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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Sep. 25, 2022
Accounting Policies [Abstract] |
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Sweetgreen, Inc., a Delaware corporation, together with its wholly owned subsidiaries (the “Company”), is a mission-driven, next generation restaurant and lifestyle brand that serves healthy food at scale. The Company’s bold vision is to be as ubiquitous as traditional fast food, but with the transparency and quality that consumers increasingly expect. As of September 25, 2022, the Company owned and operated 176 restaurants in 16 states and Washington, D.C. During the thirteen and thirty-nine weeks ended September 25, 2022, the Company had 10 and 26 Net New Restaurant Openings, respectively. The Company was founded in November 2006 and incorporated in the state of Delaware in October 2009 and currently is headquartered in Los Angeles, California. The Company’s operations are conducted as one operating segment and one reportable segment, as the Company’s chief operating decision maker, who is the Company’s Chief Executive Officer, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. The Company’s revenue is primarily derived from retail sales of food and beverages by company-owned restaurants. The Company has prepared the accompanying unaudited condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. generally accepted accounting principles for annual reports and should be read in conjunction with the consolidated financial statements for the year ended December 26, 2021. Principles of Consolidation—The accompanying condensed consolidated financial statements include the accounts of the Company. All intercompany balances and transactions have been eliminated in consolidation. Fiscal Year—The Company’s fiscal year is a 52- or 53-week period that ends on the Sunday closest to the last day of December. Fiscal year 2022 is a 52-week period that ends December 25, 2022 and fiscal year 2021 was a 52-week period that ended December 26, 2021. In a 52-week fiscal year, each quarter includes 13 weeks of operations. In a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations. Management’s Use of Estimates—The condensed consolidated financial statements have been prepared by the Company in accordance with GAAP and the rules and regulations of the SEC. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates made by the Company include the income tax valuation allowance, impairment of long-lived assets, closed-store costs, legal liabilities, fair value of contingent consideration, intangible assets acquired in business combinations, goodwill and stock-based compensation. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from those estimates. Emerging Growth Company—The Company is currently an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. The Company will lose its emerging growth company status on December 25, 2022, at which point, it will qualify as a large accelerated filer based upon the aggregate worldwide market value of the Company's voting and non-voting common equity held by its non-affiliates as of June 26, 2022, according to Rule 12b-2 of the Exchange Act. As a result, the Company will adopt all accounting pronouncements currently deferred under the emerging growth company election according to public company standards on the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2022. The adoption dates for the new accounting pronouncements disclosed below have been presented as such. Fair Value of Financial Instruments—The fair value measurement accounting guidance creates a fair value hierarchy to prioritize the inputs used to measure fair value into three categories. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement, where Level 1 is the highest category (observable inputs) and Level 3 is the lowest category (unobservable inputs). The three levels are defined as follows: Level 1—Quoted prices for identical instruments in active markets. Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant value drivers are observable. Level 3—Unobservable inputs for the asset or liability. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. The carrying amount of accounts receivable, tenant improvement allowance receivable, other current assets, accounts payable, accrued payroll and accrued expenses approximates fair value due to the short-term maturity of these financial instruments. The Company’s contingent consideration is carried at fair value determined using Level 3 inputs in the fair value. For further details see Note 3. Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). For further details see Note 3. Impairment of Long-Lived Assets and Closed-Store Costs— Long-lived assets are reviewed for recoverability at the lowest level in which there are identifiable cash flows (“asset group”). The asset group is at the store-level for restaurant assets and the corporate-level for corporate assets. The carrying amount of a store asset group includes stores’ property and equipment, primarily leasehold improvements. Long-lived assets, including property and equipment and internally developed software, are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. When events or circumstances indicate that impairment may be present, management evaluates the probability that future undiscounted net cash flows received will be less than the carrying amount of the asset group. If projected future undiscounted cash flows are less than the carrying value of an asset group, then such assets are written down to their fair values. The Company uses a discounted cash flows model to measure the fair value of an asset group. An impairment charge will be recognized in the amount by which the carrying amount of the store asset group exceeds its fair value. A number of significant assumptions and estimates are involved in the application of the model to forecast operating cash flows, which are largely unobservable inputs and, accordingly, are classified as Level 3 inputs within the fair value hierarchy. Assumptions used in these forecasts are consistent with internal planning, and include sales growth rates, gross margins, and operating expense in relation to the current economic environment and the Company’s future expectations, competitive factors in its various markets, inflation, sales trends and other relevant economic factors that may impact the store under evaluation. There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material. The Company determined that triggering events, primarily related to the impact of changing customer behavior trends, including slower than expected return to office during and following the COVID-19 pandemic (including as a result of many workplaces adopting remote or hybrid models) and as a result of broader macroeconomic conditions on the Company’s near-term restaurant level cash flow forecasts and anticipated store closures, occurred for certain restaurants during the thirteen and thirty-nine weeks ended September 25, 2022 and September 26, 2021 that required an impairment review of the Company’s long-lived assets. Based on the results of this analysis and management’s intent to close one of its locations, the Company recorded non-cash impairment charges of $1.7 million for the thirteen and thirty-nine weeks ended September 25, 2022. The Company recorded non-cash impairment charges of $4.4 million for the thirteen and thirty-nine weeks ended September 26, 2021, related to certain Company restaurants, as well as to the two restaurants operated by Spyce Food Co. (“Spyce”). See Note 6. Closed-store costs include non-cash restaurant charges, such as up-front expensing of the net present value of unpaid rent remaining on the life of a lease, offset by assumed sublease income. During the thirty-nine weeks ended September 25, 2022, the Company closed one store operated by Spyce, which was fully impaired in a prior period. This closure resulted in a non-cash expense of $0.2 million, recorded within impairment of long-lived assets and closed-store costs in the consolidated statement of operations. Restructuring Charges- Restructuring charges are expenses that are paid in connection with reorganization of the Company’s operations, and are considered a type of exit activity in accordance with ASC 420. For the thirteen and thirty-nine weeks ended September 25, 2022, the Company recorded an $11.1 million restructuring charge, in accordance with the aforementioned guidance. These costs were primarily related to a $9.8 million non-cash restructuring expense, due to a reduction of the Company’s real estate footprint by vacating the premises for the existing sweetgreen Support Center and moving to a smaller office space adjacent to the existing location, of which $6.8 million related to abandonment of the long-lived assets associated with the sweetgreen Support Center and $3.0 million related to the future lease liability, offset by assumed sublease income, $0.6 million of severance and related benefits from workforce reduc tions affecting approximately 5% of employees at the sweetgreen Support Center, $0.6 million of costs related to abandoning certain potential future restaurant sites in an effort to streamline the Company’s future new restaurant openings, and $0.1 million of other related expenses. As of September 25, 2022, the future lease liability is $2.7 million and is recorded within other current liabilities and other non-current liabilities in the Company’s accompanying condensed consolidated balance sheet. Business Combinations—The Company utilizes the acquisition method of accounting in any acquisitions or business combinations. The acquisition method of accounting requires companies to assign values to assets and liabilities acquired based upon their fair values at the acquisition date. In most instances, there are not readily defined or listed market prices for individual assets and liabilities acquired in connection with a business, including intangible assets. The determination of fair value for assets and liabilities in many instances requires a high degree of estimation. The valuation of intangible assets, in particular, is very subjective. The Company generally obtains third-party valuations to assist it in estimating fair values. The use of different valuation techniques and assumptions could change the amounts and useful lives assigned to the assets and liabilities acquired and related amortization expense. Total research and development excluding any related cost associated with the Spyce acquisition was $0.4 million and $1.4 million for the thirteen and thirty-nine weeks ended September 25, 2022 and recorded within general and administrative cost in the Company’s accompanying condensed consolidated statement of operations. Contingent Consideration - Due to certain conversion features, the contingent consideration issued as part of the Spyce acquisition is considered a liability in accordance with ASC 480. The liability associated with the contingent consideration is initially recorded at fair value upon the issuance date and is subsequently re-measured to fair value at each reporting date. See Notes 3 and 6. The initial fair value of the liability for the contingent consideration was $16.4 million and was included as part of the purchase price for the Spyce acquisition. The fair value of the liability as of September 25, 2022 was $18.3 million. Changes in fair value of the contingent consideration is recognized within other (income) expense in the accompanying condensed consolidated statement of operations. Cash and Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Amounts receivable from credit card processors are converted to cash shortly after the related sales transaction and are considered to be cash equivalents because they are both short-term and highly liquid in nature. Amounts receivable from sales transactions as of September 25, 2022 and December 26, 2021, were $2.1 million and $1.1 million, respectively. Restricted Cash—The Company’s restricted cash balance relates to certificates of deposit that are collateral for letters of credit to lease agreements entered into by the Company. The reconciliation of cash and cash equivalents and restricted cash presented in the Company’s accompanying condensed consolidated balance sheets to the total amount shown in its condensed consolidated statements of cash flows is as follows:
(dollar amounts in thousands) | As of September 25, 2022 |  | As of December 26, 2021 |  |
Reconciliation of cash, cash equivalents and restricted cash: |  |  |  |  |
Cash and cash equivalents | $ | 381,035 |  |  | $ | 471,971 |  |  |
Restricted cash, noncurrent | 166 |  |  | 328 |  |  |
Total cash, cash equivalents and restricted cash shown on statement of cash flows | $ | 381,201 |  | $ | 472,299 |  |
Concentrations of Risk—The Company maintains cash balances at several financial institutions located in the United States. The cash balances may, at times, exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $0.3 million. During the thirteen weeks ended September 25, 2022 and September 26, 2021, approximately 32% and 33% of the Company’s revenue was generated from the Company’s restaurants located in the New York City metropolitan area, respectively. During the thirty-nine weeks ended September 25, 2022 and September 26, 2021, approximately 32% and 33% of the Company’s revenue was generated from the Company’s restaurants located in the New York City metropolitan area, respectively. Deferred Costs—Deferred costs primarily consist of capitalized implementation costs from cloud computing arrangements in relation to a new enterprise resource planning system (“ERP”). These costs amounted to $5.3 million as of September 25, 2022 and are recorded within other current assets and other assets in the condensed consolidated balance sheets. The amortization of these costs are recognized within the Company’s condensed consolidated statement of operations under general and administrative expenses over a useful life of 7 years. Prior to the Company’s initial public offering (the “IPO”), deferred costs also included direct incremental legal, consulting, accounting, and other fees relating to the sale of the Company’s Class A Common Stock which were reclassified into stockholder’s deficit as a reduction of IPO proceeds upon offering. Recently Issued Accounting Pronouncements Not Yet Adopted— As noted above, the Company will lose its emerging growth company status on December 25, 2022, at which point, the Company will adopt all accounting pronouncements currently deferred under the emerging growth company election according to public company standards on the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2022. See effective dates of these standards below. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases. This update requires lessees to recognize in the condensed consolidated balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized in the condensed consolidated balance sheet—the new ASU will require both types of leases to be recognized by a lessee in the condensed consolidated balance sheet. In June 2020, the FASB issued ASU No. 2020-05 which delayed the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application is permitted. The ASU will be adopted for the annual period beginning December 27, 2021, and the first presentation of the application of ASC 842, Leases, w ill be presented in the Company’s annual consolidated financial statements for fiscal year 2022 included within the Company’s 2022 Annual Report on Form 10-K. The Company plans on electing the optional transition method to apply the standard as of the effective date and therefore, will not apply the standard to the comparative periods presented in its financial statements. The Company does not plan on electing the package of three practical expedients, and thus will reassess all contracts for lease identification, lease classification and initial direct costs. The Company anticipates there will be no change related to lease identification or lease classification and the reassessment of initial direct costs will result in a cumulative-effect adjustment in retained earnings of approxim ately $4.2 million, related to previously capitalized legal fees that will no longer meet the definition of initial direct costs under the new standard. Additionally, the Company anticipates recognizing a cumulative-effect adjustment in retained earnings of approximately $0.4 million to $0.5 million, related to impairment of right-of-use assets existing as of the implementation date. The Company will also not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. Further, the Company will elect a short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for all real property leases. The Company is finalizing the impact of this standard on its accounting policies, processes, and internal controls over financial reporting, as well as upgrades to its existing lease system. While the Company is still evaluating this ASU, the Company has determined that the primary impact will be to recognize in the consolidated balance sheets all operating leases with lease terms greater than 12 months. It is expected that this ASU will have a material impact on the Company’s condensed consolidated balance sheet as it will record assets and obligations related to all of its operating and corporate office leases. The Company expects to record on its consolidated balance sheets operating lease liabilities of approximately $263.0 million to $291.0 million, as of its implementation date and excludes lease commencement, modification or other activity that occurred during fiscal year-ended 2022, based on the present value of the remaining minimum rental payments using discount rates as of the effective date. The Company also expects to record corresponding right-of-use assets of approxim ately $222.0 million to $246.0 million, as of its implementation date and excludes lease commencement, modification or other activity that occurred during fiscal year-ended 2022, based upon the operating lease liability, adjusted for prepaid and deferred rent, unamortized initial direct costs, liabilities associated lease termination costs and impairment of right-of-use assets recognized in ret ained earnings, if applicable. As the Company’s fiscal year 2022 Form 10-Qs are currently under ASC 840, when it adopts this standard in its fiscal year 2022 Form 10-K the Company anticipates recognizing an additio nal $1.5 million to $2.0 million fo r the entire fiscal year 2022, of general and administrative expenses within its consolidated statement of operations, associated to the exclusion of lease related legal fees as initial direct costs, which are currently deferred within lease acquisition costs and recognized over the life of the lease. The Company does not expect any significant impact on its condensed consolidated statement of operations or condensed consolidated statement of cash flows. Additionally, the Company is in the process of evaluating the expanded disclosure requirements related to this ASU. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 provide amended guidance for estimating credit losses on certain types of financial instruments based on expected losses and the timing of the recognition of such losses. Expanded disclosures related to the methods used to estimate the losses are also required. In connection with the loss of its emerging growth company status, this standard will be adopted for the annual period beginning December 27, 2021, and the first presentation of the application will be presented in the Company’s annual consolidated financial statements for fiscal year 2022 included within the Company’s 2022 Annual Report on Form 10-K. The application of ASU 2018-07 is not expected to have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI https://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI https://asc.fasb.org/topic&trid=2197479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI https://asc.fasb.org/topic&trid=2122369 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI https://asc.fasb.org/topic&trid=2134479 + Details
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