Sweetgreen Stock Drops After a Pre-Earnings Downgrade

Sweetgreen is wilting. 

Shares of the salad chain dropped early Tuesday, falling over 6% in recent trading after JPMorgan analysts downgraded the shares and cut their price target to below the Visible Alpha average. They now have a “neutral” rating on Sweetgreen (SG) stock, down from “overweight,” along with a $25 target, below the roughly $30 mean. Their prior target, at $32, was among the Street’s highest.

JPMorgan expressed worry about demand, oversupply of restaurants and negative free cash flow.  

“We believe there is a need for Sweetgreen to improve its relative value proposition by 1) foregoing pricing in the near-medium term, 2) reinvesting in food portions (especially in the digital pickup/delivery channels), 3) developing & effectively communicating entry level price points, and 4) increasing returns on marketing/advertising spend,” they wrote. 

The downgrade arrives as some food chains are sharing concerns about demand and consumer health. Fast-food standouts offer some recent examples: Wendy’s (WEN) recently said its sales may fall this year, while McDonald’s (MCD) has warned of economic stress seeping into the middle-income segment. American consumers have continued to spend, but some observers worry about flagging sentiment.  

The slide in Sweetgreen’s shares has the stock down more than 40% this year so far, a rough start ahead of quarterly financial results due Thursday afternoon. Analysts are expecting first-quarter revenue of $164.8 million and a nearly $26 million net loss, according to Visible Alpha.