Key Takeaways:
Sweetgreen shares fell 27 percent in July after a cyclospora outbreak linked to Taylor Farms lettuce triggered food-safety fears at the salad chain.
Foot traffic at Sweetgreen dropped for about a week after the outbreak was announced July 14 before starting to recover, according to data from Placer.ai, a location intelligence platform. The stock plunged 14.3 percent on the day the outbreak became public, then briefly recovered on reports that Taylor Farms — which supplies Taco Bell — was the source. The FDA expanded its investigation to four new states on July 24, and the stock continued to slide through month-end.
Sweetgreen does not use iceberg lettuce, the ingredient associated with the outbreak. But its brand identity is built around fresh salads, making it vulnerable to consumer concerns about food safety. The company is down 86 percent from its peak in late 2024.
The negative news also stymied momentum from the national rollout of wraps in May. The company reports second-quarter earnings after hours Thursday. Analysts expect revenue of $194.9 million, up 5 percent year over year, and an adjusted loss per share of $0.12, wider than the $0.08 loss in the prior-year quarter.
According to Placer.ai, Sweetgreen's foot traffic rose 22 percent in the second quarter, which includes new stores. The company expects comparable sales to stabilize after falling 12.8 percent in the first quarter.
The outbreak has affected restaurant stocks unevenly. Yum! Brands, whose Taco Bell was directly linked to the contaminated lettuce, fell 2.22 percent to $149.88 on the day the CDC confirmed 6,707 laboratory-confirmed cases across 45 states with 423 hospitalizations. Chipotle, which sources differently, was essentially flat at $37.18 and recently raised its full-year comparable-sales guidance. McDonald's fell 0.83 percent.
Sweetgreen's decline reflects guilt-by-association rather than direct exposure. The company has no connection to Taylor Farms or Taco Bell. But when a food-safety crisis hits the fresh-greens category, investors reprice any company whose entire identity is built around raw salads. The stock's 31.36 percent decline over the past month and 49.54 percent drop over the past year leave little cushion for further negative news.
The second-quarter report could mark the beginning of a turnaround. If Sweetgreen returns to comparable-sales growth, the stock could rebound from its beaten-down levels. The company still has significant growth potential with new store openings, and the wraps rollout provides a fresh product line to drive traffic. Investors will be watching Thursday's report closely for signs that the outbreak's impact on foot traffic was temporary and that the underlying business remains on track.
This article is for informational purposes only and does not constitute investment advice.
