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Shake Shack eases into recovery mode but is still well short of 2019 sales

The fast casual plans to open up to 18 new restaurants during the first half of the year but its sales, especially at urban units, have yet to bounce back from the pandemic.
Shake Shack
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Shake Shack is climbing out of its pandemic pit, but its sales still have a ways to go to get back to 2019 levels.

That’s according to the fast casual’s earnings for the quarter ended March 31, as well as figures for April, which were released late Thursday.

Compared to before the crisis, Shake Shack’s Q1 same-store sales remain down 14.8%, though they are up 5.7% compared to the same period last year.

Shake Shack’s April sales, meanwhile, are up 86% compared to 2020, but they’re still down 15% compared to the year before.

The company's stock price had fallen about 12% in trading early Friday on the lackluster earnings report. 

“Spring has ushered in a great energy around the country and in our hometown of New York City,” CEO Randy Garutti said in a statement. “With COVID cases stabilizing and more regions steadily loosening restrictions, we are optimistic that improving trends can continue for our industry … We know that the return of business traffic, events and tourism to cities like NYC, Chicago and L.A. will be key to our full recovery.”

Shake Shack opened 10 new restaurants during Q1 and has plans to open eight units during the second quarter, for a total of up to 18 restaurants by the middle of the year.

Those new stores are located in both urban and suburban areas, even though the chain’s suburban locations are so far greatly outpacing the big city ones.

Shake Shacks in the Southeast, where the company operates a heavy suburban portfolio, are performing significantly better than those in Manhattan.

Executives told analysts Thursday that removing the worst-performing 25 locations, all largely in urban areas, would greatly improve same-store sales. 

"The tend to be in the higher cost urban areas," Rik Powell, senior vice president for finance, said. And they are the Shacks that drive pretty high leverage across their cost base. So, the route to sales recovery is going to be dependent on those Shacks. And the route to our full margin recovery is also going to be dependent to a degree on those Shacks."

Shake Shack isn't ruling out an entry into a new daypart. The chain is testing some new breakfast items at its airport locations, Garutti said. 

"We're learning a little bit and we'll see," he said. "But, it's definitely something we've got our eyes on for something down the road, not an immediate focus."

Like many brands, Shake Shack has seen its digital business to be quite sticky—even as consumers return to on-premise dining. The chain reported a 90% retention of digital sales in April with a 60% digital mix during the first quarter.

Shake Shack reported total revenue of $155.3 million for its first quarter, an 8.5% increase over the previous year. The company reported a Q1 operating loss of $10 million, compared to a loss of $0.8 million in 2020. Store-level operating profit decreased 14.3% to $22.6 million during the quarter compared to year-ago levels.

 

This story has been updated with comments from Thursday's Shake Shack earnings call. 

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