Shake Shack earnings come mostly in line with estimates
Shake Shack (SHAK) reported quarterly earnings on Thursday that were mostly in line with expectations.
Shake Shack slightly beat estimates on its top and bottom line following preliminary, unaudited fourth-quarter 2022 results the company reported in January. In the earnings call, Shake Shack CEO Randy Garutti laid out the company's top four priorities which include labor, guest experience, growth plans, and overall company profitability domestically.
"We know the dynamics the last few years have impacted our historical margin profile," Garutti said in a call with investors. "We're focusing our work to rebuild over the long term. We're committed to improving profitability by driving sales, emphasizing our own higher margin channels, finding cost of goods sold, labor and CapEx efficiencies, improving off-premise profitability, and utilizing strategic menu pricing."
Here's what Shake Shack reported, compared to Wall Street expectations, according to Bloomberg consensus estimates:
Revenue: $238.5 million versus $238.2 million expected
Adjusted earnings per share: -$0.06 versus -$0.11 expected
Same-Store sales: up 5.1% versus 5.16%
Earnings per share, while a loss of 6 cents, came in better than Wall Street anticipated. Company-operated locations brought in $229.9 million in revenue, while licensed locations brought in $8.6 million. During the quarter, the company posted an operating loss of $6.3 million as inflation continues. Operating profit was similar to that previously reported, $43.2 million, or 18.8% of Shack sales. The total net loss for the quarter was $11.1 million.
In October, the company raised menu prices by mid to high single digits to offset food and paper inflation, which accounted for 29.5% of total operating expenses last quarter. Cost pressures were led by higher prices for fries, dairy, paper, and packaging. Beef prices are also in focus.
"We expect beef costs, and that's the largest part of our basket, to decline by mid single digits year over year, but this will still be up by a low single digit percent quarter over quarter," CFO Katie Fogertey said on the call.
When one analyst asked Shake Shack executives about the pricing power it has in this macro-environment and if they will increase pricing again, Garutti said that as of now, "we have no plan to take new price."
However, he added that the company has to make sure to "protect our margins" while Fogertey noted that "another price increase — very small — could be on the table."
"We'll look at something, as we see how inflationary pressures do or do not continue to persist at high levels," Garutti said. "They're going to persist at some level here this year...I don't think anybody knows and we got to make sure that we're providing a great value."
Massive discounting is off the table though, alluding to the high-income consumer it serves looking for what he calls, an "elevated experience" amid inflation.
"We want to capture that trade-down and that person who says, you know what, for $9.99 or less, I can get a white truffle burger that I could never get at any fast food type restaurant.
For the full fiscal year, the company brought in $900.5 million, up 21.7% from a year ago, while system-wide sales went up 22.7%. Same-store sales were up too, 7.8% higher compared to 2021. Operating loss for the total year was $26.9 million.
Shake Shack stock was down less than 1% as of 2:30 p.m. ET on Thursday after paring some early losses.
In 2022, the company opened 36 U.S. locations, in addition to 33 new licensed shacks and four new markets in China as it bets big on its licensed business development strategy in Asia.
After falling more than 40% in 2022, Shake Shack shares have gained more than 40% so far this year.
Upon reporting preliminary fourth-quarter results and its 2023 outlook at the ICR conference, Shake Shack also unveiled major plans for more locations, discussed the success of its different formats like its drive-thru concept, and weighed in on the impact of inflation.
For the full year 2023, Shake Shack expects to open nearly 40 U.S. locations and 25 to 30 licensed locations.
Shake Shack CEO Randy Garutti said last month the company plans to open "probably 10 to 15 more drive-thrus" in 2023. Currently, the company operates 11 drive-thru locations, nine of which opened last year.
Each drive-thru location should generate more than $4 million in annual sales, the company said. That's compared to $3.8 million at traditional company-owned stores. Operating profit margins should be on par or better than the company average, Shake Shack said.
For the first quarter of 2023, the company said it expects total revenue to come in between $234.5 and $243 million and same-store sales to be in the mid-to-high-single digits with operating profit margins around 16% to 18%.
Same-store sales guidance could get a boost for the first quarter of 2023, according to Nick Setyan, an analyst at Wedbush, who has a price target of $55 and Neutral rating on the stock. Setyan said "favorable weather and the year-over-year Omicron comparison" could provide more upside to same-store sales.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at firstname.lastname@example.org.
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