Shake Shack (SHAK, Financial) is a modern-day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. With its fresh and simple, high-quality food at a great value, Shake Shack is a fun and lively community-gathering place with widespread appeal.
The menu focuses on premium food and beverages, carefully crafted from a range of classic American foods at more accessible price points than full-service restaurants. The domestic menu includes a variety of signature items, such as the ShackBurger, SmokeShack, Shack cago Dog, 'Shroom Burger, seasonal frozen custard, hand-spun shakes, concretes, ShackMeister Ale and Shack Red and Shack White wines. The Shake Shack concept and core menu items have not materially changed since 2004, which speaks to the timeless and universal appeal of its food offerings.
The fast food industry currently is booming as GenX prefers to eat out mostly. Eating out has become a habit among young adults. Shake Shack reported strong fourth-quarter results in terms of revenue and sales.
Fourth quarter results
Total revenue, which includes Shack sales and licensing revenue, increased by 46.8% and was $51.1 million in the fourth quarter of 2015 ($34.8 million during the prior-year quarter).
Sales for the fourth quarter of 2015 were $49.3 million (an increase of 49.2% from $33.1 million in the prior-year quarter). Licensing revenue was $1.7 million for both the fourth quarter of 2014 and 2015.
Same-Shack sales increased by 11.0% for the fourth quarter of 2015 (7.2% during the prior-year quarter).
Average weekly sales for domestic company-operated Shacks were $89,000 for the fourth quarter of 2015 ($85,000 during the prior-year quarter).
Shack-level operating profit, a non-GAAP measure, increased by 88.1% and was $13.9 million for the fourth quarter of 2015 ($7.4 million in the prior-year quarter).
As a percentage of Shack sales, Shack-level operating profit margins increased by 590 basis points and were 28.2%.
General and administrative expenses increased to $7.7 million for the fourth quarter of 2015 ($6.0 million in the same quarter last year).
As a percentage of total revenue, general and administrative expenses decreased to 15.0% for the fourth quarter of 2015 (17.2% in the prior-year quarter).
Adjusted EBITDA, a non-GAAP measure, increased by 104.5% and was $9.9 million. As a percentage of total revenue, adjusted EBITDA margins increased approximately 540 basis points to 19.3% (which was 13.9% during the prior-year quarter).
Net income was $1.2 million, or 7 cents per diluted share, for the fourth quarter of 2015, which was net loss of ($1.4) million, or (5 cents) per diluted unit, for the same period last year.
Adjusted pro forma net income, a non-GAAP measure, was $2.9 million, or 8 cents per fully exchanged and diluted share during the fourth quarter of 2015, which was an adjusted pro forma net loss of ($0.3) million, or (1 cent) per diluted share during the fourth quarter of 2014.
Expectations for 2016
The company expects the following:
- Total revenue to range between $237 million and $242 million.
- Same-Shack sales growth between 2.5% and 3.0%.
- The company expects to roll out at least 13 new domestic company-operated Shacks.
- As a percentage of Shack sales, approximately 100 to 150 basis points of deleverage in labor and related expenses on a year-over-year basis.
- Adjusted pro forma effective tax rate to range between 43% and 44%.
Focus at the moment
- The company continually innovates around the core menu.
- Exclusive offerings.
- Opening new domestic company-operated Shacks.
- Capitalizing on outsized brand awareness.
- Growing same-Shack sales.
- Opportunistically increasing licensed Shacks, both domestically and abroad.
(Source: Company's website)
On a concluding note
The company embraces a fine-dining heritage and is committed to sourcing premium, sustainable ingredients, such as all-natural, hormone- and antibiotic-free beef, chicken and bacon, while offering excellent value to the guests. The core menu remains focused and is supplemented with targeted innovation inspired by the best versions of the classic American roadside burger stand. Always focused on culinary creativity and excellence, it collaborates with award-winning chefs, talented bakers, farmers and artisanal purveyors who work in different and engaging ways.
In its 12-year history, it has become a globally recognized brand with outsized consumer awareness relative to current footprint of 84 Shacks, opening the first international Shack after only seven domestic Shacks. Shake Shack has become a New York City institution, a vibrant and authentic community gathering place that delivers an unparalleled experience to the loyal guests and a broad, global demographic.
The company plans to expand in existing markets (New York, Boston, Philadelphia, Washington, D.C., Atlanta, Chicago, Las Vegas, Texas and South Florida) in order to leverage operational effectiveness as it clusters in these high-density markets, but also will enter new markets, such as Arizona, California and Minnesota.
Now, the company continues to evolve timeless designs through a series of different designers from around the country. It continues to evolve certain prototypes, “classic” Shack designs, free-standing, in-line and unique, one-of-a-kind formats. It is constantly pushing design to be more creative and more nimble at the same time, allowing it to continue to ramp up growth while making the Shack experience even more dynamic and accessible.
The company plans to enter Los Angeles and Phoenix by 2016. Strong volume and operating success is key to the success of this company. It is reasonably priced and has tremendous growth potential. The company is well-positioned to achieve significant, sustainable financial growth.
Disclosure: I do not hold any position in the company.
