Shake Shack(SHAK) - 2024 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements about growth, strategic initiatives, and liquidity, identifiable by words like "expect," "project," "plan," etc - The report contains forward-looking statements about growth, strategic initiatives, and liquidity, identifiable by words like "expect," "project," "plan," etc[12] - Actual results may differ materially due to risks such as timely Shack openings, increased costs (supply, labor, inflation), digital capabilities, sales at existing Shacks, and general industry risks[13] Part I Item 1. Business Shake Shack Inc. operates and licenses restaurants, emphasizing premium American classics and its "Stand For Something Good" purpose, detailing growth, menu, and operations Overview Shake Shack Inc., formed in 2014, operates and licenses restaurants serving modern American classics with premium ingredients, guided by its "Enlightened Hospitality" vision - Shake Shack Inc. was formed in 2014, is the sole managing member of SSE Holdings, and its Class A common stock trades on the NYSE under "SHAK"[16] - The company serves modern, fun, and elevated American classics using premium ingredients, known for Angus beef burgers, crispy chicken, milkshakes, and house-made lemonades[18] System-wide Shack Count (as of December 25, 2024) | Category | Count | | :------- | :---- | | Company-operated Shacks | 329 | | Licensed Shacks | 250 | | Total System-wide Shacks | 579 | - The company's "Enlightened Hospitality" vision focuses on caring for team members, guests, communities, suppliers, and investors[20][21] Human Capital Management Shake Shack manages its human capital by focusing on team member development, efficient recruiting, and comprehensive benefits for its diverse workforce - As of December 25, 2024, Shake Shack had 12,826 team members, including 12,476 hourly and Shack-level managers and 350 home office personnel[25] - In fiscal 2024, the company launched a new tool to improve recruiting and hiring efficiency, significantly improving applicant flow and leveraging data for labor insights[24] - In fiscal 2024, 3,454 people were promoted, with 68% of new General Managers and 60% of new Area Directors promoted from within[32] - Benefits offered to eligible team members include comprehensive health insurance, a 401(k) plan with matching, paid time off, parental leave, and an Employee Assistance Program[35] Guest Experience The company enhances guest experience through digital innovation, community engagement, and active social media presence, fostering brand loyalty and connection - The digital strategy focuses on "Enlightened Hospitality" through innovative pre-ordering, pick-up experiences, and personalized engagement via company-owned app, web, and kiosk channels[38][41] - In 2024, the company invested in kiosk platform development, improving analytics, redesigning the post-purchase experience, and building cross-sell features[40] - In fiscal 2024, Shake Shack donated over $60,000 worth of food to local communities and partnered with local charities for new Shack openings[43][44] - The company utilizes social media (Instagram, TikTok, X, Facebook) for community engagement and brand storytelling, with over 1.1 million organic posts using "shakeshack" on Instagram[48] - Notable campaigns in fiscal 2024 included "Chicken Sundays," collaborations with Avocados from Mexico and Bearaby, and partnerships with Niman Ranch and Food Recovery Network[51] Culinary Approach & Menu Shake Shack's culinary approach emphasizes premium, all-natural ingredients for its core menu and utilizes an Innovation Kitchen for new item development and quality assurance - The core menu features 100% all-natural, no added hormone, antibiotic-free Angus beef burgers (e.g., ShackBurger®), 100% all-natural chicken, premium potato crinkle-cut fries, and 100% all-natural beef hot dogs[54][55][56][57] - Hand-made daily frozen custard and hand-spun milkshakes use real sugar and milk from dairy farmers who pledge not to use artificial growth hormones[58] - The Innovation Kitchen in New York City is used by the culinary team to explore new menu items, collaborate with other chefs, and ensure quality assurance[60] - Fiscal 2024 LTOs included Korean Style Fried Chicken, Korean BBQ Burger, Summer BBQ Burger, Black Truffle Burger, and various seasonal shakes and lemonades[61][64] Growth Strategies Shake Shack pursues growth through new Shack openings, including diverse formats like drive-thrus, and strategic international expansion, while optimizing investment costs Shack Openings and Closures (Fiscal 2024) | Category | New Openings | Permanent Closures | | :------- | :----------- | :----------------- | | Company-operated Shacks | 43 | 9 | | Licensed Shacks | 33 | 6 | | Total System-wide | 76 | 15 | - For 2025, the company targets approximately 45 new Company-operated Shacks, continuing its multi-format strategy (core, drive-thru, flagship, small format)[62] - In fiscal 2024, the average investment cost for new Shacks decreased by approximately 7.7% to $2.8 million ($2.4 million net of tenant improvement allowances), achieved through structural redesigns and cost optimizations[67] - As of December 25, 2024, Shake Shack had 42 drive-thru Shacks in operation and sees this format as a significant growth opportunity, particularly in coastal markets[69] - New licensed Shacks opened in 13 countries in fiscal 2024, including first Shacks in Canada, Israel, and Malaysia, and five domestic licensed Shacks, including airport and roadway locations[72][73] Operations Shake Shack's operations focus on efficiency through technology, robust supply chain management, stringent food safety, and environmental responsibility, while strategically closing underperforming locations - In fiscal 2024, the company closed nine underperforming Shacks to better focus resources and grow long-term profitability[78] - Efforts in fiscal 2024 included automating back-office processes for efficiency and accuracy, expanding the data warehouse for better insights, and upgrading front-of-house technologies like kiosks for enhanced user experience[80][81] - Cybersecurity efforts include end-user training, third-party tools, updated policies, and a business use policy for artificial intelligence[82] - The company sources 100% all-natural proteins (no added hormones or antibiotics, humanely raised) and 100% cage-free eggs domestically[83] - As of December 25, 2024, Shake Shack relies on a limited number of suppliers for major ingredients (e.g., 40% of ground beef from one supplier) and one broadline distributor for 95% of certain food and beverage ingredients in the U.S[85][86] - Food safety protocols include quarterly third-party assessments, technology for managing procedures, and a comprehensive supplier selection process with mock food recalls[88] - Environmental responsibility efforts include streamlined packaging, sustainable certified materials, and tracking Scope 1 and 2 greenhouse gas emissions[89] Competition Shake Shack competes with diverse food providers, facing pressure from quality ingredients and digital experiences, but differentiates itself through premium offerings and its "Stand For Something Good" ethos - Shake Shack competes with multi-unit international, national, and regional chains, as well as local restaurants, and non-traditional food providers like grocery stores and meal subscription services[90] - The company faces increasing pressure from competitors offering better quality ingredients (e.g., antibiotic-free meat, plant-based alternatives) and new digital experiences[91] - Shake Shack believes its focus on higher quality offerings, responsible sourcing, culinary innovation, and "Stand For Something Good" ethos positions it well for market growth[93] Intellectual Property Shake Shack protects its brand and proprietary products through registered trademarks domestically and internationally, along with exclusive supplier arrangements - As of December 25, 2024, Shake Shack had 26 registered marks domestically and its core marks registered in 83 countries internationally[94] - Proprietary products include the burger recipe, patty grinding specifications, ShackSauce, 'Shroom Burger, chicken breast, chicken bites, buttermilk herb mayo, cheese sauce, and custard bases[95] - The company has exclusive arrangements with suppliers for crinkle-cut fries, ShackMeister Ale, Shack Red/White/Rosé wines, hot dogs, and cherry peppers[95] Government Regulation and Environmental Matters The company is subject to extensive and costly government regulations across various domains, but currently faces no material environmental provisions affecting operations - The company is subject to extensive laws and regulations including nutritional content labeling, food safety, local licensure, building/zoning, and employment regulations[96] - Compliance costs are high and expected to increase, with potential for significant liabilities from non-compliance[96] - No federal, state, or local environmental provisions are currently known to materially affect operations, competitive position, or capital expenditures[97] Seasonality Sales exhibit seasonality, typically peaking in summer and around holidays, while new Shack openings also influence year-over-year and quarter-to-quarter results - Sales are typically higher in summer, slower in fall (back-to-school), and increase around the holiday season[98] - Year-over-year and quarter-to-quarter results are also impacted by the number and timing of new Shack openings[98] Item 1A. Risk Factors This section outlines significant risks to Shake Shack's business, financial condition, and operations, covering growth, industry, economic, regulatory, and structural factors - The company's long-term success depends on selecting, designing, and executing appropriate business strategies in a highly competitive and changing environment[117] - Significant risks include dependence on suitable locations for new Shacks, capital expenditure needs, challenges in new markets, and the ability to maintain and grow sales at existing Shacks[118][123][126][132] - Risks related to the restaurant industry include food safety incidents, rising labor costs, increased food commodity and energy costs, and intense competition[152][157][161][173] - General business and economic risks encompass damage to reputation, changes in economic conditions, susceptibility to local trends, security breaches, and reliance on information technology systems[202][206][208][210][213][215] - Regulatory and legal risks involve compliance with extensive laws (nutritional, food safety, employment, privacy), potential litigation, and the sale of alcoholic beverages[233][196][199] - Organizational structure risks include non-controlling interest holders with potentially differing interests, significant payments under the Tax Receivable Agreement (TRA), and the complexity of being a public company[241][245][252] - Risks related to convertible notes include substantial cash requirements for debt servicing, potential dilution from conversions, and provisions that could delay or prevent takeovers[266][269][270] Risks Related to Our Growth Strategies and Operations Growth strategies and operations face risks from new Shack development challenges, profitability concerns, high costs for premium ingredients, supply chain vulnerabilities, and maintaining corporate culture during expansion - Opening new Shacks is dependent on suitable locations, timely development, and attractive terms, with factors like construction costs, labor shortages, and permits posing risks[118][121] - New Shacks may not be profitable or reach target sales levels quickly, and could cannibalize sales from existing Shacks[129][130] - Investments in drive-thru options require significant capital expenditures and may not generate expected returns[131] - The "Stand For Something Good" purpose leads to higher costs for premium ingredients and competitive team member compensation, potentially impacting operating margins[137] - The company has a limited number of suppliers for major ingredients (e.g., 40% of ground beef from one supplier) and relies on one national distributor for 95% of certain domestic food and beverage ingredients, creating supply chain vulnerability[140][141] - Failure to maintain corporate culture, especially during rapid growth, could damage reputation, diminish team member morale, and hinder recruitment/retention[151] Risks Related to Operating in the Restaurant Industry Operating in the restaurant industry entails risks such as food safety incidents, rising labor and commodity costs, digital and delivery business challenges, international supply chain interruptions, and long-term lease obligations - Food safety risks, including food-borne illnesses and contamination, can adversely affect brand perception, sales, and operating costs, potentially leading to temporary Shack closures[152][155] - Rising labor costs due to intense competition for qualified staff, minimum wage increases, and benefit changes (e.g., Affordable Care Act) can pressure operating margins[158] - Increased food commodity (beef, poultry, fries) and energy costs, driven by market changes, inflation, weather, or disease, can decrease Restaurant-level profit margins or necessitate menu modifications[161][164][166] - The digital and delivery business faces risks from evolving technology needs, reliance on third-party service providers (ordering, payment, delivery), potential cyber attacks, and competitive pricing pressures[168][169][172] - International licensed Shacks are vulnerable to supply chain interruptions for proprietary ingredients (e.g., beef from US, Australia, Uruguay; mushrooms from US, UK, China) due to logistics, tariffs, or sanctions[187][189] - The company is subject to risks associated with long-term, non-cancelable property leases, including obligations if Shacks close and challenges in negotiating renewals[190][191] General Business and Economic Risks General business and economic risks include reputational damage from negative publicity, reduced consumer spending due to economic downturns, susceptibility to local market conditions, cybersecurity threats, international business complexities, and reliance on key management - Damage to reputation from negative publicity (food safety, guest injury, security breaches, employment claims) can significantly reduce brand value and harm business[202][203] - Changes in economic conditions (inflation, unemployment, consumer confidence) can reduce discretionary spending, leading to lower guest traffic, sales, and profitability[206][207] - Concentration of Shacks in urban and coastal areas makes the company susceptible to local economic trends, adverse weather, and regional occurrences[208][209] - Security breaches of guest or team member data, or failures in information technology systems, could lead to operational inefficiencies, loss of sales, reputational damage, and legal liabilities[210][212][213][215] - International business risks include foreign currency exchange rate changes, restrictions on fund transfers, political/social/economic instability, and compliance with complex foreign laws and regulations[217][218] - Inability to adequately protect intellectual property (trademarks, proprietary recipes) could harm brand value and business, and lead to costly litigation[219][221][222][223] - Dependence on key executive management team members means loss of their services could materially adversely affect business and prospects[224] Regulatory and Legal Risks Regulatory and legal risks involve costly compliance with extensive laws, potential class action lawsuits, liabilities from alcohol sales, limitations on net operating loss (NOL) carryforwards, and adverse tax rate changes - Compliance with federal, state, local, and foreign laws and regulations (e.g., nutritional labeling, food safety, employment, privacy, licensing) is costly and complex, with potential for significant liabilities[233][235] - The company is subject to class action lawsuits and other proceedings related to workplace matters, discrimination, food-borne illness, and accidents, which can be costly and damage reputation[196][197][198] - Risks associated with selling alcoholic beverages include license renewal, revocation, and "dram shop" statutes, which could lead to significant judgments[199][201] - As of December 25, 2024, federal NOL carryforwards were $615.8 million ($563.9 million indefinite, $51.9 million expiring 2035) and state NOLs were $334.4 million ($106.7 million indefinite, $227.7 million expiring 2025)[236][238] - The ability to use NOL carryforwards may be limited by "ownership changes" under IRC Section 382 or future statutory/regulatory changes[237][238] - Changes in effective tax rates or adverse outcomes from tax return examinations could negatively affect financial results[239] - If SSE Holdings is treated as a "publicly traded partnership" for U.S. federal income tax purposes, it would be subject to entity-level tax, materially affecting financial results[240] Risks Related to Our Organizational Structure Organizational structure risks include non-controlling interest holders with potentially conflicting interests, significant Tax Receivable Agreement (TRA) payments, dilution from LLC Interest redemptions, high public company costs, anti-takeover provisions, and no expected cash dividends - Non-controlling interest holders control approximately 13.2% of combined voting power and may have interests that conflict with public stockholders, especially concerning the Tax Receivable Agreement[241] - The Tax Receivable Agreement (TRA) requires Shake Shack to pay non-controlling interest holders 85% of realized tax benefits from LLC Interest redemptions and other tax attributes, which are expected to be significant and reduce overall cash flow[245][246] - The right of non-controlling interest holders to redeem LLC Interests for Class A common stock (2,455,713 shares issuable as of Dec 25, 2024) could lead to dilution and stock price volatility[248][249] - The company incurs relatively outsized legal, accounting, and insurance costs due to its public company status and complex organizational structure, including the TRA[250][252][258] - Anti-takeover provisions (e.g., "blank check" preferred stock, classified Board, limits on stockholder actions) could prevent or delay changes in control[253] - The company does not currently expect to pay cash dividends due to funding needs for business expansion and restrictions in SSE Holdings' debt agreements[256] Risks Related to Our Tax Receivable Agreement The Tax Receivable Agreement (TRA) poses risks of accelerated or excessive payments upon certain events, potentially impacting liquidity, and non-reimbursement for disallowed tax benefits - TRA payments may be accelerated or significantly exceed actual tax benefits if there's a merger, asset sale, change of control, or early termination, potentially impacting liquidity[261][262] - The company will not be reimbursed for TRA payments if tax benefits are later disallowed; instead, excess payments are netted against future obligations, but this process can be delayed[265] Risks Related to Our Convertible Notes Convertible notes introduce risks related to significant cash requirements for servicing, potential liquidity impacts from cash settlement, stock dilution, and anti-takeover effects from indenture provisions - Servicing the $250.0 million 0% Convertible Senior Notes due 2028 requires significant cash, and insufficient cash flow could lead to default[266] - If the conditional conversion feature is triggered, the company may need to settle obligations in cash, affecting liquidity, or reclassify the principal as a current liability, reducing net working capital[267] - Conversion of the notes could dilute stockholder ownership or depress the Class A common stock price due to potential sales of newly issued shares[269] - Provisions in the indenture, such as required repurchases or increased conversion rates upon a fundamental change, could make a takeover more costly and deter potential acquirers[270] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments[271] Item 1C. Cybersecurity Shake Shack has a cybersecurity risk management program, informed by the NIST Cybersecurity Framework, to protect critical systems and information, with Board oversight and no material incidents identified - The cybersecurity risk management program is informed by the NIST Cybersecurity Framework and includes risk assessments, security controls, incident response, employee training, and third-party risk management[273][274][281] - Cybersecurity risks are actively monitored, and no prior cybersecurity incidents have materially affected operations, business strategy, results, or financial condition[275] - The Board's Audit Committee oversees cybersecurity risk, receiving quarterly reports and updates from management, led by the CITO (also designated CISO)[276][277][278][279] Item 2. Properties Shake Shack leases its home office and all Company-operated Shacks, as well as an international office, with a system-wide total of 579 Shacks as of December 25, 2024 - The company leases its home office (32,000 sq ft in New York, NY) and all Company-operated Shacks, as well as an international office in Hong Kong[282] System-wide Shack Count by Geographic Location (as of December 25, 2024) | Region | Company-Operated | Licensed | Total | | :----- | :--------------- | :------- | :---- | | DOMESTIC | 329 | 44 | 373 | | INTERNATIONAL | — | 206 | 206 | | SYSTEM-WIDE | 329 | 250 | 579 | Item 3. Legal Proceedings Shake Shack is involved in various ordinary course legal proceedings, generally covered by insurance, with no expected material impact on its financial condition as of December 25, 2024 - The company is subject to ordinary course legal proceedings and claims, generally covered by insurance[285] - As of December 25, 2024, ultimate liability for these matters is not expected to be material to financial condition, results of operations, or cash flows[285] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shake Shack's Class A common stock trades on the NYSE, with no expected cash dividends due to business funding needs and debt restrictions, and its performance is compared against market indices - Class A common stock trades on NYSE (SHAK); Class B common stock is not listed[288] - As of February 12, 2025, there were 159 record holders for Class A common stock and 16 for Class B common stock[289] - The company does not currently expect to pay cash dividends on Class A common stock, intending to retain funds for business operations, and dividend payments are restricted by SSE Holdings' debt agreements[290] 5-Year Cumulative Total Return (December 25, 2019 - December 25, 2024) | Index | 12/25/2019 ($) | 12/30/2020 ($) | 12/29/2021 ($) | 12/28/2022 ($) | 12/27/2023 ($) | 12/25/2024 ($) | | :---------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Shake Shack Inc. | $100.00 | $141.55 | $116.95 | $70.98 | $126.67 | $220.23 | | S&P 500 Index | $100.00 | $118.40 | $152.39 | $124.79 | $157.59 | $197.02 | | S&P 600 Restaurants Index | $100.00 | $126.87 | $121.51 | $96.84 | $117.55 | $139.43 | Item 6. Selected Financial Data This item is not applicable - Item 6, Selected Financial Data, is not applicable[295] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Shake Shack's financial condition and results of operations, covering business overview, recent trends, development highlights, and detailed revenue and expense analysis - The company's purpose, "Stand For Something Good," drives its business, including team, ingredients, community engagement, and Shack design[301] - The discussion includes an overview of recent business trends, development highlights, results of operations, non-GAAP financial measures, liquidity and capital resources, and critical accounting estimates[306][313][315][353][370][389] Overview Shake Shack defines a "fine-casual" category with premium American classics, guided by its "Stand For Something Good" purpose, and tracks key operating measures like Average Unit Volume and Same-Shack Sales - Shake Shack serves modern, fun, and elevated American classics using premium ingredients, establishing a "fine-casual" category[300] - The "Stand For Something Good" purpose is central to the business, guiding team, menu, community engagement, and Shack design[301] - Key operating measures include Average unit volume, Average weekly sales, Same-Shack sales (Company-operated Shacks open 24+ months), and System-wide sales (Company-operated + licensed sales)[302][303][304][305] Recent Business Trends Recent business trends show positive Same-Shack and System-wide sales growth, driven by price mix, despite a decline in digital sales and guest traffic Key Business Trends (Thirteen Weeks Ended December 25, 2024 vs. Prior Year) | Metric | Value (2024) | Change YoY | Drivers | | :----- | :----------- | :--------- | :------ | | Same-Shack Sales | +4.3% | +4.3% | +4.8% price mix, -0.5% guest traffic | | Average Weekly Sales | $79,000 | +$3,000 | Higher menu prices, Shack closures, offset by lower items/check & guest traffic | | System-wide Sales | $500.7 million | +13.3% | | | Digital Sales | -20.1% | -20.1% | | | Digital Sales % of Shack Sales | 36.6% | | | Key Business Trends (Fifty-Two Weeks Ended December 25, 2024 vs. Prior Year) | Metric | Value (2024) | Change YoY | Drivers | | :----- | :----------- | :--------- | :------ | | Same-Shack Sales | +3.6% | +3.6% | +4.3% price mix, -0.7% guest traffic | | Average Weekly Sales | $76,000 | +$1,000 | Higher menu prices, offset by lower guest traffic | | System-wide Sales | $1,922.7 million | +13.0% | | | Average Unit Volume (Company-operated) | $3.9 million | Flat | | | Digital Sales | -20.3% | -20.3% | | Development Highlights Fiscal 2024 saw significant Shack development with 76 new openings and 15 permanent closures system-wide, including expansion into new domestic and international markets Shack Development (Fiscal 2024) | Category | New Openings | Permanent Closures | | :------- | :----------- | :----------------- | | Company-operated Shacks | 43 | 9 | | Licensed Shacks | 33 | 6 | - Fourth quarter 2024 openings included 19 Company-operated Shacks in states like California, Virginia, Nevada, Michigan, Florida, Tennessee, Massachusetts, New Jersey, Maryland, and Pennsylvania[314] - Fourth quarter 2024 licensed openings included locations in Shanghai (China), Bangkok (Thailand), Toronto (Canada), Birmingham (UK), Tijuana (Mexico), Kuala Lumpur (Malaysia), Istanbul (Turkey), Boston Logan International Airport, and St. Louis Enterprise Center[314] Results of Operations (Fiscal 2024 vs. 2023) Total revenue increased by 15.2% in fiscal 2024, driven by Shack sales and licensing revenue, but net income attributable to Shake Shack Inc. decreased by 49.6% to $10.2 million Consolidated Results of Operations (Fiscal 2024 vs. 2023) | Metric (in thousands) | 2024 | % of Total Revenue (2024) | 2023 | % of Total Revenue (2023) | Change (2024 vs 2023) | | :-------------------- | :--- | :----------------------- | :--- | :----------------------- | :-------------------- | | Shack sales | $1,207,561 | 96.4% | $1,046,819 | 96.3% | +15.4% | | Licensing revenue | $45,047 | 3.6% | $40,714 | 3.7% | +10.6% | | TOTAL REVENUE | $1,252,608 | 100.0% | $1,087,533 | 100.0% | +15.2% | | Food and paper costs (% of Shack sales) | $339,940 | 28.2% | $305,041 | 29.1% | +11.4% (decrease as % of sales) | | Labor and related expenses (% of Shack sales) | $338,750 | 28.1% | $304,254 | 29.1% | +11.3% (decrease as % of sales) | | Other operating expenses (% of Shack sales) | $178,381 | 14.8% | $149,449 | 14.3% | +19.4% (increase as % of sales) | | Occupancy and related expenses (% of Shack sales) | $93,069 | 7.7% | $79,846 | 7.6% | +16.6% (increase as % of sales) | | General and administrative expenses (% of Total revenue) | $149,047 | 11.9% | $129,542 | 11.9% | +15.1% (flat as % of revenue) | | Depreciation and amortization expense (% of Total revenue) | $102,468 | 8.2% | $91,242 | 8.4% | +12.3% (decrease as % of revenue) | | Pre-opening costs (% of Total revenue) | $15,547 | 1.2% | $19,231 | 1.8% | -19.2% (decrease as % of revenue) | | Impairments, loss on disposal of assets, and Shack closures (% of Total revenue) | $32,368 | 2.6% | $3,007 | 0.3% | +976.5% (significant increase) | | INCOME FROM OPERATIONS | $3,038 | 0.2% | $5,921 | 0.5% | -48.7% | | Other income, net | $13,251 | 1.1% | $12,776 | 1.2% | +3.7% | | Interest expense | $(2,045) | (0.2)% | $(1,717) | (0.2)% | +19.1% | | INCOME BEFORE INCOME TAXES | $14,244 | 1.1% | $16,980 | 1.6% | -16.2% | | Income tax expense (benefit) | $3,424 | 0.3% | $(4,010) | (0.4)% | +185.4% (shift from benefit to expense) | | NET INCOME | $10,820 | 0.9% | $20,990 | 1.9% | -48.5% | | Net income attributable to non-controlling interests | $613 | 0.0% | $726 | 0.1% | -15.6% | | NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC. | $10,207 | 0.8% | $20,264 | 1.9% | -49.6% | Non-GAAP Financial Measures Non-GAAP measures like Restaurant-level profit, EBITDA, and Adjusted pro forma net income are used to evaluate performance, budgeting, and compensation, showing improved margins in fiscal 2024 - Non-GAAP measures include Restaurant-level profit, EBITDA, and Adjusted pro forma net income, used to evaluate performance, budgeting, and compensation[353][355][361][367] Restaurant-level Profit and Margin (Fiscal 2024, 2023, 2022) | Metric (in thousands) | 2024 | 2023 | 2022 | | :-------------------- | :--- | :--- | :--- | | Income (loss) from operations | $3,038 | $5,921 | $(26,894) | | Restaurant-level profit | $257,874 | $208,229 | $152,170 | | Shack sales | $1,207,561 | $1,046,819 | $869,270 | | Restaurant-level profit margin | 21.4% | 19.9% | 17.5% | EBITDA and Adjusted EBITDA (Fiscal 2024, 2023, 2022) | Metric (in thousands) | 2024 | 2023 | 2022 | | :-------------------- | :--- | :--- | :--- | | Net income (loss) | $10,820 | $20,990 | $(23,105) | | EBITDA | $117,996 | $107,496 | $50,029 | | Equity-based compensation | $15,915 | $15,093 | $13,326 | | Impairments, loss on disposal of assets, and Shack closures | $32,368 | $3,007 | $2,425 | | Adjusted EBITDA | $175,579 | $131,816 | $72,709 | | Adjusted EBITDA margin | 14.0% | 12.1% | 8.1% | Adjusted Pro Forma Net Income (Loss) and EPS (Fiscal 2024, 2023, 2022) | Metric (in thousands, except per share) | 2024 | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | :--- | | Net income (loss) attributable to Shake Shack Inc. | $10,207 | $20,264 | $(21,229) | | Adjusted pro forma net income (loss) | $40,545 | $16,158 | $(12,941) | | Weighted average shares of Class A common stock outstanding—diluted | 44,203 | 43,899 | 39,237 | | Adjusted pro forma fully exchanged weighted average shares of Class A common stock outstanding—diluted | 44,203 | 43,899 | 42,129 | | Adjusted pro forma earnings (loss) per fully exchanged share—diluted | $0.92 | $0.37 | $(0.31) | Liquidity and Capital Resources Shake Shack's liquidity is primarily from operations, cash, and an undrawn Revolving Credit Facility, used for working capital, capital expenditures, and TRA payments, deemed sufficient for the foreseeable future - Primary liquidity sources are cash from operations, cash and cash equivalents ($320.7 million as of Dec 25, 2024), short-term investments, and a $50.0 million Revolving Credit Facility (undrawn)[370][382] - Primary uses of liquidity include working capital, operating and finance lease obligations, capital expenditures (new Shacks, existing Shack investments, IT infrastructure), and payments under the Tax Receivable Agreement (TRA)[372][373] - As of December 25, 2024, TRA obligations totaled $247.7 million, contingent on future taxable income and tax law changes[373] - The company believes existing liquidity is sufficient to fund obligations for at least the next 12 months and the foreseeable future[374] Summary of Cash Flows (Fiscal 2024 vs. 2023) | Activity (in thousands) | 2024 | 2023 | Change | | :---------------------- | :--- | :--- | :----- | | Net cash provided by operating activities | $171,155 | $132,139 | +$39,016 | | Net cash used in investing activities | $(66,079) | $(132,320) | +$66,241 | | Net cash used in financing activities | $(9,017) | $(5,684) | -$(3,333) | | Net Increase (decrease) in cash and cash equivalents | $96,061 | $(5,868) | +$101,929 | | Cash and cash equivalents at end of period | $320,714 | $224,653 | +$96,061 | - Operating cash flow increased by $39.1 million in fiscal 2024, primarily due to improved net results (excluding non-cash charges)[377] - Investing cash flow decreased by $66.2 million, mainly due to a $55.5 million decrease in net proceeds from marketable securities and a $10.7 million decrease in capital expenditures[378] - Financing cash flow increased by $3.3 million in usage, primarily due to higher withholding taxes related to equity awards[379] - The company issued $250.0 million 0% Convertible Senior Notes due 2028 in March 2021[380] - The Revolving Credit Facility permits borrowings up to $50.0 million (with potential for an additional $100.0 million) and had no outstanding amounts as of December 25, 2024[381][382] Off-Balance Sheet Arrangements As of December 25, 2024, Shake Shack has no material off-balance sheet arrangements, except for operating leases without physical possession and certain letters of credit - No off-balance sheet arrangements as of December 25, 2024, except for operating leases without physical possession and certain letters of credit[388] Critical Accounting Estimates Critical accounting estimates involve the valuation of long-lived assets, leases, income taxes, and Tax Receivable Agreement (TRA) liabilities, all requiring significant judgment and future income forecasts - Critical accounting estimates include valuation of long-lived assets, leases, income taxes, and liabilities under the Tax Receivable Agreement (TRA)[390] - In fiscal 2024, $27.6 million in impairment expense was recorded due to the closure of nine underperforming Company-operated Shacks, based on estimated undiscounted future cash flows and fair value[392][393] - Lease accounting involves judgment in determining lease terms and using an incremental borrowing rate (IBR) to present value lease payments[394][395] - Income tax estimates involve assessing deferred tax asset realizability (considering future taxable income) and uncertain tax positions[396][397][398] - As of December 25, 2024, $247.7 million in TRA liabilities were recognized, based on the probability of generating sufficient future taxable income to utilize related tax benefits[399][400] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Shake Shack is exposed to market risks from commodity price fluctuations, foreign currency exchange rates, interest rate changes, and inflation, which can impact operating costs and financial results - Commodity price risks (food, packaging) are influenced by supply/demand, inflation, weather, and currency rates, potentially impacting operating results if not offset by menu price increases or efficiencies[403] - Foreign currency exchange risk affects international licensed Shack sales and licensing revenue; a hypothetical 10% uniform weakening/strengthening of foreign currencies would decrease/increase income from operations by approximately $3.3 million in 2024[404][405] - Interest rate risk stems from the floating-rate Revolving Credit Facility (undrawn as of Dec 25, 2024) and interest earned on cash/cash equivalents[406][407] - Inflation impacts food, paper, construction, utility, labor, and rent costs, posing a risk to consumer demand if price adjustments cannot sufficiently offset cost increases[408] Item 8. Financial Statements and Supplementary Data This item presents Shake Shack Inc.'s audited consolidated financial statements, including Balance Sheets, Income, Comprehensive Income, Stockholders' Equity, and Cash Flows for fiscal years 2024-2022, with accompanying notes - Includes Consolidated Balance Sheets, Statements of Income (Loss), Statements of Comprehensive Income (Loss), Statements of Stockholders' Equity, and Statements of Cash Flows[410] - Management concluded that internal control over financial reporting was effective as of December 25, 2024, having remediated a material weakness related to state deferred taxes identified in fiscal 2023[414][415][416] - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 25, 2024[421][422][434][435] Management's Report Management is responsible for GAAP-compliant financial statements and concluded that internal control over financial reporting was effective as of December 25, 2024, after remediating a prior material weakness - Management is responsible for the preparation and integrity of GAAP-compliant Consolidated Financial Statements[411] - Management concluded that internal control over financial reporting was effective as of December 25, 2024, after remediating a material weakness related to state deferred taxes identified in fiscal 2023[414][415][416] Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting, highlighting deferred tax asset valuation and TRA liability measurement as critical audit matters - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 25, 2024[421][422][434][435] - Critical audit matters included the measurement of the valuation allowance against deferred tax assets and the measurement of the Tax Receivable Agreement liability, both requiring evaluation of the company's inherently subjective future taxable income forecasts[427][428] Consolidated Balance Sheets The Consolidated Balance Sheets show total assets of $1.697 billion and total liabilities of $1.203 billion as of December 25, 2024, with cash and cash equivalents increasing by $96.1 million Consolidated Balance Sheet Highlights (in thousands) | Metric | December 25, 2024 | December 27, 2023 | Change | | :-------------------------------------- | :---------------- | :---------------- | :----- | | Cash and cash equivalents | $320,714 | $224,653 | +$96,061 | | Marketable securities | $0 | $68,561 | -$(68,561) | | Total current assets | $368,216 | $334,432 | +$33,784 | | Property and equipment, net | $551,600 | $530,995 | +$20,605 | | Operating lease assets | $424,611 | $398,296 | +$26,315 | | Deferred income taxes, net | $341,586 | $326,208 | +$15,378 | | TOTAL ASSETS | $1,696,971 | $1,605,857 | +$91,114 | | Total current liabilities | $187,313 | $164,067 | +$23,246 | | Long-term debt | $246,683 | $245,636 | +$1,047 | | Long-term operating lease liabilities | $494,499 | $464,533 | +$29,966 | | Liabilities under tax receivable agreement, net of current portion | $247,017 | $235,613 | +$11,404 | | Total liabilities | $1,203,345 | $1,136,487 | +$66,858 | | Total stockholders' equity attributable to Shake Shack Inc. | $470,018 | $443,417 | +$26,601 | | Non-controlling interests | $23,608 | $25,953 | -$(2,345) | | Total equity | $493,626 | $469,370 | +$24,256 | Consolidated Statements of Income (Loss) Total revenue reached $1.253 billion in 2024, a 15.2% increase, while net income attributable to Shake Shack Inc. decreased by 49.6% to $10.2 million Consolidated Statements of Income (Loss) Highlights (in thousands, except per share) | Metric | 2024 | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | :--- | | Shack sales | $1,207,561 | $1,046,819 | $869,270 | | Licensing revenue | $45,047 | $40,714 | $31,216 | | TOTAL REVENUE | $1,252,608 | $1,087,533 | $900,486 | | TOTAL EXPENSES | $1,249,570 | $1,081,612 | $927,380 | | INCOME (LOSS) FROM OPERATIONS | $3,038 | $5,921 | $(26,894) | | Income tax expense (benefit) | $3,424 | $(4,010) | $(1,180) | | NET INCOME (LOSS) | $10,820 | $20,990 | $(23,105) | | NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $10,207 | $20,264 | $(21,229) | | Earnings (loss) per share of Class A common stock: Basic | $0.26 | $0.51 | $(0.54) | | Earnings (loss) per share of Class A common stock: Diluted | $0.24 | $0.48 | $(0.54) | Consolidated Statements of Comprehensive Income (Loss) Comprehensive income for 2024 was $10.8 million, reflecting net income and a minor foreign currency translation adjustment Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 2024 | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | :--- | | Net income (loss) | $10,820 | $20,990 | $(23,105) | | Change in foreign currency translation adjustment | $2 | $(3) | $(1) | | COMPREHENSIVE INCOME (LOSS) | $10,822 | $20,987 | $(23,106) | | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $10,209 | $20,261 | $(21,230) | Consolidated Statements of Stockholders' Equity Total equity increased to $493.6 million in 2024, driven by net income and additional paid-in capital, despite a decrease in non-controlling interests due to LLC interest redemptions Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 25, 2024 | December 27, 2023 | | :-------------------------------------- | :---------------- | :---------------- | | Total stockholders' equity attributable to Shake Shack Inc. | $470,018 | $443,417 | | Non-controlling interests | $23,608 | $25,953 | | Total equity | $493,626 | $469,370 | - Net income attributable to Shake Shack Inc. was $10.2 million in 2024[451] - Additional paid-in capital increased by $16.3 million from equity-based compensation and $2.2 million from the establishment of TRA liabilities[451] - Non-controlling interests decreased due to the redemption of 378,800 LLC interests[451] Consolidated Statements of Cash Flows Net cash provided by operating activities increased by $39.0 million in 2024, while investing cash flow usage decreased by $66.2 million, resulting in a $96.1 million increase in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | 2024 | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | :--- | | Net cash provided by operating activities | $171,155 | $132,139 | $76,742 | | Net cash used in investing activities | $(66,079) | $(132,320) | $(143,424) | | Net cash used in financing activities | $(9,017) | $(5,684) | $(5,202) | | INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $96,061 | $(5,868) | $(71,885) | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $320,714 | $224,653 | $230,521 | - Operating cash flow increased by $39.0 million, driven by improved net results (excluding non-cash charges)[377][452] - Investing cash flow decreased by $66.2 million, mainly due to lower net purchases of marketable securities and reduced capital expenditures[378][452] - Financing cash flow usage increased by $3.3 million, primarily due to higher withholding taxes related to equity awards[379][452] Notes to Consolidated Financial Statements The notes detail accounting policies for revenue recognition, equity-based compensation, leases, convertible notes, income taxes, and Tax Receivable Agreement liabilities, along with related party transactions - Shake Shack Inc. is the sole managing member of SSE Holdings, owning 94.2% as of December 25, 2024, and consolidates its financial results[455] - Revenue from Shack sales is recognized at the point of sale, with gift card breakage income included. Licensing revenue from territory and opening fees is recognized straight-line over the license term, while sales-based royalties are recognized as sales occur[476][479][481][482] - Equity-based compensation expense is measured at grant-date fair value and recognized over vesting periods, with forfeitures recognized as they occur[483] - All Company-operated Shacks and the home office are leased, with leases classified as operating or finance leases. Operating lease costs are recognized straight-line over the lease term[485][487] - The company's $250.0 million 0% Convertible Senior Notes due 2028 had a fair value of approximately $256.9 million as of December 25, 2024[511][513] - As of December 25, 2024, federal NOL carryforwards were $615.8 million and state NOLs were $334.4 million. A valuation allowance of $260 thousand was maintained for certain state credits and NOLs[548][550] - Liabilities under the Tax Receivable Agreement totaled $247.7 million as of December 25, 2024, representing 85% of expected tax benefits from basis increases due to LLC interest redemptions[554] - Related party transactions include license fees from Hudson Yards Sports and Entertainment ($926 thousand in 2024), payments to Madison Square Park Conservancy ($937 thousand in 2024), and payments to Olo, Inc. ($838 thousand in 2024) and Block, Inc. ($12.1 million in 2024) for technology services[570][572][574][576] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[613] Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 25, 2024, having remediated the material weakness in internal control over financial reporting identified in fiscal 2023 - Disclosure controls and procedures were effective as of December 25, 2024[614] - The material weakness in internal control over financial reporting identified in fiscal 2023 has been remediated as of December 25, 2024[415][416][615] - No other material changes in internal control over financial reporting occurred during the quarter ended December 25, 2024[616] Item 9B. Other Information Daniel Meyer, Chairman of the Board, adopted a Rule 10b5-1 trading arrangement to sell 100,000 shares of Class A Common Stock by August 29, 2025, with no other officers or directors making similar arrangements - Daniel Meyer, Chairman of the Board, adopted a Rule 10b5-1 trading arrangement on November 15, 2024, to sell 100,000 shares of Class A Common Stock by August 29, 2025[617] - No other officers or directors adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter[617] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Item 9C, Disclosure Regarding Foreign Jurisdictions that Prevent Inspections, is not applicable[619] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, corporate governance, Code of Business Conduct, Audit Committee, and Section 16(a) reports is incorporated by reference from the company's 2025 Annual Meeting of Shareholders Proxy Statement and Part I, Item 1 of this Form 10-K - Information on directors, executive officers, corporate governance, Code of Business Conduct, Audit Committee, and Section 16(a) reports is incorporated by reference from the Proxy Statement and Part I, Item 1[622][623] Item 11. Executive Compensation Information on director and executive officer compensation is incorporated by reference from the "Compensation Discussion and Analysis" and "Fiscal 2024 Compensation Tables" sections of the company's Proxy Statement - Information on director and executive officer compensation is incorporated by reference from the Proxy Statement[623] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the Proxy Statement, with 12,112 stock options outstanding and 3,183,664 shares available for future issuances under equity compensation plans as of December 25, 2024 - Information on security ownership is incorporated by reference from the Proxy Statement[624] Securities Authorized for Issuance Under Equity Incentive Plans (as of December 25, 2024) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights ($) | Number of securities remaining available for future issuances under equity compensation plans | | :------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 12,112 | $24.66 | 3,183,664 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on transactions with related persons and director independence is incorporated by reference from the "Certain Relationships and Related Party Transactions" and "Corporate Governance --Composition of our Board of Directors" sections of the company's Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the Proxy Statement[627] Item 14. Principal Accounting Fees and Services Information on principal accountant's fees and services is incorporated by reference from the "Audit and Related Fees" and "Audit Committee Report" sections of the company's Proxy Statement - Information on principal accountant's fees and services is incorporated by reference from the Proxy Statement[628] Part IV Item 15. Exhibits and Financial Statement Schedules This item lists the financial statements and supplementary data filed as part of the report, including Management's Report, Independent Auditor's Report, Consolidated Financial Statements, and Financial Statement Schedules - Includes Management's Report, Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements (Balance Sheets, Income, Comprehensive Income, Stockholders' Equity, Cash Flows), and Notes to Consolidated Financial Statements[632] - Financial Statement Schedules include Condensed Financial Information of Registrant and Valuation and Qualifying Accounts[633] - The Exhibit Index is incorporated by reference[634] Item 16. Form 10-K Summary This item is not applicable - Item 16, Form 10-K Summary, is not applicable[635] SIGNATURES The report is signed by key executives and directors, dated February 21, 2025 - The report is signed by Katherine I. Fogertey (CFO), Robert Lynch (CEO and Director), Daniel Meyer (Chairman), and other directors, dated February 21, 2025[644][646] EXHIBIT INDEX The Exhibit Index lists various corporate documents, agreements, and certifications, including the Amended and Restated Certificate of Incorporation, Bylaws, and Sarbanes-Oxley Act certifications - The Exhibit Index lists various documents including the Amended and Restated Certificate of Incorporation, Bylaws, LLC Agreement, Tax Receivable Agreement, Registration Rights Agreement, Stockholders Agreement, Incentive Award Plans, Employment Agreements, and the Revolving Credit Facility[638][639][640] - It also includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act[640]