Shake Shack Inc. (NYSE:SHAK) Q2 2022 Earnings Conference Call August 4, 2022 8:00 AM ET Company Participants Annalee Leggett - Senior Manager of Investor Relations & FP&A Randy Garutti - Chief Executive Officer Katie Fogertey - Chief Financial Officer Conference Call Participants Michael Tamas - Oppenheimer Nicole Miller - Piper Sandler Jared Garber - Goldman Sachs Jake Bartlett - Truist Securities Jeff Farmer - Gordon Haskett Brian Vaccaro - Raymond James Andy Barish - Jefferies Chris O'Cull - Stifel Drew ...

Shake Shack Inc. (NYSE:SHAK) Q1 2022 Earnings Conference Call May 5, 2022 5:00 PM ET Company Participants Annalee Leggett - Senior Manager, Investor Relations & FP&A Randy Garutti - Chief Executive Officer Katie Fogertey - Chief Financial Officer Conference Call Participants Michael Tamas - Oppenheimer Nicole Miller - Piper Sandler Jake Bartlett - Truist Securities Brian Mullan - Deutsche Bank Lauren Silverman - Credit Suisse Drew North - Robert W. Baird Andrew Charles - Cowen Jared Hludzinski - JPMorgan Op ...

Financial Data and Key Metrics Changes - In Q4 2021, Shake Shack reported a revenue of $203.3 million, a year-over-year increase of over 38% [22] - System-wide sales for the full year exceeded $1.1 billion, growing over 47% year-over-year and more than 25% compared to 2019 levels [23] - Shack-level operating profit margin was 16.4%, up 40 basis points year-over-year [22][34] Business Line Data and Key Metrics Changes - Same-Shack sales rose 20.8% year-over-year, closing the gap to 2019 Same-Shack sales [22] - Average weekly sales reached $74,000, an increase from $72,000 reported in the previous quarter [23] - The licensed business generated $118.4 million in sales, up 50% year-over-year, driven by new openings and increased holiday air travel [28] Market Data and Key Metrics Changes - Urban Same-Shack sales were 4% below 2019 levels, a significant improvement from down 15% in the prior quarter [24] - Suburban Same-Shack sales were 9% above 2019 levels, showing strong performance across all regions [25] - The company opened 6 new licensed Shacks in Q4, including its second in Shenzhen, China [19] Company Strategy and Development Direction - The company plans to open 45 to 50 company-operated Shacks in 2022, with a focus on new formats like drive-thru [16] - Shake Shack is committed to digital transformation, enhancing guest experience through digital tools and personalized marketing [15][30] - The company aims to maintain its value proposition while navigating inflationary pressures by implementing price increases of 6% to 7% [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery as urban centers and travel patterns normalize post-COVID [12] - The impact of Omicron on staffing and sales was acknowledged, with expectations of continued volatility in the near term [11][27] - February showed a steady uptick in Same-Shack sales, up approximately 13% year-over-year, indicating potential recovery [11][27] Other Important Information - The company ended Q4 with $382.4 million in cash and marketable securities, positioning it well for growth [36] - Labor costs were reported at $57.9 million, or 29.6% of total Shack sales, down from 31.1% in the prior quarter [33] - The company is focused on elevating its workforce, with a 13% increase in hourly starting wages [13] Q&A Session Summary Question: How should the comment on protecting margins be interpreted? - Management clarified that the planned price increase of 6% to 7% is necessary due to persistent inflation and cost pressures, with a focus on long-term sales recovery [40] Question: What is the pricing elasticity and how does it affect pricing power? - Management believes they have strong pricing power, supported by a tiered pricing approach and positive reception to previous price increases [45][46] Question: What are the expectations for average weekly sales post-Omicron? - Management expressed confidence in returning to pre-COVID sales levels, emphasizing the importance of urban recovery and consumer behavior [56] Question: What is the long-term outlook for restaurant margins? - Management maintained that long-term guidance for margins remains unchanged, with a focus on rebuilding profitability [66] Question: What marketing initiatives are planned for 2022? - Management indicated plans for fun collaborations and increased digital marketing efforts to create buzz around the brand [68]

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 reached $193.9 million, marking a 49% year-over-year increase and the highest revenue in the company's history [23][7] - Average weekly sales for Q3 were $72,000, exceeding historical seasonality expectations, while October's average weekly sales were $70,000, above September levels [24][26] - Same-Shack sales rose 24.8% year-over-year in Q3, with October Same-Shack sales just 1% below 2019 levels, showing significant recovery [25][26] Business Line Data and Key Metrics Changes - The company experienced approximately 100 days of temporary closures due to COVID and extreme weather, resulting in an estimated $850,000 in lost sales [24] - Same-Shack sales were about 7% below 2019 levels in Q3, improving from a 12% decline in Q2 [25] - Suburban Same-Shack sales were reported to be 7% above 2019 levels in October, indicating strong performance in suburban locations [27][30] Market Data and Key Metrics Changes - Urban Same-Shack sales were down 11% from 2019 levels in September, improving to down 8% in October, reflecting a steady urban recovery [26] - The company noted that all regions outside of New York City had more than fully recovered to 2019 sales levels as of October [27] - The licensed business generated $6.9 million in revenue for the quarter, benefiting from the relaxation of COVID-related restrictions [34] Company Strategy and Development Direction - The company is focused on elevating its workforce, investing in higher wages and retention bonuses to attract and retain talent [10][13] - A digital transformation is underway, with investments in omni-channel guest experiences and new menu items launched exclusively through the app [14][15] - Plans for 2022 include opening 45 to 50 new Shacks, with a focus on suburban locations and drive-thru formats [17][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing profitability challenges due to rising costs of goods and labor, with beef prices up approximately 30% year-over-year [11][39] - The company remains cautious about potential supply chain disruptions and labor market volatility as it approaches the colder months [35][36] - Despite challenges, management expressed confidence in the company's growth trajectory and the ability to navigate through uncertainties [48][49] Other Important Information - The company reported a Shack level operating margin of 15.8% for Q3, within the guided range, but noted margin dilution due to labor and commodity inflation [37][39] - G&A expenses for Q3 were $20.5 million, reflecting continued investments in marketing and technology [43] - The balance sheet remains strong, ending the quarter with $401.5 million in cash and marketable securities [47] Q&A Session Summary Question: Impact of operational delays on average weekly sales - Management noted that while there were temporary closures and some staffing challenges, the impact on average weekly sales was not broad-based [51][52][53] Question: Future pricing strategy amid inflation - Management indicated a history of conservative pricing but acknowledged the potential for further price adjustments if inflationary pressures continue [54][55][56] Question: Suburban sales trends and drivers - Management highlighted a strong rebound in traffic across suburban formats, with successful limited-time offers contributing to sales growth [59][60][61] Question: Beef price outlook for Q4 - Management reported that while beef prices spiked in Q3, they have seen some stabilization but remain in an inflationary environment [63][64] Question: Menu innovation amidst supply chain challenges - Management acknowledged disruptions but emphasized that these challenges have not materially distracted from their menu innovation efforts [75]