Shake Shack(SHAK) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Total revenue grew by 18% YoY to $272 million, with same-Shack sales up 3$77,000 [8] - System-wide sales increased by 21% YoY to $426 million, driven by growth in the licensed business [8] - Shack-level operating profit reached 21$37.1 million, representing 13.6% of total revenue [25] - Net income attributable to Shake Shack Inc was $6.9 million, or$0.16 per diluted share [42] Business Line Performance - Company-operated business opened 10 new Shacks, with 23 under construction, targeting ~40 new Shacks in 2023 [8] - Licensed business opened 13 Shacks in Q2, targeting 35 new Shacks in 2023, representing 17% system-wide unit growth YoY [9] - Kiosk sales doubled YoY, with high single-digit lift in average order values, contributing to profitability [15][28] - Delivery traffic declined, while in-Shack traffic grew by 4.7%, with Kiosk adoption driving higher profitability [31] Market Performance - Domestic licensed business grew sales by over 50% YoY, led by airports and roadway locations [34] - Strong performance in China, with the first Shack opened in Thailand and a Resort Shack in the Bahamas [20][34] - Urban markets like Washington D C, Boston, and New York City performed well, with July same-Shack sales up 4.5% [34] Strategy and Industry Competition - Focus on recruiting, retaining, and rewarding a winning team, with improved retention and turnover rates [12] - Culinary strategy includes core menu improvements and limited-time offers (LTOs) to drive mix frequency and margins [14] - Drive-through expansion is a key focus, with 18 drive-throughs operating and plans to open ~15 in 2023 [17][18] - Digital investments, particularly in Kiosks, are a priority for enhancing guest experience and profitability [16][28] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of the consumer, particularly in higher-income segments, but acknowledged pressures from lower-income consumers trading down [74] - Beef inflation remains a key uncertainty, with high single-digit inflation in Q2 and potential for low double-digit inflation in Q3 [46][70] - The company is optimistic about reducing build costs by ~10% in 2024, driven by operational efficiencies and standardized formats [19][56] Other Important Information - The company ended Q2 with $295.2 million in cash and cash equivalents, up from$293.4 million in the prior quarter [43] - CapEx spending increased by 48% YoY to $40.4 million, driven by new Shack openings and Kiosk retrofits [43] - Full-year 2023 guidance includes total revenue of$1.07 billion to $1.08 billion, with same-Shack sales growth of low-to-mid single digits [47] Q&A Session Summary Question: Build cost reduction targets for 2024 - The company targets a 10% reduction in build costs for 2024, with improvements in both drive-through and traditional formats [54][56] Question: Labor efficiency improvements - Labor hours per Shack decreased by 50 hours per week YoY, driven by Kiosk adoption, dynamic labor scheduling, and improved training [77][80] Question: Consumer behavior and demand trends - The company noted resilience in higher-income consumers but acknowledged pressures from lower-income consumers trading down [74][75] Question: Kiosk impact on sales and labor - Kiosks drove a high single-digit lift in average order values, with early signs of labor savings and improved profitability [66][67] Question: Beef inflation and mitigation strategies - Beef inflation was high single digits in Q2, with potential for low double-digit inflation in Q3, but no hedging strategy is in place [70][71] Question: Guest experience and operational improvements - The company emphasized improving guest experience through Kiosks, standardized operations, and enhanced service, while reducing costs [82][85] Question: Marketing and brand awareness - The company plans to increase marketing spend to drive brand awareness, particularly in newer markets with lower brand recognition [94][108]