New York-based Shake Shack (SHAK, Financial), the modern-day “roadside” burger, posted a strong third quarter with increase in revenues and 28.8% Shack-level operating profit margin.
During the quarter, it recorded its first $1 million sales day in domestic company-operated Shacks. Recently it came up with the Shack App to connect to customers on a large scale. In October, it launched an app for iPhone users.
Offering fresh and high quality products at reasonable prices has helped the chain carve a niche for itself with an array of products such as hot dogs, crinkle cut fries, burgers, frozen custard, etc. It has updated a bright outlook by raising EPS estimates.
Strong third quarter
Total revenue during the quarter increased by 40% and was $74.6 million in the third quarter ($53.3 million in the prior-year quarter).
Shack sales for the third quarter were $71.9 million (an increase of 40.2% from $51.3 million in the prior-year quarter).
Licensing revenue during the third quarter was $2.7 million (an increase of 34.9% from $2.0 million in the prior-year quarter).
Same-Shack sales were 2.9% during the third quarter (17.1% in the prior-year quarter).
Average weekly sales for company-operated Shacks in the U.S. were unchanged at $103,000 in the third quarter.
Shack-level operating profit increased by 32.6% and was $20.7 million for the third quarter ($15.6 million in the prior-year quarter).
General and administrative expenses increased to $7.9 million for the third quarter ($5.7 million in the prior-year quarter).
Adjusted EBITDA increased by 26.3% and was $15.2 million during the current quarter.
Net income attributable to Shake Shack Inc. was $3.8 million, or 15 cents per diluted share, for the third quarter ($1.5 million, or 10 cents per diluted share, in the prior-year quarter).
Adjusted pro forma net income increased by 25.1% and was $5.5 million ($4.4 million, or 12 cents per diluted share, in the prior-year quarter).
Cash and cash equivalents during the quarter was $12.2 million.
Store update
The company opened seven company-operated Shacks in the U.S. during the quarter.
Expectations
| Â | 2016 | Preliminary 2017 |
| Total Revenue | To be between $264 million and $265 million | To be between $348 million and $352 million |
| Same-Shack sales | To be between 4% and 5% | To be between 2% and 3% |
| Domestic company-operated Shacks to be opened | Around 19 | To be between 21 and 22 |
| Adjusted pro forma effective tax rate | To be between 40% and 41% | To range between 40% and 41% |
| Shack-level operating profit margin | Â | To be between 26.5% and 27.5% |
| General and administrative expenses | Â | To be between $37 million and $39 million |
| Depreciation expense | Â | To be around $21 million |
Focus
- Executing its multiformat growth strategy.
- Increasing global presence.
- Continually upgrading its core menu.
- Disciplined expansion strategy.
- Enter new markets, such as Arizona, California and Minnesota.
Conclusion
The company boasts of continued momentum and has loads of opportunities in the future. It is focused to increase its global footprint by entering into new markets across the country. It plans to roll out 21 to 22 new Shacks by the end of 2017.
The restaurant industry is highly dynamic and fragmented. Operating in the casual dining industry, it faces stiff competition from the established restaurants as well as a wide variety of locally owned restaurants. Over the last 12 years it has become a global brand with real connections with the guests. It is targeting customers looking for a differentiated guest experience with good food and hospitality.
Shake Shack is well situated to grow its market position after recent earnings. The company believes it has opportunities to expand in both existing and new U.S. markets. Over the longer term, it expects to grow at least 450 Shacks by opening them in new and existing markets. By innovative marketing and programming it has cultivated significant brand awareness. The recent quarter results are strong, and this company looks good. It boasts of higher volumes and operating profits.
Adding this company will reap shareholder returns.
Disclosure: I do not hold a position in the company.
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