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Shake Shack (SHAK) Q4 Earnings Beat Estimates, Revenues Lag

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Shake Shack Inc. SHAK reported mixed fourth-quarter 2019 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. Decline in guest traffic and significant volatility in the delivery channel in 2020 hurt investors' sentiment. Post the results, shares of the company dropped nearly 13% in after-hours trading on Feb 24.

Adjusted earnings of 6 cents per share compared favorably with the Zacks Consensus Estimate of a loss of a penny but were flat year over year.

Total revenues of $151.4 million in the reported quarter missed the Zacks Consensus Estimate of $153.1 million. However, the top line increased 21.9% year over year. Rise in Shack sales and licensing revenues drove the company’s top line.

Shake Shack, Inc. Price, Consensus and EPS Surprise


Shake Shack, Inc. Price, Consensus and EPS Surprise

Shake Shack, Inc. price-consensus-eps-surprise-chart | Shake Shack, Inc. Quote


Revenues in Detail

Shack sales increased 20.8% year over year to $145.8 million primarily owing to the opening of 39 new domestic company-operated Shacks between the fourth quarter of 2019 and the fourth quarter of 2018. However, it was partially offset by a decline in same-Shack sales.

Licensing revenues in the quarter under review totaled $5.6 million, up 58.6% year over year. The upside can be attributed to the opening of 28 new licensed Shacks stores and robust performance of Shacks opened in 2019. Meanwhile, Shake Shack continues to cash in on the diversification of its licensing business and the opportunity to reach places that it could not domestically.

Same-Shack sales (or comps) declined 3.6% year over year. Also, the figure compared unfavorably with 2.3% increase reported in the year-ago quarter. The decline was primarily due to lower guest traffic partially offset by a combined increase in price and sales mix. In the reported period, comparable SHAK base, which includes restaurants open for 24 full months or longer, was 85 compared with 61 in the year-ago quarter.

Operating Performance

Shack-level operating profit (non-GAAP operating income) of $29.7 million increased 9.4% year over year. The metric margins, as a percentage of Shack sales, contracted 210 basis points (bps) to 20.4% primarily due to increased labor and related expenses as well as certain fixed expenses and cost.

Adjusted EBITDA increased 2.3% to $14.8 million. However, as a percentage of total revenues, adjusted EBITDA margins contracted nearly 180 bps to 9.8% on a year-over-year basis.

General and administrative expenses totaled $19.2 million, up from $15.2 million in the year ago. As a percentage of total revenues, general and administrative expenses were 12.7%, up 50 bps from the prior-year quarter. This was mainly due to increase in food and paper costs along with labor and related expenses.

2019 Highlights

In 2019, total revenues amounted to $594.5 million compared with $459.3 million in 2018.

Adjusted earnings per share for the year ended on Dec 25, 2019 were 72 cents compared with 71 cents on Dec 26, 2018.

Adjusted EBITDA was $81.8 million compared with $73.8 million in 2018.

2020 Outlook

For 2020, total revenues (inclusive of licensing revenues) are expected in the range of $712-$720 million.

Total general and administrative expenses are projected in the range of $80-$82 million.

Adjusted effective tax rate is expected in the range of 26-27%.

Zacks Rank & Key Picks

Shake Shack currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Few better-ranked stocks in the same space include Brinker International, Inc. EAT, El Pollo Loco Holdings, Inc. (LOCO - Free Report) and Chipotle Mexican Grill, Inc. CMG, each carrying a Zacks Rank #2 (Buy).

Brinker International 2020 earnings are expected to rise 10.2%.

El Pollo Loco Holdings has trailing four-quarter positive earnings surprise of 17.2%, on average. The company’s earnings beat estimates in three of the last four quarters.

Chipotle Mexican Grill has a three-five year expected earnings per share growth rate of 19.3%.

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