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Shake Shack stock falls as the chain feels the revenue hit of its switch to Grubhub

The fast-casual burger brand reported same-store sales growth of 2% for Q3.
Photograph: Shutterstock

Shake Shack’s stock price plunged nearly 20% early Tuesday on poorer-than-expected earnings news for Q3, with the fast-casual chain’s executives noting that its transition to Grubhub created some “noise” in its revenue numbers.

“We believe the transition to Grubhub caused some noise in our Q3 numbers and will certainly have an impact through the fourth quarter and into next year,” CEO Randall Garutti said during a call with analysts, according to a transcript from financial services site Sentieo. “As we remove direct point-of-sale integrations with DoorDash, Postmates and Caviar, we expect an impact to our delivery revenue. … How much volatility this will cause during this transitional period is uncertain, but the reality is this represents short- to mid-term revenue risk.”

For the quarter ended Sept. 25, New York City-based Shake Shack reported same-store sales growth of 2%. Traffic grew 1.2%, while revenues climbed nearly 32% to $157.8 million.

The 156-unit chain, which opened 11 units during the third quarter, is modifying its growth strategy, Garutti said. New markets will represent a lesser percentage of store openings going forward, with about 90% of new units planned for 2020 in existing markets.

“As the business has gained a strong foothold in major cities around the U.S. over the last few years, our forward focus is shifting to greater existing market penetration,” he told analysts. “We’ll continue to enter new markets and see much opportunity to do so. But we’re also excited to build deeper brand awareness and fill in around those already established Shacks. As we do this, we have the opportunity to further support and gradually leverage our existing infrastructure, including operations, training, marketing and our supply chain network.”

Shake Shack is also expanding its test of a four-day work week for managers. About one-third of stores currently offer the scheduling benefit. It remains in test phase as the chain works to make sure it can cover its scheduling needs, but Garutti said initial feedback has been positive.

“This is not something you take lightly or roll out too quickly,” he said. “We’re hearing things like, ‘Wow. This is so powerful. I don’t need to get child care for a fifth day. Wow. This is amazing.’ We’re hearing things like, ‘I saw that, and that caused me to apply to Shake Shack.’ … So, the recruiting possibilities are huge.”

Also still being tested at Shake Shack are kiosks, which are present in about 40 stores.

 

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