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Shake Shack (SHAK) Rides on Expansion Efforts, High Costs Ail
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Shake Shack Inc. (SHAK - Free Report) has seen substantial success, driven by robust same-shack sales, strategic expansion and innovative menu offerings. However, high costs remain a concern for the company.
Shake Shack is committed to effectively strategizing its expansion plans. In fiscal 2023, the company opened 41 new domestic Company-operated Shacks and 44 new licensed Shacks. In 2024, it remains on track to open around 80 new Shacks system-wide, representing approximately 15% growth in the number of units.
Additionally, the company is developing a strong pipeline for future. SHAK is dedicated to reducing the costs of its new builds, with a goal of cutting build expenses by 10% in 2024. It is also working on setting up a 2025 pipeline with even better cost efficiencies. These improvements will allow the company to consider new real estate opportunities while striving to maintain its current levels of return and profitability.
Shake Shack continues to impress investors with robust global same-shack sales growth. In the first, second, third and fourth quarters of fiscal 2023, the metric increased 10.3%, 3%, 2.3% and 2.8%, respectively, year over year. The uptrend continued in first and second-quarter fiscal 2024, with the metric increasing 1.6% and 4%, respectively, year over year. For fiscal 2024, the metric is estimated to grow by low single digits year over year. Our model predicts same-shack sales to gain 2.4% year over year in 2024.
The company, which shares space with McDonald's Corporation (MCD - Free Report) , Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) and BJ's Restaurants, Inc. (BJRI - Free Report) has been making more investments in digitization to sustain its digital guest enhancement strategies in the near term. The company’s main focus for digital investment will be to improve the Kiosk experience through greater omnichannel adoption and long-term guest connection with all the new features and offers made available on the platform. These updates are expected to enhance guest experience and convenience, resulting in higher average checks.
However, inflationary pressure is likely to hurt the company’s performance. Its premium ingredients have witnessed a significant increase in price in a very short period. Total expenses in the second quarter were $305.7 million compared with $267.1 million in the prior-year quarter. Commodity inflation was in the low single digits, with mid-single-digit increases in beef costs and ongoing pressure on fries. The inflationary pressures and wages, food and paper costs might hurt the company’s margins.
Commodity inflation in third-quarter 2024 is anticipated to be in the low single digits, while the forecast for 2024 commodity inflation has been revised down from low single digits to flat or slightly positive. Labor inflation outside of California and other regions with high wage growth is expected to remain in the low single digits. Additionally, a 1% decrease in menu prices is scheduled for October.
Year-over-year increases in marketing spend and promotional efforts, along with slightly higher pricing in the second half than anticipated and throughput initiatives, are expected to counterbalance additional macroeconomic challenges.
A Brief Review of Other Stocks
McDonald's: The company is likely to benefit from menu innovation, a loyalty program and unit expansion. It believes that the strengthening of the core menu and solid marketing are likely to pave the way for additional growth in the upcoming periods.
The company stated achieving loyalty system-wide sales of approximately $7 billion and $26 billion in second-quarter 2024 and the trailing twelve-month period, respectively. MCD is expanding its $17 billion brands across the company’s core menu and experiencing growth in digital sales. However, it is facing challenges with weaker comparable store sales growth. In second-quarter 2024, global comps declined 1% against a rise of 11.7% reported in the prior-year quarter.
Robin Gourmet Burgers: Red Robin is benefiting from its guest loyalty program and strategic plans. On May 22, 2024, the company launched the revamped Red Robin Royalty Program, marking a successful step in its strategy to revitalize the brand within the casual dining industry. The loyalty program’s membership is set to reach 14 million guests soon.
BJ's Restaurants: The company is benefiting from productivity and margin enhancement initiatives and operational excellence across its restaurants. Also, BJRI’s expansion, remodeling and digital initiatives are encouraging for its prospects.
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Shake Shack (SHAK) Rides on Expansion Efforts, High Costs Ail
Shake Shack Inc. (SHAK - Free Report) has seen substantial success, driven by robust same-shack sales, strategic expansion and innovative menu offerings. However, high costs remain a concern for the company.
Shake Shack is committed to effectively strategizing its expansion plans. In fiscal 2023, the company opened 41 new domestic Company-operated Shacks and 44 new licensed Shacks. In 2024, it remains on track to open around 80 new Shacks system-wide, representing approximately 15% growth in the number of units.
Additionally, the company is developing a strong pipeline for future. SHAK is dedicated to reducing the costs of its new builds, with a goal of cutting build expenses by 10% in 2024. It is also working on setting up a 2025 pipeline with even better cost efficiencies. These improvements will allow the company to consider new real estate opportunities while striving to maintain its current levels of return and profitability.
Shake Shack continues to impress investors with robust global same-shack sales growth. In the first, second, third and fourth quarters of fiscal 2023, the metric increased 10.3%, 3%, 2.3% and 2.8%, respectively, year over year. The uptrend continued in first and second-quarter fiscal 2024, with the metric increasing 1.6% and 4%, respectively, year over year. For fiscal 2024, the metric is estimated to grow by low single digits year over year. Our model predicts same-shack sales to gain 2.4% year over year in 2024.
The company, which shares space with McDonald's Corporation (MCD - Free Report) , Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) and BJ's Restaurants, Inc. (BJRI - Free Report) has been making more investments in digitization to sustain its digital guest enhancement strategies in the near term. The company’s main focus for digital investment will be to improve the Kiosk experience through greater omnichannel adoption and long-term guest connection with all the new features and offers made available on the platform. These updates are expected to enhance guest experience and convenience, resulting in higher average checks.
However, inflationary pressure is likely to hurt the company’s performance. Its premium ingredients have witnessed a significant increase in price in a very short period. Total expenses in the second quarter were $305.7 million compared with $267.1 million in the prior-year quarter. Commodity inflation was in the low single digits, with mid-single-digit increases in beef costs and ongoing pressure on fries. The inflationary pressures and wages, food and paper costs might hurt the company’s margins.
Commodity inflation in third-quarter 2024 is anticipated to be in the low single digits, while the forecast for 2024 commodity inflation has been revised down from low single digits to flat or slightly positive. Labor inflation outside of California and other regions with high wage growth is expected to remain in the low single digits. Additionally, a 1% decrease in menu prices is scheduled for October.
Year-over-year increases in marketing spend and promotional efforts, along with slightly higher pricing in the second half than anticipated and throughput initiatives, are expected to counterbalance additional macroeconomic challenges.
A Brief Review of Other Stocks
McDonald's: The company is likely to benefit from menu innovation, a loyalty program and unit expansion. It believes that the strengthening of the core menu and solid marketing are likely to pave the way for additional growth in the upcoming periods.
The company stated achieving loyalty system-wide sales of approximately $7 billion and $26 billion in second-quarter 2024 and the trailing twelve-month period, respectively. MCD is expanding its $17 billion brands across the company’s core menu and experiencing growth in digital sales. However, it is facing challenges with weaker comparable store sales growth. In second-quarter 2024, global comps declined 1% against a rise of 11.7% reported in the prior-year quarter.
Robin Gourmet Burgers: Red Robin is benefiting from its guest loyalty program and strategic plans. On May 22, 2024, the company launched the revamped Red Robin Royalty Program, marking a successful step in its strategy to revitalize the brand within the casual dining industry. The loyalty program’s membership is set to reach 14 million guests soon.
BJ's Restaurants: The company is benefiting from productivity and margin enhancement initiatives and operational excellence across its restaurants. Also, BJRI’s expansion, remodeling and digital initiatives are encouraging for its prospects.