6. Sweetgreen, Inc. (NYSE:SG)
Number of Hedge Fund Holders In Q3 2024: 25
Date of Cramer’s Comments: 8-26-24
Performance Since Then: -3.89%
Sweetgreen, Inc. (NYSE:SG) is a specialty restaurant firm that has sought to carve out a place for itself in the salad market. The firm stands out from its rivals through a well-developed vegetable supply chain through which it promises fresh raw materials. Sweetgreen, Inc. (NYSE:SG)’s shares are up 201% year-to-date as they’ve benefited from automation plans that improve margins and reduce kitchen errors. However, the stock is down 3.9% since Cramer’s remarks as Sweetgreen, Inc. (NYSE:SG) has struggled primarily on the back of a bearish Goldman Sachs note in August which cut the firm’s average operating income forecasts for the next couple of years by 12%. Back then, the stock had peaked at $42.2 while Goldman kept the share price target at $40. Here’s what Cramer said in August:
“Quick—what’s the best-performing restaurant stock in the Russell 3000 this year? It’s not Wingstop, which is having another great year, up 46%. It’s not Brinker International, the parent of Chili’s, up 54%. It’s not even Cramer favorite Cava Group, the standout IPO of 2023, up 129% year-to-date. No, the best-performing restaurant stock this year is Sweetgreen, the salad chain, which has nearly tripled in value. That’s impressive, especially considering this has been a tough year for restaurants and Sweetgreen looked like a dud not long ago. Sweetgreen went public in November 2021, right near the peak of the growth stock boom, at $28 per share.
“The stock doubled in the first two days of trading, reaching the mid-50s, but then, like many 2021 IPOs, it collapsed, hitting a low of around $6 in March of last year, down nearly 90% from its highs. Although I’ve been critical of Sweetgreen since its IPO and advised caution regarding unprofitable companies, this year’s rally took me by surprise. So, what changed to make this stock such a winner? First, Sweetgreen has been consistently generating earnings before interest, taxes, depreciation, and amortization (EBITDA) positively in four of the past five quarters, which is unusual and indicates the company is moving in the right direction on the profitability front. Second, same-store sales growth, a key measure of performance, has improved significantly.
“After slowing to 13% in 2022 and 4% last year, same-store sales growth re-accelerated to 9% in the last quarter, with projections of 5-7% growth for the full year. Sweetgreen has achieved these results by focusing on healthier meals and a more affluent customer base, giving them an advantage in a broader quick-service industry facing pricing pushback from lower-income consumers. They’ve also improved their loyalty program and digital ordering system. Previously, Sweetgreen was overly focused on salads, but last year they began offering more varied options. They introduced new protein dishes, like a chicken burrito bowl with no leafy greens, and a miso salmon plate. Their recent spring menu included a caramelized garlic steak. These changes have attracted new customers and increased traffic, especially during dinner hours and weekends. Sweetgreen’s innovation in menu offerings and efficiency improvements, including investments in automation and the “infinite kitchen” concept, have boosted their margins significantly. Their restaurant margins are now 10 percentage points higher than the fleet average, which is substantial.”
