News

Shake Shack reports mixed results as labor costs, traffic offset higher sales

February 25, 2019

Shake Shack reported mixed results in the fiscal fourth quarter, as increased sales were offset partially by declining store traffic and increased labor costs in some key markets.

Shake Shack narrowed its quarterly loss to $958,000, or 3 cents a share in the quarter ended Dec. 26th, compared with a year-ago loss of $12.5 million or 47 cents a year ago.  

Operating income fell to $2.8 million, compared with $5.8 million in the year-ago quarter. As a percentage of revenue, operating income margins fell 380 basis points to 2.3 percent, due to higher pre-opening costs, $700,000 in one-time costs related to Project Concrete, the company’s investment to upgrade its operational and financial capabilities, and other factors.

CEO Randy Garutti told analysts that unit growth at the company grew at 38 percent last year, and noted that expansion at that pace will lead to cost pressures.

"There is a cost to that growth," he said on the quarterly conference call. "It does impact our Shack level operating profit over the near term."

Average weekly sales fell to $81,000 for domestic company-operated stores in the quarter, compared with $85,000 a year ago, mainly due to the addition of newer locations.

As a percentage of sales, Shake Shack reported operating margins fell 270 points to 22.5 percent, citing higher labor costs due to minimum wage increases, regulatory factors including Fair Workweek legislation in New York City and opening 17 domestic company-operated stores in the quarter.

Total revenue, which included sales and licensing revenue rose 29 percent in the quarter to $124 million, compared with $96 million in the year-ago quarter.

Sales rose 30 percent to $120.7 million in the quarter, compared with $93 million in the year-ago quarter, mainly due to the opening of 34 new domestic company-owned locations and growth in same-store sales.

Same-store sales rose 2.3 percent during the quarter, compared with an 0.8 percent increase in the year-ago quarter. The increase was driven mainly due to a 2.6 percent increase in pricing and sales, offset by a 0.3 percent drop in store traffic.

The company expects another year of record growth with 36-40 company-owned Shacks, 16-18 licensed stores with international growth focused on China, Singapore, Philippines and Mexico. The company also opened two new international licensed stores during the quarter, including its second Hong Kong location.

The company’s overall target is for 200 domestic company-owned locations and 120 licensed locations and $700 million in company revenue.