Earnings call transcript Q4 2022

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Operator

Good day, and welcome to the Shake Shack Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I'd like to turn the call over to Annalee Leggett, Senior Manager of Investor Relations and FP&A.

Annalee Leggett

morning, good and you, everyone. Thank

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

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

Any may to views Some of of only views forward today's update our those report change. February obligation results actual today forward-looking may of uncertainties, as if XXXX. XX-K and materially statements discussed we any number statements be a represent Form assume looking, our statements no annual on on and our to in forward-looking and including differ filed risks XX,

Shareholder By the now, can exhibit have our at access our be as to you quarter should in for Quarterly X-K or Results Letter, to found an section which quarter. invest.shakeshack.com the XXXX fourth

will the call over to I now Randy. turn

Randy Garutti

Thanks, Annalee. morning, Good everyone.

year-over-year XX%, for have system-wide culinary opening XXXX of and exciting (ph), in a strategic with more globally, continuous growing $X.X innovation to Shacks XX% XX ahead. record by we the planning than and sales count Shack was [feel] road more We ended focused year billion. formats improvement year a the than unit our expanding

and Our approximately million, X.X% total $XXX openings by same-Shack led grew sales. revenue new to over XX%

continuing demonstrate good our stand as XX.X% teams elevating all year, our the of Shack-level for in way. the along exiting at communities do, that global operating year in we to profit to continue appeal while we margins the our quarter, something We the the and fourth for all XX.X% back the build brand to

CapEx. solid investing the raising discipline on momentum the fourth margins and and average G&A We with expanding sales, in our with quarter, ended year weekly

led in heavy This was up price and growth, year's and traffic lapped from reaching in-Shack January $XX,XXX same-Shack performance sales. impact a XX%, has nearly Our comp with revenue momentum XX% growth, into sales last we weekly in as by double-digit traffic average Omicron. carried strong including and X.X% total

in out in business licensed in this despite cautiously and January in environment internationally quarter we're well regions, things performed of volatility China COVID-related towards the and pressures normalized more and fourth Shacks Our can China sales a from some subsided has our optimistic to other that level begin that year. disruptions

the labor, far our in quarter increase, assured October channel Our in-Shack. our efficiencies Rest our from build that by more done. profitability mix guests is price XX.X% margin operating were supported return Shack-level though menu to fourth in profit and work positive as

have We XXXX. continue this place in plan a improvement in to

conditions time. we uncertain economic And challenging for expect backdrop, some given the remain to

are confident have navigate However, set right the that and growth. across we strategic long-term and us company to the these for solid priorities we up place team in pressures

website. the and which lot Today available a focused on this I around of year. 'XX presentation ICR at shared IR January, to Conference strategic of we're plan We've our replay our where is recap want in detail

Our recruiting, efficient number Fielding team. key the ingredient a and on one exceptional team an to focus rewarding and successful is retaining is winning operating Shacks.

real staffing pay, enhanced career to the industry retention and expanded opportunities efforts. and to tips Shack access benefits, a and on doubled immune been have we've advance members raised in recruitment, faced down making not our have choice. the team We challenges training the Shake added to has We've

of over of awarded color women. we leadership year, of meet to our were XX% growth filled internal our a to candidates, with people XX% Last and critical positions XX% nearly operations pipeline goals. promotions to

over the optimal Shacks hiring marked improvement their below few in staffing we've While seen remain levels, months. many last

domestic to new XX training Shacks We still We're have to opened the in support remember a proud quarter, costs company-operated some moving quarter to around expecting have lot the and a the but is of lot let's of members we're that team as fourth openings. to midst team in work we still incredibly of do, so operations. additional optimal running we're first we more of get into how developing. the And

either bourbon second celebrity or our and what Our marquee fast-food by like Shake partnering media unwilling always for priority, Maker's well events most guest restaurants from the relentless QSR win jam. has brands Mark with Ones differentiated unable like with traditional focus to and do. keeping companies doing chefs we as our Between experience. LTOs Hot on and bacon Shack collaborating other been for to are as

existing We drive and guests. better engagement are to continually learning new with how

affordable past a great includes example of Truffle we the and Truffle launched culinary vegetarian White LTO, This with Shack can an Truffle is which Truffle White creating Burger, option, experience. 'Shroom White the a week, our only Fries. elevated Parmesan White This do, Shake something

We Innovation big innovation. crispy to the in Sauce. the an Chocolate the today. elevated West pickles be with Veggie Shake plant-based more, our in and processed packed meatless potatoes, and well and right topped carrots developed sweet Kitchen It's plan Non-dairy market Shack in a American also It's delicious farro, here quinoa, offerings our highly onions, alternative with cheese, to mushrooms, Village. for our It'll Burger as year new as launch Shack

and I look option that's on year. to this wider get we a to to think feedback craveable we've vegetarian introducing a landed audience forward it

offering our we caffeinated shakes LTOs is will focus. drive to group ingredients various plan lemonades, do year, we also of competitive advantage This a If a guests and keep our premium items number believe see rotating this committed more. on a and and hospitality. to overall greeting than people mini new the well, and genuine tests our of ever to you'll through with more experience, better new We're frequency We come. including packaging,

the to drive-thrus. market we alone, We restaurants XX small opened priority five on grow In Shacks from including and balance expand. new continues fourth of formats, domestic focused total opened in believe quarter here. globally is XX third Shacks, core our company-operated formats Our development we a how in XXXX. and We addressable

and, these with opened in XXXX. Shacks weeks early days quarter just before the just of we're cases, into the settle many While they results encouraged as ended, some

This of roughly Ohio first under Currently, core a we right neighborhood. in them in open expect year, XX City here opened with have York coming and Dublin, Shacks, having six Shacks new construction. this XX in to Brooklyn's just quarter, in we about Bed-Stuy a drive-thru Shack New

year. with the much there's have specifically, more still know XX reads drive-thru encouraged to investment learning open we we're much XX we've few rolling to with quickly kitchen plans as flows evolving to We out this the we are our prove to targeting the long optimize out today, for as initial On as that and for and learn well nearly to XX can that a been double opened by drive-thrus different this model and run. designs so

brand cultures. profitability to geographies an licensed in Our speaks of business is venues. and three of in in in the key way opened the Middle our term, the This airports, is asset-light our Asia, United across plazas eight XXXX, of two and Shack and the licensed to which over region, In part Shacks, long our East our the strength development XX travel grow strategy. partners those other XX event globally our in Mexico, resonates States

first later more grown licensed acceptance our to if XX partners our year, at excitement including open Thailand launch any, to to restaurant continue Nearly while a to quarter. of six in expect spring. brand the openings with regions scale us locations and level adding expect see with in XX the between more in we globe, in we successfully our few, be formats around and of to the existing and this have this new This markets Very half build across in Asia, markets companies seven you'll future.

in We'll with as also ever Bahamas open hotel format partner first our Atlantis type resort we Shack. to the unlock another the

We test considering the a grow Alshaya lot we lastly, time Shack first also in business Dubai. this And territories, and opportunity we're critical in our long of countries, will can the drive-thru new of spending part with partners for our licensed our term. formats,

keep globe. licensed across business an remain and way profitable incredibly brands partners our in the and to expanding powerful Our in dynamic presence

on We improving channels, the overall showed off-premise to the Our impacted focusing over domestic our in committed few margin higher-margin have efficiencies, fourth the to the pricing. years dynamics profile, last in our improving our utilizing over the profitability by priority driving finding sales, work plan particular emphasizing company-operated our OpEx know We're have term. We progression company COGS, and and Shacks. focus with menu rebuild strategic profitability right place. we're profitability, our we quarter is fourth long historical and margin own labor improving

priority our Leading to has retain our team. be winning to with sales,

we that so levels staffing hours improving sales optimize keep to potential. and have We can total

investing brand is and strength. and opportunity, around our newer targeted various campaigns especially in building media in supporting big We've testing our been ever, than participating channels, performance regional local more in brand more with community than ever. marketing Our events leaders marketing markets, building across

the our tackle with more intense to measures and line got after in collaborate building about expense this profitability an can We're side, suppliers focus we've talk every efforts bit. we a go P&L the the on and will Shacks. On of Katie year, to in designers our teams these operators,

committed critical In strong provided across enduring opportunities as company, while to and and discipline decision development, investing potential committed build this we're the with a business to fortress to overall. years, We of digital low doing current growth dry the capital. the made aggressive. last cost our we us That's we grow in with with few see an our sheet Finally, it are historically powder environment remaining we with a discipline. balance with to return

Shacks; continue infrastructure; updating towards main see our returns capabilities structuring our digital to our and restaurants. in home four capital Shacks; strong current You'll office areas: deploy us our to investing in support building

long-term strong AUVs We delivering while targets returns. historically our outperformed have cash-on-cash

Over the well to build just the margin targets. under back costs elevated our new returns on costs pressure Shack-level done profit is as our profitability higher bring with us work build our addressing below longer-term average, last return and targets. as op to net years long-term back Building be generated Shacks to few

construction us Shacks we mix included. The also more build Inflationary class of Shacks. 'XX of investing the construction tracking in million. work as build we're our to operational 'XX and for of expect cost We've pressures net but long-term a against XXXX, and building drive-thru can cost around we formats. similar Shack worked In is average towards year, mix we beyond. We're last $X.X all cast cost drive-thrus market XX to with a and expensive to down the where target average in build addressing and cost-savings teams for bringing design class XX

the over Shacks building win returns keep team the where we with long and we and We've posted for formats we'll focused to got and term. plan place drive we go. going you progress can in designs 'XX on We're to right and scalable keep know as strong

to of that, to I'll about Katie more and quarter With the expectations share the it details looking off forward. hand

Katie Fogertey

Great. you. Thank

So, good morning.

our points single-digit many over margin challenges, an inflation, high-teens adjusted food supply to ones We right the in basis on opportunity. of facing ended P&L. We our quarter and high with labor the long-term help build grow showed profitability and XX% optimistic the increased this with growth XXX EBITDA. growth, strategic and revenue of pressures year all in paper year-over-year strong availability executed our priorities are momentum and expansion We pressures, our progress across at evidence note despite that back and measures on other restaurant chain

We XX.X% delivered to XX.X% also $XXX.X Shack $XXX.X revenue revenue up sales fourth million, grew and year-over-year. grew to million. licensing million total XX.X% quarter $X.X of

to million. XX.X% EBITDA operating adjusted Shack-level grew profit margin generated $XX.X We of and

that XX.X% we had For the year the and severe EBITDA the in year, to our $XX.X our sales adjusted profitability impact full by Omicron million. on earlier XXXX, including grew

exceeded U.S. fourth full [Technical In new Shacks, and million we total XXX in in XXXX sales the $XXX.X Shacks the we in $X.X and billion, for abroad. the opened system-wide including with XX quarter, Difficulty] year,

help first food team is of price single-digits. In members. we're This we X% and in address a menu of in the half the year the to October, to high various was of and the our we XXXX, in increase maintain X% as high third-party March inflation tiers. raised between investments across With This strategy our continued single-digit roll to expect price high of off XX% single-digit to mid prices across price blended will by our this, X.X% and premiums. making the menu paper we XXXX additional delivery across channels needed

positive X.X% traffic. from and the XX the sales quarter, Difficulty] versus in-Shack generated as was traffic to in Price/mix In XXXX, average more prior XX%. We lapped particularly was by returned benefit we stronger quarter, the with orders. third sales, traffic we increases price points mix the menu year quarter. fourth $XX,XXX to In-Shack up a of X% strong supported XQ the was our weekly by partially down patterns. guests offset to in $XX,XXX headwind same-Shack skews up higher by single-order 'XX due grew This prices normal basis that versus in protein in-Shack [Technical -- was a more as performance of

in XXXX, first-time sales XX% of channels Shack purchasers since were from third-party X.X our by the and And In digital as more encouraged into our going frequency have spend experiences quarter, back million app, fourth in app the of and digital delivery. remain and the web digital March to and measures even our web, channel. third back customers omnichannel We -- are Shacks. coming we obtained

and Kiosks on drive one example investments inside our This web than more the domestic Shacks, the work and existing of app, target our here in is end where focused we our is we by in-check An leveraging company-operated orders. year. frequency, and all of spend highest-margin reason of to remains orders the kiosks guests all nearly refining roll our our digital non-traditional optimizing channel channels, conversion. kiosk to are Shacks kiosks and many out on are to on acquisition,

urban Suburban modest a quarter, the X% sales price/mix the Same-Shack traffic year-over-year. This driven X%. In quarter, was and positive fourth and price/mix grew function declines grew positive sales in by traffic of Shack growth.

trends in instances, and, some remained to return work strong mobility January, improved. and overall into Going

Our traffic performed We increases sales generated of and in fourth XX%, $XX,XXX same-Shack driven openings quarter well. of price. also by AWS and

sales the the first quarter, impact quarter. we throughout Now, our our had of recovered Omicron while throughout the remainder on largest moderate in sales so our the comp 'XX, expect January first to

back a more expect quarter levels number strong normalized to to the see we openings come coming addition, months. the in In fourth of sales

revenue $XXX.X up significant dollar. benefited a impact was year-over-year, travel Strong China XX% sales COVID million, demand stronger licensing and Licensing million. license however, in pressures the the and saw Shacks, licensed quarter fourth holiday were and from $X.X U.S. our in pressures from sales

opened bringing to the new our the In count quarter, XX Shacks, licensed our XXXX, partners the licensed at including fourth net end in XXX year. XX of Shack

licensed expect Shack in to to open a XX with Our openings Shack strong off is total licensed expansion quarter-to-date a and we start XX shacks XXXX. year this to six of licensed

higher XX.X% Shack-level Fourth Shack points of inflationary operating performance, profit this P&L. We higher strong labor XXX sales was million year Shack sales, positive versus basis mix. or quarter $XX.X prices, despite efficiencies with channel last our pressures menu across achieved and

performance have layers really more four-point sustained profitability. show place margin quarter we plan up in our to to in the in Our the improvement

those channels it's first, are priority can sales own building we there profitable more So, about a back communicate on and with with better our as guests.

experience. true while We at building our are omnichannel to Shacks a sales footprint guest support on highly in the guest digital our time focused driving same

rollout labor Second, labor utilize one-way in it's better our efficiencies here on and to Shacks. our is kiosk

investment and encouraged to strong returns better markets. how it and on the by the through our select staffing team service to for manage pressures be our members our continue strategy allows in guest We

progress our Third, more along off-premise discipline as of packaging to standards our guests. passing we're of making cost with on higher for well on delivery the as off-premise a profitability portion orders

to pleased menu menu the October pricing, approach results taking with of our initial strategic And then, raise. we're last, a and we're price

uncertainty outlook. around inflation is there However, the

even and targeted do While widely incremental certainly at this may pricing expectations. the XXXX, see yet lower if We that's that not, take protect our paper end discussed. profitability. year Yet inflation seeing later we to we we our these current we're help some not it's something or below hope inflations, in food been

which we progression with quarter, the well know These the operating our the for how we're efficiencies. are here in but the we build improvement. expect four really years, really largest in Shack-level line back every to at not looking margin we're pleased fourth points bucket show will are while linear moving all for needle margins profit quarter and items And coming our

office of the our our However, for we operators. addressing home one priorities right is profitability our believe and

decline which XX% over by were cost a was quarter. In XXX quarter-over-quarter were the in and however, by Packaging and low double-digit offset the menu million inflation. down XXX percent XX.X% costs benefits or other Shack of of our the by basis driven and in year-over-year, up down fries, both paper of basket food points costs fourth items paper points high by XX% year-over-year, were many These and year-over-year. led price, $XX.X sales, single-digit also quarter, dairy with up about up basis food sharply,

and or XX from Shack expenses XX.X% $XX.X basis million XXXX quarter of and were Labor of down in related XXX points quarter-over-quarter. sales, the -- fourth XX.X% down

While efficiency staffing overall improvement the certain in these levels throughout our as we with increasing an members. newly still of Shacks opportunity further as well for have and team hired improved quarter, throughput many

$XX.X were a XXXX, expenses the XX.X% million sales basis lower down quarter XX sales, fourth of operating from from delivery Other points benefiting of Shack or mix.

and inflationary much costs, to repair these our continue and to and costs We on pressures as face expenses in-Shack managing energy, needed are rooms, we focused including but possible. business, to maintain as maintenance our aspects operate dining

million $XX.X quarter fourth were driven by basis expenses with from this or related XX points and really sales, of leverage. sales the down X.X% Shack Occupancy

technology. revenue, up million quarter, to driven was G&A for up the $XX.X in We marketing, by XXXX adjusted ended G&A, $XXX or total across in million year-over-year. our growth from and settlement, total needed XX.X% over XX% investments revenue support with XX.X% of of prior operations, legal

million XX Depreciation quarter million. in was $XX.X we Shacks. new Pre-opening opened $X.X were as costs the

of loss basis, On we pre-tax a $X.X million we On of an million. adjusted the benefit tax a tax a of $X.X and $X.X of reported reported expense million. and GAAP million forma loss $X.X pre-tax in a pro a basis, quarter,

Excluding our These forma Shareholder stock-based the was pro quarter Letter. tax tax of Page the of on XX rate adjustments impact can adjusted in the compensation, found XX.X% be fourth

a loss million net of $X.X loss On per of or basis, attributable an net share. fully million realized a we We exchanged forma diluted negative pro adjusted to Shack Shake share. $XX.X or per and negative a Inc. $X.XX a $X.XX reported

and balance and in the cash cash $XXX.X securities. is marketable quarter ended with strong our and equivalents Finally, we sheet million

or that guidance macroeconomic to on year changes quarter Now, and COVID full further XXXX, disruptions. assume the any conditions in not for material first the does

January stronger-than-expected far quarter, year-over-year. first recently-opened guidance the by Shack from gives inclusive raise seeing million For million and is high percent our the confidence single-digit for performance the of Shacks, February, to so this and we're in results $XXX what sales us to $XXX same-Shack grow sales to to

March results of lapping just compares as get We're January factored far harder impact premium also range, X.X% were the XXXX into and mid-February While as Omicron this reminder, subsided. ahead we took sequentially today. X% menu and in no prices additional to our posted our a delivery guidance going have price we will be the

to domestic We're COVID policy million or zero-COVID range and in China pressures. seeing our strong in million. does the $X.XX for lifting the performance throughout cannot guidance including rebound $X.XX persist We business, closures new to in revenue and licensed since first quarter international strength that and licensed a this be any quarter assume the certain guidance raised our the not will this

So, to XX% now million, million revenue XX% altogether, about $XXX.XX expect taken of we to year-over-year. growing total $XXX.XX

point profit fourth Shack as and margin new range, towards the of the and several teams the We're XX%. to of primarily opening due a the efficiencies. the months profitability, typically Shack-level tracking normalized takes to of calendar quarter managers train guide mid grow to It new to end pressures first lower from for reach quarter. this operating at heavy XX% We the

this in seeing this with pleased we're that we're subside that expect the for group coming However, the pressure and quarters. will sales

In also food the paper quarter, dairy, in costs, these single-digit we're planning packaging. paper fries, high for with and led inflation first by year-over-year and pressures and

our that's low-single digit this but basket, digits costs, a to by decline beef up mid-single the by year-over-year, part percent largest expect of will We be still quarter-over-quarter. and

inputs. remains contract and many we our of do key inflationary outlook The uncertain on not

XXXX. single-digit expect across We Page our inflation We more XX basket food Shareholder pressures of expectations and inflation our for Letter. outlined around details mid-to-high the paper on

mix operating be quarter as the sales We quarter expense first expect in and by to other percent fourth similar in to delivery changes to drivers. and other impacted a be the variable of Shack

of XX% to XX% uncertainties $XXX today, macroeconomic $XXX growth we million the of million XXXX With face year-over-year. our represents G&A to guidance

Our plan affording while towards still invest our a spending, reflects ability disciplined to us grow and approach the business.

unknowns year, of XX% total that year-over-year revenue to leverage that our for business unit towards While business. our range guidance the growth licensed approximately building our there are is relative a represents believe to for impact XX% appropriate. for company-operated we number and the We're this XX% could

million in expect of approximately about with $XX expense million We equity-based compensation $XX.X G&A.

to $XX million of We and million full expect $XX million. million pre-opening $XX to year depreciation $XX of

On we tax, forma an realize this benefit to rate we're at guidance going to adjusted expecting are pro however, provide year. this not tax tax time, minimal a

impacted impacts. Our state a of number other rate and be including mix, factors tax of the by tax our profitability, overall will level credit,

So, And Randy. thank turn your to will I it with you for that, time. back

Randy Garutti

Thanks, Katie.

fuels wrap great Just which thank strategic XXXX. of We're results care our work teams XXXX longer-term up, the can continued what for executing fourth from squarely focus want our things to our with evolving returns. of for to help do That's what drive and through and business begins in culture. our all We believe is our all focused in team. our improvement taking plan, and dedication on ahead showing our the quarter and

we'll look to all sharing you White with in the Burger Truffle we Shack. and seek than soon places As served great a we that need more at right the normal forward and by at food ever believe looks hospitable the XXXX, price to gather, new like out people, warm post-pandemic what people a

safe healthy. and family As and your you always, we stay hope

for that, and open With please ahead call go the operator, questions.

Operator

Thank you.

of [Operator Suisse. be question-and-answer session. with the line Lauren Please Instructions] Silberman now ahead. from our a will We We'll conducting take go Credit question first

Lauren Silberman

much. very you Thank

historically, period Shacks your has the classes noise honeymoon high of with settle. the opened been you same less of at stage where Just trend Shacks, then Shacks, to volumes lot Have Just newer you're my and trying understand of a on if there's honeymoon there? seeing period? to a recognizing getting classes of first there's one, a new at in

Randy Garutti

a in big comp obviously and been Thanks, question, pop. the just dynamic Lauren. great general It's such our a that's because both big of

answer I is, of a no think yes, in the still, lot places and others. in

So, of is Shacks think way then really Los same let's like generally, about York market City the generally, pop some say, a out, and where we Angeles it the in places down. the or we mature a or like, New have come see few don't built quite you huge a

of kind seen better just You and start that of of see gate out sticking. rate to the kind kind of we've run

were places many from so Ohio, are even a out I'll of Dublin far tangential lot part are. away opened if still in last week. We in right? off that so that we people we there But where a in haven't just coming you of have check level give neighborhood there's already a of time. will it's neighborhood who We already. of a number kind example really over to gone an it But or that is in enough Dublin, That out. that Shacks probably Ohio week first

pop this way of something the roughly it think mature time. rises about big a over way think far it's I markets, new we best when a we if time think kind Shacks of and then dynamic. same they trend XX So, is are to that settles enough the is neighborhoods unlikely and/or If the our Shack -- you launch year over Shake market, that to that see then see will believe generally about

Lauren Silberman

opportunities given Thank the Very potential follow-up where around about Just are for might of there are you images? see uniqueness on thinking standardized you Can build commentary helpful. opportunities you. expand out? And your on how a just costs. that? then, sites, with Or costs your more you

Randy Garutti

A ways. of you. Thank Definitely. lot

of experiencing where country still everyone's goes. in we First the environment and around that know construction We're elevated living will and all, see a highly very that. environment we inflationary the

will macro the environment that get us something heads. be where some that that'll tell wins we'll So Hopefully, there.

continuing the proactive of side these doing, better kind the out what the That standardized, we prototypes, of we everything XX-plus with probably of little make drive-thrus, with like we of things. best. just of some leveling to learn in gate the big On we're a roughly mean, example, to each down of doing kind what so that we're first more I them try investment best Drive-thru right? is templated, more cases, can got size of a formats, bit

Now, as design and costs. drive-thrus that for is we some down lot built. mostly we XXXX, true we start the is that a what really to better and our XXXX Shacks, expect for for can formats, is of learn The our same templatize bring and we those to we start same true which core small

lower construction company long do building those. of But those expect -- towards that deals are there, focuses lot this we now. we design format different elevated most we costs, of year. in this don't the reap as how important also environment. And the we've we're So, build-to-suit more and some of for our long do one term to efficient lower it's and profile more at term. think the look our get looking kinds ahead employ them And a the couple a got really some a the We lot back we restaurants, total. and time, of over build again, We of small deals right? we're may rewards opportunity We to type return in average may right of

Lauren Silberman

much. very you Thank

Operator

with the next of Co. take line ahead. Please go Tamas & question Thank Mike you. We'll from Oppenheimer

Mike Tamas

expanding full would bit Thank in be but the you pretty has margins year of unique morning. there's good space. you. for which Hi, XXXX, group I 'XX, guys know versus guidance you're exact giving margin a analysts' consensus quite not a in the

guys if gave XXXX can XXXX? inflation, But digit your in you how I for you high-single to think internally mid-single business versus are guidance know inflation. of modeling that expand from So, qualitatively and sales you you you digit margins labor think mid- sort COGS costs, about just

Katie Fogertey

Thanks for question. the

where our had about full it efforts guidance a on the progression to really four particular are to that to year, saying margins. given for year. continue focus is expand How say key the tasks haven't for not are here. we it's Again, a would on We focused really here, build but It's the up quarter. in we our I building fourth

one, of our that's the grow a us own building And back lot we focus to but our moving our margin profitable. profitable our what too. overall to back pandemic and across just other build channels at sales overall a that awareness tailwind continue on with a are strategies on through most the and So, margin most pressure a come a in where onset driving in-Shack, big sales digital And to sales, kind sales of we'll it's and those entire us. investing our was as certainly, Kiosks sales company. brand being really we're they mix, for take saw sales channels as of in-Shack, more just marketing our to as

first offset about -- we But So, we -- of watching. we've our haven't price any to run new running of expect the on talked digits to second addition talked about we thing potential this to is part strategic throughout raise inflationary about high-single pressures. prices pricing, to menu are before, the approach And which are year.

up We on very that increase, are to the bit here, price could particular. If pick in does be table. start watching beef little a another small,

well as looking labor. to be We're with more efficient

kiosks, our of We've operators very people and just a to and our building it's then, that be sales. team are recently, hours, use more they that the we're our are investing staffed our and Shacks about can optimize teams, can sure making And fully sure to efficient current maximize in grow train lot our again, -- back fully staffs making our hired so it's so, efficiencies we Shacks. to giving with tools open, And members. about

here And of then, final profitability. kind the our focus is on off-premise

we're opportunity. the for about So, charge really done out lot a our talked also we a do I'd to standards trying third-party be look test help through this work as on we've of packaging delivery. a year. packaging premium example another But Randy of that orders. potential there going off-premise refine to

Mike Tamas

mentioned commentary 'XX I that the already on with just want And Okay. the think, store about to in follow-up ground. drive-thrus, being efficient the more 'XX some in then, ones just Randy Thank new design of the relative you. are to and and

about And guest they like see? Or Thanks. expect in of are more of like back-of-house more are that can So, big some think they like when those you to sort what are we facing? changes operations?

Randy Garutti

little our from work. the a even skeleton you things It's really construction, or bit wood use both. it of right. about on from we whether how Everything windows how out, build steel and It's

and And think. XX in varied Some guests saying, all flow, with the about how we do in the this these, of said needed how it's how group optimize note, lanes we will we I've we to, way, as many really learning. to things those positive of previous those work, kitchen wanted varied calls, need first tech okay, really do We -- will built roughly some of us spend but things a for designs, some there.

these powerful sure make Shake things how Shack. that in and ground, can aspects and we get elements keeping unique of but we standardize still we the work, that Now make got to more that, understand the we more as

We're pretty that brings understand it's then is our really this different, to me, this and Shack design. to continued drive-thru, I proposition when you confident you through, makes in that cool, Shake sense you the say, Shake a elevated Shack go always go

really of the We you drive-thru noted -- When are We're it right? also size, right at drop-thru, like we've learn sales learning the our Shack. in that. on but roughly depends before, half the

out to well. as clearly type and are drive-thru we're community we building place gathering atmosphere a inside Shake we we of Shack many out? do And to be So, figure What how building? got need seats

stage. of just leave channel are only today building but and they options believe a that's someday, around choose may we try that we're We at allowing this drive kind it. to and our not like, on whatever guests really We focused of part

to look lot do that. of So, a work on

really efficiency targeting we'll different test as forward. builds the of our and have of I think going learn but lots we're to that look we versions from, we're

Mike Tamas

you. Thank Awesome.

Operator

William Thank go you. ahead. of Sharon next Zackfia take with the Blair. question We'll from line Please

Sharon Zackfia

you isn't quarter, you I is morning. better, this. staffing still if Katie, of But the but getting say, My are where I good that about of think you apologize cellphone on fully comments. to relative optimal. you you like I middle you're Hi, of in talked operation your dropped heard the of fourth are channels? across kind Maybe staffing? hours any give around where framework Can ideal kind all versus currently

your just on the function increasing a and the the guests? curious more I'm new in customers, drive-thru, bring accessibility you. Thank then, And frequency whether seeing you're existing that if of really or of it's

Randy Garutti

better it's over people, hard. On certainly it's last months, gotten the but Sharon. still few Thanks,

we We're hard heck a still time. do benefits, tips, staffed ago, all and including not. feel really still this we're raising tough. wages, things than but challenging clear. we're to all a some some feel it's optimize fully working great the it's certainly for wish But the it environment be highlight that better restaurants XX Let's a for when staffed. people, of to we now was the are as added There have were right we did probably still people, fully were ago combination months do. We feeling it's doing lot most of our our better all there great teams now. we choice think months feel a than development work we are at and And that to career really And we three opportunities, I things everywhere,

optimal push a around to think that, some over the really that to over be There's how move can decide and bit have be going a on to expand a bit, where opportunity and if -- we of continues we that of still world we Shack. Shacks, fourth in that little is hours So, and little quarter. been for of we've we hours, want able somewhere the to some certain this that can

we there's some still opportunity there. So, think

think we're I guests, drive-thru on And learning answer. the is

We are seeing use. our omnichannel

to we people come like because can through experience high we from get drive-thru And we here I figure Shack the is getting trying is to what most pretty guests omnichannel convenience, uses guest who of Shake really more We're often in see well. there. see as an scores go out included we what because all think drive-thru that that it. the channels, people is -- and we're what as us that valuable of the

for early opens opens market they new it we up on little way the real and any think say want it a data to met. our where opportunities to but total areas, in team, addressable So, be estate to real up there, new meet guests

Operator

Thank questions? Sharon, have do you. any You you follow-up? a have further

Sharon Zackfia

you. thank No,

Operator

line take ahead. the from Truist Thank next you. Please Securities. with We'll Jake Bartlett go of question

Jake Bartlett

the open repair existing -- first on But or and like there of is, the to follow-ups like as these staff kind question. margins. go T&E was and Great. Thanks taking in some maintenance, help for around. and kind of abnormal My are 'XX, my first about questions stick costs the had you were stores elevated

that mean in question in how maybe is the So, much to I can was expect we -- 'XX that a go provide away, boost 'XX? normal a so

on. very bigger And sounds some then, on it whether margins. also picture initiatives the side, margin focused going I'm there's wondering bigger just building like you're But on new

it taking Others points be they're at XX-years-old still studies, that getting materially really and have basis doing XX of can improved. look We are whether are really a and time-motion operations and here companies there. savings

thinking as that's going So, up think kind I'm about building big whether you're you whether kind as of on, well wondering of margins?

Katie Fogertey

Yes. Great.

we we that quarter, around impacting pressures a So, called of -- couple did items were out us. last

also our up might inside we Equipment the it. equipment all, impacting can restaurants, impacted first normally where is replace So, availability we're ability service has to and open of we it having it restaurants to was but how replace quickly higher R&M.

a utilities that to team expenses support bit of Higher an So was help little members, higher cost. and overhang. T&E

to higher we're did news focus that going on to was to teams T&E Shacks ways up open that is that of in Shack to in managing also it quarter, fourth number And overall. especially still a function than a overlap openings, continuing the good job we The if but be markets. support quarter, a certain good there's specific of our bring that's the average down that levels. in

the So, key side. on kind on development really more smoothed-out of aiming broader landscape a just that. driver of commodity And on year utility, then is it's towards kind a that would having help

place, in specific yes. to in say, Letter on any tried have But the question Shareholder if we call. plans would outline and your I to about We've the those

taking say is a sales, members, are all team definitely here. training labor efficiencies, driving of of We focus -- our very the across that part let's

Jake Bartlett

doing like maybe kitchen, mean, obviously concepts. of the things whether but I'm materially on really different, been guess just effort. whether on there's would I point, wondering in there efficiencies, young things real just that's a And Okay. that some more growing you've wondering the effort concerted faster whether I the concerted to I'm -- kind at opportunity I is looking to a of -- do think a lot you're efficiently

So, that's just one question.

outlook. investors flat your mid-single focused cost you're things yet on risk. pretty want better inflation most to beef a on digits, actually, The the on good, other we're myself, is that are just the food seeing. outlook, I to I understand, driving and other more think Beef being is as

other tracking you're there? guidance gauge hit other or should poultry those or at big kind we not, items? that big whether on visibility be trying the we is really what the of dairy on So, looking be whether track or should items I'm the out to pieces to figure what to any it's

Katie Fogertey

Yes.

So, we been in for had a It's year general. pressure of inflationary a beef pretty us for for kind while. a

a our mid-single to on beef or we degree than for how are But for year. that inflation year if digit that factoring that. see Certainly, up have and in So, does overall inflation being outlook. side, plays up in out a a of it to calling we'll extreme extreme more in prices beef the pickup ends flat less the reflect

material chicken, of that lot And an are COGS we've a keep called is pick it. the here. oil, other fries, on ups pretty drivers of eye out is to on big then, our of thing fryer is here a don't a it it we dairy, like these it seeing And contract lot

And would we the so, be cadence how the of think year. for kind that inflationary about

Jake Bartlett

Thank you very much.

Operator

take the from next We'll the ahead. BTIG. Saleh go Thank you. with of question Please line Peter

Peter Saleh

response tip the parsing this Great. you to that's Randy, or times consumers Thanks about suburban I a you're urban you question. on maybe employees? consumer implemented. the the been seeing of talk tipping just versus Can taking out the often actually for how the couple think tipping mentioned

Randy Garutti

say, with Yes. think beauty Shack XX%, have the this if of and of don't like, kind Peter. they your as out if a is, to it data something it since and on of the lot." break people any add that "Wow, for make expectation suburban are us very I said XX% ago, And like your Shake this could We that, in we've XX%, beginning where than We're the way we XX And going XX%, said face, our team consumer, we've you no. on this side year urban, a to of start that's other a we not or extra do, asked yes. little Thanks, have to done that years moment restaurants not do great. would you it's many and like always you

a $X whatever, something, thanks And to who or material optionality This people of teams an it's And can that some if or that tipping. don't team. we're are is it, cool feel In $X want more want cases, are care can doing hour like you little and of to to people there's that percentage or it making many work. happy team who how of for $X per impact take it's a $X, lot too. you XX% to and see and our make, to feature our people really give our that's a really

overall that coffee hopeful take experienced feel great that's good we the our both environment want you It's we're will never So, and for a else, like that of have about and to and a cool, our the going this help allow should to strategy to we're hopefully it. to to that make retained, pressure-filled work. team said, totally that and we shop tip, or always don't you people sides right when be appreciate find that's a if It feel anything equation. trying all guests continued to wages them to have of us we care go

Peter Saleh

was helpful. very That you. Thank

suburban had you that little seen Just labor on staffing just urban? lately. and the versus suburban Katie, the that you a between those more for bit spoke, last second. on guys challenging the think the staying on we improvement it of front any -- staff a time of mentioned to Have I kind urban two, maybe some was

Katie Fogertey

and still Shacks are sales -- an talked quarter from get we kind are but exiting our We opportunity there's mean quarter, there a we still of the others, lot and really footing in still started talked some, about, focusing hold. to with as in trends stronger I seeing opportunity some here had suburban regain a and Randy of on the on staffing. about the success Yes. still to that some

Peter Saleh

much. you very Thank

Operator

the question We go ahead. next you. Please Cowen take from the Andrew with Thank Charles of & line Company.

Andrew Charles

confidence given this could you Thank across Great. talk Can that you. with guys industry you fast-casual the mentioned quick gives and later well-documented pricing service? trade-down just you what that power, Randy, XXXX you higher seem the have the about beef price prices guys about as revert in you further open-minded potentially taking more year.

Randy Garutti

Yes.

fast-casual even I taken is. as think this and percentage and to every about be of as certainly very fast-food over than competitors few our last prices in probably We've watching others, many it's got company a we're cautious we something less years. closely

to have we thought here. think of our we've every I time been we we way about remain protect want true beginning way. we more Shake to that Shack and sure cautious to That's margins. since the Yet, make

at to no at or take look inflationary see again, we do we high So, as today how persist here have price. in new continue We'll not plan levels. something pressures February, to sitting do

on think going then, this provides the going value. always great sure make today, making of knows lean to but we got year, our and sure talked we some strategic that nature the level that don't persist value also have. that here all we're the premium at expect they're to executing we're into planning and good to hospitality, Shake about Shack we're operations, We we providing anybody And I that

it So, we be watch. will something

of feel about we it's living in check, been things our look inflationary -- very at are people I per far, in our scores so it, everyone's and generally track we we that and overall, at looking how that got be pressured evidence in items see order But a look I kind environment value the think the the good to think trends if at there. we to pretty values, we consistent. our average

Who like are giant, we be? We're be fast-food to going not to that. going not massive discounting things

us when who Shake capture Truffle. We about Shack ingredient or and are know into of literally lean strategy trade-down want now you says, of we White get in what, a Truffle is, I as restaurant." I continues less, experience to great. affordable think a elevated right $X.XX that I our that an opportunity great going for have position to a person mean, And to who "You never style, that's luxury think can the for something leader could to just and Burger it's that fast-food-type at that I value we're While running get White ingredients. that any

be. intend change we we'll and So that's the price who we anytime see soon. we'll our to mind year on And to you if goes let continue how know

Katie Fogertey

it we're something well, in also generally keep seeing so from Just higher-income group as that a consumers reminder, and pretty over-indexed just also good to trends mind. we to

Andrew Charles

mid-single year guidance. That's for digit to helpful. beef the And Katie, flat- then, guidance

but help aren't will that or and on be yet obviously, just that say comp, seeing So, perhaps baked you would to with that inflation you you on to in. just conservatively any be just mid-single that very Curious fair it is backdrop. guidance a though, conversations guys which range, the with us suggest wide vendors closer flat digit guys any anticipating certain you mentioned inflation the can

to bit year. for Just, the I more guess, the a understand big guidance

Katie Fogertey

first guiding for first mean, difference I -- as digits. the the just the we're we Yes. full year, and the be mid-single between to look quarter down at you quarter

into that contract imply beef a in are that alone on prices year. just beef. just we don't that pickup again We guidance the would in of the is range baked half So back

triangulating they're talking both also vendors expectations. our and to analysts are that and We saying and with industry what hearing broader

So, there around is that definitely a have been we of clear about. wider range uncertainty as

Andrew Charles

That's helpful. guys. Thanks,

Operator

ahead. go with from David question of next take line Tarantino Please We you. Baird. the Thank

David Tarantino

a morning. CapEx. have about Hi. question Good I Katie,

beginning XXXX we would at the above been number think in anticipating I have the year. came what final quite of for the

a So, I I you have maybe where of the then, And if up. was wondering break-down could came from? some follow increases

Katie Fogertey

more I mean were when development it's Difficulty] last much we [Technical calendar we to Sure. it than are we really down, boil year. --

about And and had we construction so, now end number Shacks up we and a the lot under we just of quarter. opened a have the in talked XX year, we last more at right

seeing is think what side it's year. last that on us this our lot pipeline you're more I So, we in having a than were time investment at

IT in then some that we've and to we're around of part -- we digital, that, added rolled the rolling as We in also out in kiosks a and of had also Shacks. really some pickup our have is to larger kiosks investments big chunk investments but out

David Tarantino

have might or going down temporary? investment follow I then, guess to the given come it is, think number good Great. if been a And is some that up willing, that you're maybe about forward of that will

free bigger you the guess, think I cash the over flow several have next cash as free about breakeven or in year you then, kind you on And get where picture positive how years, do a on scales mind might flow? business of

Katie Fogertey

that disciplined building what to build approach really here. Yes. because really back inclusive we're is focused anything. be point, and our to a on our G&A. bringing We're to good we haven't are investments about and any like path And not Shacks feel guidance building talking -- on down But overall we costs given we're that going having a capital on our of for also we profitability,

David Tarantino

you. Thank Great.

Katie Fogertey

you. Thank

Operator

take from of line the Please Northcoast We question Research. ahead. you. Thank Sanderson go with next Jim

Jim Sanderson

profit Hey. Thanks store longer-term. little I to question. a more for talk the bit wanted about margin

us two. profit the you you stronger how as margin you these over the thoughts the drive forward year adding improvements, look margin basis with say make store some labor is and or an maybe let's in maybe If you at can see kiosks, AURs, point into going flow store opportunity so to on improvement through give especially your next there as technology

Just far profit that we at margin? as as should look flow-through how

Katie Fogertey

a that -- up looking at good mix. start way overall Certainly, to channel, that overall it. point. bring impact building really is with when definitely we're we initiatives driving a our to though I think channel of sales but this that's We for be start in back sales. to profitability our our that number There's at sales our swap exactly with own be going factors very including

So, point, share strong contributor overall will nothing really our this improvement. do sales believe be profitability that to at but a we to

Jim Sanderson

Okay.

your a lag that's changing? Any like follow maybe thoughts you for how growth up. it sales stores, to how budgeted that. on or quick -- hours Just is anything Are starting comp labor

Randy Garutti

think I how really demand Well, we it's budget just we meet be. and to can busy think

at to I during ever staffed we the not demand think of better than try the our care and team peak meet of times way we're to the day. the technology we getting both that budget for trying and use, over be lighter and take

an Jim, ongoing journey, be. will So always that that's

nice other Shacks pressured to as any quarter fourth I new that. new in We'll don't really a be the did we But bit think job team little with that heading the data a really real name just into than, first I quarter. there's opened think the say in XX

out we've tighter work be do as quarter about all XXXX. the will that go and level the to first we probably as in we So talked they got through to

Jim Sanderson

very All right. Thank you much.

Operator

Thank of Rahul the line ahead. next We from Morgan. Krotthapalli J.P. question take Please with go you.

Rahul Krotthapalli

a to the I me more are higher your wanted the lowest And be higher highest changes bit in. margin for stores? that a lower- and there margin a just more the comp that Thanks between the like is little side them? something between the things shared doing on -- manager on are stores? there margin is than other margin focused this guys. margin with squeezing the gap the Is be significant opportunities Hey, sales, can stores and what focus And stores like lower-margin addressable here. can -- like readily can

Katie Fogertey

a probably ones have are do it's sales. We within where if have of question. I was our margin Shacks, and our kind to range like performance the great strongest that a of higher base, That's classify the

when group have you We leverage rent, can can leverage great sales, you that a have very your very, occupancy. your and you have sales, Shacks great of strong

so And tend the to performers. best be those

a lot also you of great kind up can levels leverage really then fixed cost. You well. labor And as the get of

Where though, using to we've have we're opportunity throughput bit we that of that sales, a where Shacks now. back kind is those have Kiosk and improve kind overall. lower been up. of in we of the kind And on that's and of broadly been is how of one focused bring little the going improved example work right a lot help a to that's strategy of labor can

we that to in of have maybe the instead Shacks. come having busy when on able Shack people three, then and is, depending orders four were they So, labor to taking the two the people to redeploy kiosk go just how

can Shacks exceptionally So would about it's you're overall, Shacks think areas and we well, but of it. sales. There's that's driver improve where how are biggest areas kind obviously where if certain other doing likely at looking the

Rahul Krotthapalli

the point part adjust comp this to or like you that address the there side this? at tweak anything of manager Is can on

Randy Garutti

manager We by you highly set need bonus. about are what by into we they earn them. a solid pay We viewpoint on GM what's we -- a in. do their feel think reset say I that quarter good good do what have their month to about to of retention, which of manager all, aggressive managers we Well, on competitive level. And We bonuses those incentivized we that important, and most level at targets comp But are first so really feel our kind is vary to we you're Shack side, their which constantly have and that. targets. can right on to hit people's targets, based and

and right? and that, Shack stock All grant see and GMs long stay Shake per shareholders, term that want the act company incentivizes who succeed year want also about good a like our the for GMs really Our this to them are $XX,XXX to we overall. of feel see entrepreneurs get to

we the level. So, at good Shack right we feel like compensation mindset have the

Rahul Krotthapalli

Randy. for going that next that, you forward, are kind spend, like how marketing year follow color I on like And like to look like? can for how Thanks be planning spend What on G&A the it up of just specifically. would --

Randy Garutti

in and Well, to of we guest marketing makes a do few when some continue sense we don't you look my we out haven't in -- that think marketing, cost the it when noted get it we a low-cost, performance categories. break well. comments, but in main the I at G&A, really to Targeted where and deeply invest acquire we is really

we're more would but We we'll big scale too. are about and not see grow, thinking we this stage, media and spending time mass you probably campaign there at as a point, some enough yet money get at

things localized media do of that of sort localized their leaders as of communities. so channels. -- support different campaign we're lots And our marketing trials But managers, in leaders, investing community local regional ops in then, our various brand marketing to and media

we some efforts. And point scale got investment over of more three So, get us. are as the for will to into in the we We've that we benefit brand have. lead to We a Shack year. always good marketing you at marketing years that have ramping those have can we to doors see where keep that main those to this feel sales buckets those budget a scale up and spend where from had the really take about the coming we've

Rahul Krotthapalli

Thanks Understood. it. appreciate the for color, guys. I

Operator

Please question Harbour We take you. of last with ahead. Brian Morgan the the line from Thank go Stanley.

Brian Harbour

morning. the you. Yes. about ask mobile to Good just I wanted Thank app.

of seeing if that's it you're margin of attractive of and and usage still that throughput. probably First, think as fairly of order mobile kind -- a would like that a kind percent today? maybe with increasing I helps sales and what ordering you And looks

you factor are leaning kind some mobile improvement app So, that does how targeting? margin the of of into that into

Randy Garutti

the into have bit. a to few quite leaning last continue for years Definitely Yes. it,

channels, on of and of consistent, about so We don't rely and reliable, business. all we to investment We experience, not We're can difference now also we of in numbers. pieces lot feel day. really overall the proud improve out the web everything right going like we've that got of it's do, all a that continuing there now are our something break just to it's that and the the third-party we digital out break and between but the

engagement We launched White last like drive we app in our Truffle only. things and menu week, do when downloads that launched the we

of bit to We have comparatively strong also delivery Margins straight parties. app. done third that on through little are more campaign our a

continue to we you'll see part lot see our that to we'll app, ways invest. So, there's and frequency of it's love on focus continue a business, it, significant there, usage of solid we a us the

Brian Harbour

to talk sales? Okay. to obviously, moderate kind of sales Great. suburban stores, drive What bit but of from of about a what's suburban perspective, staffed? a those those worse Thanks. the kind little Are of maybe drive Are they key stores? some help else And you've just kind those can same-store continuing better the seen staffed?

Katie Fogertey

Brian, Yes. hi.

added do to then continue So, I we see suburban we to suburban, and in better there's our suburban markets just markets other in just staffing levels. and would And our some a at say be dynamics recapture staffing mindful to also, potential better urban in due to couple sales in really of.

suburban of of in our around first malls, not. locations some what malls or are and centers, near So all, outlet are

of outlet going And going to can of malls that malls to centers so, centers outlet or or that swing going to flows behavior or kind not ebbs going not around. to and of consumer

frankly, just urban throughout Shacks Shacks -- these our then, outperformed look, our And massively COVID. suburban

be bit same-store see between even back pleased continuing cities three hold the shift as on there's share around week And a little and and recovers. we're urban fringes. with lands, the how they're as we're their suburban week of of kind little sales or strength to so, really these expecting restaurants, But performing a to cities, that to bit to of urban go however days a in likely people shift four days a in the

Brian Harbour

Thank you.

Operator

Thank the And for remarks. question-and-answer floor to back sir. Randy you. over gentlemen, to of turn session. we to end CEO, you, Garutti, the Ladies the I'd and Over have closing like reached

Randy Garutti

time this at the you care. your appreciate morning look to soon Shack. Take much, seeing and so everybody. Really Thanks forward

Operator

Ladies this teleconference. today's and gentlemen, concludes

You your your this Thank at time. may participation. you disconnect lines for

Shake Shack (SHAK) 16 Feb 232022 Q4 Earnings call transcript