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Shake Shack Rises on Q3 Earnings Beat, Ups 2015 View

Zacks Equity Research

Shake Shack Inc. SHAK posted strong third quarter results with earnings and revenues beating the Zacks Consensus Estimate for the fourth consecutive quarter. Same-Shack sales were impressive and the company increased its revenue as well as comps guidance for 2015 for the third consecutive quarter. Share price of the company went up 5.4% in aftermarket hours yesterday.

Earnings and Revenue Discussion

The company’s adjusted earnings of 12 cents per share beat the Zacks Consensus Estimate of 7 cents by 71%. Meanwhile, earnings grew 300% year over year. The upside reflects an increase in revenues as well as margins.

Shake Shack-A (SHAK) - Earnings Surprise | FindTheCompany

Revenues grew 67.4% year over year to $53.3 million and beat the Zacks Consensus Estimate of $47 million by 13.4%. The upside reflects healthy comps as well as an increase in Shake Shack sales as well as Licensing revenues.

Behind the Headline Numbers

Same-Shack sales grew 17.1% year over year and were better than prior-year quarter growth of only 1.2% as well prior quarter growth of 12.1%. The upside reflects robust traffic growth, increased menu prices and favorable shifts in sales mix from menu innovation.

Total operating expenses as a percentage of revenues fell 1220 basis points (bps) to 85.4% as general and administrative expenses as a percentage of revenues declined 550 bps. The decline in general and administrative expenses was due to the elimination of management fees as well as IPO-related expenses incurred in the prior year. However, this was partially offset by increased costs associated with becoming a public company and incremental stock-based compensation expense.

While labor costs as a percentage of revenues declined 170 bps, food and paper costs fell 190 bps year over year. Operating profit margin was up 530 bps to 30.4% owing to lower than anticipated food costs. Adjusted EBITDA increased 128.3% to $13.0 million.

Guidance for 2015 Raised Again

Driven by the year-to-date results, the company increased its comps and revenue guidance for the third consecutive quarter. The company now expects revenues in the range of $189.0 million to $190.0 million compared with the previous expectation of $171.0 million to $174.0 million. Same-Shack sales growth is expected in the range of 11% to 12% compared with the previous expectation of mid- to high-single digit growth.

The company continues to expect to open total 12 new domestic company-operated Shacks and 6 international licensed Shacks compared with the previous expectation of 5.

Guidance for 2016

In 2016, the company expects revenues in the range of $237.0 million to $242.0 million and Same-Shack sales growth in the range of 2.5% to 3%.

Shake Shack currently carries a Zacks Rank #1 (Strong Buy).

Stocks to Consider

Other well-ranked restaurateurs include BJ's Restaurants, Inc. BJRI, Darden Restaurants, Inc. DRI and Carrols Restaurant Group, Inc. TAST. All these stocks sport a Zacks Rank #1 (Strong Buy).

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BJ'S RESTAURANT (BJRI): Free Stock Analysis Report
 
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CARROLS RESTRNT (TAST): Free Stock Analysis Report
 
SHAKE SHACK INC (SHAK): Free Stock Analysis Report
 
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