Yahoo Finance Shake Shack's outlook for 2023: more locations, more sales—and drive-thrus
Shake Shack (SHAK) gave investors a preliminary look at its fourth-quarter results and its 2023 outlook. The verdict? Wall Street seemed pleased, with shares up 4.5% following the news.
At the ICR conference, a three-day event run by ICR partners, the company announced plans to open 65 to 70 domestic and international locations in 2023, 40 of which will be company operated and nearly 30 owned by franchisers. One key development in the works: more drive thru locations, which tend to boost sales.
CFO Katie Fogertey told Yahoo Finance what this milestone means for the New-York Based chain that started as a hot dog cart more than 20 years ago.
“Over the past two decades, we have built an iconic, globally recognized brand that transcends multiple geographies, demographics, and cultures. We’re at more than 430 Shacks globally, and we feel like we’re just getting started,” Fogertey said. "In 2023, we plan to expand across new and existing markets, in multiple formats with a focus on drive-thru. We’re excited about the opportunity to expand our domestic and international footprint well beyond where we are today and look forward to bringing Shake Shack hospitality to new and existing guests, alike.”
At the conference, CEO Randy Garutti said it plans to open "probably 10 to 15 more drive-thrus" this year.
Currently the company operates 11 drive-thru locations, 9 of which opened last year. Each location should generate, the company said, more than $4 million in annual sales. That's compared to $3.8 million at traditional company-owned stores. Operating profit margins should be on par or better than the company average.
A drive-thru in Orlando, Florida, which opened last year, produced $86,000 in average weekly sales — it is on track to do $4.5 million and "headed towards a $5 million," said Garutti. Operating profits: 20%, higher than approximately 19% for stores in prelim Q4 results.
That's not the only format with promise, he said. Nearby, in Orlando, Shake Shack has a small format in a food court, which is bringing in "nearly $4 million at a 35%" operating profit margin. That's some $8.5 million in sales within "1 mile" between the two outlets.
Goldman Sachs wrote in a note, "We are excited by SHAK’s diversification of store formats and think this will be key in driving unit growth for the company." The firm has a Buy rating and $56 price target. As of Wednesday, shares are roughly $53 each.
One negative: The cost to build drive-thrus: "Our 2022 class [the locations built] was up about 15% year-over-year," Fogertey said, "This is due to inflationary pressures and the high initial costs as we started to build drive-thrus. We're expecting build costs for 2023 to be roughly similar with 2022. We're going to be building more drive-thrus in 2023 than we did in 2022, but we're working on ways to be more efficient in other formats as well."
In 2022, total Shack net "build costs" were an estimated $2.4 million, above the historical $2.0 million to $2.1 million.
Digital is another opportunity for Shake Shack, with such customers spending roughly 20% more than traditional guests. (Digital and Kiosk sales have increased 330% since 2019.)
"It's now half of our sales, over half of our sales, so this year, you're going to see us leverage our infrastructure investments and refine, optimize and personalize our app, web and kiosk channels. We're focused here on driving guest acquisition, frequency, conversion and retention," Fogertey said.
Preliminary fourth-quarter 2022 results include a total revenue of $238.5 million, average weekly sales of $76,000, and system wide sales of $364.1 million, with same-store sales up 5.1% compared to 2021. Operating profit was roughly 19% of sales in Q4 2022. (The company does not recognize the sales from licensed Shacks as revenue.)
Preliminary full-year 2022 results include $900 million in revenue, $73,000 in average weekly sales and $1.4 billion dollars in system-wide sales. Operating profit is approximately 17% for FY22.
For Q1 2023, it expects total revenue of $234.5 million to $243 million and same-store sales to be in the mid to high single digits with operating profit margin of 16%-18%
Peter Saleh of BTIG, who moderated the interview with Garutti and Fogertey, maintained a Buy rating and $60 price target.
In a note he said: "While management did not get into detailed discussion on commodities or labor, it does appear as if the company is seeing promise in these areas, similar to the rest of the industry. While guidance for 1Q23 and the full year is lower than anticipated, we believe that could prove conservative as margin pressures ease while pricing remains elevated."
Not everyone was thrilled.
Nick Setyan of Wedbush maintained a Neutral rating on shares of the stock and a $49 price target. In the note to investors, Setyan wrote, "We continue to view the '23 consensus margin estimate as overly optimistic."
As of Wednesday, consensus Wall Street ratings include 6 Buys, 13 Holds and 2 Sells on shares of Shake Shack, per Bloomberg estimates.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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