Sweetgreen stock tumbles as cyclosporiasis scare dents salad sales

Shares of Sweetgreen dropped 15% in premarket trading on Friday, a day after the salad chain lowered its annual same-store sales forecast. The company attributed the revision to weakened consumer demand tied to a record US outbreak of cyclosporiasis, a foodborne illness linked to contaminated produce.

The current outbreak, which has been connected to recalled iceberg lettuce from central Mexico, has made some consumers wary of fresh produce and certain restaurant chains. Sweetgreen has stressed that iceberg lettuce is not used anywhere on its menu and said it has received no indication from health authorities or suppliers linking the company to the outbreak.

Despite that, the chain now expects same-store sales to decline between 7% and 8% for the full year, a sharper drop than its earlier forecast of a 2% to 4% decrease. The company said the revised guidance reflects reduced demand since mid-July, when concerns about the outbreak intensified.

For the second quarter ended June 28, same-store sales fell 6.2%, marking a sixth consecutive quarterly decline, though an improvement over the 7.6% drop recorded a year earlier.

Chief Financial Officer Jamie McConnell said on a post-earnings call that heightened consumer concern related to cyclospora headlines disrupted momentum beginning in mid-July, with an impact of about 600 basis points on July comparable sales. He added that while the timing of a full recovery is difficult to predict, the company is confident in its ability to rebuild momentum.

Sweetgreen's shares have fallen nearly 30% since mid-July, as the outbreak weighed on restaurant chains that rely heavily on fresh produce. The company, along with other salad chains, has posted notices emphasizing that it does not use iceberg lettuce to reassure customers.

Separately, Sweetgreen said it recalled some jalapenos earlier this week, as health authorities are also investigating a Salmonella outbreak linked to Mexican jalapeno peppers.