Sweetgreen Shares Tumble Amid Cyclospora Fears and Jalapeño Recall

Sweetgreen experienced a 10% drop in its stock price on Friday, following concerns over a multistate outbreak of cyclosporiasis and a separate recall of jalapeño peppers. The salad-centric chain has updated its full-year financial forecast, anticipating a significantly deeper adjusted loss before interest, taxes, depreciation, and amortization, now estimated between $27 million and $23 million, a stark contrast to its previous projection of $1 million to $6 million.

Reduced Sales Outlook

The company also revised its outlook for annual same-store sales, now predicting a decline of 7% to 8%, a more pessimistic forecast than the previously expected 2% to 4% decrease. Sweetgreen stated that its updated forecast accounts for reduced consumer demand for fresh prepared foods, influenced by the cyclosporiasis outbreak that began in mid-July. The company acknowledged that the pace and timing of recovery remain uncertain. In the second quarter ending June 28, Sweetgreen reported a 6.2% decrease in same-store sales, marking its sixth consecutive quarterly decline.

Dual Health Concerns

Since mid-July, Sweetgreen's stock has fallen approximately 30% as diners express apprehension about consuming salads and fresh produce due to fears of cyclospora. Cyclospora is a parasite that causes an intestinal illness characterized by symptoms such as watery diarrhea, loss of appetite, weight loss, and fatigue. Sweetgreen has stated that its products have not been directly linked to this particular outbreak. The FDA has previously tied this outbreak to iceberg lettuce from a facility in Mexico.

In a separate but unrelated development, Sweetgreen announced on Thursday that it had proactively removed jalapeño peppers from its supply chain earlier in the week due to a new salmonella outbreak. CEO Jonathan Neman noted that jalapeños are used in only two of the company's 15 dressings and represent a small portion of their sales mix. He added that it was too early to estimate any potential impact from this issue, as communication regarding the voluntary recall was only issued recently.

The salmonella outbreak linked to fresh jalapeños supplied by Coast Citrus Distributors has reportedly sickened at least 345 people and led to 36 hospitalizations across the country. Fast-casual chains Chipotle and QDOBA, which also received shipments from Coast Citrus, have removed the affected peppers from their stores. Taco Bell is another national chain that was linked to the cyclospora outbreak, but it has since recalled the contaminated products and seen its sales begin to recover. Other restaurants have also reported weakened demand for lettuce-based items. Chipotle indicated its sales weakened by approximately 2% in the latter half of July, coinciding with the outbreak. Earlier in the week, Salad and Go filed for bankruptcy and announced the closure of all its locations, citing the cyclospora outbreak as a factor that compounded existing challenges.

Sweetgreen has not been linked to the cyclospora outbreak, which the CDC states has sickened at least 10,000 people with another 10,000 suspected cases, leading to hundreds of hospitalizations and two deaths. Cyclospora is typically transmitted through contaminated food or water and can cause an intestinal illness known as cyclosporiasis. Some individuals may not exhibit any symptoms after infection.