Shake Shack Inc. (NYSE:SHAK) Q2 2024 Earnings Conference Call August 1, 2024 8:00 AM ET Company Participants Michael Oriolo – Vice President, FP&A and Investor Relations Rob Lynch – Chief Executive Officer Katie Fogertey – Chief Financial Officer Conference Call Participants Brian Mullan – Piper Sandler Lauren Silberman – Deutsche Bank Brian Vaccaro – Raymond James Michael Tamas – Oppenheimer & Company Andrew Charles – TD Cowen Christine Cho – Goldman Sachs Brian Harbour – Morgan Stanley Peter Saleh – BTIG ...

Core Insights - Shake Shack reported a strong Q2 2024 performance with a revenue increase of 16% year over year to $316 million, surpassing management's guidance and analyst expectations [2] - The company opened 12 new company-owned restaurants and 11 licensed locations, contributing to growth alongside a same-store sales increase of 4% [2] - Operating income for Q2 was nearly $11 million, a significant rise from less than $5 million in the same quarter last year [2] - Management anticipates generating approximately $1.24 billion in full-year revenue, reflecting a growth rate of at least 14% [3] - Shake Shack is on track to achieve positive free cash flow for the first time since 2017, which is a positive indicator for investors [2] Financial Performance - Q2 revenue reached $316 million, marking a 16% increase year over year [2] - Operating income improved to nearly $11 million, compared to less than $5 million in Q2 of the previous year [2] - The company expects to generate full-year revenue of about $1.24 billion, indicating a growth rate of at least 14% [3] Market Position - Shake Shack's stock rose nearly 18% following the Q2 earnings report, reflecting positive investor sentiment [1] - The company has seen a stock price increase of almost 40% year to date, suggesting strong market performance [3] - Despite positive growth, the operating margin for Q2 was only 3%, indicating potential vulnerability to market headwinds [3]

SHAKE === SHACK® Second Quarter 2024 Shareholder Letter GET LOST IN OUR BBQ SAUCE Bite into something tangy-sweet with the Carolina BBQ Burger or keep it classic with our Smoky Classic BBQ Burger. Q2 2024 HIGHLIGHTS BUSINESS OVERVIEW SECOND QUARTER 2024 HIGHLIGHTS: • Total revenue grew 16.4% year-over-year to $316.5m. • Shack sales grew 16.7% year-over-year to $305.5m. • Licensing revenue grew 10.2% year-over-year to $11.0m. • System-wide sales grew 13.5% year-over-year to $483.7m. • Average weekly sales (A ...

Company Performance - Shake Shack reported quarterly earnings of $0.27 per share, matching the Zacks Consensus Estimate, and an increase from $0.18 per share a year ago [1] - The company posted revenues of $316.5 million for the quarter ended June 2024, exceeding the Zacks Consensus Estimate by 0.85% and up from $271.81 million year-over-year [1] - Over the last four quarters, Shake Shack has surpassed consensus EPS estimates three times and has topped consensus revenue estimates three times as well [1] Stock Movement and Outlook - Shake Shack shares have increased approximately 18.2% since the beginning of the year, outperforming the S&P 500's gain of 15.8% [2] - The sustainability of the stock's price movement will largely depend on management's commentary during the earnings call [2][3] - The current consensus EPS estimate for the upcoming quarter is $0.22 on revenues of $315.07 million, and for the current fiscal year, it is $0.75 on revenues of $1.25 billion [4] Industry Context - The Retail - Restaurants industry, to which Shake Shack belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [5] - Another company in the same industry, Potbelly, is expected to report a quarterly earnings decline of 28.6% year-over-year, with revenues projected to be $119 million, down 6% from the previous year [5][6]

[Q2 2024 Financial Highlights](index=1&type=section&id=Shake%20Shack%20Announces%20Second%20Quarter%202024%20Financial%20Results) Shake Shack reported strong Q2 2024 financial results with significant revenue and income growth, alongside continued restaurant expansion Q2 2024 Key Financial Metrics vs. Q2 2023 (in millions) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $316.5M | $271.8M | +16.4% | | Same-Shack Sales | +4.0% | N/A | N/A | | Operating Income | $10.8M | $4.7M | +129.8% | | Net Income | $10.4M | $7.2M | +44.4% | | Adjusted EBITDA | $47.2M | $37.1M | +27.4% | | Diluted EPS | $0.23 | N/A | N/A | | Adjusted Pro Forma Diluted EPS | $0.27 | N/A | N/A | - The company expanded its footprint by opening **twelve new Company-operated Shacks**, including **three drive-thrus**, and **eleven new licensed Shacks** during the second quarter of 2024[1](index=1&type=chunk) [Financial Statements](index=3&type=section&id=Financial%20Statements) This section details Shake Shack's financial position, performance, and cash flows through consolidated statements [Condensed Consolidated Balance Sheets](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of June 26, 2024, Shake Shack's total assets increased to $1.66 billion from $1.61 billion at the end of 2023, primarily driven by a significant rise in cash and cash equivalents to $301.8 million. Total liabilities also grew to $1.18 billion from $1.14 billion, while total equity increased to $486.4 million from $469.4 million over the same period Balance Sheet Summary (in thousands) | Account | June 26, 2024 | December 27, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $301,838 | $224,653 | | Total Assets | $1,661,758 | $1,605,857 | | Total Liabilities | $1,175,393 | $1,136,487 | | Total Equity | $486,365 | $469,370 | [Condensed Consolidated Statements of Income](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) For the thirteen weeks ended June 26, 2024, Shake Shack reported total revenue of $316.5 million, a 16.4% increase year-over-year, driven by growth in Shack sales. Operating income more than doubled to $10.8 million from $4.7 million, and net income rose to $10.4 million from $7.2 million in the prior-year quarter, reflecting improved profitability Income Statement Highlights - Thirteen Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $316,496 | $271,805 | +16.4% | | Income from Operations | $10,782 | $4,748 | +127.1% | | Net Income | $10,382 | $7,223 | +43.7% | | Net Income Attributable to Shake Shack Inc. | $9,668 | $6,948 | +39.2% | Income Statement Highlights - Twenty-Six Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $607,000 | $525,083 | +15.6% | | Income from Operations | $10,816 | $1,559 | +593.8% | | Net Income | $12,596 | $5,601 | +124.9% | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For the first twenty-six weeks of 2024, net cash provided by operating activities was $84.2 million, a significant increase from $62.2 million in the same period of 2023. Investing activities provided a small cash inflow of $0.4 million, a major shift from an $85.4 million use of cash in the prior year, largely due to maturities of marketable securities. The company's cash and cash equivalents increased by $77.2 million, ending the period at $301.8 million Cash Flow Summary - Twenty-Six Weeks Ended (in thousands) | Activity | June 26, 2024 | June 28, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $84,210 | $62,191 | | Net Cash Provided by (Used in) Investing Activities | $428 | ($85,415) | | Net Cash Used in Financing Activities | ($7,452) | ($3,596) | | **Increase (Decrease) in Cash** | **$77,185** | **($26,824)** | | **Cash and Cash Equivalents at End of Period** | **$301,838** | **$203,697** | [Non-GAAP Financial Measures](index=6&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section reconciles key non-GAAP financial measures to comparable GAAP measures for enhanced comparability [Reconciliation of Restaurant-Level Profit](index=6&type=section&id=Restaurant-Level%20Profit) The company uses Restaurant-level profit, a non-GAAP measure, to evaluate the profitability of its individual restaurants. For Q2 2024, Restaurant-level profit was $67.1 million with a margin of 22.0% of Shack sales, an improvement from $54.9 million and a 21.0% margin in Q2 2023. This measure is reconciled from the GAAP measure, Income from Operations, by excluding corporate-level expenses - **Restaurant-level profit** is a key internal metric used for budgeting, forecasting, and assessing performance, defined as Shack sales less direct Shack-level operating expenses (**Food and paper**, **Labor**, **Other operating**, and **Occupancy**)[18](index=18&type=chunk)[19](index=19&type=chunk) Restaurant-Level Profit Reconciliation - Thirteen Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | | :--- | :--- | :--- | | Income from operations (GAAP) | $10,782 | $4,748 | | **Restaurant-level profit (Non-GAAP)** | **$67,079** | **$54,942** | | Shack sales | $305,480 | $261,810 | | **Restaurant-level profit margin** | **22.0%** | **21.0%** | [Reconciliation of EBITDA and Adjusted EBITDA](index=8&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) Adjusted EBITDA, a key non-GAAP metric used by management, increased 27.4% to $47.2 million in Q2 2024 from $37.1 million in Q2 2023. The Adjusted EBITDA margin expanded to 14.9% from 13.6% year-over-year. These figures are reconciled from the GAAP measure, Net Income, by adding back interest, taxes, D&A, and other specific adjustments like equity-based compensation - **Adjusted EBITDA** is a key metric used internally for budgets, forecasts, and incentive compensation, as it excludes items not indicative of ongoing core operating performance[23](index=23&type=chunk) Adjusted EBITDA Reconciliation - Thirteen Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | | :--- | :--- | :--- | | Net income (GAAP) | $10,382 | $7,223 | | EBITDA (Non-GAAP) | $39,446 | $30,100 | | **Adjusted EBITDA (Non-GAAP)** | **$47,209** | **$37,050** | | **Adjusted EBITDA margin** | **14.9%** | **13.6%** | [Reconciliation of Adjusted Pro Forma Net Income and EPS](index=10&type=section&id=Adjusted%20Pro%20Forma%20Net%20Income%20and%20Adjusted%20Pro%20Forma%20Earnings%20Per%20Fully%20Exchanged%20and%20Diluted%20Share) The company reported adjusted pro forma net income of $12.1 million for Q2 2024, up from $7.9 million in the prior-year quarter. This resulted in an adjusted pro forma diluted earnings per share of $0.27, a significant increase from $0.18 in Q2 2023. This non-GAAP measure adjusts Net income attributable to Shake Shack Inc. for non-recurring items and assumes the full exchange of LLC interests to improve comparability - This measure is used to evaluate performance over time and against competitors by creating a comparable corporate and tax structure, assuming the **full exchange of all outstanding LLC Interests**[28](index=28&type=chunk) Adjusted Pro Forma Net Income & EPS - Thirteen Weeks Ended (in millions) | Metric | June 26, 2024 | June 28, 2023 | | :--- | :--- | :--- | | Net income attributable to Shake Shack Inc. (GAAP) | $9.7M | $6.9M | | **Adjusted pro forma net income (Non-GAAP)** | **$12.1M** | **$7.9M** | | Earnings per share of Class A common stock—diluted (GAAP) | $0.23 | $0.16 | | **Adjusted pro forma earnings per fully exchanged share—diluted (Non-GAAP)** | **$0.27** | **$0.18** |

Core Viewpoint - Shake Shack Inc. is expected to report strong second-quarter 2024 earnings, with a consensus estimate of 27 cents, reflecting a 50% year-over-year increase, and revenues projected at $314.2 million, indicating a 15.6% growth from the previous year [2][3]. Financial Performance Expectations - The earnings estimate for the second quarter of 2024 is 27 cents, which is a 50% increase compared to the same quarter last year [2]. - Revenue expectations are set at $314.2 million, suggesting a 15.6% growth from the prior year's actuals [2]. Factors Influencing Performance - Shake Shack's performance is anticipated to benefit from robust digital marketing strategies, strong Same-Shack sales, and ongoing unit expansion efforts [3]. - The company has invested significantly in digitization to enhance guest engagement and personalized marketing, which is expected to boost customer conversions [3]. - Same-Shack sales are projected to increase by 2.5%, contributing to an overall sales increase of 15.5% year over year, reaching $302.4 million [3]. Cost Pressures - Rising costs, particularly for premium ingredients, are likely to pressure the company's bottom line, with food and paper costs expected to rise by 13.3%, labor costs by 11.4%, and other operating expenses by 20.6% compared to the previous year [4]. Earnings Prediction Model - The Zacks model indicates a potential earnings beat for Shake Shack, supported by a positive Earnings ESP of +1.21% and a Zacks Rank of 3 [5].

The market expects Shake Shack (SHAK) to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended June 2024. This widely-known consensus outlook is important in assessing the company's earnings picture, but a powerful factor that might influence its near-term stock price is how the actual results compare to these estimates.The earnings report, which is expected to be released on August 1, 2024, might help the stock move higher if these key numbers are be ...

Company Overview - Shake Shack Inc. is expected to report Q2 results around August 1, with analysts projecting revenues of $314.5 million, a year-over-year growth of 15.7% [3] - The expected EPS is $0.27, a significant increase from $0.18 in Q2 of the previous year [3] Financial Guidance - The company guided for revenues between $308.9 million and $314.3 million, driven by approximately 10 company-operated openings and 8-9 licensed openings, along with low single-digit Same-Shack sales growth [3] - Analysts anticipate revenues to exceed the company's guidance, with a restaurant-level profit margin expected to be between 21.5% and 22.0%, up from 21.0% in Q2 2023 [3][4] Industry Context - The restaurant industry is currently facing challenges, with slower traffic impacting sales across various chains [4] - Comparable restaurant sales have shown declines in other companies, while Shake Shack reported a Same-Shack sales growth of 1.6% [4] Recent Developments - Shake Shack appointed Stephanie Sentell as the new Chief Operations Officer, bringing 11 years of experience from Inspire Brands [5] - This appointment follows the recent change in CEO, with Rob Lynch from Papa John's taking the role [5] Valuation Insights - The stock's fair value estimates are calculated at $37.11, which is 56% below the current stock price, indicating a poor risk-to-reward scenario [6] - Revenue estimates for 2024 and 2025 have been slightly lowered due to industry weakness, maintaining an 11.7% CAGR from 2023 to 2033 [6] Market Sentiment - Wall Street estimates for Shake Shack's Q2 are viewed with skepticism due to the weak industry backdrop, suggesting a potential earnings miss [9] - The strong growth in Same-Shack sales observed in April is expected to taper off, raising concerns about future performance [9]

Shake Shack (SHAK) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade is essentially a reflection of an upward trend in earnings estimates -- one of the most powerful forces impacting stock prices.The sole determinant of the Zacks rating is a company's changing earnings picture. The Zacks Consensus Estimate -- the consensus of EPS estimates from the sell-side analysts covering the stock -- for the current and following years is tracked by the system.Since a c ...

Shares of Shake Shack Inc. (SHAK) have increased 20.1% year to date against the industry’s decline of 4.5%. The company is benefiting from expansion, marketing innovation and operational efficiencies. Also, focus on digital initiatives bodes well. However, inflationary pressures are a concern.Let’s discuss why investors should retain the stock for the time being.Factors Driving GrowthShake Shak focuses on store openings to effectively strategize its expansion plans. The company is pleased with the sales lev ...