Sweetgreen, Inc. Q1 FY2024 Earnings Call

Thank you for standing by. My name is Katherine, I will be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen Incorporated First Quarter 2024 Earnings Call. All lines have been placed on me to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. To ensure that we can accommodate as many participants as possible, we kindly request that each participant limit themselves to one question and one follow-up question. Thank you. I would now like to turn the call over to Rebecca Nounou, VP, Head of Investor Relations.

Thank you, and good afternoon, everyone. Here with me today are Jonathan Neman, Co-Founder and Chief Executive Officer; and Mitch Reback, Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings release is available on our website at investor.sweetgreen.com. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in our latest annual report on Form 10-Q filing and subsequently filed quarterly report on Form 10-Q. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures, which 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 US GAAP measure can be found in this afternoon's press release available on our IR website. With that, it's my pleasure to turn the call over to Jonathan to kick things off.

The momentum Sweetgreen had at the end of 2023 is continuing to build as we begin 2024. With the focus on guest experience, we are driving growth and adjusted EBITDA profitability exceeding the high end of our first quarter guidance. Our strategy is working. We have a strong foundation to build on and multiple levers to drive long-term capital efficient growth. The results today wouldn't be possible without the hard work of our team members. I want to take a moment to extend my gratitude to each of them for their unrelenting passion to further our mission of connecting people to real food. We reported sales of $157.9 million, representing 26% year-over-year growth. Same-store sales were 5%. Total digital sales represented 59% of our total first quarter revenue with 56% of those sales coming via our own digital channels. Restaurant-level margin for the first quarter was 18.1%, expanding over 400 basis points year-over-year, making this one of the highest first quarter restaurant level margin performances in the company's history. Restaurant-level profit for the first quarter was $28.5 million, a nearly 70% increase from a year ago. Additionally, we generated positive adjusted EBITDA for the quarter. Our strategies are simple: one, continue building our brand by creating great products and guest experiences; and two, expand our connection to guests by building and operating great restaurants. Over the past 1.5 years, we've been focused on these strategic priorities to improve our financial model with the goal of driving both revenue growth and profitability. Our Q1 results demonstrated revenue growth, expanded margins and adjusted EBITDA profitable growth. Let me share some of the highlights from this quarter. During the first quarter, we opened six new restaurants, including two of these in a new market, Seattle. We also opened restaurants in San Francisco, Miami, Denver and Austin. Our Q1 2024 cohort of new restaurant openings has an average weekly revenue already outpacing the existing fleet average. Building on the momentum of the Totem Lake opening, which has quickly become one of our top-performing restaurants, the South Lake Union location in Seattle had one of the strongest opening weeks in the company's recent history. Both restaurants are operating at volumes akin to our large urban restaurants. Openings like these demonstrate that our brand has significantly greater reach than our current physical footprint, and that there is massive white space for our category-defining concept. We remain pleased with the performance of our two Infinite Kitchens. At the end of the first quarter, the two Infinite Kitchens located in suburban trade areas are tracking to an average year one average unit volume of $2.6 million, and they delivered an average first quarter margin of 28%, 10 points above the fleet average, giving us confidence in our go-forward deployment strategy. They also continue to demonstrate additional benefits to our operating model, such as faster throughput, better order accuracy, portion consistency and substantially lower team member turnover. Additionally, we continue to see higher average checks than the markets they operate in. In 2024, we remain on track to open approximately seven new Infinite Kitchen restaurants as well as retrofit three to four large urban restaurants with the Infinite Kitchen. Our first retrofit will be in New York City this summer. In 2025, we plan to deploy an increasing number of new restaurants powered by the Infinite Kitchen. As we build our future real estate pipeline, we see tremendous white space opportunities across the United States in both new and existing markets. Starting next year, we plan to return to a growth rate of 15% to 20% new unit growth per year, with 2025 being at the lower end of this range and 2026 and beyond targeting the upper end of the range. We continue to execute our culinary roadmap to broaden our menu, drive menu innovation, traffic, mix and check. Protein plates continue to over-index at dinner and as well in the Southeast and Texas markets. In February, we launched a test of our Caramelized Garlic Steak across the Boston market. Our Caramelized Garlic Steak features tender cuts of grass-fed steak, seasoned with the garlic spice blend, expertly roasted, and finished in a blend of oil and herbs. Guests can order steak in any of our Chef-Crafted Entrées, including The Steakhouse Chopped and The Steakhouse Chopped plate, as well as have the option to add the new protein on any existing or custom item. During our testing phase in Boston, we saw Caramelized Garlic steak become a dinnertime favorite, with steak included in nearly one in five dinner orders. Having successfully completed our market test process and exceeding our internal expectations, we launched steak fleet-wide this past Tuesday. As we innovate our menu, we've always believed in listening to our customers to deliver more of what our guests want. Incorporating steak into our menu provides customers with something they've been seeking for years, with a deep commitment to sustainable practices, finding the right ways to source steak in our restaurants. We are proud to introduce 100% grass-fed, pasture-raised steak from ranches that align with our commitment to high-quality, nourishing ingredients and high sourcing standards. Turning to operations. At Sweetgreen, our people are the most important ingredient to running great restaurants. They are on the front lines connecting guests to our mission by serving real food, sourced from local farmers and prepared in-house daily. Our organization is rallied around prioritizing the guest experience and driving throughput. We've aligned our incentives around these priorities, including bonuses for our head coaches and tips for our team members. As a result of the investments we are making in our talent and culture, our turnover is 19 points lower than it was in the first quarter of 2023 and has stabilized at the lowest level we've seen since prior to COVID. Our 90-day retention is 10 points higher compared to the first quarter of 2023. Over 50% of our Head Coaches are internal promotions. And as we move forward, our goal is to increase this percentage. As we plan to ramp our restaurant openings in the years to come, we have a strong pipeline of future Head Coaches and are excited about the growth opportunities for all of our team members. We remain focused on capturing additional urban lunchtime demand, where we know we have a walkaway factor. We have made meaningful progress over the last few quarters with improvements in labor scheduling and having Head Coaches spend more time on the floor with customers. Over the coming quarters, there are opportunities for further labor deployment improvements by reducing time on routine in-restaurant tasks and improving deployment across all dayparts. Across the organization, we remain focused on hospitality and operating great restaurants, leading to growth and expanding margins. Today's consumer is increasingly selective with how they spend their discretionary income. Customers are choosing Sweetgreen, given our mission-driven brand, unparalleled quality of our product, and the value we offer with our menu innovation. Our commitment to sourcing permeates every aspect of our menu. We partner with farmers we know and trust, ensuring the highest quality ingredients and scratch cook every day in each of our restaurants. This dedication is our promise to guests. The positive results both on the top line and our restaurant-level profitability are evidence that the investments we are making in our people, our operations, and financial model are the right ones. I'm very proud of what our team has accomplished together. You see their accomplishments in the financial results today and also in the experience in our restaurants through their exceptional hospitality and high-quality food we serve. Looking ahead, we have a massive opportunity to bring real food to more communities and disrupt the industry with the rollout of the Infinite Kitchen. We are building a durable business and shaping a healthier future for the next generation. Now I will turn over the call to Mitch to review our financial results in further detail.

Thank you, Jonathan, and good afternoon, everyone. As you just heard from Jonathan, the first quarter demonstrated that the groundwork laid in 2023 is driving strong momentum across the business. Total revenue for the first quarter was $157.9 million, up from $125.1 million in the first quarter of 2023, a 26% year-over-year increase. For the first quarter, same-store sales grew 5% year-over-year. This consisted of a 5% benefit from menu prices and flat traffic mix. Same-store sales sequentially improved each month within the quarter. Our Q1 traffic was impacted both by January weather and the inclusion of two additional holidays in the quarter. Our average unit volume in the first quarter was $2.9 million. Restaurant-level profit margin in the first quarter was 18.1%, compared to 13.5% a year ago. This is greater than a 400 basis point improvement from the first quarter of 2023. Our restaurant-level margin of 18.1% was the result of several factors, including strong revenue growth and margin improvement in our new restaurants. The restaurants that are excluded from our comparable restaurant base, that is the non-comparable restaurants, had substantial restaurant-level profit margin expansion from the first quarter of 2023 and collectively had a margin that was close to the fleet average of 18.1%. Additionally, we saw some of our fastest sales growth in our newest markets. In particular, our new Southeast markets collectively grew double-digits as they continue to accelerate their ramp. We also expanded margins across our legacy markets as a result of disciplined labor scheduling and having head coaches spend more time on the floor to improve both hospitality and guest throughput. We continue to focus on margin expansion across our portfolio of restaurants. Our fleet-wide restaurant-level margin on a trailing 12-month basis is 18.5%. Restaurant-level profit for the first quarter was $28.5 million, a nearly 70% increase from a year ago. For a reconciliation of restaurant-level margin to comparable GAAP figures, please refer to the earnings release. In the first quarter of 2024, we opened six restaurants, including two in Seattle, South Lake Union and Totem Lake, ending the quarter with a total of 227 restaurants. In 2024, we anticipate opening between 23 and 27 new restaurants, approximately seven of which will contain the Infinite Kitchen. Our new restaurant openings are weighted toward the back half of the year. As Jonathan mentioned earlier, in 2025, we plan on a unit growth around 15%, accelerating towards 20% in 2026. We're pleased with the early reads from the Infinite Kitchen and our results in new markets, giving us confidence that we have the opportunity to capture the considerable white space in both existing and new markets. Food, beverage, and packaging costs were 28% of revenue for the quarter, an 80 basis point improvement year-over-year. This improvement was primarily due to menu price increases. Labor and related expenses were 29% of revenue for the first quarter, a 240 basis point improvement year-over-year. This improvement is primarily attributable to menu price increases and improvement in labor optimization. Occupancy and related expenses were 9% of revenue, a 95 basis point improvement year-over-year. General and administrative expenses were $36.9 million or 23% of revenue for the first quarter of 2024 as compared to $34.9 million or 28% of revenue in the prior year period. This increase in general and administrative expenses was primarily due to a $5.1 million benefit received in fiscal year 2023 from the employee retention tax credit that was partially offset by a $4.6 million decrease in stock-based compensation expense. We continue to demonstrate operational leverage in the support center in the first quarter. Excluding the one-time benefit of the 2023 retention credit of $5.1 million, our support center costs grew 6% year-over-year as sales grew 26%. Our net loss for the quarter was $26.1 million compared to a loss of $33.7 million in the prior year period. The $7.6 million improvement in net loss is primarily due to an $11.6 million increase in our restaurant-level profit and a $1.9 million decrease in pre-opening costs. The increase in our restaurant-level profit and the decrease in pre-opening costs were partially offset by an increase in other expenses related to the change in fair value of our contingent consideration from our acquisition of Spyce, increases in general and administrative expenses as described previously, as well as an increase in depreciation and amortization associated with additional restaurants. Adjusted EBITDA, which excludes stock-based compensation expense and certain other adjustments, was $113,000 for the first quarter, an improvement of $6.8 million from the first quarter of 2023. Adjusting for the one-time employment credit in the first quarter of 2023, our adjusted EBITDA year-over-year improvement was $11.9 million. We ended the quarter with a cash balance of $244 million. Now turning to guidance. For the fiscal year 2024, we updated our guidance to reflect the strength of the first quarter: 23 to 27 net new restaurant openings, revenue ranging from $660 million to $675 million, same-store sales growth between 4% and 6%; restaurant-level margin between 18.5% and 20% and adjusted EBITDA between $10 million to $19 million. In closing, we saw strong revenue growth of 26%, expanded restaurant-level margins by over 400 basis points and delivered positive adjusted EBITDA of $113,000. Looking ahead, Sweetgreen remains committed to innovation, including expanding our menu offering and deploying the Infinite Kitchen. These initiatives, together with our focus on running great restaurants, are poised to drive traffic, create better customer and team member experiences as well as unlock long-term value for our shareholders. Our unwavering focus on sustainable profitable growth, coupled with a healthy balance sheet positions us well for the opportunities that lie ahead. With that, I'll turn the call back to the operator to start Q&A.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Brian Bittner of Oppenheimer.

This quarter was impressive as is the guidance raise. And I just want to dig into the update on your same-store sales guidance range for 2024, now 4% to 6%. And at its midpoint, that would suggest the rest of the year looks very similar to Q1, which was up 5%, and you had some tough weather in the first quarter and now you have steak rolling out, which did not really impact the first quarter. So is there perhaps some conservatism baked into the new same-store sales guidance? Or is there anything else you can unpack regarding your assumptions for the remainder of the year?

Yeah, I understand the way you're looking at it. I think what I would simply say is if you recall for the prior two years, as we came through the holiday period, the company saw a lot of negative traffic, particularly starting around Memorial Day and then through the summer. And I think that really what we're doing is taking the approach that says we're uncertain as to how the holidays impact the business. And frankly, we had a major launch on Tuesday with steak and really have not factored that heavily into our guidance given the fact that we've only had two days of history.

That's really helpful. My follow-up question is that I've been hearing a lot of positive feedback regarding new unit sales volumes and profitability, more than in past earnings calls. What do you think has caused the improvement in the performance of units that are outside the comparable base? Additionally, how does this impact your approach to opening new units and your overall strategy moving forward?

Sure. I just want to start off by thanking our team for all the amazing work making this great quarter happen. As we look at new units, I think there's a few things that we've done. One, we've adjusted our real estate targeting, taking a lot of the lessons of the past and how we target real estate, especially as we look at our suburban expansion and the attributes for successful stores. Secondly, we've clearly had an unlock in brand awareness as we've continued to grow. There are markets waiting for us to open, Seattle being a great example. You can see the unlock in the brand and some performance in the markets that were once struggling, places like Texas, Atlanta, and Florida. As the brand has unlocked there from an awareness perspective, we're seeing a lot of positive growth. We've also adjusted and taken a lot of our learnings on how we operate those restaurants, how we staff them, the head coaches we have to lead those stores, and how we train them. The training and internal promotion focus of bringing head coaches that understand our business, culture, and how they open those new restaurants have really paid off. Lastly, as we've talked about in past calls, we've adjusted a lot of our marketing strategies. So as we've shifted how we market and open new stores and support those new restaurants, not just for the launch but for the first 90 days to six months, we've seen really positive results. We feel good about new stores; we're gaining a lot of momentum and it gives us confidence as we look to reaccelerate our pipeline.

Your next question comes from the line of Rahul Kumar of JPMorgan.

It's on the supply chain optimization side, and it's not an increasing focus. I think we discussed this in the past, on how certain ingredients can be less local if it's not worth the cost or quality perception. What inning would you say we are on this exercise? And I understand it's an evolving process, but can you discuss the opportunity set with some examples currently underway? And I have a follow-up.

Sure. We're constantly looking for ways to continue to innovate our menu, bringing new items that our guests will love while also making it easier for our team members to execute to deliver on our promise with every meal. As you know, with this steak launch, it was a big launch for us, the first time we've had meat on the menu, and we're very proud of the offering we put forward with grass-fed, pasture-raised steak. In that process, we have simplified some of our menu, moving a couple of SKUs and optimizing a few things to continue making it easier. So I'd say we're always looking at what adds customer value, where we want to double down. I'll give you an example: last year we made the upgrade to olive oil for all our cooking, and sometimes we look at rationalizing around SKUs of things that are not heavily used or that customers don't value. So we're going to continue to look at things as they evolve. But we strongly believe in Sweetgreen's philosophy of getting better as we get bigger. Thus, we aim to continue protecting our supply chain and the quality of our food because that's really what people love about us. As we scale, we should continue to see efficiencies.

Perfect. And on a similar note, what earnings are you on the labor scheduling and streamlining the labor prep hours today, which I believe is 10 points of labor you can talk from a current compliance or other opportunity standpoint on this aspect?

I'd say we're still very much in the early innings around labor. We've made a lot of headway, but as we've seen this quarter in Q1 and as we're starting to see in Q2, how we deploy labor, not just from an efficiency perspective, but to better capture peak demand and offer hospitality that our customers expect, there is a ton of opportunity. Today, we've put a focus on both of those things: staffing for peak and being ready to serve as many customers as we can in those periods. But we are also looking at investments in different labor deployment systems that we think over time can help drive more efficiencies in how we deploy labor. In the past, we've talked about efficiencies regarding what we prep in restaurants, what we send upstream, and how we make that job easier and more efficient in the back of house. Again, we'll continue to look at both tools and products that will facilitate providing the experience our customers expect.

Your next question comes from the line of Sharon Zackfia of William Blair.

I guess two questions. In California, I don't think you did take price when minimum wage went up, but I know you already pay a healthy wage in California. Did you see incremental labor pressure in California? Maybe give us an idea of what you expect labor inflation to be in the second quarter relative to what you saw in the first?

In the first quarter, we saw very little. As you know, the California Wage Act took effect on April 1. It's really hitting in the second quarter. Our wages did go up in the mid-to-high single-digits in California, and we offset that with a 5% price increase in California, which took place on February 21. Overall, we do not see a lot of labor pressure anywhere else for the rest of the year at this point.

Yes. So just anything I could add, Sharon. As I mentioned on the call in the prepared remarks, we've actually seen a lot of momentum with our team as we've focused more on the stability of our Head Coaches as well as the internal promotion. We've made huge strides in getting fully staffed at all levels. We're also seeing great quality talent come in. And I think how we train them and continue to grow them through the system. You'll see a bigger focus over time on continuing to drive that internal promotion rate, which is our people flywheel. So much of what we can offer at Sweetgreen is really part of what I call the American Dream: starting somewhere as a team member and within three years being a Head Coach making over $100,000 a year. We're trying to create something great for our customers while creating great opportunities for our team members.

Great. And then on Infinite Kitchen, just considering the metrics there remain very healthy at the margin level, ultimately, where do you see the overall fleet as it relates to Infinite Kitchen? Is this something where eventually all locations are retrofitted? And separately, if not, would you consider just adding kiosks at all locations over time, given the check lift you're getting?

We are very excited about the results we're seeing with Infinite Kitchen. Not only are we seeing great feedback from a customer perspective, but we are also delivering on what we expected from a unit economics perspective. The two pilot stores we have are trending towards $2.6 million AUVs and ran 28% margin in the quarter, which is about 10 points ahead of the rest of the fleet. Last quarter, we shared that we expect about 7 points of leverage on Infinite Kitchen stores, so we're seeing a little bit higher than that, which is promising. As we think about what the Infinite Kitchen could look like going forward, we do think it's going to be a huge part of our go-forward strategy. As we get manufacturing set up and get confidence in both the design of those experiences and continue to drive down the cost of the machines to fit into more places, you'll see a higher mix of our deployment in new stores. We've talked about retrofitting three to four stores this year. We're going to learn a lot from those experiments. As we learn about how much downtime there is, what the renovation costs are, and what the uplift is, we'll begin to understand how much more of the fleet we think we can retrofit. There's definitely a large chunk of very high-volume stores that we believe have retrofit opportunities, but we have more to learn in terms of understanding the timeline for implementation and whether we wait for the renovation cycle or pull it forward. We are very bullish on the technology and the experience, and we expect it to be a huge part of future deployments while increasing the percentage of new restaurants featuring Infinite Kitchen each year.

Your next question comes from the line of Jon Tower of Citigroup.

Hoping you could share your perspective on what you're observing regarding consumer demand, particularly in terms of traffic, as we've heard from others in the industry that both the first and second quarters have been somewhat challenging for several concepts.

Let me first talk about the first quarter and what we saw, and then I will share a few remarks on the second quarter, although we're still under halfway through the second quarter. Like others, the first quarter started off a little slow. January was very slightly negative, as we believe it was primarily due to weather, which many have commented on. February saw the business climb into mid-single-digits. By March, we were at very high single-digits, averaging about 5%. Also in the first quarter for us, due to our shift in calendar, we did pick up two additional holidays we didn't have last year. As we start off in the second quarter, we are tracking slightly ahead of the high end of our guidance halfway through the quarter. That's also prior to our steak launch and prior to really turning on media, so we feel good about where we are at in the second quarter at this point.

Great. I appreciate it. I was hoping to drill a little bit into the Infinite Kitchens and specifically the stores you have in Naperville and Southern California. Could you speak about traffic versus check perspective? I know you had mentioned on the last earnings call that you were seeing a nice lift in check. Just curious how traffic has trended as those stores have matured in those markets as awareness builds around the technology. Has that led to increases in traffic at the level you were expecting?

Both stores are under one year old, so we're just starting to understand what that looks like year-over-year. However, overall, we have seen momentum in those stores. As awareness has continued to build, the stores are strengthening, not weakening. We feel very confident about those restaurants and the experience we're putting forth. As I previously said, we believe there is a lot of opportunity for us to elevate the experience with the Infinite Kitchen. So how do we add more of that experience and hospitality components, you'll see us continue to iterate on store designs and experiences to make it better. Overall, we're very pleased with the continued momentum and will keep iterating to improve.

Your next question comes from the line of Andrew Charles of TD Cowen.

Great. I wanted to ask about steak that was included in one of five orders in test markets. Given the robust data you have from loyalty users, can you help us understand the incrementality of steak sales and repeat usage that you observed in the test?

Sure. We're excited about the steak at lunch. Two days ago, we ran a test in Boston that was very encouraging, as we mentioned, one in five dinner orders included steak. A significant aspect of the steak offering was to broaden our consumer base, attract more customers, broaden the daypart, and expand that customer base. Many surveys and consumer insights indicate that there are a lot of fast-casual customers who won't visit unless there’s a meat option, especially with the current focus on protein, which we've emphasized with our protein plates. We're seeing wonderful reception. We've observed a nice repeat rate, which is why we felt confident moving from a test to a full launch. During the pilot period, we did make some changes, and we saw improvements as we iterated on actual recipes. It's still early, only two days in, and media hasn't even turned on yet, but we're encouraged by the early results. What you'll likely see with steak is a couple of things: one, with the price, we expect to see some positive mix effects. But we also anticipate transaction growth as we bring in more new customers, particularly to drive that extra occasion specifically around dinner.

Okay, great. My follow-up was about the incremental throughput opportunities through more productive staffing and better staffing, which is undoubtedly a product of the observations of the brand. Can you help us identify the ultimate opportunity, the ultimate unlock on traffic that you think this can provide once you're able to fully optimize this?

Yes, there are a few things. One, there's the immediate pickup of those additional transactions. As you become faster, you can pick up those additional transactions. However, over time, the change in perception around the brand will also play a crucial role. When customers think about lunch or dinner, they consider how much time they have, and there are brands in their consideration set while others are not. By increasing our throughput, we start entering consideration set for people with more limited time, which we know over time drives transactions. We're already seeing significant movements in terms of how we train our teams around throughput, how we deploy our labor, and, importantly, why we focus on turnover, head coach stability, and internal promotion. These factors are leading indicators of our ability to drive throughput and hospitality. So I want to really thank our head coaches, the entire field team, and our operators for the amazing job they’re doing; we’re just getting started.

Your next question comes from the line of Brian Mullan of Piper Sandler.

Just to follow up on Infinite Kitchen, Jonathan, clarification on that 28% margin in Q1. Is that a fair way to think about the margin on an annual basis at those $2.6 million volumes? And then separately, is it fair to think if an Infinite Kitchen location in an urban setting sees AUVs above the system average, say something above $3 million, would that urban location potentially see restaurant-level margins that are higher than 28%? Just any thoughts on that idea would be great.

Yes, I would say the 28% margin we saw in the first quarter for Huntington Beach and Naperville is probably a good average margin for an AUV suburban $2.6 million. There was nothing in the first quarter performance for those two stores that would lead us to think otherwise, with the exception that Huntington Beach is still very new and that was its first quarter. So there might be upward momentum there. Regarding your second question, I believe it’s largely correct that as the Infinite Kitchen is deployed in higher AUV stores, especially busy urban stores, we can potentially see greater margin improvements than we're observing in the suburban stores. We also think we'll see better throughput driving up AUV. As we continue to retrofit locations, we expect that the flow-through will be approximately 70% since the only cost that will drag us down is the cost of goods without any additional labor.

Okay, that's great. And just a question on development. Last quarter, you mentioned exploring a smaller format unit as well. Could you discuss that? What's some of the work you're doing? How far along are you? Is that perhaps part of the plan for the next year or two, or is that a bit further out? Any detail would be great.

Sure. That plays into my comments earlier about how we're thinking about evolving our actual experience. We have a few designs and prototypes ready that we're iterating on, and you should expect to see those smaller format units begin testing early next year. So we're about a year away from those actually coming to fruition. We believe those smaller formats will be one of the levers to accelerate our pipeline. Beyond the smaller format, we see other formats as significant opportunities. For example, drive-throughs are a substantial opportunity that we are exploring, especially powered with the Infinite Kitchen. We have seen great success with our current suite lane. We also operate a pickup kitchen that performs exceedingly well, which is a mobile order and pickup store. Adding the Infinite Kitchen there unlocks a lot of potential. So as we look ahead, we believe there are numerous densification opportunities in markets where we already perform well.

Your next question comes from the line of Katherine Griffin from Bank of America.

First, I just have a quick clarification and then a question. To clarify, the previous revenue guidance had some assumptions baked in concerning the downtime associated with the retrofit. That's still the case, I believe, even though you haven't quantified exactly what downtime might be. It's still baked into the guidance?

Yes, that's correct, Katherine.

Great. And then the question is just on Protein Plates, which seem to be a meaningful traffic driver. Can you help me frame or even quantify how much of the transaction growth that you've seen is from Protein Plates over the last couple of quarters? How much of that do you think is trial versus something more sustainable going forward?

Sure. We're very pleased with Protein Plates. I think, again, it's made Sweetgreen a more attractive dinner option for customers, expanded our customer base, and has been over-indexing in new markets. Much of the performance we're seeing in the newer markets, where we observe double-digit comps, is attributable to Protein Plates. The dinner growth we've noticed is very promising. That said, it’s still less than 6 months with Protein Plates, but we see abundant opportunities. We envision Sweetgreen becoming more than just a salad place, continuing to develop hearty craveable, healthy options for our guests.

Your next question comes from the line of Brian Harbour of Morgan Stanley.

Mitch, could you just update us on pricing for the rest of the year? I think you had previously said about 4%. Is it still the right number looking forward, or is it going to be closer to 5%?

It's going to be closer to 4%. There's one point rolling off, I think in April. At this point in time, we don't plan any more price moves for the rest of the year.

Okay, got it. And then just on throughput and operations, is there anything you could say about quantifying speed of service or digital order throughput? Can you frame for us the improvement you've seen relative to last year?

There are a few ways we think about throughput. We measure throughput both on our front line, which we analyze in a 15-minute period. What we mentioned before is that with an additional five transactions in a store, that's about one point in comp. So there's a significant opportunity on the front line. On the backline, our digital make lines give us better data through what we call a throttle, where we see huge opportunities. Based on the maximum throttle capacity, there is significant room for stores that are running at 40% to 50% range. The best stores can handle up to 90 orders for 50 minutes. There is a huge opportunity as we get staffed, trained, and deployed effectively. We are focusing on running great restaurants and delivering a consistent, hospitable experience to our guests, which we know will bring them back. They will tell their friends and help drive word of mouth. Given the type of food we serve and how it makes people feel, it has a habitual nature to it. When we do what we need to do, good things happen, and we are focused on that. We're very excited to invest in our operations leadership, and we feel good about the work being done to drive consistent experiences.

There are no further questions at this time. I will now turn the call back over to Rebecca Nounou for closing remarks. That concludes our Q&A session.

Yeah, I'll just take this opportunity again to thank our team. Thank you for all that you do every day in delivering our mission. We'll see you next quarter. Thanks, everyone.

This concludes today's conference call. You may now disconnect.