News

Closures, Grubhub integration drive down Shake Shack shares

November 6, 2019

Despite reporting that total Q3 revenue grew 31.9% to $157.8 million and same-store sales increased 2%, Shake Shack shares were down nearly 20% Tuesday after CEO Randall Garutti said some units would close for remodeling. 

"During these remodels, we'll be updating and improving layout to ensure optimal flow from multiple ordering channels, upgrading our kitchen equipment to maximize throughput and installing kiosks and bring even further convenience to the guest experience," he said during Monday's investor call. "Some of these will include temporary closures that will be incorporated into our total revenue outlook for 2020, and we will come back to you with the specifics around that on our next call."

The chain's partnership with Grubhub has also taken its toll on the chain's numbers. 

"We believe the transition to Grubhub caused some noise in our Q3 numbers and will certainly have an impact through the fourth quarter and into next year," Garutti said on the call. "As we remove direct point-of-sale integrations with DoorDash, Postmates and Caviar, we expect an impact to our delivery revenue, especially in those regions where Grub may not be the current market leader. Any difference in pricing, placement or regional strength in non-Grub marketplaces will affect our sales for a period of time. How much volatility this will cause during this transitional period is uncertain, but the reality is this represents short- to mid-term revenue risk."

Financial highlights for the third quarter 2019 compared to the third quarter 2018:

• Total revenue increased 31.9% to $157.8 million.
• Shack sales increased 31.5% to $152.4 million.
• Same-Shack sales increased 2%.
• Licensed revenue increased 43.3% to $5.4 million.
• Shack system-wide sales increased 35.0% to $239.1 million.
• Operating income was $8.2 million, or 5.2% of total revenue, which included the impact of costs associated with the company's enterprise-wide system upgrade implementation, Project Concrete, and other one-time items totaling $1.4 million, resulting in a decrease of 12.6%.
• 17 net system-wide Shack openings, comprised of 11 domestic company-operated Shacks and six net licensed Shacks.

"We're pleased to report total revenue grew nearly 32% and the team delivered another quarter of positive Same-Shack sales of 2%, continuing to drive positive traffic of 1.2%. Based on our results to date, we are raising our 2019 revenue guidance, including our licensing revenue guidance," Garutti said in a company press release regarding the financial results. "This has been the biggest development year in Shack history as we've grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico."

In 2020, the brand will continue to expand within key domestic and international markets.

"Overall, we continue to execute this year's plan while gearing up for the key strategic initiatives of 2020," he said. "We'll be focused more than ever on putting our people first, simplifying and supporting our operations, and enhancing our winning guest experience."