Sweetgreen Seeks Up to $2.7 Billion Valuation in IPO Despite Lack of Profitability

If Sweetgreen had a reputation for being a little pricy before, it now boasts a price tag of up to $2.7 billion. The Culver City, California-based salad chain, which own and operates 140 restaurants across 13 states and Washington, D.C., announced that it is seeking this multibillion-dollar valuation in its initial public offering (IPO) Tuesday (Nov. 9), with its 12.5 million shares priced between $23 and $25.

The chain is not yet profitable, which the company attributes to its investments in technology and its operations, spending big on features such as kitchen automation tools in the hope to boost margins in the long term.

“We have incurred significant losses since inception,” the company conceded in a filing with the U.S. Securities and Exchange Commission (SEC). “We expect our operating expenses to increase significantly in the foreseeable future, as we grow our business, increase our new restaurant openings, and invest into new technology, and we may not achieve profitability.”

Meanwhile, the restaurant pulled its loyalty program earlier in the year in an effort to cut costs. Yet research from PYMNTS’ Restaurant Readiness Index, created in collaboration with Paytronix, finds restaurants that removed their loyalty rewards programs were those that fell furthest behind in 2020.

Read more: Gearing up to Go Public, Sweetgreen’s Aggressive Digital Efforts May Be Misdirected

See also: QSRs’ Lagging Loyalty-Reward Investment Hurts Innovation and Sales

Granted, it has been a good year for restaurant IPOs. Over the summer, Krispy Kreme went public, also valued at $2.7 billion, and while its pricing on the day of the offering was below its initially-planned range, shares rose to the previously stated range within the first day of trading. Meanwhile, drive-thru coffee chain Dutch Bros.’ prices rose almost 60% on the first day of trading, making its co-founder Travis Boersma a billionaire, and an additional 30% on its second. Plus, fast-casual hot dog chain Portillo’s stock price soared more than 50% the day of its IPO in late October, and prices have continued to trend upwards.

Related news: Krispy Kreme Ends First Trading Day At $21 After Opening Above $16

Read more: Coffee Companies Perk up at Opportunity to Break Big on Public Market Following Dutch Bros.’ IPO Success

See also: Hot Dog Chain Sees Hot IPO as Differentiated In-Restaurant Experience Offsets Mid-Tier Digital Efforts

Sweetgreen is not the only brand observing this favorable market for restaurant chains. On Tuesday, Panera Brands, the fast-casual group encompassing Panera Bread, Caribou Coffee and Einstein Bros. Bagels, announced that it plans to go public via IPO with an investment from restaurateur Danny Meyer’s special-purpose acquisition company (SPAC) and from Meyer himself.

It is too soon to say whether this massive wave of interest in major restaurant chains will be supported by consumers’ spending, given that the restaurant industry remains somewhat in flux. Certainly, industry-wide sales have been on the rise in 2021. U.S. Census Bureau figures show that, for the first three quarters of the year, sales at “food services & drinking places” was up 30.5% year over year. Yet, comparing sales to 2020, when the restaurant industry was devastated by the impacts of the pandemic and of related lockdowns and social distancing measures, gives a far from clear sense of how these sales will trend in the future.

For Sweetgreen, even in the quarters with the biggest swells in consumer spending, the chain still did not turn a profit. Expecting investors to collectively shell out hundreds of millions is effectively asking for an act of faith.