Shack Shack disclosed Tuesday that it will shutter nine underperforming company-owned restaurants, partly due to changes in trade areas and also because of sales cannibalization with nearby locations.
The stores are based in California, Ohio, and Texas. The closures should be completed by September 25.
Shake Shack expects losses of between $28 million to $30 million as a result of the shutdowns, including $12.8 million to $13.6 million related to ending leases and paying for future lease obligations and $1 million to $1.2 million related to employees, such as severance.
“These closings are expected to optimize the company’s footprint in these states and maximize profitable growth moving forward, and are not anticipated to impact the company’s plans to open additional Shacks in these states,” Shake Shack said in an SEC filing. “The Company currently does not anticipate closing any additional Shacks based on this evaluation for the foreseeable future.”
Management at these closed units will be offered positions at neighboring restaurants and hourly workers will be eligible for rehire at other units. Hourly workers and managers that don’t accept transfers will receive up to 60 days of pay.
Despite the move, Shake Shack isn’t changing its growth expectations for 2024. About 80 (split evenly between corporate and licensed) restaurants are expected for 2024. The fast casual Shake Shack opened 12 company-run units in Q2, including three drive-thrus, as well as 11 licensed stores, to bring its systemwide total to 547 locations.
The brand announced Rob Lynch as its new CEO in March following former CEO Randy Garutti’s retirement announcement in December 2023. Lynch, who led his first earnings call as Shake Shack CEO in August, told investors that he expects the brand to compete as a special destination occasion and to be more in line with QSR impulse purchases. The industry veteran comes from Papa Johns, where he spearheaded a turnaround after founder John Schnatter infamously stepped away from the chain.
The chain reported same-store sales growth of 4 percent in Q2 (price/mix of 4.8 percent and negative traffic of 0.8 percent), marking its 14th consecutive period of gains. Notably, unit-level margin rose 100 basis points to 22 percent—the highest number since 2019. Adjusted EBITDA of $47.2 million (27.4 percent higher, year-over-year) was the loftiest result in Shake Shack history. Revenue expanded 16.4 percent to $316.5 million and the brand generated $20.6 million in free cash flow.
