SHORT casual Dining
We remain short labor-intensive casual Dining, and those names were a little skittish on Friday after rising cases. Hospitalization counts in some sections of the U.S. are in focus. Unvaccinated patients account for between 75% to 90% of the new hospitalizations depending upon the state. Restaurant traffic, in general, has been reported to be strong per Black Box, but comparisons get very difficult in March 2022.
UNPROFITABLE HYPE
SG is a BEST Ideal SHORT
Sweetgreen (SG) eased 4% Friday, giving back some of the massive 76.8% rallies following its IPO. SG's early success as a public company with an upsized IPO priced well above its expected $23-$25/share range, then shares rallied more than 100% intraday on Thursday. The chain operates 140 U.S. restaurants that serve a health-conscious menu of salads with names like "Shroomami" and "Veggie Caesar," but has never turned a profit. The S1 cites Tennis star Naomi Osaka as a celebrity investor and pitchwoman, while SG had pre-IPO backing from AOL co-founder Steve Case's firm Revolution Growth. The stock will likely be significantly lower in 3-6 months after the initial hype has died down, and the lock-up has expired. SG is the latest example that the market will pay almost any price for the good growth story, especially in restaurants, but this one lacks staying power. It was my understanding even the underwriters were saying that SG might not be profitable until 2025. In the past decade, only one other restaurant has gone public with negative EBITDA, Luckin Coffee, which wasn't pleasant. We have a detailed pre-IPO deck that goes thru the core of the short thesis. The company is looking at posting negative same-store sales of 20-30% in early 2Q22 and will remain negative for the year's balance. How will the multiple hold up in that environment?
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