Sweetgreen Says Wraps Are a Hit With Diners, But Cyclospora Scare Clouds Outlook

Sweetgreen Inc. (NYSE:SG) is finding that winning back customers comes with a bitter side of bad luck. The fast-casual salad chain reported early success with its new lower-priced wraps, which are driving loyalty and transaction growth. However, a consumer health scare linked to an unrelated Cyclospora outbreak in mid-July has forced the company to slash its financial forecast for the year, overshadowing a strategic product win.

Chief Executive Officer Jonathan Neman told investors on the company's second-quarter earnings call that wraps have maintained a roughly 20 percent incidence rate since their national launch, a level that exceeded internal expectations. The handheld offering has resonated powerfully with Gen Z diners and existing customers, posting a 30-day return rate that surpasses the Harvest Bowl, historically Sweetgreen's strongest repeat-order item.

"The real opportunity for us now is to leverage wraps around driving new customer acquisitions from a top-of-funnel perspective," Neman said.

The success of the wraps, however, was not enough to fully offset a challenging quarter. Sweetgreen reported revenue of $192.7 million for the period, a 4 percent increase from a year earlier, but comparable restaurant sales declined 6.2 percent. The company said its comparable transaction trend improved dramatically during the quarter, moving from an 11.2 percent decline in the first quarter to a roughly flat reading in June.

That recovery was disrupted in mid-July when consumers began avoiding salad chains following news of a Cyclospora outbreak attributed to iceberg lettuce. Neman stressed that Sweetgreen does not use iceberg lettuce and has no indication from suppliers or health authorities that it is connected to the outbreak. Nonetheless, the company factored the expected impact of the negative headlines into a revised, more conservative full-year outlook.

Adding to supply-chain noise, Sweetgreen proactively removed jalapenos from an affected supplier following a separate voluntary recall announced the day before the earnings call. Neman said jalapenos are used in only two of the chain's 15 dressings and represent a small fraction of sales. The company did not include any impact from that matter in its guidance, citing a lack of early data.

Chief Financial Officer Jamie McConnell detailed the financial crosscurrents created by the wraps strategy. While the product drove transactions, its lower entry price point created a check and product-mix headwind. Comparable sales were pressured by a 2 percent decline in transactions and a 4.2 percent decline in product mix. The mix pressure also reflected targeted promotions aimed at re-engaging lapsed customers and a tough comparison against the prior year's launch of Ripple Fries, which were discontinued in the third quarter of 2025.

McConnell said the gap between the transaction contribution of wraps and their reported comparable-sales contribution was "all primarily related to the lower check." She added that wraps are priced with margins comparable to other menu items, making them margin-neutral to the overall business.

Restaurant-level profit totaled $25.2 million, or 13.1 percent of revenue, down sharply from an 18.9 percent margin a year earlier. Food, beverage and packaging costs rose about 210 basis points as a percentage of revenue, driven by higher ingredient usage, investments in portions and promotions. Labor expenses climbed roughly 170 basis points due to sales deleverage and wage inflation. Adjusted EBITDA swung to a loss of $200,000, compared with a profit of $6.4 million in the prior-year quarter.

Sweetgreen ended the quarter with $142.6 million in cash and 287 total restaurants, including 35 locations powered by its Infinite Kitchen automation technology.

On the operational front, Neman said the company has sharpened its focus on speed. After an initial slowdown following the wrap launch, service times returned to prior levels within four weeks and have since improved. The chain is now emphasizing "Rush Ready Before Peak" procedures. At its highest-volume locations, frontline peak entrees prepared per hour rose from the low 50s in May to the low 60s in June. On the busiest days, top-performing restaurants exceeded 250 entrees per hour.

New regional general managers in New York and Seattle helped those markets return to positive transaction comparisons during the quarter, Neman noted. The company is also redesigning training programs and testing new scheduling models to better align labor with peak demand.

Looking ahead, Sweetgreen plans to continue menu innovation. A new wrap is set to launch this week, seasonal Brussels sprouts will arrive in the fall, and a chef collaboration is on tap for later in the year. Management also sees an opportunity to build dinner business through protein-forward plates, with the relaunched Hot Honey Chicken Plate showing a 30 percent improvement in its 30-day reorder rate.

Sweetgreen is also testing a redesigned "Create Your Own" ordering experience that includes a protein in the base price and offers greater transparency around premium add-ons. The test began in Indianapolis, expanded to Washington, D.C., and recently reached Southern California and Orange County. Neman said early customer feedback has been encouraging, though it is too soon to measure transaction or frequency effects.

The revised full-year outlook reflects the fog created by the July health scare. The company now expects the following:

Metric	New Full-Year 2026 Guidance
Comparable Restaurant Sales	Decline of 8% to 7%
Restaurant-Level Profit Margin	10.5% to 11%
Adjusted EBITDA	Loss of $27 million to $23 million

Note: The outlook assumes a 600- to 700-basis-point comparable-sales impact in the third quarter from the Cyclospora-related disruption. The low end assumes a partial recovery in the fourth quarter, while the high end assumes a return to the pre-disruption trend at the start of the fourth quarter.

Sweetgreen estimated that the disruption will reduce full-year comparable sales by 200 to 300 basis points, restaurant-level margin by 100 to 150 basis points, and adjusted EBITDA by $7 million to $10 million.

On development, Neman said the company plans to maintain a conservative pace of new restaurant openings, similar to or slower than this year's rate, while it refines prototypes, construction costs and unit economics. The company opened four restaurants and closed two during the second quarter, and entered Tennessee in July with a new location in Nashville's Gulch neighborhood.