Shake Shack Inc (NYSE:SHAK) reported financial results for the second quarter ended July 1, 2015, a period that included 13 weeks.
Financial Highlights for the Second Quarter 2015:
- Total revenue increased 74.7% to $48.5 million.
- Shack sales increased 77.9% to $46.6 million.
- Same-Shack sales increased 12.9%.
- Shack-level operating profit*, a non-GAAP measure, increased 110.9% to $14.1 million, or 30.3% of Shack sales.
- Adjusted EBITDA*, a non-GAAP measure, increased 136.5% to $11.2 million.
- Net income was $1.1 million, or $0.08 per diluted share.
- Adjusted pro forma net income*, a non-GAAP measure, increased 209.6% to $3.4 million, or $0.09 per fully exchanged and diluted share, compared to $1.1 million, or $0.03 per fully exchanged and diluted share in the prior year period.
- Five system-wide Shack openings, including three domestic company-operated Shacks and two international licensed Shacks.
* Shack-level operating profit, adjusted EBITDA and adjusted pro forma net income are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income (loss), adjusted EBITDA to net income (loss), and adjusted pro forma net income to net income (loss), the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “Our team continues to execute on our plan and we have delivered another strong quarter of outstanding operational results. During the quarter we opened three domestic company-operated Shacks as we planted roots inAustin, Texas, continued to expand in Chicago opening our second Shack, located on Michigan Avenue, and strengthened our presence in theNew York metro area with our third Shack in New Jersey, at the Village at Bridgewater Commons. After more than seven months, we celebrated the reopening of our flagship Madison Square Park Shack. Internationally, we opened our second Shack in the U.K. and our third Shack inMoscow.”
Mr. Garutti continued, “As we execute our strategic growth plan, we continue to identify favorable development opportunities and we have therefore added two new Shacks to our development schedule, raising our previous guidance to 12 new domestic company-operated Shacks for 2015. Looking ahead to 2016 and beyond, we now expect to open at least 12 domestic company-operated Shacks annually. ”
During the quarter, the Company opened three domestic company-operated Shacks, including its first Shack in Austin, Texas on South Lamar Street near the Alamo Drafthouse, its second location in the Chicago market on the ground floor of the Chicago Athletic Association Hoteloverlooking Millennium Park and a third Shack in New Jersey at the Village at Bridgewater Commons. Additionally, the Company opened two international licensed Shacks during the quarter, its second Shack in the U.K. in London’s Westfield Stratford City shopping center and its third Shack in Moscow, Russia in the Avia Park Mall. The original Madison Square Park flagship Shack reopened on May 20, 2015, after being closed since October 14, 2014 to complete a renovation to restore the Shack and prepare it for the decade to come.
|Baltimore, MD — Inner Harbor||Domestic Company-Operated||February 16|
|Dedham, MA — Legacy Place||Domestic Company-Operated||March 1|
|Boston, MA — Newbury Street||Domestic Company-Operated||March 2|
|Bridgewater, NJ — The Village at Bridgewater Commons||Domestic Company-Operated||May 1|
|Austin, TX — South Lamar||Domestic Company-Operated||May 5|
|London, United Kingdom — Westfield Stratford City||International Licensed||May 20|
|Chicago, IL — Chicago Athletic Association Hotel||Domestic Company-Operated||May 28|
|Moscow, Russia — Avia Park||International Licensed||May 29|
As previously announced, the Company plans to enter three new important markets in 2016, with Shacks in West Hollywood, CA on Santa Monica Boulevard, Scottsdale, AZ in the Fashion Square shopping center and, internationally, in Japan through its partnership with The Sazaby League.
Second Quarter 2015 Review
Total revenue, which includes Shack sales and licensing revenue, increased 74.7% to $48.5 million in the second quarter of 2015, from $27.7 million for the second quarter of 2014. Shack sales for the second quarter of 2015 were $46.6 million, an increase of 77.9%, from $26.2 millionin the same quarter last year due primarily to the opening of new Shacks, as well as same-Shack sales growth. Licensing revenue for the second quarter was $1.9 million, an increase of 20.1% from $1.6 million in the same quarter last year, due primarily to the opening of new international licensed Shacks.
Same-Shack sales increased 12.9% for the second quarter of 2015, on a calendar basis, versus 4.5% growth in the second quarter last year. The comparable Shack base includes those restaurants open for 24 months or longer. For the second quarter of 2015, the comparable Shack base included 16 Shacks versus 10 Shacks for the second quarter of 2014.
Average weekly sales for domestic company-operated Shacks were $102,000 for the second quarter of 2015 compared to $95,000 for the same quarter last year, a 7.4% increase, primarily due to increased menu prices, favorable shifts in sales mix from menu innovation and strong performance from several Shacks opened in the latter half of fiscal 2014, including Las Vegas and Chicago.
Shack-level operating profit, a non-GAAP measure, increased 110.9% to $14.1 million for the second quarter of 2015 from $6.7 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins increased 470 basis points to 30.3% as we experienced higher flow through from lower than anticipated food costs and the leveraging of labor and other operating expenses on the increased Shack sales. A reconciliation of Shack-level operating profit to operating income (loss), the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
General and administrative expenses increased to $6.1 million for the second quarter of 2015 from $3.6 million in the same quarter last year. As a percentage of total revenue, general and administrative expenses decreased to 12.5% for the second quarter of 2015 from 13.1% in the second quarter last year, despite increased costs associated with becoming a public company and incremental stock-based compensation expense related to stock options granted in connection with the Company’s initial public offering.
Adjusted EBITDA, a non-GAAP measure, increased 136.5% to $11.2 million. As a percent of total revenue, adjusted EBITDA margins increased approximately 600 basis points to 23.1% compared to 17.1% for the year ago period. A reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Net income was $1.1 million, or $0.08 per diluted share, for the second quarter of 2015, compared to net income of $1.9 million, or $0.06 per diluted unit, for the same period last year.
Adjusted pro forma net income, a non-GAAP measure, increased 209.6% to $3.4 million, or $0.09 per fully exchanged and diluted share during the second quarter of 2015, compared to $1.1 million, or $0.03 per diluted share during the second quarter of 2014. A reconciliation between net income and adjusted pro forma net income is included in the accompanying financial data.
Updated 2015 Outlook
For the fiscal year ending December 30, 2015, the Company is revising their financial outlook as follows:
- Raising total revenue to $171 million to $174 million (vs. $161 million to $165 million).
- Increasing same-Shack sales growth to mid- to high-single digits (vs. low- to mid-single digits).
- Increasing the total new domestic company-operated Shacks to be opened in 2015 to 12 (vs. 10). Additionally, the Company expects to open at least 12 new domestic company-operated Shacks in 2016 and beyond.
- Continuing to expect at least five international licensed Shacks to be opened under the Company’s current license agreements in the U.K. andMiddle East. (Original Source)
Following the earnings release, shares of Shake Shack jumped 7.83% to $77.25 in after-hours trading. SHAK has a 1-year high of $73.10 and a 1-year low of $38.64. The stock’s 50-day moving average is $59.05 and its 200-day moving average is $58.75.
On the ratings front, Shake Shack has been the subject of a number of recent research reports. In a report issued on July 9, Goldman Sachs analyst Karen Holthouse downgraded SHAK to Sell, with a price target of $37, which represents a potential downside of 49.1% from where the stock is currently trading. Separately, on July 7, Morgan Stanley’s John Glass downgraded the stock to Sell and has a price target of $38.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Karen Holthouse and John Glass have a total average return of 12.2% and 14.1% respectively. Holthouse has a success rate of 75.0% and is ranked #1059 out of 3728 analysts, while Glass has a success rate of 71.9% and is ranked #612.
Overall, 6 research analysts have assigned a Hold rating and one research analyst has given a a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $51.00 which is -29.8% under where the stock opened today.
Shake Shack Inc is a roadside burger stand. The Company along with its subsidiaries operates and licenses restaurants in the food service industry, serving hamburgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.