🥗 Is Sweetgreen A Sweet Deal?

DoorDash settles case; Rivian drops again.

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🥗 Sweetgreen: Sweet Greenback!!??

Salad chain Sweetgreen (SG) debuted on Wall Street last week. Within two days of listing, shares have nearly doubled from the IPO price. Shareholders may make hay while the sun shines, but dropping market share, intense competition, and no clarity on profitability can act as dampeners. (Tweet This)

America On Green!

Sweetgreen was started by three college friends – Nicolas Jammet, Nathaniel Ru, and Jonathan Neman, three months after they graduated from Georgetown University. They zeroed in on a concept of fast but healthy meals that feature ingredients from local farmers.

They raised $50K from friends and family and opened the first Sweetgreen store near the Georgetown University campus in a 560 sq. ft. shack back in August 2007. By the time it opened its 20th store in New York in 2013, it had raised funds from Revolution Growth, Steve Case’s fund (the former Chairman and CEO of America Online).

Revolution invested a total of $40.5M in two tranches by 2014. Fidelity came on board in 2018, leading a $200M series H round, making the company a unicorn. In its most recent funding round led by Durable Capital Partners in January this year, the company was valued at $1.78B.

In May this year, three-time grand slam singles champion Naomi Osaka invested in the company. She worked with the company’s Culinary team to design the “Naomi Osaka Bowl,” a custom-made dish.

Today, Sweetgreen operates a total of 140 restaurants in 13 US states along with Washington DC. It acquired Boston-based restaurant company Spyce in August for an undisclosed amount. Spyce uses robotic cooking and serving techniques to automate its production line. The deal was intended to improve customer experience by filling orders faster and more accurately.

The Minnow Among Whale Sharks

Sweetgreen had planned to sell 12.5M shares at $23 – $25 apiece for the IPO. On Wednesday, the company ended up selling 13M shares at $28 each, garnering $364M, valuing the company at $3.4B. Shares listed at $52 per share, almost double the issue price, and shot further up so that by Friday’s close, the company was valued at $5.7B.

The company reported a net loss of $141.2M for the whole of last year. As of the first nine months of the year, the company’s losses narrowed to $86.9M compared to a loss of $100.2M during the same period of last year.

Sweetgreen is not alone in this space by any means. Subway and Chipotle have had salad alternatives on their menu for a while. Subway, the largest restaurant chain in the world, has over 21K outlets. Chipotle has reached ~3K outlets as of Q3 2021. In comparison, Sweetgreen is a minnow with just 140 stores and has a long way to go to achieve scale.

Since it sources food locally, Sweetgreen relies on a single, regional third-party distributor for fresh products and another regional distributor for dry goods. Across its 140 stores, the company deals with over 200 food partners, which adds to the operating costs. Compare that to Chipotle, where it sources only 11% of its produce from 54 local partners for its ~3K outlets.

Not only does this make profitability more distant, but it also makes it challenging to manage these suppliers. For instance, when customers in New York complained of illness from spoiled bleu cheese, the company faced great difficulty tracing the supplier who sold the product. With Sweetgreen planning to double its footprint in the next five years, supply chain issues can be hard to crack.

2021 has seen 12 F&B IPOs, including Sweetgreen. The other 11 listed at steep valuations, but all are now trading below their issue price without exceptions. Sweetgreen needs to pull off something spectacular in the near future to shore up investor confidence and not go the way the others did. For now, it can continue to count the greenback. $5.7B of them, to be precise!

Market Reaction
SG ended at $44.38, down 16.26%.

Company Snapshot 📈

SG $44.38 -8.62 (16.26%)

Newsworthy 📰

Investment: GM takes a stake in electric boating startup Pure Watercraft (GM +3.64%)

Settlement: DoorDash pays $5M to settle San Fransisco worker misclassification probe (DASH -6.41%)

Unraveling: Zoom shares fall after results as Wall Street turns cautious on growth (ZM -6.80%)

Later Today 🕒

  • Medtronic Plc Earnings (MDT)
  • Analog Devices Inc. Earnings (ADI)
  • VMware Inc. Earnings (VMW)
  • Autodesk Inc. Earnings (ADSK)
  • Dell Technologies Inc. Earnings (DELL)
  • HP Inc. Earnings (HPQ)
  • Dollar Tree Inc. Earnings (DLTR)
  • Jacobs Engineering Group Inc. Earnings (J)
  • Burlington Stores Inc. Earnings (BURL)
  • Gamestop Corp. Earnings (GME)
  • JM Smucker Co. Earnings (SJM)
  • Dick’s Sporting Goods Inc. Earnings (DKS)
  • Gap Inc. Earnings (GPS)
  • Pure Storage Inc. Earnings (PSTG)
  • Nordstrom Inc. Earnings (JWN)
  • 8:15 PM IST: Markit Manufacturing & Services PMI Flash

Today’s Market Terminology: Price To Sales

The price-to-sales ratio is calculated by taking a company’s market capitalization and dividing it by the company’s total sales over the past 12 months

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