SHAK

Shake Shack Inc (NYSE:SHAK) reported its financial results for the third quarter ended September 28, 2016, a period that included 13 weeks.

Financial Highlights for the Third Quarter 2016:

  • Total revenue increased 40.0% to $74.6 million.
  • Shack sales increased 40.2% to $71.9 million.
  • Same-Shack sales increased 2.9%.
  • Operating income increased 17.5% to $9.2 million.
  • Shack-level operating profit*, a non-GAAP measure, increased 32.6% to $20.7 million, or 28.8% of Shack sales.
  • Adjusted EBITDA*, a non-GAAP measure, increased 26.3% to $15.2 million.
  • Net income attributable to Shake Shack Inc. was $3.8 million, or $0.15 per diluted share.
  • Adjusted pro forma net income*, a non-GAAP measure, increased 25.1% to $5.5 million, or $0.15 per fully exchanged and diluted share.
  • Ten system-wide Shack openings, including seven domestic company-operated Shacks and three net new 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, adjusted EBITDA to net income, and adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc., 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, CEO of Shake Shack, stated “Shake Shack’s Q3 performance demonstrates the continued strength and opportunity of our brand. We delivered another quarter of solid results, with 40% growth in total revenue and a 28.8% Shack-level operating profit margin. We also hit some important milestones this quarter, including our 100th worldwide Shack opening and our first $1 million sales day in our domestic company-operated Shacks.

Garutti continued, “We’re executing our multi-format growth strategy with great Shacks in our current markets as well as new markets across the country. We remain encouraged by the great locations we are seeing. Based upon our updated development plans, we now expect to open 19 Shacks this year and 21 to 22 next year, representing growth of 43% and 35% in 2016 and 2017, respectively. With the recent test launch of our first ever Shack App, we are meeting our guests where they are, and are beginning to lay the groundwork to connect the digital experience with the community gathering place of the Shack. This is just our first step, but we are excited about the endless possibilities the App brings toShake Shack and our guests.”

Development Highlights

During the quarter, the Company opened seven domestic company-operated Shacks, including the Company’s 100th opening at the BostonSeaport, its first Shack in Dallas at The Crescent, a second Shack in the Los Angeles market at The Americana in Glendale. Additionally, the Company opened three net new licensed Shacks, including its first Shack in South Korea in Seoul’s Gangnam district, as well a third Shack in theJapan market at the Tokyo International Forum.

Third Quarter 2016 Review

Total revenue, which includes Shack sales and licensing revenue, increased 40.0% to $74.6 million in the third quarter of 2016, from $53.3 million for the third quarter of 2015. Shack sales for the third quarter of 2016 were $71.9 million, an increase of 40.2% from $51.3 million in the same quarter last year, due primarily to the opening of new Shacks, as well as same-Shack sales growth. Licensing revenue for the third quarter was $2.7 million, an increase of 34.9% from $2.0 million in the same quarter last year, due primarily to the opening of new licensed Shacks.

Same-Shack sales were 2.9% for the third quarter of 2016 versus 17.1% growth in the third quarter last year. The comparable Shack base includes those restaurants open for 24 months or longer. For the third quarter of 2016, the comparable Shack base included 26 Shacks versus 16 Shacks for the third quarter of 2015.

Average weekly sales for domestic company-operated Shacks remained constant at $103,000 for the third quarter of 2016 compared to the same quarter last year.

Shack-level operating profit, a non-GAAP measure, increased 32.6% to $20.7 million for the third quarter of 2016 from $15.6 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins decreased 160 basis points to 28.8%, primarily due to increased labor and related expenses resulting from the company-wide increase to the starting hourly wage that was implemented at the beginning of the fiscal year, as well as an increase in medical claims. A reconciliation of Shack-level operating profit to operating income, 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 $7.9 million for the third quarter of 2016 from $5.7 million in the same quarter last year. The increase was primarily driven by higher payroll expense from increased headcount at the home office to support growth plans as well as the costs associated with the Annual Leadership Retreat which occurred in Q2 of last year but are included in Q3 this year. As a percentage of total revenue, general and administrative expenses decreased to 10.6% for the third quarter of 2016 from 10.8% in the third quarter last year, primarily due to the increased levels of Shack sales.

Adjusted EBITDA, a non-GAAP measure, increased 26.3% to $15.2 million. As a percent of total revenue, adjusted EBITDA margins decreased approximately 220 basis points to 20.3% compared to 22.5% for the year ago period. A reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”

Net income attributable to Shake Shack Inc. was $3.8 million, or $0.15 per diluted share, for the third quarter of 2016, compared to $1.5 million, or $0.10 per diluted share, for the same period last year.

Adjusted pro forma net income, a non-GAAP measure, increased 25.1% to $5.5 million, or $0.15 per fully exchanged and diluted share during the third quarter of 2016, compared to $4.4 million, or $0.12 per diluted share during the third quarter of 2015. A reconciliation between net income (loss) attributable to Shake Shack Inc. and adjusted pro forma net income is included in the accompanying financial data.

Updated 2016 Outlook

For the fiscal year ending December 28, 2016, the Company is revising its financial outlook to the following:

  • Raising total revenue to between $264 million and $265 million (vs. $253 million to $256 million).
  • Same-Shack sales growth between 4% and 5%.
  • 19 (vs. 18) new domestic company-operated Shacks to be opened in 2016.
  • 10 net new licensed Shacks (vs. 7).
  • Approximately 50 to 60 basis points (vs. approximately 50 basis points) of deleverage in labor and related expenses as a percentage of Shack sales, on a year-over-year basis.
  • Adjusted pro forma effective tax rate between 40% and 41%.

Preliminary 2017 Outlook

For the fiscal year ending December 27, 2017, the Company is providing the following preliminary financial outlook:

  • Total revenue between $348 million and $352 million.
  • Same-Shack sales growth between 2% and 3%, which includes approximately 1.5% to 2.0% of menu price increases to be taken in early January and nominal traffic and mix increases.
  • Between 21 and 22 new domestic company-operated Shacks (with average annual sales volumes of at least $3.2 million and Shack-level operating profit margins of at least 21%).
  • 10 net new licensed Shacks to be opened in fiscal 2017.
  • Shack-level operating profit margin between 26.5% and 27.5%.
  • General and administrative expenses between $37 million and $39 million.
  • Depreciation expense of approximately $21 million.
  • Adjusted pro forma effective tax rate between 40% and 41%. (Original Source)

Shares of Shake Shack jumped nearly 9% t0 $36.19 in after-hours trading. SHAK has a 1-year high of $48.50 and a 1-year low of $30. The stock’s 50-day moving average is $33.69 and its 200-day moving average is $36.24.

On the ratings front, SHAK stock has been the subject of a number of recent research reports. In a report issued on October 20, Buckingham Research analyst John Zolidis reiterated a Buy rating on SHAK, with a price target of $40, which represents a potential upside of 20% from where the stock is currently trading. Separately, on October 14, Wedbush’s Nick Setyan maintained a Sell rating on the stock and has a price target of $28.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, John Zolidis and Nick Setyan have a yearly average return of 3.8% and 8.5% respectively. Zolidis has a success rate of 40% and is ranked #1513 out of 4186 analysts, while Setyan has a success rate of 58% and is ranked #338.

Overall, 2 research analysts have rated the stock with a Sell rating, 3 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $36.20 which is 8.8% above where the stock closed yesterday.

Shake Shack, Inc. operates fast food hamburger restaurants. It serves premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.