Sweetgreen, Inc. Q3 FY2025 Earnings Call

Thank you for your patience. My name is Joe, and I will be your conference operator today. I want to welcome everyone to the Sweetgreen, Inc. Third Quarter 2025 Earnings Call. I will now hand the call over to Rebecca Nounou, Head of Investor Relations. You may proceed.

Thank you, and good afternoon, everyone. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release and today's announcement regarding the sale of Spyce are available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com. I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release and Spyce announcement also applies to our comments made during the call. 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. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website. And now I'll turn the call over to Jonathan to kick things off.

Thank you, Rebecca, and thank you all for joining us this afternoon. We are addressing the challenges from the current operating environment with agility and focus. We are tightening operations, accelerating menu innovation, and deepening guest engagement. The team is dedicated to delivering an exceptional guest experience, improving operational execution, and providing delicious, high-quality food in every restaurant. Our actions are designed to expand our value proposition, strengthen transactions, enhance restaurant performance, and position Sweetgreen for a return to profitable growth. For the third quarter, we reported sales of $172.4 million and a same-store sales decline of 9.5%. Restaurant level margin was 13.1% and adjusted EBITDA was a loss of $4.4 million. Performance was affected by softer sales trends in our Northeast and Los Angeles markets, which together account for about 60% of our comp base. This was further influenced by lighter spending among younger guests, particularly those aged 25 to 35, where we have a higher concentration. As we look to Q4 and beyond, our new leadership team has taken the learnings from this year and focused our actions on five key strategies to transform our business. We're calling it the Sweet Growth Transformation Plan. Our strategies are: one, operational excellence; two, brand relevance; three, food quality and menu innovation; four, personalized digital experience; and five, disciplined profitable investment. Let me share some of the work being done under each of these strategic priorities, starting with operational excellence. Since joining earlier this year, our COO, Jason Cochran, has been vital in strengthening operational execution. He has instilled greater accountability and a new culture in how we run our restaurants. Building on the foundation introduced last quarter, Jason and his team are continuing to deploy Project One Best Way, our system-wide effort to elevate operational excellence through clear operating standards, performance-based leadership, and measured execution. As part of this project, we launched Sweetpass, a framework that helps every team member understand what running a great restaurant looks like at Sweetgreen. The Sweetpass breaks each restaurant into clear zones from the front line to the back of house with simple, consistent behaviors and standards for how we operate daily. Jason also introduced a new restaurant scorecard this quarter. It provides our teams with greater visibility into performance across a streamlined set of metrics including sales, throughput, customer satisfaction, food quality, and labor performance, helping our team celebrate wins, identify opportunities, and focus on what drives results. In mid-September, we initiated a new throughput initiative that defines readiness for peak lunch and connects progress directly to the scorecard. Early results are encouraging, showing improved peak hour throughput and building momentum towards the operational excellence we expect from ourselves. To further enhance throughput, our technology team has begun rolling out Scan to Pay for a faster and simpler checkout experience at the front line. With a single app scan, guests can pay, earn, and redeem rewards instantly using saved payment methods, including credit cards, Sweetgreen credits, and gift cards. These disciplined system-level changes under Project One Best Way will take time to develop, but they're already establishing the structure and habits that will define our operations moving forward. As mentioned last quarter, about one-third of our restaurants met or exceeded our internal operational standards. Today, that number is approximately 60%, which marks significant progress. Moreover, turnover and retention continue to improve, and we anticipate this progress will lead to stronger restaurant-level performance over the coming year. Now turning to brand relevance. I’m thrilled to welcome Zipporah Allen, our Chief Commercial Officer, who leads marketing, menu innovation, and the overall customer experience. In her first two months, Zipporah has infused new energy and focus into our marketing team, shaping a strategy that positions Sweetgreen as a lifestyle brand aimed at attracting and inviting more customers to embrace the Sweet Life. In the near term, we have redirected marketing efforts to support New York, our most challenged market. We are optimizing our media investments to drive new guest acquisition and expand our share of voice. Long term, we aim to create culture through distinct brand moments. This will involve a more structured approach to engagement with content creators who authentically connect with Sweetgreen, along with brand partnerships that broaden awareness among new audiences. Under our food quality and menu innovation pillar, we're focusing on enhancing awareness around the quality of our ingredients. Next week, we will launch a protein-focused campaign that emphasizes the real fuel our customers receive when they choose one of our nine chef-curated menu items containing over 30 grams of protein. We are also introducing a new macros calculator in our digital experience. This protein campaign presents a prime opportunity to educate customers about our larger protein portions and is the first step in communicating the key differentiators that make our menu unique in the market. You’ll see us continue to promote our high-quality ingredients into next year, highlighting claims that set us apart from the competition such as made from scratch, responsibly raised chicken, steak, and salmon without antibiotics, seed oil-free proteins, grains, and roasted vegetables, free of artificial flavors, colors, or dyes, along with sourcing organic and local produce from trusted farmers and partners. These aspects will take a more prominent role in our messaging going forward. Additionally, in two weeks, we will introduce a new steak bowl and steak plate to enhance variety and value. We continue to strengthen our menu innovation capabilities with a pipeline of new items entering our new stage-gate process in Q4. This is a cross-functional testing process we will use for every menu item moving forward, providing us with more precision and predictability in the expected results from our menu development initiatives. We continue to leverage seasonal menus to drive frequency with our existing customers and have adjusted our marketing investment to align with the role that these menu items play on our menu. Simultaneously, we are expanding our core menu offering to better address a variety of occasions and consumer needs through our pipeline tests. Our new handheld product will undergo market testing in early 2026. In Q4 and into Q1, we will also be reviewing our menu and pricing structure as we work to enhance our value proposition. We recognize that we can improve our clarity around entry prices and logical trade-up opportunities across our create-your-own and chef-curated menu options, ensuring that our customers clearly understand the value at every menu tier. When guests know what they’re getting and feel good about it, it builds trust and fosters loyalty over time. Now turning to our personalized digital experience. Earlier this year, we launched SG Rewards to create a platform for a more personalized experience fueled by enhanced customer data. We have just marked six months of this program and are seeing positive trends in frequency among our most loyal guests. The program enables us to utilize the data effectively to boost frequency and retention through our CRM efforts. In the fourth quarter, you will see us leverage this channel to invest more in targeted discounts and promotions to enhance value perceptions and encourage increased frequency among lighter users. Moving to our last pillar of disciplined profitable investment. In the third quarter, we opened eight restaurants, including six featuring the Infinite Kitchen. We also entered Arizona with our Scottsdale location, which delivered the second strongest opening of the year. Following this quarter, we opened a second location in Arizona, further solidifying our presence there. The continued success of these openings reinforces our confidence in the growth opportunities ahead. In the fourth quarter, we will open 17 new restaurants and expand into three new markets: Sacramento, Cincinnati, and Northwest Arkansas. Our Q4 openings will feature our first Sweetgreen incorporating the Infinite Kitchen in Costa Mesa. Overall, we expect to complete the construction of 40 new restaurants this year, finishing 2025 with 37 net openings. This total reflects closures of our Bleecker and Astor Place restaurants in the third quarter and includes postponing two restaurant openings to early 2026 to ensure the best experience for our guests and team members, though construction will complete this year. We anticipate opening our relocated Nomad restaurant in December and Union Square in January. Both locations are being moved to stronger sites and will include Infinite Kitchen. We are prioritizing our financial strength by enhancing cash flow and exercising greater discipline in our investments, which will involve a slowdown in new restaurant openings. Looking ahead to 2026, we plan to open 15 to 20 net new restaurants, with about half incorporating Infinite Kitchen technology, while also entering 2 to 3 new markets, including Salt Lake City. We believe this approach strikes the right balance between growth and financial discipline as we work to reduce capital expenditures and drive strong returns. As announced today, we've made the strategic decision to sell Spyce, our business unit responsible for developing the Infinite Kitchen, to Wonder. This move will allow us to achieve greater scale, reduce operating costs, and fortify our financial foundation for the future. Importantly, the Infinite Kitchen remains central to Sweetgreen's future. The technology has demonstrated its ability to deliver faster throughput, improved accuracy and consistency, and enhanced food quality. In the third quarter, the Infinite Kitchen restaurants realized approximately 700 basis points of labor savings and nearly 100 basis points of COGS improvement compared to similarly aged and high-volume restaurants. Under our agreement with Wonder, Sweetgreen will continue to utilize and expand the Infinite Kitchen technology across our restaurants. Collaborating with Wonder enables us to tap into their manufacturing scale, R&D investments, and shared innovation, accelerating the refinement and rollout of additional Infinite Kitchen units. This transaction also allows us to sharpen our focus on our core restaurant business, directing more of our talent and financial resources toward accelerating growth and achieving profitability. The $186.4 million sale is anticipated to strengthen our balance sheet with approximately $100 million in liquidity, enhancing our financial position and flexibility to support future growth initiatives. We take great pride in the work that the Spyce team has accomplished in developing, scaling, and commercializing one of the world’s most advanced food automation technologies under Sweetgreen. I want to specifically thank Spyce co-founders Michael Farid, Kale Rogers, Brady Knight, and Luke Schlueter for their vision and excellent technical execution. We look forward to partnering with you and the Wonder team as we embark on this next chapter of innovation together. From menu development to our app to the Infinite Kitchen, we've always been pioneers in reimagining how real food is sourced, prepared, and served. That spirit of innovation is central to our identity and will continue to guide us. Before I wrap up my prepared remarks, I want to take a moment to acknowledge Mitch Reback, who retired in September as our CFO, and express my deep gratitude for his contributions to Sweetgreen. Mitch joined us when we were still a small regional brand over 10 years ago and has been a driving force behind our growth. He established the financial foundation that supports our business today, guided us through our IPO, and has been a true partner, mentor, and friend. His impact on Sweetgreen and all of us personally is immeasurable. We are truly grateful for his leadership and wish him well in his retirement. We are also excited to welcome Jamie McConnell as our new Chief Financial Officer. In her brief time with us, she has already prioritized financial discipline, returns, and efficiency. Her background and experience in high-growth, operationally disciplined businesses will be crucial as we strengthen our operating model and position Sweetgreen for long-term success. Over the years, Sweetgreen has weathered some challenging moments, from growing through the Great Recession to navigating COVID. Throughout it all, my belief in our vision and the impact we can make has never faltered. We have proven that our brand resonates widely, and the opportunities lie ahead remain substantial. Our current focus is on blending the creativity and cultural relevance that makes Sweetgreen unique with greater discipline and an unwavering focus on the guest. The Sweetgreen brand remains strong and continues to resonate deeply with our guests. We are aware of the work needed to improve our execution and reignite our momentum to drive traffic and lay the groundwork for long-term profitable growth. We are taking the necessary steps to get back on track and position Sweetgreen for enduring success. I want to extend my gratitude to every Sweetgreen team member for their focus, resilience, and commitment to excellence. Together, we are positioning Sweetgreen to reach its full potential while remaining true to our purpose of connecting people to real food. Now I'll turn the call over to Jamie to review our financial results in detail.

Thank you, Jonathan, and good afternoon, everyone. As a long-time Sweetgreen guest, I could not be more excited to join the team. This is an important time for the brand, and I'm grateful for the trust Jonathan, the Board, and the company have placed in me to help shape the next chapter. Over the past few weeks, I've spent time in our restaurants listening and learning from our teams. What stood out immediately was the care our people bring to the food we serve and the ingredients we source. I met Yuri, who began as a dishwasher six years ago and now leads her own restaurant as a head coach. Seeing how she has grown within Sweetgreen and her pride in the restaurant showed me what makes this company so special. Since stepping into the CFO role a little over six weeks ago, I've been focused on gaining a clear understanding of our economic model and the levers that drive our results. It's clear there's meaningful work ahead. I've launched a full review of our restaurant level expenses and G&A structure to ensure we're operating as efficiently as possible, identifying savings, simplifying processes, and investing only in what drives the business forward. Over time, this work will drive margin improvement, stronger cash flow, and tighter financial discipline across the company to deliver steady, stable results. I will have more to share in future quarters. I'll now walk you through our third quarter results. Third quarter sales were $172.4 million compared to $173.4 million last year, with a same-store sales decline of 9.5%. Restaurant-level margin was 13.1%, down from 20.1% a year ago. Adjusted EBITDA was negative $4.4 million compared to positive $6.8 million last year. The comp decline reflects an 11.7% decrease in traffic and mix, partially offset by a 2.2% benefit from menu price increases. The comp decline reflects softer sales trends and the transition from Sweetpass+ to our new rewards program, which eliminated subscription revenue and includes a loyalty deferral. Third quarter food, beverage, and packaging costs were 30.7% of revenue, a 320 basis point increase year-over-year. The benefit from pricing was more than offset by higher protein costs, reflecting our investment in increased chicken and tofu portions to reinforce the value for our guests and higher ingredient usage. We expect to offset the 140 basis point portion investment through a combination of in-restaurant and supply chain initiatives, with savings beginning in 2026, and fully realized in the second half of the year. The quarter also included a 50 basis point impact related to imposed tariffs and duties on our packaging and other menu items. This is a level we expect to continue in the near term. Additionally, the third quarter was impacted by a one-time 60 basis point write-off of discontinued materials. Third quarter labor and related expenses were 29.1% of revenue, an increase of 170 basis points from last year. The increase was primarily driven by deleverage from lower sales volumes and higher wage rates, partially offset by menu price increases. Other operating expenses were 17.6% of revenue, an increase of 130 basis points from last year. Third quarter operating support center costs decreased $2.3 million from last year on a dollar basis. As a percent of revenue, operating support center costs improved to 14% from 15.2% last year. The decrease was primarily driven by lower bonus expenses due to company performance. As a reminder, we streamlined parts of our organization during the quarter, eliminating roughly 10% of open and existing roles to drive greater focus and efficiency. Third quarter net loss was $36.1 million compared to a net loss of $20.8 million last year. The higher net loss primarily reflects a $12.4 million decrease in restaurant-level profit and increased impairment charges, driven by a $4.3 million impairment charge for four underperforming restaurants. This was partially offset by lower stock-based compensation as IPO-related grants continue to roll off. Adjusted EBITDA was a loss of $4.4 million compared to positive $6.8 million last year. The decline was primarily driven by lower restaurant-level profit. During the quarter, we opened eight restaurants, six of which were Infinite Kitchen. We closed two restaurants during the quarter, Bleecker and Astor Place for a third quarter net interim count of six, and we ended the quarter with 266 restaurants. We ended the quarter with a cash balance of $130 million. As you heard earlier from Jonathan and read in our release this afternoon, the strategic sale of Spyce to Wonder marks an exciting milestone for Sweetgreen. From a financial standpoint, this transaction reflects a disciplined capital decision that both strengthens our liquidity position and enhances our path to profitability. The sale is expected to infuse our balance sheet with approximately $100 million in cash upon closing. We expect the Spyce sale to close in either the fourth quarter of 2025 or early in the first quarter of 2026. We also expect to realize approximately $8 million in annualized G&A savings as the Spyce team transitions to Wonder. Together, these actions are being taken to create meaningful leverage in our model and reinforce our focus on balancing growth with disciplined cost management. Through our ongoing collaboration with Wonder, we have found a way to continue to benefit from the long-term success of the platform while keeping our focus on expanding and enhancing the Sweetgreen experience. Now turning to guidance. We are updating 2025 guidance to the following: 37 net new restaurant openings, revenue ranging from $682 million to $688 million, negative same-store sales of 8.5% to 7.7%, restaurant level margin of 14.5% to 15%, and adjusted EBITDA between negative $13 million and negative $10 million. As Jon said, we plan to slow new unit growth next year to approximately 15 to 20 net new restaurants with about half featuring the Infinite Kitchen. We'll continue to evaluate opportunities to increase development as operating cash flow improves. To close, I came to Sweetgreen because I believe in what we're building and the impact this brand can have. I'm incredibly passionate about our mission and confident in the opportunity ahead.

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

In the prepared remarks, you mentioned starting to evaluate Sweetgreen's menu and pricing architecture. I think you said in Q4 and into Q1. So Jonathan, can you just give a sense of the scope of what you're looking at, what you're hoping to accomplish? Maybe you could characterize how difficult you think this will or won't be? And I ask because I know absolute price points, it's only one part of the value equation, but it's an important one. So I would just love to get your thoughts on what you think needs to be done.

Thank you, Brian. We are currently reviewing our menu and pricing structure. There are several avenues we are exploring. Firstly, we are examining our pricing ladders and menu entry points. Recently, we tested some pricing around $13 offerings to gauge price elasticity, and we observed significant engagement. However, since it primarily targeted existing customers, we experienced considerable cannibalization. Nonetheless, this indicates a strong opportunity for additional entry price points in our menu. In terms of menu innovation, we're looking for ways to introduce different price levels that act as entry points into our brand. We are also re-evaluating how we display our pricing on menu boards to highlight the variety we offer. Furthermore, as I noted earlier, we can enhance our communication of the value we provide, whether it relates to our made-from-scratch items or our proteins being cooked without seed oils and free from antibiotics. We're beginning to better articulate the value message we deliver. Additionally, we have increased our protein portions by about 25%, although we haven’t promoted this much yet. Starting next week, we will launch a significant campaign to raise awareness about this increased protein portioning, especially with the growing interest in protein. Overall, our pricing initiatives will progress into the next stages in the upcoming months, and we believe there are substantial opportunities in these varying pricing tiers.

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

I guess maybe I'm just looking at the guidance for the balance of the year or the implied guidance for the balance of the year, and it's effectively suggesting the fourth quarter is taking a step down. I don't think that's really too much of a surprise to people on the line. But I'm just curious if you could kind of walk through what you're seeing in the current environment? And specifically, I would think given where your stores are located in the Northeast and what's going on with the government shutdown, if you've seen anything worsen in the most recent months with respect to consumer demand? And frankly, how it's showing up in your business? Are you seeing it specifically during certain parts of the week? Are lunch or dinner getting hit more so than other dayparts and how people are spending at your stores relative to the past?

Yes, we are experiencing a decline. In July, we noticed a slight improvement from Q2 due to the seasonal menu launch. However, in August, we experienced a drop of about 200 basis points, followed by another decline of about 200 basis points in September. October has remained stable compared to September. Currently, we are seeing low negative double digits. It's important to note that consumers aged 25 to 35 are particularly affected, representing around 30% of our customer base and down by about 15%. Additionally, our Northeast and Los Angeles markets account for around 60% of our base and are contributing to an 800 basis point negative comparable sales impact compared to the rest of our locations. We are also seeing some reductions in dinner sales.

Okay. And maybe just in terms of the Infinite Kitchen agreement that you guys made today, can you just walk us through how that's going to impact you going forward? Obviously, it sounds like in a license agreement, but will there be any incremental costs that you'll have to pay going forward like a royalty for the technology into the future?

Yes, Jon, I’ll take that. We believe this strategic agreement with Wonder is truly beneficial for the business. It injects about $100 million in cash and another $86 million in Wonder stock into the company. Additionally, we have reduced our general and administrative expenses by approximately $8 million, allowing us to concentrate more on our customers and enhance the food experience. Moving forward, Infinite Kitchen will remain a significant part of our business. As we mentioned, it's continuing to grow in many of our new stores, and we are satisfied with the results. We've established a favorable agreement with Wonder, which allows us to acquire the units at around cost plus 5%, while maintaining our current costs for delivery, installation, and service. This is a substantial advantage for us, enabling us to utilize that technology as we scale, without the previous financial burden.

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

Just first, one quick bookkeeping. On the 15 to 20 net openings for 2026, what's contemplated the number of closures for next year? And then my real question is, it's good to hear the handheld is making a reappearance after you first talked about around a year ago. What were the key unlocks in the operational side to get it to the market test where I know you're going to figure out more on the operations side, but what were the key unlocks you did in this planning phase to get it to the market test?

I'll start with the net 15 store openings. So we've identified two that are going to close, and then we're also looking at lease expirations and being really diligent on if we should renew those leases. So we still expect about net 15. We've identified two, but net 15 is our number.

We have tested this with consumers and are confident that we have an excellent product. The market test aims to ensure we can operationalize it and understand any effects on throughput. It is a bit early to discuss it, but our internal testing makes us optimistic about creating something that will contribute positively to the business, unlock new dayparts, and serve as a significant acquisition driver. We have been aware of this for some time, and Jason, our COO, and his team believe it is something we can implement effectively. However, as I mentioned earlier, the stage-gate process is essential to getting it right, so we are not hurrying to roll it out. We want to ensure that the product, offering, menu assortment, and pricing are all correct, and most importantly, that we can execute it operationally.

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

Firstly, kudos on making the changes to the protein portion increases, Jonathan, they're quite visible and consistently hitting the 100-gram scope. Happy to see that being executed well. The question is on the net cash proceeds after any tax components associated with the Spyce sale. Given the cost basis and factoring in stock in the initial purchase price of Spyce, can you give us a detail on the actual cash that would be realized on the balance sheet? And also, like does it impact the future IK mix given the hurdle rate, given the cost plus 5% comment you made, Jonathan? Any color on that would be great.

I'll address the second part of your question, and I'll let Jamie cover the first. Regarding the actual cost, I see it as a significant advantage for us. At our current scale, we can only achieve limited economies of scale under a cost-plus model with a small margin of just 5%, which translates to roughly $25,000 on the machine's cost. As production scales up, we will benefit from increased economies of scale and gain access to future technologies. We believe this will help us reduce unit costs and encourage more investment in research and development and innovations for potentially more affordable and efficient automation units. Overall, this situation is beneficial for us.

And then following up on the cash, we're still going through the tax analysis and the valuation. So I don't expect it to be a material amount of tax that we are going to pay. And then we're still going through the tax and legal fees, et cetera, but I don't expect any of them to be material.

Your next question comes from the line of Sara Senatore of Bank of America.

Jamie, I would like to confirm something and ask a question. You mentioned that dinner is experiencing some challenges. Does this suggest that it's significantly affected? I've noticed that lunch seems to be more impacted because people can easily pack food to bring from home. I want to understand how this varies by specific times of day, particularly when considering suburban versus urban locations.

Yes. Sara, we actually are not seeing a slowdown in our lunch quarter-over-quarter. We're actually seeing a slight decrease. So really, it's the dinner time that we're seeing that decrease.

Okay. The question was about the recent sale and what prompted that decision now, aside from your cash position. Jon mentioned being subscale, and it seems that many restaurants tend to outsource technology unless they are quite large. I wanted to grasp the reasoning behind choosing to develop technology in-house versus deciding to outsource.

Yes, absolutely. So when we bought Spyce originally, there was no automation platform that we could have bought from there. And so we took what was a nascent idea, really a prototype in a couple of stores. We perfected it for Sweetgreen. We've commercialized it. We've gotten the manufacturing set up, and we've now scaled it. And it's now in this year, over half of the new NROs, again next year. And we're really at that point where us fully owning it is not needed as long as we have a level of control and license around the technology, and now we can benefit from the economies of scale and future innovation under Wonder. So it not only provides cash and lowers our G&A in this critical moment but allows us to focus on our business. And we believe over time it will actually bring the unit cost of the technology down so we can put it in more and more restaurants.

Your next question comes from the line of Logan Reich of RBC Capital Markets.

I just had one on the unit growth guidance for next year and the pipeline. Obviously, pulling back a little bit on unit development here. But I guess like the question is, is there any potential for that number to creep a little bit higher in a scenario where same-store sales gets back to growth and you guys feel comfortable about the operations? Curious if there's any flexibility in the pipeline to maybe scale that number up a little bit higher for next year.

Yes, absolutely, there is. The decision was made, one, from a financial discipline perspective, but also a focus perspective as we really focus on menu innovation and store experience in order to inflect our transaction comp. We do have a very robust pipeline over the next couple of years, and we made the strategic decision to kind of cherry-pick the best approximately 20 restaurants, but do have some flexibility depending on how things go to accelerate, and we are planning a reacceleration into 2027, not all the way to the 15% unit growth but do expect some reasonable step-up from the 20-ish stores in '26 into '27. So if we are able to inflect comp and feel really good about our overall operations and how we're delivering on the experience, we do have the potential to slightly increase next year's unit count.

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

This is Kelly Merrill on for Brian. I'm just curious, can we get an update on loyalty and where that stands today? I think on the last call, you noted it as an uplift to the beginning of Q3. So just wondering if that's sustained throughout the quarter or if you're seeing anything different now?

Yes. We've been generally pleased with loyalty. Now we just hit our six-month mark. We are seeing continued activations at almost 20,000 per week in terms of new customers, and we have seen some frequency increases of those loyalty members. We are right now in the process of really perfecting the different customer journeys and how we can get them to be more personalized and really understanding the different promo levers. One of the things you will see us do, especially in this cost-conscious environment for consumers is lean a bit more on certain kind of breakthrough promos to drive acquisitions. So you'll see us trying and testing a bunch more things with a lot of discipline, making sure that it can be accretive. But still, I'd say very early stages of the loyalty program. And over the next six months, we expect that to be more of a comp driver for us, especially as some of the overhang from the Sweetpass+ starts to fall off. And then again, it's really about how we leverage that data. Very excited about Zipporah, we call her Zip being here, and her expertise in loyalty and CRM. And again, we see a lot of opportunity to kind of leverage that digital flywheel.

Your next question comes from the line of Jeff Bernstein of Barclays.

This is Anisha on for Jeff. With only one quarter remaining in the year, restaurant level margins were cut significantly. Can you break down what's driving that, if it's labor deleverage, commodity inflation, or other factors?

Yes. So you're right. It's about half of sales deleverage. And then the next biggest piece is the protein increase. So we have about 140 bps in protein related to the increased portions of chicken and tofu. Those we plan to offset with supply chain initiatives and restaurant initiatives. And then we have tariffs, which we expect to hold at about 50 bps.

Your next question comes from Teddy Farley of Goldman Sachs.

One more on the loyalty program for me. Is the pricing and menu architecture review inclusive of a review of the rewards redemption stack for SG Rewards, just kind of making sure that you're competitive versus peers with value, not only on the core menu, but also with regards to the point redemption opportunities?

Yes, it's a great point. We have started with relatively modest programmatic benefits, which gives us significant opportunity to improve and enhance personalized offers in our CRM. We are exploring all possibilities, including tiered benefits for members, making the loyalty program an essential tool for us. Additionally, we recently implemented the Scan to Pay feature, allowing customers to easily use their loyalty points in-store. Since this rollout, we have seen an increase in loyalty usage in our restaurants, which also improves our throughput. We have many more enhancements planned for the future, and we are excited about our digital experience over the next 6 to 12 months to keep fueling that digital momentum.

With no further questions, that concludes our Q&A session and today's conference call. We thank you for your participation. You may now disconnect.