Sweetgreen shares dropped Wednesday after the salad restaurant chain lowered its 2022 sales outlook; however, a J.P Morgan analyst said the company wasn’t a “broken growth story.”
Sweetgreen (ticker: SG) Chief Financial Officer Mitch Reback told the press that the company had started to see “softness in revenue around memorial day,” which then led to the lowering of revenue guidance for the year, falling between $480 million to $500 million, compared to the previous guidance that fell between $515 million to $535 million.
Despite this news, Sweetgreen isn’t the only company that has recently lowered its sales guidance amidst the strong headwinds brought on by a drop in consumer spending and record high inflation. Allbirds (ticker: BIRD), Signet Jewelers (ticker: SIG), and Beyond Meat (ticker: BYND) have all reduced their revenue guidance for the full year.
Sweetgreen’s second-quarter results were released Tuesday but came in below consensus. Total revenue stood at $124.9 million, missing Wall Street’s expectations of $128.5 million, while a loss of 36 cents a share was bigger than most had anticipated, according to FactSet. Same-store sales of 16% were also below analysts’ estimates of 18.8%.
In an attempt to cut down expenses, the company reduced its workforce by roughly 5% and shrunk its real estate property footprint by vacating the existing Sweetgreen Support Center premises and relocating to a smaller office space, the company said.
“Lowering high expectations does not necessarily mean this is a broken-growth story,” said J.P Morgan analyst John Ivankoe.
Shares of the company were 5.2% lower on Wednesday’s premarket trading, landing at $15.95. The stock has fallen 50% in 2022.
Despite the disappointing performance, some analysts remain confident in the company’s ability to register growth. Ivankoe chose to maintain his Outperform rating on Sweetgreen; however, he lowered his 12-month price target on the stock from $28 to $20. In a research note, Ivankoe said that the company looked like it would maintain its prior guidance of opening 50 new stores in 2023 and 60 stores in 2024, to end the year at 295 stores and on its way to 1000 by 2030.
Ivankoe also pointed out that prices of meals at Sweetgreen may “limit the high frequency of lower-income cohorts,” however, he thinks that the brand has “an enduring appeal to a wide customer base, even if price points limit visitation for a few.”
William Blair analyst Sharon Zackfia also maintained her Outperform rating on the stock; however, she did not provide a price target. Zackfia said, “she remains encouraged by the success of Sweetgreen in lower-cost suburban locations, which is the key pillar of its planned future growth.”