Shake Shack Inc. (SHAK, Financial) is scheduled to report its first-quarter results for fiscal 2015 on May 13, 2015. This is the second time the company will be reporting its quarterly results, after its IPO in January 2015. The company competes with other niche burger-chain businesses such as Habit Restaurants Inc. (HABT, Financial), and traditional quick-service restaurants such as Burger King (BKW, Financial).
Shake Shack had disappointed investors with mixed Q4 results for fiscal 2014 in its first-ever earnings report as a publicly listed company. While sales surged 51.5% to $34.8 million in the fourth quarter, beating the consensus estimate figure of $33.0 million, the company’s overall earnings slumped to a loss of 5 cents per share compared to the consensus estimate of a 2 cents per share loss. However, for the full-fiscal 2014, Shake Shack reported a whopping 43.7% growth in revenues to $118.5 million, compared to $82.45 million in the previous year. While overall sales climbed 42.6% to $112.0 million, same-restaurant sales grew 4.1%. Shake Shack’s net income for the fiscal 2014 stood at $2.1 million or $0.07 per diluted share, including an after-tax expense of $0.09 per diluted share related to the company’s IPO. Following the results, Shake Shack projected a low single-digit growth in same-restaurant sales for FY2015 while it expected to generate high revenues to the tune of $163 million during the year. Shake Shack shares are up a whopping 51% since the company’s last earnings report.
Rising food costs, sluggish economy likely to impact results
Following the Q4 2014 earnings report, Shake Shack had announced plans to open 10 new restaurants in the U.S. every year for the near term and sees potential for up to 450 company-operated restaurants in the long term. The company also planned to open at least 5 international licensed restaurants towards the end of fiscal 2015, under its current license agreements in the Middle East and U.K. The company’s successful expansions into various cities around the world, is likely to boost comparable-store sales in the first quarter of fiscal 2015. Further, with a cult following in the domestic market, Shake Shack has been in a good position to cash in on the growing popularity of the fast-casual market in the U.S. and grow earnings on the back of its strong brand, lucrative store economics and a robust balance sheet.
However, the company is also expected to feel the pinch of challenges in the restaurant industry during the first quarter, with increasing cost of food being the key concern for Shake Shack as well as the chain-restaurants industry at large. With the enduring imbalance in global supply and demand in the agricultural sector as well as other macroeconomic factors at play, food costs are likely to remain under pressure for some more time to come. At the same time, consumers are also going soft on their spending, given the continuing slowdown in global economy, a factor that could have dented traffic and consequently sales at the company’s restaurants in Q1 2015.
Final thoughts
Shake Shack reported lower-than-expected earnings for Q4 2014 despite an over 50% jump in revenues. The company, along with several other industry peers is facing pricing pressure owing to rising food costs, a factor that is expected to have continued into the first quarter of fiscal 2015. A sluggish global economy is also likely to have dented traffic at the company’s restaurants owing to greater discretionary spending by customers. However, with Shake Shack focusing on expanding its avenues across the globe, the company is likely to reap benefits of the expansion in the quarters to come. Consensus is for earnings of $0.03 a share for the quarter. The company’s stock has mostly traded in the $41 to $71 range in the last three months, hitting a new 52-week high of $79.5 on May 6, 2015. However, experts opine that the Shake Shack shares are currently among the most expensive in the market and expect the stock to slide following the earnings report, more so if the company reports negative comparable-store sales growth for the quarter. The Shake Shack stock currently carries a price estimate of $65.98, lower than its current price, and a "hold" guidance.
