On Thursday, Goldman Sachs (NYSE:GS) initiated coverage on Sweetgreen Inc (NYSE: SG) shares, a fast-casual restaurant chain, with a Buy rating and a price target of $39.00. The new price target suggests a 16% potential upside from the company's recent stock performance. Sweetgreen, known for its healthful and locally-sourced bowls, salads, and plates, operates 227 stores in 20 states.
Goldman Sachs believes that Sweetgreen is well-positioned to benefit from the growing consumer trend towards health and wellness, particularly among the younger demographic.
The firm anticipates that Sweetgreen's strategic market expansion and continual product innovation, including the introduction of protein plates and caramelized garlic steak, will drive mid-single-digit same-store sales growth (SSSG).
The company's focus on expanding its total addressable market (TAM) is expected to result in a compound annual growth rate (CAGR) of 27% in restaurant-level profit over the next three years. Sweetgreen has also seen promising results from its two Infinite Kitchen (IK) systems introduced in 2023.
These automated store prototypes have demonstrated significantly higher margins, approximately 10 percentage points above the fleet average, as well as increased ticket sizes and throughput.
Management at Sweetgreen plans to accelerate the rollout of these automated store prototypes starting in the second half of 2024, which Goldman Sachs considers a key catalyst for the company's stock and earnings prospects. The investment firm's outlook reflects confidence in Sweetgreen's ability to sustain growth and profitability through innovation and market expansion.
In other recent news, Sweetgreen Incorporated reported a robust growth for the first quarter of 2024. The American fast-casual salad chain's Q1 sales reached $157.9 million, marking a 26% increase from the previous year, fueled by a 5% rise in same-store sales.
Notably, digital sales accounted for 59% of the total revenue. The company also expanded its restaurant-level margin to 18.1% and unveiled plans to accelerate its unit growth in the future.
In addition to the impressive financial results, Sweetgreen opened six new restaurants in Q1, including two in Seattle, and plans to open 23-27 new locations in 2024. The company has also updated its 2024 guidance, projecting revenue between $660 million and $675 million and same-store sales growth of 4-6%. Furthermore, Sweetgreen aims for a unit growth of 15% in 2025, accelerating to 20% in 2026.
Despite these positive developments, Sweetgreen reported a net loss of $26.1 million for the quarter, an improvement from a $33.7 million loss in the prior year. The company's focus on margin expansion, new market growth, and the Infinite Kitchen concept are among the recent highlights. These developments indicate a strong growth trajectory and strategic expansion for Sweetgreen.
InvestingPro Insights
As Sweetgreen Inc (NYSE: SG) garners a positive outlook from Goldman Sachs, real-time data from InvestingPro further illuminates the company's financial landscape. With a market capitalization of $3.84 billion, Sweetgreen is trading at a high revenue valuation multiple of 8.17 times its book value, showing the market's high expectations for its growth potential. The company's revenue has grown by 25.23% over the last twelve months as of Q1 2024, indicating a robust expansion trajectory that aligns with the anticipated CAGR discussed by Goldman Sachs.
Despite not being profitable in the last twelve months, with an adjusted P/E ratio of -38.45, Sweetgreen's strong return over the last three months of 58.68% and an impressive six-month price total return of 211.1% showcase investor confidence in the company’s strategic initiatives. An InvestingPro Tip highlights that Sweetgreen's liquid assets exceed its short-term obligations, which positions the company well for continued investment in growth opportunities such as the rollout of its Infinite Kitchen systems.
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