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Here's Why Investors Should Retain Shake Shack (SHAK) for Now
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Shake Shack Inc. (SHAK - Free Report) is benefiting from various digital initiatives, strong same-shack sales and unit expansion efforts. Consequently, the company’s shares have risen 24.4% in the past three months compared with the industry’s growth of 9.6%. Despite these favorable factors, it is worth noting that inflationary pressure continues to pose a challenge.
The currently Zacks Rank #3 (Hold) company’s 2024 earnings and sales are likely to witness year-over-year growth of 39% and 15.2%, respectively.
Let’s delve deeper.
Growth Drivers
Shake Shack has been investing in digital transformation, which is crucial to its growth. Digital sales continue to impress investors. Its current digital sales are approximately 30% of its business. It has been making more investments in digitization in an effort to sustain its digital guest enhancement strategies in the near term.
Per management, it is mainly focusing on digital investment to improve the Kiosk experience through greater omnichannel adoption and long-term guest connection with all the new features and offers made available on the platform. These updates are expected to enhance guest experience and convenience, resulting in higher average checks.
Shake Shack continues to impress investors with robust global same-shack sales growth. The metric 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, second and third quarters of fiscal 2023, the metric improved 10.3%, 3% and 2.3%, respectively, year over year.
In the fourth quarter, same-shack sales are estimated to grow by low single digit year over year. For fiscal 2023, our model predicts the metric to rise 4.8% from the year-ago levels.
On the other hand, Shake Shack continues to focus on culinary innovation and limited-time offerings (LTO) to drive growth. Also, it emphasizes collaborations with celebrity chefs and media companies to increase brand awareness and drive engagement with new and existing guests. Some of the notable LTO’s throughout 2022 included Buffalo Chicken Sandwich and Fries, Bourbon Bacon Cheddar Burger and Chicken, Hot Ones Burger Menu, Featured Shakes (including included Christmas Cookie, Chocolate Milk & Cookies and Chocolate Peppermint) and Lemonades.
Shake Shack is committed to strategizing its expansion plans effectively. In fiscal 2023, it expects to add approximately 80 units of system-wide Shack, suggesting an uptick from the prior expectation of 75 units. It projects to launch approximately 40 company-operated openings during fiscal 2024. Approximately 40 licensed Shack openings are also suggested.
Image Source: Zacks Investment Research
Concerns
Ongoing inflationary pressure is likely to hurt the company’s performance. Its premium ingredients have witnessed a significant increase in price in a very short period. Higher expenses may weigh on its margins in the near term. For fiscal 2023, our model predicts total operating expenses to rise 15.8% from the year-ago level to $1.07 billion.
Key Picks
Below, we present some better-ranked stocks from the Zacks Retail-Wholesale sector.
Arcos Dorados Holdings Inc. (ARCO - Free Report) flaunts a Zacks Rank #1 (Strong Buy) at present. It has a trailing four-quarter earnings surprise of 28.3%, on average. Shares of ARCO have jumped 39.4% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago levels.
Abercrombie & Fitch Co. (ANF - Free Report) currently flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 713%, on average. Shares of ANF have surged 249.2% in the past year.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS suggests an increase of 13.3% and 2,196%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have risen 4.1% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS implies growth of 5% and 26.2%, respectively, from the year-earlier actuals.
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Here's Why Investors Should Retain Shake Shack (SHAK) for Now
Shake Shack Inc. (SHAK - Free Report) is benefiting from various digital initiatives, strong same-shack sales and unit expansion efforts. Consequently, the company’s shares have risen 24.4% in the past three months compared with the industry’s growth of 9.6%. Despite these favorable factors, it is worth noting that inflationary pressure continues to pose a challenge.
The currently Zacks Rank #3 (Hold) company’s 2024 earnings and sales are likely to witness year-over-year growth of 39% and 15.2%, respectively.
Let’s delve deeper.
Growth Drivers
Shake Shack has been investing in digital transformation, which is crucial to its growth. Digital sales continue to impress investors. Its current digital sales are approximately 30% of its business. It has been making more investments in digitization in an effort to sustain its digital guest enhancement strategies in the near term.
Per management, it is mainly focusing on digital investment to improve the Kiosk experience through greater omnichannel adoption and long-term guest connection with all the new features and offers made available on the platform. These updates are expected to enhance guest experience and convenience, resulting in higher average checks.
Shake Shack continues to impress investors with robust global same-shack sales growth. The metric 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, second and third quarters of fiscal 2023, the metric improved 10.3%, 3% and 2.3%, respectively, year over year.
In the fourth quarter, same-shack sales are estimated to grow by low single digit year over year. For fiscal 2023, our model predicts the metric to rise 4.8% from the year-ago levels.
On the other hand, Shake Shack continues to focus on culinary innovation and limited-time offerings (LTO) to drive growth. Also, it emphasizes collaborations with celebrity chefs and media companies to increase brand awareness and drive engagement with new and existing guests. Some of the notable LTO’s throughout 2022 included Buffalo Chicken Sandwich and Fries, Bourbon Bacon Cheddar Burger and Chicken, Hot Ones Burger Menu, Featured Shakes (including included Christmas Cookie, Chocolate Milk & Cookies and Chocolate Peppermint) and Lemonades.
Shake Shack is committed to strategizing its expansion plans effectively. In fiscal 2023, it expects to add approximately 80 units of system-wide Shack, suggesting an uptick from the prior expectation of 75 units. It projects to launch approximately 40 company-operated openings during fiscal 2024. Approximately 40 licensed Shack openings are also suggested.
Image Source: Zacks Investment Research
Concerns
Ongoing inflationary pressure is likely to hurt the company’s performance. Its premium ingredients have witnessed a significant increase in price in a very short period. Higher expenses may weigh on its margins in the near term. For fiscal 2023, our model predicts total operating expenses to rise 15.8% from the year-ago level to $1.07 billion.
Key Picks
Below, we present some better-ranked stocks from the Zacks Retail-Wholesale sector.
Arcos Dorados Holdings Inc. (ARCO - Free Report) flaunts a Zacks Rank #1 (Strong Buy) at present. It has a trailing four-quarter earnings surprise of 28.3%, on average. Shares of ARCO have jumped 39.4% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ARCO’s 2024 sales and earnings per share (EPS) indicates 10.6% and 15.5% growth, respectively, from the year-ago levels.
Abercrombie & Fitch Co. (ANF - Free Report) currently flaunts a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 713%, on average. Shares of ANF have surged 249.2% in the past year.
The Zacks Consensus Estimate for ANF’s 2024 sales and EPS suggests an increase of 13.3% and 2,196%, respectively, from the year-ago levels.
Brinker International, Inc. (EAT - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 223.6%, on average. Shares of EAT have risen 4.1% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS implies growth of 5% and 26.2%, respectively, from the year-earlier actuals.