Ladies and gentlemen, thank you for standing by and welcome to the Sweetgreen, Inc. Q4 2022 Earnings Call. I would now like to turn the call over to Rebecca Nounou, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Here with me today are Jonathan Neman, Co-Founder and CEO; and Mitch Reback, Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings release is available on our website at investor.sweetgreen.com. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company’s SEC filings, including the section titled Risk Factors in our latest Annual Report on Form 10-K filing and subsequently filed quarterly report on Form 10-Q. 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. Additionally, we will be discussing certain non-GAAP financial measures, which are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this afternoon’s press release available on our IR website. With that, it’s my pleasure to turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon, everyone. 2022 was our first full year as a public company and I feel immense gratitude to all of our team members who made an impact on the over 25 million customers we served. Sweetgreen was founded on a mission to connect people to real food, and this year we opened 39 restaurants and brought the Sweetgreen experience to customers in five new markets. Since we went public a little more than a year ago, the macroeconomic condition we operate in has gotten more complicated and unpredictable. And while the operating environment was certainly challenging, we know that our execution was not up to our standard. For 2022, we reported sales of $470.1 million, representing 38% year-over-year growth and same-store sales growth of 13%. Total digital sales represented 62% of our total fiscal year revenue with approximately two-thirds of those sales coming via our own digital channels. Sales for the quarter were $118.6 million, up from $96.4 million in the fourth quarter of 2021 growing 23% year-over-year. AUVs were $2.9 million and restaurant level margins for the year were 15% up 300 basis points versus last year. Our adjusted EBITDA loss was $49.9 million for the fiscal year down from a 2021 loss of $63.1 million. As we look out, we are incredibly focused on capital efficient growth and achieving profitability in 2024. This is achieved by growing sales, expanding restaurant level margins, and reducing our Support Center expenses. Together with our leadership team, we have scrutinized every facet of our business to determine how to accelerate our path to profitability while setting up the company for many years of sustainable growth. We are taking deliberate actions to manage expenses and protect our strong balance sheet to fund our mission. To that end, we’ve…

Thank you, Jonathan, and good afternoon, everyone. Total revenue for the fourth quarter was $118.6 million, up from $96.4 million into fourth quarter of 2021, growing 23% year-over-year. Same-store sales grew 4%, reflecting a 6% price increase taken in January 2022 and a negative 2% transaction mix. Additionally, we took approximately 3 points in price in mid-January 2023. Our average unit volume was $2.9 million, up from $2.6 million in Q4 2021, nearing our pre-COVID AUVs. Digital revenue in Q4 was 61% of total revenue and our own digital revenue that is a transaction made on the Sweetgreen Apple website was 40% of revenue. q4 total digital dollars grew 17% year-over-year. We opened 10 net new restaurants in this quarter, ending the year with 186. In 2022, we opened 36 net new restaurants. Restaurant level margins in the fourth quarter were 11% down 2 percentage points from 13% in the fourth quarter of 2021. Margins were impacted by an elevated cost of goods caused by severe weather. For a reconciliation of restaurant level margins to comparable GAAP figures, please refer to the earnings release. Food, beverage, and packaging costs were 29% of revenue for the quarter, which was 170 basis points higher than 2021. As we mentioned on our third quarter call, we saw cost pressures build in Q4 2022, primarily related to weather disruptions, which impacted tomatoes and romaine pricing. Tomato prices were up 25% and romaine was up 70% year-over-year. This was a one-off impact and by late January, we saw prices return to normal levels. Starting in January, we experienced a packaging disruption which has resulted in elevated packaging cost. The bulk of the cost impact will land in Q1 2023. At this time, we believe that as a percent of sales, our food, beverage, and packaging…

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Brian Bittner from Oppenheimer. Please proceed.

Thank you. Appreciate the question. As it relates to the unit opening guidance in 2023 of 30 to 35 units, that’s below the implied guidance for 2023 when you spoke to us – when you gave us the third quarter update. So can you talk about the drivers of the lower unit openings? Is this a temporary shift or is this a more structural shift to grow slower and just focus more on operational execution at the store level? Thanks.

Sure. Hi, Brian. What I’d say is, it’s really a focus on disciplined capital efficient growth and ensuring much greater consistency in our execution. We’ve taken a lot of time to incorporate a lot of the lessons learned from our openings and want to take a more careful approach, especially in this environment. There’s been a lot of external factors that have changed, changing traffic patterns in a constant state of flux that we’d like to see settled. And we want to make sure that we’re playing – we’re running our playbook appropriately, choosing the best real estate, having the right leaders in place, and really developing our brand in a thoughtful way. Beyond that, we see a huge opportunity around the Infinite Kitchen, which as we mentioned, is going to be piloted later this year, and hopefully, based off the success of those that technology, we’re going to be able to integrate that into more new openings. So we do believe this is probably more of a temporary slowdown and we do not think this impacts our long-term camera opportunity, but in this environment, we really want to focus on disciplined capital efficient growth.

Thank you.

Our next question comes from the line of Chris Carril from RBC Capital Markets. Please proceed.

Hi, good afternoon. So how are you thinking about the balance of openings and existing markets versus new markets here going forward? I mean, you spoke in your prepared remarks of strong openings and markets such as Tampa, but you also mentioned again, the stores in the Southeast that are slower to ramp. So just curious, how you’re thinking about existing versus new in 2023 and then beyond. Thanks.

Yes, of course. So what I would say is overall taking a bit more of a conservative approach. We do expect to open a few new markets each year, probably somewhere in that two to four range. As we mentioned this year, we have plans for three new markets. I think what you’ll see that’s different than what we did in 2022 is going into new markets with two or three really high profile brand building stores before further densifying. And if you look at some of the performance in the Southeast and some of the other markets, and every market that we’ve gone to, the early locations are very successful. Oftentimes, what’s happened is we’ve accelerated our growth and densifying probably a little bit faster than we should have. And so the switch in strategy is to continue to build our brand, choose the best real estate, making sure we’re executing, entering the market with a few stores, building the demand, getting the name out there, building our leaders, and then continuing to densify. So you’ll continue to see a balance mix between adjacent and existing markets as well as kind of planting flags in some new markets. As an example on the adjacent, we’ve got a lot of success, as we’ve worked our way up and down California. So you’ll see this year a lot more stores in Orange County. Similarly, working out of our – the success in the Northeast, you’ll see more locations in Long Island, Connecticut, New Jersey kind of working our way around Boston. So all to say, very focused on just a much higher hit rate and much more disciplined capital efficient growth.

Great, thank you.

Our next question comes from a line of Matt Curtis from William Blair. Please proceed.

Hi, thanks. Good afternoon. I was wondering if you could tell us what the gap was in the fourth quarter between urban and suburban comps. And then maybe if you could give your thoughts on further rationalizing the New York City footprint, just given that the return to office and office occupancy in general still seems to be lackluster.

Hi, Matt. Thank you for the question. What we really are finding in terms of the urban and the suburban is that the urban stores are in growth, and we’re fortunate that most of that growth is actually coming from the central business districts. So particularly post mid-January, we’ve – the suburban stores are flat holding their own and we’re pretty happy with that, because high level [indiscernible] the urban stores. So if we can hold the suburban and continue to see faster growth in urban and return to office, they’ll strengthen the overall portfolio. Your second part of the question was the rationalization in New York. I would simply say that we closed one store in the first quarter store in Tribeca, which basically had six more months on their lease. So it was a six month early close. But in events where we have newer stores that have capacity and older stores that are lease term [indiscernible] portfolio in order to drive a superior customer experience, team member experience and improved unit economics.

Okay, great. Thank you.

Our next question comes from the line of Jon Tower from Citi. Please proceed. Mr. Jon Tower, your line is open, sir.

Sorry. This is – thanks for taking the question. This is actually Karen Holthouse on for Jon. I think starting last fall you had talked about potentially renegotiating some of your New York City leases and trying to kind of rebased where you might have been as a percentage – as a percent of sales pre-COVID. Could you maybe just give an update on kind of how these conversations are going, potential timing of that actually happening, just any updates there?

Thank you for the question, Karen. All I can say about that is we are having discussions right now with several of our deep urban landlords and that those discussions are ongoing and probably at this point can’t comment beyond that.

Great, thank you.

Our next question comes from the line of Katherine Griffin from Bank of America. Please proceed.

Hi. Thank you. I wanted to ask about other restaurant operating costs and how we should think about that line item as a percent of sales for fiscal 2023.

Thank you Katherine. We’re spending a lot of time on the middle of our P&L. We see opportunities to gain leverage in that line, not just in 2023, but in 2024 and 2025, and we’re spending a lot of attention in focus on driving those lines down.

Thank you.

Our next question comes from the line of Andrew Charles from Cowen. Please proceed.

Great, thanks. Jon, Can we dig more into the sales softness? I’m curious if this continues to be more operational or perhaps you’ve seen lapsing customers have been digital data. I’m just hoping you can help contextualize how the business is evolving just given the efforts you guys are putting in place to help rectify traffic.

Hey, Andrew. Good to hear from you. We’ve actually been pretty impressed with a lot of the operational changes, especially starting this year. I mentioned a few of the improvements we’ve already seen. The throttles in – the throttles we’re seeing in our top 20 stores are up significantly. So we’ve had – you mentioned in earlier call, a huge focus on staffing in throughput, and we’re seeing a lot of the fruits of that labor. I think a lot of the softness that you’ve seen is much more seasonal and Sweetgreen is heading into our season. We typically see a pretty large lift from where we are sitting today into the spring season, both in customer acquisition and frequency. So overall, pretty encouraged about the operational changes we’ve made – seen turnover come down, our head coach stability has continued to grow. You’ve seen us go to 37 months in terms of head coach stability, making good efforts and headway on our full-time, part-time mix. And as I mentioned on my – in my prepared remarks, our call-outs are down 25%. So that’s pretty significant for us. All meaning that – I think we’re operating at a much higher level and just a huge shout out to all of our head coaches and store leaders for what they do every day. We’re excited to be out of the pandemic and delivering in-store – great in-store customer experiences as well as online. The last thing I’ll say is the company’s been really focused on hospitality and what we call the sweet touch. We’ve spent the past few months around the country hosting what we call sweet touch summits. Really, as the masks have come off, how do we really bring back the magic to the in-store experience. The in-store is one of our best customer acquisition channels, so huge focus there and hopefully you can feel the difference in our restaurants as you come in a big warm smile, sweet touch, and really delivering on our customer promises of fast, fresh, and friendly.

Our final question comes from the line of Brian Harbour from Morgan Stanley. Please proceed.

Yes. Thank you. I had just a supply chain question. I mean, you mentioned kind of the packaging issue. Is that indicative of any broader supply chain issues? And also just kind of we’ve seen what’s happened with some of like the spot prices for lettuce and tomatoes, and obviously that’s a major input for you, but do you have any kind of way to reduce that price volatility over time?

So I’ll talk about the packaging quickly. So we’ve definitely had a packaging issue that Mitch mentioned on the call. Our supplier for packaging had manufacturing issues and they were not able to bring our – the bowls that we expect. We were able to find subs in all our markets. And what I could say is in 85% of our restaurants were back to our spec packaging. So I appreciate the flexibility of our teams and our customers bearing with us through this challenging time because we understand that we love our iconic [indiscernible] package and we know that we all missed it. So it was out for about two weeks and we’re back. I do not think that is very much related. We don’t have any other items that we’re – that have that level of dependency. And I think if we learn anything through this process, this is about how to build more supply chain resiliency on items that we need for everything like package, offsetting this made us a lot stronger.

Hey, Brian, nice to hear from you. It’s Mitch. The tomato and romaine situation, the fourth quarter, which dissipated by mid-January was pretty severe on our cost of goods. I think what I would simply say is as a company, we have found adjusting our – for recipes quickly to changes in commodity supply as usually something where the customer has had widespread acceptance. And looking back on the fourth quarter, we probably were slow to adjust our recipes and to the changes in our supply and going forward, it’ll be a lot quicker when we see things like the romaine and tomato crisis.

We do have another question from the line of John Ivankoe from JPMorgan. Please proceed.

Thanks for getting me in guys. Okay. So we said a few times on the call discipline capital efficient growth probably three or four. Obviously you reduced fiscal 2023 development by whatever 15 or so – 10 or 15 or so units. What – does that mean in terms of 2024? I mean, I asked a question of a lot of these units you probably had signed leases, maybe even begun construction. Would that number have been lower? I mean, if you could have had a completely clean slate on 2023 and didn’t have any projects already ongoing, and I am obviously curious in terms of how we should be thinking about 2024 development as well.

Hey, John, good to hear from you. The answer, you’re right, that we’re ahead of we work 12 months to 18 months ahead on our pipeline, but no, that this was the ideal number for us. It was a similar paces last year. We think the right number of new markets, the right real estate and I think the right leadership in place to run these stores. So it’s less of a top down approach, more of a bottoms up approach. And the philosophy here is just quality over quantity. So we think it’s the appropriate number. We feel really good about the hit rate and we’re seeing a much better hit rate already this year and even in the latter part of last year. In terms of next year, we’re not commenting on pace yet. But we do expect as we continue to have some momentum here and get profitable to continue to accelerate our store openings. So we think the TAM is secure and as we execute and continue to open up more new markets, we do think that we will step up our unit growth. Last thing I’ll say is as the Infinite Kitchen comes online, that will also allow us to accelerate growth. Thank you.

Okay. It does appear we do have another question from the line of Jon Tower from Citigroup. Please proceed.

Hey guys, thanks for taking the real Jon Tower – I just wanted to drill a little bit into the same-store sales, get a little bit more granularity on what’s – in comp, and I know urban, suburban, but maybe drilling down a [indiscernible] seeing a concentration of spend week relative to say the start of the week.

Hey Jon, I don’t know if that’s your line, but we are getting a lot of feedback here and it’s we’re on mute, so we can’t hear anything you’re saying.

Let’s try this. Can you see – hear me better now, maybe?

Yes. We can hear you better now.

Great. Awesome. Sorry about that. I was just asking into the weakness and comps that you’ve been seeing relative to say expectations and perhaps offering a little bit more granularity around if you’re still seeing that the shift as weekday spend more concentrated to seeing say prior to the pandemic where you’d seen a lot more of the business at the start of the week and then tail off as a week and went along, and then perhaps a little bit more texture as to when you start lapping a lot of those headwinds in 2023.

Hey, Jon, nice to hear from you. Let me just say what we are seeing as we kind of come to this phase post-pandemic is there clearly is a shift in the workday. Mondays are light and Fridays are very, very light. Tuesday, Wednesday and Thursday are beginning to look more like pre-pandemic days. The other big change that we’re seeing are holidays have become holiday weeks, and this has been extending on really started around the summer, but continuing on particularly in the urban stores.

Got it. And in terms of the loyalty program changes in launch, are there ways that you believe you can perhaps manipulate behavior to get people into stores Mondays, Fridays or do you think that’s kind of just lost business that likely won’t recover?

Yes, so good to hear from you. I – first of all, we’re excited about the loyalty program. As we mentioned, it began our piloting Colorado yesterday. And given the way the model’s been constructed, yes, it does give us some tools to move demand, and encourage demand on different days. Mondays I feel really encouraged about, I think Fridays become a new – and maybe the U.S. is entered a four-day work week, which I hope is not permanent. What I would say just generally about sales drivers I’m very excited about what we have cooking. I think we have a very good pipeline of things that will help us drive calm, first and foremost, our menu. We’ve really committed to a much more craveable menu and meeting customers where they are. So you’ll see some of the things coming this year and I think much more, but I think menus going to be a much bigger sales driver for us going forward as well as attachments. Attachments is something that historically Sweetgreen hasn’t had much outside the bowl, and you’ll see a lot more of that coming down the line. As you mentioned, Sweetpass is another one. Sweetpass, we don’t have a loyalty program in this environment, especially hugely valuable. Our pilot last year was really successful and I think the combination of a free loyalty program with personalized offers combined with a subscription. And I think what’s amazing about the subscription is we’re so uniquely positioned to make that work. We have a food that is healthy, that is naturally habitual and very high digital penetration, which gives us a lot of confidence in our Sweetpass loyalty program. On top of that, we got Catering and Outpost rolling through with continued strength there and lastly, a lot of the operational improvements that we laid out. So difficult macro environment for sure, but we feel really good about the things we can control both on driving sales and in terms of the cost discipline as we discussed. Thank you.

There are no more questions. Thank you, ladies and gentlemen. This does conclude today’s call. Thank you for your participation. You may now disconnect.