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Sweetgreen: Healthy Product but Unhealthy IPO

Sweetgreen: Healthy Product but Unhealthy IPO

Posted November 17, 2021 at 10:50 am
Matt Shuler
New Constructs

Sweetgreen (SG) is expected to go public on November 18, 2021 with a midpoint valuation of $24/share, which would earn the stock our Unattractive rating.

Despite its large online presence, Sweetgreen lost market share in 2020 to stronger, better-positioned competitors. Sweetgreen’s locally-sourced supply chain adds safety risks and hurts the company’s ability to achieve the economies of scale that more vertically integrated restaurants enjoy.

The company has never achieved profits in any fiscal period since it began operations, and we see little to no path to profitability in the future.

Our IPO research aims to provide investors with more reliable fundamental research.

Sweetgreen’s Big Miss In 2020

More than 10% of U.S. restaurants closed in 2020, and the survivors took their market share. In particular, quick-service restaurants (QSR) fared better than the overall industry. While U.S. restaurant sales fell 16% year-over-year in 2020, QSR sales fell just 12%.

With consumers turning to quick service and online options, 2020 was an opportune time for Sweetgreen, which generated half of its 2019 revenue from online sales, to gain market share. Instead, Sweetgreen’s share of the fast-food and overall restaurant market fell as its revenue declined 20% YoY, more than the market, in 2020, per Figure 1.

Figure 1: Sweetgreen Vs. U.S. Restaurant Industry & Fast-Food Segment: 2020 YoY Change in Sales

Sweetgreen Vs. U.S. Restaurant Industry & Fast-Food Segment: 2020 YoY Change in Sales

Sources: New Constructs, LLC, company filings, FRED, and Statista

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Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life.

This article originally published on November 15, 2021.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] This list is a sample of Sweetgreen’s competitors and is not exhaustive, but serves to illustrate the crowded nature of Sweetgreen’s target market.

[2] Only Core Earnings enable investors to overcome the inaccuracies, omissions and biases in legacy fundamental data and research, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.

[3] Includes food, beverage, and packaging, labor, occupancy, and other operating costs to match Sweetgreen’s “Total Restaurant Operating Costs”, which are reported to include food, beverage, and packaging, labor and related expenses, occupancy and related expenses, and other restaurant operating costs.

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Disclosure: New Constructs

David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.

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