Sweetgreen Aktie

Ladies and gentlemen, thank you for joining us, and welcome to the Sweetgreen, Inc. First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]

I will now hand the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. Please go ahead.

Thank you, everyone, and good afternoon. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com.

I'd like to remind everyone that the information under the heading, Forward-looking Statements included in our earnings release also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website.

And now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and thank you, everyone, for joining us today. We entered 2026 focused on executing our Sweet Growth Transformation Plan with a clear priority on strengthening our fundamentals and improving execution across our restaurants.

As we communicated last quarter, this work takes time to translate into results, and we expected the first quarter to be the most challenging given a difficult comparison to the prior year Ripple Fries launch, weather-related headwinds and more work to be done on our transformation plan. While the quarter was pressured, we saw improvement as the quarter progressed with a further step-up in April, reflecting early progress from the actions we have underway through the Sweet Growth Transformation Plan.

As restaurant operations continue to improve, we are bringing innovation to market with stronger discipline. Yesterday, we launched Wraps nationwide following a rigorous stage gate process that validated both the consumer opportunity and our ability to execute in restaurant. Test results were strong, driving incremental traffic from new and returning guests while expanding our ability to serve more occasions.

Now turning to results. For the first quarter of fiscal 2026, revenue was $161.5 million with comparable sales down 12.8%. We opened 4 net new restaurants including 3 Infinite Kitchens. Restaurant-level margin was 10%, and adjusted EBITDA was a loss of $8.1 million.

As we moved into April, traffic trends improved, supported by stronger execution in our restaurants the performance of our Chicken Sesame Crunch Bowl and early contribution from Wraps in test markets, which ran in about 1/4 of our restaurants, including New York, our largest market. This reflects a deliberate sequencing, strengthening operations first to build a more consistent foundation and then layering in menu innovation to drive more durable traffic.

New York is an important example of the progress we are beginning to see. Given its significance to our footprint, it has been a key focus as we strengthen leadership, improved head coach stability and drove more consistent execution through Project One Best Way. While we still have work to do, transaction trends improved in April, supported by better operations in the Wraps test. We view the progress in New York as an early signal of how the broader system can respond as we continue to execute through the Wraps launch and beyond.

We know there is more work ahead of us, and we remain focused on executing against the five strategic priorities under our Sweet Growth Transformation Plan: one, operational excellence; two, food quality and menu innovation; three, personalized experience; four, brand relevance; and five, disciplined profitable investment.

Starting with operational excellence, which remains the foundation of our ability to deliver a consistent, high-quality and hospitable experience for our guests. We continue to strengthen consistency across the system through Project One Best Way, which defines what great looks like at Sweetgreen across craveable food, hospitality, operational flow and people culture. The program is grounded in both customer and restaurant-level performance data and is focused on building scalable systems and routines that allow every restaurant to execute at a high level, not just the best ones.

Work like this takes time to translate into results, but we are beginning to see improvement in several key operational metrics, including throughput during peak periods, ingredient availability and fewer quality complaints, reflecting stronger operational readiness across the fleet. At the same time, we recognize there is still meaningful opportunity ahead and we will continue raising the bar as performance improves.

That stronger foundation has been critical as we move into the national rollout of Wraps. We have taken a disciplined stage gate approach to get here with team spending months in development and testing, including extensive work in restaurants to build capability, train teams and ensure operational readiness. One of the core principles for our Wraps experience is that the first bite should be the best bite.

To deliver on that consistently, we refined our preparation process through multiple rounds of testing and iteration, including in-restaurant [ shake down ] to validate equipment, positioning and workflows. This work ensured we can deliver on quality while maintaining throughput at peak. We then validated the concept through a multi-month market test across approximately 70 restaurants where we saw strong guest response alongside solid execution in the field. The energy in the field is strong, and we are encouraged by how teams are performing out of the gate.

Our focus remains on execution, ensuring every wrap is made right, throughput is strong and the guest experience is consistent from day 1. This quarter, we brought our New York market head coaches together for an impact day focused on reconnecting our restaurant leaders to the guest experience through culture and hospitality. Two weeks ago, we also brought our area leaders together for a 2-day summit to reinforce consistent execution across markets.

The focus was on three major themes: strengthening head coach performance, building a culture of hospitality where speed and service work together and delivering consistent food quality that drives repeat visits. Together, these sessions are helping create greater alignment on the experience we want to deliver and the standards required to deliver it every day. To continue this focus, we will bring our head coaches together for impact days across our remaining regions in the coming weeks.

What stood out most to me from impact day and the area leader summit was the importance of the connection between our restaurant support center and our field teams. Delivering a better guest experience starts with strong alignment between the teams closest to our guests and those supporting them. Our head coaches and area leaders are closest to day-to-day operations and their input is critical in helping us refine how we deliver on our standards across food, hospitality and operations. The best ideas come from our restaurants.

Building on that operational foundation, one of our key priorities this year is menu innovation, led by the national launch of our Wraps platform. This represents our most significant menu expansion in several years, designed to expand occasions and introduce a more accessible entry point into the brand. We launched Wraps with a core lineup of craveable flavors including the Classic Chicken Caesar, Chicken Jalapeno Ranch and Cali Chicken Club, along with the limited time K-BBQ Chicken.

We started with our food ethos, delivering flavors through ingredients that don't just taste good but also make you feel good. That means preparing seasonal ingredients from scratch every day, cooking our grains, vegetables and antibiotic-free proteins without seed oils and using no artificial flavors, colors or dyes.

We were intentional about every component of the wrap, starting with the tortilla. Early in development, we were unable to find a tortilla in the food service market that met our standards. So we partnered to create one made with only four ingredients: extra-virgin olive oil, unbleached and unenriched wheat flower, sea salt and water with no preservatives. Guests can taste and feel the difference with social reviews consistently highlighting the quality and flavor of the tortilla.

The energy around the test leading into yesterday's launch has been incredible. Wraps are already appearing in a meaningful share of social content tagging Sweetgreen with positive sentiment of around 85%. Guests are responding to the value with entry price points starting at $10.45 and ranging up to $14.95. This launch is supported by one of our largest social marketing campaigns to date, partnering with hundreds of micro and scaled creators who authentically represent culture to drive awareness and engagement across a range of diverse communities.

Our confidence in Wraps is based on the results we saw in testing. Over a multi-month period across approximately 70 restaurants in New York, the Midwest and Los Angeles, Wraps drove incremental traffic from new and returning guests, helps reengage lapsed customers and showed strong repeat behavior. We are pleased with the combination of incremental traffic and improved customer retention, reflecting its strength as a new platform and expanding how guests engage with the brand. Importantly, execution remains strong with throughput maintained and lower-than-average guest complaints.

Taken together, these results give us confidence in both the strength of the Wraps platform and our ability to scale it nationally.

We are also continuing to innovate and strengthen our core menu. The Chicken Sesame Crunch Bowl, which launched in March, is already our second highest mixing salad and contributed to improving trends as the quarter progressed. It is now a permanent menu item, reflecting strong guest response. At the same time, we have rebuilt our pipeline of both core and seasonal innovation for the balance of the year, including summer and fall menu updates, new core offerings, continued expansion of the Wraps platform and upcoming collaborations with leading chefs, bringing distinctive chef-driven flavors into the menu that reflect the core of our brand. This approach allows us to stay relevant with our existing guests while continuing to bring new guests into the brand.

I'm encouraged by the product innovation we're bringing this year as well as the progress we're making to elevate the quality and consistency of our core menu. We've continued to see an increase in salmon entree sales following our internal Miso My Salmon campaign, which was designed to sharpen execution and elevate quality across the system. We've taken the same approach to our other core menu ingredients. For example, we've refined our measurement of protein cook cycles and hold times to ensure dishes are served at peak freshness and have elevated seven of our core ingredients like romaine, quinoa, carrots, napa cabbage slaw and breadcrumbs. This remains an area of focus as we continue to drive greater consistency across the fleet.

Looking ahead, we will begin testing a rearchitected pricing ladder in late June. Central to this work is the introduction of clear entry price points and a new Create Your Own construct that is designed to deliver greater price clarity and a more intuitive ordering experience. Together, these efforts will make pricing clear and make it easier for guests to choose and order, supporting incremental transactions across price points. We are pacing these initiatives deliberately, using disciplined reads on guest response and P&L impact to guide rollout decisions with a focus on bringing more guests into the brand and increasing frequency over time.

Turning to our personalized digital experience. Our strategy focuses on deepening our connection with customers, driving engagement and increasing customer lifetime value through more targeted one-to-one interaction. At the center of this strategy is our SG Rewards loyalty program, which enables us to deliver personalized offers, incentives and experiences that make it easier for customers to engage with the brand while driving frequency and spend.

At the beginning of the year, we introduced our Craving of the Month program, a key pillar within SG Rewards and a loyalty exclusive limited-time offer available through the Sweetgreen app at a compelling value. The retention and incremental spend signals are encouraging. Of guests who were deemed a Craving of the Month offer, we see higher frequency and higher net average revenue per user. We also see that this program draws in at-risk and lapsed customers while driving incremental visits with lighter frequency cohorts. While still nascent, this exclusive platform within our loyalty program is helping us win back customers, drive incremental transactions and incremental spend.

Later in the second quarter, we will introduce lower redemption thresholds to our loyalty program designed be achievable in fewer visits, making the program more accessible and engaging for a broader set of customers. These new redemption thresholds will include a $3 credit at 700 points, a $5 credit at 1,200 points and a free wrap reward at 2,000 points. Based on the current customer redemption behavior, we expect these changes to drive increased loyalty engagement and higher visit frequency, especially in our lower frequency customer cohorts.

Before I close, we are excited to welcome Ryan Slemons as our new Chief Development Officer. Ryan brings deep experience across real estate design, construction and portfolio management with a strong track record of scaling high-quality growth across leading retail and restaurant concept, His focus on thoughtful design and site selection will be critical as we expand our footprint, reimagine our spaces and create better experiences for our guests and team members. He will also reinforce discipline around build-out costs and capital allocation, supporting consistent high-return unit growth.

To close, while the quarter was pressured, we are still in the early innings of our transformation, and we are beginning to see signs that the actions we are putting in place are gaining traction. We are seeing improvement in execution across our restaurants, greater consistency in the guest experience and stronger alignment across our teams. The progress through the quarter and into April, along with the energy in the field, reinforces that we are focused on the right operational priorities and building a stronger foundation for Sweetgreen.

I want to thank our restaurant teams for leaning in and embracing the higher bar we are setting on hospitality and execution, especially as we build momentum coming out of our recent area leader summit. At the same time, we are operating with greater focus as we rebuild the top line. The national launch of Wraps is an important step forward and a clear example of how we are approaching innovation differently. We took the time to test, learn and ensure we could execute at a high level, and the early response gives us confidence in the opportunity to drive incremental traffic and expand into new occasions.

As we move through the year, we will continue to build on this foundation by improving execution, refining our menu and pricing architecture, strengthening the guest experience and driving greater discipline in our investments. As these actions take hold, we expect to see stronger restaurant-level performance over time. We are confident in the path we are on and in our ability to build a more consistent, profitable and durable Sweetgreen brand.

With that, I'll turn it over to Jamie.

Thank you, Jonathan, and good afternoon, everyone. First quarter results were below our expectations with comparable sales down 12.8%. As Jonathan outlined, we saw improvement as the quarter progressed with trends continuing to improve into April. Sales in the quarter were $161.5 million compared to $166.3 million a year ago. The decline in comparable sales were driven by an 11.2% decrease in traffic and a 2.3% decline in mix, partially offset by approximately 70 basis points of menu price.

Traffic was impacted by weather and a difficult comparison to the prior year Ripple Fries launch, which created a headwind to both traffic and mix. Mix declined in the quarter, reflecting strategic promotional offers to reengage guests as well as the transition to SG Rewards. Traffic improved sequentially through the quarter, supported by menu innovation and targeted loyalty offers with improvement continuing into April. As we look ahead, we expect comparable sales trends to improve as we continue to execute our transformation plan with Wraps now launched nationally. The comparisons also become easier as we move through the year.

Restaurant-level margin was 10%, down from 17.9% last year. Food, beverage and packaging costs in the quarter were 29% of revenue, an increase of 250 basis points year-over-year. The increase was primarily driven by higher ingredient usage, portion investments and targeted pricing and promotional investments, partially offset by supply chain saving initiatives. Ingredient usage was a headwind of approximately 140 basis points year-over-year.

We have taken initial steps to improve visibility into these drivers for our field teams, which is helping us better identify and prioritize the opportunities across the system. Our focus is on improving the flow of food in our restaurants from receiving orders to inventory management, prep and ensuring accuracy at the point of sale. While we are still early, we see this as a meaningful opportunity to improve consistency and reduce variability over time.

We are taking a disciplined approach. While we have made progress on visibility, there is more work to do to strengthen the tools and processes that support the field. This requires alignment between the systems and how our restaurants operate. So we are being thoughtful about how we evolve and roll this out to ensure it works effectively in our restaurant and deliver consistent results.

For the second quarter, we expect food, beverage and packaging costs to be in line with the first quarter with pressure from weather-related produce costs as well as fuel surcharges. We expect the produce-related pressure to be transitory and largely concentrated in the quarter.

First quarter labor and related expenses were 31.4% of revenue, an increase of 250 basis points year-over-year. This was primarily driven by sales deleverage and wage inflation. In our restaurants, we are focused on getting the right labor in the right place, at the right time with work underway across staffing and scheduling to better align labor to demand throughout the day, particularly during peak hours, where better coverage supports throughput and the customer experience. For the second quarter, we expect labor cost to be in the low 29% range, reflecting low single-digit wage inflation.

Other operating expenses for the quarter were 18.5% of revenue, an increase of 110 basis points year-over-year, driven primarily by sales deleverage.

G&A expense in the quarter was $29.3 million, a decrease of $9.1 million year-over-year. The improvement was primarily driven by lower stock-based compensation and reduced salary and benefits following our 2025 headcount reduction initiatives. Underlying support center costs excluding stock-based compensation and onetime expenses was $23.2 million, a decrease of $4.5 million year-over-year. We are maintaining discipline in support center spending while continuing to invest in the capabilities that matter most of the transformation.

Net income for the quarter was $125.8 million compared to a net loss of $25 million in the prior year. This was primarily driven by a one-time gain from the sale of Spyce, which closed during the first quarter of 2026. Adjusted EBITDA was a loss of $8.1 million compared to a gain of $285,000 last year, driven primarily by lower restaurant-level profit. We ended the quarter with $156.8 million in cash.

During the quarter, we opened 4 net new restaurants and ended the quarter with 285 restaurants, of which 33 restaurants are powered by the Infinite Kitchen.

Now turning to fiscal year 2026 guidance. We are reiterating our same-store sales guidance. With Wraps now in Sweetgreen restaurants nationwide and comparisons easing, we expect same-store sales to be a decline in the range of negative 4% to negative 2%. We expect restaurant-level margin to range from 14.2% to 14.7% and adjusted EBITDA to range between $1 million and $6 million.

On unit growth, we now expect to open approximately 13 net new restaurants this year, reflecting 18 openings and a handful of lease-related closures, where we mostly see an opportunity to strengthen nearby locations. Our development pipeline is equally weighted this year and nearly half of our openings will feature the Infinite kitchen.

To close, we are still early in our transformation work, but we are beginning to see progress from the actions we have taken. As execution improves and we bring more discipline to how we operate and invest, we expect to see more consistent performance over time, supported by initiatives like the national launch of Wraps as we rebuild top line momentum and improve restaurant level economics.

Our focus remains on strengthening execution in our restaurants, restoring traffic and managing cost and capital discipline. With that approach, we are focused on building a more consistent and profitable Sweetgreen over time.

And now we're happy to take your questions.

[Operator Instructions] Our first question comes from the line of Jeff Bernstein with Barclays.

This is Pratik on for Jeff. Very encouraging to hear the April traffic trends improving. And in the release, you referred to the momentum you have. Could you just level set with us what degree of improvement you've been seeing. It'd just be helpful to get kind of an embedded assumption from you for how you see the rest of the quarter playing out, even if you're not explicitly guiding to a comp number in the second quarter.

Yes. So we saw January and February -- starting with Q1, we saw some pressure with the weather. But as we moved into March, we saw about 100 basis improvement in transactions. We also have price fully rolling off and we had some mixed headwinds due to some of the promotional activities and as we launched SG Rewards. And in April, we improved about a decline of negative 8%. And we just launched Wraps, and so we're excited about our launch from all the results that we saw in the testing, and we expect that Q2 will land around negative 4%.

Your next question comes from the line of Brian Bittner with Oppenheimer & Company.

This is [ Mike Tamas ] on for Brian. You talked about the improving operations and also like the incrementality from Wraps. So I guess, can you maybe just Help us understand what that incrementality look like from the Wraps? And then as the year unfolds, you're talking about doing more menu innovation, but also having all of these improvement in operations that you've done so far and more to come. So what guardrails are you putting in place sort of make sure that the operations don't deteriorate as you step up that amount of menu innovation?

Sure. Thanks for the question. So as it relates to Wraps, as I mentioned in the prepared remarks, we took a very disciplined approach starting with an ops shakedown, a rapid ops test in 8 stores and then a multi-month stage gate process in 3 separate markets. And we were able to both understand the operational impacts as well as the customer behavior.

While I'm not going to guide to an exact number on incrementality, I'll say that we were very encouraged. It mixed in really well. We saw really high return rates of the Wraps. I think most importantly, customers were really delighted with the quality as well as the price. The Chicken Ceasar Wraps, it starts at $10.45 in certain markets, and no wrap in any market is about $15. So I think both from a quality, craveability and price value, we are really delivering and customers are noticing it. So it definitely is incremental.

And that was all before media. So typically, we do see a pretty nice lift once we advertise things. And we have a really -- one of probably our largest social first campaign going live right now, getting much more awareness in trial. So it's still very early, we launched yesterday, but very encouraged by how it's mixing in the response and the comeback rate on Wraps.

As it relates to operations and menu innovation, we really spent last year instituting Project One Best Way, really building the operational foundation with a focus on people, food, feel and flow. And we've gotten much, much better. We've seen our quality complaints come down significantly. We've seen our in-stock percentages, so like our [indiscernible] go down significantly, so much more in stock. So we feel good about how we're operating there.

And the focus has really moved more towards culture within our restaurants and the hospitality and as well as continuing to elevate the quality and consistency of what we do. Given the stage gate process we have, everything that we're putting out from a menu innovation perspective both has to meet our ops sandbox requirements in terms of complexity, number of ingredients and any incremental labor hours, but also has to go through a stage gate process and make sure it doesn't disrupt our core operation.

I think if I can leave you with anything, the most important thing we are focused on right now is the fundamentals of delivering an excellent customer experience. And the menu innovation is all layered on top of that. And that's what gives us confidence with Wraps and future menu innovation is, we believe we've laid the operational foundation to continue to innovate. We have a robust innovation calendar coming for the rest of the year but done in a way which really limits the complexity for our store teams and should be something that really customers love.

So very encouraged by the recent momentum. But as I mentioned, we're still early in the transformation and a lot of work to do.

Your next question comes from the line of Sara Senatore with Bank of America.

[ Azer Austin ] on for Sarah. Just in the line of menu additions, it kind of seemed like protein plates were an important driver back in 2024 but kind of faded moving into 2025. Are there any learnings on how you guys will manage that with Wraps on the menu now just going through the remainder of the year?

Yes. Good question. One of the learnings is to consistently bring new news to a category. So what you'll see us do with Wraps is not only the launch of Wraps is compelling, but continuing to support it with media but also new news and new wrap builds.

So today, we have 3 core Wraps, 1 LTO. We have a couple of planned incremental Wraps that we will introduce throughout the year, whether that be core or LTO. Today, for signature Wraps, all can be modified. We know customers eventually want a build-their-own wrap, which is something that we're looking at.

And plates have been successful. They've helped us grow our dinner. Some of those plates do exceptionally well, like our Miso Salmon plate. And so we do expect to continue innovating on the plates category. So expect some more innovation on plates. It's something that we know our customers love.

Next question comes from the line of Sharon Zackfia with William Blair.

You've done so much work over the last year and different efforts to improve your value perception, and I'm curious if you have any kind of quantifiable research on how the consumer has recognized that. Do you think you're getting credit for all of the efforts you've done? And what have you done that really landed well and [ where maybe you ] a bit more disappointed and something that you rearchitected that the customer just didn't really appreciate?

Thank you, Sharon. So as you mentioned, we have been working on value perceptions through a number of different initiatives. I think first and foremost, we are proud of the food we serve, and we believe when we execute on our core fundamentals and deliver a great customer experience, that given all that we do from a sourcing and scratch cooking perspective, that we offer tremendous value. Having said that, we do see opportunities to offer more entry-level pricing and kind of a different pricing ladder for different consumers to drive acquisition and repeat behavior.

So a few of the things that we've done that we believe are resonating. One is Wraps. If you look at the social commentary on Wraps, some of the lower pricing is really resonating, and we are seeing the comeback rate or the return rate of many of those customers as an encouraging sign. Two, we're getting more juice out of our loyalty program, both the core program as well as our Cravings of the Month. We're seeing high adoption of that. And as I mentioned on the call, we're seeing the average revenue of those users be incremental. So it's a good activation of both new customers and lapsed customers.

But those customers stick with us. We do not plan on continuing the promo and discount at this level. We do expect to really wean off of this. Also the biggest price moves we're going to make, we're going to go into test in about a month or so on a whole kind of pricing architecture change, which I described in the prepared remarks both on our Build Your Own framework as well as testing some more entry-level pricing.

As it relates to data, to quantifiable research, we have now done a baseline on price value, and over coming quarters, we'll share more on how that has changed. But to leave you anything, really, the focus is delivering on the fundamentals and delivering a great customer experience. And when we do that, what we offer is really worth the money and we're proud of that.

The next question comes from the line of Jon Tower with Citi.

Yes. Just maybe you can help us think through, there's a lot of moving parts on the business right now. And whether it's Wraps or changing the pricing architecture in the future, like how you're thinking about incremental flow-through going forward for the business? And specifically, with focusing on lower price points, I would assume that check is going to be a little bit lower. Can you help us think through that?

Yes. So we saw flow through to be around the 40% range. And what we are seeing with Wraps is there is some check dilution, but we are getting the incremental transactions. And what we're also seeing is the prep for the produce that goes into the Wraps is less and also the waste is less. So we're actually seeing favorable cost of goods sold on our Wraps even with the lower price point.

And so as we test, when we look at the menu price architecture, that's something that we're going to be very careful and sequenced about, and that's why we've paced every kind of discount and promotion that we've done because we want to measure the results and making sure that we get the return. So same with the price architecture, we're going to be disciplined about that approach and make sure that it's working.

Your next question comes from the line of Andrew Charles with TD Cowen.

Great. This is [ Zack ] on for Andrew. So for the full year restaurant-level margin guidance, it does imply about 100 basis points, maybe a little bit more in the second half of the year in terms of leverage. So can you talk about the drivers that will get you back to that margin leverage? And then maybe talk about any pricing plans as a part of that.

Yes. So when you look at our margins for the quarter, about half of it is sales deleverage and then we also have wage inflation of about 40 bps, but the remainder is really within our control. And so there's a lot of work being done behind the scenes, especially as it relates to cost of goods sold.

And so we have just introduced visibility to the field on the waste by the different categories, but there's still a lot more work to be done to make sure that they're ordering the correct amount, they're prepping the right amount and that we're giving them the tools to be successful to properly do this. So we've just unlocked the visibility, but we plan to unlock the tools through the back half of the year. But we are seeing quarter-over-quarter improvements.

And also within labor, we have a labor study going on right now. And so we are looking at our labor as well and making sure that we have the right people staffed during the peak hours to drive the throughput and make sure that we're getting sales leverage on those transactions. So a lot of work being done behind the scenes on the margin.

Your next question comes from the line of Rahul Krotthapalli with JPMorgan.

Can you update us on where you are in the efforts around reestablishing like the coolness factor, if you will, as you continue to be a premium and aspirational brand while also being affordable and making progress in democratizing wellness and mindful eating? And I have a follow-up.

Thanks, Rahul. Yes, One thing I'll just point to but broadly is last year, we really rebuilt our leadership team and underneath Zip, our Chief Commercial Officer, have rebuilt much of our marketing and brand team. So we are taking a new approach to how we invest in the brand and leaning more into the lifestyle elements.

The first thing that I think builds the brand, and our team hears me all the time, is word of mouth on delivering a great experience in our restaurants. So first and foremost,is just executing on excellent customer experience and living up to our promise around consistency, quality and hospitality. But we're also leaning into some new things. For example, with our Wraps launch, you'll see a different kind of launch with us or a bottoms-up approach with social-first content really and other moves getting into culture.

As you move into the summer, you'll see us do some really cool things leaning into some collaborations in both culture broadly as well as chefs, something that we've done in the past that definitely resonates with our guests. And you're also seeing us do a lot more kind of events in real life. Even tonight, we're celebrating our Wraps launch with an awesome event here in Los Angeles at our Silver Lake restaurant. So much more with creators, influencers, storytelling and leaning into the lifestyle elements of the brand. So expect to see more as the year continues.

And then the follow-up is on the owned digital customers. Like approaching 40% is good to see. Any insights you can share around the frequency of these customers? I know we spoke about the monthly active users in the past. How is this cohort interacting with the brand actionably?

Yes. So I would say there's a lot of work being done on our loyalty channel. So that's why we're beginning to see some momentum there, especially within our native channel. And so with the Craving of the Month and then the targeted loyalty actions. We are seeing some improvements in our own channel. And we're actually also seeing increases of loyalty users signing with us month after month.

Yes. The other thing where you're seeing the other change in the owned digital is we've continued to see really nice momentum on people using loyalty in restaurants from a scan-to-pay perspective. The scan-to-pay has reached about 20% of in-store transactions. And that's a positive signal because once we get them into our digital ecosystem, we love them ordering in restaurant, but that gives us the benefit of ordering in restaurant and having a connection digitally, where we can market to them directly. So some nice encouraging signs around their frequency, but a lot more work to do.

And congrats on the Wraps launch. The K-BBQ is my favorite and it's fire.

Great to hear. Thank you, Rahul.

Our next question comes from the line of Kelly Merrill with Morgan Stanley.

I just wanted to continue on with the digital conversation and see if you had anything else to add as percentage of revenue and owned digital revenue saw a nice tick up sequentially and year-over-year. And then just one more I want to ask, what trends have you been seeing on third-party delivery as of late?

Sure. So I mean just to reiterate what I said before, we've continued to invest in our digital ecosystem. I think it's somewhere where, we're probably best-in-class and around the digital experience in our restaurants, not only what we do within our app, but how we support it within our restaurants. So we've been very intentional about how to build an omnichannel restaurant where we don't disrupt the in-store experience for those digital customers.

And we've done a lot of work on, call it, the back end, whether it'd be our throttle management and working on things like accuracy on time and on-time rates so people can trust those digital channels. We continue to AB test features. We've continued to come out with a number of new features within our app, and we have a robust road map across the rest of this year. We actually have accelerated our digital road map. Especially given the advent of AI, we can move faster on a lot of those things. So customers really love and trust our digital experience.

Remind me the second part of your question?

Just on trends in third-party delivery recently.

Yes. So trends in our third-party delivery, that is a channel that we're very focused on right now. So there's a number of work streams under place to, one, make sure that we're delivering a great experience. We're not missing items or inaccurate. So we've been working on that also with our kind of our time to order and pick up. And so there's a lot of work being done behind the scenes. We've seen some good improvement on our native channel. And marketplace is starting to improve. We're seeing the trends improve into April.

Yes. Marketplace, we've seen a huge improvement into April. I think we optimized both the paid side of the marketplace. but also, as Jamie mentioned, the organic side. There's a lot we can do to show up higher in the algorithm, especially around wait times order readiness and even little things around, call it, SEO management on the marketplace. So getting smarter and sharper there, and we expect marketplace to be a strong growth channel for us as we look throughout the rest of the year.

Your next question comes from the line of Brian Mullan with Piper Sandler.

Just a question on development specific to next year. Not looking for precise guidance but really just trying to understand your current appetite to build new restaurants beyond projects that are already underway during the time period that you're going through the Sweet Transformation Plan Process. So just how you're thinking about development right now.

Yes. I say we're taking right now a very disciplined approach, really focused on high return on invested capital, restaurants that we have a high level of confidence in. I'd say we don't expect an acceleration in development until we start to see the flywheel working here, comps improving significantly and feel much better about the core operation.

But we will continue to develop new restaurants. We're continuing to work on both the design and prototype of those new restaurants. We're really excited to welcome our new Chief Development Officer, Ryan. So expect a tempered year of development, and we'll come back with more as the year progresses.

And our final question comes from the line of Dennis Geiger with UBS.

Great. This is Paul on with Dennis. My first part is just encouraging to see the improvement in April so far, and I appreciate the color that you provided on transactions and pricing. Just wondering if you [ noticed ] shift in consumer behavior during the past few months. And then the second part was just following up on the development pipeline question, particularly over the longer term. What is the future opening mix between entering new markets and penetrating further in existing markets?

Yes. In terms of consumer behavior, we are seeing some improvements in our younger cohort. So the 18 to 35 has really started to pick up, which is good to see. In March, we launched our Chicken Sesame Crunch Salad. That was a huge hit. And then now we have now launched Wraps. So we're hoping to continue to see momentum. And then in terms of development pipeline, I don't know, if there's anything else you want to add.

As a related development pipeline, we're really focused on building out a lot of the newer markets where we have seen success. One of the bright spots in development recently has been a number of those new markets. For example, we entered Phoenix last year. We're seeing about $3.2 million AUVs in that market. We're in Sacramento with about $3 million AUVs. So some really bright spots in some of these new markets.

But we still have a number of new markets where we're very lightly penetrated and have a lot of room to grow. So probably not a whole lot of net like totally greenfield markets and more building out those lightly penetrated markets so we can get the efficiencies around supply chain, operations and brand.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may disconnect.

Good afternoon, everyone. It's a pleasure to host Sweetgreens Co-Founder and CEO, Jonathan Neman; and CFO, Jamie McConnell for our last session for this afternoon and also for the conference.

Jonathan, there's been a lot going on with the company right now. I'd like to start off with the Sweet Growth Transformation Plan. What are the top priorities this year? And as both customers and investors, like what should we be looking forward to?

Rahul, great to see you. Great to be here. So as we mentioned, we're going through our Sweet Growth Transformation Plan. We're about a quarter in, and we're focused on a few critical things. First, it's around menu innovation around this idea of expanding occasions and broadening our demographics around people who we want to welcome into the brand. The main focus there is our launch of wraps.

So we know that there's a huge addressable market that is looking for more portable options, something hearty, delicious and still nutritious. And so it's something we've been working on for a couple of years now. We've now entered our final stage of the stage gate where we are in 68 restaurants across the country, and we're seeing some really encouraging results.

We -- one of the things we are trying to address with wraps not only is new occasions, but is also around price value and entry points into the brand. So the wraps start below $11. All wraps are sub-$15. We're testing 3 wraps right now. We may go to market with more than that. We're -- but wraps, again, huge focus. We're seeing really good success so far. We're seeing incidents grow almost every day. We're seeing some growth in incidents, amazing organic customer feedback, very little marketing done, but overall, very pleased, and we think that will be a big sales catalyst for us.

Second major focus area is on price value and architecture. How do we -- and there's a lot in there. We've done a lot over the past year to give customers more around food, whether it be more protein portion and communicating more around what we do that is different, whether that be our scratch cooking or our local sourcing. But there's a lot of opportunity we have in our pricing architecture. So there's a few areas that we're focused there. One is our create-your-own bowls pricing architecture, which today makes up about 25% of our menu. We are going to be testing a simplified pricing structure, kind of more an all-in pricing model for that, which will go into test later this year through our stage-gating process.

The second opportunity that we're going to exploring there is more around a barbell pricing strategy. What we've seen is there's many customers who are want to spend more at Sweetgreen, but we're missing that entry point insight into the brand. And we see many customers when they enter the brand spending sub-$15, their retention is very, very high. So we see a huge opportunity and more of that barbell pricing on our core menu. So look forward to testing that, tweaking it and rolling it out later this year.

Third major priority is around operational excellence. A few things underneath that. One is what we call Rush Ready Before Peak for throughput. We have a lot of opportunities to continue to improve our throughput. That means being rush ready with mise en place, staffed properly, but also moving from our one-to-one service model to our assembly line service model, which we've seen does increase throughput.

Second thing underneath that is around food quality. It's really so much of what the Sweetgreen brand is built off of. So we're really kind of looking at the entire system and how we can make the food really -- whether a lot of it is from a supply chain perspective, but most of it happens within the 4 walls of when we cook things and really making sure we're prepping less more often so the food is fresh.

And then the last piece around the operational excellence is around hospitality. We really want the Sweetgreen experience within the 4 walls to have what we call the sweet touch, that feeling you walk away that creates that word of mouth where you tell your friends and you come back, and we have really good ways of measuring that today. So that's the third focus.

The fourth major part of our -- of the transformation plan is going to be a lot more investment in the brand. Sweetgreen from the very early days was not just a restaurant company, but a lifestyle company, one that spoke and resonated in culture, community, lifestyle, whether it be through collaborations with chefs, fitness, music.

And I'd say over the past few years, we've been very -- we've moved most of the marketing to be more kind of conversion growth, lower funnel marketing. So we're resetting our media mix, focusing more on upper funnel brand awareness and really kind of positioning Sweetgreen in the hearts of minds of our consumers as this category of one lifestyle brand.

So, so far, as many of you know, we've changed a lot of our leadership team last year. We have some awesome new leaders that have joined us, including Jamie, and we're very excited about this transformation plan taking place.

That's a great summary. I want to dig in a few of those places. One of the big challenges for any company, younger or even older companies to retain -- like younger companies to attract and then retain is the talent. And it starts at C-suite going all the way down to like store managers, head coaches to staff. How is the environment and how is the brand able to attract, retain and train these people? And where is the biggest opportunity today to invest? And when it comes to like employees, what are their biggest like asks, like what do they want more of or less of?

Yes, absolutely. So all of us in the restaurant industry, we know we're more of a people business than a food business, and people are our most important ingredient. And so we are very, very focused on people and culture. I'd say in terms of what -- why people come to Sweetgreen over competitors, first and foremost, it's our mission. They really believe in the brand and the mission that they're coming to Sweetgreen for.

Two is we have competitive wages. So whether it be at the head coach level, both competitive wages and bonus, head coaches make -- easily make 6 figures with bonus. And all of our head coaches have equity. So that's another piece of it. As you go throughout the rest of the organization and our team members, not only do we offer competitive wages, eligibility for tips and compelling benefit package, but most importantly, it's a pathway to growth. So very focused on internally developing talent.

We were able to develop talent in under 3 years from a team member to a head coach. Our best head coaches are developed internally. As we all know, a stable head coach and a great head coach is really what drives performance. So really focused on that pathway of moving more team members up through head coach, area leader and beyond.

Where are some of the opportunities I see. I'd say probably the biggest opportunity for us is to continue to invest in leadership development. I think we've gotten quite good at the technical side of training team members, but I think there's more we can do around teaching them to be great leaders. We're going to -- we're continuing to simplify how we run restaurants, giving them really wonderful systems and tools.

But -- and we know we bring -- we really look for rock talent, people that care in the mission are genuinely enthusiastic, are service-oriented, are resilient and then we give them the tools. And so we're investing more and more into the leadership development of our teams, and we think that will be an accelerator of our growth. And we've really started to marry our growth with our people -- our store growth with our people growth much more tightly aligned, and we have a really nice robust pipeline of leaders as we continue to grow.

Perfect. The company has embarked on a big supply chain efficiency exercise that was never probably done at this level of granularity in the past many years. What are some of the addressable low-hanging opportunities? And what are being prioritized this year, if you could share some examples?

So as you mentioned, we did a distribution consolidation last year where we consolidated our -- really no changes to our supply network, more in terms of how we actually distribute and move our product. So we consolidated it from separate distributors from a grocery and produce into a single distributor. It simplifies the workflow inside of the restaurant, so only a single delivery. It also helps us save a lot of money as we scale and will help us bring down our logistics costs over time. So that's been a huge focus.

There is a lot we're doing also as it relates to the supply side and making sure we're finding partners that can continue to grow and scale with us and where we can continue to elevate the quality of our food while bringing down the cost, especially as we build out regions. As you all know, much of our supply network is built out regionally. So we do see economies of scale, both nationally but also regionally. So as we continue to build smaller markets that go from 1 or 2 stores to 5 or 6, we see a lot of efficiencies there in bringing down cost of goods.

Perfect. Last week when we discussed, there was a number like around 800 to 1,000 bps of store prep in the labor line. And is that still the case today? Or has it already come down with some of the upstreaming and other efficiencies you have been looking at over time? And what are the top focus areas on this for this year?

Yes. So we've been on a multiyear process really to simplify the experience for our team members in the restaurant, kind of make it so that their work is focused on the most value-add components in the restaurant, things that really matter as it relates to food quality or hospitality. Given what our brand stands for in the quality and freshness, we have to be very, very careful not to take away any of the things that could impact food quality. So we're very disciplined on not all of a sudden having everything come in from a commissary. We do not -- we actually don't have commissaries.

However, to your point, there's a lot of opportunity for us to work with value-added partners and bring -- and commercialize more things where we can actually maintain or elevate the quality and create more consistency while removing some of the complexity in the restaurant. So there's a number of things we've done over the past few years, whether that be things like de-stemmed kale or commercialized dressings. There's a lot more to do.

So we have a multiyear road map in front of us, whether it be more commercialized dressings, premarinated proteins -- chicken and proteins and a few other things that we're considering. I'll give you just like a little example. Sweet potatoes come in whole, right? So come in whole have to be peeled, chopped and then roasted. There's no quality degradation by actually having them come in peeled and cubed and then roasted in the kitchen. So we will never have them roasted offsite, but we'll have them -- have parts of the prep be simplified. So when it comes in the store, they only focus on the parts that actually really matter from a quality perspective.

So again, very, very disciplined, careful. We will test these things carefully. We are currently in the middle of a very intensive labor study to identify where the biggest opportunities are. So we can elevate the quality of our food, move more of our labor towards productive labor and serving the guests and hopefully end up with a better unit economic model with less labor on things that aren't value add while elevating the quality that we do and making it so that it is totally scalable.

Perfect. One of the big challenges during the turnaround is trying to focus on more things, but I think you guys have pretty much streamlined on where the areas will be in this year. When it comes to the menu side of things, there is at the core and then the excitement creating like the LTOs like whatnot.

We have heard that the secret is apparently not a secret, like Brinker has just done like a fantastic job in the past 3 years and the focus on the fundamentals and then the core has been like overemphasized and for the right reasons. How are you balancing while going through this exercise that your core is elevated, but at the same time, you're also creating that excitement for the brand and everything else?

Absolutely. We believe that great companies are end companies. We need to continue to invest and elevate the core, the core quality and execution as well as just the core menu and how we can continue to innovate that, but also want to reach more customers and create new occasions. So we built the structure and system to really kind of dual process, parallel path those things. And you'll see this year probably an equal balance of investments in our core as well as attacking some of these new opportunities.

I'd say, as it relates to innovation on our menu, this year and next year, you will see a lot of innovation as we, what I call, complete the concept. It's almost a revolution than an evolution around the menu. So a lot of newness coming. We've never had a more robust menu innovation pipeline, but doing so in a very disciplined way with a very robust stage-gating process, making sure that it does not detract from us delivering on our core from an execution perspective and have a very clear idea of what our -- what we call our op sandboxes to make sure anything that we are doing, again, does not deteriorate our overall operation.

The other thing we've learned from our guests is they love newness from us. They love our seasonal menu. It drives retention. They love just -- in this noisy media environment, newness really works. So we've actually picked up our pace of newness, but we figured out ways to do it without a lot of complexity.

And I'll just give you one example. This year, we started the year with our collaboration with Function Health and Mark Hyman, created a menu, kind of a new year menu around Function Health. But all that menu was all done with existing ingredients. So from a store perspective, there was no new -- there was nothing really new the team had to do, but all of a sudden, you had this new menu and this big media marketing campaign around this new menu. So there's a lot we can do around creating newness without a lot of complexity. And you'll expect to see a lot more moments of newness, which we've seen help us drive transactions and acquire new customers.

Perfect. It's been almost a year with the new loyalty program, a lot of evolution expected there as well as you continue to redefine the brand value proposition. How are you thinking about like using the new food formats like the wraps, for example, to revisit the menu architecture in conjunction with some of the innovation you have coming in?

Yes. So as you mentioned, we're about a year into loyalty, have learned a ton. Overall, we're pleased with the program, but see a lot of opportunities to continue to optimize it. A few of the areas that we're looking at, one is lower redemption tiers. So right now, it takes quite a lot of points to get a free item. So we're looking at how we can engage guests earlier in their journey. So that's one.

Two is we've seen a lot of excitement around what we call our GOAT status, greatest of all time, kind of like our higher tier loyalty today. It's a secret tier. There's no clear way to earn into it. It's something we're evaluating where tiers make sense.

Third is actually how we leverage -- how we bring more sophistication to our CRM and the gamification within loyalty. So with the advances in AI, you'll see our CRM move into more of a truly personalized agentic AI-driven CRM. So instead of having kind of cohorts, it really truly becomes one-to-one marketing, not waiting until a customer churns until you're doing something, but being able to predict right before churn and how we can find what the next best action is to prevent that churn, understanding kind of the LTV of our guests.

You talked about how menu can help us. For example, wraps is the type of item given the price that can be a lower redemption tier. The last thing, and it speaks to kind of the brand, Sweetgreen, we see ourselves as a lifestyle brand. And there's more we can do to leverage loyalty from a lifestyle and community perspective. So that's things like in real-life events.

Last week, we hosted run clubs all over the country for our loyalty members as an example. There's a lot of other ways we can kind of do more storytelling and community-driven things within our loyalty program. And just one more thing that I forgot, there is more around the experience around loyalty from a product perspective. So one thing we've been piloting is what we call the craving of the month, which is a gated menu for loyalty members.

So we now have -- we're on our second month or the third iteration of it, where it's a lower-priced menu item, so something between $10 and $12 only for loyalty members, which are bringing -- which are really helping us both on acquisition and from our lapsed customers coming back. Expect us to do more there, not just price and value driven, but also just exclusive products that only are available to loyalty members.

The other thing that is helping us on loyalty is in-store, we've enabled scan-to-pay. And so we've seen scan-to-pay double in terms of incidence. So we went from about 10% to 20% of our in-store transactions now being scan to pay. Our loyalty members are 2x more valuable than our non-loyalty members. So being able to convert our in-store guests to loyalty and allowing them to scan and pay in store is a huge lever for us as well.

Perfect. Just going back to the operations and then the stage-gating process, which you have perfected like for the past few quarters, discuss the learnings on what -- how the wrap test like initially started off in L.A.? What were the bottlenecks and what were the pleasant surprises like surprise on both the sides, better and worse? And then like how was the rollout planned for the current like 68 store test? And how do you plan to go from there?

Sure. So we started this exploration really understanding what the customer wants, both from a product perspective and then all the details around it. So a couple of examples within that.

When we were testing the product with customers, we learned that the product was much better if you mixed before you wrapped. It was also much better if you cut the wrap before you serve it. So it sounds like small things, but they really impact the overall experience. So those are things that we had to really try to figure out, can we do those things that the customer really valued without impacting the operation or throughput.

So we ran a few week test in a couple of stores we call wrap-a-palooza, where it was rapid iteration and testing, learning about where we should put the tortilla press, where the mise en place for everything goes. Do you steam the tortilla before you wrap -- before, after all the little details that perfected. The good news is the wraps work perfectly in our workflow and a lot of people ask, do they work in Infinite Kitchens, they do. So the Infinite Kitchen is also -- wraps are enabled by the Infinite Kitchen.

Step 2 was moving it to a rapid ops test where we took 8 stores in our home market in Los Angeles, and we ran it for a few months, really to work out all the kinks. And again, it passed that stage. We've now moved into the next stage where we're in a handful of markets and almost 70 restaurants. Now we're really seeing what happens when you go from a really closely watched test in 8 stores to about 1/4 of the fleet. And now we're looking at what does incidents look like, what does incrementality look like? And what does it actually do when you -- to our operation as we expand the test?

So far, we've been very pleased. We're getting a lot of positive reaction from consumers. We're seeing the return rate of wraps -- encouraging. The incidence has grown significantly from launch. So just like almost every day, we're seeing incidents improve, and we're seeing a lot of organic social on it, which is an encouraging sign. So still very early, but encouraging that the stage-gate process is working and this innovation muscle that we're building, really learning from both past success and failures has made the company much stronger. And again, got us to a place where we feel very confident in that menu innovation muscle, and we'll be continuing to innovate our menu to broaden what Sweetgreen is over the next 2 years.

Perfect. On the real estate strategy, the slowdown is intentional, helps you get a lot of things right before you reaccelerate back. currently, 20-ish gross stores, 15 to 16 net with closures. Next year, probably start like rebuilding the pipeline depending on how the progress on the Sweet Growth Transformation comes across. How important is it for the company to focus on free cash flow inflecting closer to positive before you reaccelerate like back to the algo?

Yes. So very important. We have to obviously earn the right to grow. So there's so much going on behind the scenes to make sure that our economic model is working. So Jonathan talked about this suite growth transformation plan. So we have ops. So we have to make sure you have best-in-class ops, best-in-class experience every single time you go into the restaurant. And then that price value, so that barbell strategy, having that entry price in and that more premium price, right, and then wraps the new occasion in the menu. So all of this should be growing the top line.

And so keep in mind, we're 1 quarter into the transformation plan. So all the foundation is getting built. So I'm excited to see what happens there. But then also on the cost side, we need to make sure that every dollar is working hard for us. So we have the sales leverage piece, but then we're also looking at the cost of goods sold.

So we're looking at every single category and making sure we have the best prices, but also within the restaurant, how do we make sure the ordering tool is optimized. So they're ordering the right amount. So they're ordering not too little or not too much, right? So we're optimizing those tools. And then as Jonathan said, we have that labor study going on. So all of these things as they come after -- come together will help us earn that right to grow.

Perfect. On the G&A side, a lot of areas, marketing, and we'll talk about that separately and then excluding marketing, you have given some guidance post the Spyce sale. How do we think about this on the longer term areas to focus on investing outside of marketing versus where you can get leverage faster?

Yes. So that was one of the first things I did when I came on is really looking at our G&A structure. And so this year, our underlying G&A is going down about 2%, and that's not from the Spyce transaction because once you add on bonus. So it's really looking across the model and seeing if there's any redundancies and making sure that over time, we obviously want to invest in growth, but we need to make sure we're leveraging our G&A. So that's a big focus of ours.

Yes. We've been able to reduce G&A almost every year over the past 5 years. And so it shows that the discipline is there. The goal going forward is to continue to leverage it. And as Jamie said, move more dollars to things that will be driving transactions, things that consumer can feel or telling our story more from a brand and marketing and really leveraging the rest. And I think given the foundation infrastructure we built, both from a systems, technology and talent perspective, we're -- the G&A is highly leverageable.

You have mentioned marketing and branding as one of the priorities at the beginning. I mean, as a percentage of sales, it continues to grow. But as we look at like the Sweet Growth Transformation Plan, how are you measuring the entire marketing dollar spend, especially when you look at '25, like what has worked, what has not worked? And talk about like revisiting even the social media strategy, for example, how should we think about this?

When I think about marketing, I think about the art and science framework. And if you go back to the Sweetgreen's history, we were very good at the art. It was all brand marketing. It was community. It was music festival and events and really a lot of storytelling partnerships and collaboration. As the company scaled, we moved more towards the science, right, more bottom funnel, growth marketing, conversion, things that were actually really measurable.

And I think the answer is actually more of a balanced approach of both. As a lifestyle brand and one that's trying to create this new category, we need to invest more top of funnel, tell stories, partnerships, collaborations, events that does a lot to create this brand awareness and brand affinity in the hearts and minds of our consumers while still maintaining the bottom funnel tactics.

We have changed -- we brought in a new media agency, changed a lot of our media approach, and we're seeing some really good success. So we have a new Chief Commercial Officer, Zip, that is just awesome, gets the art and science. And so you'll see us do some wild stuff that's hard to measure that just is great from a brand perspective and is, call it, brand over time as well as the marketing stuff that is sales overnight. So just a really balanced approach around that, but expect this year to see more of a shift towards the brand marketing. And to that point, more on social, more on influencers, more on content, really meeting the consumer where they are.

Perfect. On delivery is like a very important channel for you guys, like 20% to 25% of sales, maybe more in some of the markets like New York, for example. How important is it for the brand to communicate and importantly improve the value proposition on this channel? And what is being done to address? There has been a lot of discussion across the industry and how you want to balance the pricing architecture on the third-party channels and the fees and then also the promotions. Can you discuss like what is happening behind the scenes or anything that you could like to share?

We're in the middle of a strategic review of our marketplace -- all of our marketplace experiences and looking at all of those things, whether it be our price markup on the marketplaces, which the original approach was more around protect margin, but there are certain tests around less of a price premium to drive transactions, but we really want to understand the elasticity there. There's also a lot of work being done in terms of the spend on marketplaces and how we can get a lot smarter about our spend, whether it be sponsored listings or promo spend on that.

And so we've actually seen some encouraging results in the past couple of weeks around some of the work we've done around the marketplaces. Each one operates a little bit differently. There's also a lot around the organic algorithm, whether it be things like our operational metrics of order times, order readiness, order accuracy that helps in terms of the -- naturally showing up higher in the algorithm.

But we're very strong on delivery. The brand very well suited for that off-premise channel, and we're going to continue to optimize it. Do see that as a growth channel for us as we continue to grow. I mean you see all the data that's come out actually some today, like our consumer is definitely there. And so we've always believed meet the consumer where they are and make sure we have a product, price offering that makes sense for that channel.

And the only thing that is that outside of the core delivery marketplace, we have also been investing a lot in our catering. We've seen amazing growth in catering. It's not only a great sales and margin driver, but can be a great customer acquisition tool. This year, we launched large-format catering, which is about 75% of the catering market is large format versus single bowl. So we've seen some awesome growth and early green shoots on that channel, and we will expect that to continue to be a growth driver for us.

Perfect. Now to our favorite topic, Jonathan, on technology side. You have always been forefront in terms of digital, in terms of automating like many clients and things like that. World has been changing pretty rapidly in the past couple of years. And can we talk about like -- let's like -- I want to break this down into 2 sections. The first, the software side and then the agentic AI side where how the search is evolving and how to stay relevant in a post-LLM search world?

And then also how you are leveraging internally through your office functions and IT teams, like how is the adoption curve has been -- have been seeing like where it has to start from the top not from the bottom? So let's talk about that. And then separately, autonomous delivery has been getting a little more traction. We have been seeing more pilots by some of your peers outside. There's also like the whole drone delivery thing like which we have been like talking about. You can answer like -- that after this.

Sure. So I'll start with the first part, which is around agentic ordering and what we call GEO search, so generative engine optimization. So we've done a lot of work in terms of GEO already to make sure that we are well positioned around how we show up in an LLM. And our -- while we haven't launched ordering through LLM are very well positioned to do so given the tech and data infrastructure that we have in place. So that's one.

We do also have certain tests coming around agentic AI, one, which I mentioned earlier around CRM. Another is we've been using AI for CX for quite a while now, one of the earliest customers with Sierra and have seen some great success. Where that is probably going is not just a CX agent, but potentially an ordering agent. So again, really well positioned for when the consumer is ready for that. We will be very well positioned to take advantage of that.

Secondly, you talked about efficiencies within the organization. We've been very early first movers around leveraging AI inside of the organization. I'm a big user myself, so is our whole leadership team. And we have AI champions across the organization, really going through all of our different processes and workflows and where we can have agents and AI help us move faster, save costs and really do things better.

Even just the past 2 months, everyone watching the news, it's been transformational, watching a lot of the improvements that we've seen. First thing I do in the morning, I wake up and I kind of have 5 agents go do some stuff for me and come back. So I'm just really, really excited. I think it's really -- it's still very early, but the company, given our innovation mindset and our technical infrastructure, are really well positioned to take advantage of this.

Last piece, you talked about...

Autonomous delivery.

Autonomous delivery. So it's something that we've talked to all the players. We think there's -- over time, that could be very interesting. It's not a huge focus area for us right now. It's something very easy to turn on through our marketplaces. If the consumer wants it or there's economic benefits to doing it, we're there. We do -- we are planning eventually a pilot with Zipline, which we announced a long time ago. When the time is right, we think that could be really interesting around drone delivery. But overall, I'd say autonomous delivery is not a major focus for us, at least this year.

And then one thing to add on the tone at the top. We have an AI club and Jonathan is the most active in that AI club, but it's really cool because it gamifies it and you can see everybody and like what did they do and they're sharing it. So I would say high buy-in on the AI side.

Yes. We built skills. We built a whole skill category. I mean the most important thing just to leverage it properly is having the data infrastructure in a really good place. So you want -- we -- given how technology forward we've been, we have data all the way from our oven data of how often we cook things, to our [indiscernible] of how often we prep things, to all of our people data, all of our customer level data, all of our sales data, all of it built in.

So I can kind of go on and ask for correlations between fresh -- store performance and how many times they cook -- how often they're cooking chicken and start to understand. So it's uncovering a ton of really -- a lot of great insights. And I think the -- for right now, the biggest thing that's unlocked is a lot -- this data insight action loop moving much faster, things that would have taken weeks or months to go from like, hey, I have this hypothesis, where is the data? What's the insight, like what do I do about it? That loop has turned into like a 24-hour loop. Like it's like now you can literally do it in like in the same day and put out tests.

That's awesome. Just one last topic before we close off here. New York market, it's been pretty challenging for a lot of brands, a lot of competition. What is the big like solution in your mind, like if not like we'll expect to see it soon on how to revive that market and get back to performance levels where you can? Is it like the pricing? Or is it like some of the older stores that can like use some elevation in wipes? Like any thoughts you could share there?

Sure. New York is a critical market for us. It's still a very strong market. It definitely has been under pressure. But there's a lot we're doing there. One, first and most importantly, it's the actual experience in the restaurants. And we've elevated -- we brought in a new RVP to run the region. She's done an amazing job elevating that team, putting the right leaders in place, both at the area manager and the head coach level. And we've been investing a lot in that leadership development and hospitality training that I've talked about. So that's part one is just the overall experience.

There is some work being done in terms of the actual fleet itself. So whether it be stores that are up for lease that we will relocate, renovate or close, we are looking at -- there's a lot of portfolio work being done across the region. And then the rest is really work that's happening across the enterprise that will definitely help New York. Things like wraps and broadening the menu -- so the menu innovation work, things like the price value work and the brand work, those all obviously have an outsized impact on New York.

Perfect. Thank you. Thanks a lot for joining us here, Jonathan and Jamie. Wishing you the very best throughout the transformation. Thank you, everyone, for joining us this year on the conference. Looking forward to seeing you guys next year at the same venue. Thank you.

Thank you.

Thank you for standing by. At this time, I would like to welcome everyone to the Sweetgreen, Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Rebecca Nounou, VP, Head of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks.

Today's call is being webcast live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen website at investor.sweetgreen.com.

I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements.

We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of our non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website.

And now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and thank you to everyone joining us this afternoon. Our team members are our most important ingredient, they are the heart behind every meal we serve from the people leading our restaurants and serving guests every day to the teams in our support center. Every team member plays a role in bringing our mission of connecting people to real food to life. I want to thank our teams for staying disciplined and focused on the fundamentals during what has been a challenging operating environment.

In that spirit, I want to recognize my co-founder and long-time partner at Nathaniel Ru. From our first day at Georgetown to building Sweetgreen together, Nate has been a defining force behind our culture, our creativity and our belief that the smallest details are what make a brand truly special. While Nate has stepped back from his day-to-day role, I'm grateful he'll continue to support us from the Board as we build what's next for Sweetgreen.

Nate, Nick and I are all confident that the team we have in place today is set up to navigate Sweetgreen through this moment and lead us into our next phase of growth.

Our full year results make it clear there is more work to do as we position the business for the future. For fiscal year 2025, revenue was $679.5 million. We continue to experience traffic pressure. Comparable sales for the year declined 7.9%. We opened 35 net new restaurants, ending the year with 281 locations. Restaurant-level margin was 15.2%, and adjusted EBITDA was a loss of $11 million.

I'll start with an update on our Sweet Growth Transformation plan, and Jamie will walk through the financials in more detail.

We are executing with urgency across the business and are 1 quarter into our transformation plan, which is focused on five strategic priorities: one, operational excellence; two, food quality and menu innovation; three, personalized experience; four, brand relevance; and five, disciplined profitable investments. While the financial impact will take time to materialize, we are strengthening the foundation of the company. We are improving operations, elevating food quality, accelerating menu innovation and strengthening our value proposition. All guided by clear return thresholds. We are staying relentlessly focused on our guests and acting on what matters most to them.

As I walk through our strategic priorities, I'll share a few encouraging signs where the foundational work is beginning to show up in the business.

Starting with operational excellence, which remains the foundation of our ability to win with guests. We are building the systems and discipline required to deliver consistent high-quality execution across every restaurant every day.

Let me share where we are. Over the summer, we implemented Project One Best Way, our system-wide effort to elevate operational excellence through clear standards, performance-based leadership and measured execution.

Today, approximately 2/3 of our restaurants are hitting our great bar based on our internal operational audit. What's most encouraging is the shift in the distribution this quarter with more restaurants exceeding standard and fewer falling below, reflecting improved consistency across the fleet.

Importantly, great is not a static benchmark. As performance improves, we continue to raise the bar by increasing both the standard score and our expectations for what constitutes great. Throughput is where operational discipline translates into results. In any great kitchen, mise en place means having everything in its place before the rush. That same principle drives our Rush Ready Before Peak Initiative. Ensuring the right team members are in position, up is complete and stations are set before peak volume hits.

We've just started to introduce real-time throughput visibility to our field teams giving them the ability to see performance and adjust in the moment. We know that speed and accuracy during peak periods are what drive both guest satisfaction and team confidence, and we're building the muscle memory across the system to deliver consistently.

We've also strengthened how we measure and drive performance. The restaurant scorecard we introduced last quarter gives teams clear visibility into a focused set of metrics, sales, throughput, customer satisfaction, labor, food quality and people. So they know exactly where we're winning and where we need to improve.

During my restaurant visits, I review scorecards with our teams and walked the Sweet Path, a framework that breaks each restaurant into clear zones with simple, consistent standards for how we show up every day. We're encouraged by the progress we're seeing, but we know there's more work to do.

We're still seeing inconsistencies in areas like ingredient availability and ordering as well as team scheduling, and we're addressing them directly improving our tools, retraining teams, system-wide and realigning quarterly bonus incentives around the financial and operational metrics that matter most.

Our goal is to equip restaurant leaders with clear data and streamlined systems so they can think and act like owners accountable for sales, margins and the guest experience.

Food quality and menu innovation are at the heart of who we are. Our menu sets us apart, built on real culinary credibility and made from scratch with ingredients from farmers and partners we know and trust.

Delivering delicious food executed consistently is nonnegotiable. It's how we compete, and it's how we win. A recent example is our internal Miso My Salmon campaign launched in December to sharpen execution and elevate salmon quality across the system. We extended marinade times to deepen the flavor and refined cooking and presentation, serving the fat side up for better caramelization and a more vibrant appearance.

We took the same disciplined approach with chicken, updating our recipe for a juicy results alongside upgrades to our golden quinoa, white rice and napa cabbage slaw that you can try in our restaurants today. This is our culture of culinary technique and practice, constantly refining how we prep, cook and present our food.

Menu innovation when supported by strong operational execution can be a key driver of comp growth. Our stage gate process implemented in 2025 guides this innovation by ensuring we test and learn while maintaining operational excellence in our restaurants. Today, we have the most robust innovation pipeline in Sweetgreen's history designed to diversify menu occasions, expand categories, attract new customers and drive frequency with existing ones.

We kicked off 2026 with two limited-time-only menus. The first was a collaboration with Function Health and their Co-Founder and Chief Medical Officer, Dr. Mark Hyman. Built entirely from existing ingredients, the menu was operationally simple to execute while reinforcing the quality and integrity of our offerings. And demonstrated how we can deliver credible wellness forward innovation without adding complexity in our restaurants.

Our second limited time menu launched February 3 with the Winter Harvest Bowl, a seasonal take on our best-selling bowl featuring Maple-Glazed Squash and the vegetable of the Year, Charred Balsamic Cabbage. At the same time, we brought back feta cheese to our core lineup, a frequently requested ingredient by loyal customers and brand fans.

Taken together with our innovation pipeline, the menu calendar reflects our focus on creating newness on the menu and bringing customers fresh, seasonal ingredients and with compelling sourcing stories throughout the year.

Our biggest menu expansion planned for 2026 is the launch of Wraps, which began innovation testing in eight restaurants in the Los Angeles market in January. As part of our stage gate process, we're learning how to execute Wraps at scale while protecting throughput. Operational details like tortilla-pressed placement have been key focus areas in our eight restaurant tests and we're actively iterating based on those insights.

Building on those learnings, we expanded Wraps to a broader market pilot last week across select locations in Manhattan, the Midwest and Los Angeles. The lineup, Classic Chicken Caesar, Chicken Salad Baking Club and Chicken Jalapeño Ranch starts at $10.95 at select locations in New York City, and the full lineup is priced below $15 across all markets for in-store and pickup orders.

The early feedback is encouraging, and if performance meets our stage-gate criteria for customer acquisition and retention, we expect to expand the platform in mid-2026.

Improving value perception remains one of our highest priorities. With guests increasingly focused on value and quality while pulling back on overall restaurant spending, we know Sweetgreen must deliver on both dimensions without compromising the experience that defines our brand.

In 2025, we took important steps forward, including increasing protein portions, reintroducing lower-priced seasonal offerings launching 12 daily greens and leaning into the $10 'Tis the Season Harvest Bowl to meet guests where they are. While these actions strengthen our value positioning, we recognize there is more work to do.

Following the comprehensive review of our menu and pricing architecture, we have identified a focused set of initiatives to simplify and strengthen the overall experience. Testing is underway, beginning with wrap's pricing and loyalty entry price drops. We will also test a re-architected Create Your Own platform designed to deliver greater price clarity and a more intuitive ordering experience alongside clearly defined entry price entrees across our core menu categories later this year as we pace and sequence these moves over the next several quarters.

Together, these initiatives are designed to create a more transparent value ladder, giving guests confidence in what they are paying while supporting incremental traffic and transactions across a broader range of price points.

At Sweetgreen, value has never been just about price. It's rooted in the farmers we source from, the quality of their ingredients, scratch cooking, generous portions and a consistent experience. Our 2026 initiatives are focused on making that value clearer and easier to access at every touch point.

Our personalized digital experience strategy is built to increase customer frequency and spend through one-to-one messages and incentives. The $10 'Tis the Season Harvest Bowl promotion in December was a strong proof point for our loyalty-first approach to value and guest engagement.

By making the offer exclusive to loyalty members via the Sweetgreen app, we brought both new and reactivated guests directly into our ecosystem. It was our highest performing reactivation promotion to date.

We are listening to customers and follow this up with a $10 Chicken Avocado Ranch offer on February 9. This continued to build momentum with the playbook we call Craving of The Month, a loyalty exclusive limited time offer featuring a craveable menu items available only through the Sweetgreen app, designed to give members a compelling reason to engage with the brand every month.

Scan-to-pay now represents approximately 20% of frontline transactions bringing in-store guests into our loyalty ecosystem and giving us full visibility into their Sweetgreen behavior and preferences. The impact is tangible, loyalty members who transact both digitally and in-store visit is at nearly 2x more frequently than digital-only customers. We believe this is a key lever to drive higher frequency omnichannel behavior and ultimately, the flywheel that builds lasting lifetime value among our most valuable guests.

At our best, our brand creates culture and makes the spaces we occupy more real, vibrant and connected. In the fourth quarter, our protein-focused campaign resonated with guests seeking more filling, satisfying meals. Built on the insight that protein stopped being about food, we cut through the noise with the launch of the Power Max Protein Plate, delivering over 100 grams of protein from real ingredients like quinoa and chicken with no fillers and generated strong social buzz and brand relevance.

In February, we launched our expanded catering platform, including the Build Your Own Sweetgreen Bar and are seeing strong early traction. Anchored by our Here For The Bowl campaign and a big game activation at San Francisco's Ferry Building Farmers Market, the platform extends Sweetgreen into group occasions and serves as a meaningful new customer acquisition channel.

Shifting to our last pillar, which is a disciplined profitable investment. In the fourth quarter, we opened 15 net new restaurants, including eight Infinity Kitchens. We also entered three new markets during the fourth quarter. Cincinnati, Sacramento with two Infinite Kitchen restaurants and Arkansas. We opened our Bentonville restaurant in Q4 and our Fayetteville restaurant in Q1 2026. We also expanded our presence in Arizona with the second location during the fourth quarter.

On the Infinite Kitchen front, the technology continues to deliver on its promise, faster throughput, improved order accuracy and elevated food quality, all while creating a better experience for both guests and team members.

In the quarter, established Infinity Kitchens delivered higher AUVs and labor savings of more than 700 basis points compared to their classic counterparts of similar age. In November, we opened our first Infinity Kitchen Sweetgreen location in Costa Mesa, California, expanding this technology into a new format designed to serve suburban markets and capture drive-through occasions. The location is performing well, and we are excited to grow this format further. We ended the year with 30 Infinity Kitchen locations.

With Spyce team now part of Wonder, we remain confident in the continuity and trajectory of the platform. The partnership is working. Since the transition, we have successfully opened two new Infinity Kitchen locations in the first quarter, Long Beach and are first in the DMV market at Pike 7. We continue to roll out software improvements, including new capabilities around green portioning precision, demonstrating that development and deployment momentum remains firmly intact.

Over the past year, we strengthened the foundation of Sweetgreen by putting the guests at the center of every decision. We've rebuilt discipline around the fundamentals that matter most: great food, speed, genuine hospitality and clear restaurant-level ownership and accountability. Maintaining that standard consistently across the system remains a top priority because delivering on these basics is what earns trust and keeps guests coming back.

At the same time, we are leaning into what makes Sweetgreen different. We are strengthening our core menu, delivering innovation in a disciplined way building a more connected digital ecosystem and investing in a brand rooted in the Sweetgreen lifestyle our guests choose to live every day.

Looking ahead, the work we need to do is clear, execute with discipline to improve performance quarter-by-quarter and build a stronger, more durable business. While there is still work to do, we're seeing encouraging signs that our efforts are taking hold. I want to thank our team for navigating a challenging year and positioning Sweetgreen for more consistent performance ahead. Now I'll turn over the call to Jamie to review our financial results in detail.

Thank you, Jonathan, and good afternoon, everyone. As Jonathan outlined, the past year was challenging, but it brought clarity on our priorities and the path forward under the Sweet Growth Transformation Plan.

While we are still early, the actions we've taken and continue to take give us confidence in the opportunity ahead.

Our objective is to build a more resilient operating model that supports consistent long-term financial performance. In my experience sustained results come from staying relentlessly focused on the guests, empowering and holding our teams accountable strengthening operational execution and managing costs with discipline. These principles underpin our strategic priorities when those fundamentals are in place, growth, margin expansion and cash flow follow.

Across the P&L, we are taking a comprehensive end-to-end approach to improve efficiency and ensure every dollar is working harder. This includes reducing complexity and reinforcing clear ownership and accountability throughout the organization.

As Jonathan mentioned, we have updated our field bonus plan to align incentives directly with restaurant level performance, encouraging our leaders to think and act like owners with full accountability for sales and margin.

Turning to our fourth quarter results. Sales were $155.2 million compared to $160.9 million a year ago with comparable sales down 11.5%. Restaurant-level margin was 10.4%, down from 17.4% last year, during the quarter, we opened 15 net new restaurants, including eight Infinite Kitchens and ended the year with 281 restaurants. The comparable sales decline was driven by a 13.3% decrease in traffic and mix, partially offset by a 1.8% benefit from menu price increases.

The decline also reflects the transition from Sweetpass+ to our new SG Rewards program, which eliminated subscription revenue and introduced a loyalty deferral.

We expect the first quarter to be the most challenging of the year. January same-store sales declined 11.8% impacted by severe weather. In March, we will be lapping the launch of Ripple Fries. The first quarter includes 70 basis points of price. 2025 carryover price fully rolled off in the middle of February.

Fourth quarter food, beverage and packaging costs were 29.2% of revenue, an increase of 180 basis points year-over-year. The increase was primarily driven by higher ingredient usage and waste, including increased protein portions. These impacts were partially offset by menu pricing and mix.

Tariffs impacted the quarter by 20 basis points. Fourth quarter labor and related expenses were 30.5% of revenue, an increase of 200 basis points year-over-year. This was primarily driven by deleverage from lower sales volumes and wage inflation, partially offset by menu price increases and lower bonus expense.

Other operating expenses were 19.1% of revenue, an increase of 170 basis points year-over-year driven primarily by deleverage from lower sales volumes, higher marketing spend and increased repairs and maintenance.

G&A expense was $39.7 million in the quarter, an increase of $2.6 million year-over-year, primarily related to onetime stock-based compensation modifications made during the quarter. For 2026, we expect underlying support center costs, excluding stock-based compensation and onetime expenses to be approximately 13% of revenue down from 15.3% in 2025 as we streamline the organization and drive greater cost discipline.

Fourth quarter net loss was $49.7 million compared to a net loss of $29 million last year, reflecting the decline in restaurant-level profit. Adjusted EBITDA was a loss of $13.3 million compared to a loss of $600,000 last year, also driven primarily by lower restaurant-level profit.

We ended the quarter with $89.2 million in cash at the beginning of fiscal year 2026, we closed the sale of Spyce, receiving $100 million in cash proceeds.

Now turning to fiscal year 2026 guidance. We expect same-store sales to be a decline in the range of negative 4% to negative 2%. As comparisons ease, we expect same-store sales trends to improve throughout the year. We expect restaurant level margin to range from 14.2% to 14.7% and adjusted EBITDA to range between $1 million and $6 million.

On unit growth, we expect to open about 15 net new restaurants with nearly half featuring Infinite Kitchen technology. We also plan to enter two new markets, Nashville and Salt Lake City.

Our development pipeline is weighted toward the back half of the year. This is inclusive of a handful of closures at the end of their lease term where we see the opportunity to strengthen nearby locations.

To close, the opportunity in front of us remains significant. We are rebuilding the fundamentals, strengthening operations, elevating the guest experience and improving restaurant level economics. We are committed to building a stronger, more profitable Sweetgreen over the long term. With that, I'll turn the call over to the operator to begin Q&A. Operator?

[Operator Instructions] And your first question comes from the line of Jon Tower with Citi.

I guess maybe thinking through the comp guidance that you offered, it sounds like you're not going to be taking much price on the year, if any at all. But can you help us think through the puts and takes with respect to comp growth? I know you provided the cadence, but what you're expecting for timing, say, of Wraps if they make it through the stage gate process in terms of when they may come through the year? And any other drivers to the top line as you're thinking through the business for '26 and beyond.

Yes. Jon, this is Jamie. We expect, like you said, guidance between negative 4% and negative 2%. And so we've had a really choppy beginning of the year with the storms January and February. However, we have seen a couple of really good weeks. We're being conservative given the economic backdrop, but we're excited about all the things that we have in place. And then we're also excited if reps do well in test, which is looking great that they do launch in Q2.

Okay. And in terms of pricing, do you plan on taking any more or taking any during the year?

We're being cautious given the consumer backdrop, but we'll reevaluate throughout the year. But that's not in our guide.

Okay. And then just last one. in terms of thinking about the building blocks to returning store margins to kind of that high teens, low 20s rate, obviously, sales are going to be a key component in it. But can you speak to any specific cost levers that you have already pulled or plan to pull in '26 to kind of work with you guys as the sales begin to improve?

Yes. So there's a lot of things that we're working on for margins. So sales leverage is obviously going to be the biggest piece. But there's also some operational inefficiencies that we're working on. And one example would be around optimizing our order system for our team members to make sure they're ordering the right items, and we're taking the guesswork out of it. So we're looking to streamline that tool and making sure we get rid of all those manual inputs, so we're ordering correctly. So we do see some opportunity there. We also see opportunity within our supply chain, streamlining and doing some supplier diversification.

Yes. And Jon, the only thing I'll add to that is we've continued to see encouraging signs around our ability -- our head coach stability and reducing turnover. And we know when we get stable head coaches and reduce turnover, we have more productive teams which also leads to higher margins. So obviously, sales leverage will be the biggest component, but there's a number of operational moves that we're putting in place that with -- even without any sales leverage, we do have some margin gains to go forward.

Your next question comes from the line of Rahul Kro with JPMorgan.

Can you discuss how the rollout of the Project One Way, maybe the first titration, understanding this is an ongoing process is progressing. And specifically, can you share some metrics maybe on store performances for the cohort of stores where the rollout has been the earliest and a margin side or anything else to give us more confidence that we are at the inflection is closer to the inflection? And I have a follow-up.

So we're very encouraged by the work we're doing from an operational excellence perspective and a huge shout out to our operations team and our field leadership. We've instituted Project One Best Way. And over 2 quarters, you've seen the restaurants that have been scored great through our internal audits double just in 2 quarters. We do see better comps and better return rates of customers in those stores as they better -- as they perform better on those operational metrics.

And those operational metrics are everything from our standards and process, but a lot in terms of hospitality and food quality as well. So they're very in-depth studies.

We're going to continue pushing on that with a huge focus as we look forward, not only on throughput, but on hospitality and continuing to elevate our food quality.

One thing that we talked -- I mentioned earlier in the prepared remarks was around a lot of the moves we made around the quality of many of our core items. So we talked about the salmon where we've increased -- we've elevated the quality of the salmon through some of our culinary techniques. And we've seen salmon, as an example, increase its velocity by almost 20% as we've done that.

Similarly, we've upgraded how we season the rice. It's much more delicious. If you haven't tried it, I highly recommend. And we've upgraded our quinoa from a -- kind of a classic plain quinoa to a golden quinoa and even changed how we cook our chicken in terms of the cycle time of how often we cook it and the way in which we cook it to be juicier. So a huge focus on the guest and the product and elevating that. And we know when we do that, customers are more -- become more loyal and stay with us longer.

And then reducing complexity is something you mentioned again in the prepared remarks, can you revisit this topic on what the top priority areas here in the store for 2026 and what kind of changes or impact we should see?

In terms of what we actually do in the restaurant?

Yes, on the completed detection.

Yes, we're constantly looking at tools and processes as well as what we do in restaurant and where we can leverage value-added partners to make it -- make the work easier in our restaurants. And again, given our food ethos and focus on made from scratch, we're very, very careful on this. So one of the big rollouts last year was around de-stemmed kale as an example. That's going to -- we're going to -- we should see continued efficiencies from that. There's a number of other opportunities, whether it be how we cook our steak is one thing that we're looking at. Chicken protein marination is another one we're looking at, and we're constantly looking at which dressings and sauces could be upstreamed as long as they can be upstreamed in line with our values.

So we've really built this commercialization muscle over the past couple of years, and we will continue to lean into that to make it easier for our team members to work in store, lower those prep hours and move more of the hours to focus on hospitality and the guest experience.

Your next question comes from the line of Brian Bittner with Oppenheimer.

As it relates to the trends in the business, I realize the storms have had a huge impact, obviously, on the first quarter for the industry and particularly you given where your store base is. But have you attempted to perhaps strip out that headwind and think about the underlying trends and what those look like? Or do you have an estimate perhaps of how big the impact from the storms could be for the first quarter so we can try to better think about the trends in the business?

Yes. So January and February are choppy. The impact of the storms to date is about 320 basis points, but that does not include this latest storm where we have a little over 100 restaurants, so it's really hard to read the first quarter. What I can tell you, given our Northeast densification, but what I can tell you is the weeks where we're not seeing any weather, we are seeing some momentum in the business. So that's been great to see.

Okay. That's helpful. And just my follow-up question is related to the restaurant margin guidance for 2026. Maybe you can help unpack how to think about maybe the COGS and labor line items. They've obviously been large sources of deleverage looking backwards. But I think in order to get to the guidance for '26, we need much more stable performance in those two line items, but you're not taking much price and you anticipating comps to be down 2% to 4%. Can you maybe shape expectations for the building blocks of that restaurant margin guidance?

Yes, absolutely. So about half of it is -- a little over half of it is sales deleverage, but then we do see opportunities when it comes to making that protein portion and that's through supplier diversification and some refinements that we're doing in the supply chain while making sure we keep the quality in our delicious ingredients.

And then also, a lot of it is related to these operational inefficiencies. Jason is doing an awesome job with the team. But what we're realizing as we go out into these restaurants is that we're making things complicated for our team members. So it's really been a focus of getting into the restaurants and seeing how we can make their life easier. And so one of them was that predictive ordering tool that we're implementing, and optimizing. So I think that's probably going to be the other half is more of the supply chain initiatives and EBT.

Yes. If I could just add one thing. We did put in a new labor management tool last year, our new workforce management, and we're continuing to optimize that and make sure we have the right labor at the right time in order to capture sales, but also really just not wasting labor, reducing over time. And so a number of levers for us to pull around operational efficiencies.

Your next question comes from the line of Brian Mullan with Piper Sandler.

A question on the Wrap. I think this is something you've been contemplating for a long time. Is there a way to maybe frame up how big of an opportunity this could be even qualitatively, including as a customer acquisition tool, if you get the product and the operations right. And then separately, are you viewing this as a digital-only offering? Or is this something you could envision walking the line and be able to order as well?

Absolutely. So we're very excited about Wraps. It's something we've been working on for a very, very long time, probably 2 years of product development, getting everything perfected. Both the flavors getting the supply chain ready to have a really clean Wrap and, of course, perfecting the operation.

We went -- instituting our new stage gate process. We went into our rapid ops test in January in eight stores in Los Angeles. The main question we had was how is it going to impact's our restaurants operationally, specifically any impact to throughput. I'm very confident that it will not be a drag on throughput, and that was a big question.

We've now moved on to a market test with about 68 restaurants, featuring Wraps started about a week ago. Results have been really encouraging. We have seen incidents tick up almost every day since launch. The feedback we've gotten from guests is phenomenal. It is really hitting a new occasion and in many ways, a new customer.

If you look at the addressable market, Wraps handheld, there's a huge segment of the population with being a bowl-only concept that we were not capturing. So this opens up the aperture a lot for the type of customers and occasions the type of customers and occasions that we can see.

The last thing I'll say is that we have -- we talked about it in the prepared remarks, but Wraps will all be sub-$15 starting at $10.95. So I think really disruptive from a price perspective. And the other thing we see is when people are coming in at those lower prices, their second order rates are significantly higher. So we expect to see the -- the lifetime value or the annual spend of guests increase as we do that.

So overall, very encouraging still perfecting things getting ready for a midyear launch as long as it passes stage gate, but we do expect Wraps to be a really big moment for us. We will put significant marketing around it. And I'll say I think it's going to be a huge moment for the brand. I didn't answer your question -- your last part of it was, will it be digital only? No, it will be available on all channels. So today, even in test, I encourage everyone to go try them, and please share your feedback. We have three Wraps. Today, we may expand the lineup, but they're available across all owned channels eventually will be available on all channels, including marketplace. But for right now, they're available both in-store on pickup and through our pickup channel.

Okay. That is exciting. And then a follow-up, just a question on development. Maybe you could just talk about what the team is focused on beyond this year. I know given the lead times, you'd normally be focused on '27, '28, maybe you don't want to sign as many leases as you normally would right now. So just talk about how you're managing striking the right balance of slowing down now, but not having a gap later in the pipeline if you want to accelerate.

Yes, that's pretty -- I mean you kind of nailed the approach. It's making sure we have a healthy pipeline, so we have the optionality to speed up as comps improve, and we feel good about the unit economics. However, keeping it not necessarily committing to too much to make sure we're disciplined from a cash perspective.

We've learned a lot about where Sweetgreen really works. We do have a really, really solid pipeline. We feel very confident about for this year and do have a really solid pipeline built for '27. But really kind of taking a wait-and-see approach in terms of signing too many deals as we really perfect the unit economics in the business.

Once we do see comps start turn positive and the flywheel starts going, we do expect to begin to accelerate development back to our previous algorithm.

Your next question comes from the line of Dennis Geiger with UBS.

I wanted to touch on loyalty a little more, if you could share a bit more on what you saw in the quarter, including the impact to the comp in the quarter first. And then just anything else on the customer observation, including most frequent guests, how they're using the program and where they are right now versus the old program? Have any updates on that front?

Yes, absolutely. So overall, the program is doing well. We're continuing to see weekly year-over-year growth with the new members signing up to the program. We do see loyalty members on an annual spend at more than 2x non-loyalty members. So it is definitely working. However, we also see a lot of opportunities.

So as a lot of you will see kind of a re-envisioning or an optimization of the program later this year, things like improving perks, adding tiers, boosting benefits of the program, for example, that we need more options at lower tiers.

And then we also are seeing a lot of opportunities in how we can leverage AI and personalization around offers and communications, which we think will improve our targeting and continue to drive frequency.

So overall, feeling pretty good about the program, but more optimizations coming to really make it a best-in-class program. The best thing about this versus the Sweetpass+ is much more broadly appealing.

The last thing I'll say is we introduced scan-to-pay in our restaurants last year. And I think we may be one of the -- maybe the only restaurant that allows you to scan and pay with a single transaction. And that percentage inside of our restaurants has doubled over the past 2 quarters. So we're now seeing about 20% of in-store transactions. Being a scan-to-pay transaction. And again, that's -- those are more customers that we can target with communications and offers.

Great. And then just if I may, one more on IK. Just as it relates to the higher AUVs that you called out. Any additional comments there, high-level quantification or perhaps anything on throughput metrics, et cetera, on the IK side of things.

Yes. IK continues to be encouraging. We're seeing similar results that we've talked about in the past, at least 700 basis points of leverage. We did introduce our newer formats with the IK, much better from a customer experience perspective and from an operations perspective. And so -- we're going to continue to have that as a huge part of our toolkit. We opened two more stores with Infinite Kitchens this year in Q1. So we're up to 32 stores featuring the Infinite Kitchen. We continue to see the benefits around throughput, accuracy, wait times. And over time, we think that also gives us a lot of pricing power. So very encouraged by the IK and continue to use it, especially in our more high-volume locations.

Your next question comes from the line of Sara Senatore with Bank of America.

I guess maybe just two follow-ups. One is on the Wraps. What is the implication for maybe operational complexity? I think to your point about bowls, even the Protein Plates probably looked kind of similar in terms of the build or how they went down the make line. But is this going to add complexity. And I guess it sounds like probably not something that you can use the Infinite Kitchen for. So as you're stage gating, I assume you're looking at the operational implications, but just -- anything you can say on that?

Absolutely. So that was the major focus of our testing. So even before our rapid ops testing, we did a lot of testing in single restaurants where we brought team members together, worked together to co-create the operation, things like where does tortilla placement go? How does the food move down the line. One of the things that we heard from customers and a lot of our surveys and focus groups, the product is better when the ingredients are mixed before wrapped and the product is better when the Wrap is cut.

And so those were things that we wanted to ensure we brought to market. And luckily, we do a lot of hard work from our operations team, those are things that we were able -- we've enabled and are not seeing any slowdown on throughput. We do not expect any additional labor needs in order to do it, it really works beautifully within our current workflows. And it actually does work with the IK. The Infinite Kitchen does put together all of the ingredients and our team members Wrap things up on the finishing station. So it actually works beautifully in those locations as well.

Okay. That's good to hear. And I guess then the second question was about some of your comments about marketing and value. And I guess you did invest in value in the fourth quarter. And I think you saw -- you said you saw some initial good reaction. But then obviously, I think the quarter didn't end up where you had hoped. So is there an opportunity here to not just maybe improve the value proposition, but improve how you communicate it. I don't know if it's something beyond what you do with the loyalty program or the in-app marketing or just anything you have in terms of thinking about whether the communication maybe could be more effective as well as just the more like introductory price points?

Yes. So we see a lot of opportunities there, and we ran a lot of tests and pilots over the past 6 months to better understand the price value equation, how that resonates with customers. So one was our case $10 'Tis the Season Harvest Bowl where we saw incredible reactivation rates, great customer acquisition and interestingly the reorder rate holding those customers was really high. So very encouraging is that brought people into the brand, and then they stayed with us past that promo.

We followed that up this year with what we're calling our Craving of The Month, which is it's a value offering only for loyalty members. So it really works in that loyalty flywheel of bringing people on the brand. And again, what we're seeing is not only are they coming -- many people are reactivating or lapsed customers are reactivating or new customers are joining with it. But again, they're not just ordering there. They're sticking with us. But there's a lot more work we're doing on value.

Wrap is something we've talked about with the anchor pricing on Wrap. But in the prepared remarks, I mentioned a lot of the overall price value architecture work that we're doing. We are going to test a new pricing structure for our Make Your Own Bowls. And we are also looking at our pricing ladders and where we have opportunities for more entry-level pricing. Of course, we want to be very careful not to dilute our margins as we do this. But what we've seen is having different options for different groups of consumers, ultimately, Sweetgreen mission of connecting people to real food, we wanted to democratize real food and make it accessible to all. And so these pricing ladders give options for all different types of consumers, and you'll see a lot more work on the price side.

At the same time, you're going to see a lot more work on offering more value. Last year, we increased our protein portion. We've upgraded a number of our ingredients, and we're improving the experience in our restaurants. So the combination of those together, I think, will really start to get that flywheel of growth going for us, and we've seen some really, really encouraging early signs.

Okay. And then just the marketing question was sort of more -- it sounds like you have a lot of initiative. Is there -- do you think about a contemplation of maybe marketing outside of GM more broadly, maybe to your -- the more infrequent customers or people -- I don't know if it's a point of purchase or how you do that. I know you're relatively small, but just I guess my question was more, you have good value. Is there a way to communicate it more broadly?

Yes. Yes. I think you'll see more of that from us across many of our channels. I think you'll also see we've reevaluated our marketing mix we're spending a lot of our money lower funnel. And I think you'll start to see more top of funnel brand awareness. We know as we do that as we create more brand salience, it actually improves our return on ad spend lower in the funnel. .

And if you go back to kind of what made Sweetgreen, going back to our roots, it was really a lot of that brand marketing and storytelling. So I think you'll see a healthy balance of the brand marketing top-of-funnel brand awareness. Things like collaborations and ways we play into culture as well as getting really efficient and optimized bottom funnel, whether that be whether that be our media spend and/or what we can do through our own channels and our loyalty program.

So kudos to our marketing team really reinventing how we go to market and speak to more guests and I think you'll only see that improve throughout the next couple of quarters.

Your next question comes from the line of Brian Harbour with Morgan Stanley.

Are you doing IK retrofits at this point? I guess I'm just curious, because that's clearly something that kind of reduces complexity or is that not a focus at this point?

It's not a huge focus for us. We have done a handful of them. I think we will continue to look at them as leases come up when we're doing full renovations or relocations. So for example, in the past few months, we did relocate two stores, one being our Union Square restaurant that lease was up. We moved to a better location on the avenue and opened with an IK.

Similarly, our first New York store at the Nomad, moved across the street and opened it with an IK. So you'll see it being done selectively, but the retrofit is not a huge focus for us right now.

Okay. Got it. And just the slight change to store openings this year, are those just getting delayed or you haven't sort of signed some of those leases anywhere. I guess like the broader question is, are you sort of -- you sort of have different views about where it makes sense to open at this point?

I think we've seen a lot of success in our new and emerging markets. I think, which proves the TAM question this year. In the past couple of quarters, we opened new markets such as Arkansas, Phoenix, which is doing incredibly well and even a place like Cincinnati. So you continue to go where we know it works. We're really trying to open really places where we have a high degree of confidence where we can both have the right real estate, have the people leadership there, support it from a supply chain perspective.

And so we have a high degree of confidence in the pipeline for this year, and we've gotten a lot just a lot smarter about where to put new locations in what format. I also had it in the prepared remarks, but we have seen a lot of success with our Sweetlane. The most -- we have our first one in Schaumburg, we opened another one in Costa Mesa. We have another one coming very soon. And obviously, those are harder to find, but it's a really great format for us that we're continuing to lean into.

Your next question comes from the line of Andrew Charles with TD Cowen.

Jonathan, with your greater focus on protein and fiber as part of the marketing efforts. Is there any evidence that your efforts are resonating with GLP users via your loyalty program or any other data you can collect on this? And then I have a follow-up.

It's hard to say because our users don't tell us that they're on GLP-1s. So it's hard to say, but clearly, many people are. What I can tell you is I do think we would be -- we would long term as GLP-1 adoption increases, we will be a beneficiary from all of our research as people get on GLP-1s they want more protein dense, they want fresher food. And I think William Blair put out a study a couple of years ago about actually studying which brands -- what customers want to eat once on GLP-1. And I think we were the only one where actually frequency increased. So overall, I do -- we do see it as a tailwind, but we have no real evidence of it in our current data.

Okay. And then, Jamie, I know in 2025, the brand closed three restaurants that were near the end of their lease and I'm curious if you had enough time in your role to review the portfolio to identify stores where it might make sense to be closed stores permanently before their new lease term as a way to improve same-store sales, margins and free cash flow as a way to help accelerate the turnaround.

Yes. No, we definitely are looking at that, and there was one that was closed in Q4, and we have a handful that are closing this year, but those are all near the lease term, but absolutely, we're looking at the whole portfolio and the ones that are not cash flow positive, we're taking a hard look at.

Your next question comes from the line of Chris Carril with KeyBanc Capital Markets.

So can you maybe talk to the digital mix growth that you're seeing more recently, both across total and owned channels? Is that a function of increasing loyalty engagement or scan-to-pay? Or is it maybe driven by non-digital customers reducing frequency? And if it is that latter guest, how do you plan to reengage those non-digital guests?

Yes. So I will say that we're seeing some healthy pickup in our native business, our first-party channel, and I think that's part of some of the loyalty promotions that we're doing. .

Last year in marketplace, it was a tough environment. There is a lot of value going on, but I think we intentionally put them through our own channels. And like Jonathan said, we're seeing the stickiness of those transactions in that second order rate increase. But however, we do see tremendous opportunity in the marketplace area and to grow our third party as well. So that's all things -- that's all work that's under -- being underway.

Yes. And on your question around the -- I think you're referring to our in-store business. It's, in some ways, our most important channel. It's where we acquire so many of our guests. It's where you in the food quality, you're eating it fresh. You're getting that hospitality experience, you're learning about the brand. And so really focused on that, really from a hospitality perspective and a throughput perspective. And we've gotten very clear on how to measure the right metrics to show that we're on the right track.

Really, there's so much around that second order rate of how do we how do we incentivize teams around giving us such a great experience where those customers come back within 30 days. When you have that customer come back within 30 days, their annual spend is significantly higher when they don't.

We know Sweetgreen as a frequency and loyalty, like it's a habitual play. And so that in-store experience is a really important channel that we're highly focused on this year.

Got it. And then I guess as my follow-up, can you maybe comment on any differences you're seeing in sales trends across geographic regions, if any? Curious specifically if you're seeing any material differences between your legacy markets versus newer markets?

Yes. So I'd say Northeast is still under pressure, but I will tell you, when I started in September, that was the first market that we visited as a management team. And there is a lot of work that's being done by Jason and team and they hired a new RGM. And so we went back just this month, and it was encouraging to see all the work that's getting done and how delicious our food is and how operations is turning around. So that's been promising as kind of the hope and future ahead. But one thing that's been great to see is our California market. That market has been under pressure. If you think about last year, we had the fires and different things, but we are seeing some nice momentum in our business in California.

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Great. Thank you very much. Jonathan, it seems like over the past couple of quarters, there were lots of talk of trends by income, age, ethnicity, but it does seem like, at least in recent months, perhaps there's some talking about maybe less bifurcation between those buckets and maybe less of a concern. Just wondering if there's any update in terms of your trends by any of those cohorts? And if there is an income concern when I see you talking more about value.

Like how do you measure your value perception, maybe where do you score you're willing to reset the margin target to be more aggressive pushing value? And then I had one follow-up.

So in terms of our cohorts, we're seeing similar data -- up for Q4, we did see a slight decline in all cohorts, but we are seeing a little bit of pickup in Q1, which is great to see, and then I'll let you comment on the value piece.

Yes. I think the goal here is, obviously, anything we do from a value perspective, we have to make up in transactions. So we don't see the margin deleverage. And so that's why we're looking very carefully at the price architecture. It's not a wholesale price decrease. It's more of a value ladder to have more options in. And we know as we do that, we see more frequency. So we're trying to both protect the margin as we offer more price value.

Yes. And we're definitely going to test every price move that we do to make sure we're getting those incremental transactions.

Got you. And then my follow-up, Jamie, you talked about for 2026 G&A reduction. I know you never know when best to temper spend versus reinvest more I think some were thinking maybe you'd see an uptick in spend to reinforce the brand positioning and the store level support. So just wondering how you guys think about it as a management team which direction to go within G&A? And maybe can you share the largest buckets that are actually driving that reduction in spend in '26?

Yes. So we've done a lot of work around G&A, and we will continue to lever that. But what is most importantly is we're investing in things that are driving returns. So we're super focused on our suite growth transformation plan. So when it comes to marketing and now having sit on board, we're really focused on that return and driving that value. So I would say you're going to see us investing heavily when there's a return, but you are going to see us reduce vendor spend in areas that are not creating returns and are not focused on our growth plan. So it's really just cutting the dollars that we're not creating returns and then focus on the dollars that are creating returns for us.

But there's a lot of opportunity. I mean, yes, a lot of opportunity ahead, I would say, to lever that further.

Your next question comes from the line of Sharon Zackfia with William Blair.

I guess, Jonathan, I'm intrigued by the idea of simplifying the pricing architecture, particularly for the Create your Own. Can you remind us kind of what percent of your sales are to create your own at this point? And kind of how simple can you make it? It does feel like sometimes I need a quantum physics degree to figure out what my bowl might cost before I order it.

Yes, we hear you on that. So it's about 1/4 of our business in terms of the Make your Own there's obviously many more people are ordering signatures and modifying them. But in the True Make your Own, it's about 1/4 of our business. So it's a very important segment for us. .

It's a little early to say exactly what we're doing, but it will be radically simplified and I think better for the guest.

Today, to your point, it does maybe feel like you're getting nickel and dime down the line. So we want to make it where you kind of know what you're getting for a very simple price and making sure that is really competitive in the marketplace. So more to come on that, that will be thoroughly tested through our stage gate process. But I do think that will be a major lever for us as we simplify our pricing structure and offer better price value.

Is it fair to think that, that would be anchored around the proteins on the pricing? And then would you -- it seems like you would give some margin up by doing that. Would that be kind of, I guess, derailing some of that kind of clawback of the protein reinvestment or the increased portion sizes that you did last summer?

Yes. So I would say that we're looking at it in a couple of pieces, we will be looking at those value ladders, but then we'll also be looking at the elasticity of other items to sort of offset that benefit, but all of these will be carefully tested.

Your next question comes from the line of Logan Reich with RBC Capital Markets.

I was just wondering if you could give an update on how the new store productivity is have been tracking through the year and for the Q4 openings?

Yes. So I would say for the Q4 openings, it's hard to tell, right? There's been a deceleration in the business. So I would say it's something that we're continuing to monitor and we're looking forward to make sure in 2026, we're only getting the best sites, and we're working on all the things under the growth plan. So I would say it's too early to comment on the 2025 productivity. But we are seeing some great things when you look at areas, some of the new markets like Arizona that haven't been impacted by weather, very promising results there.

There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Thank you for standing by. My name is Joe, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen, Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Rebecca Nounou, Head of Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release and today's announcement regarding the sale of Spyce are available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com.

I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release and Spyce announcement also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements.

We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website.

And now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and thank you all for joining us this afternoon. We are addressing the headwinds from the current operating environment with agility and focus. We are tightening operations, accelerating menu innovation, and deepening guest engagement. The team is focused on delivering an exceptional guest experience, improving operational execution and serving delicious, high-quality food in every restaurant. The actions we're taking are designed to expand our value proposition, strengthen transactions, enhance restaurant performance and position Sweetgreen for a return to profitable growth.

For the third quarter, we reported sales of $172.4 million and a same-store sales decline of 9.5%. Restaurant level margin was 13.1% and adjusted EBITDA was a loss of $4.4 million. Performance was impacted by softer sales trends in our Northeast and Los Angeles markets, which together represent about 60% of our comp base. This was coupled with lighter spending among younger guests, particularly the 25- to 35-year-old age group where we over-indexed.

As we look to Q4 and beyond, our new leadership team has taken the learnings from the year and focused our actions around 5 key strategies to transform our business. We're calling it the Sweet Growth Transformation Plan. Our strategies are: one, operational excellence; two, brand relevance; three, food quality and menu innovation; four, personalized digital experience; and five, disciplined profitable investment.

Now let me share some of the work being done under each of these strategic priorities, starting with operational excellence. Since joining earlier this year, our COO, Jason Cochran, has been instrumental in leading the work to strengthen operational execution. He has brought greater accountability and a new culture to how we run our restaurants.

Building on the foundation we introduced last quarter, Jason and his team are continuing to deploy Project One Best Way, our system-wide effort to elevate operational excellence through clear operating standards, performance-based leadership and measured execution. As part of this project, we launched Sweetpass, a framework that helps every team member understand what running a great restaurant looks like at Sweetgreen. The Sweetpass breaks each restaurant into clear zones from the front line to the back of house with simple, consistent behaviors and standards for how we show up every day.

Jason also introduced a new restaurant scorecard this quarter. It gives our teams greater visibility into performance across a streamlined set of metrics -- sales, throughput, customer satisfaction, food quality and labor performance that helps our team celebrate wins, bought opportunities and focus on what drives results.

In mid-September, we kicked off a new throughput initiative that defines what it means to be ready for peak lunch and ties progress directly to the scorecard. Early results are encouraging, showing improved peak hour throughput and building momentum towards the operational excellence we expect from ourselves.

To improve throughput further, our technology team has begun rolling out Scan to Pay for a faster and simpler frontline checkout experience. With a single app scan, guests can pay, earn and redeem rewards instantly using saved payment methods, including credit cards, Sweetgreen credits and gift cards. These disciplined system-level changes under Project One Best Way will take time to mature, but they're already building the structure and habits that will define how we operate going forward.

As we shared last quarter, about 1/3 of our restaurants met or exceeded our internal operational standards. Today, that number is approximately 60%, an important step forward. Additionally, turnover and retention continue to improve, and we expect this progress to translate into stronger restaurant-level performance over the year ahead.

Now turning to brand relevance. I'm excited to welcome Zipporah Allen, our Chief Commercial Officer, who leads marketing, menu innovation and the overall customer experience. In her first 2 months, Zipporah has brought new energy and focus to our marketing team, shaping a strategy that positions Sweetgreen as a lifestyle brand with a focus on acquiring and inviting more customers to live the Sweet Life. In the near term, we have redirected marketing to support New York, our most challenged market. We are optimizing our media investments to drive new guest acquisition and expand our share of voice. In the long term, we are focused on creating culture through distinct brand moments.

This will include a more structured approach to engagement with content creators that have an authentic connection with Sweetgreen, as well as brand partnerships that will broaden awareness with new audiences.

For our food quality and menu innovation pillar, we are focusing our attention on driving awareness around the quality of our ingredients. Next week, we're launching a protein-focused campaign, highlighting the real fuel that our customers get when they choose 1 of our 9 chef-curated menu items with more than 30 grams of protein. We are also introducing a new macros calculator in our digital experience. This protein campaign gives us a great opportunity to educate customers about our larger protein portions and is the first step to broadly communicating the key differentiators that make our menu distinct in the market. You'll see us continue to message our high-quality ingredients into next year, claims that differentiate us from our competition such as made from scratch, chicken, steak and salmon raised responsibly with no antibiotics ever, seed oil-free proteins, grains and roasted vegetables, no artificial flavors, colors or dyes and sourcing organic and local produce from farmers and partners we know and trust. These will take a more prominent role in our messaging going forward.

Additionally, in 2 weeks, we will launch a new steak bowl and steak plate to strengthen variety and value.

We continue to strengthen our menu innovation muscle with a pipeline of menu items entering our new stage-gate process in Q4. This is a cross-functional testing process that we will use for every menu item going forward. This will give us more precision and predictability in the results that we can expect from our menu development efforts.

We continue to leverage seasonal menus to drive frequency with our existing customers, and we have rightsized our marketing investment to reflect the role that these menu items play on our menu. At the same time, we are expanding our core menu offering to be relevant for more occasions and consumer needs through our pipeline test.

Our new handheld product will go into market test in early 2026. In Q4 and heading into Q1, we are also reviewing our menu and pricing architecture as we continue to strengthen our value proposition. We know that we can do a better job of creating clear entry prices and logical trade-up opportunities across our create-your-own and chef-curated menu options so that our customers understand the value across every menu tier. When guests know what they're getting and feel good about it, it builds trust and drives loyalty over time.

Now turning to personalized digital experience. Earlier this year, we launched SG Rewards to create a platform for a more personalized experience powered by enhanced customer data. We just reached the 6-month mark of this program and are continuing to see positive trends on frequency among our most loyal guests. The program unlocks the ability to leverage the data to drive frequency and retention through our CRM efforts. And during the fourth quarter, you will see us leverage this channel to invest more in targeted discounts and promotions to improve value perceptions and drive increased frequency with lighter users.

Shifting to our last pillar, which is disciplined profitable investment. In the third quarter, we opened 8 restaurants, including 6 Infinite Kitchen. We also entered a new market, Arizona, with our Scottsdale location, delivering the second strongest opening of the year. Following the quarter, we added a second Arizona location, further deepening our presence. The continued success of these openings reinforces our confidence in the white space opportunity ahead.

In the fourth quarter, we will open 17 new restaurants and enter 3 new markets: Sacramento, Cincinnati and Northwest Arkansas. Our Q4 openings include our first Sweetgreen featuring the Infinite Kitchen in Costa Mesa. Altogether, we expect to complete construction of 40 new restaurants this year, ending 2025 with 37 net openings. This reflects the closures of our Bleecker and Astor Place restaurants in the third quarter. It also includes shifting 2 restaurant openings into early 2026 to ensure the best possible experience for our guests and team members, though construction will be completed this year.

We expect to open our relocated Nomad restaurant in December and Union Square in January. Both locations are being relocated to stronger sites and will include Infinite Kitchen.

We're prioritizing the strength of our financial position by improving cash flow and maintaining greater discipline in how we invest, which will include a slowdown of new restaurant openings.

Looking ahead to 2026, we plan to open 15 to 20 net new restaurants with about half featuring Infinite Kitchen technology and enter 2 to 3 new markets, including Salt Lake City. We believe this strikes the right balance between growth and financial discipline as we focus on lowering capital expenditures and driving strong returns. We remain focused on quality growth and continue to target cash-on-cash returns above 40%.

As announced today, we've made the strategic decision to sell Spyce, our business unit responsible for developing the Infinite Kitchen to Wonder. This will allow us to unlock greater scale, lower operating costs and strengthen our financial foundation for the future. First and foremost, the Infinite Kitchen remains central to Sweetgreen's future. The technology has consistently proven its ability to deliver faster throughput, improved accuracy and consistency and elevated food quality. In the third quarter, the Infinite Kitchen restaurants continue to realize approximately 700 basis points of labor savings and nearly 100 basis points of COGS improvement compared to restaurants of similar age and volume.

Under our agreement with Wonder, Sweetgreen will continue to utilize and expand Infinite Kitchen technology across our restaurants. Partnering with Wonder enables us to leverage their manufacturing scale, R&D investments and shared innovation, accelerating the refinement and rollout of additional IK units. This transaction also allows us to sharpen our focus on our core restaurant business, allocating more of our talent and financial resources toward accelerating growth and achieving profitability. The $186.4 million sale is expected to infuse our balance sheet with approximately $100 million in liquidity, strengthening our financial position and enhancing our flexibility to fund future growth initiatives.

We're incredibly proud of the work the Spyce team has done to develop, scale and commercialize one of the world's most advanced food automation technologies under Sweetgreen. I want to especially thank Spyce co-founders, Michael Farid, Kale Rogers, Brady Knight and Luke Schlueter, for their vision and phenomenal technical execution. We look forward to partnering with you and the Wonder team as we enter this next chapter of innovation together.

From menu development to our app to the Infinite Kitchen, we've always been pioneers in reimagining how real food is sourced, prepared and served. That spirit of innovation is core to our DNA and will continue to guide us.

Before I conclude my prepared remarks, I want to take a moment to recognize Mitch Reback, who retired in September as our CFO, and express my deep gratitude for everything he's done for Sweetgreen. Mitch joined us when we were still a small regional brand over 10 years ago, and has been a driving force behind our growth ever since. He built the financial foundation that supports our business today, guided us through our IPO and has been a true partner, mentor and friend. His impact on Sweetgreen and on all of us personally can't be overstated. We're deeply grateful for his leadership and wish him all the best in his retirement.

We are also excited to welcome Jamie McConnell as our new Chief Financial Officer. In her short time, she's already brought a sharp focus on financial discipline, returns and efficiency. Her background and experience in high-growth, operationally disciplined businesses will be instrumental as we strengthen our operating model and position Sweetgreen for long-term success.

Over the years, Sweetgreen has navigated some of the toughest moments from growing through the Great Recession to leading through COVID. Through it all, I've never wavered in my belief in our vision or the impact we can make. We've proven that our brand resonates across markets and demographics and the opportunity ahead remains significant.

Our focus now is combining the creativity and cultural relevance that makes Sweetgreen unique with greater discipline and a continued focus on the guest.

The Sweetgreen brand remains strong and continues to deeply resonate with our guests. We know the work we need to do to raise our execution and reignite our flywheel to drive traffic and set the stage for long-term profitable growth. We are taking the steps needed to get back on track and position Sweetgreen for long-term success.

I want to thank every Sweetgreen team member for their focus, resilience and commitment to excellence. Together we're positioning Sweetgreen to reach its full potential, all while staying true to our purpose of connecting people to real food.

Now I'll turn over the call to Jamie to review our financial results in detail.

Thank you, Jonathan, and good afternoon, everyone. As a long-time Sweetgreen guest, I could not be more excited to join the team. This is an important time for the brand, and I'm grateful for the trust Jonathan, the Board and the company have placed in me to help shape the next chapter.

Over the past few weeks, I've spent time in our restaurants listening and learning from our teams. What stood out immediately was the care our people bring to the food we serve and the ingredients we source. I met Yuri, who began as a dishwasher 6 years ago and now leads her own restaurant as a head coach. Seeing how she has grown within Sweetgreen and her pride in the restaurant showed me what makes this company so special.

Since stepping into the CFO role a little over 6 weeks ago, I've been focused on gaining a clear understanding of our economic model and the levers that drive our results. It's clear there's meaningful work ahead. I've launched a full review of our restaurant level expenses and G&A structure to ensure we're operating as efficiently as possible, identifying savings, simplifying processes and investing only in what drives the business forward. Over time, this work will drive margin improvement, stronger cash flow and tighter financial discipline across the company to deliver steady, stable results. I will have more to share in future quarters. I'll now walk you through our third quarter results.

Third quarter sales were $172.4 million compared to $173.4 million last year, with same-store sales decline of 9.5%. Restaurant-level margin was 13.1%, down from 20.1% a year ago. Adjusted EBITDA was negative $4.4 million compared to positive $6.8 million last year. The comp decline reflects an 11.7% decrease in traffic and mix, partially offset by a 2.2% benefit from menu price increases. The comp decline reflects softer sales trends and the transition from Sweetpass+ to our new rewards program, which eliminated subscription revenue and includes a loyalty deferral.

Third quarter food, beverage and packaging costs were 30.7% of revenue, a 320 basis point increase year-over-year. The benefit from pricing was more than offset by higher protein costs, reflecting our investment in increased chicken and tofu portions to reinforce the value for our guests and higher ingredient usage. We expect to offset the 140 basis point portion investment through a combination of in-restaurant and supply chain initiatives with savings beginning in 2026, and fully realized in the second half of the year. The quarter also included a 50 basis point impact related to imposed tariffs and duties on our packaging and other menu items. This is a level we expect to continue in the near term. Additionally, the third quarter was impacted by a onetime 60 basis point write-off of discontinued materials.

Third quarter labor and related expenses were 29.1% of revenue, an increase of 170 basis points from last year. The increase was primarily driven by deleverage from lower sales volumes and higher wage rates, partially offset by menu price increases.

Other operating expenses were 17.6% of revenue, an increase of 130 basis points from last year. Third quarter operating support center costs decreased $2.3 million from last year on a dollar basis. As a percent of revenue, operating support center costs improved to 14% from 15.2% last year. The decrease was primarily driven by lower bonus expense due to company performance. As a reminder, we streamlined parts of our organization during the quarter, eliminating roughly 10% of open and existing roles to drive greater focus and efficiency.

Third quarter net loss was $36.1 million compared to a net loss of $20.8 million last year. The higher net loss primarily reflects a $12.4 million decrease in restaurant level profit and increased impairment charges, driven by a $4.3 million impairment charge for 4 underperforming restaurants. This was partially offset by lower stock-based compensation as IPO-related grants continue to roll off.

Adjusted EBITDA was a loss of $4.4 million compared to positive $6.8 million last year. The decline was primarily driven by lower restaurant level profit. During the quarter, we opened 8 restaurants, 6 of which were Infinite Kitchen. We closed 2 restaurants during the quarter, Bleecker and Astor Place for a third quarter net [ interim ] count of 6, and we ended the quarter with 266 restaurants.

We ended the quarter with a cash balance of $130 million. As you heard earlier from Jonathan and read in our release this afternoon, the strategic sale of Spyce to Wonder marks an exciting milestone for Sweetgreen. From a financial standpoint, this transaction reflects a disciplined capital decision that both strengthens our liquidity position and enhances our path to profitability. The sale is expected to infuse our balance sheet with approximately $100 million in cash upon closing. We expect the Spyce sale to close in either the fourth quarter of 2025 or early in the first quarter of 2026.

We also expect to realize approximately $8 million in annualized G&A savings as the Spyce team transitions to Wonder. Together, these actions are being taken to create meaningful leverage in our model and reinforce our focus on balancing growth with disciplined cost management.

Through our ongoing collaboration with Wonder, we have found a way to continue to benefit from the long-term success of the platform while keeping our focus on expanding and enhancing the Sweetgreen experience.

Now turning to guidance. We are updating 2025 guidance to the following: 37 net new restaurant openings, revenue ranging from $682 million to $688 million, negative same-store sales of 8.5% to 7.7%, restaurant level margin of 14.5% to 15%, and adjusted EBITDA between negative $13 million and negative $10 million.

As Jon said, we plan to slow new unit growth next year to approximately 15 to 20 net new restaurants with about half featuring the Infinite Kitchen. We'll continue to evaluate opportunities to increase development as operating cash flow improves.

To close, I came to Sweetgreen because I believe in what we're building and the impact this brand can have. I'm incredibly passionate about our mission and confident in the opportunity ahead.

And now I will turn the call over to the operator to begin Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Brian Mullan of Piper Sandler.

In the prepared remarks, you mentioned starting to evaluate Sweetgreen's menu and pricing architecture. I think you said in Q4 and into Q1. So Jonathan, can you just give a sense of the scope of what you're looking at, what you're hoping to accomplish? Maybe you could characterize how difficult you think this will or won't be? And I ask because I know absolute price points, it's only one part of the value equation, but it's an important one. So I would just love to get your thoughts on what you think needs to be done.

Absolutely. Thank you, Brian. So yes, we're looking at menu and pricing architecture, as we mentioned. And I think there's a few ways that we're considering it. First is our pricing ladders and menu -- and new entry points. As you know, in the quarter, we tested a few things around $13 bull drops, we saw -- really to understand the price elasticity, we saw a lot of engagement around it. But given the fact that it was mostly marketed to existing customers, a relative high degree of cannibalization, but it did show us that there is a real opportunity around more entry price points around our menu.

As we look at menu innovation, we also see opportunities to create different price points and again, entry ways into the brand. We've also looked at how we present menu price points on our menu boards, again, to really show the different pricing options we have.

Lastly, I'll just follow up on the things that I talked about in the prepared remarks. We can do a much better job of talking about the value we provide, whether it be made from scratch or our proteins cooked without seed oils or all of our proteins being -- having no antibiotics ever, there's a much better job we can do around really delivering on the value message that we are offering.

Lastly, we have increased our protein portions by about 25%. And we've been relatively quiet on that. But starting next week, we have a big campaign around the increased portioning around protein. And with all the craze around protein, we think that will also do well.

So I'll close with on this is a lot of the pricing work is going into stage gate in the coming months, and we do think that there's going to be a lot of opportunity around these different pricing tiers.

Your next question comes from the line of Jon Tower of Citi.

I guess maybe I'm just looking at the guidance for the balance of the year or the implied guidance for the balance of the year, and it's effectively suggesting the fourth quarter is taking a step down. I don't think that's really too much of a surprise to people on the line. But I'm just curious if you could kind of walk through what you're seeing in the current environment? And specifically, I would think given where your stores are located in the Northeast and what's going on with the government shutdown, if you've seen anything worsen in the most recent months with respect to consumer demand? And frankly, how it's showing up in your business? Are you seeing it specifically during certain parts of the week? Are lunch or dinner getting hit more so than other dayparts and how people are spending at your stores relative to the past?

Jon, yes, you're right, we are seeing a step down. So in July, we saw a slight pickup from Q2, and that was due to the seasonal menu rolling out. However, in August, we saw a step down of about 200 basis points, and then we saw another step down in September of about 200 basis points. October is holding flat to September. So we're running at low negative double digits right now.

I will tell you, you're absolutely right about the consumer. So the 25 to 35 consumer is the most under pressure, and they make up about 30% of our consumer base, and they're down about 15%. And then our Northeast and L.A. markets make up about 60% of our base and the comp -- and they're making up about 800 basis points of negative comp compared to the rest of the fleet. So we're definitely seeing that impact. And then we are seeing some declines in dinner.

Okay. And maybe just in terms of the Infinite Kitchen agreement that you guys made today, can you just walk us through how that's going to impact you going forward? Obviously, it sounds like in a license agreement, but will there be any incremental costs that you'll have to pay going forward like a royalty for the technology into the future?

Yes, Jon, I'll take that. So we think that this strategic agreement with Wonder is really a win-win-win for the business. Not only do we infuse the company with about $100 million in cash and another $86 million in Wonder stock, we also reduced our G&A by about $8 million and allow us to focus more of our time and resources on the customer and really on the food and the experience. Beyond that, around IK going forward, it will continue to be a huge part of our business. Like we said, it's continuing to scale in many of our new stores, and we're pleased with the results. And we've formed a really favorable agreement with Wonder, where we're able to have the units at about -- around cost plus 5% and then maintain the current cost around delivery, install and service. So it's just a huge win for us and able to still use that technology as we continue to scale, but at pretty much the same cost that we've had so far without the financial burden that it was causing.

Your next question comes from the line of Andrew Charles of TD Cowen.

Just first, one quick bookkeeping. On the 15 to 20 net openings for 2026, what's contemplated the number of closures for next year? And then my real question is it's good to hear the handheld is making a reappearance after you first talked about around a year ago. What were the key unlocks in the operational side to get it to the market test where I know you're going to figure out more on the operations side, but what were the key unlocks you did in this planning phase to get it to the market test?

I'll start with the net 15 store openings. So we've identified 2 that are going to close, and then we're also looking at lease expirations and being really diligent on if we should renew those leases. So we still expect about net 15. We've identified 2, but net 15 is our number.

And on the unlocks, I think we're -- we've tested this with consumers. We know we have a really, really killer product. The point of the market test is to make sure that we can operationalize it and really understand any impacts to throughput. So it's a bit early to talk about it, but we've run some internal testing and are very confident that we can come up with something that is accretive and incremental to the business, unlock new dayparts and really be a big acquisition driver for us. So it's something that we've known for a while. Jason, our COO and team are very confident that this is something that we can operationalize.

But as I mentioned in the prepared remarks, the stage-gate process is really critical to getting this right, and that's why we are not rushing this out. We want to make sure both the product, offering and the menu assortment is right, the pricing is right, and most importantly, that we can operationalize this.

Your next question comes from the line of Rahul Kro of JPMorgan.

Firstly, kudos on making the changes to the protein portion increases, Jonathan, they're quite visible and consistently hitting the 100-gram scope. Happy to see that being executed well.

The question is on the net cash proceeds after any tax components associated with the Spyce sale. Given the cost basis and factoring in stock in the initial purchase price of Spyce, can you give us a detail on the actual cash that would be realized on the balance sheet? And also, like does it impact the future IK mix given the hurdle rate, given the cost plus 5% comment you made, Jonathan? Any color on that would be great.

I'll take the second part of the question, and I'll let Jamie take the first. So in terms of the actual cost, I think it's actually a huge benefit to us because today, at our scale, there's only so many -- so much economies of scale we can achieve with the machine at a cost-plus model at just a very small 5%, which would be about $25,000 on the cost of the machine, we benefit from the economies of scale as they begin to scale production and also have access to future technologies. So we actually think this will help us bring the unit cost down, have them invest more in the R&D and innovation of potentially cheaper and more effective automation units. And so overall, a win-win in that scenario.

And then following up on the cash, we're still going through the tax analysis and the valuation. So I don't expect it to be a material amount of tax that we are going to pay. And then we're still going through the tax and legal fees, et cetera, but I don't expect any of them to be material.

Your next question comes from the line of Sara Senatore of Bank of America.

Jamie, I just -- I guess, one confirmation or clarification and then a question. I think you said that dinner is where you're seeing some softness. So I guess, does that mean sort of disproportionate? Some of what I've seen is that your lunch has actually been more vulnerable just because it's something where people can kind of pack and bring from home. So I wanted to understand the daypart impact, if you kind of control for sort of suburban or urban mix.

Yes. Sara, we actually are not seeing a slowdown in our lunch quarter-over-quarter. We're actually seeing a slight decrease. So really, it's the dinner time that we're seeing that decrease.

Okay. And then the question was on just -- again, on the sort of sale. What, I guess, is the impetus to doing that now? I mean, other than perhaps your cash position? I guess I asked because, Jon, to your point about being kind of subscale. My sense is that a lot of restaurants generally will outsource technology unless they're really big. And so I just wanted to understand kind of the thought process of developing tech in-house versus maybe just going forward, just deciding to just to the outsourcing approach.

Yes, absolutely. So when we bought Spyce originally, there was no automation platform that we could have bought from there. And so we took what was a nascent idea, really a prototype in a couple of stores. We perfected it for Sweetgreen. We've commercialized it. We've gotten the manufacturing set up, and we've now scaled it. And it's now in this year, over half of the new NROs, again next year. And we're really at that point where us fully owning it is not needed as long as we have a level of control and license around the technology, and now we can benefit from the economies of scale and future innovation under Wonder. So it not only provides cash and lowers our G&A in this critical moment, it allows us to focus on our business. And we believe over time, it will actually bring the unit cost of the technology down so we can put it in more and more restaurants.

Your next question comes from the line of Logan Reich of RBC Capital Markets.

I just had one on the unit growth guidance for next year and the pipeline. Obviously, pulling back a little bit on unit development here. But I guess like the question is, is there any potential for that number to creep a little bit higher in a scenario where same-store sales gets back to growth and you guys feel comfortable about the operations. Curious if there's any flexibility in the pipeline to maybe scale that number up a little bit higher for next year.

Yes, absolutely, there is. The decision was made, one, from a financial discipline perspective, but also a focus perspective as we really focus on menu innovation and store experience in order to inflect our transaction comp. We do have a very robust pipeline over the next couple of years, and we made the strategic decision to kind of cherry pick the best approximately 20 restaurants, but do have some flexibility depending on how things go to accelerate, and we are planning a reacceleration into 2027, not all the way to the 15% unit growth, but do expect some reasonable step-up from the 20-ish stores in '26 into '27. So if we are able to inflect comp and feel really good about our overall operations and how we're delivering on the experience, we do have the potential to slightly increase next year's unit count.

Your next question comes from the line of Brian Harbour of Morgan Stanley.

This is Kelly Merrill on for Brian. I'm just curious, can we get an update on loyalty and where that stands today? I think on the last call, you noted it as an uplift to the beginning of Q3. So just wondering if that's sustained throughout the quarter or if you're seeing anything different now?

Yes. We've been generally pleased with loyalty. Now we just hit our 6-month mark. We are seeing continued activations at almost 20,000 per week in terms of new customers, and we have seen some frequency increases of those loyalty members. We are right now in the process of really perfecting the different customer journeys and how we can get them to be more personalized and really understanding the different promo levers. One of the things you will see us do, especially in this -- in this kind of cost-conscious environment for consumers is lean a bit more on certain kind of breakthrough promos to drive acquisitions. So you'll see us trying and testing a bunch more things with a lot of discipline, making sure that it can be accretive. But still, I'd say, very early stages of the loyalty program. And over the next 6 months, we expect that to be more of a comp driver for us, especially as some of the overhang from the Sweetpass+ starts to fall off. And then again, it's really about how we leverage that data.

Very excited about Zipporah, we call Zip being here, and her expertise in loyalty and CRM. And again, we see a lot of opportunity to kind of leverage that digital flywheel.

Your next question comes from the line of Jeff Bernstein of Barclays.

This is Anisha on for Jeff. With only 1 quarter remaining in the year, restaurant level margins were cut significantly. Can you break down what's driving that, if it's labor deleverage, commodity inflation or other factors?

Yes. So you're right. It's about half of sales deleverage. And then the next biggest piece is the protein increase. So we have about 140 bps in protein related to the increased portions of chicken and tofu. Those we plan to offset with supply chain initiatives and restaurant initiatives. And then we have tariffs, which we expect to hold at about 50 bps.

Your next question comes from Teddy Farley of Goldman Sachs.

One more on the loyalty program for me. Is the pricing and menu architecture review inclusive of a review of the rewards redemption stack for SG Rewards, just kind of making sure that you're competitive versus peers with value, not only on the core menu, but also with regards to the point redemption opportunities?

Yes, absolutely. It's a really good point. We've gone in with relatively modest programmatic benefits. So it gives us a lot of opportunity to move up and also leverage more on the personalized offers in CRM. So we are evaluating all of it, including the potential for tiers and other benefits for members. So the loyalty program will be a huge lever for us.

The one thing I will add on loyalty, which it was in the prepared remarks, but we recently rolled out the ability to Scan to Pay. And the good thing about that is we're now able -- you're now able to very seamlessly use loyalty in-store. So we're capturing more -- since we've done that, we are seeing a step-up of customers using loyalty in restaurants. It also helps us from a throughput perspective. So a lot more improvements coming on that side. And generally, in our digital experience, we have a lot of exciting things planned over the next 6 to 12 months to continue to drive that digital flywheel.

With no further questions, that concludes our Q&A session and today's conference call. We thank you for your participation. You may now disconnect.

Hello, and thank you for standing by. My name is Lacy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc. Second Quarter 2025 Earnings Call. [Operator Instructions].

I would now like to turn the conference over to Rebecca Nounou. You may begin.

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Mitch Reback, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com.

I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website.

And now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon. For the past 18 years, we have been building a generational brand, one that reimagines fast food to be healthy, craveable and rooted in the highest standards of sourcing. The brand resonates broadly across geographies, demographics and dayparts, reinforcing our conviction in the significant white space ahead and our long-term potential.

For the second quarter, we reported sales of $185.6 million and a same-store sales decline of 7.6%. Restaurant-level margin for the quarter was 18.9%, and we posted an adjusted EBITDA of $6.4 million. Let me be clear, we are not satisfied with the results we're reporting today. These results reflect the convergence of several external headwinds and internal actions, which were a more cautious consumer environment starting in April, lapping a tough comparison with last year's successful Steak launch and the transition of our new loyalty program at the beginning of the quarter. I want to take a moment to provide more context around these dynamics and the steps we're taking in response.

In the second quarter, we operated in a subdued industry backdrop, particularly in several of our largest urban markets. To address this, we've made thoughtful changes to enhance our value proposition, including increasing our chicken and tofu portioning by 25%, updating our chicken and salmon recipes to improve taste and quality and addressing price perception through strategic LTO pricing, menu board architecture and loyalty exclusive $13 menu ball drops. These initiatives are already driving an impact in the third quarter. Our summer menu, which launched July 7, is mixing at 15% of all entrees and 1 in 3 customers who tried a seasonal entree returned within 2 weeks.

We've also seen a meaningful uptick in guest satisfaction with a 30% improvement in feedback related to our new protein portion sizes. We are focused on elevating the quality and freshness of every item we serve by reducing hold times and improving consistency. To support this, we're thoughtfully evolving our menu strategy to balance innovation with operational excellence. Looking ahead, we have 2 more seasonal menus slated in 2025 and are planning at least 8 seasonal or LTO moments in 2026. We remain focused on strengthening our value proposition and driving frequency through both menu innovation and our reimagined loyalty program, which launched at the start of the second quarter.

The transition to SG Rewards created around a 250 basis point headwind to our second quarter same-store sales. This was driven by 2 factors: First, deferred revenue recognition tied to the structure of the new program; and second, a falloff in revenue from a small but highly important cohort of former Sweetpass+ members following the discontinuation of the subscription program. We believe these impacts from the loyalty program are temporary. Active membership in the program is growing and 90-day frequency trends have steadily improved. We're also seeing early signs of frequency recovery in our former Sweetpass+ cohort as a result of our personalized CRM offers. While we recognize that broadening benefits across a larger base of customers has brought some near-term headwind, we're confident this trade-off will deliver positive results starting in the fourth quarter.

In the last 100 days, we made 2 significant hires to our executive team. On September 2, we will welcome Zipporah Allen as our new Chief Commercial Officer. Zipporah brings deep experience in brand building and customer engagement, having led digital at Taco Bell and marketing at Strava. She will play a critical role in sharpening our brand positioning and menu, driving demand and strengthening the overall guest experience. In May, Jason Cochran joined us as Chief Operating Officer, and his positive impact is being felt all across the organization. As Jason has spent time in the field, he's been inspired by the strength of our team and the culture we've built. At the same time, he sees clear opportunities to raise the bar. The fundamentals like sourcing, cooking and throughput are there, but they're not always delivered with the consistency our guests expect or deserve.

Today, about 1/3 of our restaurants are consistently operating at or above standard, while the remaining 2/3 represent a meaningful opportunity for improvement. Jason's assessment is grounded in a set of 6 operational metrics related to P&L, people, customer health and throughput that allow us to objectively measure restaurant performance and identify where support and focus are most needed. He has launched [ Project One Best Way ], a system-wide effort to elevate operational excellence by implementing clear operating standards, performance-based leadership, accountability and measured execution. [ Project One Best Way ] isn't about reinventing our operations. It's about applying the standard of excellence with operational process, building on what's already working and ensuring every restaurant delivers to our highest standard.

We expect to see substantial improvement over the coming quarters. Customer satisfaction has improved, especially around accuracy, food quality and portioning, thanks to focused actions we've taken to drive consistency and reinforce value. This momentum reflects the resilience and determination of our teams to deliver the best guest experience, along with the clarity, urgency and operational discipline Jason has brought to the organization. His leadership is already making an impact, and we're confident in his ability to drive lasting change across the fleet.

We remain highly encouraged by the financial and operational performance of the Infinite Kitchens, which continues to outpace comparable restaurants in both age and volume. These units are delivering significant labor savings driven by greater efficiency, throughput capacity and consistent execution. Our current cohort is also seeing elevated native digital sales, reflecting the model's ability to deliver fast, high-quality food at scale. While this quarter doesn't reflect the standard we set for ourselves, we're energized by the early traction we're seeing from the return of our summer seasonals to the momentum and loyalty.

At Sweetgreen, everything starts with the guest. We're relentlessly focused on delivering a superior experience through every touch point with a focus on reinvesting efficiencies from G&A and other areas to make investments in protein portions, delivering value through loyalty and investing in our team to create faster, more hospitable experiences. This will create a flywheel of increased traffic and frequency as we continue to delight and deliver increased value to our guests. Thank you for believing in Sweetgreen.

Thank you, Jonathan, and good afternoon, everyone. Total revenue for the quarter was $185.6 million, up from $184.6 million in the second quarter of 2024. Same-store sales for the quarter declined 7.6% compared to the prior year period. This reflects a 2.5% benefit from menu price increases and a negative 10.1% impact from traffic and mix. Our average unit volume in the second quarter was $2.8 million, we opened 9 restaurants, 4 of which were Infinite kitchens, ending the second quarter with 260 restaurants. Notably, Forest Hills in Queens, New York opened as one of the strongest in the company history.

Our 2024 class of new restaurants continues to track towards the Tier 2 metrics in year 1, delivering a second quarter margin well above the fleet average. Notably, 40% of this class is located in legacy markets and 60% in new markets. This reaffirms our confidence in the effectiveness of our real estate strategy and the significant long-term growth opportunity that lies ahead. We are taking important steps to sharpen our portfolio in New York City. In July, we closed 2 restaurants, Bleecker and Astor Place. These were older, smaller footprint locations, and we strategically redirected volume to 3 newer larger restaurants nearby. In just a few weeks, those receiving locations have seen same-store sales increase by 15% to 20%, an early sign that we've successfully recapturing demand.

While we've done relatively little to our footprint in New York City since the pandemic, we're now actively reinvesting in the market. This summer, we opened Forest Hills, Park Slope and 23rd & Park with the lower East Side expected this fall. We're also relocating Union Square, which opened in 2015 and Nomad, our first New York City location, which opened in 2013. We are relocating them to improved locations and both will contain Infinite Kitchens. As leases mature on a small number of older locations, we see opportunities to consolidate volume into newer units, particularly in established urban markets where the footprint no longer aligns with our strategy. We expect this disciplined approach will strengthen AUVs, same-store sales and margins as we scale towards 1,000 domestic locations.

For 2025, we anticipate opening at least 40 new restaurants and plan to enter 4 new markets: Arkansas, Sacramento, Phoenix and Cincinnati. We continue to expect at least 20 new restaurants will have the Infinite Kitchen with an additional 2 relocations that will be upgraded with the Infinite Kitchen. This year's pipeline also includes 2 new sweetlane locations, one Classic and our first with an Infinite Kitchen.

Restaurant-level profit margin for the quarter was 18.9% compared to 22.5% a year ago, primarily driven by sales deleverage and some tariff impact. Restaurant-level profit for the second quarter was $35.1 million, down 15% year-over-year. For a reconciliation of restaurant-level profit and restaurant-level margin to comparable GAAP figures, please refer to the earnings release. Food, beverage and packaging costs were 27.7% of revenue for the quarter, roughly 70 basis points above the prior year period, primarily driven by a 40 basis point increase due to tariffs and duties on packaging. This is a level we expect to persist in the near term.

Labor-related expenses were 27.5% of revenue for the second quarter, a 60 basis point increase year-over-year. This year-over-year increase is attributable to deleverage from the change in sales volume and wage rate increases. Offsetting these pressures is improvements in our labor optimization. Occupancy related expenses were 8.9% of revenue, 80 basis points higher than the prior year period. Operating support center costs in the second quarter decreased versus the prior year period on a dollar basis. As a percent of revenue, year-over-year operating support center costs for the second quarter decreased to 14.1% from 15.2%.

In the third quarter, we restructured parts of our team and eliminated 10% of open and existing roles. Net loss for the quarter was $23.2 million as compared to a loss of $14.5 million in the prior year period. The increase in net loss is primarily due to a $6.4 million decrease in our restaurant level profit and a $5.3 million impairment charge due to the closure of 2 restaurants and 3 other restaurants that we will continue to operate. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $6.4 million for the second quarter compared to $12.4 million in the prior year period. We ended the quarter with a cash balance of $168 million.

Now turning to our fiscal year 2025 outlook. For the fiscal year 2025, we are anticipating the following: at least 40 net new restaurant openings, revenue ranging from $700 million to $715 million, negative same-store sales of 6% to 4%, restaurant level margin of approximately 17.5% and adjusted EBITDA between $10 million and $15 million. On the development front, half of the 2025 pipeline is opening in the fourth quarter. We do not anticipate any price increases for the rest of the year.

Q2 was a challenging quarter, shaped by a combination of internal and external headwinds. Several pressures converged at once, but the actions we've taken are already beginning to show positive results. We brought back fan favorite seasonals and chef collaborations, introduced more moderate price points to strengthen value perception, made strategic adjustments to our New York City footprint, and we are making improvements in our operations. On the loyalty front, we're seeing steady weekly improvement in guest frequency since the April relaunch, an encouraging sign. While we're not yet where we want to be, we're confident that these actions position Sweetgreen to emerge stronger, more focused and better aligned with what our guests and investors expect from us.

And now I'll turn the call back to the operator to start Q&A.

[Operator Instructions] Your first question comes from the line of Sharon Zackfia with William Blair.

I guess maybe 2 questions. First, there was a lot in the prepared commentary that kind of indicated reasons for hope, if you will. And I'm wondering if you are actually seeing comps improve so far in the third quarter? And then secondarily, Jonathan, you had a lot there about operations, and it sounds like the bulk units are not kind of hitting the standards where you want them to be. I guess at this point, what is the biggest issue? Is it accuracy? Is it portion? Is it speed? And is there incremental labor that you need to invest to kind of get to where you want to be at those units?

Thank you, Sharon. So on your first question, the answer is yes. We see some encouraging signs so far in Q3. We have seen a modest improvement in same-store sales. And I think a lot of that has been due to the rollout of the seasonal menu as well as the loyalty program. So that's one in terms of comp. And despite what we see as a really, really rough quarter, I am very confident in the plan ahead. As to your second question, absolutely believe that us delivering an excellent guest experience is how we're going to win.

And for us, that means a few things. One, it's a focus on people and culture. I've said many times, the head coach and our General Manager is the most important role inside of our restaurants, a huge focus on hiring, training and developing the best head coaches. Today, some kind of early indicators of that success is our head coach stability is higher than it's ever been. It's continued to increase. Head coaches enroll for over a year, our stability metric is up to 57%. So some early indications of that working. We're also seeing team member turnover at its historic low. We should end the year in somewhere in the 80-ish percent range. So huge, huge focus on people and culture, and we believe that, that is going to be the #1 driver of delivering an excellent guest experience.

With that, a huge focus on internal development because we know when we develop leaders internally, not only do they deliver better guest experiences, it creates a great culture and it creates that people flywheel. Second, I want to talk about Project One Best Way Jason Cochran, our new COO. So we're very encouraged. He's been here just 90 days, but already his impact has been felt. And we've launched what we call Project One Best Way. Really 2 major focuses there. One is throughput. And for us, the reason throughput is so important is it's not just about the speed of service. But in order to deliver fast throughput, it means you have to be fully staffed, trained, properly deployed, food prepped and energized to deliver for our guests.

So we have goals of increasing our throughput for every 10% increase in our peak throughput, we see about a 1% comp lift. And we know there's a lot of room for us to increase our speed of service. Second is around elevating food standards. For us, there's a couple of things underneath that. One, we talked about portioning. We made a strategic decision to reinvest in the guest experience and increase our chicken and tofu portions by 25%. I'm really giving back to the guests. We've found many offsets to fund that through G&A and working on other productivity efficiencies within the restaurant to offset that investment. But already, it's being felt. I mentioned in the prepared remarks that we're seeing about a 30% lift in the satisfaction around portioning, and we haven't even spoken about it yet. This is the first time we've talked to our customers about it.

And then lastly, it's really about how we elevate our food standards. We've looked really closely at our hold times, our freshness standards and how do we make sure in all of our recipes and making sure that we're delivering our best. We buy the best food from great farmers. And the idea is we need to make sure we are delivering on that promise. And the stores that we are doing this are doing fantastically well. We see them comping. So when you have that all working and we're delivering an excellent guest experience, we're seeing comps and transactions grow. So that -- if I could leave with one thing, our main focus is on executing brilliantly with a focus on people, throughput and quality food standards.

Your next question comes from the line of Jon Tower with Citi.

Maybe just a couple real quick, hopefully. Mitch, I think you touched on something earlier in the commentary, prepared remarks regarding labor. And I'm just curious if you could follow up on it because your labor cost per store week were down pretty nicely year-over-year. Obviously, you delevered on sales being down. But I'm just hoping you could flesh out what's going on there and if we can expect that to continue going forward this year and into next year and what those driving forces are?

Thank you, Jon. Yes, we're real happy with the improvements we've seen in labor. Our workforce management is working really, really well. And as you commented, our productivity in the second quarter actually held with where we were last year despite some of the challenges in sales. We're seeing the lowest level of turnover the business has seen since COVID. And some of the hiring we've done has really driven up our retention at the team member level. And our headcount stability is probably at an all-time high. So we're just very encouraged by the systems we put in place, the processes, the hiring and the headcount stability. And we anticipate further gains as we kind of look out on the future. But really pleased with the progress we've been able to make and I think it would only improve as we get to our sales flywheel a little bit faster.

Got it. Okay. And you had spoke too in Manhattan closing down a few stores and hopefully consolidating some of the sales into other stores in the market. But as you look across the rest of your store base, are there other kind of troubled markets or maybe markets where you feel like there's a few more stores that perhaps need in that bottom 2/3 of the underperforming store base in terms of the operations that you feel like might be on that chopping block for closure?

Jon, let me qualify that a little bit. I don't think the store closure was related to problems in the market. I think the store closures were related to the fact that the stores were coming up on 10 years, and most of our leases are 10 years. And in this particular instance, roughly the stores are approximately 1,500 square feet. So we had newer, larger locations that were -- when I did it, probably within a 5-minute walk of these stores. So it was more a function of moving the volume to newer stores that would have a better customer experience and a better team member experience and closing the older smaller footprint stores.

I would say, as we look out, there remains opportunity to do that, particularly in the urban centers that were opened up around 10 years ago, but you're probably on balance talking, if I had to guess, a handful of stores, not a dramatic change in the footprint. And we're very pleased with what we're seeing right now, as I think was in the prepared remarks, the volume is transferring to the 3 nearby stores. So instead of having 5 stores, we now have 3 very strong stores.

Your next question comes from the line of Andrew Charles with TD Cowen.

Jon, despite the strong performance of new stores and the guidance for 40 openings in '25 that was maintained, why not consider a slowdown in development to focus more intensely on the same-store sales turnaround and to help better preserve cash?

Thank you, Andrew. So first, I'd like to say we have very strong conviction in the long-term TAM of the company of at least 1,000 stores and our algo of at least 15% to 20%. We're continuing to build the 2026 pipeline and are really being super disciplined around the stores, taking the learnings from the past few years, how we choose real estate, making sure we're operationally prepared to run them and also have a huge focus on build-out costs. So as we -- we believe as we're able to continue to drive down build-out costs, we'll be able to continue to drive our return on capital. Also say going to be super disciplined. We'll come back more on what our pipeline is for 2026, but the focus is only on doing stores that meet our thresholds and hopefully, where we can actually improve our unit economics as we continue to grow.

Okay. And then, Mitch, as a follow-up, can you help contextualize what's driving the restaurant level margin guidance down by 200 basis points? Is this more of a function of sales deleverage? Or would you attribute more to the portioning investment or perhaps something else?

No, Andrew, I think you caught it. It would be largely sales deleverage. The portioning impact is roughly 120 basis points, and we are continuing to look for offsets to that, both in the restaurant level margin area as well as G&A, and there were 40 basis points for tariffs.

Your next question comes from the line of Sara Senatore with Bank of America.

I guess maybe I just wanted to go back to maybe the 2Q trends. I know you're making investments in portion. It looks like some of the margin compression was actually from higher restaurant-level advertising spend, but you didn't see it in transaction growth. And I guess I'm trying to understand, do you think that the issue was that people didn't recognize the portion investments and the marketing perhaps didn't work. Typically, I would have expected maybe a little bit of a sequential improvement, but actually trends got worse on a stack basis even after you had some of these idiosyncratic headwinds in the first quarter. So if you could maybe talk about what didn't work if you think about the traffic driving initiatives you had in place versus your expectations? And then I do have one more follow-up, please.

Sure. Thank you, Sara. So first of all, the protein increase was made in July. So it was not something that we saw in Q2. And from -- since July with both the protein portioning, loyalty and frequency continuing to increase as well as the rollout of our seasonal menu, we have started to see sequential improvement.

Okay. But the advertising piece, that was present in the quarter, right?

Sarah, I want to make a comment on the advertising. The total advertising in the company was up marginally in the quarter. The amount of advertising through the 4-wall margin went up a lot more as the allocation between G&A and 4-wall switched this quarter as more of the advertising was geared towards local stores versus national brand.

Okay. And I guess on that point, do you rethink how you allocate national versus local? Again, just -- it doesn't seem like you have a lot of payoff from that, whether it was by channel or dollar amount?

Yes. I'd say I mentioned in the prepared remarks, we have a new Head of Marketing joining in September, and we really continue to look at our marketing mix. I think one of the shifts that -- one of the things we're seeing is much more -- much greater ROI on social kind of influencer-led marketing. And so you'll see us continue to lean in there more, but we'll come back with more on that in future calls.

And then, sorry, just a quick follow-up. Last year, and I apologize, I joined late on the call last year. And then last quarter, you talked about sort of maybe pressure on white collar workers, how the central business is doing perhaps more pressure than further out in the suburbs. Do those dynamics persist? I'm trying to reconcile those with maybe some of what we've heard from your peers.

Yes. I'd say our trend is probably similar to what you've seen across the industry, where we've seen most of the pressure in the urban Northeast environment, very -- again, very similar to others. And we do see kind of like you said, pressure on consumer spending for many of our consumers has persisted longer than we expected.

Your next question comes from the line of Rahul Krotthapalli with JPMorgan.

The question is on marketing strategy outside the loyalty program, I understand like you have a new executive coming on board, but is there a thought process to rethink the strategy or the approach to broaden the brand appeal? Were you able to see and dissect what is landing or resonating with the target demographic and then also like get them into the store before getting on the app? And I have a follow-up.

Yes, Rahul, we are continuously looking at our marketing strategy. One of the things, and I mentioned on calls before, is moving away from our seasonal menu is something that we really missed and our customers have told us that. We've seen, again, huge engagement on our seasonal menu. And we think one of the best ways for us to drive acquisition. Acquisition and frequency of our guests is newness on our menu. But we've learned a lot about what kind of newness works and how we can -- what we can put on our menu that we can consistently execute. So that's where you'll see us do 2 more seasonal menus this year with a 2 fall beats. We have a great lineup. So newness and great menu items work. We did see really great reaction with our quote KBBQ as well.

And as I mentioned on the prepared remarks, we're expecting at least 8 moments next year, again, leaning into what people love about us. We will continue to broaden from salads and kind of continue to introduce other warm bowls as well, which have resonated really well. But if I could take it really, the #1 thing we can do is create excellent guest experiences in our restaurants. Our #1 driver of best marketing is word of mouth and creating great experiences.

You did mention an opportunity around getting people to eat more in stores. We do see that as an opportunity. Like most restaurants, when you eat dine-in, it is probably the best experience as the food is made fresh right in front of you. So the loyalty program is one way of continuing to do that and driving more customers to try our product in-store before they become a digital customer. So that is another focus area for us.

And the follow-up is on the loyalty headwind. You guys discussed a 250 bps headwind in second quarter. How did this trend as we moved across the quarter and exit rate of it? And what are we currently seeing on the headwind today given like some of the reversals should have been happening as people are coming back?

Rahul, yes, we did talk about the loyalty headwind coming in 2 big areas. One was the deferred revenue. And the second one was a decline in frequency from Sweetpass+ that small group of customers that were high frequency. What we really find is the deferred revenue piece, which was negative in the second quarter when we started the program, will turn more neutral as we get to the back half of the third quarter and will be accretive thereafter. And that is largely just a timing and accounting issue with starting up the program and pretty much as we expected. So that piece will dissipate.

And we're finding with our frequency with our former Sweetpass+ members as we continue to reengage them. We continue to see them and have them as customers and their frequency appears to be moving up. So as we look out over the following quarters, we believe that the loyalty impact will move from a headwind in the business to a tailwind, certainly as we get closer to year-end.

Your next question comes from the line of Brian Bittner with Oppenheimer.

I just -- I think the primary question on investors' minds is, ultimately, do you believe the sales weakness that you've witnessed this year has anything to do with degradation in the price value perception of Sweetgreen. I realize there's a lot of external headwinds, but it does sound like you're pivoting towards trying to put more value on the menu, you're creating bigger portion sizes, et cetera. But I do think it's worth further unpacking whether your data and your insights suggests that this is a dynamic that is a headwind to demand trends that you're trying to improve.

So I think it's pretty obvious that the consumer is not in a great place overall. But for us, when we think about price, it's really around price value. And we know that when we deliver on our product and we tell our story the right way that the price value is there. So what I'd say is, yes, we would like to continue to give more value to the guest, larger proteins -- larger portions on protein sizes, a better experience in stores. But the #1 thing is going to be just delivering great guest experiences, which again starts with an amazing team and leaders in our stores, a great culture, us driving throughput and elevating our food standards.

That's really going to be how we continue to drive our price value. And then things like our seasonal menu again, reinforce our positioning. What we do, the product we serve is superior to much of our competition, both from how we source it and how we make it in store. It's mostly -- it's almost entirely made from scratch, and it's a very high-quality product that not only tastes good, but makes you feel good. And I think our opportunity is just executing more consistently so we can deliver on that promise. So I'll say we don't see it as a large price value issue. We see it more of executing to our standards.

Okay. And Mitch, I appreciate the EBITDA outlook change for '25 kind of marking the market just for the current environment. But how are you positioning the model for 2026? Because I think consensus have been modeling a pretty dramatic step-up in EBITDA generation in '26 relative to '25? And look, I know you're not giving '26 guidance, but any guardrails you can put on consensus for next year would probably be helpful.

Thanks for the question. Let me first begin by saying what you commented on that we generally give our 2026 guidance on the, I believe, the February earnings call for year-end. So we'll have a lot more to say at that point in time. Let me just speak for a minute about 2025, which may help shape the thoughts on 2026. We think a lot of what we're seeing in 2025 in our business today as temporary headwinds as the business kind of adjust its loyalty program, comps over certainly in the second quarter where we had our fastest comp growth in 2024 in Q2 with the launch of Steak, all coinciding with really a very significant change in the external environment, which happened kind of suddenly around the beginning of April.

What we believe happens to the business kind of looking out is that the company grows through these things and that these headwinds prove to be more temporary in the business and many of them like loyalty convert to tailwinds. And I think echoing what Jon said, as we get our operational standards to really, really drive them and improve the execution at the store level, return our menu to more of our seasonal core, we're convinced that we will see the business kind of get back to the trajectory we were on.

Your next question comes from the line of Logan Reich with RBC Capital Markets.

I was just curious what the sort of average cost would be for those relocations. I don't know if you're able to provide any sort of estimate or color on what we should be putting in our models for those relocations.

Are you talking about the 2 relocations in New York?

Yes. And sort of the other handful of stores that Mitch alluded to that are in other urban centers.

Logan, I'm trying to -- I want to make sure I understand the average cost of them?

Yes, for the store closures and the reopening.

I think what I would typically say is there was no cost to the, call it, receiving or beneficiary store. They just continue to carry on as they were previously operating. The closure cost for these stores is directly related to whether there was any outstanding leases on them or if they were at the terminal value at the end of their 10-year lease. So it's a long way of saying, it really depends upon the rent structure and the fixed asset, but generally, no real cost to the movement of the store.

Yes. And just to add, if you're referring to the stores that are relocating, those are stores where the lease is up, and the new stores will be just the cost of any store in that market. We don't guide to the exact cost per store, but both of those stores will be Infinite Kitchen stores, and they should be within the average of what those stores usually cost.

Got it. Okay. That's helpful. And then I guess just on the same-store sales in Q2, just any way you can sort of slice that out between maybe income cohorts, urban versus suburban? Any way you can provide some additional color on where the weakness is coming from or if it's more just broad-based across the entire portfolio?

Logan, I think what we could say is that what we found was as we were in the prepared remarks, about 250 basis point impact from the loyalty changeover and certainly a more pronounced impact in the Northeast as other people have stated and largely that's coming through the macro environment and customer concerns that we saw.

Your next question comes from the line of Brian Harbour with Morgan Stanley.

I wanted to come back to just the operations question. You mentioned that sort of people and training manager stability is key to it. It sounds like that's actually pretty good though, right? So I guess the question is, what do you think is sort of lacking currently? And then in the -- these 2/3 of stores that are sort of below standard, I guess I'm curious as to whether -- does that include a lot of new stores? Do you think to some extent, there's like a lack of consistency in the newer stores you've opened? Or is that not the case perhaps?

Yes. So in terms of your first question, yes, we've seen improvements in terms of our stability and turnover, which you've seen in some of our productivity. But there's been a lack of clear standards and a real focus on the 2 things I mentioned, which is throughput and food quality. And so as we really double down on those things under new leadership, we believe that the people component is going to be a leading indicator for what we should see with the performance of those stores. That's typically what we've seen as stores get stable once Head Coach, for example, hits a year, the store begins to perform better. So we feel -- we believe strongly that as we continue to stabilize our people and drive more internal promotion that we'll continue to see better experiences in our stores, which will lead to transaction growth.

As it relates to the second part of your question around the 2/3, yes, obviously, many of those are newer stores that are still ramping. So some of that is normal and expected, but our goal is to tighten the variance between our best and worst stores significantly by the end of the year, and we have action plans in place to get that done.

If I could just mention one other thing is no one's asked about Ripple Fries, but I do think it's important to bring it up. Ripple Fries is something that we've learned -- consumers love. We had a great reaction from. But as we studied what it was doing to the restaurant operation and the distraction for our teams, we realized that it became a complexifier for us delivering on our core. So one of the other big changes we've made is starting next week, we will be discontinuing Ripple Fries in order to focus on our core.

And in stores where we have tested this, we've seen huge improvements in customer satisfaction because, again, teams can really focus on the core products, making sure all of our hot food, whether it be our chicken, our cooked vegetables, et cetera, are -- we're cutting our hold times. And as we cut our hold times, the product quality improves. So just -- the focus is really focusing in our core and delivering on that with a focus on what we can control within our 4 walls.

Your next question comes from the line of Brian Mullan with Piper Sandler.

Just a follow-up on a prior price value question. Can you just talk about the Monday LTOs you ran in June, what you saw from a consumer behavior perspective? I'm wondering if you feel like this price -- this price point could be a traffic driver or motivator for your guests, but I'm also wondering if it causes any kind of trade down from those digital guests that are getting the offer. Any color would be great.

Yes. It was -- overall, I'd say, very successful. There was really strong reception for them. I think it was a combination of price and newness. So it's something we're going to continue to double down on. You should see more of them coming, maybe not always at that price point, but really the focus on bringing more newness to guests. You got to -- I think one of the interesting things about the Sweet remodel is it's a very high frequent habitual model.

So offering ways to offer -- figuring out ways to offer newness to our frequent guests without complexifying our operations is something that can drive frequency. And we did see this newness and these Monday drops drive frequency for our guests and again, very high mix. So it's something we're going to continue to push on. And it can be a good way for us to offer a value lever for our guests as well.

Okay. And then a question about menu innovation. Just talk about the opportunity you might see on beverages or desserts or handhelds over time, and you might have answered this with the Ripple Fries commentary, but I was curious if you could test anything at the same time you have Project One Best Way going on? Or would you want to kind of pause on all new innovation for a bit as you focus on the operations?

Yes, great question. So we do believe that menu innovation is going to be very important for us. And under Jason's leadership, we've rebuilt our stage gate process. So how we test things and understand both the consumer reaction to it, but also what are the second order effects to the rest of the operation. So if anything, we're actually increasing our top-of-the-funnel menu innovation, but being much more thoughtful in how we test and truly understand it. As it relates to housemade beverage, we actually are live, and I believe by this September, we'll be in 3 markets on a housemade beverage test. It's 4 housemade beverages. They're doing really, really well. We're very encouraged by it, and it is something that we will continue to roll out over the balance of this year and through 2026.

As it relates to other sorts of menu innovation and things like wraps, again, those are things that we will continue to test. We will get it -- we will do -- we will follow our stage-gate process. We do see a huge customer desire for us to continue to expand our menu, but the focus on is to make sure whatever we put in our menu, we can execute really, really well and continue to execute the rest of the menu, really learning from a lot of the innovation we've done. So we've gotten much clearer on what our -- what the op sandbox is for us, what can we execute and how can we equip our teams with the right tools and trainings to execute whatever we do. So expect a lot more menu innovation, but expect a much tighter stage gating process for us to make sure that not only does it work from a consumer perspective, but we can continue to deliver excellent guest experiences within our 4 walls.

Your next question comes from the line of Christine Cho with Goldman Sachs.

So in the last call, I think you mentioned about 20,000 new loyalty members joining each week as of May. I was wondering if there are any updates you can share on kind of customer acquisition and how it's faring versus your prior expectation? And more importantly, how do you plan to kind of convert those sign-ups into more sustained increases in guest frequency? Are there any specific customer cohorts that are responding more positively to the revamped loyalty program?

Thank you for the question. So yes, we've continued to see around 20,000 new members joining. So it's been strong. Like most restaurants, one of our best acquisition drivers is in the store. So we continue to push that in-store and convert in-store customers into loyalty. One of the big improvements that we will be rolling out later this year will be the ability to scan and pay in-store. So today, it's -- it's -- you have to scan and then pay. We will be moving into a scan pay single transaction, which again will help our throughput, but also gives another reason for our guests to sign up for loyalty and get through our lines quicker.

And we've been very encouraged, as I mentioned earlier, and I think Mitch spoke about as well around the loyalty program and the increases in frequency. We continue to test and learn all sorts of different canvases and journeys and are getting more and more personalized on what is -- what are the different types of offers we can leverage for different cohorts in order to drive frequency. So we've learned a ton, and we're doubling down on the things that are working and do expect loyalty to create this digital flywheel for us as we continue to perfect.

Your next question comes from the line of Jeffrey Bernstein with Barclays.

Great. My first question is just on the restaurant margin. I know you mentioned earlier kind of the back half reduction that's implied based on your guidance. I know it's in large part due to deleverage. I'm just wondering, as you think about it over the next few years, your confidence in that reacceleration back towards the 20% or maybe past margins, you've maybe over-earned a little bit and it would be wise to maybe reinvest more in the operations and the execution you're talking about, how you think about the balance of getting back to the higher margin versus investing for the long term? And then I had one follow-up.

Thank you very much. No, I would say we see the margin expanding over the next several years and continuing to grow. We think a lot of that's going to come from improved operations, as Jon has been talking about during the call as well as the reacceleration in the growth in sales that we see happening as we get past some of these near-term headwinds. So as we look out on the business, we think we still remain with a lot of opportunity for margin expansion in our core operations, and that will also happen -- be accelerated by the deployment of the Infinite Kitchen. So just in even the classic stores, we think that the margin trajectory remains pretty good.

Understood. And then just following up on a comment you guys made earlier about the new units that you're opening and kind of stepping up the scrutiny in terms of these new units to increase the likelihood of success and being a lot more diligent and careful. Just wondering if there's any current learnings that help drive that decision or maybe change your decisions in terms of new units, whether they're in new versus existing markets. I got the impression that you were maybe implying that for next year, it could potentially fall to sub 15%, 20% if this added scrutiny leads to a few less potential sites.

Well, one of the things that we're really -- there's a couple of things that we're really focused on there. One is the actual store design and experience. We've made -- we've done a lot of work over the past year and are going to be opening stores with updated designs and flows for both our classic restaurants as well as our Infinite Kitchen restaurants. The idea with these designs is to create not only a better customer experience, but a better experience and easier flow for our team members, which should lead to both better food quality as well as better labor deployment given some of the adjacencies put in.

So we're very excited about those. And then there's been a huge focus on build-out costs. We think that there's an opportunity to really drive build-out costs down. Some of that is going to be through these new prototypes as well as attacking our size of store. One of the lessons has been smaller -- kind of keeping our stores on the smaller side, actually, they do better. It creates a better environment. The teams are happier and the stores are less expensive to build. So a huge focus on targeting stores a bit smaller square foot with lower cost to really focus on expanding the return on capital of our investments.

Got it. But the idea of getting back to or being married to that 15% to 20%, you don't see a problem in being able to achieve that next year even with this greater scrutiny?

We're still building the pipeline. So I do believe that can be -- that is a long-term algorithm. We have a very robust pipeline, but we're looking at it very carefully and making sure that every single store is vetted and we can deliver on our return on capital. So we'll be coming back more on that in future quarters.

Your final question comes from the line of Chris Carril with KeyBanc.

So could you talk maybe a bit more about what you're seeing in IK stores relative to your classic stores, particularly from a sales perspective? And if there is a meaningful delta between the performance of IK versus Classic, is there anything there that informs your thought process and strategy here moving forward?

Sure. As we mentioned in the prepared remarks, we are seeing higher AUVs for the Infinite Kitchen stores. We do see -- we also see better customer satisfaction scores. You have better accuracy, faster throughput. And as we've mentioned previously, we've continued to see our team members be more engaged and stay with us longer and much lower turnover in those stores. So overall, we're very encouraged about those. The focus with the IK stores is really making -- is putting them in the shop selection of where we put it, making sure we put it in stores that have the volume where the return on capital makes sense.

But overall, we're very encouraged. And as I mentioned on the previous question, some new updated designs with featuring the Infinite Kitchen that we think are going to create an even better store experience. So stay tuned for some more on that as those begin to open.

Got it. And then just following up on Jeff's question, what's your latest thinking about development from a market perspective? I mean, just in light of the changes that you're making in the New York market specifically, how are you thinking about those opportunities for further growth in your core legacy markets versus newer Sweetgreen markets?

We continue to see opportunities in our core legacy as well as new markets. New markets have done really well for us over the past few years. One of the, I think, changes in some of the markets that we had opened years ago is we have now -- we have delivery in the business. So now a lot of those stores share delivery rates. And so we're much more careful about the dilution of stores in existing markets, so looking kind of for net new white space, but there's plenty of white space for us in all of our legacy markets.

And some of that may not be all in the downtown core, but kind of expanding out from the core, and that's where we've seen a lot of success. So going from Boston to the suburbs of Boston, for example, it's been very successful for us. Similar in the Bay Area, very successful in the Bay and extremely successful as we've worked our way down the Peninsula in the East Bay. So really leveraging the brand we've built in these core urban markets and kind of expanding out from those still within those markets, but out into the suburbs.

Thank you for joining. This concludes today's conference call. You may now disconnect.