Sweetgreen, Inc.

Good afternoon. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc. Q3 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. Rebecca Nunez, Head of Investor Relations, you may begin your conference.

Thank you and good afternoon, everyone. Here with me today are Jonathan Neiman, Co-Founder and Chief Executive Officer, 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. Together with my co-founders, Nicholas and Nathaniel, we opened our first Sweetgreen in a 560-square-foot old burger shack in Washington, D.C., a little over 16 years ago, with a vision to redefine fast food. We sourced fresh, local, and organic ingredients from local farmers' markets to serve the community healthy, delicious meals. We worked alongside 10 team members to prep, chop, and roast every day in the restaurant. Fast forward to today, we source from over 200 farmers we know and partners we trust. We work with over 6,000 team members across our 220 restaurants nationwide and thoughtfully prepare these ingredients and cook from scratch to deliver food that is fresh, craveable, and nutritious, with our signature sweet touch hospitality to millions of devoted customers around the country. And 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 brand and business. For the past 16 years, we have been at the forefront of our industry, pioneering a new category. Our third quarter results demonstrated our continued commitment to building what we refer to as an and company, one that balances growth and profitability. We reported third quarter revenue of $153.4 million, generating 24% year-over-year revenue growth and same-store sales growth of 4%. Restaurant-level margin in the third quarter was 19%, a 300 basis point improvement year-over-year. Strong sales growth, restaurant-level margin expansion, and discipline support center spending resulted in an adjusted EBITDA of $2.5 million for the quarter. It is also worth noting that on a year-to-date basis, our adjusted EBITDA loss is under $1 million. This represents a $31 million improvement over the same period in 2022. Said another way, over 40% of each incremental dollar of revenue in 2023 is flowing through to the bottom line. You know, sometimes the progress in a business is not always visible to the outside world. And in many ways, off the back of COVID, we had to spend more time stabilizing our company than building it. While we waited for the world to return, albeit somewhat slower than we would have liked, we spent time strengthening the foundation of our business, tackling our costs, and focusing on driving margin expansion. There is, of course, always more to do, and we think you, our partners and shareholders, will see the fruit of that work in the coming quarters. While we still find ourselves in a complex and shifting environment, what I can say for certain is that we are back on the offensive and believe the flow through at the unit level will drive significant returns on capital in the years ahead. Now, let me provide an update on our strategic priorities, starting with our footprint. In the third quarter, we opened 15 new restaurants, including our first in Milwaukee and Orange County. We ended the quarter with a total of 220 restaurants. As a result of front loading our development this year, in the fourth quarter, we will be opening one restaurant. our second Infinite Kitchen in Huntington Beach, ending the year with 38 new restaurants. We continue to be pleased with the Class of 2023 openings, performing in line with our financial expectations. Our Infinite Kitchen pilot continues to deliver many benefits to our operating model, such as increased throughput, near-perfect order accuracy, portioning consistency, a better team member experience, improved restaurant-level margins, and an accretive return on capital. The feedback we hear consistently is that we are delivering a much better customer experience. Just last week, the Infinite Kitchen was recognized by Time as one of 2023's best inventions in the food and drink category. It was selected as one of 200 groundbreaking inventions for leveraging automation technology to create a speedier, more precise way to assemble menu items while bettering the customer and employee experience. I want to express my gratitude to the entire Sweetgreen team for making the Infinite Kitchen a reality. Our confidence in the Infinite Kitchen technology as our assembly line engine of the future is very high. As such, we have moved into an initial production phase with an industry expert in equipment manufacturing. Looking ahead in 2024, we anticipate deploying approximately seven to nine Infinite Kitchens into new units and two to four retrofits. In order to align the delivery schedule of Infinite Kitchens with our real estate pipeline and to minimize future retrofits, we envision opening between 23 and 28 new stores during 2024. The Infinite Kitchens will be weighted towards the back half of the year. The retrofits will be in high-volume urban stores, where we are most interested in understanding how faster throughput will translate into higher revenue and slow-through, and thus a higher return on capital. We remain focused on expanding our footprint in a capital-efficient manner to capture the white space and expect to see our real estate pipeline resume on a higher trend line during 2025. In Q3, we elevated our focus on building our brand. We bolstered our team with two exceptional individuals to lead our multidimensional traffic driving strategy, which includes menu expansion and innovation, leveraging and strengthening our loyalty program, SweetPass. and amplifying our marketing efforts to drive brand awareness. In August, Michael Kotick joined as our head of marketing and Chad Browse joined as our head of culinary. Collectively, Michael and Chad will help lead the expansion of the Sweetgreen brand and menu to reach a wider array of customers and drive additional guest vacations. Last week, we marked a major milestone in our long-term brand and menu strategy to unlock and capture broader consumer segments with the nationwide launch of protein plates. including miso-glazed salmon, Southwest chicken fajita, and our revamped hot honey chicken plate. These protein plates feature between 30 and 50 grams of protein alongside a double portion of grains at a compelling value. With approximately 35% of customers eating sweet green for dinner, we're building out the plates category to appeal to more customers, particularly at dinnertime. While a week into the launch, customer reception has been fantastic. with notable strength in Texas and the Southeast. As part of this rollout, we were the first national fast casual restaurant chain to announce that we will be cooking all of our proteins, grains, and vegetables in extra virgin olive oil. We believe it's important our customers have confidence that all sweet green ingredients down to our cooking oil meet our high sourcing standards, and we will continue to double down on the quality of our food even as we scale. Moving forward, we will continue to focus on broadening our menu with relevant new products that reinforce the reputation and ethos of the brand in order to drive traffic. Our loyalty program, SweetPass, launched at the end of April and continues to add members. As a reminder, SweetPass is a two-tier loyalty program today with a free component and a paid component called SweetPass Plus, where for $10 a month, customers get $3 off daily as the hero benefit. Up until late September, SweetPass was only available for digital orders. Adding the ability for our SweetPass members to scan to earn and redeem awards in restaurants by scanning a QR code at the register is an exciting expansion to our base loyalty program. Through strategic enrollment programming with new, lapsed, and low-frequency customers in the second half of 2023, we increased our SweetPass Plus subscription membership by 25%. putting us on pace to achieve our internal 2023 SweetPass Plus enrollment targets. These activations are helping us build a playbook to continue the growth of this strategic pillar of the business. Turning to another strategic priority, running great restaurants. As part of creating a five-star team member experience, we are constantly improving our operations to make the work easier, simpler, and faster. This includes simplifying the execution of our menu redefining our labor deployment model, and creating proprietary tools to drive productivity and ensure quality. During the third quarter, we removed the prep of five of the most popular dressings from our restaurants to create a more consistent product. While on the surface this sounds like a small initiative, this was a years-long decision that was done with much thought and care. Without sacrificing quality, taste, and our food ethos, This move has allowed our team members to shift their focus away from prepping some of our most intensive recipes and instead focus on hospitality and throughput. We see additional opportunities to improve throughput in the coming quarters through small tweaks in deployment. We will be focusing on throughput, where we've seen tremendous growth on the front line, as well as reexamining labor deployment at peak periods. Additionally, we've been investing in hospitality training so that speed does not come at the expense of a great customer experience. Our restaurants are fully staffed, and we remain pleased with the high caliber of talent we are able to attract. As we work to improve our team member experience, we've seen turnover decline over 15 points from the start of the year, and we'll continue to find ways to improve both the customer and team member experience through initiatives both big and small. In the third quarter, we delivered our 10th consecutive quarter of over 20% sales growth and significantly expanded our restaurant-level margins year over year. Our goal from here is to continue to raise the bar. As I mentioned at the beginning of the call, I believe we have achieved great things in the face of an unprecedented environment. We have used this time to build a better business in ways that should become more obvious as we scale. We have a category defining, mission driven brand known for quality and transparency. And what gets me excited today is the massive amount of innovation you are seeing from the company. The infinite kitchens and our new menu options are just two powerful examples that, when coupled with the significant improvements we have made to our operations, have the potential to unlock significant shareholder value in the company in the years ahead. Now, we'll turn it over to Mitch to walk through the quarter's financials in further detail.