Shake Shack (SHAK) Benefits From Robust Same-Shack Sales

Shake Shack Inc. SHAK benefits from the addition of stores, robust Same-Shack Sales, digitalization and an increase in average weekly sales. However, high costs and uncertainty surrounding the pandemic are a concern for the company. In the past six months, the company’s shares have declined 15.2% compared with the industry’s fall of 16.7%. Let’s delve deeper.

Growth Drivers

Shake Shack is committed to effectively strategizing its expansion plans. In 2021, the company opened 36 company-operated Shacks. The company anticipates increasing store count to 40-50 Shacks within fiscal 2022. The company expects to open a total of seven company-operated Shacks during first-quarter 2022 and 5-7 during second-quarter. SHAK also intends to open stores in Malaysia in 2023 through a new development agreement. The company, which is operating more than 150 licensed restaurants, is targeting to open 20-25 new licensed Shack in 2022.

Shake Shack continues to impress investors with robust global Same-Shack sales growth. During the first, second, third and the fourth quarter of 2021, Same-Shack sales rose 5.7%, 52.7%, 48.1% and 20.8% year over year, respectively. Same-Shack sales during fourth-quarter 2021 benefited from the opening of 36 net new domestic company-operated Shacks in 2021, as well as constant sales recovery across hardest-hit markets like New York City, which witnessed same-Shack sales improvement of 39% in the quarter under review.

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Shake Shack is investing in digital transformation to bolster growth. Digital sales continue to impress investors. In the second, the third and the fourth quarter of fiscal 2021, orders placed on the Shake Shack app and website and third-party delivery platforms contributed 47%, 42% and 42%, respectively, to total Shack sales.

The company is also benefiting from robust average weekly sales. In fourth-quarter fiscal 2021, its average weekly sales improved to $74,000 from $72,000 in third-quarter 2021.

Concerns

High costs are a persistent concern for the company. During the fiscal fourth quarter, the company’s business was impacted by a rise in labor and other operating costs. In fourth-quarter fiscal 2021, food and paper costs (as a percentage of company revenues) increased 90 bps year over year. Labor and related expenses rose 70 bps year over year to 29.6%. The upside can be attributed to the increase in the annual wage rate. Staffing has been a major concern for the hospitality industry.

Shake Shack currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector include Genesco Inc. GCO, Arcos Dorados Holdings Inc. ARCO and Tapestry, Inc. TPR.

Genesco sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 2,739.6%, on average. Shares of the company have gained 42.2% in the past year.

The Zacks Consensus Estimate for Genesco’s 2022 sales suggests an increase of 3.2% from the year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth of 24.7%. Shares of the company have surged 57.9% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 10.3% and 54.2%, respectively, from the year-ago period’s levels.

Tapestry carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 28.2%, on average. Shares of the company have declined 8.3% in the past year.

The Zacks Consensus Estimate for Tapestry’s 2022 sales and EPS suggests growth of 17.5% and 22.9%, respectively, from the year-ago period’s levels.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.