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Shake Shack Stock Could Be Range-Bound In The Near Term

Shake Shack Inc SHAK 5.35% reported its Q2 EPS ahead of the consensus and the estimate, driven by record rest level margins of 30.8 percent, representing growth of 55 percent year-on-year. Jefferies’ Andy Barish maintained a Hold rating on the company, while lowering the price target from $38 to $36.

Range-Bound Stock

Despite the record margins, same-store sales stood in the single digits, at 4.5 percent, for the first time since the company’s early 2015 IPO.

Barish believes that this, along with “lessening likelihood of significant upside surprises from here with increasing labor/G&A investment, we suspect SHAK stock will be rangebound near-term in the $30s.”

Same-Store Sales Surprise

Shake Shak report increase in traffic of 1.2 percent, with price increases of 1.5 percent and mix of 1.8 percent.

The mix was aided by Chick’n Shak and the LTO of Bacon Cheddar burger at $6.89.

“Decreased tourism in some markets and general restaurant sales choppiness may have factored in as well to more "normalized" SSS,” the analyst stated.

Guidance

The company guided to 2016 same-store sales of 4.5 percent, which implies low single digit same store sales in 2H.

However, Shake Shak raised its domestic unit growth guidance once again from 16 to 18, implying 40 percent co-owned growth, followed by at least 18 in 2017.

“Mgmt is more cautious on the labor line and G&A going fwd, as it invests in quality people and infrastructure to handle an increasing number of unit openings in the near-term,” Barish noted.

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DateFirmActionFromTo
Aug 2016SunTrust Robinson HumphreyUpgradesNeutralBuy
Jul 2016WedbushInitiates Coverage onUnderperform
Jun 2016Buckingham ResearchInitiates Coverage onBuy

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