SG is toast
Sweetgreen (SG) 2Q22 GAAP EPS of -$0.36 in-line; Revenue of $124.9M (+44.9% Y/Y) misses by $5.3M.
SG is a SHORT
Unfortunately, SG never had a chance as a public company, but no salad bar company has been a successful public restaurant company. In the case of SG, the operating model (occupancy, labor model & G&A) prevents the company from being profitable. One of the biggest drag on profitability and dumbest moves we have seen in a long time was the company's plans to go all in on labor automation with the acquisition of Spyce. So it is not surprising the company also announced that it is laying off 5% of its workforce and moving to a small office to achieve profitability.
The chain now expects revenue ranging from $480M to $500M for the full year, down from the prior expectation of $515M to $535M. Also, the company updated its same-store sales forecast of between 13% and 19% and well below prior guidance of 20 to 26%. The company needs to put up 8-9% SSS in 2H22 to hit 16%, which still looks aggressive. Sweetgreen blames the "external environment" for its sales issues, saying the increase in summer travel, more COVID, slower return to the office, "erratic urban recovery," and slower ramp of 2021 stores." We are closer to the beginning of slowing sales, not the end.
We would look to cover the SHORT below $10 closer to $5.
SYY Misses
SYY is a SHORT - local case volume is below 2019 and slowing.
SYY eports Q4 EPS $1.15 ex-items beating FactSet $1.12 with revenue ahead of consensus on the upside in all segments. Food cost inflation +15.3%. Gross margin beat by +20bps and operating margin missed by (10bps). US Broadline Case volume: Local (7.8%); Total (2.1%). On a three-year basis vs. 2019, local case growth is down 1.5%.
- Food cost inflation is 15.3%.
- Gross margin 18.4% vs FS 18.2%.
- Adjusted operating margin 4.6% vs. FS 4.7%.
- Guides FY EPS $4.09-4.39 ex-items below at the midpoint vs FactSet $4.32.
Nobody is looking for deflation in 2023, but it is a real possibility. We see a 20% downside in the name.
PTLO CALL today
PTLO is a SHORT
Last October PTLO opened for trading at $26 per share after the IPO was priced at $20 per share; the stock traded as high as $57 and as low as $15
After the close, PTLO filed an S-1 on behalf of Berkshire to sell 8.0 million of the 36.7 million PTLO Class A shares that they own. Following the closing of this offering, funds managed by Berkshire are expected to own approximately 52.7% of the combined voting power of PTLO common stock. We are currently SHORT PTLO and will be hosting a FLASH call tomorrow, August 10th, @ 12:30 to review our SHORT thesis.
CALL DETAILS:
- Date & Time: Wednesday, August 10th @ 12:30 PM ET
- Webcast & Slides: CLICK HERE
- Add Call Details to Outlook Calendar: CLICK HERE
We think the stock can trade down to the $15 level again.
NEW EVENt - SHAK Black Book
SHAK is a SHORT
Next to SG, SHAK has some of the worst margins in the industry, and like SG, profitability is elusive. The company's focus on unit growth and not ROI is a long-term negative for shareholders. The pandemic has exposed several flaws in the business model that are difficult for the company to overcome. The SG news is a net negative for SHAK, and we will outline all of our current thoughts on Wednesday, August 17 @ 12:30 in an updated SHAK Black Book.
- Restaurants Subscribers CLICK HERE for event details (includes video and materials link)
- Consumables Pro Subscribers CLICK HERE for event details (includes video and materials link) ***Bonus Content***
