Why Sweetgreen Stock Tumbled Today

Shares of Sweetgreen (NYSE: SG) were taking another post-earnings dive after the fast-casual salad chain missed second-quarter estimates and cut its guidance for the year due to the impact of the cyclospora outbreak, though the company has not been directly affected by it.

As of 9:58 a.m. ET, the stock was down 13.2% on the news.

Image source: Sweetgreen.

Sweetgreen shrinks again

The fast-casual chain said same-store sales fell 6.2%, an improvement from the first quarter when they were down 12.8%, but that's still a substantial decline.

Revenue, boosted by new store openings, increased 3.8% to $192.7 million, which missed the consensus at $194.5 million.

Other key metrics were moving in the wrong direction as well. Restaurant-level profit margin fell from 18.9% to 13.1%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell from $6.4 million to a loss of $0.2 million.

On the bottom line, its generally accepted accounting (GAAP) loss per share expanded from $0.20 to $0.22, worse than the consensus at a loss of $0.12.

Despite the disappointing results, the trend in the quarter was positive. Same-store traffic was down just 2%, with the remaining decline due to price and sales mix, as the company rolled out wraps nationally in the quarter, which are cheaper than its bowls. Average transaction was also down due to discounting. It exited the quarter with flat same-store traffic in June.

"Our results are not where they need to be, but the progress we saw in the second quarter reinforces our confidence that the plan is working."

Cyclospora adds another challenge

As the improvement in traffic seems to indicate, Sweetgreen's performance was recovering, but the cyclospora outbreak, which began in mid-July, has turned customers off, even though Sweetgreen has not been directly affected by it and does not use iceberg lettuce, the implicated food item.

Management said, "The pace and timing of recovery remain uncertain," and said it lowered same-store sales by 600 basis points in July.

As a result, it cut its full-year same-store sales guidance to a decline of 7%-8% from a previous range of down 2%-4%. It also now expects an adjusted EBITDA loss of $23 milion-$27 million, compared to an earlier view of a profit of $1 million-$6 million.

The cyclospora setback is unfortunate, as the company seemed to be progressing before it. If investors can look past it, there still seems to be upside potential to the stock if it can return to positive comparable sales growth, though that will take time.

Jeremy Bowman has positions in Sweetgreen. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.