Financing

Shake Shack is almost getting back to 2019 growth

The fast casual’s same-store sales remained down significantly over 2019, but have improved in October, with suburban restaurants soaring above all others.
Shake Shack
Photo courtesy Shake Shack

Shake Shack is still trying to chase its 2019 numbers.

But with a store portfolio based in urban areas, a lack of drive-thrus and less of a tech background than some of its fast-casual peers, the New York City-based operator has been slow to recover from the pandemic.

For the quarter ended Sept. 29, Shake Shack’s same-store sales remained down 7.3% over 2019 (but up 24.8% compared to the same period last year).

For October, however, the chain said its same-store sales were down just 1% compared to 2019, with October’s same-store sales in suburban locations up 7% over 2019.

But soaring commodity prices (beef is up 30%) and increased labor costs are continuing to challenge the burger concept even as customers start returning to cities.

“This is going to be an ongoing journey,” CEO Randy Garutti told analysts late Thursday. “It’s hard. It’s been hard. It’s going to continue to be hard … We expect the pressures we’re seeing now to continue.”

The chain’s Q3 margins were 15.8%, down from 19.2% just a quarter before. Shake Shack said it expects margins to be between 14% and 16% next quarter.

With that in mind, Shake Shack has raised prices 3% to 3.5% in recent weeks. The brand typically increases menu prices 1% to 2% each year.

“We don’t love taking price,” Garutti said. “Even now, with these pressures, we may be taking less price than we could.”

Shake Shack is in the midst of an aggressive growth push, opening five new company restaurants in Q3 with 10-13 more locations planned in the fourth quarter. Eight new licensed stores opened during the quarter. Next year, the chain expects to open 45 to 50 new company-owned restaurants, its largest class ever. A quarter of those new restaurants will have drive-up or walk-up windows.

The chain ended Q3 with 205 domestic, company-operated stores, 24 domestic licensed locations and 121 international licensed units.  

“We feel like that’s an appropriate development schedule for the next 15 months,” Garutti replied when asked if perhaps the chain was charging too hard in the face of so many cost pressures.

“Our returns in the near term will likely be impacted, but the long-term return we can get from getting these formats right and continuing to grow is what we’re after.”

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