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spk04: 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.
spk07: 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.
spk05: 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.
spk02: Thank you, Jonathan, and good afternoon, everyone. We had a strong second quarter despite the sales softness we began to see around Memorial Day. Total revenue for the quarter reached $124.9 million, up from $86.2 million in the second quarter of 2021, growing 45% year over year. This includes same-store sales growth of 16%, consisting of a 10% increase in transactions mixed and the benefit from a price increase of 6% taken in January 2022. Our average unit volume grew to $2.9 million, up from $2.4 million in Q2 2021. Digital revenue in Q2 was 62% of total revenue, and our owned digital revenue, that is a transaction made on the Sweet Cream app or website, was 40% of revenue. Q2 total digital dollars grew 31% year over year. We opened eight new restaurants in this quarter for a total of 16 new restaurants in the first half of 2022, ending the quarter with 166. As of today, we have opened 20 restaurants so far this year and now operate a total of 170 restaurants. We remain on track to achieve our guidance of at least 35 new restaurants this year. Restaurant-level margins in the second quarter were 18.5%, up from 14.9% in the second quarter of 2021. Our margin grew 5.5 points from Q1 2022. Over the past few years, the team has simplified our operations, as well as made adjustments to our delivery agreements and pricing structure. These efforts are reflected in our improved margins, and margins are showing greater consistency across markets. For reconciliation of restaurant-level margins to comparable gap figures, please refer to the earnings release. Food and beverage and packaging costs are 27% of revenue, which is consistent with the comparable period in 2021. We continue to see more inflationary pressure building in our cost of goods, particularly in chicken and avocados. As a percent of sales, we expect that our food, beverage, and packaging costs for 2022 will be in line or slightly better than full year 2021, which was 28% of revenue. Labor-related costs were 30% of revenue, an improvement of over 100 basis points from the comparable period in 2021. This margin improvement resulted from greater sales leverage and simplification of our operating model. During the quarter, average wage rates were $17.10 an hour, up 0.4% since Q1. Recruiting has gotten somewhat easier. We are in the process of rolling out new applicant tracking systems to personalize, streamline, and automate the hiring process to be sure we can effectively hire at scale. Our restaurants remain 95% staffed, although in recent weeks we have seen a rise in COVID call-outs, which has put some pressure on our throughput. We expect labor-related costs as a percentage of revenue will be in line or slightly better than full year 2021, which was 32% of revenue. Occupancy and related expenses were 13% of revenue, an improvement of 100 basis points from the second quarter in 2021. This improvement is the result of sales leverage from higher volumes and the increase in our menu prices. Our G&A expense for the quarter was $51.3 million compared to $26.1 million in Q2 2021. This $25.2 million increase in G&A is primarily attributable to a $21.3 million increase in stock-based compensation expense, $3.5 million of costs related to our investment in Spice, and an increase of $1.7 million in public company expenses. Excluding these items, G&A for the quarter was $22.7 million compared to $24 million in the comparable period in 2021. This was a 5% improvement as revenues increased 45%. We expect that we will continue to gain meaningful leverage in our GNA. Our net loss for the quarter was $40 million compared to $26.9 million in the comparable period 2021. This change is primarily attributable to a $21.3 million increase in stock-based compensation, partially offset by the increases in revenue noted above. Adjusted EBITDA for the quarter was a loss of $7.4 million, narrowing the year-over-year quarterly loss from $13.8 million. This improvement is the result of higher sales and improved restaurant-level margins. I am particularly pleased at our adjusted EBITDA quarterly loss of $7.4 million, more than cut in half the Q1 loss of $16.5. We ended the second quarter with $407 million of cash. We have a strong capital position that allows us to continue to expand our mission and provides us with flexibility during these uncertain times. A number of people have asked that we provide an update on our expansion to suburban markets. Well, I'm going to share with you some numbers. The business makes new store selection based upon individual sites and their return on capital and not on an urban and suburban dichotomy. At the end of 2019, our footprint was 65% urban, 35% suburban. Today it's 50-50. At the end of 2019, our urban restaurants had an AUV of 3.1 million and our suburban restaurants had an AUV of 2.7 million. At the end of the second quarter of 2022, AUVs flipped. Urban AUVs are now 2.7 million and suburban AUVs are 3.1 million. The restaurant level margins for our suburban cohort now exceed our urban stores. Our success over the past two and a half years in suburban trade areas gives us great confidence in our model and our pipeline, which is now over 85% suburban. As John spoke earlier in the call, we took steps to manage our corporate overhead costs. In the third quarter, we relocated our LA office to an adjacent smaller facility and yesterday we reduced our workforce at the support center by approximately 5%. The support center is now running with almost 20% fewer heads than planned for 2022. We made these changes to lower our operating expenses and protect our path to profitability in this uncertain environment. We are committed to continuing to deliver meaningful leverage in our G&A, excluding stock-based compensation and public company costs. Now turning to our outlooks. During the second quarter, our revenue growth was strong in April and May. Sales growth decelerated the week preceding Memorial Day. These trends have continued into August. To dimensionalize this, in April and May, we had same-store sales growth of 21%, and in June and July, our same-store sales growth was 7%. In Sweetgreen's 15-year history of sales patterns, we've never seen this before. Our historical seasonality always showed growth during this period. We believe, looking at internal and external data, that the slowdown in our growth is the result of an unprecedented increase in summer travel, a recent wave of COVID cases, and slower than expected return to office and an erratic urban recovery. Additionally, our class of 2021 restaurants underwritten pre-pandemic recently is taking longer to ramp than expected. The sales growth lag is site-specific, largely in the urban stores, making up 45% of the class. These restaurants are impacted by the erratic urban recovery. We feel confident in these stores over the long term. However, we are making short-term adjustments to our projections. For full year 2022, we now anticipate at least 35 new restaurants in 2022, revenue in the range of $480 million to $500 million. Same store sales growth of 13% to 19%. Restaurant level margins of 15% to 17%. Adjusted EBITDA of a loss of $45 million to a loss of $35 million. 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. We will continue making investments to improve our customer and team members' experiences while maintaining a disciplined approach to margins and G&A to drive the company's path to profitability. We continue to believe our long-term investments will enable us to drive industry-leading performance.
spk11: With that, I'll turn the call back to the operator to start Q&A.
spk04: Thank you, Mr. Rebeck. Ladies and gentlemen, at this time, any questions, please press star 1. And you can remove yourself from the queue by pressing star 1, 8 steps, quit time. Also, we'd like to remind you, please limit yourself to one question. We take our first question this afternoon from John Glass of Morgan Stanley.
spk10: Thanks very much. Mitch, can you first just talk about the comp slowdown you've experienced by suburban versus urban? Many of the things you talked about, maybe return to office and travel, had more to do with the urban markets. So can you just Give us a sense of what the split is or the actual same store sales by those cohorts. And can you also just clarify your comments or John's comments about G&A levels in 23 or even in 22 as a result of these reductions that you're currently undertaking?
spk12: John, thanks very much for the question.
spk02: Let me start with the second half, the G&A levels for the company. You know, the company is very committed to continuing to get leverage out of its G&A. And when we look at the G&A, let me for the moment exclude stock-based comp in that number. For 2022, for the full year, we now expect that G&A number to be approximately $107 million. And that would include around $2 million from an accounting change from the adoption of leasehold standards, requiring us to not capitalize legal fees. For 2023, we would see the G&A excluding stock-based comp as no higher than the $107 million.
spk12: Okay. And then on the comp question?
spk11: On the comp question on the urban-suburban split? Correct.
spk02: Really, what we see in the urban-suburban split is the AUVs between the two stores really slipped. What we continue to see is that the urban stores are comping at a higher rate than the suburban stores. Right now, your urban stores are currently comping at around 26% and the suburban stores are comping around 6%, and that's for the second quarter of the year. So the urban stores are showing faster recovery than the suburban stores, although they're coming in from a much, much lower base.
spk10: I'm sorry, just one more clarifying question. Is the rate of decline, though, what I'm trying to understand is, going back to your logic about, you know, urban recovery is taking longer, has that been, is the relative change in urban comps first to second quarter or second quarter into the third quarter greater than what you're saying? Is the suburban source more stable, let's say, sort of underscoring the fact that this is, in fact, more of an urban recovery issue?
spk02: Yes, yes. Yeah, looking forward, that is a correct statement. What we see is, you know, let me take a minute on that, John, to kind of elaborate. I think when we look back over the past two years, we've constantly prognosticated a stronger urban recovery than materialized. So when we looked at our business now in terms of our guidance, we kind of reflected on where the business was trending in July. And we thought, do you prognosticate that post-Labor Day things accelerate or things remain flat? And what we did is we took the assumption going forward on the low end of our guidance as though the urban recovery remains exactly where it is today. That is no improvement from where we're at. We hope this is a conservative estimate. But, you know, if you look back over the past two years, we think that we've just been wrong on so many of these calls.
spk12: Okay. Thank you. Thank you.
spk04: We go next now to John Ivanco at J.P. Morgan.
spk09: Hi, thank you. Looking at the 35 units that are expected to open this year, obviously hearing what you've talked about in terms of the suburban-urban next round, around 50-50, 85% of future stores being suburban. But it is, I think, a point worth mentioning. 50% of your stores really have not recover to the extent where you've expected from an average unit volume perspective, at least, and perhaps a margin perspective as well. How does that influence your thinking on 23 and 24 development? Is there enough, I guess, change relative to expectations that it might make sense to do fewer stores of higher quality, of a higher average volume, just to make sure that we have this model you know, completely right going forward or, you know, are you just kind of viewing this as a, you know, summer slowdown that's going to rectify itself and we should, you know, rely on the previous, you know, unit growth projections that I think most of us previously had?
spk05: Hey, John. Thanks for the question. So, you know, I want to talk a little bit about the class of stores where we've seen some performance off expectations really a number of stores that were approved either right before the onset of the pandemic or right right at the beginning of the pandemic where our models hadn't adjusted to what the new world would look like so you kind of consider a little air pocket there where you know we expected the world as it was pre-coveted those have all been adjusted for for a while now so the stores we're now seeing that we're opening in 22 23 and beyond we're not only seeing a lot more success because they're suburban, but also because our models on what the world would look like are adjusted to the reality that we're in today. It gives us a lot more confidence in what we're doing, and we're seeing, you know, the class of 22 stores has been really fantastic. I mean, just today we opened a new market in Detroit, Birmingham, Michigan, sitting here right now just through lunch, and the store is at over $13,000 for lunch. So, you know, last week we opened in Shrewsbury in New Jersey, and again, another suburban location. and did about $15,000 in day one. So the model's working. We're very confident in the model long-term, and we're committed to our long-term pipeline of growth. Having said that, we're taking a more disciplined approach in approving sites, and I'd say focused on more quality than quantity. But with that, we do believe we can still achieve our targets that we've set out both in the next three to five years and definitely by the end of the decade to achieve 1,000.
spk02: John, let me kind of make a slight build on John's comments. We disclosed that our target ROIC for new stores year two is 42% to 50%. What we find in the urban stores is when we adjusted our models to kind of a pandemic-based model as opposed to pre-pandemic, that many of those urban stores' volumes declined, as you correctly point out. What we're finding in the marketplace is their rents have not declined proportionately. So those urban stores actually failed to meet the threshold, and the suburban stores are doing much better. So I think that we will achieve kind of the target units, but I think that what you'll see is the suburban stores get larger as their returns stay higher vis-a-vis the urban stores until the occupancy or the AUV adjusts in the urban markets.
spk12: Thank you. Thank you. We go next now to Sharon Graffia at William Blair.
spk01: Hi, good afternoon. I guess a question on the workplace reduction and the office move. Can you dimensionalize the annualized savings from those two moves? And I think it was mentioned in the release, obviously, to accelerate the path to EBITDA positivity. What is your timeline at this point where you would project positive EBITDA based on the current sales run rate?
spk02: So Sharon, let me first say that we've not really given a timeline on the positive adjusted EBITDA, but if I was to flow it through right now, I would probably tell you that should happen early in 2024. 2023, we would anticipate to be very close to a breakeven year. In terms of the reduction in force in the company, You know, we've been working on driving down our G&A, as we kind of discussed earlier, where we see the levels coming in 2023. In the actual course reduction, it was approximately 20 people in the support center. And as John mentioned, they moved to a smaller facility. That change would probably generate approximately $4 million a year in annual savings in G&A.
spk12: Thank you. Yeah. Thank you. We go next now to Jared Garber at Goldman Sachs.
spk08: Great. Thanks for the question. On restaurant-level margins, Mitch, you talked about inflation still being a pressure point through the model, not surprising with what else we've heard through earnings season from some of your peers. Can you talk about your outlook on pricing and if there's any expectation to flow some incremental pricing through the model in the back half of the year?
spk12: Thanks, Jared.
spk02: We are taking on, let me first say, our last earnings call, we stated that if our cost of goods and labor as a percent of revenue stayed in line with 2021, that we didn't anticipate any major price moves later in the year. As we've said, we expect these ratios to actually come in slightly favorable. So in a sense, we're not taking a major price move. We have seen our chicken go up recently. And we are adjusting our premium chicken add-on to $3.25 this Thursday. It used to be $3. I should point out that the chicken add-on was $3.25 in 2020. And then in 2021, we lowered it to $3. And now we're bringing it back to $3.25 this week. That's the only price move we anticipate making for the rest of the year.
spk05: Yeah, just to build, we're not taking any price on our core menu. And one of the things that we think gives us some advantages here is the more plant-based leaning menu. So we do have exposure to chicken and certain commodity inflation parts of the basket that are growing. But given that most of our spend is on produce, it insulates us from some of those inflationary pressures.
spk08: Thanks, and if I can just follow up on one. On the unit growth, I know you reaffirmed that, which was encouraging to see that 35, at least 35 units on the year. Can you just talk about what gives you confidence that you can achieve that number? Some of your peers have pushed out unit growth expectations into 23 regarding some supply chain issues, so just any color there would be great. Thanks.
spk05: Yeah, I just want to give a shout out to our team. We really worked tirelessly to make this happen. foresaw some of the supply chain challenges around equipment, and we're able to do some mass buying last year to get ahead of a lot of this. And the confidence really comes from the fact that leases are signed and the deals are in construction. So, you know, we have very, very high confidence in the at least 35 this year, and we have a very healthy and robust pipeline next year with, you know, just some great sites, great deals, and many leases already signed. So, So the development is very much on track. And as I mentioned on the prepared remarks, the core model is being we're continuing to develop the core model while we optimize it with some of the improvements around the kitchen, which we think will help us from a productivity and store level margin perspective. But we're also excited to learn from some of these new tests that these new formats that we're launching. So in the coming months, we're going to be launching our pickup kitchen in Washington, D.C., a digital only store. And at the end of this year, our first drive-through or pull-through location outside of Chicago. So really positive developments on the new unit front and feel really confident about the pipeline looking forward.
spk12: Great. Thanks. And next, we go to Katherine Griffin at Bank of America.
spk06: Hi, thanks for taking my question. I wanted to ask another question just about the plan in terms of workforce reduction and generally reducing GNA. Just if the return to office is perhaps more delayed than even we're expecting now, what other levers do you have to pull? I'm assuming potentially further headcount reduction or just any other elements of GNA that we can Just try to put a finer point on as we think about kind of places where you can lean out as you try to get to some EBITDA profitability. Thank you.
spk05: Yeah, thanks for the question. So I want to start by saying Sweetgreen is a growth company, and we're really building this for the long term. At the same time, we want to take a really disciplined approach around our investments. and our gna and so when you look at our gna you know we're going to we're going to be running 23 similar to similar to 22 level levels and if you look back in our history and you and you take out the the investment in spice and some of the public company costs we're not very far off from 2019 level spend with over two times the number of stores so a lot of confidence in our ability to leverage the investments we've made and we're fiercely committed to continuing that operational discipline We're very much focused on our growth right now. We have a number of growth levers both on the comp base as well as continuing to open new stores and new markets. So on the comp base, we have a number of exciting things, whether it be new menu rollouts, including dessert, wider drink selection, and a push into hearty food, some really exciting stuff around kitchen optimization that I mentioned, and a planned loyalty launch, which we think will be a huge sales driver at the beginning of 2023. Having said all that, we are fiercely committed to our profitability. We do not foresee the need to take additional cuts from a G&A perspective, but I'd say we're being very cautious in an additional headcount in any other investments just to make sure that we do turn profitable, you know, really as soon as we can. And it's just all part of being a sustainable business.
spk12: So I'll stop there. We take our next question now from Chris Carroll at RBC Capital Markets.
spk03: Hi. Thanks for taking the question. So just on the revenue guidance, can you expand a bit more on just kind of your expectations for how the remainder of the year plays out and what that implies for AUVs? You detailed the magnitude of the slowdown that you've seen, and I think the guide would suggest some improvement through the 4Q. So really just trying to understand the improvement implied by the updated revenue guidance versus the typical seasonality that you did note earlier.
spk12: Thanks, Chris, for the question.
spk02: Let me spend a minute on it because I think it's a very important topic. The guidance that we gave really took us a lot of thought. And part of the reason for that was we've had a very good five months this year. And then the business, as I said, slowed down around Memorial Day. We believe that these factors, as we went through, were urban, COVID, uneven office recovery, and a high degree of travel. When we thought about that, the logical conclusion was many of these things reversed themselves as we get past the summer months. So the question that we faced was, Does the company anticipate these things reversing and the sales trends improving and going back to their pre-Memorial Day levels? Or do you lock the guidance in around what you see in July? And quite frankly, that was a very difficult conversation. I want to say that one of the characteristics of Sweetgreen is we believe in radical transparency in our relationships. We've maintained that with our customers, with sourcing boards in our restaurants, with our farmers, with our team members. And frankly, John and I have always tried to do that with the investment community. So when we looked at it, we decided that the low end of the guidance should reflect exactly where the business is today in July. So what we found is that the low end of 480 reflects the same store sales growth in the back half of the year, running 5%. And the new stores from the class of 2021 remaining exactly flat in their revenue with where they are in July. I understand that that could be viewed as very conservatively because certainly we have some college stores, and one viewpoint is the college stores, for example, UCLA, should pick up when school comes back. The other view would be the three stores in New York, World Trade Center, Spring and Hudson, and 52nd and Lex, all in that class of 2021, should improve post-Labor Day. However, I think we would tell you in Alkander we felt that way a year ago. And the world felt that way two years ago. So the low end of the guidance of 480 is the world in July, 5% same store sales and no change in the class of 2021 average weekly revenue. The high end of 500 million reflects a second half same store sales growth rate of 15%. And again, we just held the new stores flat. Our hope in Alkander is that the low end is certainly a conservative projection, but I think, like many people, we're a little bit scarred by chasing a view of an ever-improving external environment, only to find new things coming our way.
spk12: Got it. Thanks for all the detail, Mitch. And ladies and gentlemen, just a reminder, star one, please, for questions.
spk04: We'll go next now to Andrew Charles O'Cowan. Great. Mitch, my question is a follow-up to the previous question. Just, you know, obviously you called out that the rate of deterioration you saw in the business in June and July is the most pronounced you've seen in Sweet Creed's history. And so, you know, appreciate how thoughtful you guys are around guidance. But, you know, why target the low end? It's just this trend continuing rather than thinking that, heaven forbid, it gets worse or just, you know, perhaps at the middle point of the range being that, you know, this underlying trend would continue.
spk12: Yeah. Thanks, Andrew.
spk02: I'm smiling thinking great question because we've asked ourselves that question for about a month. So let me just give you a little bit of the detail and say, while the low end of the guidance is a 5% same store sales growth, while it's a brief period through August, the same store sales growth is actually 7%. So beginning to show some upward trajectory. I think in a normal period, we probably would have done exactly what you said. and gone to some middle type of range. I think the reason we didn't, as I said, is that we felt that we were always scarred, that thinking that in, you know, after a holiday or Memorial Day or Labor Day, things would always improve. And what we have found is the nature of that recovery has just been so erratic that it was very difficult to kind of call it in terms of when it would happen, where it would happen, and quite frankly, how large it would be.
spk05: Andrew, let me just give a little bit more color on this. So as we shared in our remarks, we do believe the slowdown in sales is largely attributable to our footprint and our customer being missing for a lot of the summer. So call it a summer lull in a lot of ways with people traveling, a rise in COVID, and a delay in return to office, which we all look at the data. So we do believe September post-Labor Day is going to be much better. And some of our internal data around outpost launch, planned launches, already proves that. Everything we see, and I'm sure you all see, is that more people are expecting both companies that are already back in the office and going back to their normal routines, but also new companies establishing back-to-office routines. So generally optimistic about what September or beyond looks like. But as we all know, we're in kind of choppy waters from a macroeconomic perspective and just trying to be conservative in terms of Definitely see some tailwinds, but don't know what the headwinds have to offer. And so, you know, we're just trying to be conservative in the guide. Having said all that, just extreme confidence in the model long term and, you know, our goal of a thousand by the end of the decade and really just creating a brand that makes an impact on our consumers. So we see a lot of this as a little bump in the macro environment. But I believe we're really well situated to grow through this.
spk04: That's helpful. I appreciate that transparency. My other question is just going to be, if I look at the AUV growth, it was about 18% in 2Q. That exceeded 16% same-store sales growth. Can you flesh out a bit more what's driving that? My guess would be a function of robust new store openings that are predominantly skewed in the stronger suburban markets. But any help kind of fleshing that out would be helpful.
spk02: So that's exactly it. It's just the difference in the AUV base of stores that go into it. So we picked up some stores as we do every quarter.
spk12: Very good. Thanks, guys.
spk04: And ladies and gentlemen, it appears we have no further questions this afternoon. Mr. Nguyen, I'd like to turn things back to you for any closing comments.
spk05: Just want to thank everyone, and we'll see you next quarter.
spk04: Thank you very much. Ladies and gentlemen, that will conclude today's Sweet Green Second Quarter Earnings Conference call. I would like to thank you all so much for joining us. I wish you all a great evening. Goodbye.
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