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Here's Why You Should Hold on to Shake Shack (SHAK) Stock Now

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·4 min read
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  • SHAK
  • MCD
  • KRUS
  • PZZA

The past three months have been tough for the restaurant industry and Shake Shack Inc. SHAK has been no exception. In the same time frame, the company’s shares have fallen 18.9%, compared with the industry’s decline of 5.8%.

Coronavirus woes and high costs remain primary concerns. During the fiscal third quarter, the company’s business was impacted by a rise in labor and other operating costs. Labor cost in third-quarter fiscal 2021 made up 31.1% of Shack sales, up from 30% in the prior-year quarter. The improvement can primarily be attributed to the increase in annual wage rate. Staffing has been a major woe for the hospitality industry. In July, the company made substantial investments in higher wages, retention bonuses and leadership development initiatives. Shake Shack has been witnessing inflation throughout the supply chain.

However, various digital initiatives and investments plans, and increased focus on digital delivery channels are likely to aid the company recover. Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Key Growth Drivers

Shake Shack has been investing in digital transformation and is crucial to the company’s growth. Digital sales continue to impress investors. In second and third-quarter fiscal 2021, orders placed on the Shake Shack app and website, and third-party delivery platforms accounted for 47% and 42%, respectively, of total Shack sales. The company-owned app and web channels increased 14% compared with second-quarter 2021 to 3.2 million total new purchasers since mid-March of 2020. The company has been making more investments in digitization in an effort to sustain its digital guest enhancement strategies in the near term.

Shake Shack continues to impress investors with robust global Same-Shack sales growth. During the first, second and third quarter of 2021, Same-Shack sales rose 5.7%, 52.7% and 48.1% year over year, respectively, primarily driven by increased in-Shack dining in both urban and a high level of digital sales retention. The company has been benefiting from sales improvement across all regions.

The company reached a milestone in its urban recovery, with the reopening of the Union Station, DC and Grand Central Station, NYC Shacks in late June and early July, respectively. During third-quarter 2021, the company witnessed constant recovery across the urban markets. Markets like New York City, Los Angeles, Chicago and Boston were the major growth drivers in the urban markets. For fourth-quarter 2021, the company’s Same-Shack Sales are anticipated to increase mid to high teens year over year.

The Zacks Rank #3 (Hold) company is committed to effectively strategizing its expansion plans. In third-quarter fiscal 2021, the company opened five net new domestic company-operated Shacks. As of October, the company had opened 25 company-operated Shacks this year. Despite COVID-19 continuing to impact the company’s recovery and development plans, it intends to open 35 to 38 new company-operated Shacks within fiscal 2021 in both urban and suburban markets. The company anticipates increasing its store count to 40-50 Shacks within fiscal 2022. During fourth-quarter 2021, the company intends to open 10 to 13 more restaurants.

Key Restaurant Picks

Papa John's International, Inc. PZZA currently carries a Zacks Rank #2 (Buy). The company has been benefiting from its off-premise business model. Sales at off-premise business model have exceeded pre-pandemic levels. We believe that a boost in customer count coupled with targeted off-premise marketing is likely to drive the channel’s performance in the upcoming periods.

Papa John's fiscal 2021 earnings is likely to witness growth of 138.6%. PZZA stock has gained 53% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McDonald's Corporation MCD has a Zacks Rank #2. Robust digitalization will help the company in driving long-term growth and capturing market share. McDonald’s launched its first-ever loyalty program in the United States. It has been making every effort to drive growth in international markets.

McDonald's has a trailing four-quarter earnings surprise of 6.8%, on average. Shares of the company have gained 6.1% in the past three months. The Zacks Consensus Estimate for MCD’s current financial year sales and earnings per share suggests improvement of 20.9% and 54.9%, respectively, from the year-ago period.

Kura Sushi USA, Inc. KRUS carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 15.6%, on average. Shares of the company have soared 196.2% in the past year.

The Zacks Consensus Estimate for Kura Sushi’s current financial-year sales and EPS suggests growth of 108% and 85.7%, respectively, from the year-ago period’s levels.

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McDonald's Corporation (MCD) : Free Stock Analysis Report

Papa John's International, Inc. (PZZA) : Free Stock Analysis Report

Shake Shack, Inc. (SHAK) : Free Stock Analysis Report

Kura Sushi USA, Inc. (KRUS) : Free Stock Analysis Report

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