Operations

Digital made up 60% of Shake Shack's Q3 sales

Provided

October 29, 2020

Digital sales at company-owned Shake Shacks tripled, and average weekly sales and same-Shack sales improved in both urban and suburban locations compared to this time last year.

The company, which released its financial results for the third quarter ending Sept. 23, 2020, also said store-level operating profit improved to 14.8% compared to 2.2% in Q2 of 2020. It added that total digital sales — including orders placed on the Shake Shack app, website and third-party delivery platforms — represented 60% of total sales.

"Our business during this most recent quarter showed steady recovery, thanks to the hard work and dedication of our team, their agility in adapting new Shack protocols and models and an increasingly strong suite of digital capabilities," CEO Randy Garutti said in a company press release. " As a result, guests have been able to enjoy their Shack the way they want it, with a choice of convenient and safe ordering and pick-up options, as we continue to expand and elevate the Shake Shack experience."

Since the company's last update at the end of July, Garutti said many locations are returning to or exceeding last year's results. Total year-over-year company-operated sales declined 17% in the third quarter, compared to a decline of 39% during the second quarter, and further improved to a decline of just 5% in fiscal October.

"Same-Shack sales have also improved sequentially in every single one of the last six months, with the third quarter down 31.7% compared to the same period last year, versus down 49.0% in the second quarter, and improving to down 21% in fiscal October," he said. "Importantly, our improving top-line performance, the normalization of beef costs and disciplined expense management led to a significant recovery in Shack-level profitability."

Garutti's plan is to double down on multi-format expansion and accelerate digital investments. As of the end of fiscal October, the chain is back to full development schedule, having opened 33 Shacks, including 15 domestic company-operated Shacks. Plans to complete the year with 18 to 20 total company-operated Shacks are underway.

"Our pipeline for 2021 is strong, and we expect to open between 35 and 40 new company-operated Shacks, many of which will incorporate our new Shack Track and Drive Thru designs centered on the hospitality and experience Shake Shack has been known for, with an added focus on speed, convenience and the integration of our pre-ordering digital capabilities," Garutti said.

Financial Highlights for the Third Quarter 2020:

• Total revenue decreased 17.3% to $130.4 million, showing sequential improvement when compared to a decline of 39.9% in the prior quarter. Further improvement carried through Oct. 21 ("fiscal October"), with a decline of 5.7% versus the same period last year.
• Shack sales decreased 17.1% to $126.3 million, showing sequential improvement when compared to a decline of 39.5% in the prior quarter. Total Shack sales improved further in fiscal October with a decline of 5.3% versus the same period last year.
• Same-Shack sales sequentially improved every fiscal month since fiscal April, down 31.7%, compared to down 49.0% in the prior quarter. In fiscal October, Same-Shack sales continued to recover, with a decline of 21% versus the same period last year. Within same-Shack sales:
• Suburban same-Shack sales were down 16% during the third quarter, compared to down 38% in the prior quarter, and improving to down 4% in fiscal October.
• Urban same-Shack sales were down 43%, compared to down 57% in the prior quarter, and improving to down 33% in fiscal October.
• Licensed revenue in the third quarter decreased 23.8% to $4.1 million, showing sequential improvement when compared to a decline of 53.1% in the prior quarter.
• Shack system-wide sales decreased 18.4% to $195.1 million, showing sequential improvement when compared to down 45.2% in the prior quarter, and improving to down 7.1% in fiscal October.
• Operating loss in the third quarter was $6.8 million, compared to operating income of $8.2 million versus the same period last year, showing improvement when compared to an operating loss of $24.1 million in the prior quarter.

As in-Shack sales improved throughout the period, the company also maintained a high level of digital retention, with more than 90% of digital sales retained in fiscal October compared to the high point in fiscal May. During the third quarter and similar to second-quarter trends, Shake Shack's native web and app channels, when combined, continued to be the fastest-growing channel on a year-on-year basis, with sales more than three times the prior-year levels, according to the release.

In the second quarter 2020, the company added over 800,000 first-time purchasers to the app and web channels between early March and the end of July. This trend has continued through fiscal October, increasing to over 1.4 million first-time purchasers on those channels since early March.

Nearly all domestic company-operated Shacks were open as of the end of the third quarter 2020 and through fiscal October, and about 80% of the domestic company-operated units had open dining rooms with varying capacity restrictions, with the majority of Shacks also utilizing outdoor patio space, whenever possible, according to the release.