Despite narrowing its net loss and increasing revenue in the third quarter, shares in Sweetgreen Inc. still went down after its financials were released.

The West Adams-based healthy food restaurant chain saw its stock price drop by 12% from its close on Nov. 2 of $11.07 and its close the following day of $9.73.

The stock price has since yo-yoed, going down and then starting to rise but as of Wednesday was still below its pre-Q3 numbers.

The share price closed at $9.55 on Nov. 22.

The company on Nov. 2 reported a net loss of $25 million (-22 cents a share) for the quarter ending Sept. 24, half the net loss of $51 million (-46 cents) in the same period of the previous year. Revenue increased by 24% from the third quarter of the prior year to $153 million.

The company attributed the spike in revenue to a jump in incremental revenue associated with 54 net new restaurant openings during or subsequent to the third quarter of last year through the end of the third quarter of this year.

‘Massive market opportunity’

Jonathan Neman, co-founder and chief executive of the company, said he was pleased with Sweetgreen’s third quarter results.

“We remain focused on driving long-term, profitable growth so that we can capture a massive market opportunity,” Neman said in a statement. “I could not be more excited about the future of Sweetgreen and the progress we are making to redefine fast food.”

In a conference call with analysts to discuss the third quarter earnings, Neman said that sometimes the progress in a business is not always visible to the outside world.

“And in many ways, off the back of Covid, we had to spend more time stabilizing our company than building it,” Neman said.

While waiting for the world to return,
albeit somewhat slower than the company would have liked, it spent time strengthening the foundation of the business, tackling costs and focusing on driving margin expansion, he added.

“There is, of course, always more to do, and we think you, our partners and shareholders will see the fruit of that work in the coming quarters,” Neman said. “While we still find ourselves in a complex and shifting environment, what I can say for certain, is that we are back on the offensive and believe the flow-through at the unit level will drive significant returns on capital in the years ahead.”

Brian Bittner, an analyst with Oppenheimer & Co Inc. in New York, in a research note from Nov. 3, maintained an outperform, or buy, rating on Sweetgreen’s stock.

“(Sweetgreen) delivered positive (earnings before interest, taxes, depreciation and amortization) for the second quarter in a row and reiterated its commitment to the be EBITDA positive for the full year (next year),” Bittner wrote in the report. “Management plans to begin rolling out automated Infinite Kitchens as part of its new unit growth strategy (next year), along with two to four retrofits of existing units.”

During the conference call, Bittner asked specifically about the Infinite Kitchen retrofits.

“Can you help us understand maybe the longer-term retrofit opportunity?,” he asked. “I know there’s a big opportunity in your new unit pipeline, but what are the main restrictions or maybe even perhaps opportunities as it relates to this dynamic on being able to insert Infinite Kitchens into existing legacy units?”

Neman responded by saying that the company does see a lot of restaurants that can eventually be retrofitted.

The technology can be modular in terms of layout where it can be either linear or square, or in terms of components to scale costs up or down depending on the average unit volume of the restaurant location the Infinite Kitchen has been installed in, Neman said.

“What’s interesting about the Infinite Kitchen is, the cost on the (technology) as we scale will go down,” Neman added. “As we start to see economies of scale, we’ll continue to scale down, and we’ve already started to see that.”