ITEM 1A. RISK FACTORS
You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K, including the Management’s Discussion and Analysis of Financial Conditions and Results of Operations section and the consolidated financial statements and related notes. If any of the risks and uncertainties described below actually occur or continue to occur, our business, financial condition, and results of operations, and the trading price of our Class A common stock, could be materially and adversely affected. The risks and uncertainties described below are those that we have identified as material but are not the only risks and uncertainties we face. Our business is also subject to general risks and uncertainties that affect many other companies, including, but not limited to, overall economic and industry conditions, and additional risks not currently known to us or that we presently deem immaterial may arise or become material and may negatively impact our business, reputation, financial condition, results of operations, or the trading price of our Class A common stock.
Risks Related to Our Business, Our Brand, and Our Industry
We operate in a highly competitive industry. If we are not able to compete effectively, it could have an adverse effect on our business, financial condition, and results of operations.
We face significant competition from restaurants in the fast-casual dining and traditional fast-food segments of the restaurant industry. These segments compete on factors such as taste, price, food quality and presentation, service, location, and restaurant condition. Our competitors include locally owned restaurants and regional and national chains that offer dine-in, carry-out, delivery, and catering services. Many of our competitors have operated longer and have a more established market presence with substantially greater financial, marketing, personnel, and other resources than we do, and therefore may be better positioned to succeed in the highly competitive restaurant industry. Among our competitors are national and regional fast-casual restaurant chains, restaurants emphasizing clean, real ingredients and health-conscious dining, and traditional quick-service restaurants.
As we continue to expand into new markets and further develop our digital channels, we also face growing competition from both new entrants and existing restaurants that have increased their digital presence through delivery and take-out platforms. We compete with delivery kitchens, food aggregators, and third-party delivery marketplaces such as DoorDash, Grubhub, and Uber Eats, as well as grocery stores that focus on freshly prepared or organic foods. The delivery marketplaces, including those we partner with, retain customer data for Sweetgreen orders and may use that information to promote other restaurants. The expansion of such delivery and take-out channels, especially among restaurants that previously relied on dine-in traffic, has further intensified overall competition in recent years.
Many competitors may have, among other things, greater financial and operational resources, lower costs, better geographic locations, better facilities, stronger management, more advanced technology, or more effective marketing. Some may imitate or improve upon our business model, menu, technology, or restaurant design, which are difficult to protect or not protectable under intellectual property or related laws, reducing our competitive advantages. Competitors may respond more quickly to shifts in consumer tastes, nutritional and dietary trends, and ordering preferences and may attract guests through lower prices, better loyalty or promotional programs, or broader menu offerings such as breakfast. Our sales could also decline due to changes in popular tastes or heightened attention to new restaurant concepts.
Any inability by us to compete effectively could reduce customer traffic, pressure our pricing, slow our growth, and prevent us from reaching profitability. We cannot make any assurances regarding our ability to effectively respond to consumer health perceptions or our ability to adapt our menu offerings to trends in eating habits. To achieve profitability, we have implemented cost-reduction initiatives and menu price increases since 2022 and may need to take similar actions in the future. Such measures could limit our ability to compete effectively on price or customer experience and could adversely affect our business, financial condition, and results of operations.
Table of Contents
Changes in economic conditions, macroeconomic and geopolitical events, and public health developments such as a pandemic may adversely affect customer behavior, which could have an adverse effect on our business, financial condition, and results of operations.
Our business depends on customer discretionary spending, which is influenced by conditions largely beyond our control. Inflation, high interest rates, recessionary economic cycles, tariffs, reduced consumer confidence, unemployment, higher energy costs, reduced access to credit, or other macroeconomic or geopolitical factors may adversely affect customers’ willingness or ability to spend on meals away from home. During periods of economic stress, consumers may shift toward lower-cost alternatives, reduce the frequency of dining out, or permanently change their discretionary spending habits. Current macroeconomic and geopolitical conditions, including elevated inflation, higher interest rates, and tariffs, increase the risk of a potential recession and may slow our sales growth or contribute to declines. For example, in 2025, we experienced a decrease in Same-Store Sales Change, which may be attributable to a combination of these macroeconomic and geopolitical conditions. Prolonged adverse macroeconomic conditions have previously led us, and could lead us in the future, to reduce our workforce, delay or reduce new restaurant openings or remodels, close restaurants, or record impairment charges.
Pandemics or disease outbreaks have in the past and may in the future disrupt customer behavior and our operations. Actual or perceived health risks may cause customers or employees to avoid public places or certain foods, reduce restaurant traffic, or limit staffing availability, and may adversely affect our Outpost and Catering Channel, particularly in connection with work-from-home or hybrid work arrangements. During the COVID-19 pandemic, our in-restaurant traffic declined significantly, our Outpost Channel (which is now our Outpost and Catering Channel) diminished, and delivery demand increased. Our In-Store Channel has not returned to pre-pandemic levels, and it is uncertain whether it ever will. Long-term customer behavior trends following the COVID-19 pandemic remain uncertain for all of our channels. The continued use of remote and hybrid work arrangements, particularly in urban centers such as midtown Manhattan and downtown Chicago, negatively impact our revenues. To date, employees have returned to offices at a slower rate than anticipated and many companies have shifted to a fully remote or hybrid workforce. If the remote work trend continues and workers do not return to offices in urban centers, or work from those locations less frequently, our business, financial condition, and results of operations could be adversely affected for an uncertain period of time, even if customers otherwise resume pre-pandemic levels of discretionary spending. Additionally, we have seen an increase in summer and holiday-related travel following the COVID-19 pandemic, which has and may continue to impact the demand for our products.
Severe weather conditions and natural disasters have adversely affected our restaurant sales and results of operations, and climate change may further increase these adverse effects.
Our business has been and may continue to be materially and adversely affected by severe weather conditions and natural disasters. Among other things, our business is susceptible to storms, fires, flooding, earthquakes, hurricanes, tornadoes, droughts, and prolonged extreme temperatures. These types of events have caused, and may continue to cause, temporary restaurant closures, reduced operating hours, damage to facilities requiring costly repairs, lost inventory, supply interruptions, or delays in the construction of new restaurants. As an example, fires in the Los Angeles region in January 2025 resulted in the temporary closures and reduced operating hours at certain of our restaurants. Natural disasters may also have lingering effects beyond the duration of the event, including disrupted commuting patterns, reduced office attendance, or decreased customer traffic in affected and surrounding areas. Our business has been negatively impacted by such lingering effects after the January 2025 fires in the Los Angeles region.
Adverse weather conditions, particularly in the winter months in key markets such as New York City, Boston, the Washington, D.C./Maryland/Virginia metropolitan region, and Chicago, and unexpected severe weather in markets such as Los Angeles, Georgia, Texas, or Florida, have caused reduced customer traffic and, in more severe instances, temporary restaurant closures. Many of our restaurants have outdoor seating, and adverse weather may limit the use of these areas and negatively affect revenues. These events are often unpredictable and beyond our control and could adversely affect our business, financial condition, and results of operations. We believe that climate change has increased, and may continue to increase, the frequency and severity of severe weather events and natural disasters, which could result in, amongst other things, more frequent or prolonged reductions in customer traffic and restaurant closures, greater property damage, and additional construction delays.
Table of Contents
We have incurred significant net losses since inception. We expect our net losses to continue in the foreseeable future, and we may not achieve profitability.
We incurred net losses of $(134.1) million in fiscal year 2025 and $(90.4) million fiscal year 2024. We expect net losses to continue in the foreseeable future. Those losses have been and are expected to be attributable, in part, to our decisions to open new restaurants and formats, fund promotions, invest in our Owned Digital Channels and Marketplace Channel, expand marketing, add products and offerings, and deploy and maintain technology, including the Infinite Kitchen technology and our mobile application. Our restaurants also require ongoing maintenance and renovations, and certain existing restaurants may be retrofitted with Infinite Kitchen units. Temporary closures associated with these activities could reduce sales while certain costs continue. Pre-opening costs, training for new formats, duplicated processes during transitions, and technology depreciation and maintenance may further pressure margins.
Changes in trade policy and tariffs on imported components, packaging, or equipment may increase costs or delay deployments. In addition, macroeconomic or geopolitical conditions, regulatory changes, wage pressures, higher costs of goods sold, increased occupancy, distribution, or energy costs have and may continue to adversely affect our results. For example, in 2025, softer consumer demand negatively impacted our financial results and we expect it to continue to do so at least in the near term. We have implemented cost-reduction measures in the past, including workforce reductions, and may need to implement additional measures in the future, which may not be successful. As a result, our net losses may increase. We will need to generate and sustain increased revenue levels and decrease proportional expenses in future periods to achieve profitability and, even if we do, we may not be able to maintain profitability.
Many of our efforts to generate revenue, particularly with respect to our investments in our Native Delivery, Outpost and Catering, and Marketplace Channels, are unproven and may not be as successful as we have forecasted. For example, orders through these channels rely upon third-party delivery services that are outside of our control, and are susceptible to delivery delays and courier cancellation. Moreover, these channels require the payment of third party delivery fees in order to fulfill deliveries, so have historically carried lower margins than our In-Store and Pick-Up Channels. If we are unable to operate these channels effectively and at scale, or if lower-margin channels increase as a percentage of sales, we may not achieve profitability in the near term or at all.
We may not persuade customers of the benefits of paying our prices for higher-quality food.
Our success depends in large part on our ability to persuade consumers that food made with higher-quality, locally sourced ingredients is worth the prices they pay at our restaurants relative to some competitors. We may not successfully educate consumers about the value of our offerings, or consumers may not prioritize quality or sourcing attributes when making purchasing decisions. If customers are not persuaded that we offer good value, they may reduce the frequency or size of their purchases or choose lower-priced alternatives, which could adversely affect our business, financial condition, and results of operations.
We have increased menu prices in recent years, including during fiscal years 2023, 2024 and 2025, and may increase prices further in the future due to higher labor, ingredient, or other operating costs. Additional price increases could negatively affect customer loyalty, reduce demand, or impair our ability to attract new customers, particularly as we expand into new geographic markets where customers may be more price sensitive. Efforts to adjust advertising or promotional strategies to address these risks could also affect our brand positioning.
Macroeconomic conditions, including inflation and higher interest rates, increase the risk of reduced consumer discretionary spending and may further heighten customer price sensitivity. Inflation has increased wage rates and costs of goods sold and has negatively affected our Restaurant-Level Profit. There can be no assurance that future cost increases can be fully offset through menu price increases or that customers will continue to absorb higher prices without a corresponding decline in demand.
Our future growth depends significantly on our ability to open new restaurants and is subject to many unpredictable factors.
One of the key means of achieving our growth strategy is opening new restaurants and operating them profitably. We opened 35 Net New Restaurants in fiscal year 2025 and 25 in fiscal year 2024 . We expect approximately 15 Net New Restaurant openings in fiscal year 2026.
Table of Contents
In the past, we have experienced delays in opening restaurants due to, amongst other things, supply chain challenges, inflation-driven increases in wage and commodity costs, construction delays, and permitting issues, and such delays may continue to occur. Delays or failures in opening new restaurants, or in launching new restaurant formats (including drive-up or formats incorporating automation technology such as the Infinite Kitchen) could result in lost sales and additional labor and marketing costs and could adversely affect our growth strategy and our business, financial condition, and results of operations. As we operate more restaurants, our rate of expansion relative to the size of our restaurant base may decline.
Our long-term success is highly dependent on our ability to effectively identify and secure appropriate sites for new restaurants.
Locating and securing a sufficient number of suitable restaurant sites in desirable locations is increasingly competitive, and other restaurant and retail concepts may have economic models that allow them to bid more aggressively than we can. There is no guarantee that an adequate number of suitable sites will be available to us on acceptable terms in existing, adjacent, or new markets. Our ability to identify, secure and open new restaurant sites also depends on other factors, including, amongst other things:
• identifying and securing sites with appropriate attributes such as site size, traffic patterns, nearby retail and business attractions and infrastructure, proximity to existing restaurants, and anticipated commercial, residential, and infrastructure development—factors made more challenging by uncertainty regarding other companies’ return-to-office plans;
• negotiating leases with acceptable terms (including but not limited to sufficient tenant improvement allowances);
• identifying and securing sites that can be expected to allow for the timely delivery of the leased premises;
• properly analyzing financial conditions that may adversely affect developers or landlords (including availability of development financing, macroeconomic conditions, and credit markets) and which might lead to project delays or cancellations;
• identifying and securing sites that will have acceptable construction and development resources and costs and that will have access to a sufficient pool of qualified store operations personnel (particularly in competitive markets); and
• securing required governmental approvals, permits, and licenses (including construction permits and certificates of occupancy) on a timely basis and responding to changes in applicable zoning, land use, environmental, health and safety, and other rules and regulations (including interpretations thereof).
If we do not open new restaurants in the future according to our current plans, the delay could have an adverse effect on our business, financial condition, and results of operations.
Our expansion into new markets may present increased risks and adversely affect our growth and operating results.
We have opened and plan to continue opening restaurants in markets where we have little or no operating experience. Historically, our restaurants have been concentrated in large urban areas, such as New York City, Los Angeles, Boston, and the Washington, D.C./Maryland/Virginia metropolitan area, and we do not currently operate outside of the United States. Restaurants opened in new markets may take longer to achieve expected sales and targeted profit levels and may incur higher construction, occupancy, product, hiring and training, or operating costs than restaurants in existing markets.
New markets may have competitive conditions, customer tastes, and discretionary spending patterns that are more difficult to predict or satisfy, particularly as we expand into suburban or residential areas or more diverse geographic regions. We may also need to invest more than anticipated in advertising and promotional activities to build brand awareness and attract customers in markets where our brand is less established.
Because we seek to locally source ingredients where practicable, expansion into new markets may result in higher costs or limited availability of suppliers that meet our quality standards, distribution model, and food ethos. Costs of goods may increase and supply availability may be constrained by climate conditions or local grower networks. In addition, recruiting, training, and retaining qualified employees who align with our culture
Table of Contents
may be more challenging in new markets, which could affect consistency and guest experience. We may also incur higher costs in new markets if, for example, regional managers oversee fewer restaurants, local supply chains serve a smaller number of locations, or we are required to comply with new or different labor and employment regulations. As a result, new restaurants may be less successful or may not achieve desired growth rates or sales targets as quickly as restaurants in more established markets. If we are unable to successfully identify attractive locations, build brand recognition, recruit effective talent, attract sufficient customer demand, or otherwise fail to successfully execute our strategic plans with respect to entering into new markets, our business, financial condition, and results of operations could be adversely affected.
If we expand operations outside of the United States, any such expansion may require partnering with, and becoming reliant upon, third parties through partnerships, joint ventures, licensing arrangements, franchising or other contractual relationships.
New restaurants, once opened, may not be profitable, and new restaurants may negatively impact sales at our existing restaurants.
New restaurants may not perform as planned or achieve our expected Average Unit Volumes, Same-Store Sales Change, or Restaurant-Level Profit Margin, which could adversely affect our business, financial condition, and results of operations. Our restaurant concept may have limited appeal in new markets, and the popularity of our restaurant concept may decline in existing markets. Newly opened restaurants, whether in existing or new markets, may take longer to reach expected sales and profit levels and may not be successful. Any such underperformance could slow our overall growth and have an adverse effect on our business, financial condition, and results of operations.
The customer target area for each restaurant varies by location, depending on factors such as population density, nearby retail and business activity, demographics, and geography. Opening new restaurants in or near markets where we already operate could reduce sales at existing restaurants, particularly in highly concentrated markets, such as New York City, Los Angeles, Boston, Chicago, and the Washington D.C./Maryland/Virginia metropolitan area. We periodically open locations near existing restaurants that are operating at or near capacity to more effectively serve our customers. We believe these openings cause some sales cannibalization. Such sales cannibalization may increase as we expand our restaurant footprint, especially where food delivery radii overlap.
Additionally, our restaurants must be able to support growth across our In-Store and Pick-Up Channels and, depending on location, through our Native Delivery, Outpost and Catering, and Marketplace Channels. Although we seek to select sites that align with our geographic sales channel strategy, we may not be successful with identifying and securing such sites. Moreover, our geographic sales channel strategy might be incorrect. Historically, shifts in customer behavior (for example, the slower than expected pace of employees’ return to offices following the COVID-19 pandemic) have resulted in some restaurants operating under capacity and others operating over capacity.
We are developing and implementing new restaurant formats, including drive-up and Infinite Kitchen-enabled formats. We have limited experience operating these new formats and we may not be able to operate them as efficiently as we operate our traditional restaurant formats. Accordingly, such formats may not achieve expected efficiencies or returns. We have closed restaurants for performance reasons in the past and may do so again, which could adversely affect our business, financial condition, and results of operations.
Our success depends substantially on the value of our brand and failure to preserve its value or changes in customer recognition of our brand, including due to negative publicity, could have a negative impact on our business, financial condition, and results of operations.
We believe we have built an excellent reputation for the quality of our products, our focus on connecting people with real food, our delivery of a positive customer experience, and our social impact programs. To be successful in the future, we believe we must preserve, grow, and leverage our brand value across all channels.
Brand value is influenced by subjective customer perceptions and may be harmed by incidents, whether isolated or recurring. These incidents may originate with us or our employees, delivery partners, or other business partners or vendors, or from unrelated food service businesses that customers associate with our operations. Such incidents can significantly reduce brand value, potentially trigger customer boycotts, or expose us to civil or criminal liability, and could adversely affect our financial results. Examples include, among other
Table of Contents
things, data-privacy breaches; claims of discrimination, harassment, or unsafe working conditions; controversial social media activity by current or former employees or by other individuals that we work with to market our products; contaminated or unsafe food (including allergens); communicable diseases among food handlers; customer complaints; workforce reductions; and failures to follow safety protocols. Negative publicity may spread rapidly through social and digital media, sometimes before we can investigate and respond.
Customer demand and our reputation could also diminish if we, our employees, or business partners or vendors fail to ensure the quality of our products, do not provide customer orders in a timely fashion, or act, or are perceived to act, in an unethical, illegal, racially biased, unequal, or socially irresponsible manner, including with respect to food sourcing practices, employment practices, customer data usage and protection practices, or customer interactions.
We have invested in technology, including the Infinite Kitchen automation technology, to improve store operations. If customers react negatively to these operational changes, in particular, the use of Infinite Kitchen automation technology in certain of our restaurants, our brand value may be diminished. Although we have received national and regional recognition for our food and operations, there is no assurance that such recognition will continue, and any decline could adversely affect our business, financial condition, and results of operations.
Food safety and foodborne illness concerns could have an adverse effect on our business.
We cannot guarantee that our procedures and training will prevent all food safety issues, including illnesses attributable to, among other things, salmonella, Cyclospora, E. coli , or hepatitis A, and our employees may fail to identify or report unsafe or unsanitary conditions in accordance with our procedures. The ingredients we handle (such as leafy greens and raw chicken) are among the highest risk foods when it comes to food safety and foodborne illness. We freshly prepare many items in-restaurant, which may put us at even greater risk for foodborne illness and food contamination outbreaks than some competitors that use more processed foods or commissaries. Such risks also increase when our food is handled outside our control, including orders through Pick-Up, Native Delivery, Outpost and Catering, and Marketplace Channels, particularly if food is not delivered or consumed within the recommended time periods. Our protocols and procedures, and any public statements we make, to respond to any such incident may not be sufficient to protect customers from physical harm and to protect our business and reputation. We may need to temporarily close restaurants, remove items from the menu, or take other corrective actions as a result of any such incident, which could harm our business and reputation.
We rely on third-party distributors and suppliers, which may make it difficult to monitor food safety compliance and which increases the risk that foodborne illness would affect multiple locations rather than a single restaurant. Our distributors and suppliers may provide us with substitute products, which may not be of equal quality and may complicate traceability in the event of a food contamination incident. We may not have sufficient contractual recourse against such third parties, and the insurance carried by us or by our distributors and suppliers may be insufficient to cover related costs.
Highly publicized incidents, whether or not accurately attributed to us, and incidents that occur at our suppliers or at other restaurant brands can be rapidly amplified by social and digital media and may negatively affect guest perceptions of our brand and the industry more broadly, and could adversely affect our restaurant revenue on a nationwide basis. For example, in fiscal 2024, certain cucumbers were recalled due to salmonella concerns, which led us to temporarily remove cucumbers from our menu. Any food safety incident or product recall, whether actual or perceived, could result in negative publicity, reduced traffic, supply disruption, increased costs, and, among other things, an adverse effect on our business, financial condition, and results of operations.
If we are unable to utilize the Infinite Kitchen in our restaurants in a cost-effective manner, or to secure consistent support for the deployment and development of such technologies, our growth plans, financial condition, and results of operations could be adversely affected.
In December 2025, we sold the Infinite Kitchen technology and related assets and agreed to provide certain transition services to Wonder. At the time of the sale, we entered into a supply agreement with Wonder, pursuant to which Wonder agreed to sell Infinite Kitchen units to us on a long-term basis and provide certain services related to the Infinite Kitchen units, including commissioning, support, and maintenance. We also entered into a non-exclusive, perpetual, irrevocable, royalty-free license back to us of the Infinite Kitchen
Table of Contents
technology, and certain related future improvements for us to exploit such licensed intellectual property for use in our Sweetgreen-branded facilities that produce food or beverages, subject to certain restrictions. As of the end of fiscal year 2025, 30 of our restaurants contained Infinite Kitchen units. Through our relationship with Wonder, we expect to deploy additional Infinite Kitchen units in new and existing Sweetgreen restaurants and expect Wonder to further develop and improve the Infinite Kitchen.
Our restaurants that use the Infinite Kitchen technology heavily depend on the seamless operation and availability of this technology. Any malfunctions, software defects, hardware failures, cybersecurity incidents, integration issues, or other disruptions affecting the Infinite Kitchen technology could result in reduced sales, dissatisfaction among our customers, physical harm to our customers or employees, harm to our reputation, food loss and its associated costs, and revenue loss. A significant and continuing malfunction or failure of, or a safety concern with respect to, one or more Infinite Kitchen units may require us to close the stores containing those units, and we may not be able to restore operations or reopen those stores in a timely manner or at all.
We now depend upon Wonder for the continued supply, commissioning, support, maintenance, and upgrades with respect to the Infinite Kitchen technology. Our ability to successfully deploy, operate, and expand the use of Infinite Kitchen units in our restaurants is now subject, in significant part, to the terms and conditions contained in our supply agreement and license agreement with Wonder. If those terms and conditions are insufficient for our needs, or if Wonder fails to or is unable to fulfill the obligations contained in those agreements (which may be as a result of operational or financial difficulties), our business, financial condition, and results of operations may be adversely affected. Similarly, Wonder relies upon vendors in connection with the performance of its obligations to supply Infinite Kitchen units to Sweetgreen. Issues affecting those vendors — including but not limited to supply chain disruptions, capacity constraints, quality issues, labor shortages, contractual disputes, regulatory compliance issues, or business continuity events — could delay or prevent our deployment of Infinite Kitchen units or increase our costs.
Our costs associated with the Infinite Kitchen technology, including equipment pricing, maintenance fees, software updates, spare parts, and support services, are expected to increase over time. To the extent components used in Infinite Kitchen units continue to be sourced internationally, including from China, increases in tariffs, trade restrictions, transportation costs, or geopolitical disruptions could further increase costs, which may be passed through to us under our commercial arrangements. Any such cost increases could make the deployment or continued operation of Infinite Kitchen units less economically attractive and could adversely affect our margins.
If we are unable to deploy Infinite Kitchen units in a timely manner, or on commercially acceptable terms, we may experience delays in opening new restaurants designed to incorporate those units, delays in realizing revenue from those restaurants, reduced operational efficiency, and failure to achieve our growth objectives, which could adversely affect our business, financial condition, and results of operations.
The kitchen automation industry is characterized by rapid technological change and innovation. Several third parties have developed, or are seeking to develop, technologies that compete with the Infinite Kitchen. Moreover, subject to certain contractual restrictions, Wonder may choose to license or supply the Infinite Kitchen technology to third parties, including certain of our competitors. If competitors gain access to the Infinite Kitchen technology or to automation technologies that are more reliable, lower cost, more scalable, or offer superior functionality compared to the Infinite Kitchen, our competitive position and operating results could be adversely affected.
In addition, third parties may develop or own and chose to assert intellectual property rights that could limit our ability to deploy and operate the Infinite Kitchen technology or result in legal disputes, increased costs, and operational disruption.
If we are not able to hire, train, reward, and retain a qualified workforce, our growth and profitability could be adversely affected.
We rely on our restaurant-level employees to consistently deliver high-quality food and positive guest experiences, which we refer to as the “sweet touch.” Our success depends on our ability to hire, train, reward, and retain team members who can deliver the hospitality, food quality, and operational execution that define the Sweetgreen experience. Competition for qualified restaurant employees has intensified across the industry and may vary by market based on factors such as unemployment levels, immigration policies, cost of living, and competitive wage and benefit expectations.
Table of Contents
We have experienced staffing shortages in certain markets, particularly in major urban areas, which have resulted in reduced operating hours, temporary restaurant closures, delayed new restaurant openings, or higher labor costs. Many of our restaurants experience customer surges during lunch and dinner periods and our use of fresh ingredients requires significant preparation work. As a result of such difficult working conditions, employee turnover has, at times, been elevated. Sustained staffing challenges or increased turnover could adversely affect our ability to deliver the sweet touch, reduce operational efficiencies, reduce guest satisfaction, and negatively impact restaurant profitability.
Workforce planning has become more complex due to scheduling and termination regulations, including predictive scheduling (“fair workweek”) laws in certain markets and New York City’s “just cause” termination law, as well as wage and hour laws. Staffing needs also vary by restaurant, market, and sales channel, and at times we may be unable to adequately staff certain restaurants or channels, which could result in reduced operating hours, temporary suspension of a sales channel or daypart, or diminished service levels.
We have undertaken several workforce reductions and organizational restructurings at the Sweetgreen Support Center and may do so again. Such actions may result in unintended consequences, including loss of institutional knowledge, delays in technology or operational initiatives, reduced morale, or attrition beyond intended roles, which could impair our ability to support restaurant operations and growth.
Increases in labor costs, labor shortages, or unionization efforts could adversely affect our business, financial condition, and results of operations.
Labor represents a significant component of our restaurant-level operating expenses. We may experience increased labor costs due to inflation, competition for employees, higher turnover, inefficiencies in scheduling, increases in federal, state, or local minimum wages, or higher benefit costs. Competition for qualified employees may require us to pay higher wages or offer additional incentives or benefits, which could increase labor costs and adversely affect margins. For example, effective April 1, 2024, California increased its minimum wage for certain restaurant chains, including Sweetgreen, to $20.00 per hour, and a state-appointed council may further increase this minimum wage in the future. Although we have sought and may continue to seek to offset labor cost increases through menu price increases, customers may be unwilling to accept higher prices, which could adversely affect demand and margins.
If labor costs continue to increase or we are unable to sufficiently staff our restaurants, we may need to reduce operating hours, temporarily close certain restaurants or sales channels, delay restaurant openings, or incur higher costs, any of which could adversely affect our Restaurant-Level Profit Margin and overall profitability. In addition, failure to adequately monitor and respond to employee dissatisfaction or complaints could result in higher turnover, litigation, or unionization efforts.
Although none of our employees are currently covered under collective bargaining agreements, employees may seek to unionize in the future. Unionization efforts, collective bargaining, strikes, or other labor disruptions involving our employees, suppliers, or delivery partners could increase labor costs, limit operational flexibility, divert management attention, disrupt operations, or harm our reputation.
If we are unable to introduce new or upgraded products, menu items, services, channels, technology, or features that our customers recognize as valuable, we may fail to retain existing customers and attract additional customers, and our efforts to do so could cause us to incur significant costs.
To continue to attract and retain customers, we believe that we must continue to invest in new offerings that add value for customers and differentiate us from competitors. We have invested, and expect to continue to invest, in such offerings. For example, in fiscal year 2025, we increased the chicken and tofu portioning in our products. We also deployed additional Infinite Kitchen units in our restaurants, such that 30 of our restaurants used this technology as of the end of the 2025 fiscal year. And in fiscal year 2024 we also added steak to our menu. We regularly introduce seasonal, limited-time, and digital-exclusive menu offerings. The success of these initiatives depends on factors such as timely development, introduction, and market acceptance. If customers do not recognize the value of our new offerings, they may not continue to purchase products from us or they may reduce the frequency or size of their purchases, which could adversely affect our business, financial condition, and results of operations.
Developing and delivering new or upgraded offerings may increase expenses and cause operational and technical challenges, which could negatively impact our business. New offerings may not function as intended,
Table of Contents
may have unintended consequences, or may not provide the expected value to customers. In fiscal year 2025, we launched a menu item named Ripple Fries, but later removed Ripple Fries from our menu due to operational challenges caused by this product that negatively impacted our business.
Efforts to enhance our websites and applications also involve inherent risks, and we may not successfully manage these initiatives. If, as a result of changes to our websites or applications, customers choose not to order through certain of our channels, they may instead order from competitors or third-party marketplaces, which could adversely affect our business.
We may also license or integrate third-party applications, content, or data into our online and mobile ordering platforms. These integrations impose costs, require internal resources, and increase reliance on third parties whose priorities may differ from ours. We may be unable to continue accessing such technologies or content on commercially reasonable terms, or at all.
Changes in food and supply costs or disruptions in the availability or delivery of ingredients and other supplies could adversely affect our business, financial condition, and results of operations.
Our profitability depends in part on our ability to anticipate and respond to changes in food and supply costs and to maintain consistent access to ingredients that meet our specifications. Shortages or interruptions caused by unanticipated demand, inaccurate forecasting, production or distribution issues, food contamination, inclement weather, climate-related events, or other conditions could increase costs, limit availability, or affect ingredient quality, including through the use of substitute products that may not meet our standards. For example, during the fourth fiscal quarter of 2024, extreme weather disrupted tomato and cucumber supplies, resulting in higher prices and temporary discontinuations in certain markets.
Much of our supply chain is localized, and in some markets, we rely on a regional distributor for produce and another for grocery items, which may make our supply chain more difficult to manage than models that rely on national distributors. We also partner with farmers and suppliers of varying sophistication, some of whom may have limited inventory or ability to mitigate disruptions. In addition, certain suppliers may fail to maintain food safety certifications, which could increase our risk of a food safety incident. Although we monitor certifications and audit compliance, including suspending supply in cases of material noncompliance (such as with one leafy greens supplier in fiscal year 2024 and one pickle supplier in fiscal year 2023), these efforts may not be sufficient.
Prices and availability of key ingredients may fluctuate due to weather, climate change, animal disease, labor costs at suppliers, inflation, other purchasers offering more competitive terms to our suppliers, government regulations, trade restrictions, or other reasons. For example, avian influenza outbreaks in fiscal year 2024 disrupted supplies of chicken and eggs in certain regions, resulting in shortages and higher prices. Ingredients such as avocados are particularly volatile due to limited supply sources, seasonal shifts, climate conditions, food safety concerns, and international trade dynamics. Changes in immigration or work authorization laws or enforcement, including recently intensified immigration enforcement efforts by U.S. Immigration and Customs Enforcement, could also increase suppliers’ labor costs or limit availability. Tariffs or other trade barriers may further increase costs.
Our ability to maintain consistent quality and pricing depends on our ability to source specified products in sufficient quantities at reasonable cost. Because of our supply chain structure and culinary standards, identifying acceptable substitutes, particularly for fresh or perishable products, may be difficult. We do not control our suppliers’ or distributors’ operations, and our efforts to monitor performance may not be successful.
We have experienced supply chain disruptions and increased costs related to packaging, including bowls and plates produced outside the United States, which have been and may in the future be due to vendor nonperformance, transitions to new vendors, and tariffs, duties, or other import barriers. In the past, we have been forced to use substitute packaging for our products due to supply chain disruptions, and certain of that packaging caused customer dissatisfaction. Further disruptions or increased costs related to packaging may lead to additional customer dissatisfaction, store closures, or reduced margins.
Our distributor and supplier contracts are generally short term, and in some cases include minimum purchase obligations. As a result, costs may increase with little notice, and we may be unable to offset such increases through pricing or purchasing adjustments. In the event of supplier disputes, we may not have adequate contractual recourse, and insurance maintained by us or our suppliers may be insufficient.
Table of Contents
Furthermore, certain food items are perishable, and we have limited control over whether such items are delivered to us in appropriate condition for use in our restaurants. In addition, accurately forecasting demand is inherently difficult, particularly during periods of disruption or when events occur outside of our control (such as during the COVID-19 pandemic). Inaccurate forecasts may result in shortages, higher costs, lower-quality substituted products, food waste, or donations of excess product. As we expand into new markets, our commitment to our food ethos may further limit the availability of suitable suppliers. In the event of such shortages, we may be unable to identify or negotiate alternative sources on commercially reasonable terms, or at all. If our suppliers or distributors are unable to fulfill their obligations or we are unable to identify alternative sources, we could encounter supply shortages and incur higher costs, each of which could adversely affect our business, financial condition, and results of operations.
Changes in U.S. international trade policies, including the imposition of tariffs, could increase the cost of ingredients, equipment, and construction materials used in our restaurants and adversely affect our business, financial condition, and results of operations.
Most of our bowls and plates are produced outside of the United States, including in China. We also source a limited number of ingredients produced outside the United States, including from Mexico, and certain construction materials used in our restaurants are from outside the United States. The items we procure from outside the United States expose our business to tariffs and duties implemented by the U.S. government. For fiscal year 2025, we realized a tariff and duty impact from our food, beverage, and packaging supply chain of approximately 27 basis points and we expect a similar impact in future fiscal periods absent further change in applicable tariff rates. Beginning in fiscal year 2026, as tariff costs are absorbed into our supplier pricing, the impact may not be separately identifiable, and may vary based on tariff policy changes.
There is significant uncertainty regarding future U.S. trade regulations, including whether additional tariffs or other trade restrictions will be imposed or existing tariffs escalated. Such measures may be adopted in response to a range of economic, political, or geopolitical factors, making it difficult to predict their scope or timing. Additional tariffs and related trade restrictions could further increase the cost of food ingredients, restaurant equipment, and construction and building materials used in new restaurant openings or renovations. If we are unable to mitigate the full impact of existing or proposed tariffs, or if additional tariffs or trade restrictions are imposed, our costs may increase and our financial results could be adversely affected.
Our reliance on third parties could have an adverse effect on our business, financial condition, and results of operations.
We rely on third-party vendors to provide, support, and maintain key elements of our management information systems and technology, including components of our applications, and we outsource certain accounting, payroll, and human resource functions. We also rely on third-party vendors for delivery services and customer account management. The failure of any of these vendors to perform their obligations, or disruptions resulting from changes in vendor services or transitions to new vendors, could negatively impact our operations and adversely affect our business.
For example, we use DoorDash as our preferred third-party delivery partner to support our Native Delivery Channel. If DoorDash or any future delivery partner fails to provide satisfactory service, including due to delivery delays, insufficient courier availability, or system outages, we may be unable to provide reliable delivery services through our application, which could result in reduced sales, customer dissatisfaction, increased refunds or credits, and reputational harm. We and many of our vendors also rely on Amazon Web Services to operate our digital channels, and outages at Amazon Web Services have in the past disrupted, and could in the future disrupt, our operations. For example, in the fourth quarter of fiscal year 2021, an Amazon Web Services outage disabled all of our digital channels for nearly an entire day, materially impacting our business. Beginning in the fourth quarter of fiscal year 2023, we began using Stripe for customer account management and payment processing through our smartphone application. Any significant downtime, service interruption, or data security incident involving Stripe or any future payment or account management provider could adversely affect our operations and financial results.
Also, as noted above, after the sale of the assets related to our Infinite Kitchen technology, we now rely on Wonder to provide our Infinite Kitchen units to us. See “If we are unable to utilize the Infinite Kitchen in our restaurants in a cost-effective manner, our growth plans, financial condition, and results of operations could be adversely affected.”
Table of Contents
We and certain of our vendors are subject to the technical requirements, terms of service, and policies of third-party operating system platforms and application stores, including those operated by Apple and Google. The operators of these platforms have broad discretion to impose or interpret requirements and policies in ways that may be unfavorable to us, including by imposing access fees, restricting data collection or use, or limiting our ability to track users. If we or our vendors fail to comply with these requirements or policies, or if they are modified in a manner that adversely affects us, we could lose access to users, suffer a disruption to our mobile application, or otherwise suffer harm to our business.
Failure to manage our growth effectively could harm our business and results of operations.
Our growth plan includes opening new restaurants, making significant technology investments to improve operational efficiency, and managing operating expenses to support expansion. Our existing restaurant management systems and other technology, financial and management controls, leadership team, and information systems may be inadequate to support our planned expansion and investments, which may negatively impact the quality of service provided to our customers. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train, reward, and retain qualified managers and team members. We may not respond quickly enough to the changing demands that our expansion will impose on our management, restaurant teams and existing infrastructure, which could harm our customer experience, and in turn, our business, financial condition, and results of operations.
Changes in commodity and other operating costs, particularly due to climate change, could adversely affect our results of operations.
The profitability of our restaurants depends in part on our ability to anticipate and respond to changes in commodity and operating costs, including food, paper, supplies, fuel, utilities, and other costs. Prices for certain key ingredients, such as chicken, steak, kale, and avocado, will likely continue to increase over time and may also become volatile due to climate conditions, disease outbreaks, and other macroeconomic or geopolitical factors beyond our control, including extreme and unpredictable weather events such as fires and hurricanes. We can only partially mitigate future price risk associated with climate change through contracting, forward purchases, and other activities, and increases in commodity costs, particularly those driven by climate-related factors, could adversely affect our ability to achieve or maintain profitability.
Our results of operations may also be adversely affected by increases in utility costs, including natural gas, electricity, and water, whether as a result of inflation, shortages, interruptions in supply, or otherwise. There can be no assurance that future cost increases can be offset through menu price increases or that current or future prices will be fully absorbed by customers without reducing demand.
Our ability to respond to increased costs through pricing actions, operational changes, or alternative products depends on our ability to anticipate and react to such increases, general economic and demographic conditions, and the responses of competitors and customers, many of which are difficult to predict or beyond our control. As a result, increased costs could adversely affect our results of operations.
We depend on our senior management team and other key employees, and the loss of one or more key personnel or an inability to attract, hire, integrate, and retain highly skilled personnel could have an adverse effect on our business, financial condition, and results of operations.
Our success depends largely on the continued services of our senior management team and other key employees. To date, we have not implemented a robust succession plan for key executive roles. Our leadership team plays a critical role in setting our strategic direction and culture, operating our business, recruiting and developing talent, identifying expansion opportunities, arranging financing, and overseeing general and administrative functions.
We have experienced significant changes in our executive management team over the past several years and we may experience additional executive transitions in the future. While we seek to manage such transitions carefully, executive departures may result in loss of institutional knowledge and operational disruption. The loss of one or more executive officers or other key employees could impair our ability to execute our strategy and achieve growth objectives, including scaling our restaurant base, expanding into new markets and formats, improving operations, and advancing our digital platforms. Replacing executive officers or other key personnel may require significant time and expense and could delay or prevent the achievement of our business objectives.
Table of Contents
Executing our growth strategy also depends on our ability to identify, hire, and retain highly skilled personnel, including engineers and other technical employees needed to support our digital ordering and delivery channels, which include our Native Delivery, Outpost and Catering, and Marketplace Channels. Competition for such talent is intense, and we may not be successful in recruiting or retaining these employees. We have implemented workforce reductions in the past and may do so again in the future. Such workforce reductions may damage our ability to attract necessary personnel. Any failure to attract, retain, motivate, or effectively integrate necessary personnel could adversely affect our business, financial condition, and results of operations.
Failure to maintain our corporate culture could have an adverse effect on our business, financial condition, and results of operations.
We believe that our corporate culture and the internal advancement of our corporate values have been critical to our success, and we have invested significant time and resources in building our teams at both our Sweetgreen Support Center and our restaurants. As we continue to grow, we may find it more difficult to maintain the innovation, teamwork, passion, and focus on execution that we believe are important aspects of our culture.
We have implemented workforce reductions in the past, which have negatively impacted, and may continue to negatively impact, employee morale and our corporate culture. We may implement additional workforce reductions in the future, which could further affect morale, culture, and our brand.
As we have grown, we have experienced periods of management turnover. Such turnover may negatively impact our culture. Any failure to preserve our culture could impair our ability to retain and recruit employees, maintain engagement, and effectively pursue our corporate objectives. If we are unable to maintain our culture as we grow and evolve, it could have an adverse effect on our business, financial condition, and results of operations
Our marketing strategies and channels will evolve, and our programs may not be successful.
We incur significant costs and expend substantial resources on marketing to attract and retain customers. Our marketing strategy includes public relations, digital and social media, targeted promotions, and in-store messaging, which historically have required less spending than traditional advertising. As we increase our restaurant count, expand our Native Delivery, Outpost and Catering, and Marketplace Channels, and enter new markets, we expect to increase our marketing investments and consider additional promotional activities, which will increase our expenses and financial risk.
Changes in customer privacy expectations and restrictions on user tracking could reduce the effectiveness of our targeted advertising and increase customer acquisition costs. We also rely heavily on social media for marketing, and shifts in customer sentiment toward social media platforms or the emergence of new communication channels may require us to modify our marketing strategies and incur additional costs. Some of our marketing initiatives may not generate sufficient returns, resulting in expenses without corresponding revenue growth.
Our pricing strategies may be affected by a number of factors, including changes in operating costs and the pricing and marketing strategies of our current and future competitors. Customer price sensitivity may vary by geographic location and, as we expand, our marketing strategies or pricing methodologies may not enable us to compete effectively in certain markets. If our competitors increase spending on marketing or advertising, if our marketing funds decrease for any reason, or if our marketing strategies or pricing methodologies are less effective than those of our competitors, our business, financial condition, and results of operations could be adversely affected.
New information or attitudes regarding diet and health could result in changes in regulations and customer consumption habits, which could have an adverse effect on our business, financial condition, and results of operations.
Customer eating habits may change as a result of new information or attitudes regarding diet and health, including in response to scientific studies on the health effects of particular food items or changes in federal, state, or local regulations that impact the ingredients and nutritional content of the food and beverages that restaurants are able to offer. For example, a growing number of people are consuming higher-protein meals.
Table of Contents
The success of our restaurant operations depends, in part, on our ability to effectively respond to changes in customer attitudes and health regulations and to adapt our menu offerings to trends in food consumption, particularly fast-moving trends. If food-related health regulations or customer eating habits change significantly, we may choose or be required to modify or eliminate certain menu items, which could adversely affect the attractiveness of our restaurants to new or returning customers. Changes in customer eating habits can occur rapidly, often in response to published research, which increases the pressure on us to adapt quickly. If we are unwilling or unable to respond with appropriate menu changes in an efficient manner, customer demand could decline, which could have an adverse effect on our business, financial condition, and results of operations. Further, menu changes in response to changes in customer eating habits may increase our operating costs. As an example, we recently increased chicken and tofu portion sizes in connection with consumer demand for higher-protein meals, which increased our operating costs.
Changes in attitudes regarding diet and health have resulted in, and may continue to result in, laws and regulations that require us to disclose the nutritional and other content of our food offerings and that affect permissible ingredients, food content, and menu offerings. A number of counties, cities, and states, including California, have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers or restricting the use of certain ingredients in restaurants. These laws may differ from, or be inconsistent with, requirements under the Patient Protection and Affordable Care Act of 2010 (the “PPACA”). The PPACA establishes a uniform federal requirement for certain restaurants to post nutritional information on their menus, including calorie disclosures for standard menu items and contextual statements regarding total daily calorie intake. These labeling laws may change customer consumption habits in ways that adversely impact our sales. In addition, unfavorable reports on, or reactions to, our menu ingredients, portion sizes, or the nutritional content of our menu items could negatively influence demand for our offerings and adversely affect our business, financial condition, and results of operations.
We may not be able to effectively respond to changes in customer health perceptions, comply with additional nutrient content disclosure requirements, or adapt our menu offerings to trends in eating habits, which could have an adverse effect on our business, financial condition, and results of operations.
Our focus on environmental sustainability and social initiatives may increase our costs, and our inability to meet our sustainability goals and any disclosures requirements could harm our reputation and adversely impact our financial results.
There has been increasing public focus by investors, environmental activists, the media, and governmental and nongovernmental organizations on a variety of environmental, social, and other sustainability matters. With respect to the restaurant industry, concerns have been expressed regarding, among other things, energy management, water management, food and packaging waste management, food safety, nutritional content, labor practices, and supply chain and food sourcing management. Through our mission, we have committed to supporting small and mid-size growers who are farming sustainably, creating transparency around what is in our food and where it came from, and increasing access to healthy, real food. Any environmental, social, and governance initiatives we may pursue may be costly to implement and may change over time, and we may not be successful in achieving our intended objectives.
If we are not effective in addressing environmental, social, and other governance matters affecting our industry, setting and meeting relevant environmental, social, or governance goals, or fulfilling our mission or sustainability plans, our brand image may suffer. We may incur increased costs to implement, measure, and report on our sustainability goals, which could adversely affect our business, financial condition, and results of operations. In addition, maintaining a focus on environmental sustainability initiatives may expose us to increased scrutiny from members of the investment community or enforcement authorities who may disagree with aspects of our approach to such matters.
We may require additional capital to support business growth, and this capital might not be available on reasonable terms or at all.
We intend to continue making significant investments to support our business growth, including investments in expanding our restaurant footprint and our multiple distribution channels, deploying the Infinite Kitchen in more restaurants, and developing technology to enhance our operating efficiency, each of which may require additional capital to respond to business challenges or opportunities. For example, we may choose to open additional restaurants, develop new or enhance existing products and menu items, and invest in our operating infrastructure. In addition, if our operating losses continue or increase, we may need to raise additional capital.
Table of Contents
Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through the issuance of equity or convertible debt securities, our existing stockholders could experience significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of our common stock. We may not be able to obtain additional financing on favorable terms, or at all, and our ability to raise additional funds may be adversely affected by global economic conditions or disruptions to, or volatility in, the U.S. or worldwide credit or financial markets. If we are unable to obtain adequate financing, or financing on terms satisfactory to us, when needed, our ability to support our business growth and respond to business challenges could be materially limited.
We operate our restaurants and corporate headquarters in leased properties subject to long-term, non-cancelable leases. If we are unable to secure new leases on favorable terms, terminate unfavorable leases, or renew or extend favorable leases, our profitability may suffer.
We operate our restaurants in leased facilities, and payments under our restaurant leases account for a significant portion of our operating expenses. We expect that most of the new restaurants we open in the future will also be leased. It is becoming increasingly challenging to locate and secure favorable lease facilities for new restaurants, as competition for restaurant sites in our target markets is intense, and development and leasing costs, particularly in urban locations, are increasing. These factors could negatively impact our ability to manage occupancy costs and may adversely affect our profitability. In addition, these factors may be exacerbated by economic conditions, which could increase demand for developers and contractors and further drive up construction and leasing costs. As we open and operate more restaurants, our rate of expansion relative to the size of our existing restaurant base has declined and is likely to continue to decline, making it increasingly difficult to achieve the levels of sales and profitability growth we achieved in prior years.
We are obligated under long-term, non-cancelable leases for all of our restaurants and the current and prior location of our Sweetgreen Support Center. Our restaurant leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance charges, and other operating costs, and certain leases also provide for contingent rental payments based on sales thresholds. Additional sites we lease are likely to be subject to similar long-term, non-cancelable lease terms. If an existing or future restaurant is not profitable and we decide to close it, we may nonetheless remain obligated to perform our lease obligations (or to negotiate a buyout with the landlord) including paying base rent for the remainder of the lease term. For example, in 2022, we vacated the premises for the former Sweetgreen Support Center and relocated to a smaller office space adjacent to its prior location. To date, we have been unsuccessful in subleasing our vacated former Sweetgreen Support Center, and it is uncertain whether we will be successful in doing so, or on what commercial terms.
As our leases expire, we may be unable to negotiate renewals on commercially acceptable terms, or at all, which could result in increased occupancy costs or require us to close restaurants in desirable locations. Increased occupancy costs or restaurant closures could have an adverse effect on our business, financial condition, and results of operations. In addition, if we are unable to renew or extend leases in key metropolitan areas, or if such leases are terminated, any resulting inability to operate in those markets, as well as adverse publicity related to such non-renewals or terminations, could adversely affect our business, financial condition, and results of operations.
A significant portion of our restaurants are located in large urban areas, and if our operations in these geographies are negatively affected, our financial results and future prospects would be adversely affected.
A significant portion of our restaurants are located in densely populated urban locations, such as midtown New York City, Los Angeles, Boston, and the Washington, D.C./Maryland/Virginia metropolitan areas. As a result of our geographic concentration, our business and financial results are susceptible to economic, social, weather, and regulatory conditions and other circumstances in these densely populated urban areas. Regional occurrences in the markets in which we operate, such as local strikes, terrorist attacks, increases in energy prices, health-related incidents, negative publicity, adverse weather conditions, tornadoes, earthquakes, storms, hurricanes, floods, droughts, fires, or other natural or man-made disasters, could have an adverse effect on our business, financial condition, and results of operations. For example, in January 2025, fires in the Los Angeles region caused the closure of, and reduced operating hours for, several of our restaurants in that region, which negatively impacted our overall business.
Table of Contents
Any short-term or long-term shifts in customer travel patterns away from densely populated urban areas could have an adverse impact on our future results of operations in these areas. An economic downturn, increased competition, or regulatory obstacles in any of these key markets could adversely affect our business, financial condition, and results of operations to a greater degree than the occurrence of such events in other areas. In addition, changes to local laws or regulations in these key metropolitan markets that affect our ability to operate or increase our operating expenses would have an adverse effect on our business.
Acquisitions could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our results of operations and expansion prospects.
We have in the past and may in the future make acquisitions of other companies, technologies, or products. Competition within our industry for acquisitions of businesses, technologies in areas such as automation and logistics, and assets, including retail spaces, may become intense, and we have limited experience with acquisitions. As a result, even if we identify a potential acquisition target, we may not be able to complete the acquisition on commercially reasonable terms, or at all, or such target may be acquired by another company, including one of our competitors. Negotiations for potential acquisitions may divert management time and result in significant out-of-pocket costs.
If we complete acquisitions, we may not strengthen our competitive position or achieve our objectives, and any acquisitions we complete could be viewed negatively by customers, employees, or investors, or result in the incurrence of significant liabilities. We may expend significant cash or incur substantial debt to finance acquisitions, which could restrict our business or require us to use available cash to make interest and principal payments. In addition, we may finance acquisitions through the issuance of equity or convertible debt securities, which could result in further dilution of our existing stockholders. If we fail to effectively evaluate, execute, or integrate acquisitions, or to successfully address these risks, our results of operations and expansion prospects could be adversely affected.
Risks Related to Legal and Governmental Regulation
Governmental regulation may adversely affect our business, financial condition, and results of operations.
We are subject to various federal, state, and local regulations, including those relating to building and zoning requirements and the preparation and sale of food. The development and operation of restaurants depends, to a significant extent, on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic, and other regulations and requirements. Our restaurants are also subject to state and local licensing and regulation by health, sanitation, food, occupational safety, and other agencies. We may experience difficulties or failures in obtaining required licenses, approvals, or permits, which could delay planned restaurant openings or adversely affect the operations of our existing restaurants. In addition, stringent or varying requirements of local regulators with respect to zoning, land use, and environmental factors could delay or prevent the development of new restaurants in particular locations.
Our operations are subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs matters such as minimum wages and overtime, as well as a variety of similar federal, state, and local labor and employment laws, including predictive scheduling laws, wage and hour laws, laws governing the employment of minors, leave laws, termination laws, and state occupational safety regulations. We may be subject to lawsuits or investigations by current or former employees, the U.S. Equal Employment Opportunity Commission, or other agencies alleging violations of workplace or employment laws, discrimination, or similar matters. We are currently, and have in the past been, a party to such matters. These lawsuits and investigations require significant management time and resources and may result in fines, penalties, settlement payments, and/or remediation efforts, some or all of which may not be covered by insurance. Such remediation efforts may be costly, time consuming, and not implemented effectively. We have been negatively impacted by these types of matters in the past, and current or additional lawsuits or investigations could adversely affect our business, brand and reputation, financial condition, and results of operations. Additional federal, state, and local proposals related to leave or similar matters could, if implemented, also adversely affect our business, financial condition, and results of operations.
Table of Contents
We are also subject to the ADA and similar state laws that provide civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other areas, including our restaurants, websites, and smartphone applications. In the past, we have settled lawsuits related to alleged ADA non-compliance, which resulted in accommodations to our websites, smartphone applications, and physical restaurants. We are currently engaged in ADA-related litigation and may face additional litigation in the future. We may be required to further modify our restaurants, websites, or other digital platforms, including any digital kiosks we may implement, to provide reasonable accommodations to individuals with disabilities. The expenses associated with these modifications could be material, and there can be no assurance that we will be able to limit additional claims in the future.
We operate in a highly regulated industry and strive to implement industry best practices relating to food and customer safety, whether or not required by regulation, including with respect to sanitation and the handling of perishable food items. Failure to maintain such practices or comply with applicable regulations could result in foodborne illness incidents, which could adversely affect our brand and operations. Local, state, and federal regulatory requirements continue to evolve, and compliance with these requirements may increase our costs and present additional challenges and risks to our business.
Current laws and regulations, future changes in laws or regulations that impose additional requirements, including requirements relating to reasonable accommodations for individuals with disabilities, litigation relating to current or future laws and regulations, and our inability to respond effectively to regulatory or public policy developments could increase our compliance and other operating costs and adversely affect our business, financial condition, and results of operations. Failure to comply with applicable laws and regulations could result in revocation of required licenses, administrative enforcement actions, fines, or civil or criminal liability. Compliance with these laws and regulations can be costly and may adversely affect our financial condition.
Changes in employment laws may increase our labor costs and impact our results of operations.
Various federal, state, and local employment laws govern our relationship with employees and impact operating costs. These laws include requirements relating to employee classification as exempt or non-exempt, predictive scheduling, wage and hour requirements, unemployment tax rates, workers’ compensation rates, immigration status, the employment of minors, and other wage and benefit requirements. Significant legal or regulatory changes in any of the following areas could have an adverse effect on our business, financial condition, and results of operations:
• predictive scheduling;
• minimum wages;
• mandatory health benefits;
• paid leave;
• vacation accruals;
• termination requirements;
• tipping;
• employment of minors;
• I-9 compliance; and
• tax reporting.
Compliance with these laws and regulations subjects us to substantial expense, and non-compliance could expose us to significant liabilities. We incur legal costs to defend, and could suffer losses from, litigation and disputes relating to these and similar laws and regulations, and the amount of such costs or losses could be significant. In addition, several states and localities in which we operate, as well as the federal government, have from time-to-time enacted minimum wage increases, changes to overtime eligibility, paid leave requirements, mandatory vacation accruals, and similar measures. These changes have increased our labor costs and may further increase our labor costs in the future.
For example, several jurisdictions in which we operate, including New York City, Philadelphia, Chicago, Evanston, Seattle, Berkeley, Emeryville and San Francisco, have implemented fair workweek legislation that
Table of Contents
imposes complex scheduling requirements on certain restaurant employees and can be difficult to comply with. The regulations governing these requirements have changed and may continue to change over time. We are currently under investigation by the New York City Department of Consumer and Worker Protection for fair workweek violations at one of our New York City locations, and we may be subject to similar investigations in New York City or other jurisdictions in the future. Other jurisdictions in which we operate are considering enacting similar legislation. In addition, New York City implemented “just cause” termination legislation in July 2021 as part of its fair workweek framework, which restricts fast food restaurant companies’ ability to terminate employees absent “just cause” or a “bona fide economic reason.” These regulations impose additional obligations on us and could increase our costs of doing business or require changes to our business model. Failure to comply with these laws and regulations could result in higher employee turnover, negative publicity, penalties, or other legal liabilities, which could adversely affect our business and results of operations and could result in restaurant closures in these jurisdictions.
A significant number of our restaurant employees are paid at rates impacted by applicable minimum wage laws. Federal, state, and local proposals to increase minimum wages or mandate other employment-related requirements could, if implemented, increase our labor and other costs. Several states in which we operate have approved minimum wage increases above the federal minimum. For example, as of April 1, 2024, California increased its minimum wage for certain restaurant chains, including Sweetgreen, to $20.00 per hour, and a state-appointed council may further increase this minimum wage annually. In addition, municipalities may establish minimum wages above applicable state standards, including in jurisdictions in which we operate. As more jurisdictions implement minimum wage increases, we expect our labor costs will continue to rise. Our ability to offset these increases through menu price adjustments or other customer-facing fees, such as delivery or service fees, depends on customer willingness to pay higher prices and our perceived value relative to competitors. In addition, our distributors and suppliers may be subject to higher labor, benefit, and compliance costs, which could increase the cost of goods and services we purchase. Any increase in our labor costs, or the labor costs of our distributors or suppliers, could have an adverse effect on our results of operations.
We have been and will likely continue to be party to litigation that could distract management, increase our expenses, and subject us to monetary damages or other penalties.
We have in the past and are currently subject to a number of claims from employees alleging violations of federal and state laws relating to workplace and employment matters, including off-the-clock work, meal and rest break compliance, predictive scheduling, equal employment opportunity, harassment, discrimination, failure to pay timely wages, employee misclassification, retaliation, wrongful termination, and similar matters. We are currently a party to class actions and Private Attorney General Act (“PAGA”) litigations relating to certain of these claims, and we could become subject to additional class action litigation or other lawsuits involving these or other matters in the future. We may not have valid arbitration agreements with all current or former employees, and existing arbitration agreements may not protect us from certain claims in certain jurisdictions, including PAGA actions in California.
Customers have filed complaints and lawsuits alleging illness or injury suffered at or after visits to our restaurants, as well as issues relating to food quality and operations. Certain of these matters are ongoing, and additional complaints or lawsuits may arise in the future. In addition, because we do not perform background checks on all employees, we have been and may continue to be exposed to risks, including allegations of negligence in our hiring practices.
Regardless of the merits of any claims or whether we are ultimately held liable, litigation can be expensive to defend, may divert management time and resources, and may harm our operating performance. Judgments or settlements that exceed, or are excluded from, our insurance coverage could adversely affect our financial condition and results of operations. In addition, adverse publicity resulting from these allegations, regardless of their validity, could harm our reputation and adversely affect our business, financial condition, and results of operations.
The restaurant industry has been subject to an increasing number of claims relating to advertising and marketing practices. We have been, and may continue to be, subject to such claims, which could adversely affect our reputation and harm our business, financial condition, and results of operations.
Failure to obtain and maintain required licenses and permits or to comply with food control regulations could lead to the loss of our food service licenses and harm our business.
Table of Contents
The restaurant industry is subject to various federal, state, and local regulations, including those relating to the design and construction of restaurants and the sale of food and beverages, which are subject to change from time to time. For example, during the COVID-19 pandemic, the time required to obtain licenses and permits increased significantly. Failure to timely obtain, maintain, or comply with required licenses, permits, or approvals could have an adverse effect on our business, financial condition, and results of operations. Licenses typically must be renewed annually and may be revoked, suspended, or denied renewal for cause, and we may be subject to fines or temporary restaurant closures if governmental authorities determine that we are not in compliance with applicable regulations.
Difficulties or failures in obtaining or maintaining required licenses and approvals could adversely affect the operation of our existing restaurants and delay, or result in our decision to cancel, the opening of new restaurants, which could harm our business, brand and reputation, financial condition, and results of operations.
Failure to comply with immigration laws, or changes thereto, may increase the operating costs of our business.
Although we have policies requiring that all workers provide us with government-specified documentation evidencing their employment eligibility on their first day of work, some of our employees, particularly in our restaurants, may be unauthorized workers or may provide false documentation. Our historical hiring processes in our restaurants have not always ensured that we collect and approve all required government-specified documentation evidencing employment eligibility on a timely basis in accordance with applicable laws. We have previously been subject to audit by the Department of Homeland Security in certain markets, and we may be subject to additional audits in the future. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our workers are found to be unauthorized, we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and keep qualified employees. In the past, we have terminated a significant number of employees who were determined to be unauthorized workers, and if we take similar actions in the future, it may disrupt our operations, cause temporary increases in our labor costs as we train new employees, increase litigation for claims of wrongful termination or discrimination and result in additional adverse publicity. We could also become subject to fines, penalties, and other costs related to claims or governmental audits that we did not fully comply with all obligations of federal and state immigration compliance laws, including record-keeping obligations. These factors could have an adverse effect on our business, financial condition, and results of operations as well as our brand and reputation.
Immigration laws are currently a topic of considerable political focus. Further changes in immigration or work authorization laws and additional enforcement programs by federal or state officials of existing immigration or work authorization laws could increase our compliance and oversight obligations, which could subject us to additional costs and potential liability, impact our brand and reputation, and make our hiring process more burdensome, and could potentially reduce the availability of prospective employees.
Failure to comply with environmental laws, particularly regarding waste management, may negatively affect our business.
We are subject to various federal, state, and local laws and regulations concerning waste minimization, recycling, disposal, pollution, environmental protection, and the presence, discharge, storage, handling, release, disposal of, and exposure to hazardous or toxic substances. These environmental laws, which often vary significantly at the local level, provide for significant fines and penalties for noncompliance and liabilities for remediation, in some cases without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous or toxic substances. Compliance with these regulations may become increasingly complex as we expand into additional markets.
We primarily rely on third-party vendors to manage waste disposal and to ensure that our waste is transferred, recycled, or disposed of in accordance with applicable regulations and our standards. If these third parties fail to comply with applicable requirements, we could be subject to liability. In addition, third parties may assert claims against owners or operators of properties for personal injury or property damage associated with releases of, or actual or alleged exposure to, hazardous or toxic substances at, on, or from our restaurants.
Particularly in light of our focus on environmental sustainability and social impact, environmental conditions relating to the release of hazardous substances at prior, existing, or future restaurant locations could adversely affect our brand and reputation, business, financial condition, and results of operations. Further, environmental
Table of Contents
laws, and their administration, interpretation, and enforcement, are subject to change and may become more stringent over time, which could increase the complexity of our waste management efforts and adversely affect our business, financial condition, and results of operations.
Changes to healthcare laws in the United States may increase employee participation in our healthcare plans, which could significantly increase our healthcare costs and adversely affect our financial results.
In 2010, the Patient Protection and Affordable Care Act (“PPACA”) was signed into law in the United States, which requires health care coverage for many previously uninsured individuals and expanded coverage for those already insured. PPACA requires us to offer healthcare benefits to all full-time employees, including full-time hourly employees, that meet certain minimum coverage and affordability requirements, or we may be subject to penalties for noncompliance.
We have incurred and will continue to incur expenses to maintain a healthcare plan that covers employees who have elected to obtain coverage through a plan that we subsidize in part. If we fail to continue to offer such benefits, or if the benefits we offer do not meet applicable requirements, we may be subject to penalties. In addition, changes to, or a failure to make changes to, our healthcare plans could make us less competitive in the labor market. The future costs and effects of healthcare requirements are uncertain and may significantly increase our healthcare coverage costs and adversely affect our business, financial condition, and results of operations.
In addition, future federal or state healthcare reform could adversely affect our business, financial condition, and results of operations, and we cannot predict the impact of any future legislative, judicial, or administrative developments relating to healthcare laws.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 28, 2025, we had U.S. federal net operating loss carryforwards (“NOLs”) of $867.6 million, of which $765.7 million may be carried forward indefinitely, and the remaining $101.9 million expire at various times. As of the same date, we had state NOLs of $787.6 million, of which $93.5 million may be carried forward indefinitely, and the remaining $694.1 million expire at various times.
Under current law, U.S. federal NOLs arising in tax years beginning after December 31, 2017, may offset no more than 80% of current taxable income. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” its ability to use its pre-change NOLs and other tax attributes, including research and development tax credits, to offset its post-change taxable income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “five-percent stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar limitations may apply under state tax laws. As a result, our ability to use NOLs and other tax attributes to reduce future taxable income and tax liabilities may be subject to annual limitations due to prior ownership changes or ownership changes that may occur in the future. There is also a risk that due to regulatory changes, such as suspensions of the use of NOLs and tax credits by certain jurisdictions, possibly with retroactive effect, or other unforeseen reasons, our existing NOLs and tax credits could expire or otherwise be unavailable to offset future income tax liabilities. For example, in 2024, California imposed limits on the usability of California state NOLs to offset taxable income and certain business credits to offset California state tax liabilities in tax years beginning after 2023 and before 2027. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs and tax credits.
As of December 28, 2025, we maintain a full valuation allowance against our U.S. NOLs, and therefore these changes do not impact our balance sheet as of that date. However, in future years, if and when a net deferred tax asset is recognized in future periods with respect to our U.S. NOLs, these limitations may materially affect our valuation allowance assessments, increase our income tax liabilities, and adversely affect our cash flows and results of operations.
Table of Contents
Risks Related to Our Information Technology and Intellectual Property
If the confidentiality, integrity, or availability of our information technology, software, services, communications, or data, or those of third parties with whom we work, are or were compromised, we could experience adverse consequences.
Operating our business involves the collection, use, storage, and transmission of sensitive, proprietary, and confidential information, including personal information of customers, our personnel, the personnel of our business partners, and others. For example, we collect certain customers’ home and business addresses for processing delivery orders, mobile phone numbers from users of our platform, and personal information from our personnel, including in connection with the administration of our benefit plans.
Security incidents or other events compromising the confidentiality, integrity, or availability of our sensitive, proprietary, and confidential information and information technology systems, or those of the third parties with whom we work, could result from cyberattacks, malicious internet-based activity, online or offline fraud, or similar activities including as described below. These threats are prevalent, continue to increase in frequency and sophistication, are increasingly difficult to detect, and may originate from a variety of sources, including from “hackers”, threat actors, “hacktivists”, organized criminal groups, company personnel misconduct or error, nation states, and nation-state-supported actors. For example, in fiscal year 2024, a third party with whom we work experienced a distributed denial-of-service (DDoS) attack, which temporarily limited some customers’ ability to access their online Sweetgreen accounts and transact in certain of our Owned Digital Channels.
Certain threat actors, including nation-state actors, have engaged and are expected to continue to engage in cyberattacks for geopolitical reasons, including in connection with military conflicts and defense activities. During periods of war or other major conflicts, we and the third parties with whom we work may face heightened risk of such attacks, including retaliatory cyberattacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell, and distribute our goods and services.
We and the third parties with whom we work face a variety of evolving cybersecurity threats, including social-engineering attacks (such as phishing), malicious code, malware, advanced persistent threat intrusions, denial-of-service attacks, credential stuffing, credential harvesting, ransomware, personnel misconduct or error, software bugs, supply-chain attacks, server malfunctions, software or hardware failures, loss of data or other information technology assets, telecommunications failures, natural disasters, attacks enhanced or facilitated by artificial intelligence, and similar threats. Ransomware attacks, in particular, have become increasingly severe and prevalent and could result in significant operational disruption, loss of sensitive data or income, reputational harm, and diversion of resources. While extortion payments may mitigate certain impacts, we may be unwilling or unable to make such payments, which may be due to applicable laws or regulations prohibiting such payments. In addition, remote work arrangements increase risks to our information technology systems and data as employees access systems from locations and devices outside of our controlled environments.
Security incidents have occurred in the past and may occur in the future, resulting in unauthorized, unlawful, or inappropriate access to, inability to access, disclosure of, or loss of sensitive, proprietary, or confidential information. For example, during the first fiscal quarter of 2024, we experienced multiple incidents that we believe involved credential-stuffing activity, in which malicious third parties accessed our online services using credentials potentially compromised through unrelated third-party incidents. Although we implemented security measures in response and believe those measures have mitigated the activity, these measures may not prevent future incidents or disruptions. Risks relating to security incidents are likely to increase as we grow and process increasing volumes of data.
We rely on third parties to support and operate critical business systems and to process sensitive, proprietary, or confidential information, including payment processors, account management providers such as Stripe, cloud infrastructure providers, data center operators, encryption and authentication vendors, email providers, content delivery services, and other service providers. Our ability to monitor the security practices of these third parties is limited, and they may have vulnerabilities or experience security incidents that compromise the confidentiality, integrity, or availability of the systems that they operate for us or data that they process on our behalf. Supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third-party infrastructure in our supply chain or partner systems have not been compromised. We have experienced adverse consequences from security incidents and service interruptions at third-party providers in the past and may experience additional adverse consequences in the future. While we may have contractual remedies in some instances, any recovery may be insufficient to cover our damages or unavailable.
Table of Contents
Business transactions, such as acquisitions or integrations, may also expose us to additional cybersecurity risks and vulnerabilities, including vulnerabilities that are not identified during due diligence or that arise during integration into our information technology environment and security program.
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive, proprietary, or confidential information or our information technology systems, or those of the third parties with whom we work.
Due to the prominence of our brand, we may be an attractive target for cyberattacks. Although we have implemented security measures designed to protect our systems and data and to detect and remediate vulnerabilities, we cannot guarantee that such measures (or similar measures by the third parties with whom we work) will be effective or sufficient to prevent all incidents or address all vulnerabilities on a timely basis. We expend significant resources and modify our business activities to try to protect against these risks, and the costs of responding to, mitigating, and/or remediating security incidents and vulnerabilities may be significant and could result in service disruptions, delays, negative publicity, or other harm to our business or competitive position.
If we or the third parties with whom we work experience, or are perceived to have experienced, a security incident, we may suffer loss of customer or partner confidence, reputational harm, reduced demand for our offerings, operational disruption, and other adverse consequences. Such incidents have in the past required and may in the future require investigation, remediation, or notification efforts and may expose us to litigation, regulatory enforcement actions, indemnification obligations, and other liabilities. Our agreements with certain partners, including Stripe and DoorDash, require us to maintain appropriate security measures and protect their information, and a breach of these obligations could require us to indemnify them for resulting losses.
Laws in all states and U.S. territories require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security incidents affecting personal information. These laws vary by jurisdiction, and compliance following a widespread security incident is complex, costly, and difficult to execute. Our insurance coverage may not cover all losses associated with a security incident or may be insufficient, and coverage may not remain available on acceptable terms.
In addition, third parties may collect or infer sensitive information about us from public sources, data brokers, or other means, which could be used to undermine our competitive position. Sensitive information may also be disclosed or misused in connection with our employees’, personnel’s, or vendors’ use of generative artificial intelligence technologies.
We (and the third parties with whom we work) are subject to rapidly changing and increasingly stringent U.S. and foreign laws, contractual terms, industry standards, and other obligations relating to data privacy and security, and any actual or perceived failure to comply with such obligations could adversely affect our business, financial condition, and results of operations.
In the course of operating our business, we collect, use, receive, store, process, generate, transfer, make accessible, protect, secure, dispose of, transmit, share, and disclose personal information and other sensitive information about customers, personnel, business contacts, and others; proprietary and confidential business data; trade secrets; intellectual property; and sensitive third-party data and financial information. These activities are or may become regulated by a variety of domestic and foreign laws, regulations, guidance, industry standards, external and internal data privacy and security policies, contractual requirements, and other obligations relating to data privacy and security, which are complex, rapidly evolving, and increasingly stringent.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal information privacy laws, consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), and other similar laws (e.g., wiretapping laws). Additionally, numerous U.S. states have enacted comprehensive data privacy and security laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal information. As applicable, such rights may include the right to access, correct, or delete certain personal information, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. The exercise of these rights may impact our business and ability to provide our products and services. Certain states also impose stricter requirements for processing certain personal information, including sensitive information, such as conducting
Table of Contents
data privacy impact assessments. These state laws allow for statutory fines for noncompliance. For example, the CCPA applies to personal information of consumers, business representatives, and employees who are California residents, and requires covered businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights related to their personal information. The CCPA also imposes restrictions on “sales” of personal information that allow California residents to opt-out of certain sharing of their personal information and may restrict the use of cookies and similar technologies for advertising purposes. Our platform relies on such technologies for advertising purposes and could be adversely affected by the CCPA’s restrictions if a significant number of users opt-out of certain information sharing on which our advertising relies, which would impair our ability to advertise. This could decrease the effectiveness of our marketing and advertising strategies and decrease our level of customer acquisition and/or retention, may cause us to seek new avenues to market and advertise, and may cause us to increase our marketing and advertising expenditures. The CCPA provides for civil penalties for violations and allows private litigants affected by certain data breaches to recover significant statutory damages. Similar laws have been proposed in several other states, as well as at the federal and local levels, and we expect more states to pass similar laws in the future, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws complicates compliance efforts, and increases legal risk and compliance costs for us and the third parties with whom we work.
We are also subject to laws governing the privacy of consumer health data. For example, Washington’s My Health My Data Act broadly defines consumer health data, places restrictions on processing consumer health data (including imposing stringent requirements for consents), provides consumers certain rights with respect to their health data, and creates a private right of action to allow individuals to sue for violations of the law. Other states have passed, are considering, and may adopt similar laws.
In addition to the risks we face under privacy laws, the restrictions on text message communications imposed by the Telephone Consumer Protection Act (“TCPA”) have long been a source of potential liability for our business. The TCPA imposes various consumer consent requirements and other restrictions on certain telemarketing activity and other communications with consumers by phone, fax, or text message. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to $1,500 per violation imposed through private litigation or by state authorities. Claims that we have violated the TCPA could be costly to litigate and could expose us to substantial statutory damages or settlement costs. We are also subject to the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM”), which imposes specific requirements on our email communications with current or potential customers.
Separately, certain of our data practices have been, and may in the future be, challenged under wiretapping, eavesdropping, or similar laws. Plaintiffs in these actions have alleged, and may in the future allege, that our use of third-party technologies on websites and mobile applications, including chatbots, session replay tools, or marketing pixels, constitute unlawful "interceptions" of visitors' communications. Such allegations may result in class action litigation, mass arbitration demands, and significant defense costs or settlements, regardless of the ultimate merit of the claims.
Privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards by which we are, or may become, legally or contractually bound. Moreover, certain privacy laws, such as the CCPA, require us to impose specific contractual restrictions on our service providers. If we fail to comply with these contractual obligations or standards, we may face public or regulatory scrutiny, substantial liability, fines, or other adverse consequences. In addition, under various data privacy and security laws and other obligations, we may be required to obtain certain consents to process personal information. Our inability or failure to obtain required consents could result in adverse consequences.
We also publish privacy policies, statements and other documentation regarding data privacy, security, and our processing, of sensitive information. If these policies, statements, and other materials are found, or alleged, to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigations, regulatory enforcement actions, litigation, or other adverse consequences.
Additionally, our business relies in part on revenue from customers acquired through behavioral, interest-based, or tailored advertising. Consumer resistance to the collection or sharing of data used to deliver such advertising, the use of consent or “do not track” mechanisms as a result of legal, regulatory, or industry developments, the adoption by consumers of ad-blocking software or browser settings, and the development or deployment of new technologies could limit our ability to collect data or engage in marketing and advertising, which could have an adverse effect on our business, financial condition, or results of operations.
Table of Contents
We are subject to the Payment Card Industry Data Security Standard (“PCI DSS”), which applies to companies that collect, store, or transmit certain payment card and related transaction data. We rely on third-party vendors to handle PCI DSS matters and to address PCI DSS compliance. Despite our compliance efforts, we may become subject to claims that we have violated the PCI DSS based on past, present, or future business practices. Our actual or perceived failure to comply with the PCI DSS could subject us to fines, increased transaction fees, termination of banking relationships, or other penalties. In addition, compliance with the PCI DSS does not guarantee that illegal or improper use of our payment systems, or theft, loss, or misuse of payment card data or transaction information, will not occur.
Obligations and consumer expectations related to data privacy and security continue to evolve rapidly, and create uncertainty. These obligations may also be subject to differing applications and interpretations that may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources and may necessitate changes to our services, information technologies, systems, and business practices, as well as those of third parties that process personal information on our behalf. Despite our efforts, we may not be successful in complying with the rapidly evolving data privacy and security requirements discussed above, and our personnel or third parties with whom we work may be unable or fail to comply with such obligations. If we or the third parties with whom we work fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant adverse consequences, including, but not limited to, government enforcement actions (such as investigations, fines, penalties, audits, or inspections), litigation (including class claims), additional reporting requirements or oversight obligations, restrictions or bans on data processing, orders to destroy or cease using personal information, indemnification obligations, negative publicity, reputational harm, diversion of management attention, operational disruptions (including reduced data availability), or financial losses. Any of these consequences could have a material adverse effect on our reputation, business, financial condition, or results of operations.
We may not be able to adequately protect or enforce our rights in our intellectual property, which could harm the value of our brand and have an adverse effect on our business, financial condition, and results of operations.
Our intellectual property, particularly our trademark portfolio, is material to our business, as brand recognition is one of our key differentiating factors. Our ability to successfully implement our business plan depends in part on our ability to build and maintain brand recognition using our trademarks, service marks, trade dress, and other intellectual property, including our name and logos and the unique ambience of our restaurants. While we generally seek to register our material trademarks, our trademark applications may never be granted, and our trade dress may be difficult to register. In addition, third parties may oppose our trademark applications or seek to cancel our trademark registrations.
Trademark rights generally exist on a country-by-country basis, and the unavailability or unenforceability of such rights in certain jurisdictions could interfere with our international expansion. Although we have filed trademark applications in certain foreign jurisdictions, our trademarks may be subject to cancellation if we do not operate our business in those jurisdictions within time periods specific to each jurisdiction. Due to the popularity of our brand, we have observed a number of companies, particularly internationally, that have designed their restaurants, logos, and names to be similar to ours, and we may lack the necessary trademark rights to prevent this behavior or may not be successful in enforcing such rights.
Our success also depends in part on protecting our other intellectual property and proprietary information through a combination of copyright, trade secret, and other intellectual property laws, as well as confidentiality agreements with our employees and others. We require senior employees, and any employee or consultant who develops material intellectual property for us, to enter into agreements designed to protect our intellectual property rights and proprietary information. However, we cannot guarantee that these agreements will be effective, will not be breached, that we will have adequate remedies in the event of a breach, or that employees or consultants will not assert rights to our intellectual property or proprietary information. In addition, we may fail to enter into confidentiality agreements with all parties who have access to our trade secrets or other proprietary information.
Although it is our policy to protect and vigorously defend our intellectual property rights, we cannot predict whether the measures we take will be sufficient to prevent infringement, dilution, misappropriation, or other violations of these rights, or the use by others of restaurant features based on, or otherwise similar to, our
Table of Contents
restaurant concept. Preventing others from copying elements of our concept may be difficult, and any litigation to enforce our rights will likely be costly and may not be successful. We also cannot guarantee that we will have sufficient resources to enforce our intellectual property rights. We have observed numerous international concepts that appear to have copied our trade dress or ambience, and foreign intellectual property laws may not provide the same protections as those available under U.S. law. Failure to protect or enforce our intellectual property rights could limit our ability to challenge third parties using similar trademarks or trade dress, which may cause consumer confusion or negatively affect public perception of our brand, and could have an adverse effect on our business, international expansion, financial condition, and results of operations.
We rely heavily on information technology, and we may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our online and mobile platforms are accessible, which would harm our reputation, business, financial condition, and results of operations.
Our success, particularly with respect to our online and mobile ordering business, depends on customers being able to access our online and mobile ordering platforms reliably. We rely heavily on information technology to operate our website, mobile application, and online and mobile ordering platforms, as well as for point-of-sale processing in our restaurants, supply chain management, payment processing, cash collection, marketing and promotions, payment card transactions, and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems.
We have experienced service disruptions in the past and may experience service disruptions, outages, or other performance problems in the future due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints from large volumes of simultaneous customer access, downtime or outages at third-party service providers, and denial-of-service, fraud, or security attacks. For example, during fiscal years 2020 and 2021, our third-party delivery fulfillment partner for orders placed through our Native Delivery Channel experienced outages that required us to temporarily shut down that channel, either entirely or in certain geographic markets. In addition, we and many of our third-party vendors rely on Amazon Web Services to operate our digital channels, and during the fourth quarter of fiscal year 2021, an outage at Amazon Web Services disabled all of our digital channels for nearly an entire day. And, in October 2025, Amazon Web Services experienced a widespread outage that affected portions of our technology ecosystem. Outages caused by third parties have resulted, and may continue to result, in periodic store closures, lost revenue, and customer complaints. In some instances, we may not be able to identify the cause of these performance problems within an acceptable period of time, and where we rely on third-party technological infrastructure, we may not have sufficient contractual recourse to fully recover our losses.
As our product offerings become more complex and customer traffic increases, including during peak usage periods, it may become increasingly difficult to maintain and improve platform availability. If our online and mobile ordering platforms are unavailable when customers attempt to access them, or do not load as quickly as customers expect, customers may seek alternative services and may not return to our platforms as frequently, or at all. This could reduce customer traffic to our restaurants and decrease the frequency with which customers use our platforms. In addition, system failures, maintenance issues, platform upgrades or transitions, network failures, natural disasters, terrorism, war, power outages, hackers, computer viruses, and other security incidents could delay customer service, reduce operational efficiency, and cause reputational harm.
We expect to continue making significant investments to maintain and improve platform availability and to enable rapid deployment of new features and products across our multi-channel offerings. However, if we do not effectively address capacity constraints, respond adequately to service disruptions, upgrade our systems as needed, or continue developing our technology and network architecture to accommodate actual and anticipated technological change, our business, financial condition, and results of operations could be harmed.
Our digital and delivery business, and expansion thereof, is uncertain and subject to risk.
Digital innovation and growth remain important to our business, and as the digital landscape continues to evolve, our technology must evolve concurrently to remain competitive. If we fail to maintain digital systems that are competitive within the industry, our digital business may be adversely affected, which could negatively impact our sales. Certain competitors, including those with greater resources than we have, such as Chipotle, have also prioritized digital strategies and may be more successful in executing them.
Table of Contents
We rely on third parties for certain aspects of our digital operations, including ordering and payment processing for our mobile application and website. Services provided by these third parties may be disrupted or interrupted by technological issues, which could result in lost sales for a period of time. In addition, under our contractual arrangements with such third parties, it is unlikely that we would be able to recover lost profits or other consequential damages. Information processed by these third parties may also be subject to cyber-attacks, which could not only negatively impact our sales but also harm our brand image.
If DoorDash, or any future third-party delivery partner, fails to fulfill its obligations or provides unsatisfactory delivery service on our Native Delivery Channel—for example, by delivering orders late, lacking sufficient couriers, or experiencing system outages—we may be unable to provide reliable delivery services to our customers through our native application. Failures in delivery execution may result in customer dissatisfaction, loss of customers, reduced sales, increased refunds or credits, and damage to our brand image. In addition, as with any third party handling food, delivery services increase the risk of food tampering while orders are in transit. Changes to our agreement with DoorDash, or any future third-party delivery partner, including the loss or addition of a delivery partner, could also affect our ability to provide delivery services. We are also subject to risk from delivery driver shortages in any of our markets for any period of time, which could prevent us from meeting customer expectations and negatively impact our sales.
We partner with national third-party delivery providers to offer our food on their marketplaces. If any of these partners experience reputational harm, we may also be adversely affected as a result of our association with them. In addition, we compete with these third-party delivery providers through our Native Delivery Channel, and some of these providers may have greater financial resources than us to invest in marketing and advertising for their digital and delivery offerings, which could adversely affect our business, financial performance, and results of operations. Further, our commission rates with third-party delivery partners may increase over time, whether for delivery services associated with orders placed through our website or native mobile application or through third-party delivery marketplaces, which could have an adverse effect on our business, financial condition, and results of operations.
Our increasing use of artificial intelligence (AI), including but not limited to generative AI, may result in errors, loss of sensitive information, additional compliance obligations, cybersecurity incidents, and legal liability, which could harm our reputation, business, financial condition, and results of operations.
We have begun using various third party software solutions that rely upon artificial intelligence (AI), including but not limited to generative AI. Generative AI is a type of AI that uses generative models to create text and other content. Various generative AI tools are available to employees within parts of our company, and in the future we may more broadly use, develop, and incorporate generative AI within our systems, technology platforms, and services. While we have policies that govern the use of such technology, the use of such technology could result in unintended consequences, such as AI algorithms that produce inaccurate, biased, or incomplete output or that cause other issues with potentially negative consequences for our business. Further, use of this technology by our employees in violation of our policies could result in the loss or disclosure of our proprietary and confidential information. The use of generative AI may also result in a greater likelihood of cybersecurity incidents or other exposures of sensitive information that harm our business.
The use of AI tools is subject to an increasing number of laws and regulations, including laws and regulations regarding data privacy and security and regarding the use of such tools in the context of hiring and other employment matters. Accordingly, our use of this technology could result in additional compliance costs, regulatory investigations, enforcement actions, and litigation. If we are unable to use AI, it could make our business less efficient and result in competitive disadvantages.
If we are unable to adapt to changes in technology, our business could be harmed.
Because our customers access our website and mobile platform across a variety of mobile devices, including Android and iOS, we must continuously modify and enhance our platform to keep pace with changes in mobile devices and other internet-related hardware, software, communications, and browser technologies. We may not be successful in developing these modifications and enhancements or in bringing them to market in a timely manner. For example, our customers were unable to order delivery through our native Android smartphone application until March 2021, even though this functionality had been available on our iOS application for some time.In addition, uncertainty regarding the timing and nature of new mobile devices and other network platforms or technologies, or modifications to existing devices, platforms, or technologies, could increase our research and development expenses beyond what we anticipate. Any failure of our mobile platform to operate effectively with future technologies could result in customer dissatisfaction and harm our business.
Table of Contents
Our business might also be harmed in connection with the growing adoption of generative AI solutions within our industry. Our competitors may incorporate or deploy generative AI more quickly or more effectively than us, which may cause competitive harm to our business.
Our online and mobile ordering platforms are highly technical, and if they contain undetected errors, our business could be adversely affected.
Our online and mobile ordering platforms incorporate highly technical and complex software. Our software has in the past contained, and may now or in the future contain, undetected errors, bugs, or vulnerabilities, some of which have been, and may in the future be, discovered only after the code has been released. Errors, bugs, or vulnerabilities identified after release could damage our reputation, reduce customer usage of our online and mobile platforms, result in lost revenue, or expose us to liability for damages, any of which could adversely affect our financial condition and results of operations.
We also rely on multiple third-party vendors to operate components of our mobile ordering platforms, including delivery fulfillment services, and errors, bugs, vulnerabilities, or service outages affecting their software could adversely impact our platforms. For example, during fiscal years 2020 and 2021, our third-party delivery fulfillment partner for orders placed through our Native Delivery Channel experienced outages that required us to temporarily shut down that channel, either entirely or in certain geographic markets, which adversely impacted our revenue. In addition, our ability to control or remediate errors, bugs, or vulnerabilities in third-party software is limited, and we may be unable to address such issues in a timely manner, which could have an adverse effect on our business, financial condition, or results of operations.
The successful operation of our business depends upon the performance and reliability of Internet, mobile, and other infrastructure that is not under our control.
Both our in-restaurant and online and mobile ordering businesses depend on the performance and reliability of internet infrastructure to process and fulfill orders, which is not under our control. Nearly all access to the internet is maintained by telecommunications network operators. Disruptions in internet infrastructure, or failures by telecommunications operators to provide sufficient bandwidth, could temporarily shut down our in-restaurant ordering business and interfere with the speed and availability of our online and mobile ordering platforms. If our online and mobile ordering platforms are unavailable when customers attempt to access them, or do not load as quickly as customers expect, customers may reduce their use of our platforms or may not return to them at all.
Our online and mobile ordering business also depends on the efficient and uninterrupted operation of mobile communications systems. Despite precautions we may take, unanticipated events—such as power outages, telecommunications delays or failures, security breaches, or computer viruses—could result in service interruptions and business disruption for us and our customers. Any such events could damage our reputation, disrupt our operations, and subject us to liability, which could adversely affect our business, financial condition, and results of operations.
Third parties have claimed, and may in the future claim, that we infringe their intellectual property rights, and this may create liability for us or otherwise have an adverse effect on our business, financial condition, and results of operations.
We have faced, and may in the future face, claims by third parties that one or more of our names, logos, designs, creative works, or technology infringes, dilutes, misappropriates, or otherwise violates their intellectual property rights. For example, in fiscal year 2023, Chipotle filed a lawsuit against us, which was subsequently settled, in connection with our use of the word “Chipotle” as part of the name of one of our menu items. Any such litigation may be costly and could divert management time and other resources from our business.
If we are unable to successfully defend against these claims, we may be subject to injunctions requiring costly changes to our business operations or that prevent or delay our use of our names, logos, designs, creative works, or technology. We may also be liable for damages, any of which could have an adverse effect on our business, financial condition, and results of operations.
In addition, a third party previously alleged, and additional third parties may in the future allege, that technology we license infringes or misappropriates their intellectual property rights. We may lack sufficient contractual
Table of Contents
rights from licensors to fully indemnify us for losses, costs, or expenses incurred in connection with such claims. We may also be subject to injunctions that prevent us from using licensed technology that is critical to our business operations and require costly operational changes. Any such claims could have an adverse effect on our business, financial condition, and results of operations.
Risks Related to Ownership of Our Class A Common Stock
Our stock price has been and will likely continue to be volatile, and the value of our Class A common stock may decline.
The market price of our Class A common stock has been and is likely to continue to be highly volatile and may fluctuate significantly or decline substantially as a result of a variety of factors, some of which are beyond our control, including:
• actual or anticipated fluctuations in our financial condition or results of operations;
• variance in our financial performance from the expectations of securities analysts;
• changes in our projected operating and financial results;
• announcements by us or our competitors regarding significant business developments, acquisitions, or new offerings;
• announcements of, or concerns regarding, actual or perceived quality or food safety issues with our products or similar products offered by our competitors;
• our involvement in litigation;
• future sales of our common stock by us or our stockholders,
• novel or unforeseen market forces and trading strategies;
• changes in senior management or key personnel;
• the trading volume of our Class A common stock; and
• changes in the anticipated future size and growth rate of our market.
In addition, broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, have negatively impacted and may continue to negatively impact the market price of our Class A common stock, particularly in light of recent inflation and changes in interest rates.
The dual-class structure of our common stock concentrates voting control with our founders, who have substantial control over us and are able to influence corporate matters, including controlling the outcome of director elections.
Our Class B common stock has ten votes per share, while our Class A common stock has one vote per share. All outstanding shares of our Class B common stock are beneficially owned by our founders, Jonathan Neman, Nicolas Jammet, and Nathaniel Ru, who collectively represent the majority of the voting power of our outstanding capital stock. As a result, our founders are able to exercise significant influence over matters requiring stockholder approval, including the election of directors, approval of significant corporate transactions, such as mergers, and amendments to our organizational documents. This concentration of voting power may prevent or discourage unsolicited acquisition proposals or offers for our common stock that stockholders may believe are in stockholders’ best interests.
The interests of our founders may not always align with the interests of other stockholders. Accordingly, our founders may act in a manner that advances their own interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, which could affect the prevailing market price of our common stock.
Transfers by holders of our Class B common stock generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for tax or estate planning purposes. Over time, this conversion feature may increase the relative voting power of those holders of Class B common stock who retain their shares for the long term.
Table of Contents
Each founder’s shares of Class B common stock will automatically convert into shares of Class A common stock, on a one-to-one basis, upon the earlier of (i) the sale or transfer of such shares, subject to certain permitted transfers described in our amended and restated certificate of incorporation, including transfers for tax or estate planning purposes or to another founder or an affiliate of a founder, or (ii) the one-year anniversary of the death or permanent disability of such founder.
In addition, all outstanding shares of our Class B common stock will automatically convert into shares of Class A common stock on the final conversion date, defined as the earlier of (i) the nine-month anniversary of the death or permanent disability of the last of the founders, (ii) the last trading day of the fiscal year in which the tenth anniversary of the effectiveness of the registration statement filed in connection with our initial public offering occurs, or (iii) the date specified by a vote of the holders of a majority of the outstanding shares of Class B common stock. The final conversion date may be extended by the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of Class A common stock not held by a founder, or an affiliate or permitted transferee of a founder, and entitled to vote generally in the election of directors, voting together as a single class.
We rely on data from internal tools to calculate certain of our performance metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain performance metrics using internal tools that are not independently verified by any third party. These tools have inherent limitations, and our methodologies for tracking performance metrics may change over time, which could result in unexpected changes to our reported metrics, including the key metrics we report. If our internal tools overcount or undercount performance or contain errors, the data we report may be inaccurate, and our understanding of certain aspects of our business may be distorted, which could affect our longer-term strategies.
There are also inherent challenges in measuring the order frequency of our digital and non-digital customers. For example, for digital customers, a unique customer is determined based on login information, which may result in a single individual being counted as multiple unique customers if different login credentials are used, or multiple individuals being counted as a single unique customer if the same login credentials are shared. Similarly, for non-digital customers, a single individual using multiple credit cards may be counted as multiple unique customers, while multiple individuals using the same credit card may be counted as a single unique customer. For these and other reasons, calculations based on the number of unique customers may not accurately reflect the number of individuals actually placing orders through our Digital Channels or making purchases through the non-digital component of our In-Store Channel.
We continually seek to improve our ability to measure our performance metrics and regularly review our processes to assess potential improvements to accuracy. However, enhancements to our tools or methodologies may result in inconsistencies between current and previously reported data, which could confuse investors or raise questions regarding the integrity of our data. In addition, as our business and the industry in which we operate continue to evolve, the metrics we use to evaluate our performance may also change, and we may revise or discontinue metrics that we determine are no longer accurate or appropriate. If analysts or investors do not perceive our metrics to accurately represent our business, or if we identify material inaccuracies in our metrics, our reputation may be harmed.
Future sales of our Class A common stock in the public market could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our Class A common stock in the public market, or the perception that such sales may occur, could depress the market price of our Class A common stock and impair our ability to raise capital through the sale of additional equity securities. Our existing equity holders may have unrecognized gains in the equity they hold and may seek to sell their shares or otherwise monetize those gains. We cannot predict the timing of, or the effect that, any such sales may have on the prevailing market price of our Class A common stock.
In addition, holders of a substantial amount of our Class A common stock have rights, subject to certain conditions, to require us to file registration statements covering the resale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. Sales of shares pursuant
Table of Contents
to these registration rights could further increase the number of shares available for sale in the public market and adversely affect the market price of our Class A common stock.
We do not intend to pay dividends for the foreseeable future and, as a result, stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
We have never declared or paid cash dividends on our capital stock and do not intend to pay any cash dividends for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, stockholders may be required to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
• authorize our board of directors to issue, without further action by stockholders, shares of undesignated preferred stock with terms, rights and preferences determined by our board of directors that may be senior to our common stock;
• require that any action to be taken by stockholders be effected at a duly called annual or special meeting and not by written consent;
• specify that special meetings of stockholders may be called only by our board of directors, the chair of our board of directors, or our chief executive officer;
• establish advance notice procedures for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
• prohibit cumulative voting in the election of directors;
• provide that our directors may be removed only upon the vote of at least 66 2/3% of the voting power of our then-outstanding shares of capital stock;
• provide that vacancies on our board of directors may be filled only by a majority of the directors then in office, even if less than a quorum; and
• require the approval of our board of directors or the holders of at least 66 2/3% of the voting power of our then-outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation.
These provisions may frustrate or prevent attempts by stockholders to replace or remove current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing members of management. In addition, because we are incorporated in Delaware, we are subject to Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in a broad range of business combinations with an “interested” stockholder for a period of three years following the date on which such stockholder became an “interested” stockholder.
As a result, these provisions could deter potential acquirers of our company and limit the price that investors might be willing to pay for shares of our Class A common stock, which could reduce the likelihood that stockholders would receive a premium in connection with an acquisition.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States are the exclusive forums for
Table of Contents
substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:
• any derivative action or proceeding brought on our behalf;
• any action asserting a claim of breach of fiduciary duty;
• any action asserting a claim against us arising under the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation or our amended and restated bylaws;
• any action or proceeding to interpret, apply, enforce, or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws (including any right, obligation, or remedy thereunder);
• any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and
• any action asserting a claim against us that is governed by the internal-affairs doctrine or otherwise related to our internal affairs.
These provisions do not apply to suits brought to enforce a duty or liability created by the Exchange Act. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over Securities Act claims. To avoid litigating claims in multiple jurisdictions and the risk of inconsistent or contrary rulings, among other considerations, our amended and restated certificate of incorporation further provides that the federal district courts of the United States are the exclusive forum for resolving any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against any defendant to such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our directors and officers, the underwriters for any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering.
Although Delaware courts have determined that such choice-of-forum provisions are facially valid, stockholders may nevertheless seek to bring claims in venues other than those designated in our amended and restated certificate of incorporation. In such instances, we would expect to assert the validity and enforceability of these exclusive-forum provisions, which may require us to incur significant additional costs, and there can be no assurance that a court in another jurisdiction would enforce these provisions.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and such persons. If a court were to find either exclusive-forum provision to be inapplicable or unenforceable in an action, we may incur further significant costs associated with resolving the dispute in other jurisdictions, which could harm our business, financial condition, results of operations, and prospects.
General Risk Factors
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control.
Our quarterly financial results may fluctuate significantly, including due to factors that are not in our control, and may fail to meet investors’ expectations for a variety of reasons, including:
• negative publicity regarding the safety of our food, employment-related matters, litigation, or other issues involving our restaurants;
• macroeconomic or geopolitical conditions, including their impact on customer behavior and discretionary spending;
Table of Contents
• fluctuations in supply costs, including as a result of inflation, particularly for our most significant ingredients, and our inability to offset higher costs with price increases without adversely affecting sales;
• labor availability and wages for our restaurant employees, including as a result of inflation and changes to minimum wage laws, and our inability to offset higher labor costs with price increases without adversely affecting sales;
• increases in marketing or promotional expenses;
• the timing of new restaurant openings and existing restaurant renovations and related revenues and expenses, including delays in openings or renovations caused by delays in the manufacture or deployment of Infinite Kitchen units, and operating costs at newly opened restaurants;
• the impact of inclement weather and natural disasters, such as winter storms, freezes, fires, and droughts, which could reduce customer traffic and increase ingredient costs;
• changes in senior management;
• announcements of mergers and acquisitions or other strategic partnerships;
• the amount and timing of stock-based compensation;
• litigation, settlement costs, and related legal expenses;
• tax expenses, asset impairment charges, and non-operating costs; and
• variations in general economic conditions, including the impact of declining interest rates on our interest income or the impact of inflation.
As a result of these or other factors, results for any particular quarter are not necessarily indicative of results to be expected for any other quarter or for any year. Our key performance metrics may also fluctuate as a result of these or other factors.
Our current insurance may not provide adequate levels of coverage against claims.
Our current insurance policies may not provide adequate protection against liabilities we incur in the ordinary course of our business. Insurance availability, coverage terms, and pricing fluctuate based on market conditions, particularly for public companies. Obtaining adequate insurance is especially challenging for companies based in California with large populations of non-exempt employees, and retentions for certain of our insurance policies, including our employment practices liability insurance, are relatively high. In the future, our insurance premiums and retentions may increase, we may be unable to obtain similar levels of coverage on reasonable terms or at all, or we may elect coverage that exposes us to greater risk. Any material inadequacy of, or inability to obtain, insurance coverage could have an adverse effect on our business, financial condition, and results of operations.
Certain types of losses may not be insurable or may be economically impractical for us to insure. For example, we do not have insurance coverage for wage and hour claims brought by current or former employees, and we have ongoing litigation with respect to such claims. Such losses could have an adverse effect on our business, financial condition, and results of operations. Although we currently maintain directors’ and officers’ liability insurance, builders’ risk insurance, property and casualty insurance, workers’ compensation insurance, automobile insurance, employment practices liability insurance, and cyber insurance, we may not be able to maintain such coverage at a reasonable cost in the future, or at all. In addition, we may not receive adequate coverage or reimbursement from our insurers for losses or liabilities that are beyond our control. It may also be more costly for us to obtain certain types of insurance that protect against unforeseen catastrophic or other significant events, and we cannot be certain that additional restaurant closures or property damage will not occur in the future. Failure to maintain adequate insurance coverage, including directors’ and officers’ liability insurance, could adversely affect our ability to attract and retain qualified officers and directors.
In addition, we routinely contract with third parties, including distributors and suppliers of produce, poultry, and other goods. These third parties may not maintain sufficient insurance coverage to cover potential claims that could affect us, and we may not have adequate contractual recourse against such parties to recover related losses.
Adverse developments in applicable tax laws could have a material and adverse effect on our business, financial condition, and results of operations.
Our effective tax rate could change materially as a result of various evolving factors. We and our subsidiaries are subject to income and non-income taxes at the federal, state, and local levels based on the scope of our
Table of Contents
operations. In determining our tax liabilities in these jurisdictions, we must monitor changes in applicable tax laws and related regulations. Although our existing operations have been implemented in a manner we believe complies with current tax laws, one or more taxing jurisdictions could seek to impose incremental or new taxes on us. For example, effective July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. Certain provisions of OBBBA modified U.S. tax law and impact the Company. Among other changes, this legislation (i) permanently reinstated 100% bonus depreciation for certain property acquired after January 19, 2025, (ii) reinstated deductibility for domestic research expenditures beginning in 2025. We will continue to assess and monitor OBBBA’s potential impact on our consolidated financial statements.
Any adverse developments in these laws or regulations, including legislative changes, judicial decisions, or administrative interpretations, could have a material and adverse effect on our business, financial condition, and results of operations. Changes in the scope of our operations, including expansion into new geographies, could also increase the taxes to which we are subject and increase our effective tax rate.
We are subject to examination and audit by U.S. federal, state, and local tax authorities. Any adverse outcome of a review or audit could have a negative effect on our financial condition and results of operations.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty.
Our amended and restated certificate of incorporation and amended and restated bylaws limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. These limitation of liability and indemnification provisions may discourage stockholders from bringing lawsuits against our directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and officers, even though such actions, if successful, could benefit us and our stockholders. In addition, a stockholder’s investment may be adversely affected to the extent that we are required to pay the costs of settlements or damage awards against our directors and officers pursuant to these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers, or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise may dilute other stockholders.
In the future, we may issue additional capital stock, which would result in dilution to our stockholders. We have granted, and expect to continue to grant, equity awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings, or issue equity securities in connection with acquisitions or investments. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and a decline in the per-share value of our Class A common stock.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our Class A common stock could decline.
The market price and trading volume of our Class A common stock are significantly influenced by how securities and industry analysts interpret our financial information and other public disclosures, and we do not have control over these analysts. If analysts downgrade our Class A common stock or publish unfavorable or inaccurate reports, the market price of our Class A common stock would likely decline. In addition, if one or more analysts cease coverage of us or do not publish reports on us regularly, demand for our Class A common stock could decrease, which could cause our stock price to decline and reduce the trading volume of our Class A common stock.
