Expected Slowdown in Performance for Top First-Half 2024 Stocks

In the first half of 2024, Sweetgreen, Vital Farms, and Abercrombie & Fitch significantly outperformed the S&P 500, with returns surpassing most stocks. However, this exceptional growth raises concerns about their sustainability, especially for Sweetgreen, which may struggle to scale profitably in suburban areas. The company's average unit volume has declined, and profits remain elusive, despite rising sales. These factors contribute to skepticism about their long-term prospects, which may result in a pullback in the stock prices.

In the first half of 2024, three U.S. companies - Sweetgreen (NYSE: SG), Vital Farms (NASDAQ: VITL), and Abercrombie & Fitch (NYSE: ABER) - outperformed the S&P 500, with their returns surpassing most stocks [1]. While their exceptional growth is noteworthy, concerns about their sustainability, particularly for Sweetgreen, have emerged.

Sweetgreen, a leading chain of Mediterranean-inspired eateries, has faced challenges in scaling profitably, particularly in suburban areas. The company's average unit volume has declined, and profits remain elusive despite rising sales [1]. These factors have contributed to skepticism about Sweetgreen's long-term prospects, potentially leading to a pullback in stock prices.

A closer look at Sweetgreen's performance reveals a 30% increase in revenue in its latest report, primarily driven by a 23% surge in open locations [1]. However, comparable-store sales increased a mere 2.3%, with growth weighed down by a 1.2% decline in guest traffic [1]. This modest comps figure, while not problematic in isolation, could raise concerns given Sweetgreen's ongoing struggles to scale profitably.

Despite these concerns, Sweetgreen has shown signs of resilience. The company's scalability has translated into better-than-expected profitability in every quarter since its initial public offering (IPO) [1]. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) nearly doubled in its latest quarter. Additionally, Sweetgreen recently raised its guidance, expecting a 4.5% to 6.5% increase in revenue for the entire 2024 fiscal year [1].

Vital Farms, a leading vertically integrated avocado, egg, and egg product company, and Abercrombie & Fitch, a global specialty retailer of casual apparel and accessories, have also experienced exceptional growth in the first half of 2024 [1]. Both companies have shown signs of stability and profitability, which may alleviate concerns about their sustainability.

In conclusion, while Sweetgreen, Vital Farms, and Abercrombie & Fitch have outperformed the S&P 500 in the first half of 2024, concerns about their sustainability, particularly for Sweetgreen, have emerged. A closer look at their financial performance reveals a mix of growth, profitability, and challenges. As these companies navigate their growth trajectories, investors will need to closely monitor their performance and adapt their strategies accordingly.

[1] https://www.nasdaq.com/articles/3-stocks-can-double-again-2024