Sweetgreen Shares Plunge as JPMorgan Warns of Pricing Pressure and Demand Shifts

On May 6, 2025, Sweetgreen (SG) shares plummeted over 6% following a stark downgrade from JPMorgan, which cut its rating on the fast-casual salad chain from “Overweight” to “Neutral” and slashed its price target to $25—a 22% discount from its prior $32 estimate. The move underscored mounting concerns about Sweetgreen’s ability to sustain its premium pricing strategy amid shifting consumer preferences and operational challenges, sending its stock to a year-to-date decline of over 40%.

The Downgrade: A Recipe for Uncertainty

JPMorgan’s analysts, led by Rahul Krotthapalli, cited several critical issues in their downgrade:

1. Pricing Power Under Threat: Sweetgreen’s salads and bowls, priced between $13 and $17—up to 30% higher than competitors like Dig Inn or Chop’t—are struggling to attract cost-conscious diners. Higher-income consumers, who have historically fueled Sweetgreen’s growth, are reportedly scaling back discretionary spending, while middle-income groups are gravitating toward cheaper alternatives.
2. Negative Cash Flow and Overexpansion: Despite 15% sales growth in 2024 (revenue hit $676.8 million), Sweetgreen remains cash flow negative, with free cash flow projected to stay in the red through 2030. The company’s aggressive expansion—adding 25 stores in 2024—has outpaced demand, leading to underutilized locations.
3. Operational Hurdles: Q1 2025 same-store sales were dented by extreme weather and wildfires in Los Angeles, while new initiatives like its “infinite kitchen” model and handheld menu items have yet to deliver meaningful results. Marketing spend, JPMorgan noted, needs better targeting to improve ROI.

Stock Performance and Broader Market Signals

The downgrade came ahead of Sweetgreen’s Q1 earnings report, due on May 8, which analysts expect to show revenue of $164.8 million and a net loss of $26 million. While some analysts, like Piper Sandler and UBS, remain cautiously optimistic with price targets of $27–$35, JPMorgan’s $25 price target (valid through December 2026) reflects skepticism about near-term profitability.

Can Sweetgreen Turn the Tide?

Sweetgreen’s path to recovery hinges on addressing JPMorgan’s concerns:
- Pricing Strategy: Halting price hikes and introducing more affordable entry-level options could attract budget-conscious customers without diluting its premium brand.
- Operational Efficiency: Reducing store count growth while optimizing existing locations and improving cash flow through better inventory management and menu innovation.
- Marketing and Loyalty Programs: Competing with rivals like Shake Shack or Chipotle, which have strong loyalty initiatives, requires more targeted spending and digital engagement.

The Bottom Line: Risks vs. Long-Term Potential

While JPMorgan’s downgrade highlights near-term risks—from pricing pressures to cash flow struggles—the stock’s average Wall Street target of $29.89 (a 52% upside from its May 6 price of $19.54) suggests investors still see potential in Sweetgreen’s long-term story. GuruFocus’s GF Value estimate of $30.34 for 2026 also hints at recovery possibilities if the company can execute on its value proposition.

However, the path to profitability is fraught. With competitors like McDonald’s and Wendy’s also grappling with demand softness, and consumer spending under macroeconomic pressure, Sweetgreen must prove it can balance premium pricing with cost-conscious value. Until then, investors may remain cautious, keeping the stock’s trajectory tied to Q1 results and any signs of operational turnaround.

In a sector where execution is everything, Sweetgreen’s ability to adapt its strategy—and prove that premium salads can thrive in a cost-conscious world—will be the ultimate test.