Shake Shack Inc (NYSE:SHAK), reported financial results for the first quarter ended March 30, 2016, a period that included 13 weeks.
Financial Highlights for the First Quarter 2016:
- Total revenue increased 43.3% to $54.2 million.
- Shack sales increased 44.7% to $52.2 million.
- Same-Shack sales increased 9.9%.
- Shack-level operating profit*, a non-GAAP measure, increased 58.6% to $14.7 million, or 28.2% of Shack sales.
- Adjusted EBITDA*, a non-GAAP measure, increased 54.4% to $10.8 million.
- Net income was $1.5 million, or $0.07 per diluted share.
- Adjusted pro forma net income*, a non-GAAP measure, increased 114.4% to $2.8 million, or $0.08 per fully exchanged and diluted share, compared to $1.3 million, or $0.04 per fully exchanged and diluted share in the prior year period.
- Four system-wide Shack openings, including three domestic company-operated Shacks and one international licensed Shack.
* 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, “With the extraordinary results in Q1, we are off to a strong start to the year. We have continued to execute on our growth strategy and drive record results and engagement with our guests, while making crucial investments in our team and our Shacks. The recent launch of the Chick’n Shack at all domestic company-operated locations has driven traffic growth and created an entirely new way our guests can enjoy the Shack. During the quarter, we opened three domestic company-operated Shacks including our first Shack in California in the heart of West Hollywood, which has been one of the strongest openings in our 12-year history. We are incredibly excited about the 2016 pipeline and have now raised our revenue expectations and increased guidance to open at least 16 domestic company-operated Shacks this year. We’re looking forward to a great year ahead.”
During the quarter, the Company opened three domestic company-operated Shacks, including two Shacks in Arizona—in Scottsdale at theFashion Square shopping center and in Phoenix in the iconic Uptown Plaza—as well as the Company’s first Shack in California, located in West Hollywood on Santa Monica Boulevard. Additionally, the Company opened one international licensed Shack in Muscat, its first Shack in Oman.
|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|
Subsequent to the end of the quarter, the Company opened one domestic-company operated Shack in the Fashion Centre at Pentagon City and three licensed Shacks—a second Shack in the Japan market in Ebisu, a domestic licensed Shack in the Las Vegas market in the T-Mobile Arenaand the first Shack in Bahrain in the Bahrain City Centre shopping center.
First Quarter 2016 Review
Total revenue, which includes Shack sales and licensing revenue, increased 43.3% to $54.2 million in the first quarter of 2016, from $37.8 millionfor the first quarter of 2015. Shack sales for the first quarter of 2016 were $52.2 million, an increase of 44.7% from $36.0 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 first quarter was$2.0 million, an increase of 14.3% from $1.8 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 and the unfavorable impact of foreign exchange rate fluctuations.
Same-Shack sales increased 9.9% for the first quarter of 2016 versus 11.7% growth in the first quarter last year. The comparable Shack base includes those restaurants open for 24 months or longer. For the first quarter of 2016, the comparable Shack base included 20 Shacks versus 13 Shacks for the first quarter of 2015.
Average weekly sales for domestic company-operated Shacks were $90,000 for the first quarter of 2016 compared to $89,000 for the same quarter last year, a 1.1% increase, primarily due to robust traffic growth, menu price increases and solid performance across the existing Shack base, including in new markets.
Shack-level operating profit, a non-GAAP measure, increased 58.6% to $14.7 million for the first quarter of 2016 from $9.3 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins increased 250 basis points to 28.2% as we experienced higher flow through from lower than anticipated food costs and the leveraging of 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 decreased to $6.9 million for the first quarter of 2016 from $18.4 million in the same quarter last year. As a percentage of total revenue, general and administrative expenses decreased to 12.7% for the first quarter of 2016 from 48.6% in the first quarter last year, primarily due to non-recurring expenses incurred in the prior year, including $12.8 million of non-recurring compensation expenses and $0.6 million of IPO-related expenses.
Adjusted EBITDA, a non-GAAP measure, increased 54.4% to $10.8 million. As a percent of total revenue, adjusted EBITDA margins increased approximately 140 basis points to 19.9% compared to 18.5% 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 $1.5 million, or $0.07 per diluted share, for the first quarter of 2016, compared to net loss of $12.7 million, or $1.06 per diluted share, for the same period last year.
Adjusted pro forma net income, a non-GAAP measure, increased 114.4% to $2.8 million, or $0.08 per fully exchanged and diluted share during the first quarter of 2016, compared to $1.3 million, or $0.04 per diluted share during the first 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 $245 million and $249 million (vs. $237 million to $242 million).
- Same-Shack sales growth between 4% and 5% (vs. between 2.5% and 3.0%).
- 16 (vs. 13) total new domestic company-operated Shacks to be opened in 2016.
- Seven licensed Shacks to be opened under the Company’s current license agreements in the U.K., Middle East and Japan.
- Approximately 75 to 100 basis points (vs. 100 to 150 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% (vs. 43% and 44%). (Original Source)
Shares of Shake Shack are up over 6% to $36.40 in after-hours trading. SHAK has a 1-year high of $96.75 and a 1-year low of $30. The stock’s 50-day moving average is $36.10 and its 200-day moving average is $38.64.
On the ratings front, SHAK has been the subject of a number of recent research reports. In a report issued on April 20, Morgan Stanley analyst John Glass reiterated a Sell rating on SHAK, with a price target of $39, which represents a potential upside of 13.8% from where the stock is currently trading. Separately, on March 31, Longbow Research’s Alton Stump upgraded the stock to Buy and has a price target of $46.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, John Glass and Alton Stump have a total average return of 8.5% and 6.3% respectively. Glass has a success rate of 59.5% and is ranked #571 out of 3845 analysts, while Stump has a success rate of 57.1% and is ranked #800.
Overall, one research analyst has rated the stock with a Sell rating, 4 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 $40.00 which is 16.8% above 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. The company’s history roots back to 2004 and was created leveraging USHG’s expertise in community building, hospitality, fine dining, restaurant operations and sourcing premium ingredients. Shake Shack was founded by Daniel Meyer on September 23, 2014 and is headquartered in New York, NY.