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spk09: Ladies and gentlemen, thank you for standing by and welcome to the Sweetgreen Inc. Q4 2022 earnings call. I would now like to turn the call over to Rebecca Nunez, Head of Investor Relations.
spk03: Please go ahead.
spk01: Thank you and good afternoon, everyone. Here with me today are Jonathan Niemann, Co-Founder and CEO, and Mitch Reback, 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, which 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.
spk13: 2022 was our first full year as a public company, and I feel immense gratitude to all of our team members who made an impact on the over 25 million customers we serve. Sweetgreen was founded on a mission to connect people to real food, and this year we opened 39 restaurants and brought the Sweetgreen experience to customers in five new markets. Since we went public a little more than a year ago, the macroeconomic condition we operate in has gotten more complicated and unpredictable. And while the operating environment was certainly challenging, we know that our execution was not up to our standard. For 2022, we reported sales of $470.1 million, representing 38% year-over-year growth and same-source sales growth of 13%. Total digital sales represented 62% of our total fiscal year revenue, with approximately two-thirds of those sales coming via our own digital channels. Sales for the quarter were $118.6 million, up from $96.4 million in the fourth quarter of 2021, growing 23% year over year. AUVs were $2.9 million, and restaurant-level margins for the year were 15%, up 300 basis points versus last year. Our adjusted EBITDA loss was $49.9 million for the fiscal year, down from a 2021 loss of $63.1 million. As we look out, we are incredibly focused on capital efficient growth and achieving profitability in 2024. This is achieved by growing sales, expanding restaurant level margins, and reducing our support center expenses. Together with our leadership team, we have scrutinized every facet of our business to determine how to accelerate our path to profitability while setting up the company for many years of sustainable growth. We are taking deliberate actions to manage expenses and protect our strong balance sheet to fund our mission. To that end, we've made the following changes. We flattened our restaurant management organization to be more effective, nimble, and cost-efficient. Under our new SDP of operations, we have a regional general manager for each of our regions. This has allowed us to remove a middle management layer. Our RGMs have greater ownership and authority to make decisions in the best interest of the customer and the business. As part of this restructured organization, we've aligned financial incentives against their performance. Additionally, we've increased the spans of our area leaders. These changes have reduced support center costs, allowing us to move faster, ensuring we are efficiently allocating our human and financial capital. We believe this change will lead to better business results and be a win for the customer, a win for the company, and a win for you, our shareholders. Second, we cut our support center costs from $108 million in 2022 to $98 million for 2023, which will come from reducing our velocity of hiring and capitalizing on attrition, as well as reducing non-compensation expenses. To put this into context, 2023 support center spend as a percentage of net revenue is half of what it was in 2019 and will support almost double the store count. We will continue to look for organizational synergies and expect to see considerable leverage of our G&A over the next few years. Third is a reprioritization of only the highest ROI initiatives with a focus on driving same-store sales and expanding margins. And lastly, we've introduced our Intimacy at Scale playbook to ensure we execute our restaurant openings flawlessly. We are committed to running Sweetgreen more efficiently while delivering on our customer promise and mission. On today's call, I will highlight our strategic pillars that will drive our capital-efficient growth. One, expand and evolve our footprint in new and existing markets to connect more communities to real food. Two, build our brand and digital experience as the industry leader, allowing us to add new customer channels, drive frequency, and increase restaurant volume. Three, commit to craveability and inspire consumers to live healthier lives through reimagining fast food. And four, run great restaurants with a people-first culture focused on developing talent for our future growth. In Q4, we had 10 net new restaurant openings and opened our fifth new market for the year, CAMPA. Despite an industry-facing permitting and construction headwinds, we opened 39 restaurants in 2022, two of which were new formats for us, our first pull-through in Schaumburg, Illinois, and our first digital pickup kitchen in D.C. We ended the 2022 fiscal year with 186 restaurants in 16 states and Washington, D.C. The reintroduction of our Intimacy at Scale playbook is starting to pay dividends, as our new restaurants across the country are opening strong. In December, we opened our first Tampa store, which achieved over $65,000 in sales during its first week. In January, we opened in Ann Arbor, Michigan, and it was one of the top three openings in Sweet Queen's history, generating $113,000 in its first week. We remain incredibly excited by the continued customer reception to the brand in both Tampa and in the upper Midwest region of the country. While an early read, the class of 2023 is opening stronger than expected. Our initial reads from our first pull through in Schaumburg, Illinois are equally as exciting. 75% of pickup customers at Schaumburg use the pickup lane and spend 20% more than the Chicago market pickup average. We anticipate the restaurant will achieve a year-one AUV over $3 million. Mount Vernon, our digital pickup kitchen in D.C., is also exceeding our expectations. Mount Vernon was a relocation of our City Vista restaurant a few blocks away. Its revenue run rate is trending 30% higher than City Vista. We've seen no negative response to the removal of the front line and found that the frequency of customers has increased as we've moved them to digital only. In addition to the advantages of less labor due to a single make line, the smaller square footage format will allow us to expand our mission with lower build-out expense. Given the success of both SuiteLane and the digital pickup kitchen, we are looking to open more in 2024 and beyond. The pickup kitchen has also served as a learning ground for our future restaurants powered by the automated production line we call the Infinite Kitchen. Later this year, we will be testing two restaurants that will feature our Infinite Kitchen. One will be a new build, and one will be a retrofit of an existing location. From these pilots, we hope to learn how we can create a more consistent customer experience, faster throughput, make our team members' jobs easier, and deliver better unit economics. We look forward to sharing more of our learnings with you in future calls. Our brand is designed to inspire consumers to live healthier lives without compromising their values and believe that our high-quality product offers excellent price value. We launched the new year with our Green January campaign featuring Melissa Wood Health, a health, wellness, and lifestyle platform to make it easier for customers to feel good about their new year routines. We were delighted with the response, especially with the accompanying digital challenge, which encouraged customers to visit Sweetgreen three times during the 16-day campaign period. We saw the highest challenge opt-in engagement to date and exceeded our target for total challenge completion. With two-thirds of our digital revenue coming from users engaging with our own digital channels, our app and website, I want to share two important enhancements we've made to our digital experience that we believe will help to deepen brand affinity and customer engagement. First, we recently launched a redesigned Sweetgreen app for both iOS and Android and updated our website to improve the digital purchase journey with easier location search, smoother customization, and streamlined ordering flow. allowing our guests to place an order faster. While it's only been a few weeks since the launch, we've seen improved order conversion. And an additional win has been the under-the-hood simplification and system enhancement that will allow us to make updates and add new features easier across all three platforms, iOS, Android, and web. The second important enhancement we are making to our digital experience is our loyalty program, SweetPass. SweetPass will have both a free and subscription component to it. This week, We started a phase rollout of SweetPass with customers in Colorado. In April, we will launch our SweetPass program nationwide, making eating sweet green every day more effortless and rewarding. We continue to focus on the growth and profitability of our B2B channels, Outpost and Catering. Outpost has continued to see steady growth as the team focuses on new launches and optimizing existing accounts to grow average order volumes. Additionally, catering organically doubled in size during Q4, without the support of marketing activity to drive awareness. We foresee real growth opportunities within the channel and are excited to begin marketing catering in 2023. In the long term, we believe these will be meaningful revenue streams. Through our seasonal offerings, digital exclusives, chef collaborations, and core menu, we continue to reinforce our commitment to our customer value proposition of making healthy food delicious, craveable, and convenient. In January, we launched our winter seasonal menu. It features the miso bowl with roasted root vegetables, as well as our barbecue chicken and squash plate. To make our first ever barbecue sauce, we teamed up with two-time world barbecue champion Charlie McKenna. In true sweet green style, our barbecue sauce contains no refined sugar or preservatives. This seasonal offering features double protein, warm rice, and seasonal barbecue squash and caramelized onions. a warm and hearty option with flavors that work for both lunch and dinner equally well. In February, we brought back our crispy chicken salad, the fan favorite that is a delicious and healthy option for those who want the same flavors and textures as a chicken sandwich. Our seasonal menus allow us to test items before going on to the core menu or showcase local seasonal ingredients, helping us acquire new customers and drive more frequency with existing ones. At the end of March, we will be featuring our Chipotle Chicken Burrito Bowl. This craveable, approachable, and hearty bowl is our take on the beloved burrito bowl, made the sweet green way, and we think customers are going to love it. We will also bring back a fan favorite, hummus, in our Hummus Crunch Bowl, and for the first time as a side of hummus and focaccia. Our crispy rice treat, a sweet green remake on the beloved classic treat, continues to outperform our expectations. We created this sweet treat with our chef in residence, Malcolm Livingston II, renowned pastry chef who has worked at restaurants such as Per Se and Noma. We are looking forward to expanding our attachments throughout this year by adding additional sweet treat offerings, expanding kids' meals, and adding beverages. This spring, we will also be piloting chocolate and healthy soda options. As I mentioned at the beginning of the call, we flattened our field leadership model to create more empowerment at the restaurant level. get our teams closer to our customers, and reduce support center expenses related to field oversight. We believe this change will result in better-run restaurants and improved unit economics. Other initiatives that we shared on our Q3 call, like optimizing our labor, embedding our new applicant tracking system, and investments in our head coaches and hospitality training, are intended to provide more stability in our restaurant teams and better operational execution. Early signs of improvement are starting to show. At the end of December, we had our lowest team member turnover rate in the past couple of years. Our head coach tenure has meaningfully improved in the last 12 months, up from an average of 28 months to 37 months. Call-outs today are nearly a quarter less than they were this summer. We remain fully staffed, and we are seeing hourly wage pressures easing. By the end of the year, we will launch tipping across the fleet. which we believe will improve team member turnover and in turn create a better overall customer experience. With more stability in the team, we've recently seen improvement in store execution and our ability to serve more customers. Throttle capacities across the fleet have increased, with our top 10 volume stores now operating at throttles 20% more than they did in December. We've seen improvements not only in labor productivity, but also in our customer satisfaction metrics, including our net promoter score. We know we have more to do and believe this work will have meaningful improvements on unit economics in the latter half of the fiscal year. In light of the macro uncertainty we face in the near term, we've adjusted our strategy with a focus on more disciplined, capital-efficient growth. The changes I ran through today, both operationally and strategically, are reflective of our commitment to all of our stakeholders to deliver profitability in 2024. I want to extend my gratitude to our team members, as well as our network of more than 200 sustainable farmers and suppliers who partner with us every day to power our mission. I remain confident in our ability to grow our brand, deliver great customer experiences, and create long-term value for our shareholders. I believe the steps we are taking will ensure our ability to sustainably further our mission of connecting people to real food. And now I'll turn it over to Mitch to walk through the quarter's financials.
spk02: Thank you, Jonathan, and good afternoon, everyone. Total revenue for the fourth quarter was $118.6 million, up from $96.4 million in the fourth quarter of 2021, growing 23% year over year. Same-store sales grew 4%, reflecting a 6% price increase taken in January 2022 and a negative 2% transaction mix. Additionally, we took approximately three points in price in mid-January 2023. Our average unit volume was 2.9 million, up from 2.6 million in Q4 2021, nearing our pre-COVID AUVs. Digital revenue in Q4 was 61% of total revenue, and our own digital revenue, that is a transaction made on the Sweetgreen app or website, was 40% of revenue. Q4 total digital dollars grew 17% year over year. We opened 10 net new restaurants in this quarter, ending the year with 186. In 2022, we opened 36 net new restaurants. Restaurant level margins in the fourth quarter were 11%, down two percentage points from 13% in the fourth quarter of 2021. Margins were impacted by an elevated cost of goods caused by severe weather. For a reconciliation of restaurant level margins to comparable gap figures, Please refer to the earnings release. Food, beverage, and packaging costs were 29% of revenue for the quarter, which was 170 basis points higher than 2021. As we mentioned on our third quarter call, we saw cost pressures build in Q4 2022, primarily related to weather disruptions, which impacted tomatoes and romaine pricing. Tomato prices were up 25%, and romaine was up 70% year over year. This was a one-off impact, and by late January, we saw prices return to normal levels. Starting in January, we experienced a packaging disruption, which has resulted in elevated packaging costs. The bulk of the cost impact will land in Q1 2023. At this time, we believe that as a percent of sales, our food, beverage, and packaging costs for fiscal year 2023 will be 28% in line with 2022. Labor and related costs were 32% of revenue for the fourth quarter, consistent with the comparable period in 2021. Our restaurants are fully staffed and we are pleased with the quality of talent we are able to attract. For 2023, we believe labor and related costs as a percentage of revenue will come slightly below 31% for the full year. Occupancy and related expenses were 10% of revenue. an improvement of 100 basis points from the fourth quarter of 2021. This improvement is primarily due to the impact of menu price increase and greater sales leverage. Please refer to our 10-K for the updated definition of occupancy and related expenses as we've reclassified occupancy-related expenses for 2022 and prior years. Our G&A expense for the quarter was 43.5 million, compared to 46.6 million in Q4 2021. The 3.1 million decrease in G&A is primarily attributable to a $7 million decrease in stock-based compensation expense, partially offset by the timing of marketing expenses for 1.9 million and office system expenses for 1 million. Our net loss for the quarter was 49.3 million, compared to 66.2 million in the comparable period of 2021. This change is primarily attributable to a $15.4 million decrease in other expenses and a $7 million decrease in stock-based compensation expense, both of which are non-cash items. These were partially offset by increases in depreciation and amortization associated with additional restaurants and increase in support center costs previously discussed. Adjusted EBITDA for the quarter was a loss of $17.9 million compared to the year-over-year quarterly loss of $14.2 million. This is the result of the timing of marketing and office system expenses previously discussed. We ended the fourth quarter with a cash balance of $331.6 million. We have a strong capital position that allows us to continue to expand our mission and provides us with flexibility during these uncertain times. I want to make a few comments to set the stage for our 2023 outlook. Historically, our fourth quarter experiences low volume versus Q3 and Q2, which carries into the first few weeks of January. This fourth quarter was softer than usual as we saw extended holidays taken around Thanksgiving and Christmas, resulting in us having several lower volume weeks. Starting mid-January, traffic began to pick up. Our class of 2021 restaurants underwritten pre-pandemic and largely in urban areas is on track to hit their year two AUV targets of $2.8 to $3 million as they approach their second year anniversary. The 2022 class, which was underwritten during the pandemic, has a small cluster of restaurants in the southeast that are ramping slower than expected. We continue to invest in these stores with our intimacy at scale playbook and have long-term confidence in these stores and markets. For 2023, we anticipate opening between 30 and 35 net new restaurants and plan to enter three new markets, Seattle, San Antonio, and Milwaukee. While an early read, the class of 2023 is opening in line with expectations. We continue to optimize our portfolio. We've closed three stores in the first quarter, one in Los Angeles, one in Boston, and one in New York. The Los Angeles store was impacted by the lack of urban recovery, while the stores in New York and Boston were legacy stores with small footprints that were approaching the end of their lease term. They have neighboring stores that have better customer and team member experience, and with nearly two-thirds of our revenue coming from digital channels, we are confident that we will retain the majority of our customers and improve unit economics. Now turning to our outlook. For the fiscal year 2023, we anticipate the following. 30 to 35 net new restaurant openings. Revenue ranging from $575 to $595 million. Same store sales between 2% and 6%. Restaurant level margins of 15% to 17%. And an adjusted EBITDA loss between $20 million to $10 million. For the first quarter, we anticipate six to seven net new restaurant openings, revenue ranging from $124 million to $127 million, same-store sales between 3% and 6%, restaurant-level margins of 11% to 12%, and an adjusted EBITDA loss between $15 million to $13 million. We are focused on margin expansion and taking a very disciplined approach to expenses as we drive the company towards profitability in 2024. We believe we have the right long-term strategy to scale our mission of connecting people to real food and create an enduring brand. With that, I'll turn the call back to the operator to start Q&A.
spk09: The floor is now open for your questions. To ask a question at this time, please press star one on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star one again. You will be provided the opportunity to ask one question.
spk03: We will take a moment to render our roster. Our first question
spk09: comes from the line of Brian Bittner from Oppenheimer. Please proceed.
spk07: Thank you. Appreciate the question. As it relates to the unit opening guidance in 2023 of 30 to 35 units, that's below the implied guidance for 23 when you spoke to us when you gave us the third quarter update. So can you talk about the drivers of the lower unit openings Is this a temporary shift or is this a more structural shift to grow slower and just focus more on operational execution at the store level? Thanks.
spk13: Sure. Hi, Brian. What I'd say is it's really a focus on disciplined capital efficient growth and ensuring much greater consistency in our execution. We've taken a lot of time to incorporate a lot of the lessons learned. from our openings and want to take a more careful approach, especially in this environment. There's been a lot of external factors that have changed, changing traffic patterns and a constant state of flux that we'd like to see settled. And we want to make sure that we're running our playbook appropriately, choosing the best real estate, having the right leaders in place, and really developing our brand in a thoughtful way. Beyond that, we see a huge opportunity around the Infinite Kitchen, which, as we mentioned, is going to be piloted a bit later this year and Hopefully, based off the success of that technology, we're going to be able to integrate that into more new openings. So we do believe this is probably more of a temporary slowdown, and we do not think this impacts our long-term camera opportunity. But in this environment, we really want to focus on disciplined, capital-efficient growth.
spk03: Thank you.
spk09: Our next question comes from the line of Chris Carroll from RBC Capital Markets.
spk11: Please proceed. Hi. Good afternoon. So how are you thinking about the balance of openings in existing markets versus new markets here going forward? I mean, you spoke in your prepared remarks of strong openings in markets such as Tampa, but you also mentioned, again, the stores in the southeast that are slower to ramp. So just curious. How are you thinking about existing versus new in 23 and then beyond? Thanks.
spk13: Yeah, of course. So what I would say is overall taking a bit more of a conservative approach. We do expect to open a few new markets each year, probably somewhere in that two to four range. As we mentioned, this year we have plans for three new markets. I think what you'll see that's different than what we did in 2022 is is going into new markets with two or three really high profile brand building stores before further densifying. And if you look at some of the performance in the Southeast and some of the other markets and every market that we've gone to, the early locations are very successful. Oftentimes what's happened is we've accelerated our growth and densifying probably a little bit faster than we should have. And so the switch in strategy is to continue to build our brand, choose the best real estate, making sure we're executing, you know, entering the market with a few stores, building, you know, building the demand, getting the name out there, building our leaders, and then continuing to densify. So you'll continue to see a balanced mix between, you know, adjacent and existing markets, as well as kind of planting flags in some new markets. You know, as an example on the adjacent, we've got a lot of success, you know, as we've worked our way up and down California. So you'll see this year a lot more stores in Orange County, similarly working out of the success in the Northeast. You'll see more locations in Long Island, Connecticut, New Jersey, kind of working our way around Boston. So all to say, very focused on just a much higher hit rate and much more disciplined capital efficient growth.
spk03: Great. Thank you. Our next question comes from the line of Matt Curtis from William Blair.
spk09: Please proceed.
spk14: Hi, thanks. Good afternoon. I was wondering if you could tell us what the gap was in the fourth quarter between urban and suburban comps. And then maybe if you could give your thoughts on further rationalizing the New York City footprint, just given that the return to office and office occupancy in general still seems to be lackluster.
spk03: Hi, Matt.
spk02: Thank you for the question. What we really are finding in terms of the urban and the suburban is that the urban stores are showing growth, and we're fortunate that most of that growth is actually coming from the central business districts. So particularly post-Mid-January, the suburban stores are flat, holding their own, and we're pretty happy with that because at a high level, the suburban stores are flat compared to the urban stores. So if we can hold the suburban and continue to see faster growth in urban and return to office, it will strengthen the overall portfolio. Your second part of the question was the rationalization in New York. I would simply say that we closed one store in the first quarter, a store in Tribeca, which basically had six more months on their lease. So it was a six-month early close. But in events where we have newer stores that have capacity and older stores that are going lease term, we will see us going forward to capitalize the portfolio in order to drive a superior customer experience, team member experience, and improve unit economics.
spk03: Okay, great. Thank you. Our next question comes from the line of John Tower from Citi. Please proceed. Mr. John tower. Your line is open, sir.
spk05: Sorry. This is a, thanks for taking the question. This is actually Karen Holt house on for, uh, John, I think starting last fall, you had talked about potentially renegotiating some, um, some of your New York city leases and trying to kind of read based where you might've been as a percentage as a percent of sales pre COVID. Could you, uh, maybe just give it an update on kind of how the conversations are going, potential timing, of that actually happening, just any updates there.
spk02: Thank you for the question, Karen. All I can say about that is we are having discussions right now with several of our deep urban landlords, and those discussions are ongoing and probably at this point can't comment beyond that.
spk03: Great. Thank you.
spk09: Our next question comes from the line of Catherine Griffin from Bank of America. Please proceed.
spk04: Hi, thank you. I wanted to ask about other restaurant operating costs and how we should think about that line item as a percent of sales for fiscal 2023.
spk03: Thank you, Catherine.
spk02: We're spending a lot of time on the middle of our P&L. We see opportunities to gain leverage in that line, not just in 2023, but in 24 and 25. and we're spending a lot of attention and focus on driving those lines down.
spk03: Thank you.
spk09: Our next question comes from the line of Andrew Charles from Cowan. Please proceed.
spk10: Great, thanks. John, can we dig more into the sales softness? I'm curious if this continues to be more operational or perhaps you've seen lapsing customers within digital data. I'm just hoping you can help contextualize how the business is evolving, just given the efforts you guys are putting in place to help rectify traffic.
spk13: Hey, Andrew. Good to hear from you. We've actually been pretty impressed with a lot of the operational changes, especially starting this year. I mentioned a few things. a few of the improvements we've already seen. The throttles we're seeing in our top 20 stores are up significantly. You mentioned in an earlier call, there's a huge focus on staffing and throughput, and we're seeing a lot of the fruits of that labor. I think a lot of the softness that you've seen is much more seasonal, and Sweetgreen is heading into our season. We typically see a pretty large lift from where we are sitting today into the spring season, both in customer acquisition and frequency. So overall, pretty encouraged about the operational changes we've made. Seen turnover come down. Our head coach stability has continued to grow. You've seen us go to 37 months in terms of head coach stability, making good efforts and headway on our full-time, part-time mix. And as I mentioned in my prepared remarks, our call-outs are down 25%. So that's pretty encouraging. pretty significant for us all meaning that I think we're operating at a much higher level and just a huge shout out to all of our head coaches and store leaders for what they do every day. We know we're excited to be out of the pandemic and delivering in store great in store customer experiences as well as online. The last thing I'll say is the company's been really focused on on hospitality and what we call the sweet touch we've spent you know the past few months uh around the country hosting what we call sweet touch summits really you know as the masks have come off how do we really bring back the magic to the you know to the in-store experiences you know the in-store is one of our best customer acquisition channels so huge focus there and hopefully you can feel the difference in our restaurants as you come in a big warm smile sweet touch and really delivering on our on our customer promises of fast fresh and friendly
spk09: Our final question comes from the line of Brian Harbor from Morgan Stanley. Please proceed.
spk12: Yeah, thank you.
spk00: I had just a supply chain question. I mean, you mentioned kind of the packaging issue. Is that indicative of any broader supply chain issues? And also just kind of we've seen what's happened with some of the spot prices for lettuce and tomatoes, and obviously that's a major input for you, but do you have any kind of way to reduce that price volatility over time?
spk13: So I'll talk about the packaging quickly. So we've definitely had a packaging issue that Mitch mentioned on the call. Our supplier for packaging had manufacturing issues, and they were not able to bring the bowls that we expect. We were able to find stubs in all our markets. And what I could say is in 85% of our restaurants, we're back to our spec packaging. So I appreciate the flexibility of our teams and our customers bearing with us through this challenging time because we understand that we love our iconic Hex Bowl package and we know that we all missed it. So it was out for about two weeks and we're back. I do not think that is very much related. We don't have any other items that have that level of dependency. And I think if we learn anything, through this process is about how to build more supply chain resiliency on items that we need for everything like a package. All to say, I think this made us a lot stronger.
spk02: Hey, Brian. Nice to hear from you. It's Mitch. The tomato and romaine situation in the fourth quarter, which dissipated by mid-January, was pretty severe on our cost of goods. I think what I would simply say is, as a company, we have found adjusting our quickly to changes in commodity supply as usually something where the customer has had widespread acceptance. And looking back on the fourth quarter, we probably were slow to adjust our recipes and to the changes in our supply. And going forward will be a lot quicker when we see things like the romaine and tomato crisis.
spk03: We do have another question.
spk09: from the line of John Ivanko from JP Morgan. Please proceed.
spk08: Thanks for getting me in, guys. Okay, so we said a few times on the call discipline capital efficient growth, probably three or four. Obviously, you reduced fiscal 23 development by whatever, 15 or so, 10 or 15 or so units. What does that mean in terms of 24? I asked the question of a lot of these units, you probably had signed leases, maybe even begun construction. Would that number have been lower if you could have had a completely clean slate on 23 and didn't have any projects already ongoing? I am obviously curious in terms of how we should be thinking about 24 development as well. Hey, John, good to hear from you.
spk13: The answer, you're right that we're ahead. We were 12 to 18 months ahead on our pipeline. But no, this was the ideal number for us. It was a similar pace as last year. We think the right number of new markets, the right real estate, and I think the right leadership in place to run these stores. So it's less of a top-down approach, more of a bottoms-up approach. And the philosophy here is just quality over quantity. So we think it's the appropriate number. We feel really good. about the hit rate and we're seeing a much better hit rate already this year and even in the latter part of last year. In terms of next year, we're not commenting on pace yet, but we do expect as we continue to have some momentum here and get profitable to continue to accelerate our store openings. So we think the TAM is secure and as we execute and continue to open up more new markets, we do think that we will step up our unit growth. The last thing I'll say is as the Infinite Kitchen comes online, that will also allow us to accelerate growth.
spk03: Thank you. Okay.
spk09: It does appear we do have another question from the line of John Tower from Citigroup. Please proceed.
spk12: Hey, guys. Thanks for taking the real John Tower. I just wanted to drill a little bit into the same-store sales to get a little bit more granularity on what's drilling. In comp, and I know urban, suburban, but maybe drilling down. Hey, John.
spk13: I don't know if that's your line, but we're getting a lot of feedback here, and we're on mute, so we can't hear anything you're saying.
spk12: Let's try this. Can you hear me better now? Maybe? Yes, we can hear you better now. Great. Awesome. Sorry about that. I was just going to link into the weakness and comps that you've been seeing relative to, say, expectations, and perhaps offering a little bit more granularity around if you're still seeing that the shift in weekday spend more concentrated to seeing, say, prior to the pandemic, where you'd seen a lot more of the business at the start of the week and then tail off as the week went along, and then perhaps a little bit more texture as to when you start lapping a lot of those headwinds in 2023? Hey, John.
spk03: Nice to hear from you.
spk02: Let me just say what we're seeing as we kind of come to this phase post-pandemic is there clearly is a shift in the workday. Mondays are light and Fridays are very, very light. Tuesday, Wednesday, and Thursday are beginning to look more like pre-pandemic days. The other big change that we're seeing are holidays have become holiday weeks. And this has been extending on, really started around the summer but continuing on. particularly in the urban stores.
spk12: Got it. In terms of the loyalty program changes and launch, are there ways that you believe you can perhaps manipulate behavior to get people into stores Mondays, Fridays, or do you think that's kind of just lost business that likely won't recover?
spk13: Yeah, so good to hear from you. You know, first of all, we're excited about the loyalty program. As we mentioned, it began our pilot in Colorado yesterday. And given the way the model's been constructed, yes, it does give us some tools to move demand and encourage demand on different days. Mondays I feel really encouraged about. I think Friday's become a new, you know, maybe the U.S. has entered a four-day work week, which I hope is not permanent. What I would say just generally about sales drivers, very excited about what we have cooking. I think we have a very good pipeline of things that will help us drive calm. First and foremost, our menu. You know, we've really committed to a much more craveable menu and meeting customers where they are. So you'll see some of the things coming this year and I think much more, but I think menu is going to be a much bigger sales driver for us going forward as well as attachments. Attachments is something that historically Sweetgreen hasn't had much outside the bowl, and you'll see a lot more of that coming down the line. As you mentioned, SweetPass is another one. SweetPass, we don't have a loyalty program in this environment, especially hugely valuable. Our pilot last year was really successful, and I think the combination of a free loyalty program with personalized offers combined with a subscription. And I think what's amazing about the subscription is we're so uniquely positioned to make that work. We have a food that is healthy, that is naturally habitual and very high digital penetration, which gives us a lot of confidence in our SweetPass loyalty program. On top of that, we got catering and outposts rolling through with continued strength there. And lastly, a lot of the operational improvements that we laid out. So difficult macro environment for sure, but we feel really good about the things we can control, both on driving sales and in terms of the cost discipline, as we discussed. Thank you.
spk09: There are no more questions. Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.
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