Sweetgreen, Inc.

Please stand by. We're about to begin. Good afternoon, ladies and gentlemen. Welcome to the Sweetgreen Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. And please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. And we ask that you please limit yourself to one question. And now at this time, I'll turn things over to Rebecca Nunu, head of investor relations. Please go ahead.

Thank you and good afternoon, everyone. Here with me today are Jonathan Neiman, co-founder and CEO, and Mitch Rebath, chief financial officer. 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 filing and subsequently filed quarterly report on Form 10-Q. These forward-looking statements are based on information as of today, 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 in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP 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.

Thank you, Rebecca, and good afternoon, everyone. Last week, we celebrated Sweetgreen's 15-year anniversary. On August 1, 2007, just months after graduation, Nicholas, Nathaniel, and I opened our first Sweetgreen in a 500-square-foot-old burger shack in Washington, D.C. While we have grown and evolved a lot, a few things have not changed. Our mission of building healthier communities by connecting people to real food and our long-term commitment to being a positive force on the food system while creating a sustainable and durable branded business. I want to take a moment and thank all of our team members, past and present, who have joined us along the journey and made TweetGreen what it is today. In the second quarter, we reported sales of 124.9 million, representing 45% year-over-year growth, fueled by same-store sales growth of 16%. Total digital sales represented 62% of our total Q2 revenue, with approximately two-thirds of those sales coming via our own digital channels. AUVs grew to $2.9 million, up from $2.4 million at the end of the second quarter of 2021. And most importantly, profitability improved. Restaurant-level margins were 18.5% for the quarter, up from 14.9% this time last year, and up from 13% from the first quarter of 2022. I want to give a shout out to our Restaurant and Support Center teams for their outstanding execution. Our adjusted EBITDA loss was $7.4 million in the second quarter, narrowing from a loss of $13.8 million this time last year, and more than halving our first quarter 2022 loss of $16.5 million. This meaningful improvement demonstrates the leverage of our model and our team's operational discipline. While we had a strong second quarter, we saw sales growth begin to decelerate the week preceding Memorial Day. And as of today, we've not seen our growth rates return to our pre-Memorial Day run rate. The external environment has become more challenging and uncertain since our last earnings call. We believe the slowdown in our sales growth is attributable to an unprecedented increase in summer travel, a recent wave of COVID cases, a slower than expected return to office, and an erratic urban recovery. We are also experiencing a slower ramp in our class of 2021 urban stores. Taking all these unanticipated factors into account, we've adjusted our 2022 top line guidance down to $480 to $500 million. Recognizing the shift in the external environment, we've taken steps to focus on our path to profitability. This includes reducing open and existing headcount, as well as downsizing our LA headquarters. As a result, we expect our 2023 G&A spend, excluding stock-based compensation, to be similar to 2022 spend. We have proven we can leverage our G&A spend and are committed to continuing to do so as we scale our footprint. We continue to balance operational discipline while investing in our key strategic initiatives to drive long-term growth and become a profitable national brand. We remain on track to double our footprint in the next three to five years, and achieve 1,000 restaurants by the end of the decade. I'm confident in our go-forward strategy, and I want to reaffirm our commitment to our four strategic initiatives that position us for profitable growth. 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 increase restaurant volumes. Three, solidify our brand as the industry leader and inspire consumers to live healthier lives. And four, create five-star team member experiences that make Sweetgreen the employer of choice. Let me provide a brief update on each of these initiatives, starting with our footprint. In Q2, we opened eight restaurants. This morning, we opened our 20th new restaurant of the year in Birmingham, Michigan, a suburb of Detroit, and a new market for us. We now have a total of 170 restaurants. We remain on track with our new restaurant pipeline of at least 35 new restaurants this year. In September, we are opening our first digital-only pickup kitchen in the Mount Vernon area of Washington, D.C., and later this year, our first pull-through in Schaumburg, Illinois. With nearly two-thirds of our sales already coming from digital channels, we have the unique opportunity to expand formats to create hyper-convenience for our digital pickup and delivery customers. Over this next several months, we are excited to bring Sweetgreen to three additional new markets, Minneapolis, Tampa, and Indianapolis, for a total of five new markets this year. As we continue to build our pipeline for 2023 and beyond, we remain disciplined with our site and market selection, continuing to target return metrics of year two cash-on-cash returns of 42% to 50%. Enhancing our digital experience with a focus on own digital relationships continues to be a priority for us. After our successful SweetPass subscription trial in Q1, we launched another new engagement and promotional tool in July, Rewards and Challenges, as part of our path to a future loyalty program in 2023. Our launch campaign, the Summer of Rewards, featured four weeks of opt-in challenges with exciting offers to appeal to our broad base of customers, such as buy one, get one 50% off. Over 70,000 customers participated in the challenge And during this period, we saw incrementality in both frequency and spend among participants. Our trials of SweetPass and rewards and challenges were done to enhance our digital experience and will also inform our revamped loyalty program we plan to launch in 2023. We believe that our planned loyalty program combined with our healthy and habitual menu will provide a unique opportunity for incrementality, increased profitability, and the opportunity for us to become a part of the daily ritual of an even larger number of customers. As noted in our last earnings call, we have continued to grow our native delivery channel by making it available to more customers and with improved delivery times. We also expanded our delivery availability up to 10 miles in January, and quarter over quarter saw 25% revenue growth among customers in these expanded delivery areas. Our outpost channel also continues to add accounts. Since our last earnings call, we added 123 outposts, ending the quarter with 702. Outposts continues to be seen as an important in-office perk for employees as companies return to work post-Labor Day. Our brand is designed to inspire consumers to live healthier lives without compromising their values. Through our seasonal offerings, digital exclusives, and core menu, we continue to reinforce our commitment to our customer value proposition of making healthy food delicious and convenient. Starting this Thursday, we are launching our late summer seasonal menu featuring one of our best sellers, the Elote Bowl, which has been on our seasonal menu for the last eight years. It's our take on classic Mexican street corn, highlighting seasonal corn and heirloom tomatoes. We're also bringing back another fan favorite, the summer barbecue salad. As part of this launch, we are expanding our drink offerings, including adding bottled cold brew coffee. We have an exciting and robust menu roadmap ahead of us, including launching a dessert later this year and testing heartier dinner options and kids' meals in select markets this fall. This will help us to broaden our customer base as well as expand day parts and occasions. As much as we are a food company, we are a people company. Our success is the result of our team members, and they shine once again, showing their commitment to delivering on our customer promise of fast, fresh, and friendly. We're always investing in creating five-star experiences for our team members. Today, we offer attractive benefits and wages. We've established a clear career pathway to general manager that's supported by training and development of both technical and soft skills. Based on team member feedback, we're making the following additional investments to enhance our employee value proposition. We're offering more paid time off to our assistant coaches and head coaches starting in Q4. We're introducing tipping by the end of 2023 across the fleet. We're building out the framework and technology solutions for our customers to tip our team members for exceptional service across our own digital and in-store channels. And recently, we relaunched Shades of Green, a rewards and recognition program that celebrates moments that matter, including recognizing exceptional leadership, welcoming new hires, and celebrating anniversaries and important milestones. We believe these investments will further improve attraction and retention of our team members. As part of creating a five-star team member experience, we are constantly simplifying our operations to make the work easier and improve our team members' speed to competency. We have been on a multi-year journey to simplify the execution of our menu, redefine our labor deployment model, and create proprietary tools to enhance our training effectiveness, speed of service, and labor productivity. I want to share two operational areas the team has been focused on this quarter, streamlining the preparation of our cold ingredients and revamping our kitchen layouts. Currently, deciding what ingredients to prep is done manually in each of our restaurants multiple times a day. Our new proprietary cold prep tool auto-generates a list of what to prepare and how much by incorporating multiple data points and a real-time algorithm to predict future consumption of ingredients. This tool eliminates the guesswork in what to prepare, reducing food waste, and ensuring we always have fresh ingredients ready to serve our guests. We are currently testing the tool in six restaurants across the country, and it will be operational across all our restaurants by the end of the year. This tool complements our hot prep tool, which guides our team members on what, how much, and when to cook our hot items, optimizing for both taste and efficiency. In our business, every second and every step counts. So we're reimagining and optimizing our kitchen design to improve the team member experience and productivity. Our new optimized kitchen features a redesigned front line now operational in our Long Island City restaurant and a revamped digital make line now deployed in our Williamsburg restaurant. Both lines have been ergonomically designed with our front line featuring more space for mixing and POS systems. Historically, two of our biggest bottlenecks with our in-store experience. Both restaurants have experienced significant efficiency improvement. At Long Island City, we've been able to almost double frontline throughput, and in Williamsburg, the digital make line throughput increased by over 30%. The new frontline and digital make lines will be rolled out as part of our new market opening starting this month, and we will continue to optimize other areas of the kitchen. We believe consistent improvement in kitchen operations will be a force multiplier and should improve store efficiency, labor productivity, and the team member experience, and thus restaurant-level margins over time. I want to conclude by reaffirming my belief that our strategic pillars fuel our flywheel for growth and profitability. Despite some external challenges that are causing us to reduce our outlook in the near term, we've never been more excited about our long-term growth plans. we remain confident that our model will continue to elevate and expand our mission of building healthier communities by connecting people to real food. We believe that our value and brand proposition, omni-channel model, domestic sourcing strategy, and very strong balance sheet will allow us to not only weather the storm, but take advantage of opportunities that may present themselves in the future. I'm really proud of the team and what we've accomplished this quarter together. Now I'll hand it over to Mitch to review our Q2 financial results.