Industry News | May 5, 2017 | By Danny Klein | QSR Exclusive Brief

Weather Sends Shake Shack's Sales in the Wrong Direction

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Same-store sales declined at Shake Shack in the first quarter, catching analysts off guard and sending the stock plummeting in late trading Thursday. The report showed mixed vitals for Danny Meyer’s fast casual brand, which did rebound more than 3 percent in pre-market trading Friday.

Sales dropped 2.5 percent in the first quarter, missing Wall Street estimates of a 0.2 percent gain, according to Consensus Metrix. Shake Shack exceeded expectations for earnings per share and revenue, however.

Total revenue was up 41.7 percent year-over-year to $76.7 million, topping estimates of 74.7 million, and EPS was 10 cents per share, beating 8 cents per share.

But the same-store sales trend, even measured against what was a wildly successful 2016, had investors wondering why guest traffic, which fell 3.4 percent, is slugging at the 127-unit chain.

Shares dropped as much as 15 percent late Thursday, falling to $28.25 during after-hours trading.

“We are clearly dissatisfied with our comp result in Q1, but as a reminder our small comp base is made up of only 32 Shacks, the majority of which exist in the Northeast region which was most affected by cold weather and the holiday shift in March,” said Randy Garutti, chief executive officer, in a statement.

The same-store comps are only referring to stores open at least two years, which is where that 32 number comes from. Thirteen system-wide Shake Shacks opened in the quarter and new company-operated stores represented around $24 million of increased revenue, Garutti said.

“Looking into the remainder of the year, we're increasing our development schedule and overall revenue expectations, despite the relatively small impact the comp base has on the overall Shack story. We remain committed to executing our strategy of growing in premier locations, investing in our teams and delivering a great guest experience.”

Shake Shack opened seven domestic company-operated units in the quarter, including the first store in Detroit, a third in Connecticut, and a fourth in the California market. The brand also opened seven licensed restaurants, including one in London, Victoria Nova, and five in the Middle East.

This aggressive growth model increased from 22—23 new stores in 2017 to 23—24, which would represent a more than 50 percent increase in total company units. The company also raised its forecast for full-year revenue from $349—$353 million to $351—$355 million.

Subsequent to the end of the quarter, Shake Shack opened a fourth store in Long Island, a third in South Korea, and a licensed unit in Minute Maid Park in Houston.

Some of the same-store sales drop can be measured against last year’s sales boon. Comps were up 9.9 percent in the first quarter 2016.

One of the concerns, however, is that Shake Shack’s decrease in guest traffic in the quarter was offset by a combined increase in price and sales mix of 0.9 percent.

If the weather concerns are to be blame, opening more units in new markets could shift the trend.

Shake Shack’s first mobile ordering app hit the market in October and has produced early gains, Garutti added.

“We are extremely pleased with the early results of the Shack App and this is a key component of our long-term strategy to meet our guests whenever and wherever they want their Shack,” he said.