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Shake Shack, Inc. (SHAK - Free Report) posted robust third-quarter 2016 results, wherein earnings met the Zacks Consensus Estimates while revenues beat the same.

Notably, the company’s shares rose about 8.6% in afterhours trading on Nov 9 owing to comps growth and raised 2016 guidance.

Earnings and Revenue Discussion

Shake Shack’s adjusted earnings of 15 cents per share were in line with the Zacks Consensus Estimate. Earnings also grew 25% from the year-ago figure of 12 cents. The upside reflects an increase in revenues.

Revenues surged 40% year over year to $74.6 million and beat the Zacks Consensus Estimate of $69 million by 8.1%. An increase in Shack sales and licensing revenues, led to the improvement. These were primarily driven by the opening of new Shacks.

SHAKE SHACK INC Price, Consensus and EPS Surprise

Behind the Headline Numbers

Same-Shack sales (or comps) grew 2.9% year over year. However, comps growth was lower than the prior-quarter growth of 4.5% and the prior-year quarter growth of 17.1%.

Total operating expenses, as a percentage of revenues, increased 230 basis points (bps) to 87.7% mainly on a 160 bps increase in labor costs. Also, pre-opening costs and other operating expenses rose 90 and 70 bps, respectively.

As a percentage of Shack sales, Shack-level operating profit margins decreased 160 bps to 28.8% due to increased labor and related expenses.

Adjusted EBITDA (earning before interest, tax, depreciation and amortization) surged 26.3% to $15.2 million. Adjusted EBITDA margins decreased approximately 220 bps to 20.3%, compared with 22.5% in the year-ago quarter.

2016 Outlook

Shake Shack has updated its full-year 2016 guidance.

The company now expects revenues in the range of $264 million to $265 million, up from $253–$256 million projected earlier.

Meanwhile, the company reiterated its guidance for Same-Shack sales growth at 4–5%.

Further, as a percentage of Shack sales, labor and related expenses are expected to deleverage by 50–60 bps. It had previously guided labor and related expenses of approximately 50 bps.

The company expects to open 19 new domestic company-operated Shacks in 2016, up from 18 guided earlier, and 10 net new licensed Shacks, up from seven as announced earlier.

2017 Outlook

The company has also provided preliminary full-year 2017 outlook.

Total revenue is expected between $348 million and $352 million, while same-Shack sales growth is expected between 2% and 3%.

Shack-level operating profit margin is guided between 26.5% and 27.5%, while general and administrative expenses are expected between $37 million and $39 million.

Moreover, the company expects between 21 and 22 new domestic company-operated Shacks as well as 10 net new licensed Shacks, to be opened in 2017.

Zacks Rank & Stocks to Consider

Currently, Shake Shack carries a Zacks Rank #3 (Hold).

Better-ranked restaurant stocks include Domino’s Pizza, Inc. (DPZ - Free Report) , Potbelly Corporation (PBPB - Free Report) and Wingstop, Inc. (WING - Free Report) .

Domino’s current year growth estimate is pegged at 22.8% compared with the industry average of 6.7%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potbelly currently carries a Zacks Rank #2 (Buy). Its current year growth estimate is pegged at 29.3% compared with the industry average of 6.7%.

Wingstop current year growth estimate is pegged at 20.5% compared with the industry average of 6.7%. It currently carries a Zacks Rank #2.

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