Sweetgreen Inc

NYSE:SG

Earnings Call Analysis

Sweetgreen Achieves Strong Growth Amidst Strategic Expansions

Sweetgreen reported a strong second quarter with $184.6 million in sales, a 21% year-over-year growth. Same-store sales increased by 9%, driven by a 5% menu price hike and a 4% rise in traffic. Restaurant-level margins rose to 22.5%, and adjusted EBITDA hit $12.4 million. The company opened four new restaurants and completed its first Infinite Kitchen retrofit, promising faster service in New York City. Looking ahead, Sweetgreen plans to grow its restaurant count by 15-20% annually, with revenue guidance for 2024 between $670 million and $680 million, aiming for adjusted EBITDA between $16 million and $19 million.

Robust Growth in Q2 2024

Sweetgreen Inc. posted impressive results for the second quarter of 2024, showcasing continuous strength in their business model. The company reported total sales of $184.6 million, marking a significant 21% increase compared to the same period last year. This growth was fueled by a 9% boost in same-store sales, driven by a 5% price increase on the menu and a 4% rise in customer traffic and mix. Notably, the company achieved this performance despite a challenging economic backdrop.

Strong Financials and Positive Adjusted EBITDA

Restaurant-level margins reached 22.5%, an improvement of over 200 basis points year-over-year, reflecting Sweetgreen’s operational efficiency. The company generated an adjusted EBITDA of $12.4 million for the quarter, a notable increase of $9.1 million from Q2 2023. This indicates a positive trend towards profitability, with a commitment to maintain adjusted EBITDA positivity on an annual basis throughout 2024.

Expansion of Restaurant Footprint

During Q2 2024, Sweetgreen opened four new restaurants across various locations, including Washington, D.C., Chicago, Morristown, New Jersey, and a new market in Salem, New Hampshire. This brings their total to 231 restaurants, and the new stores are reportedly generating average weekly revenues that exceed the existing fleet average, demonstrating effective market penetration. For the remainder of the year, Sweetgreen plans to open between 24 and 26 new locations, including seven featuring their innovative 'Infinite Kitchen' concept.

Innovative Restaurant Formats Driving Efficiency

The introduction of the Infinite Kitchen concept is a critical component of Sweetgreen's growth strategy. The Penn Plaza retrofit, which incorporates speed-optimized operations, now allows for an average order completion time of under 3.5 minutes, a significant reduction from the previously longer wait periods. This innovation is expected to enhance throughput, especially in urban markets, thereby increasing customer satisfaction and potentially boosting sales volumes.

Guidance and Future Projections

Looking ahead, Sweetgreen maintains cautious optimism given the current U.S. economic uncertainty. For the fiscal year 2024, the company projects total revenue in the range of $670 million to $680 million, with same-store sales growth anticipated between 5% and 7%. They also expect restaurant-level margins to stabilize between 19% and 20%, while adjusted EBITDA is forecasted between $16 million and $19 million. This guidance reflects a commitment to disciplined, capital-efficient growth and ongoing operational excellence.

Consumer Engagement and Menu Innovation

The introduction of new menu items like Caramelized Garlic Steak is enhancing customer appeal, particularly during dinner service, which now constitutes 40% of sales. This diversification into hearty options is resonating with new guests and is expected to further drive traffic and customer retention. Sweetgreen also noted that their marketing shift to out-of-home strategies is yielding positive results, indicating strong brand awareness and customer engagement.

Operational Efficiency and Cost Management

In terms of cost management, labor expenses accounted for 27% of revenue, with a 200-basis point improvement year-over-year thanks to better labor optimization strategies. Meanwhile, general and administrative expenses dropped to 21% of revenue, down from 26% a year prior, largely due to decreased stock-based compensation. These efficiencies signal Sweetgreen’s commitment to optimizing operations amidst rising inflationary pressures.

A Cautious Yet Strategic Outlook

Despite the impressive results, Sweetgreen is preparing for potential economic challenges ahead. The CEO mentioned they observe early signs of caution in consumer spending patterns. On the flip side, strong performance metrics in new markets bolster their confidence in strategic expansion. The goal remains to leverage recent innovations and operational advancements for sustained long-term growth, reinforcing Sweetgreen’s commitment to redefining fast casual dining.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc. Second Quarter 2024 Earnings Call. [Operator Instructions]



I would now like to turn the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. You may begin.

[Rebecca Nounou, executive]

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 all



[Audio Gap]



questions during the Q&A session following the prepared remarks.



Today's call is being webcast live and recorded for replay. 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.



With that, it's my pleasure to turn the call over to Jonathan to kick things off.

[Jonathan Neman, executive]

Thank you, Rebecca, and good afternoon, everyone. We had a strong second quarter, a testament to the groundwork we laid in 2023, the impact of our growth strategies, and the strength of our team. We reported sales of $184.6 million, representing 21% year-over-year growth. Same-Store sales grew 9%. This consisted of a 5% benefit from menu price and 4% positive traffic and mix.



Restaurant-level margins for the second quarter was 22.5%, expanding over 200 basis points year-over-year, making this one of the highest restaurant-level margin performances in the Company's history. Additionally, we generated an adjusted EBITDA of $12.4 million for the quarter. We delivered a strong second quarter due to several factors, including the launch of Caramelized Garlic Steak, disciplined operational execution, and strong restaurant openings, all part of our simple Trueprong Strategy: one, continue building our brand by creating great products and guest experiences; two, expand our connection to guests by building and operating great restaurants.



Let me share some of the highlights from this quarter. During the second quarter, we opened 4 new restaurants, 1 in Washington, D.C., Chicago, Morristown, New Jersey, and Salem, New Hampshire; New Hampshire being a new market for us. Our 2024 cohort of new restaurant openings are ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average.



As we shared a few quarters ago, we relaunched our intimacy-at-scale playbook to execute new openings. This playbook prioritize choosing the best real estate, having the right leaders in place, and strategically investing in brand awareness, which is paying dividends. Additionally, we saw strong top-line performance in emerging markets such as the Midwest, Texas, and the Southeast.



Our results continue to show that our brand's relevancy extends far beyond our current footprint with considerable white space in both new and existing markets. Sweetgreen's high-quality offering and compelling value is clearly resonating with consumers in today's industry backdrop. On July 15, we completed our first Infinite Kitchen retrofit at Penn Plaza, which is now the fastest way to get Sweetgreen in New York City.



The retrofit began in June and took 7 weeks to complete. We were able to keep the restaurant partially open during 6 of the 7 weeks of renovation for online ordering and delivery. The restaurant was fully close for 1 week. It is the first Infinite Kitchen made by our contract manufacturer, which was delivered on time and at target costs.



Since reopening, we are seeing some of the highest throughput levels we have seen at the store. While less than a month in operation, we are pleased with the performance of the restaurant. We remain on track to open a total of 7 new restaurants featuring the Infinite Kitchen as well as retrofitting 2 to 3 existing restaurants with the Infinite Kitchen in 2024.



Looking ahead, we are resuming a new unit growth rate of 15% to 20% annually with 2025 being at the lower end of this range and 2026 and beyond targeting the upper end of the range. The majority of our 2025 pipeline is identified and we are working on our 2026 pipeline. Our menu innovation has attracted new guests, driving traffic and check sizes.



Caramelized Garlic Steak, which launched in May, and Protein Plates have been particularly successful at driving same-store sales at dinner and non-weekends in the second quarter. Dinner now represents 40% of sales, excluding the 2 to 4 p.m. mid-day daypart. This was an expansion of 3 percentage points year-over-year.



Additionally, in June, weekend same-store sales grew by double digits. We've also seen our share of [ nail ] guests acquired steadily increased since the fourth quarter of last year. We believe our culinary innovation will allow us to further grow our dinner mix as well as be a driver of long-term traffic. With respect to operations, our teams remain focused on prioritizing the guest experience and increasing throughput.



We saw progress across the fleet and it reflected in our results this quarter. This will continue to be an area of focus for us moving forward. Part of our culture is creating an ownership mindset and our incentives are aligned to these values. These incentives include bonuses and equity grants for our head coaches.



As we prepare for more restaurant openings in the coming years, we are building a solid pipeline of future head coaches and are thrilled about the growth opportunities for all of our team members. This is why we've been focused on investing in the employee experience, including upgrading our learning path with an emphasis on leadership skills like performance management, culinary skills, and hospitality.



We believe that Sweetgreen offers a career and not just a job. Many of our best head coaches are developed from within, and we are proud that over 50% are promoted from within. As we move forward, our goal is to increase this percentage. We've been focused on investing in head coaches to improve stability because keeping leaders in place can reduce restaurant turnover, which has stabilized at a new post-pandemic low.



Last week, Sweetgreen turned 17. Since day 1, we've had a vision to redefine fast food by creating a concept that is committed to being fresh, crave-able, convenient, and sustainable. Our unique sourcing model, partnering with farmers and suppliers we know and trust, combined with our commitment to delivering compelling value at scale has made Sweetgreen a category leader.



We plan to continue to lead and define this category by thoughtfully expanding our menu, building out our digital program, introducing new formats, and innovating how restaurants of the future will operate via the Infinite Kitchen. I want to thank all of our team members for their hard work. Over the past 2 years, we have been focused on strengthening our operations and financial model and positioning ourselves to accelerate profitable growth.



Now I will turn over the call to Mitch to review our financial results in further detail.

[Mitch Reback, executive]

Thank you, Jonathan, and good afternoon, everyone. As Jonathan just shared, our hard work over the past several quarters and commitment to disciplined capital efficient growth as demonstrated in our second quarter results. We achieved our 13th consecutive quarter of over 20% revenue growth, with same-store sales reaching its highest level in 2 years. This flowed through to restaurant-level margin and adjusted EBITDA.



For 2024, we remain on track to be adjusted EBITDA positive on an annual basis. Total revenue for the quarter was $184.6 million, up from $152.5 million in the second quarter of 2023, growing 21% year-over-year. For the second quarter, same-store sales grew 9% year-over-year. This consisted of a 5% benefit from increased menu prices and a 4% increase due to positive traffic and mix.



All markets comped positively with very strong growth led by newer markets, Texas, Florida, Atlanta, and the Upper Midwest. Year-to-date, same-store sales change is running at 7%. Our average unit volume in the second quarter was $2.9 million. Restaurant-level profit margin in the second quarter was 22.5% compared to 20.4% a year ago.



This is more than a 200-basis point improvement from the second quarter of 2023. Margins were strong across all regions and age cohorts. Year-to-date, restaurant-level profit margin is 20.5%. Restaurant-level profit for the second quarter was $41.5 million, a more than 30% increase year-over-year. For a reconciliation of restaurant-level margin to comparable GAAP figures, please refer to the earnings release.



In the second quarter of 2024, we opened 4 restaurants, including restaurants in Washington, D.C.; Chicago; Morristown, New Jersey; and Salem, New Hampshire, a new market for us. We ended the quarter with a total of 231 restaurants. Our Infinite Kitchens continue to deliver on our financial, operational, and customer service metrics.



Naperville just crossed its 1-year anniversary in May with $2.8 million in sales. For the second quarter, the restaurant-level margin was 31.3%. In its first year, team member turnover was around 45% less than what we see in a classic restaurant at a similar stage. Our Huntington Beach [ IT ] is 6 months old and following a similar trajectory.



Our Penn Plaza retrofit, opened for a few weeks has shown strong performance. On its second day, the Infinite Kitchen produced nearly 200 bowls in 30 minutes with 100% on-time reliability and has the potential to reach 500 bowls per hour. As Jonathan mentioned, Penn Plaza offers the fastest way to get Sweetgreen with an average order completion time of just under 3.5 minutes.



For 2024, we are on track to open between 24 and 26 new restaurants, 7 of which will contain the Infinite Kitchen. These 7 restaurants are scheduled to be opened in Q3 and Q4 of 2024, one of which was opened this week in Fashion Island in Newport Beach, California. Food, beverage, and packaging costs were 27% of revenue for the quarter, flat year-over-year.



Labor and related expenses were 27% of revenue for the second quarter, a 200-basis point improvement year-over-year. While we experienced wage rate increases, this has more than offset with improvements to labor optimization. Occupancy and related expenses were 8% of revenue, a 100-basis point improvement year-over-year.



General and administrative expense was $39.2 million or 21% of revenue for the second quarter of 2024 as compared to $40.4 million or 26% of revenue in the prior year period. The decrease in general and administrative expenses was primarily due to a $3.6 million decrease in stock-based compensation expense, which was partially offset by an increase in our investment in advertising.



Net loss for the second quarter of fiscal 2024 was $14.5 million as compared to a loss of $27.3 million in the prior year period. The decrease in net loss is primarily due to a $10.4 million increase in our restaurant-level profit and a $4.5 million decrease in restructuring, a $1.2 million decrease in preopening, and a $1.1 million decrease in general and administrative expenses described above.



These decreases were partially offset by an increase in depreciation and amortization expense, primarily associated with an increase in restaurants as well as an increase in other expenses related to the change in fair value of our contingent consideration. Adjusted EBITDA, which excludes stock-based compensation and certain other adjustments, was $12.4 million for the second quarter, an improvement of $9.1 million from the second quarter of 2023.



We ended the quarter with a cash balance of $245 million. During the first 6 months of 2024, we generated a positive operating cash flow of $22.5 million. Now turning to guidance. For the fiscal year 2024, the raise in guidance reflects our strong performance in the first half of the year. We remain cautious for the second half of the year, given what we are reading about the uncertain U.S. economic backdrop.



Additionally, our guidance reflects the retrofitting of 2 high-volume restaurants with the Infinite Kitchen, including Willis Tower in Chicago. 24 to 26 net new restaurant openings, revenue ranging from $670 million to $680 million, same-store sales growth between 5% and 7%, restaurant-level margins between 19% and 20%, and adjusted EBITDA between $16 million and $19 million.



As we shared before, we remain committed to disciplined capital-efficient growth and driving profitability so that we can accelerate the Sweetgreen flywheel. We remain focused on building our brand, culinary innovation, leveraging our unique supply chain, and delivering operational excellence. With this focus, we believe we are well positioned to deliver long-term growth for our stakeholders.



With that, I'll turn the call back to the operator to start Q&A.

[Operator]

The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Sharon Zackfia with William Blair.

[Sharon Zackfia, analyst]

The quarter comp was really impressive and obviously had this nice uptick sequentially in transaction and mix. Can you talk about what was the primary driver between those 2 components? Because I recognize a stake was probably a mix benefit. So I'm not sure how much we should really attribute to traffic versus mix?



And then secondarily, Mitch, when you're talking about the uncertainty in the macro environment, it doesn't seem like you're seeing anything, but I just want to clarify if that is, in fact, the case.

[Mitch Reback, executive]

Thank you very much, Sharon, for the question. So let me break the question apart into 2 buckets to take the first one, which was on the second quarter. If we have any kind of comments about the traffic and mix and how it's sequentially built. Let me just say that for the quarter, our traffic was positive and is sequentially built each month during the quarter. The mix benefit was largely attributable to the launch of Steak.



Your second question, I believe, was what are we seeing in terms of the cautious guide? And I guess I'll translate that a little bit to what are we seeing early on in Q3. Like a lot of other people have reported, the first week of the quarter was soft around the 4th of July. As we moved away from the 4th of July, our business picked up. And for the last 3 weeks of July, our business comped at the top end of our guidance.



I think what I would say and kind of making an overall comment is we feel really happy and comfortable with the things that we control in our business. We're very happy with the menu innovation and more importantly, the customer acceptance of our new items. We're very happy with our marketing that we've moved to more out-of-home, and that's showing very strong results.



We talked in the past about improving our labor scheduling and deployment in order to improve hospitality and lower labor costs as a percent of revenue, and we're very pleased with our results. And as we alluded to in the script, very pleased with our new market response and the strong comp growth rates we're seeing across all of our new markets and the Class of 2024 opened up very strong with higher weekly revenue than we're seeing in the fleet.



However, we feel like we do not control the outside world, and we kind of read the same stuff in the same paper as everybody reads and reports on. And I think we have a degree of kind of cautiousness around the external environment. Having said that, we are pleased with the fact that July -- the last 3 weeks of July came in at the top end of our guidance.

[Sharon Zackfia, analyst]

And as my follow-up, on the IK Penn, are you seeing customers discover the improved throughput via walk-in or does it happen more in the digital channel first?

[Jonathan Neman, executive]

Sharon, good to hear from you, and thank you for the question. So just before I begin, I'd love to just thank our -- the whole Sweetgreen team for a phenomenal quarter. A lot of hard work to get to this point. And I just want to take a moment to thank every single person, especially our frontline team members, our head coaches that really bring the Sweetgreen mission to life every day.



As it relates to Penn Plaza, I think if you go and experience it, it's pretty amazing. I mean, we're delivering food under 3.5 minutes. If you had gone to that store before at peak, you would have waited in line for 10 to 15 minutes. And then once you started your order, probably you're about another 3 minutes until you get your food, so you can now pretty much walk in.



There's almost -- the way we've designed it with the kiosk ordering as well as the concierge ordering practically 0 weight to order and your food is out in 3.5 minutes. So that is aside from the digital orders, which, again, are -- if you're ordering on your phone, it's also that fast. So very encouraged. We're seeing some really positive feedback from consumers, also seeing some great positive feedback from our key members, which is really important.



This is the first restaurant where we had team members that worked in an old -- an existing Sweetgreen that are now working in the new model. So we get an interesting test on seeing how they view the experience, and they're really thrilled. It's just a lot more fun and it's an easier place to work for them. And so really excited about it. I think it's early but encouraging. And I think over time, as customers understand how fast they can get through and get their Sweetgreen, I think we will continue to see some traffic-driving potential there.

[Operator]

Your next question comes from the line of Katherine Griffin with Bank of America.

[Katherine Griffin, analyst]

First, I wanted to ask another question, I guess, on marketing. It's been a different tact for Sweetgreen advertising around the Caramelized Garlic Steak launch. It's clearly been successful. It seems like you're seeing a return on it. So I'm curious if this is something you're thinking about incorporating in your go-forward strategy or if it's -- or something that's reserved for a big culinary launch? Just any thoughts, I guess, on advertising for Sweetgreen going forward?

[Jonathan Neman, executive]

Sure. Thank you for the question. So I'd say it's much more of how you can expect us to go forward. We've made some good investments in the talent around our marketing team. So shout out to our marketing team have done a great job. Really taking -- really thinking about 360 campaigns, including how we leverage out-of-home, digital community, and we're seeing some really great results around it.



So we will be incorporating this into our go-forward strategy. We've also -- many people still think about Sweetgreen as a salad company. We've never viewed it that way. From the very beginning, the idea was to create a company that leverages in a really unique fresh supply chain, craft around how we make our food, and then apply that to different types of food.



Of course, we started with salads, and that's what we're very much known for. But as you're seeing, we're starting to branch out and leverage that license the brand has around the quality, crave-able fresh food, and then apply it to place. And over the next year or so, you're going to see a lot more menu innovation.



And one of the things that we're really excited about that we've seen in this quarter, which is something we've been working on for a while, is that broadening of our consumer and broadening of our daypart. So we've seen a nice shift in dinner with a huge growth of that dinner day part. We brought in the consumer and some of the results we've seen, a lot of the success was actually from a lot of the emerging markets that at one point were a little bit questionable for us.



We saw some massive comps in those markets, and I attribute that to a combination of the great culinary innovation we've had with this new approach to marketing.

[Katherine Griffin, analyst]

That's great. And then on the menu innovation that Sweetgreen has been executing, I'm curious how it's resonating with your existing more like habitual customer base? And I guess what that means for how you're thinking about balancing menu innovation going forward in order to appeal to your new cohorts versus existing?

[Jonathan Neman, executive]

Yes, we've seen success across both. If you look at -- if we look at the -- both the customer acquisition and the frequency trends, we've been pretty pleased about both how it's brought in new customers and we can remove that veto vote in many ways and created that occasion where I want that Sweetgreen experience.



I may not want a bowl full of greens, but now I can get a Steak bowl with Wild Rice and Caramelized Garlic Steak, and it's a really hearty dinner option with a really great value, especially in this environment. And our existing guests are loving it, too. So I'd say we're seeing it in both existing and with new customers.

[Operator]

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

[Brian Mullan, analyst]

Just a question on development. As you look to next year, do you have visibility yet in terms of how many of those locations might have Infinite Kitchens or is that still yet to be determined? And really just wondering if that answer has more to do with the way you're constructing your pipeline? Or is there any contract manufacturing constraints to think about as well?

[Jonathan Neman, executive]

Sure. So the short answer is you expect a much higher percentage of Infinite Kitchens in the pipeline. We're not yet disclosing exactly how many as we're finalizing design, but expect, I'd say, a majority, more than 50% of new units would include an Infinite Kitchen next year.

[Brian Mullan, analyst]

And then just a follow-up, John, more of a strategic question for you. But if the Infinite Kitchen continues to progress the way you hope, you just talk about the strategic optionality that gives the company over the next 5, 10 years, or even longer. What does that help you do with development? And does it also give you opportunities to do anything with the value perception with consumers and the value proposition?

[Jonathan Neman, executive]

Yes, absolutely. I mean, one of the reasons -- the reason we were so excited about this is we saw this as a huge tool for us and especially as labor becomes more challenging and more expensive. And today, we're seeing a lot of success. But to your point, over time, there's a lot of optionality, whether that be things we do from a price value perspective, the unlocking TAM that it allows us for with the margin increase, and the fewer employees that we can run it with, it should unlock a lot of white space for us.



And the way it's been designed and the innovation team we have around automation is we believe that there's applications outside of this core bowl application as well. So I'd say there's a lot of option value around automation and what we built with the Infinite Kitchen. And I just want to take a moment to thank the whole spice team who've done just an incredible job leading this project.

[Operator]

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

[Logan Reich, analyst]

Congrats on the really solid results. My question was on restaurant margins. Obviously, really impressive growth this quarter or margin expansion this quarter year-over-year. Obviously, Steak is coming into the mix more so going forward. But I guess just like how do you sort of think about restaurant-level margins sort of trending? And what are the puts and takes beyond sort of this year that you guys are most looking out for? And then I have a follow-up.

[Jonathan Neman, executive]

Thanks, Logan. I think let me answer that question more in the broader term over the next few years. Since I think that's the way the question was phrased. We continue to see our margins expanding in near term, and I think most of that is going to come from a few areas, continuing to see more improvements around labor and labor deployment.



And I think we've seen great success in the past few years, but we could see a lot of opportunity coming forward. There's going to be some opportunity, of course, in our occupancy. As a small company, our occupancy was heavily influenced by deep urban areas. And as we grow and grow in newer markets, our occupancy will steadily come down.



And I think the other area of the P&L basically in the area of other expenses, we continue to find leveraging opportunities throughout them. And you'll see us continue to drive some of those. So I believe over the next few years, you'll see our margins increase. I want to caution it may not be exactly on a quarter-by-quarter basis. But on an annual basis, they should improve over the next few years.



And this is absent the deployment of the IK. The IK, I believe, will supercharge the margin expansion, particularly if we can retrofit very high-volume stores rapidly.

[Logan Reich, analyst]

Great. And then on the Penn Plaza retrofit, I guess what are the sort of key learnings there that sort of instruct your views going forward on the ratio assets, whether that be sales performance through that 6- or 7-week period? How does that sort of impact your guys' views on the retrofits going forward?

[Jonathan Neman, executive]

So is the question, what did we learn? Or what are we trying to learn?

[Logan Reich, analyst]

Yes. I guess like what were your learnings relative to expectations during that retrofit?

[Jonathan Neman, executive]

Yes. I'd say -- first of all, I think it was impressive that we were able to keep the store operating during that time. So we were able to do the -- for the first one, we were able to turn that store in 7 weeks and keep it running from a -- with a digital ordering, so delivery and pickup, running during that time for 6 of the 7 weeks.



We made the decision to close for 1 week really to focus on hospitality training for the team in that week. But I think it was an encouraging start for us. And I think over time, we should be able to bring that down. Other learnings, I think we're learning continuously with each new Infinite Kitchen. We just opened one this week on Tuesday.



Like I've said many times in the past, we feel very good about the technology, and that will continue to improve, and we'll continue to scale the cost down. We're still working to perfect the overall experience. And I think with each new one you see, you'll notice a lot of things that we're trying and testing as we start to really perfect.



It's really that feeling that you get, the look and feel, the vibe of that restaurant when you walk in as well as the team member experience and making sure we just nailed down all the right adjacencies from a labor perspective and the right flow from a customer perspective, all while trying to bring our build-out costs down pretty significantly as we look to accelerate openings.



So it's a huge focus area for us. We're learning both about new builds and retros. But I'd say with 4 under our belt, we've learned a ton, and I'm very pleased with the results thus far, which is what has given us the confidence to continue to accelerate this year, 7 more -- we'll open a bunch more this year. And next year, we're going to open a lot more. And we wouldn't have that confidence if we didn't see the results we're seeing today.

[Operator]

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

[Rahul Krotthapalli, analyst]

Congrats on excellent results and execution. As Sweetgreen expands from being regional to truly national over time, can you share some of your early thoughts or your philosophy of reinvesting some of the margins you realize back into customer bills or menu price? How are you as an organization thinking about this today as you build out into your TAM? And I have a follow-up.

[Jonathan Neman, executive]

Sure. So thanks for the question, Rahul. So to your point, one of the -- one, I think for me, one of the most encouraging things that we've seen over the past couple of quarters has been the momentum across the company, the breadth and depth of the sales growth, specifically, a lot of the momentum we've seen in the emerging markets in the upper Midwest, where we grew a lot -- we planted a lot of restaurants last year in Texas, in Florida and Atlanta, all markets that we're seeing really robust growth.



I think that once we get to a scale, I mean, people have a different number, whether that's 400 or 500 units in national, I think it does unlock a lot of marketing efficiencies as we're able to advertise more nationally. We're still a couple of years away from that, but we do think that over time, we are seeing a lot of success with our marketing activities and brand awareness.



And as we continue to drive our margin and get scale, I think there's a lot of opportunity to get more people aware in trying Sweetgreen because one thing that we know is once consumers try Sweetgreen, they're very sticky. There is a natural flywheel built in given the habitual nature of the food. Something that we just got to do is just get more people to know who we are and give us a try.

[Rahul Krotthapalli, analyst]

Perfect. And then considering the labor savings we discussed in the past on the Infinite Kitchen, longer term, would you expect to build any stores without Infinite Kitchens at all?

[Jonathan Neman, executive]

So I think I heard the question being, would you build any stores without an Infinite Kitchen? The way I answer that question -- is that correct, Rahul?

[Rahul Krotthapalli, analyst]

Yes.

[Jonathan Neman, executive]

Yes. So I'd say the vision would be to get to a place where all stores in the future do feature an Infinite Kitchen. At this moment, we're very -- we're still learning a lot, and we're trying to make sure we meet our capital return threshold. So you're seeing it put into more stores that have higher volume or higher throughput needs or maybe have more challenges from a labor perspective is where you'll see us prioritize.

[Rahul Krotthapalli, analyst]

But over time, as we bring down the overall build-out costs around not just the Infinite Kitchen, the cost of the automation, but the entire build, I think it will unlock the ability to be in really most and eventually all restaurants.

[Operator]

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

[Jon Tower, analyst]

Maybe just a little bit more in the Infinite Kitchen and one other after. Just on the retrofit itself, can you maybe give us a range of the cost to retrofit the store? Obviously, you gave us the timing? And specifically on the machine, I think you had mentioned that you've now moved on due to the contract manufacturer.



And originally, you talked about a cost of roughly $400 to $550,000 for the machine itself. Are you seeing that begin to bend a little bit lower?

[Mitch Reback, executive]

Jon, let me say, the costs are coming in right in line with the guidance that we gave. These are early machines that are just kind of rolling off. In fact, I think Penn Plaza was the first unit made at the contract manufacturer. So by no means have we obtained any type of scale in manufacturing, we would anticipate some of that to come down the road.



In terms of the total cost of Penn, we really don't want to give out the CapEx numbers on an individual store-by-store basis. But the number you have is what the I get cost. There were, of course, other remodeling done at the same time when we have store available.

[Jon Tower, analyst]

And then just maybe pivoting to pricing. I know this year, you're running about 5% price, given some of the inflation that you're seeing across the model. But I'm just curious, as you alluded to earlier, Mitch, there is some softness seemingly forming with the consumer. And how do you guys think about pricing into 2025 if we're kind of in a backdrop where consumers are a little bit more pinched on their spend?

[Mitch Reback, executive]

Jon, yes, first, let me just make a comment that in the month of July, we did have 1 point to price roll off. So we're currently running at about 4 points in price. We really haven't begun to finalize our view of 2025 or certainly at the pricing level, but I can certainly say that we take a -- from this vantage point today, taking a slightly more cautious view than maybe we have in the past couple of years, like a lot of people and reflected in our guidance, we're kind of watching the outside world pretty closely.

[Operator]

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

[Brian Bittner, analyst]

On the restaurant margins, the upside that you're demonstrating in restaurant margins relative to expectations, it's continuing to be driven by significant leverage on labor. As it relates to this quarter and moving forward, is that just a result of the strengthening same-store sales? Is there may be some other strategic factors that keep you optimistic about this line item as you execute moving forward?



And secondly to that, Mitch, can you help us understand what's going on with the other restaurant operating expense line item, there is some deleverage there this quarter despite the very strong comp?

[Jonathan Neman, executive]

Yes. So let me talk about labor for some of the things that we're seeing. So yes, obviously, we're seeing some leverage with sales. We're also -- we've also seen the addition of Steak and a lot of positive developments there. But beyond that, we've been very, very focused on finding and developing the best head coaches and improving the retention of our teams.



And we really believe by having the greatest, the best head coaches that stay with us and that are promoted from within. They create a stable, great working environment for their teams, and that reflects in the results. And we had a lot of improvements over the past year there. So our turnover has continued -- it has stabilized at Lowe's.



We continue to see our head coach's stability grow in our head coach's 10-year growth. And we're working on some very exciting things that we think can continue to drive that. Beyond that, we're working on some things around labor deployment that we think can help us not just on hospitality and throughput, making sure we're staffing the peaks properly, but also in terms of continuing to leverage that labor line.



So all to say, I think we have some real -- some exciting things in the works to continue to drive leverage on labor and drive our restaurant-level margins.

[Mitch Reback, executive]

And Brian, I'll take the second part of your question, which I think was on the other expenses. The other expenses were largely the result of channel mix shifts in the business and really a higher level of repair and maintenance, particularly around HVAC, not unlike what other people have reported as things have heated up across the country.

[Brian Bittner, analyst]

And my follow-up is on Infinite Kitchen. Surprise, surprise. I know the math behind these basically says every store open should be an Infinite Kitchen. And ultimately, even Jonathan, you just said to a question, yes, that's true. But I guess the question is, we're obviously still in the early stages of the learnings here.



But are you starting to gain more and more confidence that this prototype can work in more and more trade areas than maybe you originally thought? And I just think it's an important thing to understand because that only 230 units, the vast majority of the scaling of this brand remains in front of us. And the portability of this prototype is how you're thinking about the portability of this prototype is obviously very important to the long-term future of the company.

[Jonathan Neman, executive]

Absolutely. And I'd say the short answer is yes. And you think you'll start to see that this year. So already very intentionally with the deployments of the Infinite Kitchen. We've piloted in very unique environments and neighborhoods. So whether it be Penn Plaza, heavily urban, fast-paced environment just this week in Fashion Island and then Huntington Beach and a Breville being more suburban.



You'll see us this year open try to open in a new market, first store in a market with an Infinite Kitchen. We'll open in other -- more urban markets, more suburban markets, really perfect it, and we do believe it's going to help us a lot on the portability. And I think it's -- what we're really waiting to learn is, again, less about the technology, more about perfecting the overall experience, including how we make sure we get the experience right with the broadening of the menu and the broadening of the brand position that we're pushing for beyond salads.



So we're excited to share more about where that's going in coming quarters. But with the success of place and stake expect us to continue to push to broaden what really Sweetgreen needs from a format perspective to consumers and how we can leverage the Infinite Kitchen to power that.

[Operator]

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

[Andrew Charles, analyst]

Mitch, on the positive track for the quarter, I'm first -- I'm curious if first, you can just disclose what that was within the 4% combined mix traffic? I know you said it was positive and picked up for the quarter. But first off, if we could just skip the number. And then second, can you help just rank what are the drivers of positive traffic?



It's obviously a rarity right now in the industry. But you've got a couple of tailwinds between outsized contributions from new store sales ramps that historically grew substantially in the second year, the buzz around Steak, speed of service improvements from more streamline operations. So how do you help rank order what drivers of that positive traffic was in the quarter?

[Jonathan Neman, executive]

Thank you, Andrew. Let me say that at a high level, I think you kind of hit it that everything that -- we seem to have fired on all cylinders, as I say, in the second quarter. The stores that came into our comping base were very, very positive. Our new markets had very strong comp growth and very strong traffic.



The menu was very well received and broadly well received. And I think it was really just a -- and of course, the labor deployment picked up on our throughput. And I think it was just a question that all of these things kind of coalesce that had very positive traffic. And as I said earlier on the call, the traffic grew sequentially throughout the quarter, something that we're really happy with.

[Andrew Charles, analyst]

And then just a follow-up question is around that labor deployment, driving speed of service enhancements. Can you help us quantify what you're seeing there? Is it transactions per peak labor hour or peak 15 minutes? How are you monitoring this? And what kind of improvement did you see to help us better understand how those efforts are resonating?

[Jonathan Neman, executive]

Andrew, it's a little bit too early. I'd like to come back and share more on that. But we do -- we would expect to see higher throughput at peak as well as overall labor leverage through better scheduling. You see things like less overtime, better management around fair work fleet, et cetera.



So I'd say there's a lot -- I think we see a lot of benefits from this new way of deploying labor. We've also really done a lot of work. We've talked about in the past around simplifying both the role in the restaurant, whether it be at the head coach level, how do we make that job easier and more joyful across all their -- everything they do, whether that be administrative tasks or in-store tasks and similarly for our team members, how can we make that -- continue to make that job a little bit easier to do, and that's through micro changes like we could -- things like upstreaming, tools, systems, layout adjacencies.



The restaurant business is it's a game of inches, and we just continue to optimize and look to be better every single day. So we see, as Mitch mentioned earlier, a steady path to continue to leverage our margin over the next few years.

[Operator]

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

[Hyun Jin Cho, analyst]

First off, congrats on a great quarter. Firstly, could you help us under bridge the gap between kind of really solid same-store sales growth averaging kind of 6% in the last 4 quarters versus kind of a flattish AUV of $2.9 million since the second quarter of last year.



I think I would imagine some of this is coming from the new store dynamics. But if you look at the new store mix, it's actually coming down a bit on a year-over-year basis. So it would be great if you can help us understand the factors that are driving that? And also what you need to see in terms of AUV increasing again? That's the first question. And then I'll do a follow-up.

[Jonathan Neman, executive]

Thank you, Christine. You're right, the same-store sales has grown about 6% over the trailing 12 months. It's been up 7% in the first half of 2024, and our AUVs remained at about $2.9 million. It's really just 2 factors. One is the one you articulated. It's just a new store dynamics as we're bringing in more stores every quarter into that comping base. And the second one is just a degree of rounding in the fact that we take it to $2.9 million, there is some build underneath it, and we are mindful of it.

[Hyun Jin Cho, analyst]

And John, I think I heard you highlight attachments as kind of a largely untapped opportunity for Sweetgreen. Is this something that you're increasingly thinking about? And whether there are any kind of specific products or marketing initiatives we can look forward to in the near future?

[Jonathan Neman, executive]

Absolutely. I don't want to share too much because we're not quite ready to announce everything, but we do have a very robust culinary road map, and some of that includes how we tackle both attachments, whether that be a signature side dish, how we think about beverage, which if you look at our business, we do not index near the industry where we should from a beverage perspective, and we think there's opportunity around kind of like the treat occasion as well.



So all things that we have really nice robust innovation going on, a lot of testing and piloting across the country that we're learning from and expect to see some exciting things next year, both within the core -- kind of core entree format of innovation there, but also, as you mentioned, kind of outside of the bowl around size and beverage and treat.

[Operator]

Your next question comes from the line of Dennis Gager with UBS. Your next question comes from the line of Dennis Geiger with UBS. Your next question comes from the line of Brian Harbour with Morgan Stanley.

[Brian Harbour, analyst]

A quick one, Mitch. Would you mind citing wage and food inflation in 2Q for us?

[Mitch Reback, executive]

Yes. Thanks, Brian, by the way. What we really saw was very low level of inflation in the second quarter. Wages were in -- both wages and COGS are in very low single digits.

[Brian Harbour, analyst]

Curious about Salem, New Hampshire. I know you call it a new market. It's sort of on the periphery of one of your existing strong markets. How is that one done kind of out of the gate? How much of your pipeline is sort of that expansion into kind of peripheral towns of some of your core markets as you think about this year and next year? Are you finding it easier to open some of those units given your scale kind of in New England?

[Jonathan Neman, executive]

Yes. I'm actually glad you asked. It's actually something that we're seeing a lot of success in as we think about how to expand out of really strong core markets. And if you look at Sweetgreen today, we're in most major metros at this point. And very intentionally when we set out, we wanted to build a national brand as a category leader.



And so we went out and we planted flags across all these major cities. But if you look at a lot of them, you got -- you're very -- you're just really not dense in a lot of these places. All of Texas, we have sub-20 restaurants. And if you look at the Midwest, it's just brand new, and there's so much room to run. So as we look forward, we actually see a huge opportunity of densifying existing markets and tackling more of the adjacent markets.



And the benefits there is we'll see a lot of leverage around our food costs, our supply chain, a lot of the economies of scale happen regionally. So we'll see some leverage there. Obviously, anyone in the restaurant business knows opening in existing markets is a lot easier from an operations perspective. We'll be able to leverage management and build a really robust bench of leaders.



And we also get to leverage a lot of our marketing spend within those markets and kind of the overlapping eyeballs between places like Boston and New Hampshire. So we think that in some ways, we did the hard part first, finding flags in all these places. And as we look forward, you'll see fewer new markets and more going back and going deep in existing markets where we see a lot of room and kind of expanding just out into these other adjacent markets.



So I'm actually quite excited for this way, and it's how we think we can accelerate our footprint and do so in a really profitable and disciplined way.

[Operator]

And your last question comes from the line of Dennis Geiger with UBS.

[Dennis Geiger, analyst]

Can you hear me?

[Jonathan Neman, executive]

We can hear you.

[Dennis Geiger, analyst]

Great, terrific. Congrats to the team. Two quick questions. The first one, as it relates to the IK margin versus the non-IK, helpful to get the Naperville solid number there. It sounds like cutting to be seeing something, I assume, probably somewhat similar. Just wanted to get a sense on sort of that margin spread if it's sort of in the ballpark of what we saw in the last quarter, how you'd kind of frame that up if there's anything more to add there?

[Jonathan Neman, executive]

Thanks, Dennis. I would say it is certainly in the ballpark or slightly better than we thought in all of our modeling and what we've seen in the past, largely coming out of the labor line, obviously, which you can see when you visit an IK store with some additional benefits and cost of goods. So very pleased with the early results.

[Dennis Geiger, analyst]

Appreciate that. And then just a second one, just as it relates to thoughts on average unit volumes on the IK stores now that you have another quarter kind of under your belt, I know it's early days, but thinking about kiosks, thinking about throughput. Any kind of latest views on where that potential could go at this early juncture from an AUV to a non-IK AUV?

[Jonathan Neman, executive]

Yes. I'd say on the suburban stores, we continue -- on the 2 original pilots. We continue to see similar trends with the higher ticket. We do believe with the better experience that customers are having, it's more accurate, it's on time. We just have Naperville the first store to now hit a year to start to see common numbers.



But we do expect, based off of a better experience to see some comp opportunity in those restaurants that will drive AUV. The real test of this is when we go into urban environments where we do have long lines and we can capture more customers. And that first time we're seeing this is now with Penn Plaza, Fashion Island should be a pretty heavily traffic store as well.



But I think that's when we're really going to start to understand in these high-traffic locations. Can we get an AUV lift just by serving more customers in those peak periods? So in some ways, I'd say we're very encouraged, think better experience will help us continue to drive comps and in more high-traffic locations, definitely an opportunity, but pretty early to say for now.

[Operator]

This concludes today's Q&A session and today's conference call. Thank you for attending. You may now disconnect.