Shake Shack Inc (NYSE:SHAK) reported financial results for the second quarter ended June 29, 2016, a period that included 13 weeks.

Financial Highlights for the Second Quarter 2016:

  • Total revenue increased 37.2% to $66.5 million.
  • Shack sales increased 38.3% to $64.4 million.
  • Same-Shack sales increased 4.5%.
  • Shack-level operating profit*, a non-GAAP measure, increased 40.6% to $19.9 million, or 30.8% of Shack sales.
  • Adjusted EBITDA*, a non-GAAP measure, increased 39.3% to $15.6 million.
  • Net income was $3.3 million, or $0.14 per diluted share.
  • Adjusted pro forma net income*, a non-GAAP measure, increased 51.9% to $5.2 million, or $0.14 per fully exchanged and diluted share, compared to $3.4 million, or $0.09 per fully exchanged and diluted share in the prior year period.
  • Seven system-wide Shack openings, including four domestic company-operated Shacks and three 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, “For the second quarter, we increased revenue over 2015 by 37.2%, opened four new company-operated Shacks domestically, three licensed Shacks and grew comps by 4.5%, on top of an impressive 12.9% increase last year. We continue to execute on our growth strategy, while delivering industry-leading AUVs and, in this past quarter, our 30.8% Shack-level operating profit margin set a new record. Innovating around our core menu continues to be a key driver of our success with the addition of our Chick’n Shack, launched in January, and our most recent LTO, the Bacon Cheddar Shack, launched in June.”

Garutti continued, “Domestically, given favorable development tailwinds in our 2016 pipeline, we have increased guidance to open 18 domestic company-operated Shacks this year. Next week we will reach a milestone of our 100th Shack opening worldwide. We have never been more excited about the opportunities ahead of us and are committed to investing in our team as we envision and execute the next 100 great Shacks.”

Development Highlights

During the quarter, the Company opened four domestic company-operated Shacks, including a Shack in the Fashion Centre at Pentagon City, two Shacks in New York — a Shack in the iconic Herald Square and a second Queens Shack located in Forest Hills —as well as the Company’s first Shack in Minnesota, located in the Mall of America. Additionally, the Company opened one domestic licensed Shack in the Las Vegas market at the T-Mobile Arena and two international licensed Shacks—a second Shack in the Japan market in Ebisu and the Company’s first Shack inBahrain at the Bahrain City Centre shopping center.

               
Location       Type       Opening Date
Muscat, Oman — City Centre Muscat       International Licensed       February 6
Scottsdale, AZ — Fashion Square       Domestic Company-Operated       February 26
Phoenix, AZ — Uptown Plaza       Domestic Company-Operated       March 9
West Hollywood, CA — West Hollywood       Domestic Company-Operated       March 15
Las Vegas, NV — T-Mobile Arena       Domestic Licensed       April 6
Tokyo, Japan — Ebisu Atre West       International Licensed       April 15
Manama, Bahrain — City Centre Bahrain       International Licensed       April 30
Arlington, VA — Fashion Centre at Pentagon City       Domestic Company-Operated       May 4
New York, NY — Herald Square       Domestic Company-Operated       May 18
Forest Hills, NY — Forest HIlls       Domestic Company-Operated       May 26
Bloomington, MN — Mall of America       Domestic Company-Operated       June 9
                 

Subsequent to the end of the quarter, the Company opened two domestic company-operated Shacks in New York— a Manhattan Shack located at the Fulton Transit Center and the Company’s first Shack in Westchester at the Cross County Shopping Center. Additionally, the Company opened two international licensed Shacks including a Shack located at the Marina Mall in Abu Dhabi as well as the Company’s first Shack inSouth Korea.

Second Quarter 2016 Review

Total revenue, which includes Shack sales and licensing revenue, increased 37.2% to $66.5 million in the second quarter of 2016, from $48.5 million for the second quarter of 2015. Shack sales for the second quarter of 2016 were $64.4 million, an increase of 38.3% from $46.6 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 second quarter was $2.1 million, an increase of 10.7% from $1.9 million in the same quarter last year, due primarily to the opening of new licensed Shacks, offset by lower revenue from Shacks located primarily in the Middle East.

Same-Shack sales increased 4.5% for the second quarter of 2016 versus 12.9% 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 2016, the comparable Shack base included 23 Shacks versus 16 Shacks for the second quarter of 2015.

Average weekly sales for domestic company-operated Shacks remained constant at $102,000 for the second quarter of 2016 compared to the same quarter last year.

Shack-level operating profit, a non-GAAP measure, increased 40.6% to $19.9 million for the second quarter of 2016 from $14.1 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins increased 50 basis points to 30.8% as we experienced higher flow through from lower than anticipated food costs and the leveraging of labor and related 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 $7.5 million for the second quarter of 2016 from $6.1 million in the same quarter last year. As a percentage of total revenue, general and administrative expenses decreased to 11.3% for the second quarter of 2016 from 12.5% in the second quarter last year, primarily due to the benefit of higher Shack sales, offset by higher consulting fees and incremental costs associated with our first annual shareholders’ meeting.

Adjusted EBITDA, a non-GAAP measure, increased 39.3% to $15.6 million. As a percent of total revenue, adjusted EBITDA margins increased approximately 40 basis points to 23.5% compared to 23.1% 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 $3.3 million, or $0.14 per diluted share, for the second quarter of 2016, compared to net income of $1.1 million, or $0.08 per diluted share, for the same period last year.

Adjusted pro forma net income, a non-GAAP measure, increased 51.9% to $5.2 million, or $0.14 per fully exchanged and diluted share during the second quarter of 2016, compared to $3.4 million, or $0.09 per diluted share during the second quarter of 2015. A reconciliation between net income (loss) 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:

  • Total revenue between $253 million and $256 million (vs. $245 million to $249 million).
  • Same-Shack sales growth between 4% and 5%.
  • 18 (vs. 16) total new domestic company-operated Shacks to be opened in 2016.
  • Seven licensed Shacks, net of a relocation (an increase of one Shack from the previous guidance).
  • Approximately 50 basis points (vs. 75 to 100 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%. (Original Source)

Shares of Shake Shack are down over 8% to $37.50 in after-hours trading Wednesday. SHAK has a 1-year high of $67 and a 1-year low of $30. The stock’s 50-day moving average is $38.28 and its 200-day moving average is $36.84.

On the ratings front, SHAK has been the subject of a number of recent research reports. In a report issued on July 7, Wedbush analyst Colin Radke initiated coverage with a Sell rating on SHAK and a price target of $30, which represents a potential downside of 28.2% from where the stock is currently trading. Separately, on July 1, Jefferies Co.’s Andy Barish reiterated a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Colin Radke and Andy Barish have a total average return of 10.9% and 5.8% respectively. Radke has a success rate of 67% and is ranked #2173 out of 4022 analysts, while Barish has a success rate of 56% and is ranked #600.

Overall, 2 research analysts have rated the stock with a Sell rating, 2 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 $39.67 which is -5.1% under where the stock opened today.

Shake Shack, Inc. operates fast food hamburger restaurants. It serves premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. Shake Shack was founded by Daniel Meyer on September 23, 2014 and is headquartered in New York, NY.