Cyclospora fears threaten Sweetgreen’s turnaround plan

To be clear: Sweetgreen hasn’t been implicated in any cyclospora outbreaks, which have sickened thousands of people across 15 states. “The cyclospora has been attributed to iceberg lettuce, which we do not carry,” co-founder and CEO Jonathan Neman said during the company’s second-quarter earnings call on Thursday. 

But the cyclospora outbreak has made some consumers more concerned about consuming fresh produce, given that the parasite alone cannot be reliably removed by washing produce. And it makes Sweetgreen’s goal of introducing itself to new customers and returning its existing stores to same-store growth that much more difficult.

“Beginning in mid-July, heightened consumer concern related to the recent cyclospora headlines” impacted Sweetgreen’s July comparable sales by about 600 basis points, CFO Jamie McConnell said during Thursday’s earnings call. 

Sweetgreen’s total sales for the second quarter came in at $192.7 million, up 3.8% year over year. However, much of the company’s growth was driven by new restaurant openings. Same-store sales were down 6.2% year over year. 

Like many fast-casual chains, Sweetgreen has been hurt by price-conscious customers pulling back on going out to eat. Sweetgreen has sought to reinvigorate sales at existing locations with the introduction of new items. In May, it introduced wraps, which it’s positioning as a more affordable item compared to its signature salads. Wraps at Sweetgreen all run under $15, while the cost of a salad averages around $16. Signature bowls can cost closer to $20, not including add-ons. Sweetgreen is also betting on buzzy collaborations to drive cultural relevance. On Thursday, the company announced that it is collaborating with tinned fish startup Fishwife on a Niçoise salad that will be available from August 11-24. 

Against the backdrop of cyclospora concerns, Sweetgreen lowered its full-year guidance. The company now projects that same-store sales will be down between 7-8%. Previously, Sweetgreen had forecasted a same-store sales decline for 2026 of around 2-4%. 

McConnell said that while the timing of a full recovery in consumer confidence is “difficult to predict, we are confident in our ability to rebuild momentum.”

“We are taking targeted actions to reinforce consumer confidence and re-engage guests,” she said. 

Additionally, Neman said Sweetgreen was also impacted by a voluntary recall this week of jalapeños that were from Sinaola, Mexico and distributed by Coast Citrus Distributors. 

“As an added precaution, we proactively removed and discarded all jalapeños from the supplier in the affected areas,” Neman said. “Jalapeños are used in only two of our 15 dressings and nowhere else on our menu, representing a very small portion of our sales mix because the communication was issued only yesterday. It is too early to reasonably estimate any potential impact, and therefore it is not reflected in our outlook.” 

During the earnings call, Neman highlighted a whole host of investments meant to help return Sweetgreen to growth under its “Sweet Growth Transformation Plan.” 

The company is focused on “building a more consistent menu calendar with a regular cadence of seasonal offerings, collaborations and partnerships designed to give customers new reasons to visit and keep Sweetgreen top of mind all year long.” Neman also touted the fact that Sweetgreen has not implemented a price increase in more than a year, which he says is leading to improving trends among lower-income and Gen-Z customers. 

On the marketing front, Neman said the company has essentially rebuilt its entire brand marketing and leadership team over the last six months. He said the company wants to “build stronger local marketing capabilities around our restaurants,” such as with micro-influencers. 

And, he said the company was focused on “moving with greater speed to capture the margin opportunities we see across the business.” 

During the earnings call, Sweetgreen execs received a number of questions about how it is using promotions to bring customers into the business.

While Sweetgreen touted the launch of its wraps as a success — Neman said that more than half of guests who ordered a wrap returned to Sweetgreen within 30 days — the lower price point of the item, combined with promotional activity to re-engage Sweetgreen visitors, hurt the company’s margins during the quarter.

Restaurant-Level Profit Margin for the quarter was 13.1%, down about 600 basis points compared to the same period last year.

One analyst asked Neman if the company was accounting for much greater promotional activity in the third quarter to bring foot traffic back up, especially amid the cyclospora concerns. 

Neman, for his part, shook off the concerns. “We are really trying to wean off the promotions and be very disciplined there,” he said.