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Beyond Meat suffers Q1 losses, Shake Shack earnings beat

Julie Hyman, Brian Sozzi, and Myles Udland discuss some of Friday’s market movers, as Beyond Meat deals with competition and Shake Shack eyes rebound.

Video Transcript

MYLES UDLAND: We've got a lot of earnings coming out over the last 18 hours or so. And some earnings in the meatspace, we'll call it. We could do food, but let's go with meat here. Sozzi, your area of specialty with both these names, Shake Shack and Beyond Meat. Let's start with Beyond Meat. Both stocks are down after their reports. Beyond Meat off about 2%. And it's been an interesting period for the company, I would say disappointing to some extent.

Still trading at 115 bucks a share, now pretty much two years past the IPO. And I know it's a company you know well, Sozzi. When you look at Beyond Meat's evolution from where they were when they came public to where they think they should be two years into that journey, does it feel like they're exceeding expectations to the level that the market has priced in?

BRIAN SOZZI: Well, Myles, it's also a stock trading at a very, very, very high price to earnings multiple. 666 times forward earnings, according to Yahoo Finance Plus data, just a little nugget to put away under your pillow for this weekend to consider. Not a-- I would say not a ton of red flags in the Beyond Meat quarter. Adjusted loss, $0.42. Not good. This is a company investing very aggressively in marketing and R&D. And the stock is down about 3% here in the early going.

But perhaps the biggest red flag is the discounting that is going on in the plant-based meat market. And Beyond Meat's founder Ethan Brown talked about this at length on the earnings call last night and saying their largest competitor-- he didn't name the company's name. No big deal. We know who it is. It's Impossible Foods. That company is very inclined to be more aggressive on offering discounts to get people to try their product relative to Beyond Meat. But what Impossible is doing in the supermarkets to cut prices and offer promotions, that is forcing Beyond Meat to respond to some degree and essentially causing a price war in the supermarkets for the future of plant-based meat.

And I think the bottom line is this on Beyond Meat. They remain very tethered to the food service industry or the restaurants. That space in the first quarter, sales down 26%. I think for the results to get better, for the stock to go back to what it was about a year and a half ago, you just have to see a restaurant recovery here. And you have to see probably a pullback a little bit in some of this price-- these price wars that Beyond Meat and Impossible Foods and several other smaller players are now waging against each other in the aisles.

MYLES UDLAND: Yeah, and Sozzi, I think also-- I mean, think about it as an ESG trade or climate trade, you know, the health trade that I think came into the story. I think there's a lot of questions around how that actually does fit into the story of why someone is buying Beyond Meat and then going back to Beyond Meat over time versus other alternatives. And with Impossible, those are just the two big ones in the space. But this is a very crowded area that I think there's a lot of money behind. And Beyond as a public company has a cash pile. But they are facing stiff competition. And anything that they do that works, I think there's going to be a lot of other people coming in to try and emulate that success.

Let's take a look at shares of Shake Shack. That stock is under quite a bit of pressure this morning following its latest quarterly report, off about 12 and 1/2% here. If we look at the chart year to date, basically given up most of the gains that we've seen. And Sozzi, this was a digitization success story a little bit in the pandemic, but now facing the same headwinds that I think a lot of businesses that won on the back of pandemic specific strategy they're facing, which is, OK, now you can do other things beyond consuming Shake Shack and what that growth driver is for them. Certainly some questions about that today.

BRIAN SOZZI: Two concerns I think off of the Shake Shack quarter. One-- and perhaps this is not a surprise-- it's those urban locations that Shake Shack has feasted on and built its entire model around. Those urban locations, especially in New York City, it remains challenging. The tourism isn't there. The traffic isn't there, back to those restaurants. Now they are seeing better results in some of their newer suburban locations. Same Shack sales up 5.7%, but you're seeing a dual speed recovery here in the business.

I will note, too, since today is Jobs Friday, Shake Shack CEO Randy Garutti talked at length about in the conference call that they are having problems finding workers, just like many other companies in the restaurant industry. When they find those workers, they're going to have to pay them more. So the restaurant industry continues to see a good deal of inflation.

But on a positive note, Shake Shack is out now with their first, I believe, burger that has an avocado on it. It's the first time I think that they are using avocado, so a big win for them. Despite the slowdown in sales and pressure on margins, the innovation pipeline, at least for Shake Shack, remains very good. I'm all about the avocado on my burger, Myles and Julie.

JULIE HYMAN: I like the fried egg on my burger personally. Sure, throw some avocado on it, too.

BRIAN SOZZI: Forever a contrarian. Always a contrarian.

JULIE HYMAN: You know, in terms of their app stuff, though, it looks like that their app stuff they said is pretty sticky. In other words, their app and web sales were still up by 203% in the quarter. So, Myles, it doesn't seem like that that part is the problem. In other words, the people migrating to their digital ordering system isn't the problem. Maybe it's just overall demand that's the problem here.

MYLES UDLAND: Yeah, and I think, you know, a stock that has had its challenges over the last couple of years, basically trading kind of at the highs that it traded at in 2019 when there was sort of an enthusiasm cycle around Shake Shack and did trade to a record high earlier this year, but now off of those levels. Would note the company did give guidance, so maybe that was a mistake. They said something about the future, and the Street punished them for that as per our conversation earlier this morning.