Sweetgreen (SG) Stock Sinks 7% on Reduced 2022 Outlook

  • Shares of fast-casual restaurant chain Sweetgreen (SG) shares slipped 7% before paring back some of the losses.
  • The company disclosed a reduced revenue forecast for this year.
  • SG stock faces multiple unique pressures stemming from the coronavirus pandemic.
SG stock - Sweetgreen (SG) Stock Sinks 7% on Reduced 2022 Outlook

Source: melissamn / Shutterstock.com

Fast-casual restaurant Sweetgreen (NYSE:SG) – which specializes in various salad-based offerings – presented news that was lacking in both descriptors, disclosing a sour outlook for the full year that brought out the red ink for SG stock. Essentially, management downgraded its 2022 revenue expectations amid multiple pain points stemming from the coronavirus pandemic.

On Tuesday, Sweetgreen reported its results for the second quarter, delivering a loss of 36 cents per share, in line with covering analysts’ consensus estimate. However, the mood shifted negatively when management posted revenue of $124.9 million, conspicuously below the $130.2 million analysts expected.

However, the real fireworks for SG stock came courtesy of its adjusted revenue expectations. Based on the current economic framework, Sweetgreen’s executive team now expects 2022 sales to hit between $480 million to $500 million. The forward guidance represents a downgrade from the company’s prior forecast of $515 million to $535 million.

Adding to the woes for SG stock, the restaurant chain also revised its expectations for same-store sales, anticipating growth of 13% to 19%. Again, this projection came in below the prior guidance of 20% to 26% growth.

If that wasn’t enough bad news for stakeholders, Sweetgreen also stated that it laid off 5% of its workforce as part of a “path to profitability,” according to Nation’s Restaurant News. As well, the chain moved its Los Angeles headquarters to a nearby, smaller location.

Pandemic Headwinds Imposed Pressures on SG Stock

Speaking about the cuts, Sweetgreen CFO Mitch Reback stated, “We made these changes to lower our operating expenses and protect our path to profitability in this uncertain environment.” For SG stock, a full return to normal can’t come soon enough.

“We began to see softness in revenue around Memorial Day and are therefore lowering our 2022 guidance,” Reback added in Sweetgreen’s earnings statement. “We will continue to manage corporate overhead and efficiently run our restaurants as we work towards profitability.”

Primarily, the key negative catalyst for SG stock was the slow return to the office. As Bloomberg noted, white-collar workers in major hubs like New York City or Silicon Valley typically gravitated toward Sweetgreen’s fast-casual business. It continued:

“But in both the Bay Area and the Northeast, workers have been returning to the office at a slower clip than in other parts of the country. That’s diminished demand for the company’s pricey salads at the same time that other more price-sensitive consumers are being squeezed by higher inflation.”

Further, Sweetgreen CEO Jonathan Neman attributed the company’s sales slowdown in part to “an unprecedented increase in summer travel.” Added Reback, “In Sweetgreen’s 15-year history of sales patterns we’ve never seen this before; our historical seasonality always showed growth.”

Misery Loves Company

Sweetgreen isn’t the only eatery suffering from pandemic-related headwinds. Last week, Shake Shack (NYSE:SHAK) reduced guidance for the full year for its domestic co-operated restaurants, pointing to a lack of urban office workers. While Chipotle Mexican Grill (NYSE:CMG) and McDonald’s (NYSE:MCD) reported strong sales, they noticed that “diners are trading down to more affordable options,” per Bloomberg.

However, not all analysts issued pessimistic reports on SG stock, with some contrarians suggesting more workers could return to the office after Labor Day. After a rough showing this year, Sweetgreen could use some sweet news.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2022/08/sweetgreen-sg-stock-sinks-7-percent-on-reduced-2022-outlook/.

©2023 InvestorPlace Media, LLC