About the Author IPOdesktop

During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: Shake Shack

Based in New York, NY, Shake Shack (Pending:SHAK) scheduled a $75 million IPO on NYSE with a market capitalization of $533 million at a price range midpoint of $15 for Friday, Jan. 30, 2015. Price range mid-point raised to $18, priced at $21, same conclusion.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint-managers: J.P. Morgan, Morgan Stanley
Co-managers: Barclays, Goldman Sachs, Jefferies, William Blair, Stifel

End of lockup (180 days): Wednesday, July 29, 2015
End of 25-day quiet period: Tuesday, February 24, 2015

SHAK is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.


Accumulated deficit ($mm) . . -$8
Per share dilution . . -$12.79
Valuation Ratios Mrkt Cap ($mm) Price/Sls Price Erngs Price/BkVlue Price/TanBV % offered in IPO
annualizing Sept 9 mos
Shake Shack $533 3.2 114.1 6.8 6.8 14%
Zoe’s $620 3.5 -55.4 5.1 7.0
El Pollo Loco $900 2.6 17.9 4.5 -8.0
Habit Restaurants (NASDAQ:HABT) $782 4.7 150.3 7.7 3.8


Relatively different from most burger chains because it serves beer & wine

Rev +41%, P/E 114, price-to-sales of 3.2, low tax rate of 9%

Net income -20%, mostly due to new store opening exp.

Same store sales growth down to 3% from 5.5%

31 domestic Shacks, domestic potential is 450

Plans to open 10 a year domestically, 36% expansion domestically

Priced at a discount to Habit

Non-Manhattan stores 21% profit margin vs. 31% Manhattan

61% store expansion worldwide last year worldwide, including licensed

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

SHAK is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine.

There currently are 63 Shacks worldwide, comprised of:

31 domestic company-operated Shacks,

five domestic licensed Shacks, and

27 international licensed Shacks.

SHAK plans to open at least 10 new domestic company-operated Shacks each year, beginning in fiscal 2015, for the foreseeable future.

SHAK believes that over the long term it has the potential to grow the current domestic company-operated Shack footprint to at least 450 Shacks by opening domestic company-operated Shacks in new and existing markets.

While SHAK believes that there is still ample room to grow the Shack base in Manhattan, the majority of domestic company-operated Shack growth is expected to occur outside of Manhattan.

Non-Manhattan Shack AUVs (annual unit volumes) are a better measure of expected sales at new Shacks.

In fiscal 2013, domestic company-operated Shacks had AUVs of approximately $5.0 million, of which Manhattan Shacks had AUVs of approximately $7.4 million with Shack-level operating profit margins of approximately 30%.

Non-Manhattan Shacks had AUVs of approximately $3.8 million with Shack-level operating profit margins of approximately 22% during the same period.

Historically, domestic company-operated Shacks have delivered an attractive average cash-on-cash return of approximately 65% and payback period of 1.5 years.

Manhattan Shacks generated an average cash-on-cash return of 82% and payback period of 1.2 years.

Non-Manhattan Shacks generated an average cash-on-cash return of 31% and payback period of 3.2 years.

Founder & history
Founded by Danny Meyer’s USHG, Shake Shack was created leveraging USHG’s expertise in community building, hospitality, fine dining, restaurant operations and sourcing premium ingredients.

Danny’s vision of Enlightened Hospitality guided the creation of the unique Shake Shack culture that, SHAK believes, creates a differentiated experience for its guests across all demographics at each of the 63 Shacks around the world.

As Shake Shack’s Board Chairman and USHG’s Chief Executive Officer, Danny has drawn from USHG’s experience creating and operating some of New York City’s most acclaimed and popular restaurants, including Union Square Cafe, Gramercy Tavern, Blue Smoke, The Modern, Maialino and Marta, to build what SHAK believes is a new fine casual restaurant category in Shake Shack.

Shake Shack originated from a hot dog cart that USHG established in 2001 to support the rejuvenation of New York City’s Madison Square Park through its Conservancy’s first art installation-“I © Taxi.”

The hot dog cart was an instant hit, with lines forming daily throughout the summer months for the next three years.

In response to this success, the city’s Department of Parks and Recreation awarded Shake Shack a contract to create a kiosk to help fund the park’s future.

In 2004, Shake Shack officially opened and immediately became a community gathering place for New Yorkers and visitors from all over the world.

Over the last decade, Shake Shack has become a beloved New York City institution that generates significant media attention, critical acclaim and a passionately devoted following.

SHAK has since grown rapidly with 63 Shacks in nine countries and 34 cities.

Intellectual property
Shake Shack currently has 15 registered marks domestically, including registrations in its core marks (“Shake Shack,” “Shack Burger,” “GRAPHIC ®,” ” GRAPHIC ®“) and certain other marks, such as Stand for Something Good, which reflects the brand’s ethos.

Internationally, Shake Shack currently has registered its core marks in over 80 countries spanning six continents.

These marks are registered in multiple international trademark classes, including for restaurant services, food services, non-alcoholic beverages and apparel. Shake Shack also owns the domain shakeshack.com as well as over 60 other domain names for use in other markets.

SHAK competes primarily with “better burger” restaurants and, to a lesser extent, fast casual restaurants, quick service restaurants and casual dining restaurants.

The number, size and strength of competitors vary by region.

SHAK’s competition includes a wide variety of locally owned restaurants and national and regional chains.

SHAK’s competition in the broadest perspective includes fast casual and fine dining restaurants, convenience food stores, delicatessens, supermarkets and club stores.

Some of SHAK’s competitors, including some of its “better burger” competitors, have significantly greater financial, marketing, personnel and other resources than SHAK does, and many of its competitors are well-established in markets in which SHAK has existing Shacks or intend to locate new Shacks.

In addition, many of its competitors have greater name recognition nationally or in some of the local markets in which SHAK has or plans to have Shacks. However, SHAK specifically targets guests that appreciate its engaging and differentiated guest experience that includes great food, unique and thoughtful integration with local communities and high standards of excellence and hospitality

5% shareholders pre-IPO
Green Equity Investors VI, L.P., Green Equity Investors Side VI, L.P., and LGP Malted Coinvest 26.1%

Daniel Meyer 21.3%

SEG Partners, L.P., SEG Partners II, L.P. and SEG Partners Offshore Master Fund, Ltd. 12.3%

ACG Shack LLC 6.1%

Jonathan D. Sokoloff 26.1%

No dividends are planned.

Use of proceeds
SHAK expects to receive $70 million from its IPO and use it for the following:

(i) to pay fees and expenses of approximately $3.0 million in connection with this offering and the Transactions,

(ii) to repay the outstanding borrowings under its Revolving Credit Facility of approximately $36.0 million, including approximately $21.9 million of borrowings used to pay the distribution to certain of the Original SSE Equity Owners, and

(iii) approximately $30.8 million for general corporate purposes, including opening new Shacks and renovating existing Shacks.

To the extent the gross proceeds of this offering exceed $80.0 million (including as a result of the exercise by the underwriters of their option to purchase additional shares of Class A common stock), SSE Holdings will pay an additional distribution to certain of the Original SSE Equity Owners in an amount equal to the product of (A) the increase in the gross proceeds and (B) 0.273 and the balance of such additional net proceeds will be used for general corporate purposes, including opening new Shacks and renovating existing Shacks.

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