News

Shake Shack misses Q3 earnings expectations

November 2, 2018

While some Q3 numbers were up at Shake Shack — revenue grew 26.5 percent and system-wide year-over-year unit growth increased 31 percent — the chain's shares fell 7 percent Thursday after the brand reported that it missed analyst predictions for the quarter that ended September 26, 2018. CEO Randy Garutti said during Thursday's earnings call that comparable-restaurant sales fell 0.7 percent, which was well below the 0.9 percent growth that analysts had forecast, according to Yahoo Finance.

Garutti said the decline included a 4 percent decrease in guest traffic but remained optimistic, saying the team would continue to execute its strategy of long-term overall revenue and profit growth to increasing market share.

"We are doing this region-by-region Shack-by-Shack of delivering industry-leading sales, profitability and return metrics," he said on the call. "I want to share additional color here. Well sufficed to say that as a result of this strategy comp maybe down or up in some quarters down in others. But we remain committed to delivering significant top and bottom line growth, recall the certain intentional impact in a short-term on this one isolated metric.

Garutti also said that during the third quarter, the chain generated $119.6 million in revenue and delivered Adjusted EBITDA of $21.3 million with year-on-year increases of nearly 27 percent and 18 percent, respectively. The performance of both our new and existing Shacks and the incredible hard work of all our team members is resulting in a raise to our total revenue guidance for the full year 2018."

Garutti said the company would open up to 34 domestic company-operated Shacks in 2018, ending the year with 123 to 124 Shacks, delivering approximately 37 percent unit growth on the prior year. He also expects to open between 36 and 40 domestic company-operated Shacks next year.

"In our international licensed business, we are ramping up our efforts and focusing on our global expansion strategy and are thrilled to have entered into new licensing agreements for the Philippines, Mexico and Singapore with development agreements totaling over 50 Shacks over the next decade in these important regions. 

"We are very pleased with the progress across our key initiatives which we believe will continue to fuel our strong financial performance."

Financial highlights for Q3

• Total revenue increased  26.5 percent to $119.6 million.
• Shack sales increased 27.2 percent to $115.9 million.
• Same-Shack sales decreased 0.7 percent.
• Operating income was $9.3 million, or 7.8 percent of total revenue, which included the impact of costs associated with Project Concrete and other one-time items totaling $1.5 million, resulting in a decrease of 11.9 percent.
• Shack-level operating profit*, a non-GAAP measure, increased 20.7 percent to $29.9 million, or 25.8 percent of Shack sales.
• Net income was $6.9 million and net income attributable to Shake Shack Inc. was $5.0 million, or $0.17 per diluted share, which included an after-tax impact of $1.2 million related to Project Concrete and other one-time items and resulted in a $0.04 impact to earnings per diluted share.
• Adjusted EBITDA*, a non-GAAP measure, increased 17.5 percent to $21.3 million.
• Adjusted pro forma net income*, a non-GAAP measure, increased 27.0 percent to $7.9 million, or $0.21 per fully exchanged and diluted share.
• Nine system-wide Shack openings, comprising seven domestic company-operated Shacks and two licensed Shacks.