Sweetgreen's Salad Days? A Closer Look After Pre-Earnings Downgrade

The fast-casual salad chain Sweetgreen (NYSE: SG) faced a significant setback in early 2025 when JPMorgan downgraded its stock to "neutral" from "overweight," slashing its price target by 22% to $25. The move, announced ahead of the company’s first-quarter earnings report, sent shares plummeting over 6% in early trading—a sharp decline that amplified its year-to-date (YTD) loss of 43%. This article examines the catalysts behind the downgrade, the challenges Sweetgreen faces, and whether its long-term growth story remains intact.

The Downgrade: A Recipe for Concern

JPMorgan’s analysts cited three primary risks: weakening demand, an oversupply of restaurants in key markets, and persistent negative free cash flow. The report highlighted Sweetgreen’s premium pricing—a salad averaging $13–$17, up to 30% higher than competitors—as a potential barrier to growth, particularly as affluent consumers cut back on discretionary spending. The firm urged management to prioritize affordability by expanding entry-level menu options, improving portion sizes for digital orders, and boosting marketing efficiency to counteract declining foot traffic.

The downgrade underscored broader industry headwinds. Peers like Wendy’s and McDonald’s also reported demand softness, reflecting a broader shift toward cost-conscious dining. Meanwhile, Sweetgreen’s ambitious expansion plans—40 new locations in 2025, half featuring its “Infinite Kitchen” model—face skepticism amid concerns about saturation and returns on investment.

Stock Performance: A Rocky Start to 2025

Sweetgreen’s stock has been under pressure since late 2024, but the downgrade marked a critical turning point. As of April 2025, shares traded at $18.24—well below the $34.36 average price target set by analysts, who still maintain a “Moderate Buy” consensus. The disconnect between Wall Street’s expectations and reality is evident in the widening gap between these targets and the stock’s actual valuation.

Earnings Loom Large: Can Sweetgreen Deliver?

Sweetgreen’s first-quarter 2025 earnings, scheduled for May 8, 2025, will be a pivotal moment. Analysts project a net loss of $0.22 per share on revenue of $164.68 million—slightly narrower than the $0.23 loss in Q1 2024. The results will test whether the company’s operational improvements, such as cost savings from Infinite Kitchens and menu innovations like Ripple Fries, can offset macroeconomic headwinds.

Challenges Ahead: Pricing Power and Competition

Sweetgreen’s premium pricing model remains its biggest vulnerability. While it has successfully positioned itself as a healthier alternative to fast food, its $13–$17 price tag is increasingly out of step with value-driven diners. Competitors like Chipotle and Shake Shack, which offer comparable customization at lower price points, continue to gain market share. JPMorgan’s call for Sweetgreen to reinvest in portion sizes and lower-priced options—without further price hikes—will be critical to retaining customers.

Regulatory and operational risks also loom. The company’s reliance on urban markets, where real estate costs are soaring, could strain margins. Additionally, its expansion into Infinite Kitchens—designed to reduce labor and COGS—has shown promise, but scaling these kitchens profitably remains unproven.

Opportunities in the Salad Bowl

Despite these hurdles, Sweetgreen’s long-term growth drivers remain intact. The chain’s 250+ locations as of early 2025 represent only a fraction of its addressable market, with room to expand into underserved urban and suburban areas. Its digital-first strategy, including a revamped app and loyalty program (SG Rewards), positions it to capitalize on the rising demand for contactless ordering. The Infinite Kitchen model, which cut labor costs by 7% in 2024, also offers a path to margin expansion if deployed widely.

Moreover, the company’s EBITDA turned positive for the first time in 2024, reaching $18.7 million. This milestone, driven by operational efficiencies, suggests that Sweetgreen’s cost discipline could pay dividends as it matures.

Conclusion: A Salad of Risks and Potential

Sweetgreen’s recent stumble reflects both macroeconomic pressures and execution challenges. The JPMorgan downgrade and stock decline highlight investor skepticism about its ability to balance growth, affordability, and profitability. However, the company’s Q1 earnings on May 8, 2025, offer a chance to demonstrate progress on key metrics: same-store sales trends, unit-level economics, and free cash flow improvement.

While the road ahead is fraught with risks—from pricing wars to regulatory hurdles—the brand’s premium positioning and innovation pipeline give it a fighting chance. If Sweetgreen can refine its value proposition, accelerate Infinite Kitchen rollouts, and demonstrate consistent margin expansion, its stock could rebound. Until then, investors will remain cautious, waiting for proof that the salad chain’s salad days are not yet over.

Final Take: Sweetgreen’s fate hinges on its ability to navigate the fine line between premium pricing and affordability. With a Q1 earnings report just days away, the next few weeks will determine whether this leafy green disruptor can stay on the menu—or wilt under pressure.