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Here's Why Investors Should Retain Shake Shack (SHAK) Stock
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Shake Shack Inc. (SHAK - Free Report) is benefiting from the increased focus on digital Initiatives, unit expansion efforts and robust Same-Shack sales. However, high costs and COVID-related restrictions in China hurt the company. Let’s delve deeper.
Factors Likely to Drive Growth
Shake Shack has been investing in digital transformation, which is crucial to the company’s growth. Digital sales continue to impress investors. During first-quarter fiscal 2022, total digital sales, including orders placed on the Shake Shack app, website and third-party delivery platforms, accounted for nearly 43% of Shack sales. During second-quarter fiscal 2022, the company said that it retained 80% of digital sales, despite in-shack traffic increasing more than 20% year over year. The company has been investing more in digitization to sustain its digital guest enhancement strategies in the near term. The company’s digital retention continues to remain strong.
On the other hand, Shake Shack is committed to effectively strategizing its expansion plans. In 2021, the company opened 36 company-operated Shacks. The company anticipates increasing its store count to 35-40 Shacks within fiscal 2022. The company also expects to open stores in Malaysia in 2023 through a new development agreement. The company, which operates more than 150 licensed restaurants, targets to open 25-30 new licensed Shacks in 2022. Since December, the company has opened five company-operated drive-thrus. By the end of 2022, the company is planning to open at least 10 drive-thrus and expects to open 10-15 more in 2023.
This Zacks Rank #3 (Hold) company continues to impress investors with robust global Same-Shack sales growth. During the first and second quarters of fiscal 2022, Same-Shack sales rose 10.3% and 10.1%, respectively. During second-quarter fiscal 2022, Same-Shack sales were driven by 7.8% traffic growth. Urban same shack sales rose 19% compared to 2021. In July, Same-Shack sales increased 5%, driven by high single-digit traffic growth year over year in urban markets. Suburban same shack sales rose 3% year over year, owing to price mix while traffic trends were flat year over year.
Image Source: Zacks Investment Research
Hurdles to Cross
The rise in costs continues to hurt the restaurant industry and Shake Shack is no exception. During the fiscal second quarter, the company’s business was impacted by a rise in expenses. In second-quarter fiscal 2022, total expenses (as a percentage of company revenues) increased 220 basis points (bps) year over year. Food and paper costs (as a percentage of company revenues) increased 70 bps year over year.
The company’s results continue to be impacted by the coronavirus pandemic. The COVID restrictions in Mainland China negatively impacted the company’s performance during second-quarter fiscal 2022. Shares of the company have declined 2% in the past three months against the industry’s increase of 4.6%.
The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.5% and 100%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 41.6% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 27.1% and 104.2%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2. CBRL shares have gained 10.6% in the past three months.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 16.3% and 15.4%, respectively, from the corresponding year-ago period’s levels.
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Here's Why Investors Should Retain Shake Shack (SHAK) Stock
Shake Shack Inc. (SHAK - Free Report) is benefiting from the increased focus on digital Initiatives, unit expansion efforts and robust Same-Shack sales. However, high costs and COVID-related restrictions in China hurt the company. Let’s delve deeper.
Factors Likely to Drive Growth
Shake Shack has been investing in digital transformation, which is crucial to the company’s growth. Digital sales continue to impress investors. During first-quarter fiscal 2022, total digital sales, including orders placed on the Shake Shack app, website and third-party delivery platforms, accounted for nearly 43% of Shack sales. During second-quarter fiscal 2022, the company said that it retained 80% of digital sales, despite in-shack traffic increasing more than 20% year over year. The company has been investing more in digitization to sustain its digital guest enhancement strategies in the near term. The company’s digital retention continues to remain strong.
On the other hand, Shake Shack is committed to effectively strategizing its expansion plans. In 2021, the company opened 36 company-operated Shacks. The company anticipates increasing its store count to 35-40 Shacks within fiscal 2022. The company also expects to open stores in Malaysia in 2023 through a new development agreement. The company, which operates more than 150 licensed restaurants, targets to open 25-30 new licensed Shacks in 2022. Since December, the company has opened five company-operated drive-thrus. By the end of 2022, the company is planning to open at least 10 drive-thrus and expects to open 10-15 more in 2023.
This Zacks Rank #3 (Hold) company continues to impress investors with robust global Same-Shack sales growth. During the first and second quarters of fiscal 2022, Same-Shack sales rose 10.3% and 10.1%, respectively. During second-quarter fiscal 2022, Same-Shack sales were driven by 7.8% traffic growth. Urban same shack sales rose 19% compared to 2021. In July, Same-Shack sales increased 5%, driven by high single-digit traffic growth year over year in urban markets. Suburban same shack sales rose 3% year over year, owing to price mix while traffic trends were flat year over year.
Image Source: Zacks Investment Research
Hurdles to Cross
The rise in costs continues to hurt the restaurant industry and Shake Shack is no exception. During the fiscal second quarter, the company’s business was impacted by a rise in expenses. In second-quarter fiscal 2022, total expenses (as a percentage of company revenues) increased 220 basis points (bps) year over year. Food and paper costs (as a percentage of company revenues) increased 70 bps year over year.
The company’s results continue to be impacted by the coronavirus pandemic. The COVID restrictions in Mainland China negatively impacted the company’s performance during second-quarter fiscal 2022. Shares of the company have declined 2% in the past three months against the industry’s increase of 4.6%.
Key Picks
Some better-ranked stocks in the Zacks Retail-Wholesale sector are Potbelly Corporation (PBPB - Free Report) , Arcos Dorados Holdings Inc. (ARCO - Free Report) and Cracker Barrel Old Country Store, Inc. (CBRL - Free Report) .
Potbelly has a Zacks Rank #2 (Buy), at present. PBPB has a trailing four-quarter earnings surprise of 26.2%, on average. Shares of PBPB have declined 17.6% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.5% and 100%, respectively, from the corresponding year-ago period’s levels.
Arcos Dorados carries a Zacks Rank #2. ARCO has a long-term earnings growth of 34.4%. Shares of the company have increased 41.6% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 27.1% and 104.2%, respectively, from the year-ago period’s levels.
Cracker Barrel carries a Zacks Rank #2. CBRL shares have gained 10.6% in the past three months.
The Zacks Consensus Estimate for Cracker Barrel’s 2022 sales and EPS suggests growth of 16.3% and 15.4%, respectively, from the corresponding year-ago period’s levels.