Yesterday, Sweetgreen’s announced plans to raise $300 million by offering 12.5 million shares at a price range of $23 to $25. At the midpoint of the proposed range, Sweetgreen would command a fully diluted EV of $2.6 Billion. Sweetgreen was founded in 2006 and generated $220.6 million in revenues in 2020, and we estimate $350 million and $460 million in revenues in 2021 and 2022, respectively. It plans to list on the NYSE under the symbol SG. The company has never been profitable and is very upfront about what the future looks like with the following risk factor: “We have incurred significant losses since inception. We expect our operating expenses to increase significantly in the foreseeable future, as we grow our business, increase our new restaurant openings, and invest into new technology, and we may not achieve profitability.”
They have been numerous restaurant companies to come public over the years that make a similar claim as SG: “we have been leading a movement to re-imagine fast food for a new era.” CMG is the only one that I can think of that has survived and is true to its mission and importantly is profitable. The S1 goes on to talk about a “powerful shift happening in consumer behavior” and “how people want to eat healthier food and care about the impact their choices have on the environment.” FYI – nothing new here. Time will tell to what degree the Sweetgreen brand can be “a category-defining food brand” of tomorrow, but I have my doubts and this seems closer to Fresh Choice which closed its last door in 2012.
If SHAK is a leading indicator, profitability is not a priority for growth restaurant investors, and Sweetgreen is one of the fastest-growing restaurant companies in the United States by revenue and un-profitable, so it might do well. As of September 26, 2021, the company operated 140 restaurants in 13 states and Washington, D.C., and employed over 5,000 team members.
According to the S1, “We have thoughtfully designed all of our restaurants to both reflect the culture and feel of our local communities and to support our multiple digital channels. For our fiscal year to date through September 26, 2021, 68% of our revenue came through our Total Digital Channels, with 47% of our revenue coming from our Owned Digital Channels (and the remaining 32% of our revenue attributable to Non-Digital transactions made through our In-Store Channel).
The digital elements are a net positive (consistent with our longs), but Spyce foods us an unknown. In September 2021, SG completed the acquisition of Spyce Food, a Boston-based restaurant company powered by automation technology. The S1 cites the purpose of the acquisition "is to serve our food with even better quality, consistency, and efficiency in our restaurants via automation. This investment has the potential to allow us to elevate our team member experience, provide a more consistent customer experience, and, over time, improve our capacity and throughput, which we believe will have a positive impact on Restaurant-Level Profit Margin." Is Spyce a RED FLAG or a net positive?
What we will focus on in the Black Book:
- Competitive moat with Technology via Spyce?
- The current operating model margins
- Unit Level economics
- Growth drivers
- Margin leverage
- Income statement/Balance Sheet/Cashflow
- Valuation
SG is expected to price on Wednesday, November 17, 2021.
