Shake Shack (SHAK) Tops Earnings, but Stock Gets Grilled

Premier "better burger" establishment Shake Shack ( SHAK ) reported Q4 2015 earnings after the bell Monday, beating on the bottom line and meeting the top line, but shares are selling off in the late market on weaker comps year over year. Shake Shack's 8 cents per share beat the Zacks consensus estimate by a penny on revenues of $51 million in the quarter. But profit margins reached 11 percent in Q4, a notable decrease from Q3's 17.1 percent. SHAK shares fell nearly 8 and a half percent immediately after the earnings post.

Labor costs rose from last quarter's 23.7 percent to 25 percent, another key to Shake Shack's success beneath the headline numbers. Food and paper costs fell another tenth of a point to 29.3 percent.

This is the fifth earnings beat in as many publicly traded quarters for Shake Shack, and it is by far the narrowest beat so far. In Q1 2015, for instance, the company flipped to a 4-cent profit from an expected 3-cent loss for a positive surprise of 233 percent.

Fiscal year guidance for the company is for revenues to reach between $237-242 million, with sales growing 2.5 to 3.0 percent. Shake Shack plans to open 13 new restaurants in 2016.

These relatively small-scale operations may provide the best explanation for the sharp sell-off in Shake Shack stock following its fifth-consecutive earnings beat: it's still trading at a price-to-earnings ratio of more than 100x -- and this is before the share price had doubled from its IPO to almost $93 per share last May. Currently, with the big sell-off continuing, SHAK trades at under $39.

It's been a successful brand in a trendy space. In a very short time, Shake Shack has found itself with lots more competition, including casual dining restaurants like Red Robin Gourmet Burger ( RRGB ) and Habit Restaurants ( HABT ) that have gone directly into Shake Shack's fast-casual territory. Both companies also beat Q4 estimates.

Shake Shack was a Zacks Rank #2 (Buy) prior to its earnings announcement, but with a Value style score of F. Red Robin is also a Zacks Rank #2 and Habit is a Zacks Rank #3 (Hold), currently.

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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.

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

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