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Shake Shack (SHAK) Up on Q3 Earnings Beat, Encouraging View

Shake Shack Inc. SHAK posted mixed third-quarter 2017 results, wherein though earnings beat the Zacks Consensus Estimate, revenues fell slightly short of the same.

Notably, shares were up nearly 5% in afterhours trading on Nov 1 as the company raised its sales forecast for the year on the back of stepped-up expansion plans.

Earnings and Revenue Discussion

Shake Shack’s adjusted earnings of 17 cents per share surpassed the Zacks Consensus Estimate of 15 cents by 13.3%. Also, the figure rose 13.3% year over year given an increase in revenues.

Revenues surged 26.9% year over year to $94.6 million and came almost in line with the Zacks Consensus Estimate of $94.7 million. An increase in Shack sales and licensing revenues, led to the improvement.

Evidently, Shack sales rose 26.8% year over year to $91.1 million, primarily owing to the opening of 21 new domestic company-operated Shacks. This was partly offset by decline in same-Shack sales (or comps) as well as lost revenues, given hurricane-related Shack closures. Meanwhile, licensing revenues for the quarter came in at $3.5 million, up 30.2% year over year backed by opening of new licensed Shacks.

Behind the Headline Numbers

Same-Shack sales (or comps) declined 1.6% year over year due to a 3.8% decrease in guest traffic, partly offset by a combined increase in price and sales mix of 2.2%. Comps compared favorably with prior-quarter comps decline of 1.8% and unfavorably with rise of 2.9% in the year-ago quarter.

Total operating expenses, as a percentage of revenues, increased 110 basis points (bps) to 88.8% mainly on an 80-bps increase in labor costs and 90-bps rise in both other operating expenses as well as depreciation expenses. However, these were somewhat offset by a decline of 90 bps and 70 bps in general and administrative expenses (G&A) and pre-opening costs, respectively.

As a percentage of Shack sales, Shack-level operating profit margins decreased 160 bps to 27.2% primarily due to increased labor and related expenses as well as certain higher operating costs.

Adjusted EBITDA (earning before interest, tax, depreciation and amortization) increased 19.9% to $18.2 million. However, as a percentage of total revenue, adjusted EBITDA margins declined roughly 110 bps to 19.2% from 20.3% in the year-ago quarter.

2017 Outlook

Shake Shack has updated its full-year 2017 guidance.

The company raised the lower end of its revenue guidance and now expects the same to be between $354 million and $355 million (earlier $351–$355 million).

Currently, it projects Same-Shack sales to be down in the range of 1.5% to 2% year over year compared with the decline in the band of 2-3%, anticipated earlier.

Shack-level operating profit margin is guided between 26.5% and 27% (earlier 26.5% to 27.5%), while general and administrative expenses are still anticipated between $38 million and $40 million.

Given the strength of its development pipeline, the company now expects to open 24 to 26 new domestic company-operated Shacks in 2017, up from 23-24 guided earlier, and 18 net new licensed Shacks, up from 15 announced earlier, representing unit growth of roughly 39% and 36%, respectively.

Preliminary 2018 View

Building on the momentum, the company has stepped up its development plans for 2018 and intends to make it the company’s biggest year of openings to date. Notably, it expects to open 32 to 35 new domestic company-operated Shacks and 16 to18 net new licensed Shacks in 2018.

Shake Shack, Inc. Price, Consensus and EPS Surprise


Shake Shack, Inc. Price, Consensus and EPS Surprise | Shake Shack, Inc. Quote

Shake Shack carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

McDonald's Corp. MCD reported third-quarter 2017 adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate of $1.75 by 0.6%. The bottom line also increased 9% year over year, given stronger operating performance and G&A savings.

Restaurant Brands International, Inc. QSR third-quarter 2017 adjusted earnings of 58 cents per share outpaced the Zacks Consensus Estimate of 49 cents by 18.4%. Further, the bottom line increased 34.9% year over year on higher revenues, partly offset by increased expenses.

Chipotle Mexican Grill, Inc.’s CMG third-quarter 2017 adjusted earnings of $1.33 per share lagged the Zacks Consensus Estimate of $1.56 by 14.7%.

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