Shake Shack(SHAK) - 2024 Q2 - Quarterly Report

Part I – FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the period ended June 26, 2024, show total assets increased to $1.66 billion, total revenue for the second quarter grew to $316.5 million, and net income reached $10.4 million, with operating cash flow increasing to $84.2 million for the first twenty-six weeks Condensed Consolidated Balance Sheets As of June 26, 2024, total assets increased to $1.66 billion, driven by a rise in cash and cash equivalents to $301.8 million, while total liabilities grew to $1.18 billion, primarily due to increases in long-term operating lease liabilities and tax receivable agreement liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 26, 2024 | December 27, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $301,838 | $224,653 | | Total current assets | $345,680 | $334,432 | | Property and equipment, net | $545,225 | $530,995 | | Operating lease assets | $419,527 | $398,296 | | TOTAL ASSETS | $1,661,758 | $1,605,857 | | Liabilities & Equity | | | | Total current liabilities | $168,088 | $164,067 | | Long-term debt | $246,160 | $245,636 | | Long-term operating lease liabilities | $487,600 | $464,533 | | Liabilities under tax receivable agreement | $246,878 | $235,613 | | Total liabilities | $1,175,393 | $1,136,487 | | Total equity | $486,365 | $469,370 | Condensed Consolidated Statements of Income For the thirteen weeks ended June 26, 2024, total revenue increased 16.5% year-over-year to $316.5 million, with income from operations more than doubling to $10.8 million, and net income attributable to Shake Shack Inc. rising to $9.7 million, or $0.23 per diluted share Income Statement Summary - Thirteen Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $316,496 | $271,805 | 16.5% | | Shack Sales | $305,480 | $261,810 | 16.7% | | 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% | | Diluted EPS | $0.23 | $0.16 | 43.8% | Income Statement Summary - Twenty-Six Weeks Ended (in thousands) | Metric | June 26, 2024 | June 28, 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $607,000 | $525,083 | 15.6% | | Shack Sales | $586,032 | $506,064 | 15.8% | | Income from Operations | $10,816 | $1,559 | 593.8% | | Net Income | $12,596 | $5,601 | 124.9% | | Net Income Attributable to Shake Shack Inc. | $11,708 | $5,414 | 116.2% | | Diluted EPS | $0.28 | $0.13 | 115.4% | Condensed Consolidated Statements of Cash Flows For the twenty-six weeks ended June 26, 2024, net cash provided by operating activities increased to $84.2 million, investing activities provided $0.4 million, and financing activities used $7.5 million, resulting in a period-end cash balance of $301.8 million Summary of Cash Flows - 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 at End of Period | $301,838 | $203,697 | Management's Discussion and Analysis (MD&A) Management reports a 16.7% increase in Shack sales for Q2 2024, driven by new stores and higher menu prices, with same-Shack sales growing 4.0%, while liquidity remains strong with $301.8 million in cash Overview and Key Metrics For Q2 2024, Same-Shack sales increased 4.0%, driven by a 4.8% price/mix increase, while system-wide sales grew 13.5% to $483.7 million, and digital sales, representing 34.4% of Shack sales, increased 20.9% Key Operating Metrics - Q2 2024 vs Q2 2023 | Metric | Q2 2024 | Change vs. Q2 2023 | | :--- | :--- | :--- | | Same-Shack Sales Growth | 4.0% | - | | - Price Mix | 4.8% | - | | - Guest Traffic | (0.8)% | - | | System-wide Sales | $483.7M | 13.5% | | Digital Sales | $105.1M | 20.9% | | Average Weekly Sales | $77,000 | Flat | Development Highlights In Q2 2024, the company expanded its footprint by opening 12 new Company-operated Shacks and 11 new licensed Shacks, bringing the total system-wide Shack count to 547 as of June 26, 2024 - Opened 12 new Company-operated and 11 new licensed Shacks in Q2 2024[139] - Total system-wide Shacks reached 547 as of June 26, 2024 (311 Company-operated, 236 licensed)[140] Results of Operations In Q2 2024, Shack sales rose 16.7% to $305.5 million, primarily from new store openings, with food and paper costs improving to 27.8% of sales, while other operating expenses increased to 14.4% of sales due to higher marketing and delivery costs, leading to a surge in income from operations to $10.8 million Shack Sales Analysis - Q2 2024 | Metric | Amount | % Change YoY | | :--- | :--- | :--- | | Shack Sales | $305.5M | 16.7% | | Contribution from New Shacks | $32.1M | - | | Contribution from Menu Prices | $18.3M | - | Shack-Level Expense Ratios - Q2 2024 vs Q2 2023 | Expense Category | % of Shack Sales (Q2 2024) | % of Shack Sales (Q2 2023) | | :--- | :--- | :--- | | Food and paper costs | 27.8% | 29.0% | | Labor and related expenses | 28.4% | 28.7% | | Other operating expenses | 14.4% | 13.8% | | Occupancy and related expenses | 7.6% | 7.6% | - General and administrative expenses increased 15.4% to $36.3 million in Q2 2024, primarily due to increased investments in marketing and higher wages to support growth[163] Non-GAAP Financial Measures For Q2 2024, Restaurant-level profit was $67.1 million, with a margin of 22.0% of Shack sales, and Adjusted EBITDA increased to $47.2 million, with the margin expanding to 14.9% of total revenue Restaurant-Level Profit Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Income from operations | $10,782 | $4,748 | | Restaurant-level profit | $67,079 | $54,942 | | Shack sales | $305,480 | $261,810 | | Restaurant-level profit margin | 22.0% | 21.0% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net income | $10,382 | $7,223 | | Adjusted EBITDA | $47,209 | $37,050 | | Total revenue | $316,496 | $271,805 | | Adjusted EBITDA margin | 14.9% | 13.6% | Liquidity and Capital Resources As of June 26, 2024, the company's primary liquidity sources included $301.8 million in cash and cash equivalents and an undrawn $50.0 million revolving credit facility, with net cash from operations at $84.2 million for the first half of 2024 - Primary liquidity sources are cash from operations and a cash balance of $301.8 million as of June 26, 2024[200] - The company has a $50.0 million revolving credit facility, which was undrawn as of June 26, 2024[211] - Obligations under the Tax Receivable Agreement totaled $246.9 million, contingent on future taxable income[203] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its exposure to market risks since its Annual Report on Form 10-K for the fiscal year ended December 27, 2023 - No material changes to market risk exposure have occurred since the 2023 Annual Report on Form 10-K[217] Controls and Procedures Management concluded that the company's disclosure controls and procedures were ineffective as of June 26, 2024, due to a material weakness in internal control over financial reporting related to state deferred taxes, with remediation efforts actively underway - Disclosure controls and procedures were concluded to be ineffective as of June 26, 2024[219] - The ineffectiveness is due to a material weakness identified in fiscal 2023 related to the calculation of state deferred taxes and related income tax expense[220] - Remediation efforts are underway, including hiring a new Head of Tax, using third-party consultants, and developing enhanced management review controls[222] Part II – OTHER INFORMATION Legal Proceedings The company is subject to various legal proceedings in the ordinary course of business, which are generally covered by insurance, and as of June 26, 2024, the ultimate liability from these matters was not considered material - Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements[225] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 27, 2023 - No material changes to risk factors have occurred since the 2023 Annual Report on Form 10-K[226] Other Information On August 2, 2024, the company amended the employment agreements for CEO Robert Lynch and CFO Stephanie Sentell to correct the maximum bonus opportunity, aligning them with previously agreed-upon terms - Employment agreements for CEO Robert Lynch and CFO Stephanie Sentell were amended on August 2, 2024, to correct the maximum bonus opportunity calculation[227] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to executive employment agreements, certifications by the CEO and CFO, and XBRL data files - Key exhibits filed include amendments to the employment agreements for Robert Lynch (Exhibit 10.2) and Stephanie Sentell (Exhibit 10.4)[228] - Certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2) pursuant to Section 302 of the Sarbanes-Oxley Act are included[228]