Good afternoon. My name is Emma and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sweetgreen First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Rebecca Nounou, Head of Investor Relations, you may begin your conference.

Thank you, and good afternoon, everyone. Here with me today are Jonathan Neman, Co-Founder and CEO; 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-K 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 U.S. GAAP measure can be found in this afternoon’s press release available on our IR website. And with that, it’s my pleasure to turn the call over to Jonathan to kick things off.

Thank you, Rebecca. And good afternoon, everyone. This is a really exciting time for Sweetgreen, and I'm energized by all the strategic updates we will share with you today. We believe times like these create opportunities for companies with great brands, large addressable markets and loyal customers. And we expect to look back on this period as a moment that catalyzed our next phase of durable growth. We recognize that great businesses have to be and companies balancing growth and profitability. And I'm confident that the actions we have taken over the last few quarters put it squarely on the path to grow shareholder value in the years ahead. Becoming a large profitable company starts with providing exceptional guest experiences. Our team has done a tremendous job thinking through how we can better serve all our guests. From our new loyalty programs to the past to new menu items like the chicken in Chipotle pepper bowl to driving top quality execution in our restaurants. I am pleased with our performance. I want to extend my gratitude to every Sweetgreen team member for their dedication to our mission of building healthier communities by connecting people to real food. My co-founders and I collectively remain the largest shareholder of the company and we treat every dollar as though were are our own. As we transition to operating in an environment defined by uncertainty and an increased cost of capital. We are incredibly focused on driving high returns within our existing fleet and across new projects we undertake. The headstart we have in building the category allows us to be disciplined during this period while remaining nimble enough to take advantage of the opportunities that will undoubtedly arise. We see our approach paying off as we reported first quarter sales of $125.1 million…

Thank you, Jonathan. And good afternoon, everyone. We are pleased with our financial results for the first quarter with revenue finishing within our expected range. Total revenue for the first quarter was 125.1 million, up from 102.6 million in the first quarter of 2020 to growing 22% year-over-year. Same store sales grew 5% reflecting a 3% price increase tokens subsequent to March 2022 and a 2% increase in transactions. Our average unit volume was 2.9 million up from 2.8 million in Q1, 2022 nearing our pre-COVID AUVs. We opened 12 new restaurants this quarter. As shared on our last earnings call we closes three restaurants in the first quarter, one in Los Angeles, one in Boston and one in New York. All three of these restaurants had neighboring restaurants that had better customer and team member experience. Additionally, we will be able to drive incremental profitability by moving volume from one store to another. We ended the quarter with nine net new restaurants and a total of 195 restaurants. Restaurant level margin in the first quarter was 14%. This includes a 1.8 million benefit related to the employee retention tax credits issued as part of the Cares Act. Excluding this credit, our margin was 12% which is at the top end of our guidance. This improvement was primarily due to sales leverage. For a reconciliation of restaurant level margin to comparable GAAP figures please refer to the earnings release. Food, beverage and packaging costs are 28% of revenue for the quarter, which is 200 basis points higher than 2022. As mentioned on our last earnings call, starting in January, we experienced a packaging disruption which resulted in elevated packaging costs throughout the quarter. Labor and related costs were 31% of revenue for the first quarter, down 200 basis points from…

Thank you. [Operator Instructions] Your first question comes from the line of John Ivankoe with JPMorgan. Your line is open.

Hi, thank you, I was hoping we could spend a few more minutes talking about what you define as urban stores just kind of signs of recovery, I suppose or lack thereof and how you might be adjusting your business model to what at this point in the May of '23 might be defined as the new normal and maybe elaborating on that to some extent can you talk about how the competitive market '23 over 90 may be evolving, whether that is in those urban areas either better or worse or just different in some ways greater count, lesser count whatever you can say about the competitive landscape? And also talk about who you're running into as you go more into the suburban locations that's the type of competitive set that you expected to compete against. Thank you.

Hi, John, thanks for the question. We're really starting to see the urban stores and particularly the central business district stores come back and come back fairly strongly on a four day a week basis. I could say Mondays today are starting to level off at the same volume we see Tuesday through Thursday. And in terms of the kind of a comp growth rate really came out in the first quarter, it's just, in double digit range at this point in time. So we're actually pretty pleased with what we've been seeing in the urban stores. In terms of what we're doing we talked a little bit earlier on the call around broadening our menu, our loyalty program, which is really designed to drive frequency and boot any large number catering channel, and we see these as ways we capture the volume that we may have missed off on a Friday and weekends compared to pre-COVID. All things considered, we're actually pretty pleased with what we're seeing right now. There has been a lessening of competition and we see that coming mainly from kind of independence, particularly in markets like New York.

Your next question comes from the line of Chris Carril with RBC Capital Markets. Your line is open.

Hi, good afternoon, Jonathan, you highlighted improvement in turnover and throughput in your prepared remarks. So to what extent do you think improvements in these areas helped to flip traffic back to positive in the 1Q? And how much of a tailwind do you see just ongoing improvement in labor efficiency and throughput providing going forward here? Thanks.

Yes. Hey, Chris, thanks for the question. So throughput has been a huge focus for us over the past six months. I mean, it's always something very important for us as speed of service is just important to our guests. As our staffing and labor environments gotten better, we really focused on both increasing our throttles on our digital make lines, and we shared the stat. We were able to cross the fleet increased throttles by 20%, which means we're serving the ability to serve 20% more people on our digital make lines. And that was a contributor in our urban growth. As Mitch mentioned, urban, and specifically, our central business districts were strong and the throttle expansion was part of that. Secondly we are focused on the front lines, front lines. Front lines have been a huge growth driver for us as well, as you'd expect with the world opening up, we're seeing much more traffic in our dining rooms, which is very encouraging for us is that those customers that start in our dining rooms, typically move into our digital ecosystem and become very valuable customers for us. So huge growth on the front lines and a big focus on increasing our throughputs on the front lines as well. So I think there's more to do there. We've played with different line formats that we've been testing, some which are in different stores, which are seeing faster throughput. We shared some details on our optimized kitchen format before. And so as we open new stores with this format, we are seeing even faster throughputs and better productivity. So expected to continue to push here, both on the digital lines and our front lines to continue to drive speed of service.

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

Hi, good afternoon. I wanted to touch base on pricing. I think you may have taken a price increase earlier this quarter. I'm not sure if you mentioned that. Can you talk about kind of the drivers of the price increase kind of what you're seeing in ongoing commodity inflation? And how the consumer has reacted to that price increase?

Well, thank you Sharon. We took approximately a 3% price increase at the beginning of the year. And at the beginning of the second quarter, we took just around 1%, which was very targeted in a handful of very select stores. What we really have found is not a lot of softness from the customer and/ or resistance from the price increases we've taken. And we really don't have really a strong price actions plan for the remainder of the year.

Sharon just if I could add anything to that we're actually kind of encouraged on our relative price value compared to the competition. The industry has taken so much price over the past few years. And this quarter, we took three points the rest of we know what our competitors did. And so we feel pretty good about our relative value and think that's going to be a big opportunity for us as we continue to grow.

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

Great. Thank you, Mitch, you saw same store sales of 5%, which was near the high end of guidance while reported revenue came in near the low end of 1Q guidance. And so as we think about that dichotomy, can you speak to what you're seeing with new store sales volumes?

Yes, thank you, Andrew. Let me say that we're very happy with the class of 2023 and we're getting out the gates, and I'm very encouraged by them. The class of 2022 which we spoke about in previous calls, we've seen some acceleration in certain markets as they've gone back or intimacy and scale playbook. Other stores have taken a little bit longer term. And I think that's a little bit where you're seeing kind of this small change in sales volume.

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

Hey, great. This is Matt onto Brian Harbour. You make notable recent efforts to broaden the menu beyond the salads, more hearty options. Can you talk about the guests response to this? How's this changing? Who's coming into the brand? And maybe any day part impact? Thanks.

Yes. So we've talked about this for a while really are focused on meeting customers where they are with a broader menu driving different occasions and really bringing different broader customer base into Sweetgreen. So really this idea of crave ability and a sweet Greenway. As you know, we launched our Chicken Chipotle Pepper Bowl this quarter. And it was received really well. It's been one of our top five items, top five launch a top five bowl for us ton of brand buzz, and is acquiring a lot of customers. It's still very early, but we have a lot of new other catalysts from a menu perspective enroute. So expect a few more launches throughout this year, really pushing into that hot and hearty sort of food, making Sweetgreen more desirable, a different day parts in different consumers. So overall, very encouraged with the menu work and expect a lot more to come.

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

Hey, good afternoon. This is Karen [indiscernible] on for Jon. I know it's early days, but can you speak to your what you're seeing in the loyalty program? Your relaunch maybe relative to what you expected? And have you kind of explicitly built a contribution from that into how you're thinking about the same store sale guidance for a year? Thanks.

Yes. So I'll start off. Overall really encouraged. It's only been on [indiscernible] nine days since it launched last Monday. But overall, and it was in pilot for a little bit. So far, exceeding our expectations and all of our key metrics. So we feel very excited about it. Customers are loving both the free version, as well as the paid subscription here. We will come back with more details on how it's performing. But overall, I think in this environment, not having a loyalty program was something that I think consumers were asking for. And so we're really excited to have it out there and have it be very uniquely built in a Sweetgreen way. So one thing I would say is the way we built, it gives us a lot of personalization levers around this around Sweetpass. So we can be very efficient in our marketing and promo spend and how we actually increase the frequency of get without a one size fits all approach.

Just commenting on the second part of your question, given how early we are in the program, we have not explicitly built any upside into our same store sales guidance for.

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

Hi, thank you. So I wanted to ask actually just about the revised guidance. So I think given the fact that excluding the credit, Q1 adjusted EBITDA came in at the top of the range. You have a number of top line drivers in place, it seems like USDA fees are low what's in your control you're able to do that, you know very well, whether it's on the G&A side, or just cost control generally. And so I'm sort of I'm wondering what's embedded at this point in the low end of the revised guidance range kind of what are some offsets, I guess, to what otherwise seems to be like a very good operating environment.

Katherine thank you for the question. We feel really positive about the things we control. We're very happy with the loyalty program, our class of '23, the menu items were putting in place. Some of our channel development was catering. What we're really a little bit concerned about is the external environment that we don't control. And I think if you ask what's at the bottom end of the guidance, it's really just looking at the outside world and wondering what it's going to deliver to us as we go through the next nine months. But we feel very confident about the programs and initiatives that we have in place.

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