Sweetgreen plunges 10% as cyclospora fears, jalapeño recall hit sales

Sweetgreen shares fell 10% Friday after the salad chain cut its full-year forecast, citing reduced demand for fresh foods during a multistate cyclospora outbreak.

"The pace and timing of recovery remain uncertain," Sweetgreen said in its earnings statement Thursday.

Revenue rose 3.8% to $192.7 million in the quarter ended June 28, missing the $194.5 million consensus. The GAAP loss widened to 22 cents a share from 20 cents, versus an expected 12-cent loss. Same-store sales fell 6.2%, a sixth straight quarterly decline, and restaurant-level margin dropped to 13.1% from 18.9% a year earlier.

The company now expects a full-year adjusted EBITDA loss of $23 million to $27 million, versus an earlier forecast of a $1 million to $6 million profit, and same-store sales down 7% to 8%, worse than a prior 2% to 4% decline.

Sweetgreen has not been linked to the cyclospora outbreak, which the FDA tied to iceberg lettuce from a Taylor Farms facility in Mexico, and the chain does not serve iceberg lettuce. Still, the outbreak has sickened at least 10,000 people, hospitalized hundreds and led to two deaths, according to the CDC, driving diners away from fresh produce across the sector. Taco Bell is the only major national chain linked to the outbreak, while Salad and Go filed for bankruptcy this week citing the dampened demand.

The company also removed jalapeños from its supply chain this week after a separate salmonella outbreak sickened 345 people across 27 states. The peppers were traced to Coast Citrus Distributors, which also supplied Chipotle and QDOBA, both of which pulled the affected product. Jalapeños appear in only two of Sweetgreen's 15 dressings, CEO Jonathan Neman said on the earnings call, representing a small portion of sales.

Chipotle said its sales weakened about 2% in the second half of July as the outbreak spread. Sweetgreen's stock has fallen roughly 30% since mid-July and trades near its 52-week low of $4.49, closing around $5.24.

The guidance cut signals management expects the demand hit to persist into the second half, and the stock's slide leaves it testing support near its yearly low. Investors will watch whether same-store traffic, which was flat in June before the outbreak, recovers as the cyclospora case count stabilizes.

This article is for informational purposes only and does not constitute investment advice.