Sweetgreen Stumbles Again. Are the Turnaround Chances Gone?

Sweetgreen missed estimates in its second-quarter earnings report.

The business was trending in the right direction before the outbreak.

Sweetgreen (NYSE: SG) delivered another disappointing earnings report Thursday after hours, and while there were some signs of progress in its turnaround efforts, it clearly wasn't enough as the stock was trading down double digits Friday morning before recouping some of those losses.

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The clearest picture from the report is that Sweetgreen's results are moving in the right direction, but not fast enough, and sales and profits are still declining.

Its same-store sales decline improved from 12.8% in the first quarter to 6.2% in the second quarter, but that's still a substantial slide. The nationwide roll-out of wraps in the second quarter drove some momentum for the company. Same-store traffic was down just 2% in the quarter, with a 4% decline in sales and mix due to promotions and comparatively lower prices for wraps than bowls.

The company also showed positive momentum in the quarter as same-store traffic was flat in June after falling by 3% in April and May. Management said that comps were positive for the first 10 days of July before the cyclospora outbreak. Based on those results, Sweetgreen seemed to be on its way to a strong second half. However, the turnaround hit a wall due to the cyclospora outbreak that started in mid-July. Even though Sweetgreen's products weren't directly affected by the outbreak, and the company doesn't even use iceberg lettuce, consumer fears led to a downturn in fresh salad consumption, which cut July comparable sales by an estimated 600 basis points.

As a result of the outbreak, management slashed its same-store sales guidance for the full year from a decline of 2%-4% to down 7%-8%, and it cut adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) guidance to a loss of $23 million-$27 million from a profit of $1 million-$6 million.