SHAK - Earnings call transcript Q1 2019

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Operator

Good evening and welcome to Shake Shack First Quarter 2019 Earnings Call. Today's conference is being recorded. [Operator Instructions]. It is now my pleasure to turn the floor over to Leo Rhodes, Vice President of Finance and Investor Relations.

You may begin.

Leo Rhodes

good and Operator, you, evening, everyone. Thank

for Randy Garutti; me Shake Comonte. Shack's CEO, our is call and conference Joining our Tara CFO,

earnings During available or in with materials. comparable discuss and believe will appendix information in should release presentation today's accordance measures considered additional on substitute call, we in GAAP to for be which prepared isolation of non-GAAP this to can a the our measures GAAP. supplemental evaluating financial useful our Reconciliations not are performance. as A in be our we results

Some of which February be as may change. of our discussed section if of today's and to XXXX. our XXXX XX, today, statements forward-looking in section. of News no may a first should those access be we investor.shakeshack.com views statements any update obligation have Factors filed forward-looking can Risk our only and Any forward-looking annual quarter views differ found actual release, due risks results our at the including to report in materially and statements on represent uncertainties, number the XX-K By he now, to assume earnings Form

posted supplemental which be Presentation the to quarter. earnings in turn call quarter we now can the an and first site over section Randy. the our materials Events or our X-K for Additionally, found on as have to XXXX exhibit I will

Randall Garutti

good and Leo, evening, Thanks, everyone.

the the X.X%. sales report EBITDA carried X.X%. and to over momentum we've XX% grew traffic We XX% XX are beginning our I'm earned revenue to We quarters team growth delivered really year. XXXX the also increase our million, positive adjusted an last million, of to pleased this traffic $XX.X year positive same total returned our with $XXX.X in and as strongest from pleased results of a quarter forward first of of same-Shack strong of into by quarter

growth weather warm significant a quarter new was in and holiday of ongoing key markets where of number digital Our early favorable strength we shift conditions channels by positively the across from our impacted the continued openings, a performance opportunity. and see

and work the During X results hard support With for entire the quarter, licensed of team company-operated the are initiatives opened across Shacks. of key into future. strong the our continued testament will a our to strategic business that the and X domestic on These focus execution to organization this XXXX and plan. those we Shacks

to for and guest a excellence So consistently here's long-term people; business great cultivating in delivering Committing innovating experience; our growth. where community; connected and we're a refocused: our loyal

important to place be The excellence Our and our pillar and strategic for always us been most and will our find and as rarely great remains Shack to Shake ensure people. has a investing And talent. challenging work it's teams critical great to and to grow. continue retain commitment in macroenvironment our

Our our most and our culture of soul in of and Shacks. people are greatest guest the our and important asset, heart experience champions our the the ingredient

highlight some the grow always promotions create to Shacks. against across real all that of to XX% initiative the an proud our for that environment provides working by and diversity for industry. We of in of women are ongoing on. employees innovation inclusion We teams, that investment proud that committed throughout leaders progression very I'm across All-in, and and equal been growth see obstacles cost our recently our initiatives seeks XXXX and were success empowerment Shake opportunities earned to we've particularly at we're pressures our launched albeit fostering companywide culture removing and We're by a in thrilled Shack. almost to

support to across in launch development. our entire plan more formally this piloting mentorship and future. team We women's leadership program are the We health to

rights human awarded been have in quality. the a to Quality and Best honored Place Index are we LGBTQ Work Corporate addition, to score XXX% for campaign In XXXX a designated of

to We proud how where of with to all increasing our enhance inclusive the including our continue recognition eligibility leaders to equally. are our more be at workplace commitment welcome we're an expansion benefits to of And this lastly, across looking of XXX(k) are equity also earlier teams various so and investments in grants Shacks about and today the treated and work their year, across are going our care development in deeply including country. will and home at that testing in a our works and flex environments we and the several we week We four-day make working continue impactful welfare forward. office people testing

guest in to deliver consistently Shack. every is and a experience commitment strategic each second great Our

or model working of frustrating Shacks. of are number inside guests, completed with a on particular of the focus both flow We've remodels those outside in to Shack for aspects house and the We front restaurant eliminate yesterday's and pickup midst our of experience. legacy

feeling Shacks part the We the pickup made also continued tech few we a about our sales new business. of over shells across We test plan to top of are channels higher have experience of the omnichannel with designed [indiscernible] we mind. big digital good digital being next our the more an and really and months we're proportion of where investments opportunity growth enhancement committed in strides in this have

had higher as of digital pleased And in the Shack. growth a than the check are channels percentage average We the with sales. all a positive first on delivering with of trend continued impact quarter

continue it see both terms more the in channels infrastructure You'll a exist to operate manner to experience us iterate now relates guest here, that supports and and tech making to of it. holistic in various test as the the that particularly

for means about bullish Shack. Shake are We digital everything

an mentioned complexity into hard operational are we we've to address. busy create before, which times additional at still channels Shacks of can working as already the Although introduction

a many gradually quarter. our in addition, focused grows, you'll you're in execution And listening choose of and business our in channel from guests XXXX improving continually on testing, this experience, Shack innovation, experience. us. our are and these our year cost engage those this from ensure Tara, are ensure come seeing with with for hear now, In cost to to financials we learning we'll be part which and optimization and of working we to to the they regardless channels Right as longer some the end-to-end guest of of of new efficiency the business the term. is

going front, development class Shacks another the of year's to great this On be is one.

growing brand solid of During We're Providence, City, to well as in as second the of new first recent and Coast. Lake the business, quarter, biggest will Shacks company-operated of enter year In domestic Columbus, connect our Shacks, opened Area our into Bay rest guests successful expanding the New the we This penetrating strategy five Orleans the gear in the as for Northeast County. markets. we push our markets be to in executing lineup of XXXX Rhode the our We've got opening with up existing new the West new further Island. in license Shack like and rapidly also markets Marine time Salt Shack today.

With second market our and first the in Japan, Shacks in and opened four and China Shack having Gotemba, Mexico outside Philippines are quarter, international opened January. mainland coming in in of new soon We in Shanghai Tokyo. including our Osaka, launching first Shack the

in the mentioned, and Hong our most locations new waterfall. growth airport largest Jewel there guests world's this one To just ever year Subsequent the be stunning the permanent our us. exciting nestled the support ground a off doubt indoor grow for deeper first opened a later in opened, first spectacular course, of Kong Airport, lines city garden further South to quarter, the in time to to also is and first Korea. first opening Changi reaching we I botanical Asia, have in to incredible resources with office Shack continue the in Shack we've just our we'll Singapore of next and international for without of the And time. greet We the we'll Shanghai. in This

Shacks Shack fans airport Citizens our the also we Shake U.S. We bring more Cleveland here opening Last to baseball expansion also Phoenix we're with on and as Bank. day airport excited bought Phillies our continue at to in new the Shack Philadelphia VFW, domestic in strategy month, to three

great be always to our and to of continues we builder business staying Shack have brand memorable Our part guest experience. a day be a thrilled are game

new track XXXX, XX our net between in license XX yet. on between class remain Shacks Shacks, largest XX to new open and we XX and So company-operated

our for the continue domestic scheduled schedule planned remains of markets. a year. a Shake There's second whitespace grow country market to company-operated at reminder, abroad opening weighted As back to XX% openings and our of of to much Shack still Approximately for XX% in this the existing time. roughly us one so openings those

is strategic loyal commitment cultivate to Our community. and connected a third

on continues creative our building we The this in is to community Shake a guests ways. with we our an are and variety focused strengthening brand of resonate strong later XXth our already As broad birthday summer, throughout foundation world. on the near Shack

hundreds far at So popped and with South up at in year, of of Thrones. epic thousands up we season Game this an collaboration music have HBO served South around teamed we lovers Coachella. April, final the for of Lake, And West,

unique around ago, throne. the a the of limited items our lined launched actual Dragon menu the sitting at Shack weeks this fans few shot and we Shake. time up at at a the Burger Just have Westville Dracarys partnership, country, to part And on Glass as

The our a communications, by guests moments our for Shack your and local With community key focus, brand targeted basis. with always is engaging for opportunity real Shake to reasons digital and engage. of buzzworthy our concept us that to offers expansion of many have expand engage in personalized place. activate rewarding a in local community our part strong or partnerships. more fans community much charities We to around, a we relevant and actively businesses, business most broader channels with taking partnering Despite loyal and new around fun more in gathering had with and by guests events Shacks. with presents

and is just one footprint digital growing a significant getting Our started. are we

and looking growth. Finally, much our long-term a we're are towards bigger innovating to committed future we for business always

significant We investing across of years as look are ahead we all many the of of expansion us. meaningfully business towards areas

say important this team member it year in Concrete, how potential now hard and is Colorado Innovation project LTOs to our engagement. in and as Tara critical testing I systems the every just Shack. the list Shack underscore Kitchen our a like and you update. and longer-term is will to and acknowledge hours upgrade, who for opportunity significant detailed a teams as It's team, to But improving plan. With of well provide items company growth investments most the as is meaningful future in a infrastructure a touching guest well we our undertaking this a whole. back like as One I'd classics thank experimenting moment excitement every office on as work, would to and our is our are Project are more take and with focus which long drive this both menu [indiscernible], sizable many to right new for

we've still presents entrée but with monthly now biggest launch news Our really on as of been first Tara the ordering are fun of salt the a did and shakes in it COGS the cost the QX. thus The item guests toffee this impact Innovation special nationwide in and the line blossom. so cherry of guest the vanilla part well quarter quarter. Bites and some been term pleased as And program near response Chick'n for item Bites and QX tiramisu, year. far touch moment in come impact has and the as with significant got of included a both we've It's far. which Kitchen this the planned to rest as a seasonal a a ones out will the launch of early [ph] in LTO With

on will of pleased with start that, And is guest that continues. date remain we walk We our strategic numbers. to with focused as turn it this who we will you the keep to execution feedback the as a commitments key are Tara you adoption LTO I'll will and continue off through to posted growth. to XXXX drive strong the over

Tara Comonte

on good Thanks, and today. evening to call everyone Randy, the

year pleased quarter Shacks domestic XX to year. we albeit the we encountered Shack to heard the the as you've the business, sales quarter. Total we first are level in added have company-operated last million profitability short-term revenue headwinds in delivered strong of and that positive increased had to approximately number the fulfilled across growth a of $XXX.X we same since new and X.X% period same-Shack performance very a start As XX%

year. addition, period results business last licensed XX% of continues revenue licensed to with quarter and In same the the growth in of our deliver Shacks over an first XX strong increase net

we XXXX of our $XXX of we guidance Given track first to open $XXX and And revenue in in guidance within our maintaining between are Shacks and with licensing between development revenue With prior this, XX XX company-operated XX remain new $XX schedule, respect licensed million million. performance million Shacks XX our net quarter, to the raising to our $XX new guidance XXXX. total on and to million. to

Our a of year. last X% York and driven same-Shack in same a early X.X% quarter and of Northeast during increase sales in growth top growth of of X.X% warmer shift. the which holiday City, traffic X.X% was performance increase we favorable by weather mix, This the consisted a combined on the experienced primarily with quarter and sales was of same-Shack New in price

guidance this sales time, digital for Taking the year channel, X%. are to particularly to account delivery. X% from first our at to quarter X% these the increasing across addition to momentum of same-Shack results, we X% into In continued our growth

at volume deeper basis continue going reduce first the These Also opening the a $XX,XXX. significant weekly existing to on top and with Our bottom the gradually expand markets. Shacks new XX-month country trailing million and while line quarter we delivering strong sales average volumes system metrics in unit growth. and across average X.X broaden sales of as remains in will

company-operated for between expectations our the for full $X maintaining and are million million to We AUV year. be $X.X

XX%. a to now. them our impacting XXX level million quarter margin strong you to on, the And first numbers, result number Shack and with items growth first a revenue in specific of at measure and were Randy costs Shack quarter operating some the some points this operating with the and in take reflected XX.X% paper As business. this in short-term changing these to dynamics increased There some profit, is increased of increases within touched temporary non-GAAP costs level I'll XX.X%. our $XX which in basis through Food came

to opportunities menu and continued see innovation are We category expansion. significant committed in

successful As on primarily is feedback. Chick'n much asked This a launch category this pricing launched three chicken focus And part ago guest frequency our item following of broad ChickenShack in LTO decision with this a we made quarter. for an promotional opportunities. with as innovation and focusing years our with menu of Bites on reduced item to acquisition potential We guest the and by guests. test and the uptake

cost to our of and pricing that In the is basket Chicken we a insist increase as at We a upon. result, have fresh, the high-quality our costs first the significant quarter, our to and in high-class been item corresponding of reaction. the promotional the overall supply in saw in most basket, deleverage. was anti-biotic hormone pleased the end And with to pricing caused increase contributor combination adding food March. opportunity particularly cost a high and the the an item our free

will basis, supply new test quarter Chick'n this to this stringent our costs chain all maintaining with while to see As we contribute the food forward with pricing lesson Bites to impact quality improvements continue result current half are we the going a requirements. rollout less Chick'n which combined of of second during making year. we Bites, efficiencies material cost will expect in the pressure during we expected On that

addition impact increase costs In we primarily channel in well our around testing beef, digital experienced associated to as the growth. this as commodity some packaging also an the of specific with quarter LTO, in within inflation

burden schedule market will result executional normalization levels higher trends related to to starting and last a as something in of normalizing continue end double-digit the is causing weeks XX.X% increased this at Workweek. and of our back-to-back can While across expect in and of continued increases our X as continue with especially than costs And labor is the inflation costs team to hourly continue. of XXX the we more salary costs home new of with of where of packaging Labor of administrative points higher combined legislation country, as significant typical York member compensation see commodity basis the XXXX we first the the of New namely in just fluctuate, revenue periods a expenses in that to and opening been City in of the market result than few majority the process. primary in primarily operations delivery factors, optimizing of The those higher opened of Shacks Fair quarter the the a and the acute impact has past, impact that longer Shacks through of year, levels. labor

schedule, new label with Over an will on continue have material times development the aggressive long-term, a we impact Shack profitability. at as

this will and profit not basis XX our our the results favorable recur There have our This outlook. second first occupancy lap Shack current quarter full noncash deferred are back targeted of a second result for weighted adjustment favorable incorporated at by level commissions the operating impact continue growth delivery points new increased year. in an of year year parts rent a this will results a full for on in of predominantly at schedule level with by half LTOs. is Occupancy lease increased going to operating opening that effect points in impact the marketing the Our adoption Shack our spend and year. expenses that year both point our a and on driven any from standard in in impact XX.X% and Other XX basis And throughout line XXXX XXXX basis expenses margins went the expected operating together quarter, increased XX that remains overall within this impact as moving the the digital fiscal driven into accounting point XXXX. related primarily basis the quarter X.X% additionally beginning XX profit that year. will to

towards level between for although we the to Concrete prior relating to with consistent lower $X.X expect total, continue relating of our operating was Shack Project Total full million that and likely deliver to million, XX% quarter $XXX,XXX within margin end $XX.X for and and taken G&A first approximately year the range. compensation. However, the XX% to expect -- we guidance included equity noncash

a progresses continue ongoing back expense Concrete, support the upgrade. G&A as year will the ERP our to as result strong of Our or Project implementation and our the investments to increase growth across office continued of business

$X.X Project breakout with million. amount, $XX expect significant million, Within to at $X.X and million Equity continue inclusive full million expense resources schedules million. the compensation and based of live Concrete well Core million our of prior and of $XX.X G&A second stands. our year guidance both spend $XX $XX.X the with million G&A G&A Concrete equity spend $X year. operations and approximately $X.X go capital this between And enterprisewide We progressing and be project of based $X between Project to and between million costs. This in comp. million still the key modules half additional is during people financial very between

quarter As addition pace the record primarily XX% EPS. a digital primarily technology. of and Shacks, a result increasing together tools in major impact by with Depreciation Shack those remodels depreciation of in XX new enterprisewide in to expansion and to openings, of new expense, ongoing the investment significant we million our driven $X Shacks capital existing and increased ongoing to increases continue our

million. million We were continue consistent to to $XX of for with prior million guidance. the $X.X the Pre-opening year, quarter in expenses expect depreciation $XX

of accounted now by openings in previously to leases for $XX Shack in approximately to full to preopening related driven date continue treatment recorded costs change by declined and our biggest within to slide $XXX,XXX accounting build-to-suit are this to been class year, being in and million be which XXXX. occurring $XX,XXX Interest have occupancy. year-on-year expect the million $XX For between with expense we the

$X.XX in same guidance. and expect or we quarter expense last the the diluted and for year. an year, share first $X.X For adjusted between XX% or quarter exchanged a On pro in same prior year in fully forma $XXX,XXX continue margin quarter last million EBITDA to interest $X.XX the $X.X million we adjusted EBITDA of to Adjusted was line full the quarter XX.X%. earned compared million the to basis, increased in with $XXX,XXX, from $XX.X

Our forma pro adjusted effective an XX.X% forma was from tax pro rate basis.

excludes impact benefits Our these in from shows which rate underlying excess the effect our our was effective materials excess XX%, the tax of effective supplemental rate. on Page stock-based XX tax of benefits compensation.

tax pleased business with we benefits, for effective year. the excess delivered the timing tax exercise have our first potential to guidance pro of to a XX.X% in Overall, strong that quarter. we topline such of the XX.X% from extremely excludes expect basis, the unpredictability rate activities. a As reminder, the momentum given we particularly any impact the continue range for On full forma the and we across performance are of

All many against long-term. have tested saw and as pressures cost investing and centered steps to And We going well execute and support and we expansion, in have while address further ensuring testing our forward. international the to domestic certainly as on as those in enable the initiatives, to digital to and core them accelerated scale openings they We strategic infrastructures for foundational those of growth continue the menu strong quarter learning new expanding first our menu teams business impact of taken innovation. items.

open call. leverage in we future with the the see do compelling to long-term returns for come. on ultimately, test We balance cost we with to us sheet, resulted that intend build where we you believe different learn In addition, and carry But we're And back generations a continue ensuring through. invest and to cost this well the to initiatives to as to have will to as pursue very deliver also the focused see structure critical company expanded as complexity with strong working pass continue should company. continue in Randy operational new who I'll and grow as plans channels and we which it expect we to that will long-term for

Randall Garutti

Thanks, Tara.

you, most to take created. say what to that we this has We you an to who we've summer, dedicated And As another iconic and thank brands. I and re-earn our beloved our And of We're one a want birthday the like please believe restaurant world's for serve opportunity to teams never wake Shack XXth to we near granted Shake open become America's every that for call. And all would privilege. up day for operator, I forward ahead go must we line of excited and earn joining you that, the thank that looking with understanding and to questions. strong today's XXXX.

Operator

Instructions]. take And we Nicole question will Jaffray. first from our [Operator from Piper Miller

Nicole Regan

I'll stick to locations? with two territories? into to new are staff just the you okay. if parts just employees? unit us are Shack I how transferring then of culture question in markets. admittedly one guide new kind how back it's to want performance And understand new you and those is those part And Thanks. you're second identifying the How identifying

Randall Garutti

Nicole. what It's do. crucial Thanks, to we

where team the with begins. start Let's because that's everything

have a of this years. lot few done over growth last We

As we or to two. new in do less you commentary, my coming markets year want strategic see in this

to us have new It's in that should do going when to a And or we helped deeper deeper to bit. other that do our culture. of make to continue us definitely from we We that markets, learned try have open helped we even quite Shacks us go other some markets a see has new we those. leaders lot go help markets sure of but

and it's help there leaders Manager, X world time, sometimes around that's and go to somewhere weeks, other least. Sometimes, open us from X to leadership. it the between the X the All General Shack is stay at who

we So culture. that really see

retain think do true And our development Always it gathering an talent. on very a a been in really to builds to it's that we how want. hard. sweet spot. is way us it sure for comes it's who choose made we X is we by I best work the we long-term it sure in making after we never plan, have our it's and everyone launch to are and that place clear It the give find do industry harder going when place. my year and a going market, I great to with continue we're to making very with community When lens, thing that comment, all we I to opportunities that for team incredible also there X a time out the those, market While we

like I think Lake others and Orleans year the that markets find Shacks in you Salt to Columbus, for this us. see City, will New

of Francisco, last and part Alto which already where Marin the community. Palo our like newest one Just in Shack it's our in which have week feels San just we is rocking County, a

guest When can So gathering bring our estate find the digital and the place that we we community we of where are want great performance all and years over in outperform to To those have talk openings. continued commentary, the of do. care we we those AUVs that units, expectations cost when anytime. things do guests about the we point our level that money. can a that lot new the satisfaction in And We real can those and and her sales strength future the sales. into for always year. anywhere to take gate, causes And of take plan out spend restaurants build Tara's and priority that few first of these and It first guests money to the and months that on is number achieve initial our Shacks want of those grabbing of set to of those and sure to achieve make out ongoing great really the certainly that time one business our really up setup care takes money.

open, level we it we in that which impact we record-setting classes our numbers impact Shack the of year, when noted the they fourth Shacks generally the profit to in they have term have the in that, again, op when and continue noted then this near So quarter, of off. large we levels

Nicole Regan

for Thanks update. the

Operator

Blair. Zackfia Sharon our question We from next will take William from

Sharon Zackfia

couple questions a the Chick'n of on So Bites.

quantify in that's seeing that could talk and secondarily, outreach. the First, And customer new kinds is more the by I'm the assuming first children. some about I Bites? with guess you But families you're from of what customers if of you could bringing specific it then in second sounds of the half cost lessen if the it understanding back Chick'n impact correctly? neutralized the quarter that I'm how Bites should and year like the then then from and in quarter

Randall Garutti

Yes, almost. Bites. I'll the with start Chick'n

are really this. about We excited

know, test, we the it guests. for time don't testing long As that be know of we to our now. excited makeup wanted right are to is changing I we a if

take what's as the kids my an think They hotdog I might and I interesting a own have in example, gotten right. past.

Chick'n sometimes might get they now. While Bites

that. do they Sometimes

they it a cheeseburger it or sometimes or side. get trade might in a Sometimes snack addition they a might as with

in mix. that lot better. what made So is or our last place getting we certainly and through I about on anticipated early. item of and we've And over chain too higher our made it's of and going around we in product be getting first a quarter. pricing the raise recently the the the process been to too second a better better stronger food bit. while the products of time We've What in over quarter. cost our really now is a will ended makeup, cost. better. on notes some its We this menu What's and such better guest than little and really supply been Those to time, a we on started now great any with. say We've about impact that And things month, the obviously throughout promotional to early say, with frequency comfortable launch, impact product got these up better also the felt and able of arms the the are

is QX. impact called exiting We COGS significant of a the that. the initial we by of And that in COGS over QX, up. higher do have lessening. all COGS a impact We QX. on It had to be will in it that should time believe to end that, with of stuff it will, So some significant

a making to no is one. by them is not product how not and hand ready. that the like on These learning hormone brought line. got are something This product. we've This we come -- and that is on battered, is hand the of idea order, antibiotic-free, labor line in frozen whole the one a these, do the So to COGS This that a do is one lot in right? line

we will better getting and are see. We

excited about far. it. we to treating but a know. There's We -- are still are so what We we like And this test. much so are want still we as seeing

Operator

question Bartlett We from Jake will next take SunTrust. our from

Jake Bartlett

mix, the had it in like from I boost you're boosting X.X which a roughly about Randy. getting X.X At sounds should digital -- years. which question the be was sales, mix about lowest a mix. is Yet

to understand or any the other to to consider? factors Chick'n whether that, there's trying if Bites due So

Randall Garutti

growing only Well, company. for check, as items that. February. That definitely remember, chicken impacted, again, the number still was we things it's a rollout in said, have the launched But a digital through by within and The the it's channels. you

was think not there So are ready traffic and sure to the news there's at reason But X.X% pretty about there, exact on general, to noise there. we an compared right quarter in a industry especially I'm to were in lot positive. gentle that of price really point this or I in we encouraging what's now

metric out. we will take a bigger That's a But mix eye the on, just think than some in long-term keep quarter. that lots options for past. how So we of had I the see not will shakes smaller one win to that of an in we've ones

Jake Bartlett

Got same-store trends. it. don't I sales kind know term focusing -- the on love near And you're

just impacted really we quarter? the could us engaged can understand or hit guidance so how I was how to get assume help will the as conservative is, calendar that April And hurt -- not Easter a a the in I'm also understand understand and be shift impacting, how How much wanted much the your that's better is weather Just or you shift? I guess to weather.

Randall Garutti

Thanks.

X%. increased X% again our baked guidance All into to of that from is

Let's still we the really going in on And year our Like in holiday still X weather the and number base, was. we the with a highly was comp that certain on matter not has noticeable favorable had our majority majority into the of start vast comp a York New Northeast of which Year's, from first which impact. nicer the what weather part time City area QX. no the impacted things. weather, warmer, is weeks, New of regionally not company, shift much base, of small time to where company. much our would of Still a is start majority the That the really end

for we early look quarterly there's shift But X% to give that, is earlier. expect it thinking other there's year, are be to guidance. the any about an So we things, Easter noise, X% talk how to around we don't as in we about -- at too which increase

see great quarter, So great grow. to first continue to traffic

Operator

We from question John Glass from take will our next Stanley. Morgan

John Glass

net Bites? did about in hadn't now of the or for may talk First, about of a -- didn't think use pricing did wanted may and I in Did be promotional you thought be I've much that. use the just versus activity you as that years ago you your I promotional don't pricing? used be can past that to going And was it? just know the pricing promotional In cost, the it had how think benefit about activity both may when you Chick'n more talk promotional trial but you of get particular, do promotional it think I few don't more past. why in you you to? I it result, result you heard

Randall Garutti

hear And even word John. -- Thanks, we're say, consider a it's you be even that’s I what Yes. about. maybe as strong too to talking may

done to think not ever here. not fastfood real that's that's of what in clear, might we've that put category what done let's doing, be and we've I be a what promotion

we And $X for talk So to Shack. people when that is price Chick'n like price. want answer our is the trying is issue eat that And figure Bites low that learn Shake people we A so it? pricing, giveaways. the Bites, around about far, that as do This it we a felt out there tier what And about we're what Shack? they Chick'n what feel to Chick'n good next to value not looked comfortable price well. little pretty Bites seeing giving do in does to the really want you about at to It there that price the taking bit which Tier out, so we we it other charge good the near This This a of not the in feel off not is premium try feel are we we pricing, a And is But at we want we a we it's in started that thinking discounting. said, product turns sense that that can for premium and might not promotional $X.XX term. period, more the markets. at at do even price to confuse eat brands. Shake want for is still premium eat at promos about be

John Glass

what's can digital digital provide any sort about important of the your I we percentage couple part help But feel at don't understand business. is really played like or to any Yes, of The of right pricing. mean you yet business the to quarters, scare this further you type I what still contribution a And the you to in metrics. in role can specific of doing what quantification played the digital sorry. least of I of there think way here last past give of sales, your really been it didn't real is you quarter what And check, now? reticent promotional is understand have is.

Tara Comonte

No, Yes. I you? are how John, right. you're mean,

the it's is old. built that I the right of not stage so it's our app, the importance our will. channels where part some in most of point out metrics. out. the are sort is mean, the digital mature only of future, the big reason being are mean, business are barely we're just I We and breaking that now at we early in not And yet is at and of we process in two years we the digital obviously,

channel, just ordering, launched Our December. most web we in recent

awfully be of I It's it's investment It's not on not where really intended think part going lot a of -- So this transparency. And of a to there's a it's a our year. that going business. of learning critical our lot lack and of lot just that it's early. is a testing and that's

across a It's than key we deliver we somewhat metrics will them to with a reporting As mature bullish you, good be some it. convenience all to formats. -- and when more provide a our to to to continue part The channels it ability mature guests of very growth. business. gather start we about experience It's we future to in as to Shack. variety reporting I'm parts all critical are well a of comes But it our terms, see investment strategy. business. point, we it. In when our of and continues general But will it's at see interact about these sure part our growth what a we a begin We higher really check Shake of talk experience average on want as a growth of provide feel We things to holistic Shack.

Operator

question We Jefferies. next will Andy from Barish our take from

Andrew Barish

that will know I willing but kind of laid you what within the opening year out? kind the you've think it's in are early the to long-term quantify you of obviously volumes 'XX context be

Randall Garutti

for end -- Well, into year. guidance all that we've unchanged AUV the that's baked of for they're that's the all X%, the X.X% given

the exit year, we expectation. our that's As

at the look I higher obviously, can at those in today. the expectations and at likely think that range we say, be QX will end look outperformance you of as that

think breakout class understand. And what don't I that's we you It's varied. we to all class. So want by

these to going premier are have We big of some Shacks.

of what And strength us smaller is do. Shacks. so the It's look We the Shake I AUV it are a the understand people think thing as market have not think as only greater one varied at. I going should we to to getting sucked across for just number Shack, thing is into

and kinds all good doing we money are We of those all are really at levels. making AUVs

think that's I business of the power the this long-term. over

we So that's focused where are on.

Andrew Barish

key are whether you be them things shakes out to new the But little than that challenges different new some give of of the or and a to it a handle players of help And background a you at managing doing lot the bit you? is have where there. business chicken sense, able just things may what obviously or menu thrown came sort of and getting team you're the of the are how delivery, from lot can be us complexity a other

Randall Garutti

company question. It's an people of background. a were who the have company. a dining of fine important And born leader we this Many today that from are

understands who execution and is someone Karangis, fine person a both John volume. dining and chef, new Our

So using Kitchen, Innovation is the testing, I new now our listening. think about learning, process

the not something we've Chick'n of with. think was new learn, at to to No time Bites restaurants. do learning, how this got those And easy do them. I about example to Bites challenges to And on way It's great it. we take that first in we like call. our we our today us question noted caused Chick'n some that. a And it's are honestly.

Innovation be always asking to the lead can those and and And what be say, generations to for we're so want to simple lead We really and wrote that next better? needs be accepted guests how good are joint. for at done classic done Whoever are that think to things look classic And to it going can we've then the I that going them will rule we we items and with going and do starts better the people thing around execute then are the willing we back to menu we're quality, to burger come and and go going Kitchen way aren't so want We and every have little able perfect. better. things that other bit to right or we in a ahead be to do. to Shacks testing trying spreads our to just and do the roll to But out that aren't we're do country. better And going those day. fun trying may everything here not

Operator

from O'Cull Chris from will our question We next take Stifel.

Christopher O'Cull

performer got about Rum and And in basis back the expecting first openings you've you're similar like you're it seeing the quarter sounds the points performance in more in XXX half. [ph] declined similar second.

the us your margin to guidance? the year going bit of to cause in to more half little change color you performance can So to on give show hit better the a what's back

Tara Comonte

in think for yes. year. mentioned I what I Shack we you're as the year level holding Chris, our for seeing also lot which remarks, a of are guidance my mean, the I

to the the towards lower, at at As to likely XX% that [ph] level, margins it end range. albeit of XX% lower relates restaurant

launch that Bites really, and COGS. question, on margin but it the on impact Chick'n at So last had quarter again a -- you and in that when look sizable touched first Randy and

changes during quarter. the We supply are changes but some least not this chain pricing making through rolling

be our with So our tending that quarters. higher-margin tending the also back There's the to the be -- way the year. the half lessen seasonality of in the quarters quite summer summer business meaningfully summer in to months to

so main are those the And sort drivers. of

Randall Garutti

quarter. to a and a jump work and in. work lot of an are have our And that like we do labor This all we Chris, better. do -- But everything and happen. that we we work doing. is first we that we we did it's work of pressure will not have there's mentioned to when in do lot thing the to the are And to make acknowledge, And easy and I'll committed doing Tara

Christopher O'Cull

And you. we then correctly? similar costs was the up year-over-year of hear just expenses Thank that -- see And operating I primarily that remaining impact or it then the a quarters? like other commissions. that other should sounded operating because delivery But

Tara Comonte

Yes.

a that new Unfortunately, in correctly. is yes, heard And You comes cost our cost. delivery a with it business.

Christopher O'Cull

is increase year? of reasonable balance of rate that the for the So

Tara Comonte

our within for the our of almost incorporated Yes. mean, OpEx I guidance. year [indiscernible] this back all

Operator

take Company. We question and next will from from Charles our Andrew Cowen

Andrew Charles

benefit what you're the you you of discuss currently to delivery you're know partnership. will can Randy, have to deliver I partnership reluctant But looking formalize formal to don't that you speak when the today? allow

Randall Garutti

Well, pilot. new continuing no since are call, really, last the right? to Andrew, news We

that. finalize ultimately sides consider all on how how of benefits there's any that to think I will answer and we the we ultimate of

telling we us I -- are think honestly, So know like today our delivery. guests is what they people

and that. again, new it and it's quarters doing We what said past time from the thinking updates And are a no about. lot we more quarter-over-quarter spending are we different on of something year-over-year of

Andrew Charles

ask intended benefits can exclusive within I want agreement sets you, achieve from worth for are with you with Or the of to delivery long-term brand it? deliver the vision partners? provider three the

Randall Garutti

news have know let to We you will when we may report.

Andrew Charles

Okay. sophomore volumes. in Last Shacks that at opened quarter, warned about the XXXX you high

see the end fall these topline the X% two? than honeymoon to XQ's their you results close didn't stores pretty period. getting Did decline are in typically year perhaps harder just of strong We

Tara Comonte

and the call we pleased as sophomore they and guidance this mentioned is think, across business we be incorporated Yes, continue be within the is results certainly and Shacks in we the still and I the the will reality decline of got, for year our with to board. year. a last mean, in I the

to dynamic that year continue best board, continue expectations We outperform really the that. this sophomore say in absolutely still it's really, sales. really to It's got the think some we I our incredible high, expect but including Shacks sophomore. to started We've across that

Operator

question Longbow Research. Alton from our take from next will We Stump

Alton Stump

as Tara. pressures quarter being I'll But and a question year the part year? what's quick beef of into as Is for you also point, your back or as pressure expectations in mentioned that a of hop course get to wean cost have Just this going the that you cost quarter basis far queue. a to

Tara Comonte

coming beef creep Yes. to and continue we're think start No. back I to to I it throughout half we will back think increase coming relatively up this forecast seen see I that some potentially But the degree commodities. down. year. expecting year. are years mean, challenging probably We've it the we obviously to of in of continue off It's to

Operator

take We Barclays. will next Bernstein our question from from Jeffrey

Jeffrey Bernstein

Two questions.

you're took whether sounds push rising be piggybacking will to chicken now menu wondering on labor you about mean, a you think what an what like for of still I'm the Seems it you option X% it about wondering whilst just are about of how pricing range an or may the consumer? off follow-up. reasonable the one you that And the think still I'm But above the talking we when with outsized then X% after and Just increase? keeping promotional as you inflation, kind think like for you greater to time pricing. have the, cost activity. initial how like just sounds slightly inflation all wondering have be your X% I to power, X% questions. I in 'XX. first affordable the food is the the contemplated

Randall Garutti

a question. great That's Jeff. Sure,

lot. we a about Something talk

it. We to thinking are starting a lot about

part not XX that -- for believe has to stuck than reason about pricing great feel sure this for Shack company's our quality, we Shake the every you value. get guests making are strong year. of years know sure we experience the other of exceptional power what X% we been and in with at for range good we really any very a overall making history, provide, keep much As and cautious to That's continue we have very the most X% our the we

and out we have want a We that a haul. are There's long-term. to that We now. are there obviously had today the that for giving this right margins of that have price to give we had. able taken of lot of to But companies long impact with the we've for creeping the costs lot be an some in our

next We this the are quarter. for on

on to next for business rush the that's are come to the at not this many for year. just fantastic offering price Were we're to long-term years a to a going product We that. have going great

posted. keep We think are will going we to you where it to we guide land and will you

term. So expectation an of any in at near price this don't time, have we increased the

Jeffrey Bernstein

power a you if some get inclined think careful? you may so kind that of very pricing later this year into do the do more or were have But at you be you to it. you next year that be want feeling point Got pushback certain

Randall Garutti

have over very we Yes, long do. time. actually a for And we

we you got, retain are we we've of versus out think that options pricing when it. feel lot at and I look a great power there really about good us

are cautious and are we So and patient. we we do

Jeffrey Bernstein

other Got was question just G&A. it. on My

and or wondering outsized? now it through might seeing might figure XXXX. that I next levels underlying core said if rate Whether how intended we how to are run should what particular underlying it think But a wondering, about Just $XX Just we the may to years the over rate of be kind kind we two? be spend it's of relative is, to whether you million. be think as future be should weighted about wasn't what think, year quarters steady or $XX you or I to million about run sure was think also

Tara Comonte

growing run I Hey, one. this a would that's in it call as business as firm a rate not

within our million is $XX.X based this spend. We've milestone, of, maybe got guidance So that million. within comp and a Project $XX sort obviously $XX year Concrete core yes, $XX for million million, the equity

continue throughout see G&A should think goes more think one as foreseeable of expect where I from just state you of significant top to we to will So to business will as -- continue we year we the and spend time you $XX is see outside a that result just growth. has for the million invest the on size that the increase to the on, growth to future will invest of million, a $XX QX that what continue continue I spend we as of see to fact current

be continue will long-term investing we opportunities arise. in growth those We as see to

So I in IPO. will we a rate. point basis $XX number to But would million, run that of XXX -- call not but do we see come $XX to the some the start that are that at gave today back mean, start company-operated in the see you you'll I think the at in long-term, fact XXX I to of that leverage time Shacks a million

ahead excited lot done it. and of are a really growth about So we we've about

and deliver to like. spend We the are that continue returns we

Operator

from Instructions]. [Operator John And Morgan. Ivankoe take J.P. we'll

John Ivankoe

top is, The you rest premium Hopefully have you running you menu. sits your of Game Thrones price are that of hear the guys at can me. promotion at the

kind also that's follow-up. that telling menu kind in entry-level the you very question So end as kind menu? of I very, time terms customers lower to whether income power of a as for sense well? think your pricing the and that as And type about the of you some your of premium drive I have of over meal prices that what have can middle make of ask higher, drive I'll it frequency on And in wonder the

Randall Garutti

end of of a the past. kind has what at of in Shake definitely tested Yes. shakes the in the The done lot Thrones Game we of been We have for tested higher fun. and

I special a think thing. one-off such is

a audiences, strong things this So that the people and and that are team us Shake of such try future to is be about of creation Shake made. fun new as like want And really beautiful, innovation and Because lot it's fan and Dragon a hopefully the have about cool the base, visuals the the our in Shack, just we charging Game a A cup to well. Glass, good about it's invention thinking do tasty thrones of way have fun thing. the Shack. that. cool people really feel really do thinking be The

still a $X. Even price, So on below it's that, newer a example I the good lower John. is Bites Chick'n of end pricing, actually the at of think

I our very be to and and around got as both things experience we've and for. have. So low think higher Not and at just interesting on time. ends probably like over how you'll on an as that on closely. can the core entry-level high tinker point us sure see We looking we of not how price. are compete you I go want eyes low-priced we Generally, considering to us many menu pricing quality

are something your So eyes question. it leading we on think will keep we've our But though. that got some both categories I

John Ivankoe

about in I accept incrementality for cost customer of the Do Have you cover would fees? changing many delivery Shake asset to the to that delivery. price you on And and the the do brand? you Helpful. Thank there delivery that thought versus and the secondly, it's the questions think packaging it? are different there about in-store? been spirit delivery of of the have basically mean, you. and Do were you allowed your if prices think cost so extent delivery Shack then

Randall Garutti

considering wide we up not change there's all think And it's total at pricing are channel. of That wrapped now I models options you look there. on Yes, piloting. each part any delivery I as things. our right menu as does think open to right? we But said, cost, it that absolutely are Today, the those in

channels, bit be on little pay digital I a that great think a willingness there different. seems to to is

think got we've It's as potential. upside a to something So that not are today. going jump I we on

concerned well. to the they something are channels, traffic, at. mostly We grow successfully the you And of go grow continuing make then may sure be look

Leo Rhodes

the really everyone say great time. to of I net. want question Have being a I on today. to you call your just think, all for that's We appreciate the thank operator,

a see you soon. will Shack We at

Operator

for conclude you Thank does participation. conference. that your And today's

may You now disconnect.

Shake Shack (SHAK) 2 May 192019 Q1 Earnings call transcript