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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 strong average weekly sales, menu innovation and digital investments. Robust same-shack sales growth also bodes well for the company. In the past year, shares of SHAK have gained 25.1% compared with the industry’s rise of 7.1%. However, blended food and paper inflation, and labor costs are major concerns, given the inflationary environment.
This Zacks Rank #3 (Hold) company’s revenues and earnings in 2023 are likely to witness year-over-year growth of 20.4% and 180.7%, respectively. In the past 30 days, earnings estimates for 2023 have witnessed upward revisions of 4.2% to 25 cents. Let’s delve deeper.
Growth Drivers
The company’s average weekly sales continue to increase over time. Management said that the average weekly sales increased throughout the second quarter of fiscal 2023 and came in at $77,000, up 1.3% year over year. The strong performance of in-Shack channels and new Shack openings, paired with a higher mix of sales going through the kiosk channel and favorable menu pricing, resulted in the upside.
Shake Shack continues to impress investors with robust global same-shack sales growth. The same-shack sales increased 10.3%, 10.1%, 6.3% and 10.3% in the first, second, third and fourth quarters of fiscal 2022, respectively. During the first and second quarters of fiscal 2023, same-shack sales improved 10.3% and 3%, respectively, year over year. If the sales trend through July 2023 is considered, same-shack sales increased 4.5%. The metric’s growth in the second quarter was backed by favorable menu pricing and improved mix, along with double-digit in-Shack same-shack sales growth. For 2023, our model predicts same-shack sales to rise 5.5% year over year.
The company is also focusing on menu innovation to drive growth. During the fiscal second quarter of 2023, the company launched its Veggie Shack Burger and Non-Dairy Shake, receiving solid demand upon launch. In June 2023, the company also launched Maker’s Mark Bourbon Bacon Burger through July, as a limited time offer (LTO). Focusing on LTOs, the company expects to bring back the customer favorite hot chicken and a new item, the spicy ShackMeister Burger, to the menu by September 2023.
The company is also focusing on expansion efforts. SHAK expects to open new stores in Malaysia (2024) through a new development agreement. It plans to open 25 to 30 licensed locations across formats and regions in 2023.
Concerns
Ongoing inflationary pressure is likely to hurt the company’s performance. Shake Shack’s premium ingredients have witnessed a significant increase in price in a very short period. During the fiscal second quarter of 2023, blended food and paper inflation rose in the high-single digits, comprising 29% of Shack sales. The company expects food and paper inflation to be in the mid-single digits for the remaining part of fiscal 2023. Higher expenses may continue and weigh on margins in the near term. For 2023, our model predicts total operating expenses to rise 15.7% to $1.07 billion year over year.
Key Picks
Below we present some better-ranked stocks in the Zacks Retail-Wholesale sector.
BJ's Restaurants, Inc. (BJRI - Free Report) currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have lost 4.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 423.5% growth, respectively, from the year-ago period’s reported levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 37.2% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests increases of 19% and 11.6%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 26.6%, on average. Shares of CHUY have jumped 53.9% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS implies increases of 9.5% and 32.9%, respectively, from the year-ago period’s reported levels.
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Here's Why Investors Should Retain Shake Shack (SHAK) Stock
Shake Shack Inc. (SHAK - Free Report) is benefiting from strong average weekly sales, menu innovation and digital investments. Robust same-shack sales growth also bodes well for the company. In the past year, shares of SHAK have gained 25.1% compared with the industry’s rise of 7.1%. However, blended food and paper inflation, and labor costs are major concerns, given the inflationary environment.
This Zacks Rank #3 (Hold) company’s revenues and earnings in 2023 are likely to witness year-over-year growth of 20.4% and 180.7%, respectively. In the past 30 days, earnings estimates for 2023 have witnessed upward revisions of 4.2% to 25 cents. Let’s delve deeper.
Growth Drivers
The company’s average weekly sales continue to increase over time. Management said that the average weekly sales increased throughout the second quarter of fiscal 2023 and came in at $77,000, up 1.3% year over year. The strong performance of in-Shack channels and new Shack openings, paired with a higher mix of sales going through the kiosk channel and favorable menu pricing, resulted in the upside.
Shake Shack continues to impress investors with robust global same-shack sales growth. The same-shack sales increased 10.3%, 10.1%, 6.3% and 10.3% in the first, second, third and fourth quarters of fiscal 2022, respectively. During the first and second quarters of fiscal 2023, same-shack sales improved 10.3% and 3%, respectively, year over year. If the sales trend through July 2023 is considered, same-shack sales increased 4.5%. The metric’s growth in the second quarter was backed by favorable menu pricing and improved mix, along with double-digit in-Shack same-shack sales growth. For 2023, our model predicts same-shack sales to rise 5.5% year over year.
The company is also focusing on menu innovation to drive growth. During the fiscal second quarter of 2023, the company launched its Veggie Shack Burger and Non-Dairy Shake, receiving solid demand upon launch. In June 2023, the company also launched Maker’s Mark Bourbon Bacon Burger through July, as a limited time offer (LTO). Focusing on LTOs, the company expects to bring back the customer favorite hot chicken and a new item, the spicy ShackMeister Burger, to the menu by September 2023.
The company is also focusing on expansion efforts. SHAK expects to open new stores in Malaysia (2024) through a new development agreement. It plans to open 25 to 30 licensed locations across formats and regions in 2023.
Concerns
Ongoing inflationary pressure is likely to hurt the company’s performance. Shake Shack’s premium ingredients have witnessed a significant increase in price in a very short period. During the fiscal second quarter of 2023, blended food and paper inflation rose in the high-single digits, comprising 29% of Shack sales. The company expects food and paper inflation to be in the mid-single digits for the remaining part of fiscal 2023. Higher expenses may continue and weigh on margins in the near term. For 2023, our model predicts total operating expenses to rise 15.7% to $1.07 billion year over year.
Key Picks
Below we present some better-ranked stocks in the Zacks Retail-Wholesale sector.
BJ's Restaurants, Inc. (BJRI - Free Report) currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 121.2%, on average. Shares of BJRI have lost 4.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BJRI’s 2023 sales and EPS indicates 5.6% and 423.5% growth, respectively, from the year-ago period’s reported levels.
Arcos Dorados Holdings Inc. (ARCO - Free Report) currently carries a Zacks Rank #2 (Buy). ARCO has a long-term earnings growth rate of 9.5%. The stock has gained 37.2% in the past year.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 sales and EPS suggests increases of 19% and 11.6%, respectively, from the year-ago period’s reported levels.
Chuy's Holdings, Inc. (CHUY - Free Report) carries a Zacks Rank #2 at present. It has a trailing four-quarter earnings surprise of 26.6%, on average. Shares of CHUY have jumped 53.9% in the past year.
The Zacks Consensus Estimate for CHUY’s 2023 sales and EPS implies increases of 9.5% and 32.9%, respectively, from the year-ago period’s reported levels.