Shares in salad group Sweetgreen (SG) wilted 14% in premarket trading today as investors fretted about the impact of the U.S. cyclosporiasis food poisoning outbreak on its sales.
Uncertain Pace of Recovery
Yesterday, Sweetgreen presenting its Q2 earnings report, said that it had seen reduced consumer demand for fresh prepared foods due to the multistate outbreak of cyclosporiasis since mid-July. The pace and timing of recovery remain uncertain, it said.
It now expects a 7% to 8% decline in annual same-store sales, compared with its previous forecast for a 2% to 4% drop.
The current outbreak, tied to recalled iceberg lettuce from central Mexico, has led some U.S. consumers to buy less lettuce and avoid some restaurant chains as the outbreak raises concerns about food safety. It is reportedly one of the largest outbreaks caused by foodborne illnesses in recent U.S. history.
America is in the midst of its worst year on record for a cyclosporiasis outbreak. Since May 1, the Centers for Disease Control and Prevention (CDC) has confirmed or is investigating more than 18,000 cases of the illness in 45 states, and has reported 423 hospitalizations.
The illness, which can be contracted by consuming food — typically raw fruits and vegetables — or water contaminated with feces, can cause diarrhea, nausea and other gastrointestinal symptoms.
No Lettuce Link
Sweetgreen, however, reiterated in its results that it does not use iceberg lettuce on its menu and has had no indication from U.S. health authorities or its suppliers that it is linked to the outbreak. Despite this, its shares have slumped 15% in the last three months.
It shows therefore how big a risk these outbreaks can be to a company’s reputation and its Ability to Sell, if it is in the affected sector. Let’s look at SG’s TipRanks Risk Analysis tool – see below:
“Beginning in mid-July, heightened consumer concern related to the recent cyclospora headlines disrupted that momentum, and the impact to July comparable sales was about 600 basis points,” CFO Jamie McConnell said. “While the timing of a full recovery is difficult to predict, we are confident in our ability to rebuild momentum.”
Is SG a Good Stock to Buy Now?
On TipRanks, SG has a Hold consensus based on 4 Buy, 8 Hold and 1 Sell ratings. Its highest price target is $11. SG stock’s consensus price target is $7.41, implying a 26.21% upside. (See SG Stock Forecast).
