Sweetgreen Is Betting It All on Store Growth

Sweetgreen (NYSE: SG) is a young restaurant chain that aims to grow in the years ahead, but it's important to know that financial results for this type of business need to be assessed in a particular way. For example, the company's first quarter appears to have been reasonably strong, with the top line expanding by 5.4%.

But there's an underlying weakness here that you have to understand before you buy into this salad-focused fast-food concept. Let's take a closer look.

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What does Sweetgreen do?

Sweetgreen is basically a fast-food restaurant chain. The food it sells which, as noted, is salads isn't actually all that important when you step back and look at how the business operates from a big-picture perspective. Like all fast-food restaurants, there are two key numbers that are important to monitor.

Image source: Getty Images.

The first figure that's important is simply sales. That's true of all companies, of course. Sweetgreen's top line expanded by 5.4% in the first quarter of 2025. That's not bad, given the uncertainty around the economy, highlighted by the fear that the United States could fall into a recession. Consumers tend to eat out less when they are worried about money.

This is where the second big number for restaurants comes into play: same-store sales. This is an important figure for retailers, too. It basically highlights how well locations that have been open for at least a year are performing.

If customers are coming back for more, highlighting strong demand for the concept, same-store sales will be rising. If customers are pulling back, highlighting weak demand for a concept, same-store sales will be falling. Sweetgreen's same-store sales fell 3.1% in the first quarter of 2025, down from a rise of 5% in the year-ago period.

The dichotomy that Sweetgreen investors need to watch

Understanding the interplay between same-store sales and revenue is vital if you are investing in a restaurant chain. That's particularly true for a restaurant that is expanding its business aggressively.

Sweetgreen is fairly small, with only around 250 restaurants. It opened five new locations in the first quarter, which, using that as a run rate, means around 20 new stores for the year. That would be a sizable 8% expansion in the store count.

What's important to consider is that new stores add materially to the top line, especially when a company still has a small store base. So new locations can continue to drive revenue higher even if the core business isn't performing well.

That is what accounts for Sweetgreen's first-quarter revenue increase. And that, in turn, helped improve its bottom-line showing (it lost less money in the first quarter of 2025 than it lost in the same stanza of 2024). A larger share count also helped on the earnings front, since the smaller loss was also spread across more shares.

This isn't bad news, per se. Food concepts can go through periods where demand is weak and can keep growing their businesses just the same. Assuming that the food concept comes back into favor, there's no harm in pushing the accelerator on growth through a weak patch.

But sometimes a weak patch is a bigger issue than investors think, and management is leaning in on new-store growth to paper over the poor performance of the food concept.

Watch this number -- it is where the risk usually shows up first

It is way too soon to suggest that this is what is happening at Sweetgreen, even though the company is clearly leaning on new store openings for growth.

Still, investors should keep as close an eye on the company's weak same-store sales as they do on the top and bottom lines. If same-store sales don't pick up or the decline starts to get materially worse, the long-term opportunity here might be far more limited than management wants you to believe.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.