Article
Shake Shack migrating third-party delivery orders to own channels
With digital sales accounting for 60% of Shake Shack Q4 sales, the chain is hoping to move third-party delivery orders to its own channels.
February 26, 2021 by Cherryh Cansler — Editor, FastCasual.com
Shake Shack stock was up 1% Thursday night after the chain reported that Q4 revenue rose $157.5 million from $151.4 million, which is exactly what analysts expected. The 300-unit company, which saw a fourth-quarter net loss of $19.4 million, or 50 cents a share, had posted a net loss of $2.1 million, or 6 cents a share, for the prior year's quarter.
"With much of the country still under varying degrees of lockdown, we're pleased to report revenue in the fourth quarter of $157.5 million, with same-Shack sales improving to down 17.4% compared to down 31.7% in the third quarter 2020," CEO Randy Garutti said in a company press release. "Looking at fiscal 2021, we were encouraged to see recovery momentum continue with same-Shack sales in fiscal January 2021 down only 5%, and with suburban Shacks delivering growth of 8% compared to last year."
Increased digital sales driving migration from third-party channels
Shake Shack will continue to lean on its digital channels, which made up about 60% of sales, as well as building out Shack Track, an enhanced digital order and pick-up solution. It allows customers to order and pay via app or web and pick up by way of drive-up window, curbside, walk-up window or in-Shack pick-up shelves.
"So far, we've added 13 exterior windows, which have improved the flow of guest traffic, the experience for in-Shack orders and dining," Garutti said during a Thursday call with investors. "In addition to delivery orders, about 1/4 of app and web orders are now picked up through these windows. Our curbside program available at more than 70 Shacks also continues to show great potential. Although curbside is not feasible for every Shack format, given layout location, we see this as an opportunity to further boost sales long term, especially in suburban markets."
Q4 digital sales equated to a digital-only AUV of $1.9 million, according to Tara M. Comonte, Shake Shack president and CFO, who called the number impressive and said it highlighted the importance of digital.
"As we focus on the enhancement of our digital and broader guest experience, we've been working to incorporate delivery within our own Apple web channel," she said during the investors' call.
The chain, which piloted the capability in a handful of Shacks in late December and January, has extended it to over 100 units and expects a nationwide rollout by the end of Q2.
"We're still in the early testing phase, but looking forward to the longer-term opportunity here as we target the migration of third-party delivery orders to our own channels, ensuring they're the most attractive for our guests and to maximize that sales opportunity within our own ecosystem," Comonte said.
Shack Shack is also testing a 5% menu price increase on all third-party delivery marketplaces.
"We see the ability to offer lower pricing in company-owned channels as a key marketing lever as we look to expand our reach, while higher prices across our third-party delivery partners will help offset some of the additional costs that come to the sales channel, Comonte said.
Although it was too early for Comonte to share the potential impact of the pricing increase, she said the performance of digital channels and increasing integration into new store designs was integral to future sales growth.
"And initiatives like curbside with its strong adoption to date gives us confidence in this strategy," she said.
Accelerating growth
Ramping up growth is on the agenda for Garutti, who said he was hoping to open at least 35 company-operated and 45 to 50 in fiscal 2022.
"We believe we are uniquely positioned to exit this challenging period stronger and with greater opportunity than where we started," he said. "We have laid out a robust and accelerated development pipeline for fiscal 2021 and 2022, which will capture great real estate opportunities while encompassing our new Shack Track, curbside and drive-thru experiences. Additionally, we expect to open 15 to 20 new licensed Shacks in fiscal 2021 and 20 to 25 new licensed Shacks in fiscal 2022."
Financial Highlights for Q4, which ended Dec. 20, included
- Total revenue in the fourth quarter 2020 increased 4.% to $157.5 million versus the same period last year, showing sequential improvement when compared to a decline of 17.3% in the third quarter 2020. This increase is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental revenue of $11.1 million. Excluding the 53rd week, total revenue in the fourth quarter 2020 decreased 3.3%.
- Shack sales increased 4.6% to $152.5 million.
- Same-Shack sales continued to sequentially improve every month since fiscal April 2020, down 17.4% in the fourth quarter 2020 versus the same period last year, compared to down 31.7% in the third quarter 2020.
- In fiscal January 2021, same-Shack sales continued to recover, with a decline of 5% versus the same period last year. During the first three weeks of fiscal February 2021, same-Shack sales decreased to down 16%, impacted by severe winter weather. Within same-Shack sales:
- Suburban same-Shack sales were flat, compared to down 16% in the third quarter 2020, improving to up 8% in fiscal January 2021.
- Urban same-Shack sales were down 31%, compared to down 43% in the third quarter 2020, improving to down 17% in fiscal January.
- Licensed revenue in the fourth quarter 2020 decreased 10.6% to $5 million, showing sequential improvement when compared to a decline of 23.8% in the third quarter 2020.
- Shack system-wide sales increased 1.4% to $238.3 million, showing sequential improvement when compared to down 18.4% in the third quarter 2020.
- Operating loss in the fourth quarter 2020 was $12.2 million, compared to operating income of $0.5 million in the same period last year, showing a decline when compared to an operating loss of $6.8 million in the third quarter 2020.
- The company opened 13 Shacks — eight company-owned and five licensed Shacks.
Financial highlights for the fiscal year 2020:
- Total revenue decreased 12.1% to $522.9 million.
- Shack sales decreased 11.9% to $506.3 million versus the prior year.
- Same-Shack sales1 decreased 27.8%.
- Licensed revenue decreased 16.9% to $16.5 million versus the prior year.
- Shack system-wide sales decreased 13. to $778.9 million.
- Operating loss was $43.9 million compared to operating income of $25.7 million versus the same period last year. This operating loss includes a non-cash impairment charge of $7.6 million related to two Shacks and the expansion space of the Company's home office.
- Net loss was $45.5 million and adjusted EBITDA2, a non-GAAP measure, was $22.7 million in fiscal year 2020, compared to net income of $24.1 million and adjusted EBITDA of $81.8 million in the same period last year.
- Net loss attributable to Shake Shack Inc was $42.2 million and adjusted pro forma net loss, a non-GAAP measure, was $22.3 million, or a loss of $0.56 per fully exchanged and diluted share in fiscal year 2020, compared to net income attributable to Shake Shack Inc. of $19.8 million, adjusted pro forma net income of $27.4 million, or 72 cents per fully exchanged and diluted share, in the same period last year.
- Opened 36 system-wide Shacks, comprised of 20 domestic company-operated Shacks and 16 net licensed Shacks.
About Cherryh Cansler
