William Blair Downgrades Sweetgreen Inc (SG) to Market Perform

William Blair analyst Sharon Zackfia downgraded Sweetgreen Inc (NYSE: SG) from Outperform to Market Perform.

The analyst comments "Lowering Rating to Market Perform on Murky Visibility on Timing of Turnaround. Sweetgreen’s third quarter missed expectations with adjusted EBITDA reverting into losses, as comps worsened sequentially on a one- and two-year basis for the third straight quarter with comps down 9.5% (-11.7% traffic/mix, 2.2% price) versus Street expectations for a 6% to 7% decline. Following modestly improved trends in July, comps stepped down about 200 basis points in August and another 200 basis points in September before stabilizing at a low-double-digit decline in October. As a result, implied fourth-quarter guidance is for an 11% to 14% comp decline (versus our/consensus estimates of -4% to -5%), translating to another sequential deterioration in both one- and two-year comps. The recipe of how to bolster trends continues to center on improved operations and accelerated menu innovation, although neither has yet manifested in better results. Compounding matters, sweetgreen is experiencing a pullback in 25- to 35-year-olds (down about 15% and representing about 30% of the brand’s consumer base) similar to other restaurants, further muddying the visibility on when a meaningful inflection in comps will occur. Not all is bad, as the company shored up liquidity with the announced sale of Spyce and we expect more SG&A cuts to buttress 2026 profits, but the sheer losses expected in the back half of this year give us pause, representing the steepest adjusted EBITDA losses since 2022 and essentially reverting the entirety of full-year adjusted EBITDA gains in 2024. The valuation of sweetgreen remains a compelling part of the investment thesis at an EV of less than one times our 2026 sales estimate, but we are now in the camp that investor skepticism will reign supreme pending an inflection back into sustainably positive comps, with little visibility on the timing of such a turnaround. As a result, we are lowering our rating to Market Perform. Key risks include geographic portability, a high concentration of locations in the New York metro area, and greater-than-average exposure to urban markets."

For an analyst ratings summary and ratings history on Sweetgreen Inc click here. For more ratings news on Sweetgreen Inc click here.

Shares of Sweetgreen Inc closed at $6.25 yesterday.

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