Operations

Shake Shack stock jumps 26% after better-than-expected year-end report

Traffic for the fast-casual chain was up 1.4% in 4Q. And the burger brand is testing combo meals for the first time.
Shake Shack ended the year with 518 units worldwide and expects to add about 80 this year. | Photo: Shutterstock.

Shake Shack ended fiscal 2023 on a high note with same-store sales up 2.8% for the fourth quarter and up 4.4% for the year.

The better-than-expected results sent the fast-casual chain’s stock price soaring, closing the day up 26% at $98.90.

Traffic was up 1.4% for the Dec. 27-ended quarter, which CEO Randy Garutti credited in part to improved marketing efforts that better engaged guests directly, as well as the “Trolls Band Together” movie partnership and an NFL-tied social media promotion in which guests could get a free chicken sandwich when a Sunday football player celebrated a touchdown with a “chicken dance,” according to a transcript on the financial services site AlphaSense.

Bad weather in January flattened sales for a few weeks, but the brand is expecting momentum from the fourth quarter to continue into 2024, with traffic projected to be positive for the year.

The chain is testing combo meals—which Shake Shack has never offered before—and studying various pricing iterations, as well as how combo meals impact throughput and shake attachments.

“Look, obviously the industry figured out a long time ago that [combo meals] is a good strategy. Whether it’s a good strategy for Shake Shack remains to be seen,” said Garutti.

The brand is also looking at bringing back sundaes, and testing mini shakes with the goal of expanding daypart occasions, he said.

Same-store sales are projected to be up in the low-single digits for the first quarter, and also for the year.

Shake Shack said menu prices will increase 2.5% this year for the majority of restaurants, though the brand will take additional pricing in regions with “outsized labor inflation,” such as California, where the fast-food minimum wage will increase to $20 per hour in April, said CFO Katie Fogertey.

Recently the chain increased pricing through digital channels, where Fogertey said Shake Shack is “still underpriced relative to our peer average.”

Restaurant margins grew over the year by 240 basis points to close to 20%, and the company is projecting those margins will reach 20% to 21% this year.

And Shake Shack is continuing to see improvement on the labor front.

The chain started 2023 with staffing pressures that were negatively impacting sales, profit and guest experience. “Throughout the year, we improved staffing retention to the best levels we’ve seen in years, which had a direct tie to our stronger labor and restaurant level margin performance,” said Garutti.

Labor costs in the fourth quarter declined to 28.5% of sales, down from 28.9% a year ago, which the company attributed to better forecasting and labor scheduling.

During the quarter, the chain implemented the first round of its test of new labor modules, which the company expects to expand in the first quarter and roll out broadly later this year.

With the rollout of kiosks last year, the company did time and motion studies, which created data that allowed the company to build “bespoke” labor and staffing deployment modules, said Fogertey.

“It’s not just about reducing the number of people in the Shack,” she said. “It’s actually about rightsizing the deployment we have there. So there are some areas where we feel it’s appropriate at certain times of the day to add more people, and we think that that’s important for our ability to execute a great guest experience.”

This year, the chain is planning to roll out new “kitchen flows,” an evolving process of figuring out the best way to move food in a more organized way that saves time. Garutti said they hope to reduce guest order times by about 30 seconds, and even more in drive-thrus.

Systemwide sales grew by 24% year-over-year to $1.7 billion. Net income was $20.5 million for the year.

The company opened 85 restaurants, ending the year with 518 worldwide. During the fourth quarter, the company opened 15 domestic units, including nine drive-thrus and nine licensed locations.

This year, the company expects to open 40 corporate restaurants, mostly in existing markets, as well as about 40 licensed units. Most of the new openings will come in the back half of the year, as the company works on prototype improvements to reduce building costs by about 10%.

 

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