Sweetgreen, Inc. Q4 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Inc., Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. It is now my pleasure to turn today's call over to Mr. Rebecca Nounou. Please go ahead.

Thank you and good afternoon everyone. Here with me today are Jonathan Neman, Co-Founder and CEO; and Mitch Reback, CFO. Before we begin, we have a couple of reminders. We issued our earnings press release for the fiscal quarter ended December 26, 2021 after the market closed today, and we will file our Form 10-K for the fiscal year ended December 26, 2021 in the upcoming days. These documents are available and will be made available on our Investor Relations website. During this call, we will be making comments of our forward-looking nature, including statements regarding our financial outlook for the first quarter, and for the full fiscal year 2022. Our expectations regarding financial and business trends, our growth strategy and business aspirations, and our expectations regarding the impact of the COVID-19 pandemic on our business, each as more fully described in our earnings release. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information of these risks, please review the Company's SEC filings, including the section titled risk factors in the prospectus filed by the Company in connection with its initial public offering and our upcoming form 10-K. These forward-looking statements are based on management's current business and market expectations. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these items to the nearest U.S. GAAP measure can be found in this afternoon's press release, which is available on our Investor Relations website. With that, it's my pleasure to turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and good afternoon, everyone. We're excited to be with you here today as we begin our journey as a public company. We can quickly start this Sweetgreen call by sharing what we call a moment of gratitude. I'd like to do that here and offer my thanks to our team members as well as our network of more than 200 sustainable farmers and suppliers, who partner with us every day to power the ambition of building healthier communities by connecting people to real food. Their passion and purpose have been instrumental in helping us deliver a strong financial performance in our first quarter as a public company. 2021 was a record year for Sweetgreen with revenue of $340 million, an increase of 54% from fiscal year 2020. Our performance demonstrates the strength of our business, and we believe we are well positioned to create long-term sustainable shareholder value. Given this is our first earnings call, I'll begin with our long-term vision. When Nicolas, Nathaniel, and I opened the first Sweetgreen restaurant in 2007, we were three college students who were simply looking for a healthier way to eat. We saw an opportunity to create a business where quality would never sacrifice for convenience. Throughout our journey, we remain committed to this long-term vision to redefine fast food globally. Our goal is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect. We believe we are well positioned to be the category-defining food brand of our generation. We sit at the intersection of powerful consumer trends—a greater focus on health and wellness, a connection to purpose-driven brands, and a rapid adoption of digital connectivity. Studies show that nearly two-thirds of Americans want to eat healthier and nearly half of all Americans are planning to incorporate more plant-based foods into their diets. Sweetgreen is poised to benefit from this shift. Our food ethos is rooted in food that is delicious, nutrient-dense, and sustainable. We serve a healthy, craveable, customizable menu that features fresh vegetables, whole grains, and lean proteins that can accommodate any flavor profile for dietary preferences. Our food ethos gives us the license to expand our offerings beyond fresh bowls, including warmer hard-to-plate sizes to grow our day parts and basket size. Over the next few years, we will invest in executing our mission at scale through four strategic pillars. First is to expand and evolve our footprint in new and existing markets. The second is to enhance our digital experience with a focus on our own digital relationships. Third is to solidify our brand as the industry leader. And the fourth is to obsess over the team member experience. Here's how we believe each of these pillars will be critical to continuing our competitive advantage. Rapidly changing and evolving our footprint will allow us to connect more communities to real food. We have a proven portable restaurant model and brand that resonates across geographies. In 2021, we successfully opened 31 new restaurants and entered two new markets, Atlanta and Dallas. We ended fiscal year 2021 with 150 Sweetgreen locations. While we're still in the early stages of our growth journey, we believe Sweetgreen has tremendous whitespace. Since fiscal year 2014, we have increased our footprint by more than five times and are on track to double in the next three to five years. We see a clear runway for 1,000 restaurants by the end of the decade. In 2022, we anticipate opening at least 35 new Sweetgreen locations in two to three new markets as well as in existing markets to densify our footprint. Year-to-date, we have opened six restaurants in one new market, San Diego. As part of expanding our footprint, we are exploring new restaurant formats to enhance new leases. We also enable convenience through our digital ecosystem, which allows us to add new customer channels, increase frequency, and additional restaurant volume. At the center of this ecosystem is our award-winning app. Early in our history, we realized that digital connection was essential to deepening our customer relationships. We were a pioneer with the introduction of digital pickup in 2013 and launched our B2B delivery model in 2018. We were an early mover in developing our own native delivery experience in 2020 alongside marketplace delivery. Whether our customers visit their local Sweetgreen, want a fresh meal delivered to their homes, or grab lunch on their office shelves at work, they can get their personalized order in a convenient, frictionless way wherever they are. We consider ourselves an industry leader in the shift to digital. Digital sales represent 67% of our fiscal year 2021 total revenue. Two-thirds of those digital sales came through our own manual channels, our app and website, which provide us with the most seamless and personalized ordering experience for our customers. Our high percentage of own digital revenue contribution has several strategic advantages. These include greater order frequency, larger average order value, and access to data to better understand consumer preferences and behavior. We have a clearly defined strategy to drive owned digital acquisition, make our app the best way to order Sweetgreen, offer the best value in the app, and enable exclusive experiences, including our seasonal menu, personalized promotions, curated collections, and chef and influencer collaborations. As an example, today, you can only find eSports gamer and Sweetgreen customer Valor's custom bowl on their own digital channels. Next season, you can only order our delicious hot honey chicken plate on the Sweetgreen app. The mutation is a key advantage as our healthy customizable menu offering and digitally frictionless experience offers the potential for increased occasions versus traditional fast food. We are just at the beginning of our journey to create tailored promotions and loyalty programs to drive incremental customer frequency and improve customer spending. In January, we piloted Sweetpass, a limited-time offer subscription. We exceeded our pilot expectations across all customer cohorts, particularly with new and last customers, and look forward to sharing more takeaways on our Q1 earning call. As a first mover in the industry, we are always looking for new and creative ways to engage with our guests and are excited to continue to test and learn how we can offer flexible options that fit their lifestyles, including digital challenges, personalized offers, and membership options. Our delivery business continues impressive growth as well. To enable a better delivery experience for our customers, we transitioned in November to DoorDash as our primary courier partner for delivery orders made via the Sweetgreen app. It was a smooth transition that resulted in improved per delivery rates for Sweetgreen and faster delivery times for our customers, leading to higher customer satisfaction within our own delivery channel. Additionally, we are testing expanded delivery radii to reach more customers than our marketplace channel. Our brand is designed to inspire consumers to live healthier lives without compromising their values. This allows Sweetgreen to lead conversations on the importance of what we eat and the impact it has on the environment. From our music festival Sweetlife in 2011 through our collaborations with like-minded partners such as David Chang, Malcolm Livingston, and others over the past 15 years, we have maintained our relevance by incorporating lifestyle, music, and social impact into our mission-driven brand. Our goal is to connect food and culture to help redefine what the fast-food industry will look like in the years to come. Enabling all these strategies is our ability to operate great restaurants, and that starts with people. Our team members are our most important ingredient, and we will continue to be a leading brand because of that. Happy team members lead to happy customers. We nurture this in several ways, including investing in our talent, continuously simplifying our operations, and investing in tools to optimize execution. Our almost 5,000 team members join Sweetgreen to be part of a fast-paced, mission-driven company with significant growth opportunities. We obsess over their experience, fostering the development of lifelong skills, and helping advance their careers. In as few as three years, team members can become a head coach—our version of a restaurant GM—and earn a six-figure package, including equity in Sweetgreen. In October 2021, Sweetgreen was ranked number 18 on Newsweek's top 100 most loved workplaces. The investments we make in our people return tangible benefits, including a better customer experience and improved restaurant operations. Additionally, we have invested in technology to empower our people. Our team members bring our food ethos to life by freshly preparing our ingredients in each of our restaurants daily. To optimize for food safety, execution, and efficiency, we have simplified our menu and digitized processes to help manage daily inventory to ensure freshness, guide recipe preparation and cooking times, as well as increase accuracy and speed of service. We believe that these strategic pillars fuel our flywheel for growth and profitability. Our brand resonance combined with the massive total addressable market, menu designed for habituation, digital channels designed to increase customer frequency, and restaurant productivity with a highly passionate team make for a very valuable and scalable model. I want to end by again thanking our team members for working tirelessly to help us deliver our mission of building healthier communities by connecting people to real food. They are the most important ingredient and our key to long-term success. Now, I hand it over to Mitch to review our Q4 financial results.

Thank you all for joining us today. I'm excited to be here with you for our first earnings call. The IPO in November marked a major milestone for Sweetgreen as we enter our next growth phase. I want to begin by thanking the financial community and our investors for their support. We are well capitalized to execute on our long-term strategic priorities. We're happy to report strong fourth quarter results even with the continuing impact of COVID-19. Total revenue in the fourth quarter reached $96.4 million, up from $59.2 million in the fourth quarter of 2020, growing 63% year-over-year. This growth is primarily driven by same-store sales growth of 36%, of which our transactions and mix was 32% at a price increase of just under 4%. For the fourth quarter, our digital mix was 65% of total revenue and our own digital revenue—that is, transactions made on the Sweetgreen app or website—was 43% of revenue. With every home digital purchase, we understand who our customer is, when and where they visit us. We are able to leverage data for personalized marketing, resulting in higher customer frequency and higher average order value. Our digital revenue as a percentage of total revenue fell slightly given the positive growth of our front-line channel, which remains healthy for our overall business. As our industry volume has continued to recover from COVID in 2021, we are very pleased with the stickiness of our delivery business. During the fourth quarter, we opened 10 new restaurants, up from four in the fourth quarter of 2020. This is our year-end call, and we wanted to reflect on how the class of 2021 performed. In total, we opened 31 restaurants in 2021, 13 of which are urban and 18 are suburban and residential. We opened in the following new markets: Atlanta with three restaurants and Dallas with one. We are currently projecting that, as a group, the class of 2021 new restaurant openings will at least achieve our year-two revenue targets for new stores of between $2.8 million and $3 million. Our average unit volumes grew to $2.6 million from $2.2 million in 2020. Restaurant-level margins for the fourth quarter were 13%, rebounding from a negative 4% in 2020. The margin improvement was largely the result of sales leverage, the impact of our price increase, and the elimination of our loyalty program. These factors led to an improvement across all major line items: food and beverage, labor, occupancy, and other costs. A reconciliation of restaurant-level margins to comparable GAAP figures can be found in the earnings release. Food and beverage and packaging costs were 28% of revenue, an improvement of 170 basis points from 2020. We did experience some inflationary pressure on commodities which were more than offset by improvements in packaging costs. We anticipate some inflationary pressures in 2022, particularly coming from freight expenses. At this time, we believe that as a percentage of sales, our food and beverage and packaging costs for 2022 will be aligned with those of 2021. Labor-related costs were 32% of revenue, an improvement of 560 basis points from 2020. This margin improvement resulted from reducing the complexity of our menu and simplifying our labor scheduling, though some of these gains have been invested into higher wages. At this point in time, for 2022, we believe labor-related costs as a percentage of revenue will be in line with those of 2021. Occupancy and related expenses are 15% of revenue, an improvement of 460 basis points. This improvement is the result of sales leverage from higher volumes. Our G&A expense for the quarter was $47 million or 48% of sales compared to $27 million or 46% of sales in 2020. This $20 million increase in G&A is primarily attributable to a $21.5 million increase in stock-based compensation expense and $300,000 of non-recurring Spice acquisition costs. Excluding the stock-based compensation and Spice acquisition costs, G&A for the quarter was $24 million compared to $26 million in 2020. This decrease in G&A was largely the result of lower costs associated with one-time COVID expenses, offset by higher public company costs. Over the past several years, we have made significant investments in G&A excluding stock-based compensation, primarily in technology and our people. We believe that we will continue to experience meaningful sales leverage in G&A, excluding stock-based compensation moving forward. For 2022, we anticipate stock compensation will be around $82 million. Our net loss for the quarter was $66 million, up from $41 million in 2020. The increase was attributable to a $22 million increase in stock-based compensation. There was also a $17 million increase in other expenses, of which $13 million is due to a one-time non-cash adjustment related to the change in the fair value of our warrants issued prior to the IPO. As the warrants converted to common stock at the IPO, there will be no further adjustments related to the warrant valuation. Additionally, in the quarter, we incurred $4 million of non-cash expense related to the increase in the fair value of our contingent consideration issued as part of the Spice transaction. Adjusted EBITDA for the quarter was a loss of $14 million, an improvement from the 2020 loss of $29 million. This improvement is a result of higher sales, improved restaurant-level margins, and lower adjusted G&A. For reconciliation of adjusted EBITDA to the comparable GAAP figures, please refer to our earnings release. Now looking forward to 2022. Given Sweetgreen is a long-term focus company, we plan to issue only annual guidance. However, given the timing of this earnings report in relationship to the quarter round, we are issuing a one-time quarterly guidance for the first quarter of fiscal year 2022. Like most businesses during the beginning of the quarter, we saw significant impact from Omicron. The impact was broadly felt across many areas including lower demand, reduced staffing, and in some cases leading to limited operating hours and reduced line capacity. Additionally, adverse weather on the East Coast impacted sales. By mid-February, these impacts dissipated, and we returned to our pre-Omicron growth trajectory. Taking all this into account, we believe in the first quarter we will deliver seven new restaurant openings. We expect revenue ranging from $100 million to $102 million, same-store sales growth between 30% and 33%, restaurant level margins between 10% and 11%, and adjusted EBITDA loss ranging from $20 million to a loss of $18 million. For fiscal year 2022, we anticipate the following, assuming no additional COVID-19 headwinds; at least 35 new restaurant openings, revenue ranging from $515 million to $535 million, same-store sales growth between 20% and 26%, restaurant-level margins between 16% and 17%, and adjusted EBITDA ranging from a loss of $14 million to a loss of $33 million. In closing, we are very pleased with our 2021 results. We are confident about how Sweetgreen is positioned and our ability to scale our mission of connecting people to real food. We have built a great brand, a solid infrastructure across our people, supply chain, and technology that we believe positions us to profitably grow our business and create shareholder value. I want to end by extending my gratitude to our team members in the restaurant and support center who worked tirelessly during these challenging times in 2021 to make it a successful year.

Your first question comes from Jared Garber with Goldman Sachs. You may go ahead.

Hi. Thanks for taking the question and congrats on a strong quarter specifically related to some of the Omicron headwinds. I wanted to get a sense, Mitch, you guided to basically in line unit growth next year in 2022. I think the fourth quarter came in just slightly ahead of where you were expecting a couple months ago. Can you talk about some of the headwinds that you are seeing or laps there off in terms of supply chains opening those new restaurants? We have obviously heard a lot about labor and staffing challenges as it relates to opening. So, just want to get a sense of your comfort and confidence in that number for '22? Thanks.

Jared, it's Jonathan. So as you noted, we've definitely seen some challenges related to new openings from a construction and labor perspective. But having said that, we feel very confident in the guidance of at least 35 new stores. So I want to give a huge hats off to our real estate and development teams for really building a healthy pipeline of iconic locations. For us, it's about optionality. As we've opened more and more markets, we have more places where we can continue to grow the brand. I think there's been a bit of a shift in how we've been received in new markets, not just from a customer perspective, but from a landlord and community perspective. So we're starting to see better real estate, which creates a flywheel for us. Despite the challenges around supply chain and labor from a construction perspective, we feel really confident in the at least 35 new stores for the year.

Your next question is from John Van Hout with JP Morgan. Your line is open.

Hi. Thank you. How are you guys? In the prepared remarks, I mean, I think I heard labor being flat '22 versus '21, and I wanted to dive into that a little bit. I think your guidance assumes some pretty significant average unit volume increases '22 versus '21. So, labor leverage might be expected in such an average unit volume increase. So, are there any significant changes that are happening beneath the surface in terms of the employees that you're attracting? What are you doing on the retention side? Please comment on your turnover numbers, if you can, both at the hourly and the manager level, or if you're beginning to change your human resource practices in some way that might be leading to higher labor costs, at least as a percentage of sales than what the top-line would otherwise suggest?

So, as you see across the industry, labor has definitely been challenged due to the pandemic and a lot of the impacts we saw there, as well as a lot of the wage inflation. So, we're not immune to that and I'll let Mitch talk a little bit about those inflationary pressures, the price offset that we've had. To your point, there's definitely a lot of sales leverage there. Having said that, the recovery that we are expecting is not significantly more than the recovery already seen; we are looking just to return to pre-Omicron recovery levels. But we'll be doing some more recovery to hit our numbers. From a people perspective, we've done a lot. Last year, we've made a few important moves to set us up. One was what we call simplification around our store structures. So, we went from about 25 different job codes inside of our restaurant in Q4. In doing so, we cross-trained all of our team members. This has created a much more resilient labor pool, where team members have been cross-trained and can work across different positions. What this does is help us as we flex up and down. Beyond that, we've made a number of investments in our team members, including holiday pay, raising average wages, introducing a retention grant at the end of last year, and investing in equity for our team members. Last year, right before the IPO, we did what we call a gratitude grant for every single team member working at Sweetgreen. We have this principle at Sweetgreen of acting like an owner. It was a really proud moment to actually make every team member an owner. Our goal is not just on the compensation side, but on the environment side and making Sweetgreen a great place to work. One of the things that really sets us apart from the industry is the opportunity around growth and development. We are in the very early stages around 156 restaurants, and we've developed a clear path to the head coach, which is our GM from a team member. You can join Sweetgreen and within three years, go from a team member to a head coach, making a $100,000-plus package. So, a lot of things going on about how we develop our team members and we really support them.

Hi, John. Let me just add a little bit of the data to answer your question. When we took the 6% price increase in the beginning of the year, we were envisioning approximately a 7% inflation factor in 2022. And as a result of that, we held our labor as a percent of revenue to 32% of sales for 2022, in line with 2021. In short, a slightly higher wage pressure will offset any gains from the leverage we received at the higher average unit volumes.

I don't know if you want to do it once a year or if you are prepared to do it once a quarter. Can you talk about the turnover numbers that you have at the staff and head coach level just kind of where that's trending in? If you got caught up in any of the kind of great resignation, if you will, that is just the overall industry has seen over the past six months?

Hi, John. I can tell you a few things. There was definitely a spike last year due to a few things: one Omicron and a lot of the great resignation pressures that the whole industry saw. Adding to that, a lot of the vaccine mandates that we had in place forced us to make some changes to our team. Having said all that, we've seen our turnover stabilize and are seeing our average tenure increase. Today, our average tenure for our head coach is 2.5 years and our average team member tenure is one year. We're seeing definitely some pressure in the first 90 days, but as team members make it past 90 days, we're seeing a lot of stickiness. I think that says a lot about the growth opportunities we offer for our team members and the environment, culture, and lifelong skills that we're providing for them. So again, I'd like to give a hats off to our store leaders and our field leadership team, as well as our people team for some really amazing work in a really challenging environment.

John, one thing I'll build on that is that as we saw pressures building into the fourth quarter, we put in place a retention bonus program, which ran through December and January to really hold the labor in place, as we saw a lot of disruption in the labor market. That program was successful and what we've seen recently is really an improvement in the flow of applicants as the labor market.

Next question comes from a line of John Glass with Morgan Stanley. Your line is open.

First, can you comment on the recovery guide sort of urban versus suburban markets, with the comp led by recovering urban? Maybe you can comment on the Manhattan units, for example, and how other suburban markets recovered. Just getting a sense of what's driving the sales and how those different cohorts are performing?

Hi, John. Let me say, in terms of the suburban and urban splits of the business, we don't disclose specific numbers around them. But we found that the fourth quarter was the fastest growing piece of our business was the urban segment, specifically the midtown Manhattan market, where we saw very rapid recovery. We were very pleased with that. The urban stores, certainly, if you compare to 2019, are fully recovered to those levels that we saw in 2019.

Yes. If I can just build on that, what gives us some confidence here is that we made a lot of moves during the pandemic, specifically around our digital channels and building our delivery channels. When you take the growth of that channel and look at the actual recovery, one metric we closely watch is the office recovery data. Today, nationally, it is about 36% recovered, with New York around 30%. We're not expecting that from anywhere near 100%, but it does need to. So, we feel good about the urban recovery we need is there for us.

That's very helpful. Can you just talk about the innovations that you're most excited about in '22? You mentioned subscription and you may want to talk about that later. But is that a key part of the '22 plan? What parts of menu innovation are important to '22? Are you thinking about bringing beverages back online or more beverages? What are you doing in front of our guests to drive sales, and what would you rank as the most important in '22 aside from just recovery from COVID?

Yes, great question. There are a number of things that we're working on. You touched on loyalty. Sweetpass, which we ran in January, was something we called Sweetpass—a membership test for us. Essentially, the way it works is: If you spent $10, you got $3 off every day for 30 days. The results really exceeded our expectations across all cohorts, especially with new and last customers and low-frequency customers. So, it gave us a lot of interesting data and things for us to consider as we look forward and test our way to what a future loyalty could be for us. Beyond that, driving our digital sales is a huge opportunity. In the prepared remarks, you heard us talk about delivery and our move towards DoorDash. Through the optimizations around that channel, we are offering much better quality of service: faster delivery time, more on-time rates, and better economics for us and our customers. We're beginning to test larger delivery radii. So that's another channel that we are continuing to push on. Another place where we are continuing to focus is around personalized promotions. We've done some really interesting work around this idea of personalized promotion. So giving you the right offer at the right time, whether that be by channel, day part, or menu. We have some cool things coming out throughout the year, and it's a constant test and iterate approach. The data that we have, with high digital penetration, allows us to flex that muscle. From a menu perspective, we're constantly optimizing and innovating. I break that up into three categories: constant optimization of the menu, the first being a focus on enhancing our core offerings. We've had success with our new hot honey chicken plate, and we plan to continue to push on pertinent foodays. The second is around attachments; we had a lot of success with some of our new beverage programs and sides that we’ve been testing, so expect more news there in the coming quarters. And the third is around new menu innovation. Within new menu innovation, how can we push our core menu to acquire new customers? We will continue to push on harder food, specifically within our plate offerings. We have digital exclusives in our menu, so you'll see a number of items exclusive to our digital channel. It's a disciplined approach to creating newness for our guests without adding additional complexity for our team members. Lastly, running great restaurants is crucial. Great leadership and operating a great restaurant drive loyalty and increase AUVs. We're focused on developing great leaders, retaining talent, and providing excellent customer experiences, which we believe will also drive sales.

Next question comes from the line of Andrew Charles with Cowen. Your line is open.

Great. Thanks. John, that was a great segue into my question. You guys called out the stickiness of digital sales. The front line has reopened. I know it kicked down a bit but was sticky. Where do you envision the long-term digital mix settling out? You want to imagine that you'd love to get it as high as you could. But what do you think is a realistic level? Just even proactive efforts do you have in place to build this via digital-only innovation and initiatives like Sweetpass that we will see in the future?

Yes. So maybe what I would say, Andrew, and good to hear from you, is that for us, the frontline coming back at our digital world is a good thing. Our restaurants are some of our best customer acquisition vehicles. We have clear strategies for moving frontline customers onto digital channels. Once we take frontline customers and move them to digital, they're coming at least 1.5 times more frequently and spending 20% more per transaction. Once we move them to two-channel customers, they come 2.5 times more. So, we're creating a healthy ecosystem of having our customers discover us on the front line before moving them to digital. Over time, we're going to continue to lean into our digital strengths. Today, we offer digital exclusives on our menu, and our deliveries are cheaper on our app. It's a more affordable option for our customers. We're going to continue to invest in better experiences to make Sweetgreen the best place to order through digital channels. We’re not too worried about the slight decrease at this point as it indicates an overall improvement for the business.

I appreciate the detail on labor inflation that's expected to be 7% in 2022. You called out just one terms of COGS and your expectations. What is the underlying level of COGS inflation embedded in 2022 guidance? And your comments specifically on avocados and just recent events there that have led to heightened relations versus your prior expectations? So, switching back in 2021, we saw approximately 3% inflation in food and beverage. Looking out to 2022, we see approximately a 6% inflation rate, which has been offset with the price increase. We are fortunate that we don't source and other items that have faced much rapid inflation. Most of our sources are local and organic, providing some degree of insulation from recent cost pressures. You specifically mentioned avocados; we do see some pressure on avocados at the beginning of this year, but with a great supply group, we actually see this reversing towards the back half of the year.

If I can just add one note on that: I think the fact that we do not serve this in our restaurant is a huge advantage. For us, we do it more from a food ethos perspective and a sustainability perspective, and while there's been pressure on these prices, we are insulated from that.

Your next question comes from the line of Brian Bittner with Oppenheimer.

I wanted to also stay on margins. The margin outlook for 2022 is very impressive, particularly given these inflationary pressures. But as you think about catalysts to improve margins longer term past 2022, what are the top drivers there? I know sales leverage is a big driver, but outside of that, what are the top drivers? And how impactful could automation be to your margin path as you eventually integrate the Spice acquisition?

Let me start off with that, Brian. Thank you for your comments. We see the business continuing to have margin expansion over the next few years. We anticipate carrying approximately 16% margin at the restaurant level this year. Part of the improvements in margins you mentioned are largely coming from sales leverage. We operate in five channels in our stores, including in-store, native delivery, marketplace delivery, and outpost. We've never operated in all five channels in a non-pandemic environment, so we’re starting to see some sales growth from that, which we think will propel us forward for several more years. Additionally, we think that, as we revamp our loyalty program and move toward personalization, we'll see a major lift in volume coming from those promotional programs. At the restaurant level, we've initiated our operational simplification initiative to streamline how we operate our actual restaurants. This comes from simplification and labor classifications that grant us more flexible labor scheduling and changes in sourcing we believe can be margin accretive over time. We're very confident about the long-run margin. As you know, we did make the Spice acquisition; it is a major acquisition in terms of its impact on the labor model. At this point, we don't have much to add, except to say we're very pleased with the progress we've seen with our Spice acquisition and it is certainly on time.

Your next question comes from Chris Carroll with RBC Capital Markets. Your line is open.

Mitch, I think you mentioned additional pricing actions at the beginning of the year. I was hoping if you could provide an update just philosophically on how you're thinking about pricing today? Perhaps how customers have responded to pricing actions? And to what extent do you think you have further pricing power should cost headwinds last longer or greater than anticipated?

Thanks, Chris, for the question. Let me first provide a historical perspective. We believe as a company that we have a lot of pricing power with our customers. We believe this stems from the great customer loyalty we've built through our marketing over many years. Our customers can taste the difference in our product and the freshness of our ingredients, and they also highly value the convenience we offer them through our technology, with our ordering and seamless pickup. Therefore, we do believe we have a lot of pricing power. We are also aware that our mission is to connect more people to real food and how they would like our price points to be accessible. So when we look at our pricing architecture, we have spread our price points to ensure we maintain a high-value entry price point to attract new customers. We believe we have the correct pricing architecture in place. If necessary, we are prepared to apply nominal price increases towards the middle or back half of the year to protect margins should we see inflation persist.

And your final question comes from the line of Sharon Zackfia with William Blair. Your line is open.

Hi. Good afternoon. I appreciate the commentary on the class of '21. I was also curious on how the digital spend is ramping in that class, maybe relative to prior classes? And then on the outpost, I think you ended the third quarter with around $350 million reopened. Where are you at now for outpost? And how do you expect that to ramp in '22?

Sharon, thanks for the question. So I'll start with the outpost part, and then I'll get to the digital and the new stores. We've been pleasantly pleased with Outpost. What’s interesting about Outpost is it's a leading indicator on the return to office. It's been ahead of our expectations; we're today at over 500 households and are seeing great revenue in Outpost, exceeding expectations. It's still very early in the world of office comeback, which is the primary use case for Outpost, but overall, it’s been a nice leading indicator for us. We were pleasantly surprised with over 500 Outpost locations currently, and more launches are accelerating—we have 17 launching next week alone.

Let me take the second part of your question about how we see the digital ramp in our new stores. It’s very interesting. We see our new stores adopting our digital ordering and app at a much faster rate than previous stores. As a result, when you look at it as a percentage of revenue, new stores are roughly in line with the fleet average, and that happens within approximately a 60- to 90-day period after our opening. So we're very pleased with the progress we see.

There are further questions at this time. And it is my pleasure to turn the call back over to Mr. Jonathan Neman, CEO and Co-Founder.

Thank you. I just want to take a moment to thank you all for joining us on our inaugural earnings call. We really believe we have the winning recipe for long-term growth and shareholder value creation. I can leave you with one major takeaway about Sweetgreen is that 2021 and in particular Q4, which, to be honest, is typically our most challenging quarter due to the seasonality in our business, shows the strength of our product, brand, and mission. As the country started to emerge from the pandemic in the second half of '21, we saw significant improvement in our revenue, same-store sales, and restaurant-level profit, and we firmly believe that this is just the beginning of the recovery. As we look out into 2022, we are optimistic. While we experienced some choppiness with Omicron in the first four weeks of the quarter, and other larger global macroeconomic factors at play, we are confident that the remainder of 2022, combined with our focus on execution as we scale, provides a strong indication of what we can expect in '22 and beyond. Thank you all for joining us on today's call and on this journey. It's only the beginning as we redefine fast food.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.