capital, but we do expect those to meet or exceed our current return on capital, we wouldn't roll them out if they didn't meet our threshold. So we do, like we've seen with the rest of the industry with Sweetling, we've seen a lot of excitement around that convenience factor, and we think given the digital penetration we have, we'll perform very well. And again, we see given the digital penetration, that pickup channel should be a great way for us to infill and create more convenience.
spk07: Thank you. Up next, we'll hear from Andrew Charles Cowan.
spk10: Great. Thanks, guys, and thanks for all the positive updates. It was great to see you guys beat your guidance across the board in one queue, but just wanted to ask about the rationale for keeping 2022 guidance intact. Is this just conservatism? Do you point to the investment community as having confidence in the high end of guidance, or is there something you're seeing in 2Q trends that led you to decide not to raise the guidance range?
spk06: Hey, Andrew. Thank you very much for the question. I think it's a great question. We spent a lot of time reflecting on the question. We're seeing nothing recently that would have caused us to change the guidance, to have any more optimism or conservatism. The way we look at the business, the factors we control on the inside, we're very, very happy with. We're very happy with the restaurant operations, the restaurant level margins, the disciplined and rigorous approach we've had on G&A. and really the shrinking losses that the company has. What causes us a little bit of concern, quite frankly, are the external factors. Frankly, many of the things we read from the analysts. So as we look at the outside world, we see it shaking. As we look at our inside, we see the execution steadily improving. And as we netted the two together, we thought the best pathway for us at this point was to hold the guidance that we gave really about eight weeks ago.
spk10: Okay. I appreciate the cautious optimism, Mitch. That's helpful. Just to follow up, with the rebound in urban mobility post-Omicron in February, March, and even in April, are you seeing any sales transfer from suburban to urban markets as commuters kind of intensify the return to office? Maybe one way to look at it is if the growth in sales volumes after Omicron in January grew at a similar clip between central business districts and suburban locations.
spk06: Now, Andrew, I'll tell you, as our urban stores have recovered, we have seen no change in the suburban stores. We're really encouraged by that trend.
spk10: Super. Thanks, guys. I'll pass it off.
spk07: John Ivanko from J.P. Morgan has the next question.
spk09: Hi. Thank you. Thanks for the comments, you know, I guess on the first quarter of 22 openings, I guess being – you know, in line or ahead of expectations, particularly, you know, in a new market like San Diego. But can we go back and review, you know, the 21 class? Can you talk about, you know, the performance, you know, of what you've seen in, you know, suburban and residential areas? And, you know, if it's possible to maybe highlight, you know, how some of the performance as we stand in May of 22 have been for some of the newer markets, you know, that you opened in 21. And if there's any information that you've gleaned from the success or lack thereof in some of those you know, openings over the past, you know, six or eight quarters or so?
spk06: John, thanks for the question. You know, it's an interesting question, and what we found with our new stores from the class of 2021 is they perform almost exactly like the rest of the fleet, which means it's really proportional to where the pin is dropped. The suburban stores continue to outperform our pro forma model. The urban stores lag slightly behind it. And it's almost in keeping with the whole portfolio. What we found with the new markets is some of the new markets have been exceptionally good performers for us. Most notably would be Colorado, for example, and Florida. A market like Texas has lagged a little bit, which is really just related to where the pins got dropped in urban centers.
spk09: Okay, and in terms of informing what you see going forward, I mean, dropping a pin doesn't necessarily mean that you get it to the 99.999% accuracy. So how is the experience that you have in the marketplace over the last number of quarters perhaps influencing some of your site strategy as you begin to think about 23 and 24 openings?
spk06: Yeah, I'll give you an example of how that's impacting the 2022 openings. 90% of our pipeline is suburban focused for 2022. And what we're finding is as the results continue to get better in those markets and in that category, we continue to have our capital flow into it to the higher return markets.
spk09: And I know, you know, one of, you know, I guess, you know, the discussion points as part of the IPO, you know, when we talk about suburban is, you know, you presumably... you know, need to have frequency as you're drawing, you know, customers from a wider area. So can you talk about, you know, I guess, you know, the demographics that, you know, may differ or, in fact, even be similar, you know, to the urban consumer? I mean, I guess how is the, you know, the consumer base of Sweetgreen changing as, you know, go from urban to suburban? Are you seeing, you know, wealthier customers come more often? Are you seeing a broader customer base? coming less often? I mean, how is that actually shifting relative to, I guess, the experience that the brand was built on? Yeah. Hi, John. It's Jonathan here.
spk02: So we are seeing really a broadening of our consumer, and that's been very intentional. You see it in a lot of the brand positioning, what we're doing with our menu, as well as with our channels and the more convenience we're driving. So one of the really strong parts of our Suburban footprint has been our delivery channel, both on Marketplace and our natives. Overall, just broadening demographics for our consumer and gives us a lot of confidence to continue our development there. Thank you.
spk07: Next up, we'll hear from John Glass.
spk08: Own digital channels. The mix between your own digital and total digital hasn't really changed that much over the last I understand the overall volumes are higher. So what moves, what are you doing intentionally to move the mix higher and own digital? And I assume part of that's gonna, you're gonna maybe talk about loyalty in some of those programs. Is this a testing year in 2023 as a launch year? How long does it, I think, take, I guess, is the question to sort of get through what you're working on to where you can be system-wide and on a program that might improve the own digital mix? Thanks.
spk02: Yeah, so I'm going to take that into two parts. First around own digital. We've been very, you know, the reason we share that number is it's something we're very intentional and focused on and driving. And we want to make the Sweetgreen app the best place to order Sweetgreen. So we do a lot today to drive that. That includes a better ordering experience, a broader menu, better value. We've done a lot. We did a lot in the last quarter around improving the delivery experience specifically. So today on the Sweetgreen app as an example, You have delivery radius of 10 miles. On our marketplace, it's about half that. We've done a lot to improve our speed of delivery. We've done a lot just to improve the satisfaction of that channel. Again, we're going to continue to make our own channel a better place to order Sweetgreen. As it relates to loyalty, as you mentioned in the remarks, we think it's a really big opportunity for us. We think the opportunity is big because, one, it's a brand with a lot of habituation and frequency, largely due to the menu and the fact that you can eat it every day, to the high digital penetration. So we think there's a really unique opportunity to do something special as it relates to loyalty. And you can kind of see the parts coming together. And you said it right. This year is really a testing and piloting year, leading to 23, which would be more of a launch year. So we tested SweetPass, as we mentioned, very, very successful, really encouraged by the results. And then later this summer, we're launching digital challenges, which is more around personalized CRM. So we're really excited to see what that does. You can imagine loyalty being almost a combination of the two, where you have a personalized CRM component for everyone, and then for those users that want to sign up to sweep past, you have that component as well.
spk08: Can you just remind us what you had in the loyalty program, you stopped it, was it Can you just remind us why you didn't like that one or what was it too crude? Was it not advanced like you're talking about right now? Why did you continue that?
spk02: Yeah, that's exactly right. It was really a discount program, so it wasn't personalized in nature and didn't seem that consumers loved it and didn't do much for the company, to be honest. So we saw a way to create something that was, more delightful for our consumers, and was a real win-win-win, and something that really made sense for the company. So we're really happy we did that while it was painful. For a moment, it cleared the deck for us to come up with something really special. And we think this loyalty program will not only be a really big sales driver for us, but will be something that consumers really love and will continue to drive our digital penetration and leadership.
spk07: Thank you. Next up, we'll hear from Jared Garber, Goldman Sachs. Just one moment, everyone. Mr. Garber, your line is open.
spk05: Can you hear me?
spk00: Yes.
spk05: Okay, great. Maybe two questions, and sorry if I missed this on the first one. John or Mitch, can you give an update on outposts? I know that there's been a big push to kind of reaccelerate that program as the urban environment starts to normalize. If you could just give us an update there on maybe how many new outposts you opened in the quarter or where you are sitting now at the end of the quarter or in the second quarter here. And then two, I just wanted to get a sense of the announcement with the partnership with Devin Booker obviously was really cool for us to see. Just wanted to get a sense of why maybe he was the right partner and if that's a strategy to maybe bring in some different kind of consumers to the brand.
spk02: Thanks. Hi, Jared. So in terms of outposts, we ended the quarter with 579 outposts. So we added almost 100 outposts in the quarter. And as the world has opened up and people are getting back to work, we're seeing a lot of excitement from businesses really wanting to bring Sweetgreen in as an amenity. So still very early in that recovery and as people get back to their normal routines, but we're pretty encouraged by the number of sign-ups and the acceleration of businesses signing up to have Outposts. As it relates to the brand campaign, it launched on Monday. We're really excited about it. And really, it speaks to our greater vision of redefining SaaS food. And a lot of that is about changing the way people think about food And for us, this is about sports and brand sponsorships and partnerships. For so long, you had, you know, fast food brands and, you know, brands that really these athletes were not actually eating. They were promoting them. And we're trying to support this paradigm shift around people like Devin who actually eat Sweetgreen, use it to fuel their lifestyle, partnering with brands like Sweetgreen to support healthier eating. So in terms of where this could go in the future, it's not just Devin. Right now it's Devin and Naomi. We brought back Naomi. You can expect over the years for us to continue to lean into culture, to tell stories about the future of food.
spk05: Great. Thanks so much.
spk07: And next up we'll hear from Brian Bittner, Oppenheimer.
spk04: Thanks. Thank you for all the updates. As we dive into the results this quarter, it's hard not to notice how impressive the restaurant-level margins were, particularly on the COGS line, where you leveraged margins. No one's really leveraging that line item. You leveraged them about 170 basis points year over year. And I know you said, Mitch, that for the full year, you do expect COGS margins to be more in line with last year. But I guess the question is, can you unpack those assumptions? behind that outlook, just given how strong the first quarter was? It seems like you have strong pricing out there. It seems like you have a food basket that is not growing as fast on the cost side as your peers. So any more color you can give on how to think about that line item relative to first quarter?
spk06: Thank you, Brian. Really, really good and important question in this time. What I would say is we have to remind everybody that We have a very plant forward menu. And it's a plant forward menu that's locally sourced. And in the environment that we're in, those have been two really, really significant advantages for us. Finally, we have about 88% of our food is under contract, where we have long term relationships with our suppliers and farmers, many of which have held to those contract pricing during the first quarter. When we look out right now, what we see is pressure in our costs. We see it really specifically in chicken, avocado, sunflower oil, and distribution. And knowing that those pressures are going to build throughout the year is what led me to stick to the guidance of costs being 28% of revenue versus the 26% of revenue that it was in the first quarter. So essentially the first quarter, if you do the math, saw virtually no inflationary pressures
spk04: against the six percent price increase and we see some of that reversing in the next three quarters that makes sense and just the quick follow-up to that is on the pricing um your pricing is not that different from your peers everyone's taking price but i'd love to know what your own analysis says about customer resistance or lack thereof to your recent pricing actions and what does your research tell you about your pricing power into the future if you need it?
spk06: We've seen really no signs of any resistance to the price increase. We talked a little bit about this at our last call. We historically have not seen much resistance. We believe our customers understand the cost of real food and freshly prepared food. What I would say is when we said in the last call that we were open to a further price increase if we saw inflationary pressures build, at this point in time, we don't see a need for that in 2022. We think we're probably okay with where we're at.
spk04: Great. Thank you.
spk07: Next up is Chris Carroll, RBC Capital Markets.
spk11: Hi, thanks for the question. Just following up on earlier comments around execution, I wanted to ask about capacity and throughput. Just given AUVs are continuing on the upward steady trend here and are up to 2.8 million now, just curious to hear more about throughput levels, particularly on the front line, just given digital mix is remaining strong here.
spk02: Yeah, absolutely. Hi, Chris. So it's something that we think a lot about both capped capacity and throughput. And very early on in Sweetgreen's trajectory, we understood that digital revenue was going to be a huge part of our growth. So we intentionally built a lot of additional capacity in all of our restaurants. So we feel, especially on the digital side, very well prepared for any increases in digital revenue. As you can see, our line has definitely not made it back to pre-COVID levels. So we actually have a number of throughput initiatives that we're going to share on the front line in a future quarter, but we feel like there's a lot of room to grow on the front line still and a number of throughput initiatives as that comes back.
spk11: Great. Thank you.
spk07: And next, we'll go to Teddy Farley City.
spk04: Hi, thanks for taking the question. I was just curious if you've been seeing any distinct differences in either day part or day of the week. Thank you.
spk06: Hi, Teddy. Nice to meet you. This is Mitch. I would say when we said that the recovery has been neither linear nor consistent, that would be an interesting example. In Sweetgreen's history pre-pandemic, Monday was always the biggest day of the week. Tuesday was a big day, and as the week went through, the volume began to taper down. What we now find is the business is stronger Tuesday, Wednesday, Thursday, and in particular in the urban locations. So as people have changed their work patterns, we're seeing a change in the pattern in our business. In terms of day part, we've not really seen a significant change in the day part mix in the business.
spk11: Awesome. Thank you.
spk07: And everyone, that does conclude the question and answer session at this time. I would like to hand the conference over to Mr. Jonathan Neiman for any additional or closing remarks.
spk02: Thank you so much. I just want to thank everyone for your time here. While it was a really great quarter that we're proud of, we're more excited than ever about our long-term vision of redefining fast food and our mission of connecting people to real food. Again, I want to thank all of our restaurant teams. and our head coaches and our Sweetgreen Support Center for their tireless work. It's been a lot of fun working together, and we're excited about what we're going to build together. Thank you guys so much.
spk07: Everyone, that does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.
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