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This fast food restaurant operator with a focus on salads and bowls is trading sharply higher post-earnings for the third quarter in a row following its Q2 report last night. SG reported a larger than expected loss, but beat on revenue. SG also raised FY24 guidance for sales to $670-680 mln from $660-675 mln and for adjusted EBITDA to $16-19 mln from $10-19 mln.

• While SG reported a larger than expected loss, we think investors are focusing more on the huge jump in adjusted EBITDA to $12.4 mln vs $3.3 mln a year ago. Adjusted EBITDA margin increased to 7% vs 2% in the prior year period. The company is not yet profitable partly because it's building new locations at a good clip, but it is still good to see positive adjusted EBITDA.
• This adjusted EBITDA improvement was primarily driven by an increase in Restaurant-Level Profit, as well as a decrease in pre-opening and G&A expenses. Restaurant level margin for Q2 was 22.5%, expanding over 200 bps yr/yr, making this one of the highest restaurant level margin performances in the company's history.
• Another metric that really stood out was its Q2 comps at +9%, comprised of a +5% benefit from menu price and +4% positive traffic and mix. Also, SG raised its FY24 comp guidance to +5-7% from +4-6% prior guidance. SG says that Caramelized Garlic Steak, which launched in May and protein plates have been particularly successful at driving comps at dinner and on weekends. Dinner now represents 40% of sales, excluding the 2-4PM mid-day daypart.
• In terms of expansion, SG opened four new restaurants in Q2, including one in New Hampshire, a new market for Sweetgreen. The company says its 2024 cohort of new restaurant openings are ramping nicely and continue to have an average weekly revenue that already outpaces the existing fleet average. SG expects to add 24-26 new restaurants in 2024. It currently has 225 locations.

Overall, this was another impressive quarter for Sweetgreen. Investors appear to be reacting mostly to the impressive comps and the large increase in adjusted EBITDA. We also like that SG raised full year comps. Also, while other fast food chains are struggling with consumers focusing more on value and eating out less, Sweetgreen posted an enviable comp despite its premium pricing.

Sweetgreen generated a lot of excitement when it made its IPO debut in November 2021. The concept is pretty compelling as it's a play on consumers wanting to eat healthier while offering the convenience of a quick meal. Unfortunately, some poor earnings results sent the shares to a low of $6.10 by March 2023. However, the last three quarters have shown that the brand is turning around.