Sweetgreen's Q3 2025 Earnings Call: Contradictions Emerge on Menu Pricing Strategy, Consumer Behavior, and Store Growth Plans

Date of Call: None provided

Financials Results

• Revenue: $172.4M, down 0.6% YOY (vs $173.4M prior year)
• Operating Margin: 13.1% restaurant-level margin, down from 20.1% YOY

Guidance:

• 2025 guidance: revenue $682M–$688M; 37 net new restaurant openings.
• Negative same-store sales expected: -8.5% to -7.7%.
• Restaurant-level margin targeted: 14.5%–15%.
• Adjusted EBITDA: negative $13M to negative $10M.
• 2026 plan: ~15–20 net new restaurants, ~50% with infinite kitchen; enter 2–3 new markets (incl. Salt Lake City).
• Spice sale to Wonder: $186.4M transaction expected to provide ~ $100M cash at close (Q4'25 or early Q1'26) and ~$8M annualized G&A savings.

Business Commentary:

* Sales and Same-Store Sales Decline: - Sweetgreen Inc. reported sales of $172.4 million for the third quarter of 2025, with a same-store sales decline of 9.5%. - The decline was primarily due to softer sales trends in the Northeast and Los Angeles markets, which represent about 60% of the comp base, and lighter spending among younger guests, particularly the 25 to 35-year-old age group where Sweetgreen over-indexes.

• Operational Excellence and Menu Innovation:
• The company's operational excellence initiatives have shown progress, with approximately 60% of restaurants meeting or exceeding internal operational standards, up from 33% last quarter.

• Menu innovation is focused on increasing protein portions by 25% and educating consumers about high-quality ingredients, with plans to introduce a new steak bowl and steak plate to strengthen variety and value.

• Strategic Sale of Spice and Financial Position:

• Sweetgreen announced the strategic sale of Spice, its business unit responsible for developing the infinite kitchen, to Wonder for $186.4 million.

• This sale is expected to infuse the balance sheet with approximately $100 million in liquidity, strengthening the financial position and enhancing flexibility for future growth initiatives.

• Digital Experience and Loyalty Program:

• Sweetgreen launched the S3 Rewards program to create a platform for a more personalized experience, with positive trends in frequency among loyal guests.

• The program leverages enhanced customer data, enabling targeted discounts and promotions to improve value perceptions and drive increased frequency with lighter users.

• Market Expansion and Infinite Kitchen Integration:

• The company plans to open 17 new restaurants and enter three new markets in the fourth quarter, including Sacramento, Cincinnati, and Northwest Arkansas.
• The infinite kitchen technology is expected to continue delivering faster throughput and improved accuracy, with projections of approximately 700 basis points of labor savings and nearly 100 basis points of COGS improvement compared to restaurants of similar age and volume.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly acknowledged material near-term weaknesses ("same-store sales decline of 9.5%", "adjusted EBITDA was a loss of $4.4 million", "net loss $36.1 million") while describing a concrete turnaround plan ("Sweet Growth Transformation Plan" with operational, menu, digital and disciplined investment pillars) and capital actions (Spice sale to infuse ~$100M).

Q&A:

• Question from Brian Mullen (Piper Sander): Scope of the menu and pricing architecture review and how difficult this will be?
  Response: Testing new pricing ladders and lower entry points (e.g., $13 bowl tests showed engagement but cannibalization); will refine menu/pricing and presentational architecture via SageGate and emphasize value messaging (including ~25% larger protein portions).

• Question from John Tower (City): What are you seeing in the current environment (Q4 trends, regional/daypart impacts) and details on the infinite kitchen agreement costs?
  Response: Comp trends worsened through Q3 (July slight pickup, Aug and Sept ~200bps step downs; Oct flat) with outsized pressure from 25–35-year-olds and Northeast/LA; infinite kitchens will be supplied under a favorable agreement (units at cost plus ~5% with current delivery/install/service costs maintained) and the Spice sale also provides ~$100M cash plus ~$86M Wonder stock and ~$8M G&A savings.

• Question from Andrew Charles (TD Cowan): On 15–20 net openings for 2026, what closures are contemplated, and what operational unlocks enabled the handheld product to reach market test?
  Response: Plan assumes ~15 net openings with two identified closures; handheld has passed consumer tests and will enter market tests to validate operationalization and throughput before wider rollout.

• Question from Rahul Crow (JPMorgan): Details on net cash proceeds from the Spice sale after taxes/fees and impact on future infinite kitchen mix given cost-plus 5%?
  Response: Expect roughly $100M cash at close (tax/legal impact expected immaterial) and IK units at cost+~5% (about $25k per unit) which should lower unit economics via Wonder’s scale and facilitate broader rollout.

• Question from Sarah Senator (Bank of America): Is the softness concentrated in specific dayparts and why sell Spice now versus keeping tech in-house?
  Response: Dinner is the notable softening; Spice was commercialized and now outsourcing to Wonder unlocks scale, reduces G&A, provides immediate liquidity and access to R&D/manufacturing scale—enabling broader, cheaper IK deployment while Sweetgreen focuses on the core restaurant business.

• Question from Logan Reich (RBC Capital Markets): Is there flexibility to increase 2026 unit growth if same-store sales recover?
  Response: Yes—2026 openings are deliberately conservative for discipline, but the pipeline allows modest acceleration if comps and operations improve, with re-acceleration planned into 2027.

• Question from Brian Harbor (Morgan Stanley): Update on loyalty (S3 Rewards) performance and sustainability?
  Response: S3 Rewards reached six months with ~20,000 weekly activations and frequency gains among members; still early, but expected to be a comp driver as Sweetpass Plus overhang fades and CRM personalization ramps.

• Question from Jeff Bernstein (Barclays): What drove the large cut in restaurant-level margins — labor, commodities or other factors?
  Response: About half the margin decline is sales deleverage; next drivers are increased protein portions (~140bps) and tariffs (~50bps); company expects protein-related savings from supply chain and restaurant initiatives starting in 2026 and fully realized in H2 2026.

• Question from Teddy Farley (Goldman Sachs): Will the menu/pricing review include the rewards redemption stack to ensure competitiveness on value?
  Response: Yes—the entire loyalty/redemption stack (including potential tiers and personalized offers) is under review; scan-to-pay roll-out has already increased in-store loyalty usage and improved throughput.

Contradiction Point 1

Menu Pricing Strategy

It involves a shift in the company's approach to menu pricing, which directly impacts consumer perception and potentially affects sales and profitability.

What is the scope of the menu and pricing architecture review, and what do you aim to accomplish? - Brian Mullen(Piper Sander)

2025Q3: We've tested $13 bowl drops and saw high engagement but significant cannibalization. We also see opportunities in menu innovation for different price points. - Jonathan Neman(CEO)

Have you seen a modest improvement in comps this quarter? What is the primary operational challenge, and does addressing it require additional labor? - Sharon Zackfia(William Blair)

2025Q2: Our strategy for menu innovation is to continuously rotate the menu, introducing new dishes and removing underperforming ones. - Jonathan Neman(CEO)

Contradiction Point 2

Consumer Behavior and Market Impact

It highlights discrepancies in the company's understanding and response to consumer behavior and market conditions, which are critical for strategic planning and resource allocation.

How is the current consumer environment affecting your business, especially regarding day parts and consumer spending patterns? - John Tower(Citi)

2025Q3: The 25 to 35-year-old consumer group, which makes up 30% of our base, is down about 15%. - Jonathan Neman(CEO)

Are trends in urban vs. suburban areas diverging? - Sara Senatore(Bank of America)

2025Q2: There's a more pronounced impact in the Northeast, reflecting broader macroeconomic pressures in urban areas. We see pressure on consumer spending persisting longer than expected. - Mitch Reback(CFO)

Contradiction Point 3

Menu Pricing Strategy and Value Proposition

It involves differing approaches to menu pricing strategy and value proposition communication, which are critical for driving sales and customer loyalty.

What is the scope of the menu and pricing architecture review, and what are the goals? How challenging will the implementation be? - Brian Mullen (Piper Sander)

2025Q3: We're looking at menu and pricing architecture, focusing on pricing ladders and new entry points. We've tested $13 bowl drops and saw high engagement but significant cannibalization. We also see opportunities in menu innovation for different price points. We will present menu price points on menu boards more effectively. Additionally, we plan to communicate the value proposition better, such as increased protein portions and high-quality ingredients. - Jonathan Neman(CEO)

How are you addressing menu pricing gaps for value and how will you communicate these changes to guests? - Jon Tower (Citigroup)

2025Q1: We’re focusing on introducing mid to lower priced items through seasonal menus and core offerings without necessarily presenting them as a value menu. The menu is flexible, allowing us to adapt to consumer needs. Loyalty programs are a significant lever for personalized customer journeys. - Jonathan Neman(CEO)

Contradiction Point 4

Consumer Spending Behavior and Day Part Performance

It involves differing perspectives on consumer spending behavior and day part performance, which are crucial for strategic planning and investor expectations.

Can you describe the current consumer environment and how it's affecting your business, particularly regarding day parts and consumer spending? - John Tower (City)

2025Q3: We've seen a step down in sales from July to September, with negative double-digit comps in October. The 25 to 35-year-old consumer group, which makes up 30% of our base, is down about 15%. Additionally, the Northeast and LA markets are down about 800 basis points compared to the rest of the fleet. Dinner day part has seen some declines. - Jonathan Neman(CEO)

What is the sales outlook for the remainder of the year given April's single-digit decline? - Zach Ogden (TD Cowen)

2025Q1: April was challenging due to external uncertainties. The second quarter is expected to be tough due to April's performance and loyalty program launches. The second half should see improvement with summer seasonals, loyalty program, and strategic collaborations. - Mitch Reback(CFO)

Contradiction Point 5

Store Growth Strategy

It indicates a shift in the company's approach to store growth and expansion, which impacts investment decisions and market strategy.

Is there flexibility in next year's unit growth guidance with improved same-store sales to allow more openings? - Logan Reich(RBC Capital Markets)

2025Q3: We have a robust pipeline of potential openings over the next few years. We have some flexibility to increase unit count based on operational improvements and same-store sales growth. - Jamie McConnell(CFO)

Why not slow development to focus on same-store sales turnaround? - Andrew Charles(TD Cowen)

2025Q2: We have strong conviction in the 1,000 store target and 15-20% growth algorithm. We're disciplined in store selection, emphasizing learnings from past years and focusing on reducing build-out costs. - Jonathan Neman(CEO)