Shake Shack Inc (NYSE: SHAK) reported in-line earnings in the first quarter, but revenue and same-store sales came in better than expected. Despite what appears to be a strong quarter, at least two analysts continue to shy away from holding a bullish stance on the stock.
Morgan Stanley: 'Beefy' And Weak Margins
Shake Shack's quarter "represented a paradox" of both good and bad metrics, Morgan Stanley's John Glass said in a research report.
On the positive side, the company showed one of the strongest top-line performances in recent memory and traffic turned positive for the first time since the middle of 2016.
On the other hand, any benefits came at a cost as EBITDA grew by a mere 10 percent despite revenue growing close to 34 percent. Also, restaurant-level margins dipped 400 basis points from last year, partly due to higher food costs for its chicken product.
Bottom line, Glass said the first quarter could give investors higher confidence in top-line growth but it remains unclear if any margin degradation can be recovered.
Glass maintains an Equal-weight rating on Shake Shack's stock with a price target lifted from $52 to $56.
Wedbush: Focus Could Switch To Margins
Shake Shack's quarter showed better-than-expected same-store sales growth driven by 2 percent average check growth and traffic growth of 1.6 percent, Wedbush's Nick Setyan said. The strong quarter in part contributed to a revision in same-store sales growth for the full year from flat to up 1 percent to up 1-2 percent.
Other key metrics for 2019 remain unchanged and call into question future margin performance, however. The company could see pressure to G&A, depreciation expense, pre-opening costs, labor inflation, food inflation, interest expense and tax rates.
Setyan maintains at Neutral, with a price target lifted from $60 to $65.
Shares of Shake Shack traded lower by 4.3 percent at $60.20 Friday morning.
The Street Remains Bullish On McDonald's
Stifel: Shake Shack Is One Of The Fastest-Growing Restaurant Chains — And That's Priced In
Photo by m01229 via Wikimedia.
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