Sweetgreen shares fell sharply after the salad chain lowered its annual sales forecast as cyclosporiasis fears weighed on consumer demand for fresh produce.
The company’s shares dropped about 15% in premarket trading Friday, following the forecast cut announced a day earlier. Sweetgreen now expects annual same-store sales to decline between 7% and 8%. Its previous forecast had called for a decline of 2% to 4%.
Sweetgreen shares hit by food safety concerns
The change comes as U.S. cyclosporiasis cases reach record levels. The current outbreak ranks among the largest foodborne illness outbreaks reported nationally in recent history.
Cyclosporiasis can spread when people consume food or water contaminated with feces. Raw fruits and vegetables can carry the parasite. The infection can cause diarrhea, nausea and other gastrointestinal symptoms.
Health authorities have linked the current outbreak to recalled iceberg lettuce from central Mexico. The situation has made some consumers more cautious about fresh produce and restaurant meals.
Sweetgreen has stressed that it does not use iceberg lettuce in any of its menu items. The company also said it has received no indication from health authorities or suppliers that it has any connection to the outbreak.
Sales outlook takes a hit
Sweetgreen said customer demand weakened from the middle of July as concerns over the outbreak grew.
Same-store sales fell 6.2% in the second quarter, marking the company’s sixth consecutive quarterly decline. However, the result improved from a 7.6% decline during the same period a year earlier.
CFO Jamie McConnell said the company had been seeing improving momentum before concerns about cyclosporiasis disrupted sales.
The company said the outbreak affected July comparable sales by about 600 basis points. McConnell added that the timing of a full recovery remains difficult to predict, but the company remains confident about rebuilding momentum.
Sweetgreen shares remain under pressure
Sweetgreen shares have lost nearly 30% since mid-July as concerns about the outbreak began affecting restaurant companies that depend heavily on fresh produce.
Sweetgreen and other salad chains have posted notices highlighting their food-sourcing practices. The companies hope the information will reassure customers about the safety of their products.
Sweetgreen has a market value of roughly $700 million. The company also disclosed that it recalled some jalapenos earlier this week.
Health authorities are separately investigating a Salmonella outbreak connected to Mexican jalapeno peppers.
For investors, the developments add another challenge to a restaurant chain already dealing with weak same-store sales. The company will now need to rebuild consumer confidence while working to recover the sales momentum it had started to regain.
