Down 28% for the Year Despite Record Revenues Last Quarter, Is Shake Shack a Buy?

Core Insights - Shake Shack reported record revenue of $356 million in Q2 2025, exceeding analyst expectations of $354 million, with adjusted earnings of $0.44 per share compared to the consensus of $0.38 per share [1] - The company experienced a same-store sales growth of 1.8%, which fell short of the expected 2%, leading to a significant drop in share price by nearly 15% on the earnings report day [2] - Despite the disappointing share performance, Shake Shack's net income grew by 77% last quarter, indicating strong underlying business performance [4] Financial Performance - Shake Shack's revenue grew by 12.6% year over year, and the company added 63 stores, marking an 11.5% increase in store count [1] - The company has raised menu prices multiple times, including a 3% increase in the most recent quarter, contributing to revenue growth that has nearly doubled since Q1 2022 [8] - Shake Shack's restaurant-level profit margin increased by 190 basis points to 23.9%, significantly higher than the average fast-casual dining sector margin of 6% to 9% [13] Expansion Plans - Management announced plans to operate or license 1,500 stores, a significant increase from the 330 stores currently open, with 80 to 90 new locations planned for this year [11] - The current rate of store openings is the fastest in the company's 21-year history, indicating strong growth potential [12] Market Position and Valuation - Shake Shack's stock is currently trading at a price-to-earnings ratio just shy of 200, compared to 28 for the S&P 500, suggesting a high valuation [15] - The company is guiding for 20 to 25 new restaurant openings and 14% revenue growth for the third quarter, with low-single-digit same-store sales growth expected [16] Customer Loyalty - Shake Shack has demonstrated strong customer loyalty, being recognized as having the most loyal customer base among fast-casual dining chains [9] - This loyalty is crucial for the company's pricing power, allowing it to raise prices without losing customers [8]