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Shares of Shake Shack Inc. (SHAK - Free Report) have increased 48.4% year to date compared with the industry’s 4.8% growth. The company is benefiting from menu innovation, digital Initiatives and unit expansion efforts. Also, focus on cost-saving measures bodes well. However, inflationary pressures are a concern.
Growth Drivers for SHAK Stock
Shake Shack’s premium product offering, featuring high-quality ingredients and innovative menu items, has been a cornerstone of its success. Despite a market shift toward value-oriented spending, The company has managed to maintain its premium positioning. This is reflected in its ability to drive sales through strategic promotions and product innovations like the summer barbecue menu, which has been a hit among customers.
The brand’s focus on enhancing the customer experience and leveraging technology, such as kiosks, has improved efficiency and driven higher average transaction values. Its commitment to culinary innovation and staying true to its founding principles has helped Shake Shack build a strong brand that resonates with a loyal customer base.
Image Source: Zacks Investment Research
One of the key growth drivers for Shake Shack is its aggressive global and domestic expansion. In the second quarter, the company opened 12 new company-operated Shacks, exceeding expectations. Shake Shack now operates over 550 restaurants globally, including promising new markets like Canada. The company’s ability to expand into new regions while maintaining profitability is a critical component of its growth strategy. The company’s push into drive-thru formats and its focus on optimizing real estate options are likely to pave the path for growth in suburban and high-traffic areas.
Shake Shack has implemented cost-saving measures to improve profitability. During the second quarter of 2024, the company achieved an 80 basis-point reduction in food and paper costs. Additionally, Shake Shack’s ongoing focus on expanding margins is paying off. With a targeted reduction of 10% in build costs for 2024, Shake Shack is improving its return on investment while exploring new real estate opportunities, making it an attractive option for long-term investors.
Concerns for Shake Shack Stock
Shake Shack is navigating economic headwinds in the Middle East and China. The company’s performance in markets like New York City and San Francisco has been underwhelming. Foot traffic remains low, and these metropolitan areas have struggled to regain their pre-pandemic levels of activity. While Shake Shack has been building its drive-through format, traditionally, its locations have been focused on high-foot-traffic urban environments. A potential shift in consumer behavior away from core areas presents an additional risk for Shake Shack.
Inflationary pressures are also impacting Shake Shack, affecting the prices of its premium ingredients. The company expects inflationary pressures, including rising costs of wages, food and paper, to persist in the near term. Commodity inflation in the third quarter of 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.
Our Take on SHAK Stock
Shake Shack’s stock has shown strong performance in 2024, driven by its strategic initiatives and premium positioning. While inflationary pressures and regional challenges could pose near-term risks, the company’s aggressive expansion plans and operational efficiencies suggest that Shake Shack still has room to grow. For long-term investors, SHAK remains an interesting stock to hold, but caution is warranted given the potential headwinds.
SHAK’s Zacks Rank & Key Picks
Shake Shack currently carries a Zacks Rank #3 (Hold).
Texas Roadhouse has a trailing four-quarter earnings surprise of 0.4%, on average. TXRH’s shares have gained 86.1% in the past year. The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.7% growth, respectively, from the year-earlier actuals.
Potbelly Corporation has a trailing four-quarter earnings surprise of 77.5%, on average. The stock has gained 8.7% in the past year. The Zacks Consensus Estimate for PBPB’s fiscal 2024 EPS implies 33.3% growth on 6.5% lower revenues from the year-ago levels.
Yum China has a trailing four-quarter earnings surprise of 26.6%, on average. YUMC’s shares have gained 18.8% so far this year. The Zacks Consensus Estimate for YUMC’s 2024 sales and EPS indicates 4.5% and 11% growth, respectively, from the prior-year figures.
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Shake Shack Stock Climbs 48% YTD: Innovation and Expansion Fuel Gains
Shares of Shake Shack Inc. (SHAK - Free Report) have increased 48.4% year to date compared with the industry’s 4.8% growth. The company is benefiting from menu innovation, digital Initiatives and unit expansion efforts. Also, focus on cost-saving measures bodes well. However, inflationary pressures are a concern.
Growth Drivers for SHAK Stock
Shake Shack’s premium product offering, featuring high-quality ingredients and innovative menu items, has been a cornerstone of its success. Despite a market shift toward value-oriented spending, The company has managed to maintain its premium positioning. This is reflected in its ability to drive sales through strategic promotions and product innovations like the summer barbecue menu, which has been a hit among customers.
The brand’s focus on enhancing the customer experience and leveraging technology, such as kiosks, has improved efficiency and driven higher average transaction values. Its commitment to culinary innovation and staying true to its founding principles has helped Shake Shack build a strong brand that resonates with a loyal customer base.
Image Source: Zacks Investment Research
One of the key growth drivers for Shake Shack is its aggressive global and domestic expansion. In the second quarter, the company opened 12 new company-operated Shacks, exceeding expectations. Shake Shack now operates over 550 restaurants globally, including promising new markets like Canada. The company’s ability to expand into new regions while maintaining profitability is a critical component of its growth strategy. The company’s push into drive-thru formats and its focus on optimizing real estate options are likely to pave the path for growth in suburban and high-traffic areas.
Shake Shack has implemented cost-saving measures to improve profitability. During the second quarter of 2024, the company achieved an 80 basis-point reduction in food and paper costs. Additionally, Shake Shack’s ongoing focus on expanding margins is paying off. With a targeted reduction of 10% in build costs for 2024, Shake Shack is improving its return on investment while exploring new real estate opportunities, making it an attractive option for long-term investors.
Concerns for Shake Shack Stock
Shake Shack is navigating economic headwinds in the Middle East and China. The company’s performance in markets like New York City and San Francisco has been underwhelming. Foot traffic remains low, and these metropolitan areas have struggled to regain their pre-pandemic levels of activity. While Shake Shack has been building its drive-through format, traditionally, its locations have been focused on high-foot-traffic urban environments. A potential shift in consumer behavior away from core areas presents an additional risk for Shake Shack.
Inflationary pressures are also impacting Shake Shack, affecting the prices of its premium ingredients. The company expects inflationary pressures, including rising costs of wages, food and paper, to persist in the near term. Commodity inflation in the third quarter of 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.
Our Take on SHAK Stock
Shake Shack’s stock has shown strong performance in 2024, driven by its strategic initiatives and premium positioning. While inflationary pressures and regional challenges could pose near-term risks, the company’s aggressive expansion plans and operational efficiencies suggest that Shake Shack still has room to grow. For long-term investors, SHAK remains an interesting stock to hold, but caution is warranted given the potential headwinds.
SHAK’s Zacks Rank & Key Picks
Shake Shack currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Texas Roadhouse, Inc. (TXRH - Free Report) , Potbelly Corporation (PBPB - Free Report) and Yum China Holdings, Inc. (YUMC - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Texas Roadhouse has a trailing four-quarter earnings surprise of 0.4%, on average. TXRH’s shares have gained 86.1% in the past year. The Zacks Consensus Estimate for TXRH’s 2024 sales and earnings per share (EPS) indicates 15.6% and 39.7% growth, respectively, from the year-earlier actuals.
Potbelly Corporation has a trailing four-quarter earnings surprise of 77.5%, on average. The stock has gained 8.7% in the past year. The Zacks Consensus Estimate for PBPB’s fiscal 2024 EPS implies 33.3% growth on 6.5% lower revenues from the year-ago levels.
Yum China has a trailing four-quarter earnings surprise of 26.6%, on average. YUMC’s shares have gained 18.8% so far this year. The Zacks Consensus Estimate for YUMC’s 2024 sales and EPS indicates 4.5% and 11% growth, respectively, from the prior-year figures.