Franchising

Despite declining sales, Shake Shack resuming growth plans

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July 7, 2020

Declining sales caused by COVID-19 and protests forcing some units to temporarily close, are no longer keeping Shake Shack Inc. from developing new locations domestically and internationally.

"As always, and especially during this recovery period, our priority remains the safety of our team and our communities CEO Randy Garutti said in a company press release. "Amidst our gradual sales recovery, we've started to open new Shacks again and are looking to the significant growth opportunity that we believe lies ahead for Shake Shack."

Although Shake Shack's next earnings and call aren't until July 30, it released a sales update Tuesday saying that total revenue for the second quarter ending June 24, was $91.8 million, including a licensed revenue of $2.3 million.

"Shack sales were estimated to be negatively impacted by approximately $3.2 million in the fiscal period June due to nationwide protest activity and resulting curfews causing temporary Shack closures and reduced operating hours," according to the release.

Despite the challenging operating environment, however, Shake Shack opened four units in the second quarter in Sacramento and Los Angeles, California, Charlotte and St. Louis.

Same-Shack sales declined 49% in the second quarter compared to the prior year driven by a 60% decline in traffic and an increase in price mix of 11.1%. Same-Shack sales improved during the quarter delivering (64%), (42%) and (42%) declines for fiscal periods of April, May and June, respectively. After adjusting for the impact of the protests, same-Shack sales showed improvement, with fiscal period June delivering a 39% decline and the second quarter (47%).

Domestic company-operated Shacks experienced steady sales increases over the last few weeks with the most recent average weekly sales of $58,000, an increase of 18% compared to the week ended April 29.

Same-Shack sales for the most recent week ending July 1 were down 39% with the overall speed of company-wide sales recovery remaining uncertain due to ongoing volatility related to COVID-19.

Increased pay for employees

Since April 23, Shake Shack has been giving hourly employees a 10% premium pay raise, which continues through at least July 22, and second-quarter bonuses were guaranteed at a minimum of 10% of salary for all active Shack managers.

During the recent closures and reduced hours due to protests and curfews, the company paid all hourly employees in the field for their normally scheduled hours that had been shortened or canceled during that time. It's also continued to pay 100% of health benefit premiums for furloughed employees in addition to covering pay for two weeks for any team members diagnosed with COVID-19.

"I am so proud of the resilience of our teams in the Shacks, the innovation across our operating model and our relentless efforts to continue to safely serve our guests," Garutti said. "I want to thank our entire Shack family for their hard work and commitment to leading with hospitality during these difficult times."

What's happening in New York?
Since New York City, which is home to 20% of Shake Shack's locations, has been severely affected by COVID-19, Garutti expects it to take longer to recover than other parts of the country. For the most recent fiscal week ended July 1, for example, New York City same-Shack sales were down 58% versus the prior year.

Shacks continue to reopen
As various states reopened throughout June, several previously closed Shacks did as well but reported significantly reduced sales volumes. Although that means, same-store sales are down, the company said the locations were contributing positively to operating profit by remaining open. Six Shake Shacks, however, remain fully closed, which is an improvement from the end of the first quarter when 17 Shacks were fully closed. All remaining Shacks at that time were operating in a to-go capacity only with closed dining rooms. As of the end of the second quarter, nearly 60% of Shacks were operating with dining rooms open at limited capacity. However, in recent days, some of these interior and patio dining rooms have once again closed for safety reasons.

As in-Shack ordering has increased over recent weeks, the mix between in-person and digital sales continues to shift. For the week ending July 1, for example, digital sales made up about 60% of total Shack sales compared to a peak of 84% of Shack sales for the week ended April 29. The company expects the digital mix to continue to gradually reduce over time as more dining rooms reopen.

Sales climbing at licensed locations
Licensed revenue for the second quarter was $2.3 million with gradual improvement across all regions as markets began to reopen, according to the release, which said that 95 of the 121 licensed Shacks are now open. All are reporting "steady sales increases over the quarter and the last few weeks."

Shake Shack opened two new licensed units since the end of the first quarter in Shanghai, China, as part of a multi-unit agreement with existing licensee Maxim's Caterers Limited. The deal, which increases the total number of planned Shacks for mainland China to 55 by 2030, will open a minimum of 15 additional Shacks across South China by 2030. Five are open.