Sweetgreen, Inc.

Thank you for standing by. My name is Keena and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Incorporated first quarter 2025 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. We respectfully ask that you keep your questions to one. To withdraw your question, press star one again. Thank you. I would now like to turn the call over to Rebecca Nunu. Please go ahead.

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neiman, co-founder and chief executive officer, and Mitch Reback, chief financial officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcasted live and recorded for replay. The earnings release is available on the investor relations section of Sweetgreen's website at investor.sweetgreen.com. I'd like to remind everyone that the information under the heading forward-looking statements included in our earnings release also applies to our comments made during the call. 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. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with the corresponding GAAP measures. Our earnings release can be found on our investor website. And now, I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon, everyone. Sweetgreen is redefining fast food, proving It's possible to operate with financial discipline without compromising on the quality of our menu or the seamless experience that defines our brand. As we scale, we're building a more resilient business and leaning into what's working, a real estate playbook reflected by the strength of new markets and recent restaurant openings. Our infinite kitchens and suite-laying formats are unlocking operational efficiencies while enhancing the guest experience. We're also advancing menu innovation while refining our core. ensuring every ingredient is prepared, soft and seasoned to create meals that keep guests returning again and again. Our first quarter results reflect the progress we've made, despite the quarter being significantly impacted by several external headwinds. These include the holiday timing shift, the L.A. wildfires and their lingering impacts, as well as adverse weather impacts across several regions. For the first quarter, we reported sales of $166.3 million. and the same-source sales decline of 3.1%. These results are toward the higher end of our guidance range. By staying focused on what we can control, we delivered a restaurant-level profit margin of 17.9% and achieved slight adjusted EBITDA profitability, both above our provided outlook. Looking ahead, the macro environment remains uncertain and volatile. April sales trends were soft, which we believe is reflective of a broader consumer slowdown. This has been particularly true in our largest markets such as New York, Boston, and Los Angeles. However, we're confident in our ability to deliver long-term value for our guests, our team members, and our shareholders. I'm proud of the strides we've made, but no true operational excellence requires relentless attention to detail, especially now. That's why our team is committed to optimizing every process, no matter how small, to drive continuous improvement. We continue to see significant opportunities to optimize operations, broaden our customer base, grow guest frequency, and expand our footprint. With these focus areas in mind, our three strategic pillars for 2025 are, one, revolutionizing fast food through menu and technology innovation. Two, strengthening guest connection and operational excellence. And lastly, number three, strategically expanding and evolving our footprint. These pillars are designed to increase traffic and expand restaurant-level margin. Let me share what we delivered in the first quarter. We opened five new restaurants, Fishtown in Philadelphia, Westfield and Canton in the New York metro area, Tarrytown in Richmond, and Hilldale in Milwaukee. As I shared on our last call, our 2024 class of new restaurants is tracking towards two-year metrics in year one and delivered a Q1 margin of 18.3%. Notably, 40% of this class is located in legacy markets and 60% in new markets, underscoring the broad-based strength of our performance. This reaffirms our confidence in the effectiveness of our real estate strategy and the significant long-term growth opportunity that lies ahead. We continue to be pleased with the financial and operational performance of our infinite kitchen format, which is delivering strong results across key metrics. These locations are showing meaningful margin leverage compared to restaurants of similar age and volume, driven by improved efficiency and operational consistency. Additionally, our class of Infinite Kitchens continues to drive higher native digital sales due to their high throughput and consistency, which leads to a better guest experience. We believe the Infinite Kitchen, together with our revamped loyalty program, can accelerate our industry-leading digital presence. Not only do we see strong performance in our infinite kitchens, we are also seeing strong performance of our suite lane in Schaumburg, Illinois. In the first quarter, comparable sales grew more than 20% year over year. Schaumburg's AUV and restaurant level margin is above the fleet average and with minimal incremental costs. Schaumburg is a clear proof point of the strong cash on cash return potential of the suite lane format. This year's pipeline includes two new suite lane locations, one classic and our first with an infinite kitchen. with more planned for 2026. We are reiterating our 2025 new unit guidance and continue to have high conviction in our long-term development roadmap of 15 to 20% annual unit growth. In 2025, we plan to enter three new markets, Sacramento, Phoenix, and Cincinnati, and open at least 40 new restaurants, including 20 with the Infinite Kitchen. Additionally, we're planning two relocations that will be upgraded with the Infinite Kitchen and expect to complete one to three infinite kitchen retrofits of existing restaurants. As we scale, innovation across every touchpoint, physical and digital, becomes even more critical. In today's environment, staying top of mind requires a steady cadence of newness. Our 2025 calendar is designed to do just that, increase visit frequency, attract new customers, and build deeper loyalty among our base. Let me take a moment to share one of the most exciting things we've rolled out recently, Ripple Fries. After an initial test in our LA market, we launched Ripple Fries nationwide on March 4th. Ripple Fries are Sweetgreen's take on this classic item. Fresh cut daily in our restaurants, air fried in avocado oil, and served with a choice of our house-made pickled ketchup or garlic aioli. Made with just five simple ingredients, Ripple Fries are a category-defining side that's both craveable and aligned with our commitment to clean, elevated food. Ripple Fries drove same-store sales improvement in March. They have become our most attached side item across channels, helping to lift overall ticket averages and broaden the meal experience. Notably, the strength has been consistent across all markets. Our innovation pipeline continues to be a key driver of traffic. For us, menu innovation goes beyond the food. It's about keeping the brand dynamic and culturally relevant. One of our most mouthwatering culinary launches planned for this year is our collaboration with Coke Korean Steakhouse. They are the first and only Michelin-starred Korean steakhouse in the U.S. Together, we are introducing Sweetgreen's first-ever Korean barbecue-inspired menu, featuring our new KBBQ glazed steak, cucumber kimchi, and an apple kimchi sauce, bringing an entirely new flavor profile to our guests. This limited-time menu launches nationwide next Tuesday on May 13. Collaborations like this is one way Sweetgreen is redefining fast food, showcasing our culinary creativity high quality ingredients, and cultural relevance. When we deliver bold culinary-led menu moments, we see clear signals. New customers show up, lapsed customers return, and existing guests engage more deeply. That's why the work we're doing now across both limited time offers and strategic brand collaborations is so important. And there's more menu innovation to come. With seasonal menus planned for the summer and fall, we are poised to sustain momentum through high traffic periods. We're also focused on elevating our core menu by perfecting how each ingredient is prepared, sauced, and seasoned, ensuring every ingredient and bowl is a craveable, repeatable winner. A lot of this starts with our proteins, how they are marinated, cooked, held, and portioned. Our job now is to keep delivering on that promise, staying nimble, listening closely to our guests, and executing with the kind of discipline that builds lasting brand love. Another important milestone for us has been the nationwide launch of our reimagined loyalty program, SG Rewards, at the beginning of April. SG Rewards is a points-based program where customers earn 10 points for every eligible dollar spent, with the ability to redeem points for free menu items, unlock surprise offers, and gain access to member-exclusive experiences. This updated program is designed to be more engaging and rewarding for a broader range of customers, based directly on their feedback. In just the first few weeks of the launch of SU Rewards, we've already seen strong adoption and excitement from our community. Since launch, we've added 20,000 new digital customers a week. As part of the perks SU Rewards members can expect, they will get an early first taste of our new KBBQ menu on May 12th when ordering through the Sweetgreen app or website. I want to thank our team members who are doing an incredible job engaging with guests and helping them discover the benefit of our reimagined loyalty program. In a challenging industry environment where consumers are making more intentional choices with every dollar, SG Rewards is designed to meet the moment by delivering meaningful value. As we look ahead, we've strategically shifted internal capital to focus more heavily on menu innovation and targeted media investments. Coupled with enhanced personalized CRM and our Reimagine Loyalty program, we believe these efforts will work together to accelerate transaction growth and strengthen guest loyalty. Turning to our team and operations. Our AI-powered workforce management system is now live in the majority of our restaurants, with just two markets remaining. We are on track for full implementation by the end of the second quarter. This system gives team members an optional, user-friendly mobile platform to manage their schedules, aligning their availability with restaurant needs. Average weekly hours are up nearly 10%, and absentee rates have declined by nearly 50%. For our head coaches, the platform enables smarter, more proactive workforce planning and frees up valuable time to focus on team development, the guest experience, and restaurant performance. We've continued to see progress on the turnover front for both coaches and the broader team with turnover nearing 90%. More than half of our first quarter leadership roles were filled from within, a clear testament to our growing bench strength and sustained investment in our people. While we've made meaningful strides, we still have opportunities to raise the bar on operational execution across many of our locations. Inconsistencies in service, speed, and portioning highlight the need for sharper discipline, tighter systems integration, and a greater focus on the details that drive day-to-day excellence. That's why I'm excited to welcome Jason Cochran as our new Chief Operating Officer. Jason is a seasoned operations leader with more than two decades of experience at some of the most iconic brands in our industry, including Pizza Hut and Chipotle. At Pizza Hut, he served as CEO and board member of American West Restaurant Group, the third largest franchisee in the U.S., where he led transformational improvements in performance, instilling operational discipline, and elevating execution across hundreds of locations. At Chipotle, he played a key role in scaling operations during a period of rapid growth with a focus on driving consistency, improving throughput, and enhancing the guest experience. Jason is a highly methodical, hands-on leader who brings a sharp eye for detail, a deep commitment to standards, and a passion for unlocking operational excellence at scale. I'm confident he'll help us drive greater consistency and accountability across the fleet. I'm thrilled to welcome Jason to our leadership team and to partner with him closely on this next chapter. Before I turn the call over to Mitch, I want to take a moment to acknowledge the industry dynamic we're operating in and the decline in consumer sentiment. We believe we are uniquely positioned to succeed, even in a more challenging industry backdrop. This confidence stems from the strength of our death loyalty, our disciplined financial approach, and our unwavering commitment to transparent, high integrity sourcing. As our menu has evolved to include more warming, heartier offerings, such as our protein plates and premium additions like steak, we've seen a positive shift in the brand's value perception at dinner. However, we also recognize the opportunity to introduce compelling mid- and lower-priced items that increase guest frequency, particularly in the current environment. Given our customization model, we're well-positioned to act quickly through limited-time and evergreen menu items. We're excited about what's ahead and confident in our ability to deliver value in a way that deepens connection with our guests without compromising on the quality or integrity they've come to expect from Sweetgreen. As we look ahead, we're confident that our culinary innovation pipeline, focus on elevating the guest experience, recent loyalty program launch, and focused investments in marketing and media will drive sales and strengthen the brand. We remain focused on what we can control. delivering consistently great experiences, improving operational execution, and investing in our people and processes. Tweakern has always been more than just a place to eat. We're a community, a movement, and a brand built on purpose, with farm to flavor at the heart of how we connect people to real food. And now, I'll turn the call over to Mitch, who will take you through our financials in more detail.

Thank you, Jonathan, and good afternoon, everyone. Total revenue for the quarter was $166.3 million, up from $157.9 million in the first quarter of 2024. Same-store sales for the first quarter declined 3.1% compared to the prior year period. This reflects a 3.4% benefit from menu price increases and a negative 6.5% impact from traffic and mix. Same store sales grew in more than half of our markets led by the upper Midwest, Texas, and Colorado, all of which comped double digits. Our average unit volume in the first quarter was 2.9 million. We opened five restaurants, ending the first quarter with 251 restaurants. Restaurant level profit margin for the quarter was 17.9% compared to 18.1% a year ago. Restaurant-level profit for the first quarter was $29.7 million, up 4% year over year. For a reconciliation of restaurant-level profit and restaurant-level margin to comparable gap figures, please refer to the earnings release. Food, beverage, and packaging costs were 26.5% of revenue for the quarter, and more than 100 basis point improvement from the prior year period, primarily due to distribution savings from continued market densification and ingredient consolidation, as well as favorable contract pricing on key ingredients. Labor and related expenses were 28.9% of revenue for the first quarter in line with the prior year period. Occupancy and related expenses were 9.4% of revenue, slightly higher than the prior year period. Operating support center costs in the first quarter increased slightly versus the prior year period on a dollar basis. As a percentage of revenue, year-over-year operating support center costs for the first quarter decreased slightly to 16.7% from 17.1%. Net loss for the quarter was 25 million as compared to a loss of 26.1 million in the prior year period. The decrease in net loss is primarily due to a 1.2 million increase in our restaurant-level profit, partially offset by an increase in depreciation and amortization expense primarily associated with an increase in new restaurants. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $300,000 for the first quarter. Our balance sheet remains strong with a cash balance of $184 million. Now I'd like to provide an update for our shareholders on the potential impact of tariffs across three key areas of our business. First, supply chain. Second, the restaurant build-out costs. And third, the infinite kitchen. From a supply chain perspective, our exposure remains relatively contained. The vast majority of our core ingredients are domestically sourced. At this time, our exposure to tariffs is about 75 basis points for the second quarter of 2025. Most of this impact comes from just a few items, primarily our packaging, which is currently sourced from China. Six months ago, we began a project to move packaging out of China, and we anticipate this to be completed during the second half of 2025. We expect the tariff impact to be reduced in the second half of the year to approximately 40 basis points. This does not reflect the impact of any further mitigation initiatives. As we plan for the build out of our 2025 real estate pipeline, We anticipate tariffs will have an approximate 10% impact on our 1.4 to 1.5 million per unit build-out costs. Importantly, this impact is not expected until late in 2025, as we have pre-purchased a number of key components. Our team continues to diversify our supply base, avoid cost pass-throughs, and is focused on securing multi-year pricing agreements with key partners to further mitigate the tariff impact. On the Infinite Kitchen, as Jonathan mentioned, we're extremely encouraged by their performance. These restaurants continue to outperform expectations in both efficiency and guest satisfaction. As we scale the Infinite Kitchen, which costs approximately $450,000 to $550,000 per unit, we are closely monitoring the impact of tariffs on our cost structure. Currently, roughly 15% of each unit's cost is tied to component source from China. We have 10 IKs on hand that were not impacted by tariffs. While the current tariff rate on Chinese goods will impact the Infinite Kitchen, it remains accretive to our return on capital due to the long-term labor savings, consistency, and improvements in throughput. We remain committed to the expansion of the Infinite Kitchen and reiterate our 2025 new unit and IK guidance. Now turning to fiscal year 2025. As we look out on the next three quarters, we are highly cognizant that this is a dynamic environment, as you have heard from others across our industry and seen in recent data consumer sentiment has fallen sharply. After returning to positive comp sales performance in March, we saw a mid single digit decline in the same store sales during April coinciding with the tariff announcements. Historically, April has always shown a ramp in performance as seasonal patterns kick in. This is the first time we haven't seen that lift. We believe this is noteworthy and reflective of the volatile external environment and the softening consumer sentiment marked by more deliberate purchasing behavior and lower frequency across discretionary categories. Our outlook assumes that the current trends continue and layers in the positive impact of upcoming menu initiatives, as well as continued ramp in our new loyalty program. As we considered our fiscal year guidance, we assume no further deterioration in macroeconomic conditions. As always, our forecast is based on the information available to us today, and we recognize that uncertainty in the macro environment remains elevated. For fiscal year 2025, we anticipate the following. At least 40 net new restaurant openings revenue ranging from 740 million to 760 million same store sales growth approximately flat restaurant level margin of approximately 19.5% adjusted EBITDA of approximately 30 million. On the development front 20 of our 40 restaurants will feature the infinite kitchen. In terms of pipeline timing, 30 of our 40 planned new restaurants will open in the second half of the year. We do not anticipate any price increases for the remainder of the year. While the external environment may create some short-term volatility, particularly around traffic and frequency, we believe we have strong levers to navigate this moment. Specifically, we see meaningful opportunities to lean into our loyalty program and our seasonal offerings. We have a number of traffic driving initiatives that have yet to launch, including our collaboration with Coates Steakhouse next week. As the year progresses and comps get easier in the second half of the year, we believe there is a clear path to accelerate momentum. We remain extremely confident in our strategies and the underlying health of our business. We have built a strong business, a differentiated brand, and a flexible omnichannel platform that allows us to adapt and drive sustainable growth. As we move through 2025, we remain disciplined in how we deploy capital and leverage our G&A. We are focused on high return opportunities and committed to building a resilient, durable business, one that can scale efficiently, serve with purpose, and create long-term value for our shareholders, guests, and team members. And now, I'll turn the call back to the operator to start Q&A.

this time i would like to remind everyone in order to ask a question press star then the number one on your telephone keypad we ask that you do please limit yourself to one question and we'll pause for just a moment to compile the q a roster our first question comes from the line of john tower with citigroup please go ahead there we go thanks um i guess maybe starting i appreciate all the colors you you offered in tariffs um

and in terms of across the business and IK, and I think that's certainly a point of, uh, a question that I'm getting a lot from investors. So, uh, I just want to clarify and make sure that I understand it looks like all in based on the range for build-out costs, um, and including an infinite kitchen, it'll be roughly 32 to 37% higher than what you guys had originally, um, targeted for stores previously for build-out costs. Um, with these tariffs in place, and that's kind of the current situation that you know for tariffs coming in from China. That's not assuming any changes at the moment for what's going to happen going forward.

Hi, John. It's Mitch. I think what I would say is the build-out cost for an NRO with no tariffs is approximately $1.5 million. As of now, we see that tariff running about a 10% of that type of number. So call it $150,000 per unit. And on the Infinite Kitchen, call an average cost of $500,000 per IK. The tariff is approximately $100,000. So you would see a total tariff impact of about $250,000 on a $2 million build-out. So just a little bit over 10%. And I should point out in this dynamic world, that's as of the tariffs as of last night.

Okay. And just in turn. Go ahead. Sorry. So, John, just one thing to add. We mentioned on the call that, you know, we've pre-bought materials for the majority of our pipeline this year. So a lot of that impact, including some infinite kitchens on hand. So that is not impacting the entire pipeline this year. We really start to see the impact. the build out in q4 um and we do have a a good a good number of ik's on hand and working to working to diversify the supply base there the other thing i'd say is you know over the years we've talked uh to you all about the work we're doing to optimize the overall build out cost so this is all on a kind of apple for apple's basis we've all obviously i've been working working really hard on new formats and just general cost optimization so you know our hope is to mitigate as much of this as possible. But this is just kind of, if we took the impact as a, you know, as a straight apples to apples.

Got it. And maybe just one follow-up, John, you mentioned in the prepared remarks, the idea of perhaps adding more mid to lower priced items to the menu, either evergreen or LTO options for value. Like one, where are you in that process? And then two, you know, how do you, plan on communicating that to guests? You know, you're not necessarily a traditional marketer, nor would I expect you to be out there blasting the airwaves with a value pitch per se. So is this something we should expect more through the rewards program or more through, you know, point of purchase? Like, how do you plan on getting that message out to folks who might not be aware that, you know, now there is something that's more approachable?

So I think what I'd start with is if you look back over the past five years in the high inflationary environment, we've actually taken less price than most of the industry. What we have done is in an effort to broaden our TAM and broaden our consumer, we did introduce these hardier, warmer options, things like protein plates and steak. And the beautiful news about that is they really did work in unlocking a lot of those TAM markets. You can see that in the strength of those new markets and the comp in the emerging markets. But as we did that, some of the price value perception, if you look at our menu, you now have this higher category price things, great value for dinner, but we've noticed some price gaps on the menu kind of in the middle or lower tier. So we see a couple of ways that we can do that. One is through our seasonal menu. Our seasonal menu allows us to flex into different price points. We do see some opportunities to potentially introduce some things in the core. We would not present them as necessarily as a value menu to your point it would just be you know kind of finding things you know kind of anchoring more of the menu in the middle mid to lower price tiers and of course loyalty becomes a really big lever for us to be more surgical and personalized around how we can create the right customer journeys the right promo and you know the right next best action to to drive the long-term value of our customers so we have a lot of levers at hand and I think given What we mentioned on the call is given the way our menu is constructed, we have the ability to move pretty quickly in terms of coming up with new menu items and coming up with things that both the consumers love. We can execute seamlessly and can kind of meet our margin profile. So, you know, the world changed pretty quickly here in April, but have a lot of tools at our disposal.

Great. Thanks for taking the questions.

Our next question comes from the line of Sarah Senator with Bank of America. Please go ahead.

Thank you. Maybe actually quick question about any differences you might be seeing in terms of geography. I'm just thinking about, you know, your exposure to DC because April has been quite mixed, I think for, for different restaurants. And so trying to understand why some might be feeling the impact of, you know, lower consumer confidence while others are actually seeing So I didn't know if there was maybe just your geographic exposure. And then I do have a quick follow-up.

Hi, Sarah. Thanks for the question. Yeah, I would point out two areas in our geography that are probably noteworthy. One that we mentioned on the last call, Los Angeles. which we said was about 15% of our volume, continues to be severely impacted in the aftermath of the LA fires. In our modeling, we see some lingering impacts of this continuing on for quite a while. And as you pointed out correctly, sometime around the beginning of April, we did see a change in our DC volume. So, you know, the company began in Washington, DC. It's kind of one of the markets that we're identified with. We have a number of stores there, but I should point out they're generally older, smaller stores in the DC market, but there clearly was a change in the DC performance around the beginning of April.

Okay, thank you. Very helpful. And then the follow-up is about the breadth of your reach. You know, I'm super excited about the collaboration, but that strikes me as a little bit of a New York institution. How do you think about that in terms of, you know, appealing, I think, as John mentioned, you know, broadening TAM and kind of the things that you do from a culinary perspective? Thanks.

Yeah, so we're very excited about this collaboration. I think, you know, it's beyond just the collaboration. It's really about the bold flavors that we're bringing to market. We were excited for everyone to taste it. It's a totally different flavor profile. It really leans on both the sourcing and scratch cooking, but brings in these Korean flavors and leverages our new steak offering with the twist. So, you know, in terms of the actual collaborator, you know, the reason we do this is it gives us a lot of culinary credibility. And it actually, the partnership with the chef helps us build truly delicious items. So it's a part of our storytelling. There's a huge experiential element. as part of it, and we know it's a core part of how we built this brand, and I think something that consumers expect. So what we've learned is it's not just if you've heard of it. For us, it's a huge way to drive discovery for these great chefs that you may or may not know. So very excited about bringing this new flavor and excited to share more with you on the next call.

Thank you. Our next question comes from the line of Sharon with William Blair. Please go ahead. I'm sorry. Our next question comes from the line of Andrew Charles with Katie Cohen. Please go ahead.

Thank you. This is Zach for Andrew. Just given April's mid-single-digit decline in same-store sales, could you just walk us through the cadence of sales you expect for the rest of 2025 to get to flat for the full year?

Thank you. What I would say about April, you know, as other people have noticed, April has generally been a month when our business has accelerated. That's probably been the pattern that's been in the business since inception. As the weather warms up, our business picks up. This April, that did not materialize. There's actually a significant change in the history and in the historical patterns of the business, largely coincided with the tariff announcement and some of the external uncertainty. What we see is the second quarter being challenging, both from a comp perspective led by April, as well as the fact that the launch of our loyalty program, as we've disclosed, Bill Benos, will create some headwinds around our revenue number as we launched that program during the back half of the year, particularly Q3 and four we see business picking up for a number of reasons, one. Bill Benos, We have slightly easier comps during that period to the return of our summer seasonals and fall seasonals. These have been crowd favorites for a number of years that were not on the menu in 2024, and we think they'll have a massive impact beginning around July 25. In addition to which, we have our loyalty program, which, as I said, will be a headwind in Q2, but becoming a pretty big tailwind as we go through Q3 in the back half of the year. I should point out, as I was kind of alluded to at the beginning, there's a degree of synergy between the launch of seasonals and loyalty program. where they can feed each other to help drive frequency and attract new customers. So we think we have a pretty solid lineup of activity actually starting next week with the code collaboration, but really accelerating in July.

Got it. Thank you. And then just on the infinite kitchens, if the tariffs do persist, would that change your aptitude at all to retrofit stores to IKs going forward?

No. Now, I really would not at this point in time change our deployment strategy around the Infinite Kitchen. When you do the math on the Infinite Kitchen and you take a kind of typical AUV store at $3 million and eight points of savings, you get around $240,000 annually. If the cost moved up from $500,000 to $600,000, you find the return on capital remains wildly accretive, and that's at current labor rates. When you look out over the next 10 years, we see labor continuing to increase and there's returns increasing. So I would say the current tariff structure would not change the IK deployment strategy at all.

Great. Thank you.

And again, our next question is from the line of Sharon Zacharias with William Blair. Please go ahead. Hi.

Can you hear me?

Yes.

Okay. Thanks. I don't know what happened before. I guess I wanted to ask about the markets that you called out, which were, you talked about LA, but you also mentioned New York and Boston. Is there anything in those markets where you think your perceived value has somehow kind of declined in the recent environment? Is there anything you could point out operationally that maybe is causing those markets to gap differently than some of the other markets that you're operating in?

Thanks for the question, Sharon. So, I think there's a few things here. 1st, I'd say, if you think about the sweet green model over our history, the seasonal menu was a core part of the model. We would change our menu about 5 times a year. And it's part of what drove the habituation the frequency. It's what would limit the fatigue and just keep you hooked season after season. With the removal of that, we've seen some weakness in the frequency of it specifically in those core markets where those seasonals did especially well. So we're encouraged about bringing them back, bringing them back in a really big way. And we think that will help us with the frequency challenges we have. The second is loyalty. We made a transition from our SweetPass Plus loyalty program, which really had a pretty small member base to a much broader base loyalty program. And we're acquiring about 20,000 new loyalty members a week. This is pretty much more than each week than the whole SweetPass Plus membership base. So there's a huge opportunity here to kind of lean into that to continue to drive frequency. And then the last thing I'd say is that there's definitely some operational opportunities we have specifically in a lot of those core legacy markets, specifically in the urban environment on our off-premise channels. So really highly focused on getting portioning and accuracy and speed right on those digital make lines. As you know, digital is a huge, huge part of the business, and we see an opportunity to really elevate the standards across those lines.

Okay. Thank you.

Our next question comes from the line of Logan Rich with RBC Capital Markets. Please go ahead.

Hey, guys. Good evening. Thanks for taking my question. I want to ask about Fries and how the launch went relative to expectations and maybe anything you're able to share on Mix in terms of number of transactions or contribution to comp. Any color there would be much appreciated. Sure.

So very early, but very encouraged by Fries. You know, we've had great customer feedback, great social awareness. A lot of fantastic trial, and it's by far our most attached side. So very encouraged, continuing to work to perfect them and get the word out. But overall, I think it's something that we're really proud of and customers love and should continue to help drive comp and tickets.

Our next question comes from the line of Brian Milan with Piper Sandler. Please go ahead.

Thank you. I just want to ask about the marketplace sales channel. You know, that's been growing faster than the in-store and the own digital, really for several quarters now. Can you just speak to what's behind that, particularly throughout last year and to start this year? Just any color you could add would be great.

Yeah, so we continue to see strength on Marketplace. I think there's a few things. One, I think our product travels well, and people love the fact that it just works in an off-premise environment. Two, we continue to optimize our relationships with the marketplaces and how we market and how we're presented on those marketplaces. And I think a lot of our consumers are there. Lastly, I think not having a loyalty program gave a lot less reason to transact with natively and with the loyalty program that should help us there. But overall, you know, good partners with them. Happy to see continued growth, higher average checks, and we'll continue to, you know, leverage them as a partner.

Thank you.

Our next question comes from the line of Brian Bittner with Oppenheimer. Please go ahead.

Hey, thank you. Just with all this talk a lot of focus here on April sales trends on this call. Just another question there. You said down mid singles and a change in how April has behaved historically. And so I understand your caution, but is there any of this that is explained by your own toughening comparisons that happen into 2Q from 1Q? Is any of April just mathematically driven or are you seeing underlying weakness that's making you more cautious on the near term and on 2Q?

Now, Brian, I think that the more challenging comp period for the business will come actually in the next week as we launch a successful launch of steak gets lapped. So Cote will lap over the launch of steak a year ago. I think the April caution and results in the caution on the second quarter largely come from what we saw in April where we had a period of limited menu and marketing activity. But that kind of left the same type of situation last April. It really reflects much more of an external environment and kind of our take on consumer sentiment.

Okay. And then just real quick on your guidance for the year for adjusted EBITDA, now approximately $30 million. I'm just trying to bridge to that guidance in my own model when I use the midpoint of your revenue and your restaurant margin guidance. The bridge from there is about flat GNA year over year versus last year on an adjusted basis. Is that the right math there? Is that how you're thinking about GNA as it relates to that 30 million of adjusted EBITDA?

Yeah, I would point out and say that, you know, really since the time we went public, the company continues to focus on gaining leverage in our GNA. And we continue to focus on that and accelerate that in this environment. and to make changes where we can adjust the GNA down without impacting our strategies or our development. And we will continue to really relentlessly pursue that in this environment.

Okay. Thank you, Mitch.

Our next question comes from the line of Christine Cho with Goldman Sachs. Please go ahead.

Thank you for taking the question. I was wondering if there were any updates to how you're thinking about capital allocation and investment priorities in light of the tougher macro environment and other external factors. I think, John, you mentioned 15% to 20% unit growth. Is that still a good anchor for the next few years? And what are some of the factors and triggers that could potentially shift that trajectory? Thank you.

Hey, Christine. Thanks for the question. I think what we said is that we were going to anticipate having a 15% algorithm and accelerating it up to 20% over time. That is still the correct algorithm. And while you're correct that the external environment right now is certainly more challenging and changed somewhat abruptly around the beginning of April, we continue to have very strong return on capital on our new stores and especially strong return on capitals with our infinite kitchen As long as our return on capital remains at these levels, we don't see any change in our development.

Thank you. Just one other question. Any metrics that you can share on kind of the launch of the SG rewards to date and how you plan to leverage the data you obtain from that program to inform kind of your meta-innovation, marketing, and other parts of the business? Thank you.

Yeah, overall, very encouraged. Like I said, we're requiring about 20,000 new digital customers on those SU Rewards program per week. Much of that conversion is happening in-store, so we're now getting access to customer data on our analog in-store channel as well as our digital channels. And we're starting to see some promising, I'd say some promising opportunities around the customer journeys and how we can drive the incremental visits. You know, we have a A very, very good team that's able to segment customers and do all kinds of different challenges and promos and see what works and lean on those ones. And especially in this environment, I see a huge opportunity. It also gives us, you know, really rich data in terms of menu development. And we have a few exciting things planned on how we can leverage the digital environment to create more of a community. And we'll be sharing more on that in future calls.

Thank you. Our next question comes from the line of Brian Harbor with Morgan Stanley. Please go ahead.

Yeah, thanks. Good afternoon. I guess, you know, you're going through another COO transition here, right? Could you just comment on if you think any of the priorities there will change or if it's more of a continuation of what you were doing, is there anything that you thought was sort of

know behind timing or needs to be shifted what will uh what could evolve on sort of operations priorities absolutely so we're really excited for jason to join us and he brings a wealth of experience specifically in restaurants the focus areas for us really are in terms of tightening up our standards to deliver consistently the quality food that customers expect we also see a big opportunity i mentioned earlier on our digital make lines and making sure we're delivering accurately and with the right portion size. We see a big opportunity there. And then the last thing I'll say is with the growth plans we have ahead, we wanna make sure our people flywheel is unlocked. Today, we're seeing about 50% of head coaches being promoted internally. We would like to take that number up. Over time, we see our internal promotes being more successful. So the other thing is how we can build better leadership capability and have a pipeline of future leaders So, you know, it's operations, it's really, it's all the little details to deliver, whether it's the right tools, the right systems, and most importantly, the right culture and leadership in each and every store. And we're very confident in the wealth of leadership and experience that Jason will bring, as well as the rest of our ops leadership team to continue to deliver on the sweet green promise.

Okay, thanks, guys.

And our final question comes from the line of Rahul Pradipalli with JP Morgan. Please go ahead.

Hey, guys. Jonathan, a lot has been discussed in terms of how advertising costs could get very low on a per-transaction basis. I think especially as agencies given to AI models and, like, large brands and the consumer and Internet industry are catching up on this. You have been leading the space in business transformation in multiple areas of your operations, whatnot. Curious how you think about this area on advertising and marketing spend as this is going to be a big focus going forward for your sales and traffic driver.

Raul, thanks for the question. I do think it's a huge opportunity. We've been leveraging AI across the business in a number of use cases, whether it be workforce management, talent selection, and you know, customer service, et cetera. And I think there's a lot of opportunities to leverage AI in terms of loyalty and customer acquisition as well. So we're exploring and testing a bunch of things today. We're hopeful that it can help us in terms of our cost per acquisition of customers and our retention. But I'd say it's still early days. But a number of tests and pilots that the team is all over right now. Thank you.

Ladies and gentlemen that concludes today's call. You may now disconnect.