Shake Shack(US:SHAK)2023-08-03 16:00Part I – Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q2 2023 financial statements detail improved net income, 17.8% revenue growth, and increased total assets to $1.53 billion Condensed Consolidated Balance Sheets As of June 28, 2023, total assets increased to $1.53 billion, total liabilities rose to $1.10 billion, and total equity grew to $431.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 28, 2023 | December 28, 2022 | | :--- | :--- | :--- | | Total Current Assets | $329,518 | $343,988 | | Total Assets | $1,532,816 | $1,494,862 | | Total Current Liabilities | $150,185 | $147,718 | | Total Liabilities | $1,101,457 | $1,075,114 | | Total Equity | $431,359 | $419,748 | Condensed Consolidated Statements of Income (Loss) Q2 2023 saw a turnaround to $7.2 million net income from a prior-year loss, with total revenue increasing 17.8% to $271.8 million Q2 2023 vs. Q2 2022 Income Statement (in thousands, except per share amounts) | Metric | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $271,805 | $230,752 | 17.8% | | Shack Sales | $261,810 | $223,054 | 17.4% | | Licensing Revenue | $9,995 | $7,698 | 29.8% | | Income (Loss) from Operations | $4,748 | ($819) | N/A | | Net Income (Loss) | $7,223 | ($1,303) | N/A | | Diluted EPS | $0.16 | ($0.03) | N/A | YTD 2023 vs. YTD 2022 Income Statement (in thousands, except per share amounts) | Metric | Twenty-Six Weeks Ended June 28, 2023 | Twenty-Six Weeks Ended June 29, 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $525,083 | $434,143 | 20.9% | | Income (Loss) from Operations | $1,559 | ($15,754) | N/A | | Net Income (Loss) | $5,601 | ($12,585) | N/A | | Diluted EPS | $0.13 | ($0.29) | N/A | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $62.2 million for H1 2023, while investing activities used $85.4 million, reducing cash and equivalents to $203.7 million Summary of Cash Flows (in thousands) | Activity | Twenty-Six Weeks Ended June 28, 2023 | Twenty-Six Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $62,191 | $35,164 | | Net Cash Used in Investing Activities | ($85,415) | ($55,454) | | Net Cash Used in Financing Activities | ($3,596) | ($3,782) | | Decrease in Cash and Cash Equivalents | ($26,824) | ($24,074) | | Cash and Cash Equivalents at End of Period | $203,697 | $278,332 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, 471 system-wide Shacks, revenue sources, $250 million convertible notes, and $235.4 million in Tax Receivable Agreement liabilities - As of June 28, 2023, there were 471 Shacks in operation system-wide, consisting of 270 domestic Company-operated Shacks, 35 domestic licensed Shacks, and 166 international licensed Shacks32 Revenue Disaggregation (in thousands) | Revenue Type | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | Shack sales | $261,810 | $223,054 | | Sales-based royalties | $9,712 | $7,486 | | Initial territory and opening fees | $283 | $212 | | Total Revenue | $271,805 | $230,752 | - The company has $250 million in aggregate principal of 0% Convertible Senior Notes due 2028. The fair value of these notes was approximately $199.1 million as of June 28, 20235860 - Total obligations under the Tax Receivable Agreement were $235.4 million as of June 28, 202396110 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights 21.2% system-wide sales growth, 3.0% same-Shack sales increase, improved Shack-level operating profit margin, and increased Adjusted EBITDA Recent Business Trends Q2 2023 trends include a 3.0% Same-Shack sales increase driven by price/mix, average weekly sales of $77,000, and digital sales comprising 33.2% of Shack sales - Same-Shack sales for Q2 2023 increased 3.0% YoY, driven by a 4.3% increase in price/mix and a 1.3% decrease in guest traffic129 - Average weekly sales were $77,000 for Q2 2023, up from $76,000 in Q2 2022, primarily due to higher menu prices130 - Digital sales, including app, website, and third-party delivery, accounted for 33.2% of Shack sales in Q2 2023130 Development Highlights In Q2 2023, the company expanded its footprint by opening 10 new domestic company-operated and 13 new international licensed Shacks - In Q2 2023, Shake Shack opened 10 new domestic company-operated Shacks and 13 new international licensed Shacks131 Results of Operations Q2 2023 total revenue increased 17.8% to $271.8 million, driven by Shack sales and licensing growth, with improved operating expense percentages leading to an operating income of $4.7 million Key Operating Metrics as a % of Shack Sales (Q2 2023 vs Q2 2022) | Expense Category | Q2 2023 (% of Shack Sales) | Q2 2022 (% of Shack Sales) | | :--- | :--- | :--- | | Food and paper costs | 29.0% | 29.6% | | Labor and related expenses | 28.7% | 29.5% | | Other operating expenses | 13.8% | 14.4% | | Occupancy and related expenses | 7.6% | 7.5% | - The increase in Shack sales for Q2 2023 was primarily due to the opening of 40 new domestic Company-operated Shacks since Q2 2022, contributing $31.2 million, and increased menu prices, contributing $17.2 million137 - General and administrative expenses increased 6.7% to $31.5 million, partly due to $1.7 million in professional fees for a non-recurring matter153 Non-GAAP Financial Measures Q2 2023 non-GAAP metrics improved, with Shack-level operating profit increasing to $54.9 million (21.0% margin) and Adjusted EBITDA growing to $37.1 million (13.6% margin) Non-GAAP Financial Highlights (in thousands) | Metric | Thirteen Weeks Ended June 28, 2023 | Thirteen Weeks Ended June 29, 2022 | | :--- | :--- | :--- | | Shack-level operating profit | $54,942 | $42,408 | | Shack-level operating profit margin | 21.0% | 19.0% | | Adjusted EBITDA | $37,050 | $22,887 | | Adjusted EBITDA margin | 13.6% | 9.9% | | Adjusted pro forma net income | $7,880 | $131 | Liquidity and Capital Resources As of June 28, 2023, the company held $203.7 million in cash, with operating activities generating $62.2 million and investing activities using $85.4 million for H1 2023 - The company ended Q2 2023 with $203.7 million in cash and cash equivalents195 - Net cash provided by operating activities for the first twenty-six weeks of 2023 was $62.2 million, a significant increase from $35.2 million in the same period of 2022201202 - Capital expenditures for the first half of 2023 totaled $74.8 million, up from $55.3 million in the prior year period, reflecting increased investment in new store development28204 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to the company's market risk exposure have occurred since the last annual report - There have been no material changes to the company's market risk exposure since the last annual report214 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period214 - No material changes were made to internal control over financial reporting during the quarter ended June 28, 2023215 Part II – Other Information Item 1. Legal Proceedings The company is subject to ordinary course legal proceedings, with no material ultimate liability expected as of June 28, 2023 - Information regarding legal proceedings is incorporated by reference from Note 13, which states that the ultimate liability from ongoing legal matters is not material108218 Item 1A. Risk Factors No material changes to the company's risk factors were reported for the quarter - No material changes to the company's risk factors were reported for the quarter219 Item 5. Other Information Director Jeff Flug adopted a Rule 10b5-1 trading arrangement on May 18, 2023, for the potential sale of 5,960 shares - Director Jeff Flug adopted a Rule 10b5-1 trading plan on May 18, 2023, covering the sale of 5,960 shares217220 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and various corporate agreements