Sweetgreen has laid off 5% of its corporate workforce as part of a “path to profitability,” the chain announced Tuesday during its second-quarter earnings call. Corporate staffing levels are now 20% lower than predicted for 2022.
The fast-casual restaurant chain has also moved its Los Angeles headquarters to a new, smaller location nearby.
“We made these changes to lower our operating expenses and protect our path to profitability in this uncertain environment,” said Sweetgreen’s chief financial officer Mitch Reback.
The company’s stock dropped 20% after the announcement was made late Tuesday night as the chain lowered its 2022 forecast.
Sales at Sweetgreen decelerated the week of Memorial Day and haven’t returned. Same-store sales in April and the beginning of May were up 21% year-over-year for Sweetgreen, but were up just 7% for June and July. The chain that saw same-store sales increase 16% in the second quarter ended June 26.
That increase was helped by a 6% price jump taken in January.
“We believe the slowdown in our sales growth is attributable to an unprecedented increase in summer travel, a recent wave of COVID cases, a slower than expected return to the office, and an erratic urban recovery,” said Sweetgreen’s CEO Jonathan Neman.
Reback added, “In Sweetgreen’s 15-year history of sales patterns we’ve never seen this before; our historical seasonality always showed growth.”
In the second quarter, Sweetgreen’s net sales rose 45% year-over-year to $124.9 million. For the year, Sweetgreen now expects annual revenue of $480 million to $500 million, down from its prior forecast of $515 million to $535 million. The chain also revised its outlook for same-store sales, predicting growth of 13% to 19%, down from the previous projection of 20% to 26%.
The chain is continuing to grow units, however, with 170 restaurants currently. It is on track to add 35 new restaurants this year.
“We remain on track to double our footprint in the next three to five years and achieve 1,000 restaurants in the next decade,” said Neman.
Sweetgreen has been experimenting with new ways to gain consumer loyalty, including a summer challenge, in which 70,000 customers participated, according to the company.
Some new moves rolling out in the coming months and years include testing kids’ meals this fall and introducing tipping by the end of 2023.
There are also new prototypes in the works. A redesigned front design in Long Island City, Queens, and revamped digital makeline in Williamsburg, Brooklyn, are designed to prevent bottlenecks. The new designs feature more space and POS systems. Long Island City doubled throughput, and Williamsburg throughput increased by 30%.
“We believe the consistent improvement in kitchen operations will be a force multiplier and should improve store efficiency, labor productivity, and the team member experience and thus restaurant level margins over time,” Neman said.
Another thing improving restaurant level margins is the move to the suburbs. Sweetgreen has invested heavily in the suburbs, and it's paying off for the chain. The systemwide store makeup, which was 65% urban and 35% suburban at the end of 2019, is now 50% urban and 50% suburban. The pipeline is also 85% suburban with urban AUVs and suburban AUVs switching from $3.1 million and $2.7 million in 2019 to $2.7 million and $3.1 million in 2022, respectively.