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Sweetgreen files registration for planned IPO

Fast casual optimistic about expansion of its better-for-you, plant-forward concept

Sweetgreen is moving forward with its initial public offering (IPO), filing its S-1 registration statement with the Securities and Exchange Commission (SEC). The fast-casual chain of better-for-you, plant-forward bowls plans to raise up to $100M to better capitalize its structure, as well as fund operating expenses, and capital expenditures, plus develop the technology that was acquired in the company’s recent purchase of Spyce Food Co. Although it currently has no acquisition plans, Sweetgreen noted that it could purchase complementary products, technologies or companies in the future with net proceeds.

Revenues were $274M, $221M and $303M, respectively, in 2019, 2020 and the latest trailing months through September 26. The five-year compounded annual growth rate (CAGR) from 2014 to 2019 came in at 46%. In 2019, annual unit volume (AUV) totaled $3M and currently, AUV is $2.5M. Sweetgreen has targeted AUV of $2.8M to 3.0M moving forward.

The company is also targeting cash-on-cash returns of 42% to 50%, restaurant-level profit margin of 18% to 20% and an average investment of about $1.2M per new restaurant. In 2019, 2020 and year-to-date 2021, Sweetgreen opened 15, 15 and 21 new stores.

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Post-IPO, the fast casual plans to continue expanding its base of 140 stores, further automation, grow brand awareness, increase its menu offerings, and grow its Owned Digital customer channel (customers ordering on Sweetgreen’s mobile app and web portal). Over the next three to five years, it targets to double store count. Between 2019 and 2014, it more than tripled its 29 stores to 104 units.

According to Sweetgreen, it is building a path toward profitability, but has never been profitable. It attributes this to its investments in technology. In 2020, it lost $107.5M (adjusted EBITDA) and has indicated year-to-date Q3 2021 produced a loss of $48.9M. Its performance between Q3 2021 and Q3 2020, when it reported a loss of $78.5M was nearly $30M improved.

Since it is in the limited-service category, the Los Angeles-based fast casual, notes it has a sizable opportunity to grow its business, providing customers with high-quality, fresh meals that the QSR sector is not currently supplying. The segment lacks healthy and nutritious options, giving a large runway to expand. Also large restaurant chains are not as competitive as Sweetgreen, building their technology on legacy systems while Sweetgreen has built its concept around technology, it suggests. In addition, it owns the customer relationship—not third-party marketplaces—as is the case with many others in the restaurant industry, it posits.

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Several other trends will help Sweetgreen succeed in the near future: Health-conscious consumers, the growth of plant-based diets and the adoption of digital and delivery, and consumers’ stronger connection to purpose-driven brands. The fast casual chain’s growth prospect will get a boost from consumers looking for healthier meals and by those looking to increase plant-based food consumption.

Data by Sweetgreen shows customers on its Owned Digital channels produce 7.5 orders per quarter versus in-store channels producing only 2.9 orders. It plans to attract more customers to the Owned channel, giving it future leverage to negotiate lower fees with third-party marketplace for its whitelabel fulfillment. Customers will get access to exclusive digital menu offerings, collections and chef creations, in addition to lower prices/digital promotions, a seamless & personalized experience. Sweetgreen plans to tap its robust CRM a it grows other nascent revenue opportunities, including drive-thru, catering, and curbside pickup.

Goldman Sachs & Co. LLC and J.P. Morgan will act as lead book-running managers and as representatives of the underwriters for the proposed offering. Allen & Company LLC and Morgan Stanley will serve as book-running managers. Citigroup Global Markets Inc., Cowen and Company, LLC, Oppenheimer & Co. Inc., RBC Capital Markets, and William Blair will also serve as book-running managers. Amerivet Securities and Blaylock Van LLC will act as co-managers for the offering.

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