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↕ Name Return Period
Cheap Salad
↑ SG 185.9% 11.20.23 → 08.01.24

Sweetgreen's dramatic reduction in G&A expenses from 49% to 23% of revenue signals a successful pivot to profitability, with Q4 2023 earnings likely to confirm the company's first full year of positive EBITDA and unlock a revaluation from $10 to $15-30 per share. The company has systematically fixed the core issue that plagued DCF models—bloated corporate overhead—demonstrating newfound operating leverage through five consecutive quarters of improvement, making this a rare case where a money-losing growth story actually delivers on its promise to achieve sustainable profitability.

Thesis: Sweetgreen Inc. (NYSE: SG)

A key issue suppressing Sweetgreen’s valuation in DCF models has been its high G&A expenses, which have been a drag on overall profitability. However, this concern has been systematically addressed, with significant improvements demonstrated since the second quarter of 2023. This progress in managing corporate overhead is the most critical driver for a potential re-valuation of the stock.

The company’s focused effort to instill cost discipline as part of its strategic pivot to profitability is now evident in its financial results. This is shown in the consistent reduction of G&A as a percentage of revenue and the clear progression from significant losses to positive Adjusted EBITDA:

QuarterRevenueG&A ExpenseG&A as % of RevenueAdjusted EBITDA
Q3 2023$153 M$36 M23%$2.5 M
Q2 2023$153 M$40 M26%$3.3 M
Q1 2023$125 M$35 M28%($6.7 M)
Q4 2022$119 M$44 M37%($17.9 M)
Q3 2022$124 M$42 M34%($7.2 M)
Q2 2022$125 M$52 M41%($7.8 M)
Q1 2022$103 M$50 M49%($17.0 M)

This trend provides compelling evidence of newfound operating leverage and supports the view that the company's strategic pivot is succeeding. This financial discipline provides a credible foundation for a base-case valuation of $15 per share, with a best-case potential of $30 per share if the company executes perfectly on its initiatives.

Catalyst

The most significant near-term catalyst is the reporting of Q4 2023 earnings and full-year results. A positive Adjusted EBITDA result for the fourth quarter would solidify fiscal year 2023 as the company’s first-ever year of positive Adjusted EBITDA. This milestone would serve as powerful validation that the G&A expense issue has been controlled, signaling that the business model is capable of generating sustainable profit.

Risks

The risks to this outlook are directly tied to the company’s ability to maintain its recent performance:

  • A Reversal in G&A Discipline: A primary risk is that the recent reductions in G&A spending prove to be temporary. An increase in corporate overhead would undo the recent fix to the valuation model, suggesting that cost controls are not permanent.

  • Disappointing Q4 Results: The company has reported positive Adjusted EBITDA since the second quarter of 2023. However, a weak fourth quarter could cause the company to miss its goal of achieving full-year positive Adjusted EBITDA, which would delay a potential re-rating and reinforce investor concerns about the consistency of its earnings power.