Operations

Shake Shack CFO: Operational improvements enhancing profitability

Provided

August 3, 2023

Despite higher than usual operating costs, New York-based Shake Shack Inc. reported Thursday a net income of $6.9 million and a profit of 16 cents for its 2023 second-quarter earnings. Earnings, adjusted for non-recurring costs, were 18 cents per share, which surpassed Wall Street expectations of 9 cents per share. Revenue of $271.8 million, however, was short of predictions, as analysts expected a number closer to $274.4 million.

The earnings results were released in a letter to investors by CFO Katie Fogertey.

Fogertey wrote that the chain's recent operational improvements — increasing operating hours, leveraging real-time data and analytics to improve labor scheduling standards and streamlining packaging, condiments and utensils — were driving profitability and offsetting increased paper and beef prices.

"With these, in addition to accelerating our kiosk retrofit strategy and doubling our kiosk sales year-over-year, we delivered Shack-level operating profit margin expansion of 240 (basis points) year-over-year and grew Adjusted EBITDA by more than 60% versus last year," she said in the letter. "We expect to build on our success in coming quarters."

CEO Randy Garutti said in the letter he was proud of the strong sales as well as Shack-level operating profitability of 21% — the highest since 2019.

"Sales trends improved in June and strengthened through July, which ended at 4.5% same-Shack sales," he wrote. "We showed progress along our disciplined growth trajectory, opened 23 Shacks worldwide and began development work toward more efficient Shack design templates to target bringing down next year's cost to build by 10% year-over-year as we improve returns over the long term."

Garutti said the chain's food and paper costs rose high single-digits year-over-year, thanks to beef increasing by mid-single digits quarter-over-quarter and high single-digits year-over-year. Fry costs rose by over 20% year-over-year.

"We plan for continued inflationary pressures for the rest of the year. Beef costs remain highly uncertain into the back half of 2023," Garutti told investors. "We continue to expect beef costs to rise by low double-digits in (second half of 2023) and we saw inflation accelerate during the second quarter. Excluding beef, we expect year-over-year inflation to remain, but ease sequentially in the second half of
2023 versus the first half of the year."