Sweetgreen, Inc.: Form 10-Q for the period ended Jun 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. See the section titled “Special Note Regarding Forward-Looking Statements” in this Quarterly Report. Unless the context otherwise requires, all references in this section to “we,” “us,” “our,” the “Company,” or “Sweetgreen” refer to Sweetgreen, Inc. and its subsidiaries.

Overview

We are a mission-driven, next generation restaurant and lifestyle brand that serves healthy food at scale. Our bold vision is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect. As of June 30, 2024, we owned and operated 231 restaurants in 20 states and Washington, D.C.

Factors Affecting Our Business

Expanding Restaurant Footprint

Opening new restaurants is an important driver of our revenue growth. During the thirteen weeks ended June 30, 2024 and June 25, 2023, we had 4 and 10 Net New Restaurant Openings, respectively. During the twenty-six weeks ended June 30, 2024 and June 25, 2023, we had 10 and 19 Net New Restaurant Openings, respectively, bringing our total count as of June 30, 2024 to 231 restaurants in 20 states and Washington, D.C.

Real Estate Selection

We utilize a rigorous, data-driven real estate selection process to identify the location and timing of opening new restaurants, both in new and existing U.S. markets and in urban and suburban areas, with both high anticipated foot or vehicle traffic and proximity to workplaces, residences and other restaurant and retail businesses that support our multi-channel approach, including our Native Delivery, Marketplace Delivery and Outpost and Catering Channels.

Macroeconomic Conditions, Inflation, and Supply Chain Constraints

Consumer spending on food outside the home fluctuates with macroeconomic conditions. Consumers tend to allocate higher spending to food outside the home when macroeconomic conditions are stronger, and reduce spending on food outside the home during weaker economies. Our customers have in the past demonstrated a willingness to pay a premium for a craveable, convenient, and healthier alternative to traditional fast-food and fast-casual offerings. However, as a premium offering in the fast-casual industry, we are exposed both to consumers trading the convenience of food away from home for the cost benefit of cooking, and to consumers selecting less expensive fast-casual alternatives during weaker economic periods.

While we have historically been able to partially offset inflation and other increases in the costs of core operating resources, such as wage increases and increases in cost of goods sold, by gradually increasing menu prices or other customer fees, such as service fees and delivery fees, coupled with more efficient purchasing practices, productivity improvements, and greater economies of scale, there can be no assurance that we will be able to continue to do so in the current macroeconomic environment or regulatory environment or in the future. In particular, current and future macroeconomic conditions could cause additional menu price increases to negatively impact our Same Store Sales Growth. There can be no assurance that future cost increases, including as a result of inflation, can be offset by increased menu prices or that our current or future menu prices will be fully absorbed by our customers without any resulting change to their demand for our products.

During the first fiscal quarter of 2023, there was an interruption by our supplier to the supply of packaging to our stores. This caused a disruption in our stores, as well as higher costs of packaging materials, which negatively impacted our restaurant operating costs during that period.

During the second quarter of 2024, we introduced steak as a new protein to our menu, which adds a new ingredient for our customer base. With the introduction of beef on our menu, we have and could continue to experience an increase in commodity costs.

Seasonality

Our revenue fluctuates as a result of seasonal factors and weather conditions. Historically, our revenue has been lower in the first and fourth fiscal quarters of the year due, in part, to the holiday season and the fact that fewer people eat out during periods of inclement weather (generally the winter months, though inclement weather conditions may occur in certain markets at any time of the year) than during periods of mild to warm weather (the spring, summer, and fall months). In addition, a core part of our menu, salads, has proven to be more popular among consumers in the warmer months. Recently, as consumer behavior trends have changed, due in part to the emergence of hybrid or remote work environments, the seasonality in our business has been less predictable than in prior years although we have seen an increased and prolonged negative impact on our revenue around national holidays.

Sales Channel Mix

Our revenue is derived from sales of food and beverage to customers through our five sales channels: In-Store Channel, Pick-Up Channel, Native Delivery Channel, Marketplace Channel, and Outpost and Catering Channel. There have been historical fluctuations in the mix of sales between our various channels. Due to the fact that our Native Delivery, Outpost and Catering, and Marketplace Channels require the payment of third-party fees in order to fulfill deliveries, sales through these channels have historically negatively impacted our margins. Additionally, historically, orders on our Native Delivery, Outpost and Catering and Marketplace Channels have resulted in a higher rate of refunds and credits than our In-Store and Pick-Up Channels, which has a negative impact on revenue from these channels. We have also historically prioritized promotions and discounts on our Owned Digital Channels, which also reduces revenue from these channels. If we see a shift in sales through the Native Delivery, Outpost and Catering, and Marketplace channels, our margins may decrease. However, over time, we expect that our margins will improve on our Native Delivery, Outpost and Catering, and Marketplace Channels as we scale each of these channels.

Key Performance Metrics and Non-GAAP Financial Measures

We track the following key performance metrics and non-GAAP financial measures to evaluate our performance, identify trends, formulate financial projections, and make strategic decisions. We believe that these key performance metrics, which include certain non-GAAP financial measures, provide useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team. These key performance metrics and non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly titled metrics or measures presented by other companies.

(dollar amounts in thousands )

(1) One restaurant was excluded from the Comparable Restaurant Base for the thirteen and twenty-six weeks ended June 30, 2024. Three restaurants were excluded from the Comparable Restaurant Base for the thirteen and twenty-six weeks ended June 25, 2023. Such adjustments did not result in a material change to AUV.

(2) Our results for the thirteen and twenty-six weeks ended June 30, 2024 have been adjusted to reflect the temporary closures of one and four restaurants, respectively, which were excluded from the calculation of Same-Store Sales Change. Such adjustments did not result in a material change to Same-Store Sales Change. Our results for the thirteen and twenty-six weeks ended June 25, 2023 have been adjusted to reflect the temporary closures of one and two restaurants, respectively, which were excluded from the calculation of Same-Store Sales Change. Such adjustments did not result in a material change to Same-Store Sales Change.

Net New Restaurant Openings

Net New Restaurant Openings reflect the number of new Sweetgreen restaurant openings during a given reporting period, net of any permanent Sweetgreen restaurant closures during the same given period. Before we open new restaurants, we incur pre-opening costs, as further described below. During fiscal year 2024 and fiscal year 2025, we plan to integrate our Infinite Kitchen into a greater number of our new restaurants.

Average Unit Volume

AUV is defined as the average trailing revenue for the prior four fiscal quarters for all restaurants in the Comparable Restaurant Base. The measure of AUV allows us to assess changes in guest traffic and per transaction patterns at our restaurants. Fiscal year 2023 was a 53-week year, and in order to provide a measurement period that is consistent with comparable periods that span a 52-week year, rather than simply excluding the extra week, we applied an averaging methodology to the last period of fiscal 2023 to adjust for the extra week. Comparable Restaurant Base for any measurement period is defined as all restaurants that have operated for at least twelve full months as of the end of such measurement period, other than any restaurants that had a material, temporary closure during the relevant measurement period. For the thirteen and twenty-six weeks ended June 30, 2024, one restaurant was excluded from the Comparable Restaurant Base. Such adjustments did not result in a material change to AUV. For the thirteen and twenty-six weeks ended June 25, 2023, three restaurants were excluded from the Comparable Restaurant Base. Such adjustments did not result in a material change to AUV.

Same-Store Sales Change

Same-Store Sales Change reflects the percentage change in year-over-year revenue for the relevant fiscal period for all restaurants that have operated for at least 13 full fiscal months as of the end of such fiscal period, excluding the 14th week in any 14-week period and the 53rd week in any 53-week period, as applicable; provided, that for any restaurant that has had a temporary closure (which historically has been defined as a closure of at least five days during which the restaurant would have otherwise been open) during any prior or current fiscal month, such fiscal month, as well as the corresponding fiscal month for the prior or current fiscal year, as applicable, will be excluded when calculating Same-Store Sales Change for that restaurant. Fiscal year 2023 was a 53-week year, which resulted in a misalignment in our comparable weeks in fiscal year 2024. To adjust for this misalignment, in calculating Same-Store Sales Change for each fiscal quarter and the full fiscal year 2024, we shifted each week within fiscal year 2023 forward by one week to better align with the 2024 calendar year, specifically to match the timing of holidays and achieve a more accurate comparable Same-Store Sales Change to the prior period. During the thirteen and twenty-six weeks ended June 30, 2024, one and four restaurants were excluded from the calculation of Same-Store Sales Change, respectively. During the thirteen and twenty-six weeks ended June 25, 2023, one and two restaurants were excluded from the calculation of Same-Store Sales Change, respectively. Such adjustments did not result in a material change to Same-Store Sales Change. This measure highlights the performance of existing restaurants, while excluding the impact of new restaurant openings and closures.

Total Digital Revenue Percentage and Owned Digital Revenue Percentage

Our Total Digital Revenue Percentage is the percentage of our revenue attributed to purchases made through our Total Digital Channels. Our Owned Digital Revenue Percentage is the percentage of our revenue attributed to purchases made through our Owned Digital Channels.

Non-GAAP Financial Measures

In addition to our consolidated financial statements, which are presented in accordance with GAAP, we present certain non-GAAP financial measures, including Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin. We believe these measures are useful to investors and others in evaluating our performance because these measures:

• facilitate operating performance comparisons from period to period by isolating the effects of some

items that vary from period to period without any correlation to core operating performance or that

vary widely among similar companies. These potential differences may be caused by variations in

capital structures (affecting interest expense), tax positions (such as the impact on periods or

companies of changes in effective tax rates or NOL), and the age and book depreciation of facilities

and equipment (affecting relative depreciation expense);

• are widely used by analysts, investors, and competitors to measure a company’s operating performance; are used by our management and board of directors for various purposes, including as measures of performance, and as a basis for strategic planning and forecasting; and
• are used internally for a number of benchmarks, including to compare our performance to that of our competitors.

Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA, and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, Restaurant-Level Profit and Adjusted EBITDA should not be viewed as substitutes for, or superior to, loss from operations or net loss prepared in accordance with GAAP as a measure of profitability. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Restaurant-Level Profit and Adjusted EBITDA do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
• Restaurant-Level Profit and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
• Restaurant-Level Profit and Adjusted EBITDA do not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;
• Restaurant-Level Profit and Adjusted EBITDA do not consider the potentially dilutive impact of stock-based compensation;
• Restaurant-Level Profit is not indicative of overall results of the Company and does not accrue directly to the benefit of stockholders, as corporate-level expenses are excluded;
• Adjusted EBITDA does not take into account any income or costs that management determines are not indicative of ongoing operating performance, such as stock-based compensation; loss on disposal of property and equipment; certain other expenses; Spyce acquisition costs; our enterprise resource planning system (“ERP”) implementation and related costs; legal settlements; and, in certain periods, impairment and closure costs and restructuring charges; and
• other companies, including those in our industry, may calculate Restaurant-Level Profit and Adjusted EBITDA differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider Restaurant-Level Profit, Restaurant-Level Profit Margin, Adjusted EBITDA and Adjusted EBITDA Margin alongside other financial performance measures, loss from operations, net loss, and our other GAAP results.

Restaurant-Level Profit and Restaurant-Level Profit Margin

We define Restaurant-Level Profit as loss from operations adjusted to exclude general and administrative expense, depreciation and amortization, pre-opening costs, loss on disposal of property and equipment, and in certain periods, impairment and closure costs and restructuring charges. Restaurant-Level Profit Margin is Restaurant-Level Profit as a percentage of revenue.

As it excludes general and administrative expense, which is primarily attributable to our corporate headquarters, which we refer to as our Sweetgreen Support Center, we evaluate Restaurant-Level Profit and Restaurant-Level Profit Margin as a measure of profitability of our restaurants.

The following table sets forth a reconciliation of our loss from operations to Restaurant-Level Profit, as well as the calculation of loss from operations margin and Restaurant-Level Profit Margin for each of the periods indicated:

(dollar amounts in thousands)

(1) Loss on disposal of property and equipment includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

(2) Restructuring charges are expenses that are paid in connection with reorganization of our operations. These costs primarily include lease and related costs associated with our vacated former Sweetgreen Support Center, including the impairment and the amortization of the operating lease asset.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net loss adjusted to exclude income tax expense, interest income, interest expense, depreciation and amortization, stock-based compensation expense, loss on disposal of property and equipment, other (income) expense, Spyce acquisition costs, ERP implementation and related costs, and, in certain periods, impairment and closure costs, restructuring charges and legal settlements. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of revenue.

The following table sets forth a reconciliation of our net loss to Adjusted EBITDA, as well as the calculation of net loss margin and Adjusted EBITDA Margin for each of the periods indicated:

(dollar amounts in thousands)

(1) Includes non-cash, stock-based compensation.

(2) Loss on disposal of property and equipment includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

(3) Includes costs related to impairment of long-lived assets and store closures.

(4) Other expense includes the change in fair value of the contingent consideration. See Note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report.

(5) Spyce acquisition costs includes one-time costs we incurred in order to acquire Spyce including, severance payments, retention bonuses, and valuation and legal expenses.

(6) Restructuring charges are expenses that are paid in connection with reorganization of our operations. These costs primarily include lease and related non-cash expenses associated with our vacated former Sweetgreen Support Center, including the impairment and the amortization of the operating lease asset.

(7) Represents the amortization costs associated to the implementation from our cloud computing arrangements in relation to our ERP.

(8) Expenses recorded for accruals related to the settlements of legal matters.

Components of Results of Operations

Revenue

We recognize food and beverage revenue, net of discounts and incentives, when payment is tendered at the point of sale as the performance obligation has been satisfied, through our three disaggregated revenue channels: Owned Digital Channels, In-Store-Channel (Non-Digital component), and Marketplace Channel. Provisions for discounts are provided for in the same period the related sales are recorded. Sales taxes and other taxes collected from customers and remitted to governmental authorities are presented on a net basis, and as such, are excluded from revenue. We expect revenue to increase as we focus on opening additional restaurants, diversify and expand our menu, make investments in our Owned Digital Channels to attract new customers and increase order frequency in our existing customers, as well as any increases in the price of our menu items.

Gift Cards

We also sell gift cards that do not have an expiration date. Upon sale, gift cards are recorded as unearned revenue and included within gift card liability in the accompanying consolidated balance sheets. The revenue from gift cards is recognized when redeemed by customers. Because we do not track addresses of gift card purchasers, the relevant jurisdiction related to the requirement for escheatment, the legal obligation to remit unclaimed assets to the state, is our state of incorporation, which is Delaware. The state of Delaware requires escheatment after five years from issuance. We do not recognize breakage income because of our requirements to escheat unredeemed gift card balances.

Delivery

The majority of our restaurant locations offer a delivery option. Delivery services are fulfilled by third-party service providers whether delivery is ordered through our Native Delivery Channel or Marketplace Channel. With respect to Native Delivery Channel sales, we control the delivery services and recognize revenue, including delivery revenue, when the delivery partner transfers food or beverage to the customer. For these sales, we receive payment directly from the customer at the time of sale. With respect to Marketplace Channel sales, we recognize revenue, excluding delivery fees collected by the delivery partner as we do not control the delivery service, when control of the food or beverage is delivered to the end customer. We receive payment from the delivery partner subsequent to the transfer of food and the payment terms are short-term in nature. For all delivery sales, we are considered the principal and recognize the revenue on a gross basis. For a more detailed discussion of our third-party delivery fees and our expectations regarding our margins, see the section titled “—Sales Channel Mix” above.

Restaurant Operating Costs, Exclusive of Depreciation and Amortization

Food, Beverage, and Packaging

Food, beverage, and packaging costs include the direct costs associated with food, beverage, and packaging of our menu items. We anticipate food, beverage and packaging costs on an absolute dollar basis will increase for the foreseeable future to the extent we experience additional in-store orders, as we open additional restaurants, and as a result our revenue grows. Food, beverage, and packaging costs as a percentage of revenue may vary, as these costs are impacted by menu mix and fluctuations in commodity costs, inflation, and availability, as well as geographic scale and proximity. We will continue to innovate in key areas, including menu, which could lead to increases in commodity costs as we add items such as beef to our menu.

Labor and Related Expenses

Labor and related expenses include salaries, bonuses, benefits, payroll taxes, workers’ compensation expenses, and other expenses related to our restaurant employees. As with other variable expense items, we expect labor costs to grow as our revenue grows. Other factors that influence labor costs include each jurisdiction’s minimum wage and payroll tax legislation, inflation, the strength of the labor market for hourly employees, benefit costs, health care costs, and the size and location of our restaurants.

Occupancy and Related Expenses

Occupancy and related expenses consist of restaurant-level occupancy expenses (including rent, common area maintenance (“CAM”) expenses and real estate taxes), and exclude occupancy expenses associated with unopened restaurants, which are recorded separately in pre-opening costs. We anticipate occupancy and related expenses on an absolute dollar basis will increase for the foreseeable future to the extent we continue to open new restaurants and revenue grows. Occupancy and related expenses as a percentage of revenue are impacted by geographic location, type of restaurant build, and amount of revenue.

Other Restaurant Operating Costs

Other restaurant operating costs include other operating expenses incidental to operating our restaurants, such as repairs and maintenance, utilities, certain local taxes, third-party delivery fees, non-perishable supplies, restaurant-level marketing, credit card fees and property insurance. We expect that other restaurant operating costs will increase on an absolute dollar basis for the foreseeable future to the extent we continue to open new restaurants and our revenue grows. Other restaurant operating costs as a percentage of revenue are expected to increase in line with growth in our Native Delivery, Outpost and Catering, and Marketplace Channels, as these channels require us to pay third-party delivery fees. However, as revenue increases, we expect that other restaurant operating costs, such as repairs and maintenance and property insurance, as a percentage of revenue will decline.

Operating Expenses

General and Administrative

General and administrative expenses consist primarily of operations, technology, finance, legal, human resources, administrative personnel, and other personnel costs that support restaurant development and operations, as well as stock-based compensation expense and brand-related marketing. As a percentage of revenue, we expect our general and administrative expenses to vary from period to period and to decrease over time.

Depreciation and Amortization

Depreciation and amortization include the depreciation of fixed assets, including leasehold improvements and equipment, and the amortization of external costs, certain internal costs directly associated with developing computer software applications for internal use, and developed technology acquired as part of our Spyce acquisition. We expect that depreciation and amortization expenses will increase on an absolute dollar basis as we continue to build new restaurants and make investments in our digital platform.

Pre-Opening Costs

Pre-opening costs primarily consist of rent, wages, travel for training and restaurant opening teams, food, marketing, and other restaurant costs that we incur prior to the opening or during the major renovation, of a restaurant. These expenses will increase in proportion to the increase of our new restaurant openings and major renovations. These costs are expensed as incurred. Pre-opening costs depend on the number of new restaurants and major restaurant renovations we open during each period or are planning to open in future periods. As a result, while we expect that pre-opening costs on an absolute dollar basis will fluctuate from period to period, we expect pre-opening costs to begin to increase in fiscal year 2025 in connection with the reacceleration of our new restaurant growth rate described above.

Impairment and Closure Costs

Impairment includes impairment charges related to our long-lived assets, which include property and equipment, and operating lease assets.

Loss on Disposal of Property and Equipment

Loss on disposal of property and equipment includes the net book value of assets that have been retired and consists primarily of furniture, equipment and fixtures that were replaced in the normal course of business.

Restructuring Charges

Restructuring charges are expenses that are paid in connection with the reorganization of our operations. These costs primarily include operating lease asset impairment costs related to our vacated former Sweetgreen Support Center, as well as the amortization of the underlying operating lease asset and related real estate and CAM charges, severance and related benefits from workforce reductions at our Sweetgreen Support Center, and costs related to abandoning certain potential future restaurant sites, which are a result of our efforts to streamline our future new restaurant openings, and other related expenses.

Interest Income and Interest Expense

Interest income consists of interest earned on our cash and cash equivalents. Interest expense includes mainly amortization of deferred financing costs from our debt origination and commitment fees.

Other Expense

Other expense consists primarily of changes in the fair value of our contingent consideration liability. We will continue to remeasure the liability associated with our contingent consideration liability until the underlying service conditions are met, or the performance period expires.

Income Tax Expense

Income tax expense consists of federal and state tax expense on our operating activity, and changes to our deferred tax asset and deferred tax liability. For additional information, see Note 11 to our condensed consolidated financial statements included elsewhere in this Quarterly Report.

Results of Operations

Comparison of the thirteen and twenty-six weeks ended June 30, 2024 and June 25, 2023

The following table summarizes our results of operations for the thirteen weeks ended June 30, 2024 and June 25, 2023:

(dollar amounts in thousands)

27

The following table summarizes our results of operations for the twenty-six weeks ended June 30, 2024 and June 25, 2023:

(dollar amounts in thousands)

Revenue

(dollar amounts in thousands)

The increase in revenue for the thirteen weeks ended June 30, 2024 was primarily due to an increase of $18.2 million of incremental revenue associated with 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023. In addition, $13.9 million of the increase was the result of a positive Same-Store Sales Change of 9% consisting of a 5% benefit from menu price increases that were implemented subsequent to the thirteen weeks ended June 25, 2023 and a 4% increase due to traffic and favorable product mix.

The increase in revenue for the twenty-six weeks ended June 30, 2024 was primarily due to an increase of $39.2 million of incremental revenue associated with 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023. The remaining increase in revenue was due to an increase in Comparable Restaurant Base revenue of $20.4 million, resulting in a positive Same-Store Sales Change of 7%, primarily due to a 5% benefit from menu price increases that were implemented subsequent to the thirteen weeks ended June 25, 2023 and a 2% increase due to traffic and favorable product mix. The remaining $5.3 million of the increase was due to additional fiscal year-over-year comparable restaurant sales growth, which would have been reflected in our Same-Store Sales Change had we not adjusted for the misalignment in our comparable weeks resulting from fiscal year 2023 being a 53-week year, as described above.

Restaurant Operating Costs

Food, Beverage, and Packaging

(dollar amounts in thousands)

The increase in food, beverage, and packaging costs for the thirteen weeks ended June 30, 2024 was primarily due to the 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023 as well as higher protein cost.

The increase in food, beverage, and packaging costs for the twenty-six weeks ended June 30, 2024 was primarily due to the 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023, and higher protein cost. These increases were partially offset by a decrease in packaging costs, which were higher in the prior-year period due to a packaging supply chain disruption.

As a percentage of revenue, food, beverage, and packaging costs for both the thirteen and twenty-six weeks ended June 30, 2024 remained relatively consistent compared to the thirteen and twenty-six weeks ended June 25, 2023, respectively, primarily due to an increase in revenue proportional to the increase in food, beverage, and packaging costs.

Labor and Related Expenses

(dollar amounts in thousands)

The increase in labor and related expenses for the thirteen weeks ended June 30, 2024 was primarily due to the 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023. The increase was also driven by higher staffing expenses associated with increases in prevailing wage rates in many of our markets, partially offset by improved labor optimization. Most notably, as of April 1, 2024, California fast food wages increased as result of AB 1228.

The increase in labor and related expenses for the twenty-six weeks ended June 30, 2024 was primarily due to the 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023. The increase was also driven by higher staffing expenses associated with increases in prevailing wage rates in many of our markets, most notably, as of April 1, 2024, California fast food wages increased as result of AB 1228. These increases were partially offset by a $1.8 million benefit related to refundable employee retention tax credits (“ERC”) issued as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) as well as an improvement in labor optimization. See Note 11 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for further details on the ERC.

As a percentage of revenue, the decrease in labor and related expenses for the thirteen weeks ended June 30, 2024 was primarily due to higher revenue and improvement in labor optimization, partially offset by wage rate increases, as discussed above compared to the thirteen weeks ended June 25, 2023.

As a percentage of revenue, the decrease in labor and related expenses for the twenty-six weeks ended June 30, 2024 was primarily due to higher revenue and improvement in labor optimization, partially offset by wage rate increases, as discussed above compared to the twenty-six weeks ended June 25, 2023. These decreases were partially offset by a $1.8 million benefit received during the thirteen weeks ended March 26, 2023, related to a refundable ERC issued as part of the CARES Act.

Occupancy and Related Expenses

(dollar amounts in thousands)

The increase in occupancy and related expenses for the thirteen weeks ended June 30, 2024 was primarily due to the 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023.

The increase in occupancy and related expenses for the twenty-six weeks ended June 30, 2024 was primarily due to the 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023.

As a percentage of revenue, occupancy and related expenses for the thirteen weeks ended June 30, 2024 decreased compared to the thirteen weeks ended June 25, 2023, primarily due to higher revenue.

As a percentage of revenue, occupancy and related expenses for the twenty-six weeks ended June 30, 2024 remained consistent compared to the twenty-six weeks ended June 25, 2023.

Other Restaurant Operating Costs

(dollar amounts in thousands)

The increase in other restaurant operating costs for the thirteen weeks ended June 30, 2024 was primarily due to the 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023. This includes increases in delivery fees, primarily related to the increase in revenue through our Marketplace Channel, credit card and online processing fees related to the increase in revenue, and repair and maintenance expenses.

The increase in other restaurant operating costs for the twenty-six weeks ended June 30, 2024 was primarily due to the 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023. This includes increases in delivery fees, primarily related to the increase in revenue through our Marketplace Channel, credit card and online processing fees related to the increase in revenue, and repair and maintenance expenses.

As a percentage of revenue, other restaurant operating costs for both the thirteen and twenty-six weeks ended June 30, 2024 remained consistent compared to the thirteen and twenty-six weeks ended June 25, 2023, respectively.

Operating Expenses

General and Administrative

(dollar amounts in thousands)

30

The decrease in general and administrative expenses for the thirteen weeks ended June 30, 2024 was primarily due to a $3.6 million decrease in stock-based compensation expense, primarily related to the decrease in expenses associated with restricted stock units and performance-based restricted stock units issued prior to our IPO. The decrease was partially offset by an increase in our investment in marketing and advertising.

The increase in general and administrative expenses for the twenty-six weeks ended June 30, 2024 was primarily due to a $5.1 million benefit received during the twenty-six weeks ended June 25, 2023 from the ERC. The remaining increase was due to an increase in our investment in marketing and advertising and an increase in management salaries and benefits including bonus. These increases were partially offset by a decrease in stock-based compensation expense primarily related to the decrease in expense associated with restricted stock units and performance-based restricted stock units issued prior to our IPO.

As a percentage of revenue, the decrease in general and administrative expenses for both the thirteen and twenty-six weeks ended June 30, 2024 was primarily due to the comparatively higher revenue in the current period, partially offset by the net effect of the fluctuations noted above.

Depreciation and Amortization

(dollar amounts in thousands)

The increase in depreciation and amortization for the thirteen weeks ended June 30, 2024 was primarily due to the 36 Net New Restaurant Openings during or subsequent to the thirteen weeks ended June 25, 2023.

The increase in depreciation and amortization for the twenty-six weeks ended June 30, 2024 was primarily due to the 45 Net New Restaurant Openings during or subsequent to the twenty-six weeks ended June 25, 2023, as well as the amortization from developed technology that was placed into service during the thirteen weeks ended June 25, 2023.

As a percentage of revenue, depreciation and amortization slightly decreased for the thirteen weeks ended June 30, 2024 compared to the thirteen weeks ended June 25, 2023, which was primarily due to comparatively higher revenue in the current period, partially offset by the increase noted above.

As a percentage of revenue, depreciation and amortization for the twenty-six weeks ended June 30, 2024 remained consistent compared to the twenty-six weeks ended June 25, 2023.

Pre-Opening Costs

(dollar amounts in thousands)

The decrease in pre-opening costs for the thirteen weeks ended June 30, 2024 was primarily due to 4 gross new restaurant openings during the thirteen weeks ended June 30, 2024 compared to 10 gross new restaurant openings in the same quarter of the prior year.

The decrease in pre-opening costs for the twenty-six weeks ended June 30, 2024 was primarily due to 10 gross new restaurant openings during the twenty-six weeks ended June 30, 2024 compared to 22 gross new restaurant openings in the twenty-six weeks ended June 25, 2023.

As a percentage of revenue, pre-opening costs decreased in the thirteen and twenty-six weeks ended June 30, 2024 compared to the thirteen weeks ended June 25, 2023, due to the variances noted above as well as comparatively higher revenue in the current period.

Impairment and Closure Costs

(dollar amounts in thousands)

During the thirteen and twenty-six weeks ended June 30, 2024, we recorded closure costs of $0.1 million and $0.3 million, respectively, related to lease and related costs associated with previously closed restaurants, including the amortization of operating lease assets, and expenses associated with CAM and real estate taxes.

Restructuring Charges

(dollar amounts in thousands)

The decrease in restructuring charges for the thirteen and twenty-six weeks ended June 30, 2024 is primarily related to the $4.3 million operating lease impairment expense recognized during the thirteen and twenty-six weeks ended June 25, 2023, associated with our former Sweetgreen Support Center. The remaining expense for both the thirteen and twenty-six weeks ended June 30, 2024 and June 25, 2023 relates to the amortization of the remaining operating lease asset of our former Sweetgreen Support Center and related real estate and CAM charges.

Loss on Disposal of Property and Equipment

(dollar amounts in thousands)

The increase in loss on disposal of property and equipment was due to timing of furniture, equipment and fixture replacements at multiple restaurants for the thirteen and twenty-six weeks ended June 30, 2024 compared to the prior year periods.

Interest Income and Interest Expense

(dollar amounts in thousands)

32

The decrease in interest income, net, was primarily due to a lower cash balance in our money market accounts during the thirteen and twenty-six weeks ended June 30, 2024 compared to the prior year periods.

Other Expense

(dollar amounts in thousands)

The change in other expense for each of the thirteen and twenty-six weeks ended June 30, 2024 was primarily due to a change in the fair value of our contingent consideration compared to the prior year periods, which was issued as part of the Spyce acquisition in the third quarter of fiscal year 2021.

Liquidity and Capital Resources

Sources and Material Cash Requirements

To date, we have funded our operations through proceeds received from previous common stock and preferred stock issuances, our ability to obtain lending commitments and through cash flow from operations. Additionally, in November 2021, we completed our IPO, from which we received net proceeds of $384.7 million from sales of our shares of Class A common stock, after deducting underwriting discounts and commissions and offering expenses. As of June 30, 2024 and December 31, 2023, we had $244.6 million and $257.2 million in cash and cash equivalents, respectively. As of June 30, 2024, we had access to a $43.1 million revolver loan(s) under our 2020 Credit Agreement after giving effect to a $1.9 million irrevocable standby Letter of Credit outstanding thereunder. As of June 30, 2024, there have been no draws on the revolving facility. Based on our current operating plan, we believe our existing cash and cash equivalents and access to available revolving loan(s), will be sufficient to fund our operating lease obligations, capital expenditures, and working capital needs for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and available revolving loan(s). If we are unable to generate positive operating cash flows, additional debt and equity financings may be necessary to sustain future operations, and there can be no assurance that such financing will be available to us on commercially reasonable terms, or at all.

Our primary liquidity and capital requirements are for new restaurant development, initiatives to improve the team member and customer experience in our restaurants, marketing-related costs, research and development costs, working capital and general corporate needs. Additionally, during the twenty-six weeks ended June 30, 2024, we made a cash payment of approximately $3.9 million related to the Spyce milestone payment. See Note 3 for further details. We have not required significant working capital because customers generally pay using cash or credit and debit cards and, as a result, our operations do not require significant receivables. Additionally, our operations do not require significant inventories due, in part, to our use of numerous fresh ingredients. Further, we are able to sell most of our inventory items before payment is due to the supplier of such items.

Material Cash Requirements

Our material cash requirements primarily consist of operating lease obligations and purchase obligations. The timing and nature of these commitments are expected to have an impact on our liquidity and capital requirements in future periods. Refer to Note 7, Debt, and Note 8, Leases, in the accompanying condensed consolidated financial statements included in Part I, Item 1 for additional information relating to our long-term debt and operating leases.

Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms. The majority of our purchase obligations relate to amounts owed for supplies within our restaurants and are due within the next twelve months.

Credit Facility

On December 14, 2020, we entered into a First Amended and Restated Revolving Credit, Delayed Draw Term Loan and Security Agreement (as subsequently amended, as discussed below, the “2020 Credit Facility”) with EagleBank. The 2020 Credit Facility superseded our 2017 revolving credit facility with EagleBank and allows us to borrow (i) up to $35.0 million (subsequently increased to $45.0 million) in the aggregate principal amount under the refinanced revolving facility and (ii) up to $10.0 million in the aggregate principal amount under a delayed draw term loan facility, which expired on December 14, 2021, and which was never drawn on. The refinanced revolving facility originally matured on December 14, 2022 (and has since been extended to December 13, 2024). However, if we issue certain convertible debt or unsecured indebtedness that are permitted under the 2020 Credit Facility, then the refinanced revolving facility will mature on the earlier to occur of (i) the maturity date indicated in the previous sentence and (ii) 90 days prior to the scheduled maturity date for any portion of such permitted convertible debt or unsecured indebtedness, as applicable.

On May 9, 2022, we and Eagle Bank amended the 2020 Credit Facility to allow for the issuance of Letters of Credit of up to $1.5 million under the revolving facility. In connection therewith, we entered into a $950,000 irrevocable standby Letter of Credit with Eagle Bank, with The Travelers Indemnity Company as the beneficiary in connection with our workers’ compensation insurance policy.

On December 13, 2022, we and Eagle Bank amended the 2020 Credit Facility to extend the maturity date from December 14, 2022 to December 13, 2024. The amendment also increased the revolving facility cap by $10.0 million, to allow for us to borrow up to $45.0 million in the aggregate principal amount under the refinanced revolving facility.

On April 26, 2023, we and Eagle Bank further amended the 2020 Credit Facility to allow for an increase to the issuance of Letters of Credit of up to $3.5 million. In connection therewith, we increased our irrevocable standby Letter of Credit with Eagle Bank to $1.95 million, with The Travelers Indemnity Company as the beneficiary in connection with our workers’ compensation insurance policy. This replaced the previous amendment dated May 9, 2022.

Under the 2020 Credit Facility, interest accrues on the outstanding loan balance and is payable monthly at a rate of the adjusted one-month term Secured Overnight Financing Rate, plus 2.90%, with a floor on the interest rate at 3.75%. As of June 30, 2024 and December 31, 2023, we had no outstanding balance under the 2020 Credit Facility.

The obligations under the 2020 Credit Facility are guaranteed by our existing and future material subsidiaries and secured by substantially all of our and our subsidiary guarantor’s assets. The 2020 Credit Facility also restricts our ability, and the ability of our subsidiary guarantors to, among other things, incur liens; incur additional indebtedness; transfer or dispose of assets; make acquisitions; change the nature of the business; guarantee obligations; pay dividends to shareholders or repurchase stock; and make advances, loans, or other investments. The 2020 Credit Facility contains customary events of default, including, without limitation, failure to pay the outstanding loans or accrued interest on the due date.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

(amounts in thousands)

Operating Activities

For the twenty-six weeks ended June 30, 2024, cash provided by operating activities increased $17.7 million compared to the twenty-six weeks ended June 25, 2023. The increase was primarily due to a $6.8 million increase in income after excluding non-cash items and the impact of favorable working capital fluctuations of $11.0 million, which primarily related to the timing of payroll and other payments in the ordinary course of business.

Investing Activities

For the twenty-six weeks ended June 30, 2024, cash used in investing activities was $(36.3) million, a decrease of $22.2 million compared to the twenty-six weeks ended June 25, 2023. Investing activities for the twenty-six weeks ended June 30, 2024 consisted primarily of purchases of property and equipment of $32.7 million related to 10 gross new restaurant openings (excluding tenant improvement allowances), restaurants in process, renovations, and prepayments associated with the deployment of our Infinite Kitchen and other restaurants related equipment. In addition we had cash outflow for the twenty-six weeks ended June 30, 2024 of $3.6 million related to purchase of intangible assets.

Investing activities for the twenty-six weeks ended June 25, 2023 consisted primarily of purchases of property and equipment of $55.8 million related to 22 gross new restaurant openings (excluding tenant improvement allowances), restaurants in process, renovations, and prepayments associated with the deployment of our Infinite Kitchen and other restaurants related equipment. In addition we had cash outflow for the twenty-six weeks ended June 25, 2023 of $2.6 million related to purchase of intangible assets.

Financing Activities

For the twenty-six weeks ended June 30, 2024, cash provided by financing activities decreased $0.8 million compared to the twenty-six weeks ended June 25, 2023. This was primarily due to a payment associated with the contingent consideration offset by an increase in proceeds received from stock option exercises.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date, as well as reported amounts of revenue and expenses during the reporting period. Our most significant estimates and judgments involve difficult, subjective, or complex judgements made by management. Actual results may differ from these estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. There have been no material changes to our critical accounting estimates as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Recent Accounting Pronouncements

See Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Quarterly Report.

We have operations solely within the United States, and we are exposed to market risks in the ordinary course of business. The primary risks we face are commodity price risks, interest rate risk, the effects of inflation, and macroeconomic risks. There have been no material changes to our exposure to market risks as described in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Our disclosure controls and procedures are based on assumptions about the likelihood of future events, and even effective disclosure controls and procedures can only provide reasonable assurance of achieving their objectives. Because of their inherent limitations, we cannot guarantee that our disclosure controls and procedures will succeed in achieving their stated objectives in all cases, that they will be complied with in all cases, or that they will prevent or detect all misstatements.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.