Shake Shack Inc (SHAK)

“we're kind of anticipating a low-single-digit increase, but we all know that there's certain areas of the country that are going up a lot more than that, and with the programs that we have in place, we're confident in our ability to navigate these continued inflationary waters.”

“Importantly, we have line of sight to further margin expansion this year in 2024.”

“Well, we're not going to guide past this year. 40 is a number we like.”

“On food and paper, we put our inflation outlook to be flat to up low-single digits year-over-year for the full year.”

“We'll have a smaller percentage of the class in 2024, but still a significant commitment this year and the years ahead.”

“This is going to take time, it's not tomorrow. This will be through the year, as we go and as we kind of exit the year that's really been our goal.”

“our guidance assumes a material step up in our underlying G&A or advertising spend.”

“The Board search committee is pleased with how the search is progressing and we're on target we believe with expectations to transition leadership in the coming months.”

“And finally, we guide for fiscal year '24 adjusted pro forma tax rate, excluding the impact of stock based compensation to be 20% to 25%.”

“We guide adjusted EBITDA of $160 million to $170 million in fiscal 2024. This represents 21% to 29% growth year-over-year and solidly outpacing total revenue guidance growth for 11% to 15%.”

“We guide full year depreciation of $100 million to $105 million and preopening of approximately $17 million, in-line with our commitment to reduce preopening cost per Shack by at least 10%.”

“We expect approximately $18 million of equity based compensation expense with about $17 million in G&A.”

“We guide 2024 G&A to $139 million to $142 million, which is up 11% to 14% year-over-year, driven by a planned large increase in advertising spending to drive greater brand awareness and sales, while still having a disciplined approach to run rate G&A.”

“We're targeting another year of restaurant margin expansion as we guide Shack level operating profit margins to 20% to 21%, as we focus on driving sales and delivering on continued operational improvements.”

“We guide full year license revenue of $45 million to $47 million, up 11% to 15% year-over-year, as we factor in a degree of continued macroeconomic and geopolitical risks.”

“We recently increased price in our digital channels and plan to take additional menu price in areas with outsized labor inflation such as California. But for the majority of our Shacks, we plan to increase in-Shack menu prices by about 2.5% this year.”

“For 2024, we are guiding total revenue of $1.21 billion to $1.25 billion, growing about 11% to 15% year-over-year with approximately 40 company operated and 40 license openings, both of which are back end weighted, and Same Shack sales to grow by low-single digits with low-single digit realized price.”

“In the first quarter, we are planning for low-single digit year-over-year inflation in food and paper costs, with pressures led by uncertainty in beef pricing, the largest part of our basket.”

“As we execute on our 2024 strategic plan, we are guiding to first quarter Shack level operating profit margin of 19% to 19.5%, representing approximately 70 basis points to 120 basis points improvement year-over-year.”

“and while we're not providing specific numbers around February, our trends have improved from January levels and our guidance reflects this.”

“For the first quarter, we guide total revenue of $288.4 million to $292.8 million with $9.4 million to $9.8 million of licensing revenue, approximately four company operated openings, approximately two licensed Shack openings, and for Same Shack sales to be up low-single digits year-over-year.”

“Now, as a reminder, this new scheduling standard leverages the unique characteristics of a Shack in terms of channel and menu mix to enhance deployment. While takeaways are still early, we are pleased with the initial results from this test and expect to expand it to additional Shacks in the first quarter with the potential to rollout broadly later this year.”

“We face geopolitical pressures in the Middle East and continue to see macroeconomic pressures in China, and in both markets, we expect to experience further volatility in our sales for the foreseeable future.”

“But as that work takes hold, we'll begin to see more impact in 2025 as we rollout improved prototypes and a strong pipeline of Shacks in the years ahead.”

“Some of this work necessarily caused us to slow down timing of the 2024 pipeline and that will cause a back weighted opening schedule this year.”

“This year, we've prioritized our commitment to reducing average net build and preopening costs by about 10%.”

“We plan to further margin expansion in 2024, with our next goal of reaching 20% to 21% Shack level operating profit margin, continuing our work to close the gap to our pre-COVID profitability levels.”

“On development, plan to open approximately 40 company operated Shacks and approximately 40 licensed Shacks this year in '24.”

“For the first time, we're targeting throughput improvement by reducing guest order times by roughly 30 seconds and even more in our drive-through locations.”

“The low end of this guidance range while nearly flat year-over-year contemplates a weaker sales backdrop, a worsening staffing backdrop, and the potential for even more elevated inflationary pressures in beef and other areas of the supply chain.”

“We will have $20 an hour in California in April.”

“And by the way, I want to call out too, we also talked about preopening costs. We know, that's a number we're focused on that we can and will do better next year and believe there's opportunity beyond that as well.”

“Well, I think what we're going to guide to is what we've said today, which is we think this year was the high water mark. We believe we can take that down by about 10%.”

“We remain committed to improving Shack margins in the next year to expense discipline in all areas of the company, including G&A and to ensuring profitable growth as we scale.”

“We're committed to bringing the net cost to build of our 24 class down by about 10% next year as a starting point and we're also finding efficiencies in other areas of CapEx spend, including IT.”

“We remain committed to reducing build costs next year by about 10% as well as preopening costs by at least 10% per Shack.”

“And we expect to be similar in that mid-teens unit growth next year.”

“But we think 40 is a great number of company operated next year. I think that really balances us out similar to this year, keeps a strong class moving forward.”

“We're going to be exiting December at about 3.5% price, so as to think about that.”

“And we will have, I expect, continued wage increases over time and that's not going to settle anytime soon.”

“We're rolling kind of a low single digit right now for the next six months or so, and we'll keep an eye on that as we go.”

“We expect labor inflation to be in the low-single digit range year-over-year.”

“Our fourth quarter guidance reflects food and paper inflation to be up mid-single digits year-over-year driven by beef up mid-teens.”

“We're guiding 4Q restaurant margins to be approximately 19%.”

“While we're not providing guidance beyond the fourth quarter just a reminder that we will lap the popular White Truffle Burger LTO starting in February. This was our most expensive LTO ever and drove traffic, so lapping it will likely be a headwind to our traffic price and mix.”

“Our guidance for the full quarter to achieve low-single digit Same-Shack sales assumes we return to more typical seasonality patterns in November and December.”

“but we're anticipating that delivery sales will pick up in the fourth quarter in line with recent historical patterns.”

“We plan for this methodology to also enhance how we train and open our Shacks and reduce the overall drag on our P&L from new Shack openings as we aim to reach optimal profitability at a much faster pace than today's performance.”

“We expect to continue to show benefits from these improvements in labor strategies that set our team members, our managers and our Shacks up for success in the coming years with improvements on deployment, refinements to the order journey, and more scalable and consistent processes.”

“Most of these cost savings will come later in the fourth quarter and into 2024, but we are deep in a body of work to identify additional areas for continued and meaningful improvements through 2024 and beyond.”

“We're also working through new prototypes for the long-term, with a 2024 target to bring down our net investment costs by about 10% from today's average cost.”

“And our 2024 pipeline is solid as we target approximately 40 new openings next year.”

“We expect to open approximately 40 Shacks this year and approximately 40 more in 2024.”

“And we'll be looking at 2024 and taking price where we need to.”

“We'll continue to look at price as a lever that we may need to take.”

“I expect those pressures to lessen quite a bit in these coming years and hopefully that'll help us towards these goals.”

“We remain highly confident in the long-term trajectory of our licensed business, but we do expect that geopolitical pressures and uncertainty, namely in the Middle East and Asia, could present pressures into the fourth quarter and into 2024 in terms of our number of openings and sales.”

“in the coming years and you'll see this probably next year, we're going to commit to increasing our overall marketing spend.”

“we expect to continue to generate significant adjusted EBITDA next year and a lot of cash.”

“where we're not guiding to '24 today. What we're guiding to is continue to bring down those costs.”

“Think about the mid single digits range as being kind of around that 4.5% to 5% range. And how we typically progress throughout the quarter on AWS is. August is a little bit lower than July. And then we do see a more significant drop-off in September.”

“next year, we're targeting a $2.3 million average roughly and we're going to hold to that.”

“equity-based compensation expense of approximately $17 million. Preopening of $17 million to $19 million, depreciation of $88 million to $93 million and adjusted pro forma tax rate, excluding the impact of equity-based compensation to be 16% to 18%.”

“We guide 2023 G&A of $125 million to $130 million.”

“We expect to open approximately 75 Shack system-wide this year, about 40 of them will be domestic company operated, and approximately, 35 will be operated by our licensed partners.”

“While this year, we expect to outperform that historical pre-COVID margin seasonality, given the strong success we were seeing on our strategic priorities, beef inflationary risks are real and present a headwind to our profitability through the rest of the year.”

“While we are not providing specific fourth quarter guidance at this time, we expect to see typical seasonality in both our sales and profitability from the third to the fourth quarter.”

“But despite ongoing headwinds, we guide full-year 2023 restaurant margins to reach 19.25% to 20%.”

“We expect to end of the year running at just a low single-digit price, which is in line with our more normal pricing patterns. And this will be a pressure to our same-Shack sales in the fourth quarter.”

“Same-Shack sales to grow by low-to-mid single digits with mid-to-high single digits price.”

“And we expect labor inflation to be in the mid-single-digit range year-over-year.”

“However, if prices were to rise by more than this level all else equal, given we do not hedge on this important line item, we would expect to fall below our approximately 20% restaurant margin guidance for the third quarter.”

“And as Randy noted, while it is hard to predict with full precision, we expect that this will be the peak of pressures on our build costs and we are starting to see traction from our efforts to lower our build costs into 2024 and beyond.”

“We have plans in place around development, training and operations as we target lowering our preopening expenses by about 10% per Shack in 2024 versus this year's level.”

“Importantly, our supply chain team has identified areas for cost efficiencies to help address persistent inflationary pressures, which we anticipate to start having an impact later this year with continued plans for focused improvement into 2024.”

“Our commitment is to target lowering build costs next year by about 10% for the overall class.”

“we expect approximately 35 new licensed Shack openings this year.”

“next year, we're particularly excited to have much more of the drive-through class in our strong coastal markets in Long Island, New Jersey and California, where we generally expect higher AUVs with higher brand awareness.”

“We are bringing down build costs and prototyping future Shacks with 2023 drive-through build costs already trending down about 10% year-over-year.”

“We're expecting to open about 15 drive-throughs this year and a similar amount in the coming years.”

“You're seeing that also in the strength of some of our LTOs. People being willing to spend a little bit more. but we're not immune to the lower consumer trading down, and you'll probably see some of that in our numbers in this quarter and moving forward.”

“We have line of sight to exceeding this range. However, this will be dependent on the degree of pressures we face throughout the year.”

“We remain confident that we can meet or exceed our long-term unit, cash on cash return targets over time by growing sales and profitability and lowering development costs, all of which we emphasize in our strategic plan.”

“With our expectations here to generate, about 19% to 20% Shack-level operating profit for the overall company and the recovery that we have seen in, the class of 2020 Shacks and the rest of our overall base, kind of with the targets to hit, $110 million to $125 million in adjusted EBIDA this year on the bill cost for the class of 2020, we expect that to exceed our long-term guidance range of at least 30%.”

“We'll see with a consumer softening, who knows where that will go, but we expect those trends to continue.”

“Other guidance points, equity based compensation expense of approximately $17 million, pre-opening of $17 million to $19 million, depreciation of $88 million to $93 million, an adjusted pro-forma tax rate, excluding the impact of stock-based compensation to be 16% to 18%.”

“We reiterate that our 2023 G&A guidance of $125 million to $130 million absent the $1.6 million in legal and professional fees that are excluded from adjusted EBITDA this quarter.”

“This is resulting in mid single digit year-over-year wage pressures taken together.”

“We are also seeing signs of even further inflationary pressures from many other items in our basket, including fries that are likely to cost us approximately 20% more this year than last.”

“However, we have recently started to see our beef costs increase with broad-based challenges across the supply chain, and we anticipate this to be a material pressure throughout the year.”

“We are planning for food and paper costs to rise by mid to high single digits year-over-year, led by beef costs rising by a similar degree.”

“We expect to grow our system-wide Shack count by approximately 70 to 75 units this year, about 40 of which will be domestic comp company operated, and 30 to 35 operated by our licensed partners.”

“We guide for both our company operated and our licensed partners to each open approximately 10 new Shacks and for same-Shack-sales to grow by low to mid single digits year-over-year with high single digit price inclusive of the 2% price increase we plan to take at the end of the second quarter.”

“probably more of our Shacks in this next couple classes will be kind of more suburban type.”

“We have reflected a modest degree of slowing into our guidance at the midpoint. If the consumer remains healthy, there's a path to exceed that. However, if there is more material macro, economic contraction than what we're, we're pricing in our guidance, we may miss that.”

“As an example; next year we may spend more on certain drive-throughs in the New York Metro and California markets, but we correspondingly expect a strong return on higher sales there as well.”

“So, again, sitting here today in February, we have no plan to take new price. We'll look at something as we see how inflationary pressures do or do not continue to persist at high levels. We expect they're going to persist at some level here this year”

“we're guiding for the first quarter to be down mid-single digits. So just that alone would just imply that we are baked into that guidance range is a pickup in beef prices in the back half of the year.”

“On tax, we're not going to provide an adjusted pro forma tax rate guidance at this time, however, we are expecting to realize a minimal tax benefit this year.”

“We're building towards leverage relative to our unit guidance that represents approximately 16% year-over-year growth for the company-operated business and 14% to 16% for our licensed business.”

“We expect other operating expense as a percent of Shack sales in the first quarter to be similar to the fourth quarter and to be impacted by changes in delivery mix and other variable drivers.”

“We expect mid-to-high single-digit inflation pressures across our food and paper basket for 2023.”

“However, we're pleased with the sales that we're seeing for this group and expect that this pressure will subside in the coming quarters.”

“Our licensed Shack expansion is off to a strong start this year with six licensed Shack openings quarter-to-date and we expect to open a total of 25 to 30 licensed shacks in 2023.”

“In addition, we expect a number of the strong fourth quarter openings to see sales come back to more normalized levels in the coming months.”

“Now, while Omicron had the largest impact on our sales in January '22, our sales recovered throughout the first quarter, so we expect our comp to moderate throughout the remainder of the first quarter.”

“With this, we expect to maintain a blended high single-digit price across our channels in the first half of the year of 2023, as we will roll off the March 2022 price increase of 3.5% menu and additional 5% in third-party delivery premiums.”

“In 2023, we expect a similar build and cost mix as we target 10 to 15 drive-thru Shacks.”

“This coming year, we expect to open about 40 Shacks, with roughly six of them in this first quarter”

“We're expecting to have some additional costs running into the first quarter as we get to more optimal operations.”

“We hope that in 2023, we see food and paper inflation at the lower end or even below our current expectations. Yet if we do not, we may take some targeted incremental pricing later this year to help protect our profitability.”

“we're cautiously optimistic that things can begin to level out towards a more normalized sales environment internationally this year.”

“We remain on track to roll out digital kiosks to nearly all Shacks by the end of next year.”

“But we continue to believe it's the right long-term target and one we can return to.”

“We do expect inflationary pressures to persist. We're going to probably be investing more in our team members into 2023.”

“Our starting wages have continued to increase for our teams and we expect that's going to continue into next year.”

“If we continue to see this inflationary pressure we will have to take more price.”

“We expect our adjusted pro forma tax rate excluding the impact of stock-based compensation to be 30% to 32%.”

“We continue to expect full year depreciation of $70 million to $75 million and are updating pre-opening to $15 million to $17.5 million.”

“With consideration for development delays and the unknown macro impacts, we now expect to land towards the lower end of our tightened G&A guidance range of $111 million to $113 million, excluding the $6.8 million of legal expenses we incurred in the first half of 2022.”

“We expect other operating expense as a percent of Shack sales in the fourth quarter to be at a similar level to the third quarter.”

“We are planning for high single-digit, inflation in food and paper costs through the rest of the year, led by continued high inflation in dairy, accelerating cost pressures in fryer oil fries and ketchup and low double-digit inflation in paper and packaging.”

“But long-term, we are targeting more normalized travel costs to support openings and expect this expense line to reach more typical levels we have shown in prior years.”

“We are planning for elevated T&E expense for the foreseeable future, as we support some new upcoming openings.”

“These pressures remain in the fourth quarter.”

“We expect to recognize 5% to 7% of this price increase and maintain a blended high single-digit price across channels into 2023.”

“And there's likely to be some puts and takes on the inflation line for our food and paper cost, but is probably going to be more inflationary next year.”

“I believe in the next year, as we get a strong class of drive-thrus and we learn more about the real estate, design and operational decisions we've made, will have a much clearer view on the size of the prize.”

“Overall, Shake Shack has always delivered solid returns, we expect we will continue to do that.”

“It's taking the total class about up 15% this year. But as we do more and more of those, we expect those to be higher.”

“So we raised starting wages by high single digit percent in the second quarter, and the blended rate for 2022. It's going to be mid to high single digit.”

“Yes, it's going to be kind of call it the high single digit range for 3Q and 4Q.”

“Look, the pressures, as Katie said is not abating. We're going to continue to have lots of inflationary pressures on a lot of our cogs and other things continuing forward as part of our guide forward for the moment.”

“We are accruing more non-cash rent than normal in pre-opening expense given the level of delays we are experiencing and are tracking at the high end of the pre-open full year guidance.”

“We continue to expect full year depreciation of $70 million to $75 million pre-opening of $14 million to $17.5 million.”

“Our paper and packaging costs rose around 20% year-over-year in the second quarter and we continue to plan for mid-teens percentage year-over-year for Fiscal 2022.”

“The inflationary environment remains uncertain and we are planning for low double digit blended food and paper inflation throughout the rest of this year led by chicken, dairy and paper and packaging.”

“We expect they will remain for the rest of the quarter.”

“In mid fourth quarter, we plan to increase price by 5% to 7%, reflecting an even more targeted approach to pricing across various markets and tiers.”

“The whole class this year should be up 10%, 15% than normal.”

“I think we're in a near-term pressure point here where so many of our ingredients are up, and we expect them to continue to be up for this year.”

“So look, we expect we're going to continue to be a company who can generate strong margins.”

“We've given clear guidance for 2Q, which has shows what we expect to be increased margins.”

“We increased our starting wages by high single-digit percent year-over-year for the quarter, and we'll continue to invest in our teams as we work towards optimal staffing levels, and we expect to raise our starting wages by mid to high single-digit percent in fiscal 2022.”

“Our paper and packaging costs rose high single-digit percent year-over-year in the first quarter, and we now expect this to increase by mid-teens percentage year-over-year for fiscal 2022.”

“The COVID lockdowns and intermittent market interruptions across China are impacting near-term licensing revenue, creating uncertainty for this important market for the foreseeable future.”

“We have the ability to raise prices further, if necessary and if the inflationary environment warrants.”