Do you think Sweetgreen stock can deliver Chipotle-like returns? Here’s a statistic to keep in mind.

When it comes to investing in restaurant stocks, Chipotle Mexican Grill (CMG 3.45%) it is the gold standard. A $10,000 investment when the company went public in 2006 is worth over $600,000 today. Its operating profit has increased by about 4,000% since going public, which is a big reason for its sensational returns.

These sensational returns have investors constantly on the lookout for the “next Chipotle” and the salad-centric chain Sweetgreen (SG 4.04%) is commonly seen as a competitor. Certainly, the restaurant chain shares many attractive qualities with Chipotle. But Sweetgreen lacks something that Chipotle had at this stage, and knowing that difference is necessary for investors trying to understand this investment opportunity today.

A notable difference between Sweetgreen and Chipotle

Sweetgreen is a small restaurant chain with approximately 230 locations. But these locations pack a punch, with an average unit volume of about $2.9 million. Therefore, the company already has roughly $650 million in trailing 12-month revenue, making it a bigger deal than some might expect.

However, if there is one knock against Sweetgreen, it is that it is not profitable. The company had an operating loss of $16 million in the second quarter of 2024 alone. When I compare it to Chipotle, I think this is noteworthy.

Chipotle has been profitable since 2004. Back then it was comparable in size to Sweetgreen. That year, Chipotle generated $471 million in revenue, delivering an operating profit of $6 million for the full year.

In 2005, Chipotle’s business really took off. It generated annual revenue of $628 million (which was still less than Sweetgreen is now), allowing its operating profit to quintuple to $31 million.

Sifting through their operating statements reveals the difference: As a percentage of revenue, Sweetgreen’s general and administrative expenses are more than double Chipotle’s in 2004. That’s the notable difference between the two chains.

What does this mean for Sweetgreen investors?

If you look at its potential, Sweetgreen has a lot to like. For example, the company recently raised prices, but its customers were not deterred. Q2 same-store sales rose 9% year-over-year, which included a 4% increase for restaurant traffic. It’s good news.

Moreover, Sweetgreen may not be profitable overall. But after taking out corporate expenses, the company is profitable at the restaurant level. In fact, the profit margin at the restaurant level in Q2 was 22%. Few restaurant companies are as good as this one.

Surprisingly, it could be about to get better. Sweetgreen is experimenting with robotic automation technology at its restaurants — a project it calls Infinite Kitchen. The first restaurant location equipped with Infinite Kitchen has a restaurant-wide margin of 31% in Q2, which is much better than locations without it. Understandably, management is looking to implement this in more locations this year and beyond to boost their bottom line.

Here’s another encouraging note: While general and administrative expenses are robbing Sweetgreen of profitability today, they’re already headed in the right direction before Infinite Kitchen launches. The table below shows how things have progressed.

The figures from Sweetgreen’s financial files. Table by author.

Sweetgreen’s management has done a good job of keeping general and administrative expenses under control as it expands. If the trend continues, this is a good thing for investors.

Sweetgreen is not profitable today because the general and administrative expenses were too high. But looking at trends, the company could be turning the corner on profitability as sales volume increases, automation efforts increase margins and general and administrative expenses continue to decline.

However, there is one last comparison between Sweetgreen and Chipotle that I should point out before I close. Chipotle is a concept that has scaled incredibly well. It has over 3,500 locations today and is targeting over 7,000 locations in the long term. In comparison, Sweetgreen management believes 1,000 locations by 2030 may exceed their limits.

There may not be as much consumer demand for a high-volume salad chain compared to consumer demand for burritos. So while Sweetgreen may be turning the corner on profitability, it’s fair to wonder how big the overall profits will be, the limits to how big this chain can one day be.

In other words, Sweetgreen stock could be a good opportunity. But it may not be as big an opportunity as Chipotle’s stock was when it went public.