Total revenue grew by 14.7% to $290.5 million with a 1.6% growth in same-Shack sales.
Achieved a record Q1 adjusted EBITDA of $35.9 million, a more than 30% year-over-year increase.
Opened 8 new Shacks in Q1, with a plan to open approximately 80 Shacks in the year, aiming for roughly 15% unit growth.
License business grew sales by 8.1% year-over-year despite challenges in the Middle East and China.
Company-operated business opened 4 new Shacks, including 2 new drive-throughs.
Improved restaurant level profit margins to 19.5%, expanding by 120 basis points year-over-year.
System-wide sales grew by 12.3% year-over-year to $443 million.
Strategic Priorities and Operational Improvements
Focused on delivering a consistently great guest experience, reducing wait times, and improving guest satisfaction scores.
Increased investments in marketing to drive brand awareness and frequency, seeing steady increases in aided brand awareness.
Launched limited time-only menu items, including the Korean Barbecue Burger and Korean Chicken Sandwich, which received strong performance and guest reception.
Aim to achieve between 20.2% and 21% restaurant margins for the year.
Working on operational, supply chain, and cost to build opportunities to improve profitability while enhancing the guest experience.
Making progress in reducing build costs for new Shacks by approximately 10% and lowering preopening costs.
Financial Management and Projections
Expanded restaurant margins by 120 basis points and grew adjusted EBITDA by 30.2% to 12.4% of total revenue.
For Q2, projected total revenue of $308.9 million to $314.3 million and restaurant margins of approximately 21.5% to 22%.
Full-year 2024 guidance includes total revenue of approximately $1.22 billion to $1.25 billion, with restaurant margins of 20.2% to 21%.
2024 adjusted EBITDA guidance is $160 million to $170 million, representing approximately 21% to 29% growth year-over-year.
Leadership Transition
CEO Randall Garutti thanked the team for their hard work and discussed transitioning to an advisory role, welcoming new CEO Rob Lynch.
CFO Katherine Fogertey acknowledged Garutti’s impact on Shake Shack and its growth during his tenure.
Challenges and Opportunities
Continued macroeconomic pressures and inflation impact, particularly in wages and food costs.
Weather-related sales pressures in the quarter, with an estimated $3 million sales loss due to weather.
Navigated through staffing and supply chain pressures, inflation, and the global pandemic.
Question and Answer
Kiosk Lift and Initiatives
Question
Is the reported high-teens kiosk lift the final endpoint, or is there potential for further growth in check averages through kiosk initiatives?
Answer
The company believes it is still in the early stages of leveraging kiosks and sees potential for further growth.
The high-teens kiosk lift was achieved through upsell opportunities, but targeted marketing initiatives had a slight mix headwind.
The company is excited about the positive impact of both kiosk initiatives and marketing strategies on both top-line growth and profitability.
April Comparable Sales and Drivers of Outperformance
Question
What are the most significant drivers of Shake Shack’s relative outperformance in April compared to the industry, which is experiencing negative traffic trends?
Answer
While the industry is facing traffic pressure, Shake Shack has also observed some declines in certain areas.
The company’s outperformance is attributed to its increased marketing, limited-time offer (LTO) menu, and guest experience strategies, which have been effective in offsetting industry challenges.
Notable initiatives include the Chicken Sundays campaign, promotions, and day-parting opportunities.
Labor Cost Leverage and Phase 2 Changes
Question
Can you provide more details on the labor cost leverage observed and the Phase 2 changes being implemented, including their expected impact and incorporation into annual store margin guidance?
Answer
The observed labor cost leverage was influenced by the heavy Shack opening schedule in the previous quarter, improved forecasting, and working closely with operators on labor optimization strategies.
The Phase 2 labor model, currently being tested in a few Shacks, aims to provide tailored labor deployment recommendations based on menu mix, channel mix, and daypart peaks.
The results of the test have been positive, and the model is scheduled to be rolled out to all company-operated Shacks by the end of the year.
The company has not yet incorporated the Phase 2 savings into its guidance but will provide updates as the rollout progresses.
Advertising Strategy and Team Readiness
Question
With the potential for a larger marketing budget in the future, does Shake Shack believe it has the necessary team in place to fully capitalize on this opportunity, or are there plans for additional talent additions?
Answer
Shake Shack is confident in its current marketing team and their ability to drive successful strategies as the company ramps up its advertising efforts.
The incoming CEO, Rob Lynch, has a strong marketing background, and the company anticipates benefiting from his expertise and strategic vision.
The team will continue to focus on disciplined and ROI-driven marketing, leveraging its brand awareness initiatives and regional expansion to amplify the impact of advertising.
Margin Path and Potential Investment Needs
Question
How is Shake Shack considering the potential need for investments or different sales strategies beyond 2024 that might impact margins?
Answer
The company is not providing formal guidance beyond 2024, and it recognizes the need for the new CEO to assess the path forward.
Shake Shack has demonstrated sustained margin improvement and strong cash flow, and the current team has a firm strategic plan for 2024 with a focus on a strong pipeline for 2025.
The company is committed to maintaining its position as one of the most profitable restaurant companies, and it is confident in its current trajectory and strategic approach.
Kiosk Growth Potential and Menu Mix Impact
Question
Is the reported high-teens kiosk lift the final endpoint, or is there potential for further growth in check averages through kiosk initiatives? How does this growth align with the negative low single-digit menu mix?
Answer
The company believes it is still in the early stages of leveraging kiosks and sees potential for further growth.
The high-teens kiosk lift was achieved through upsell opportunities, but targeted marketing initiatives had a slight mix headwind.
The company is excited about the positive impact of both kiosk initiatives and marketing strategies on both top-line growth and profitability.
April Comparable Sales and Drivers of Outperformance
Question
Can you clarify the reasons for the sequential acceleration in April, considering the easier compares, increased pricing, and reduced negative mix?
Answer
The sequential acceleration in April was driven by improvements in traffic, a 7-8% pricing increase, and the impact of marketing initiatives such as Chicken Sundays.
While the company observed some mix impact from these initiatives, it was not considered significant or out of the ordinary.
Other Operating Expenses and Margin Impact
Question
Can you provide more information on the “other OpEx” line and potential opportunities for improvement or optimization in that area?
Answer
The increase in other OpEx is primarily attributed to the company’s investments in marketing at both the store level and corporate G&A level.
These costs are associated with the company’s sales-driving strategies but are implemented in a margin-accretive manner.
Margin Guidance and Potential Upside
Question
The margin guidance for 2024 appears conservative based on the expected impact of pricing, labor scheduling improvements, and kiosk initiatives. Is there a level of conservatism built into the guidance?
Answer
The company acknowledges the potential for upside in its margin guidance due to various factors, including pricing, labor scheduling improvements, and kiosk initiatives.
However, the guidance also considers uncertainties related to beef costs and potential fees associated with marketing strategies to offset a softening economic backdrop.
The company is proud of its team’s efforts to drive improvements in total cost of service, supply chain efficiency, and restaurant operations, resulting in strong flow-through and margin expansion.
Value Competition and Brand Positioning
Question
With increased value promotions expected in the burger category, are Shake Shack’s current digital value tactics sufficient to protect traffic among lower-income consumers, or are additional measures needed?
Answer
Shake Shack is committed to maintaining its premium brand position and will continue to focus on added-value promotions rather than deep discounts.
The company’s digital value tactics, such as Chicken Sundays, are designed to provide added value and showcase the quality of its offerings across channels.
Shake Shack’s strategy involves continuous learning and optimization based on data insights, allowing for effective navigation of economic fluctuations and competition.
Balancing Premium Brand with Promotional Offers
Question
How does Shake Shack balance the need for promotional offers with its premium brand positioning, and how does the company monitor the impact of promotions on consumer perceptions?
Answer
Shake Shack prioritizes education about its brand pillars, emphasizing the quality and freshness of its ingredients and the made-to-order nature of its offerings.
The company’s promotional offers are designed to provide added value and maintain its brand position, avoiding deep discounts or dollar-menu type promotions.
Shake Shack closely monitors consumer perceptions and feedback to ensure that its promotions align with its brand values and do not compromise its premium positioning.
Q2 Comparable Sales Guidance
Question
Can you provide more context on the Q2 comparable sales guidance of low single digits, considering the mid-single-digit trend observed in the first quarter?
Answer
The Q2 guidance reflects the impact of rolling off a 2% price increase in May, as well as normal seasonality trends.
Consumer Demand and Shake Shack’s Position
Question
Does Shake Shack anticipate consumer demand headwinds stabilizing or intensifying in the coming quarters, and how has the demand backdrop impacted the company?
Answer
The company acknowledges the existence of consumer demand headwinds, including potential trading down among lower-income consumers and some softness in urban centers.
Shake Shack has implemented strategies to drive traffic through marketing, LTOs, and brand-building initiatives, which have been effective in mitigating the impact of these headwinds.
Store-Level Margin Expansion and Future Opportunities
Question
Considering the progress made in store-level margins and the ongoing initiatives to improve operational efficiency, is there potential for further margin expansion in the future, or are there factors that might limit this growth?
Answer
The company is not providing specific outlook beyond 2024 but emphasizes its commitment to delivering profitable growth and expanding restaurant margins.
Shake Shack has successfully navigated wage inflationary pressures, supply chain challenges, and other cost headwinds through a combination of internal initiatives and strategic cost-saving measures.
The company sees opportunities for continued margin expansion through supplier leverage, freight optimization, and further enhancements to labor scheduling tools.
International Expansion and Domestic Growth
Question
How confident is Shake Shack in sustaining its international unit growth, and are there specific regions or states in the U.S. that are particularly promising for future expansion?
Answer
The company is confident in achieving its international unit growth targets, citing opportunities in non-traditional locations such as airports, roadside venues, and stadiums.
Shake Shack is also focused on expanding its domestic footprint by going deeper in existing markets and selectively entering new markets, with Pittsburgh and Canada being highlighted as upcoming locations.
Competition and Shake Shack’s Value Proposition
Question
Can you discuss the current state and pace of competition in the restaurant industry, including the emergence of new concepts with national aspirations and the evolving landscape in urban versus suburban markets?
Answer
Shake Shack acknowledges the presence of strong competition in the industry but believes its unique positioning between traditional fast food and casual dining has been a key factor in its success.
The company continuously reinvents its menu, introduces exciting LTOs, and focuses on delivering exceptional quality and hospitality to maintain its competitive edge.
