Sweetgreen reports Q3 sales decline of 9.5% as new leadership drives Sweet Growth Transformation plan and strategic Spice sale enhances liquidity.

Jill - Operator - (00:00:32)

Thank you for standing by. My name is Jill and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Incorporated third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I would now like to turn the call over to Rebecca Nunu, Head of Investor Relations. You may begin.

Rebecca Nunu - Head of Investor Relations - (00:01:03)

Thank you and good afternoon everyone. Speaking on today's call will be Jonathan Niemann, Co-Founder and Chief Executive Officer, and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q and 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 Spice 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 Spice 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.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:02:14)

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 the 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 index as we look to Q4 and beyond. Our new leadership team has taken the learnings from here and focused our actions around five key strategies to transform our business. We're calling it the Sweet Growth Transformation Plan. Our strategies are 1 Operational Excellence 2 Brand Relevance 3 Food Quality and menu innovation 4 Personalized Digital Experience and 5 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 SweetPath., a framework that helps every team member understand what running a great restaurant looks like. At sweetgreen, the sweetpath 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. It helps our team celebrate wins, spot 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 launch and ties progress directly to the scorecard. Early results are encouraging, showing improved peak hour throughput and building momentum toward 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 one third 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 two months, Zippora 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 one of our nine 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 two 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 the 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 right sized 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 check 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 S3 Rewards to create a platform for a more personalized experience powered by enhanced customer data. We just reached the six 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 eight restaurants including six Infinite Kitchens. 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 three new markets Sacramento, Cincinnati and Northwest Arkansas. Our Q4 openings include our first Sweet Lane, featuring the Infinite Kitchen and 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 two 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 Kitchens. 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 entered two to three 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 Spice, 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 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 and 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 and 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 Spice 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 Spice co founders Michael Farid Kael Rogers, Brady Knight and Luke Schluter 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 expressed 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 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 guests, 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 we'll turn over the call to Jamie to review our financial results in detail.

Jamie McConnell - Chief Financial Officer - (00:15:44)

Thank you, Jonathan and good afternoon everyone. As a longtime 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 six 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 six 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 Plus 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 ingredients 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 and continue in the near term. Additionally, the third quarter was impacted by a 1 times 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 many 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 four underperforming restaurants. This was partially offset by lower stock based compensation as IPO related grants continued 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 eight restaurants, six of which were Infinite Kitchens. We closed two restaurants during the quarter, Bleecker and After place, for a third quarter net in a row count of six, 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 sales Spice 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 Spice 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 a Spanish device 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 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 and negative $10 million. As John said, we plan to slow new unit growth next year to approximately 15 to 20 net new restaurants with about half featur Infinite Kitchen. We'll continue to evaluate opportunities to increase development as operating cash flow improves. To close I came to Sweet Green 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 and A operator.

OPERATOR - (00:22:53)

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And for today's session, we do request that you please limit yourself to one question. Your first question comes from the line of Brian Mullen of Piper Sandler. Your line is open.

Brian Mullen - Equity Analyst at Piper Sandler - (00:23:25)

Thank you. 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 we'd just love to get your thoughts on what you think needs to be done. Absolutely.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:23:55)

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 bowl drops. We saw, you know, 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, you know, 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 entryways 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 having no antibiotics ever. There's a much better job we can do around around really delivering on the value message that we are offering. Lastly, we've increased our protein portions by about 25% and we've been very relatively quiet on that. But starting next week we have a big campaign around the increased portioning around protein. 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.

Brian Mullen - Equity Analyst at Piper Sandler - (00:25:41)

Thank you.

John Tower - Equity Analyst at Citi - (00:25:42)

Your next question comes from line of. John Tower of Citi. Your line is open. Great. Thanks for taking the question. 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 in 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? You know, are lunch or dinner getting hit more so than other day parts and how people are spending at your stores relative to the past?

Jamie McConnell - Chief Financial Officer - (00:26:45)

Hi, John. Yeah, 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 LA 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.

John Tower - Equity Analyst at Citi - (00:27:41)

Okay, thank you. 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 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?

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:28:02)

Yeah, John, 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 reduce 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 the around IK going forward, forward, it will continue to be a huge part of our business as 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, you know, 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 costs around delivery, install and service. So, you know, 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, without the financial burden that it was causing. Got it.

John Tower - Equity Analyst at Citi - (00:29:09)

Thank you.

Andrew Charles - Equity Analyst at TD Cowan - (00:29:11)

Your next question comes in line of Andrew Charles of TD Cowan. Your line is open. Great, thanks. 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 my real question, 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 . You're going to figure out more on. The operations side, but what were the key unlocks you did, you know, in this planning phase to get it to the market test?

Jamie McConnell - Chief Financial Officer - (00:29:45)

I'll start with the net 15 store openings. So we've identified two 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 two, but net 15 is our number.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:30:05)

And on the unlocks, you know, I think we've tested this with consumers. We know, we know we have a really, you know, 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, you know, 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 day parts and really be a big acquisition driver for us. So it's something that we've, 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.

Andrew Charles - Equity Analyst at TD Cowan - (00:31:00)

Thank you.

Rahul Crow - Equity Analyst at JP Morgan - (00:31:02)

Your next question comes from the line of Rahul Crow of JP Morgan. Your line is open. Good evening guys. Firstly, kudos on making the changes to the protein portion increases, Jonathan. They are quite visible and consistently hitting the 100 gram scoop. Happy to see that being executed. Well, the question is on the net cash proceeds after any tax components associated with the spice sale, given the cost basis and factoring in stock in the initial purchase price of spice, can you give us a detail on the actual cash that would be realized on the balance sheet? And also does it impact the future Infinite Kitchen Model 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, a huge benefit to us because today, you know, at our scale there's only so many, you know, so much economies of scales we can achieve with the machine at a cost plus model, you know, 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 and D and innovation of potentially cheaper and more effective automation units. And so overall a win, win in that scenario.

Jamie McConnell - Chief Financial Officer - (00:32:45)

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.

Rahul Crow - Equity Analyst at JP Morgan - (00:33:03)

Thank you.

Sarah Senator - (00:33:06)

Your next question comes from the line of Sarah, Senator of Bank of America. Your line is open. Oh, thank you Jonathan. I just, I guess one, one confirmation or clarification and then, 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, you know, you know, 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, you know, if you kind of control for sort of suburban or urban mix.

Jamie McConnell - Chief Financial Officer - (00:33:45)

Yeah. Hi, Sarah. 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.

Sarah Senator - (00:33:57)

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

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:34:34)

Yeah, absolutely. So, you know, when we, when we bought, when we bought Spice originally, there was no automation, you know, automation platform that we could have, you know, we could have bought from there. And so we took what was a nascent idea, really a prototype and a couple 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, you know, this year, over half of the new NROs. again next year. And 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, you know, it not only provides cash and lowers our G&A, and in this critical moment, it allows us to focus on our business. And we believe over time it'll actually bring the unit cost of the technology down so we can actually, we can put it in more and more restaurants.

Sarah Senator - (00:35:30)

Thank you.

Logan Reich - Equity Analyst at RBC Capital Markets - (00:35:32)

Your next question comes from the line of Logan Reich of RBC Capital Markets. Your line is open. Hey, good. Good afternoon.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:35:40)

Thanks for taking my question. I just had one on the unit growth guidance for next year and in 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, you know, same store sales gets back to growth and you guys feel comfortable about the operations, you know, curious if there's any flexibility in the pipeline to maybe scale that number up a little bit higher for next year? Yeah, absolutely, there is. You know, 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, you know, 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 re acceleration into 2027, not all the way to the, you know, 15% unit growth but do expect some reasonable step up from the 20ish stores in 26 into 27. So if, if we are able to, you know, in select comp and feel really good about, you know, our overall operations and how we're delivering on the experience, we do have the potential to slightly increase next year's unit count.

Brian harbor - (00:37:13)

Your next question comes from the line of Brian harbor of Morgan Stanley. Your line is open.

Kelly Merrill - (00:37:18)

Hi, thank you. This is Kelly Merrill on for Brian. 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 sustained throughout the quarter or if you're seeing anything different now.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:37:36)

Yeah, we've been generally pleased with loyalty. You know, we just hit our six month mark. We are seeing continued activations at almost 20,000 per 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 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, you know, in this kind of cost conscious environment for consumers is lean a bit more uncertain kind of breakthrough promos to drive acquisition. So you'll see us trying and testing a bunch more 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 six months we expect that to be more of a comp driver for us, especially as some of the overhang from the CPAs plus 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 and loyalty in CRM. And again we see a lot of opportunity to kind of leverage that digital flywheel.

Jeff Bernstein - (00:38:53)

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

Anisha - (00:39:00)

Hi, this is Anisha on for Jeff. With only 1/4 remaining in the year.

Jamie McConnell - Chief Financial Officer - (00:39:05)

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 140basis points 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 pulled at about 50 basis points. Thank you.

Teddy Farley - Equity Analyst at Goldman Sachs - (00:39:48)

Your next question comes from Teddy Farley of Goldman Sachs. Your line is open. Thanks for taking the question. One more on the loyalty program for me is the pricing and menu architecture review inclusive review of the rewards redemption. Stack for SD rewards, just kind of.

Jonathan Niemann - Co-Founder and Chief Executive Officer - (00:40:06)

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. Thanks. Yes, absolutely. It's a really good point. You know, 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, we are evaluating all of it including the potential for tiers and other benefits for members. So, you know, the loyalty, 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. You know, 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 six to 12 months to continue to drive that digital flywheel.

OPERATOR - (00:41:16)

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