Sweetgreen's Expansion Falters as Same-Store Sales Slide and Costs Remain Elevated

What happened

Sweetgreen's aggressive growth strategy is facing headwinds, with declining same-store sales slowing overall revenue growth despite continued restaurant expansion. Automation efforts through Infinite Kitchen have not yet stemmed rising operating expenses, contributing to persistent consolidated losses. The company reported a Q3 FY2025 net loss of $36 million and a -21% operating margin, highlighting ongoing profitability challenges. External pressures, including California's $20 minimum wage and volatile commodity costs, exacerbate expense pressures and complicate margin improvements. Management's move to sell the Spyce business to Wonder aims to reduce development burdens but introduces execution risks around third-party automation supply and uptime.

Implication

Sweetgreen's persistent losses and declining same-store sales indicate that brand popularity alone is insufficient for durable shareholder returns without operational efficiency. The critical watch items are the execution of automation via Infinite Kitchen post-Spyce sale and any signs of sustained comp growth or margin leverage. Investors must assess quarterly reports for improvements in cash flow, automation deployment milestones, and expense control amid macro and competitive pressures. Failure to demonstrate progress could lead to further cash burn and potential dilution, warranting a downgrade to SELL. Conversely, evidence of profitability inflection or successful automation integration might support an upgrade, but current data suggests continued volatility and risk.

Thesis delta

The Motley Fool article confirms the DeepValue report's core concerns: same-store sales declines and unresolved expense pressures despite automation efforts. This reinforces the HOLD thesis, emphasizing that Sweetgreen's path to profitability remains execution-dependent, with no new positive catalysts to alter the near-term outlook.