Reuben Gregg Brewer, The Motley Fool

Sun, May 18, 2025, 7:17 AM4 min read

• Sweetgreen is a health-oriented restaurant concept focused on salad.

• The company's top line expanded a healthy 5.4% in the first quarter.

• However, those results weren't as strong as they may at first appear.

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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.

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.

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.

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.