Q1 2020 Earnings Call

Greetings and welcome to the Shake Shack first quarter 2020 earnings call.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

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As a reminder, this conference is being recorded or.

I'd now like to turn the conference over to your host Mr., Rick how SVP of Finance. Please go ahead.

Thank you had a good evening everybody joining me for shake Shacks Twentytwenty first quarter conference call. It all C O one degree C.

President and CFO, Tom what kind of.

During today's call them discuss non-GAAP financial measures, which we believe could be useful in evaluating outperformance.

The presentation of this additional information should not be considered calculation.

Substitute results prepared in accordance with got.

Welcome to the reconciliations to comparable GAAP measures are available to earnings release on the appendix Twox supplemental materials.

Sounds good they statements maybe forward looking and actual results may differ materially choose to a number of risks and uncertainties, including those discussed an annual reports on form 10-K for them probably 24 2020.

To conclude reports on form 8-K filed on March 17 on April 17, Twentytwenty, respectively.

Any forward looking statements represent our views only as of today and we assumes no obligation to update any forward looking statements people who use change.

By now you should about access talk this quarter Twentytwenty earnings release, which can be found in best Shake Shack on the news section.

And Additionally, we have posted all first quarter Twentytwenty supplemental earnings materials, which can be found to be events and presentations section on our flight why did they say between 8-K for the cool.

In light of the ongoing environment all stepping into material also include some financial information related to the cone costs.

I'll now turn the call if it's Randy.

Thanks, Rick and good evening, everyone. We hope you your families in our entire shake Shack community are all staying safe and healthy during this crisis.

I've got a privilege to lead this company through many challenging in many incredible moment I think we'd all agree. This has been an unprecedented test for a world and for our teams are message across the company has been consistent the lead with hope <unk> acting on reality and to make the necessary choices today to ensure our strength and growth continue for.

Ears to comp.

We're confident we've increasingly taking those steps in this since its crisis began.

Moving to business now to be sure shake shack captures the opportunity to evolve into an even stronger company as we come out the other side.

Today, we'll briefly talk about Q1, which part of it back to cope with 19 operation was in line with our expectations and previous guidance well focus more on shake shack today, specifically our teams and the important positive momentum of our operating models digital initiatives.

Well I'll begin by talking about where the company is right now you're only halfway through our second quarter sales have been steadily increasing every week on their challenging lowest point at the end of March last week of our third period the week before a the week ending March 20, fast we experienced numerous shot closures greatly reduced operating hours and sales and.

<unk> based averaging down 73% across the portfolio compared to the same period last year. However, since that point and as we've shared the supplemental deck provided each week, we've seen encouraging and steady increases in bulk same shack sales and total sales nationwide.

By growth in our own digital channels the expansion of integrated delivery partnerships and are shifting operating model.

And most in our most recent fiscal week weekend at April 29, same shack sales were down 45% compared to the same period last year I sales continue to improve to varying degrees.

From a regional perspective, despite all regions being significantly impacted there are some notable differences in performance as well as the speed with which submarkets are demonstrating improvements, but new York city, not surprisingly still acutely impact it.

Jackson's account base have however resumed year over year growth some are down mid teens, all other still down as much as 70% to 80%.

While these sales an aggregate are still material reduction from pre koeppen 19 levels. We're encouraged by the consistency of week to week improvements in a clear signs of a path to recovery.

So how does the shock operate today well up until this point every open shack is operating without a dining room.

Our teams entrepreneurial spirit and innovation around alternative operating models has been extraordinary creating an entire guest experience around curbside pickup digital preordering building makeshift drive throughs that never previously existed creating distinct and separate areas for delivery Courier pickups, all to ensure safety for our team.

And our guess throughout this time, we got a massive focus on how to continue to leverage our digital tools. In fact, the investments. We've made over this last few years has been a part of our digital innovation strategy had been the key to our ability to operate in an environment like this as a result in quarter two today through the weekend in April 29.

Digital channels represent approximately 80% of our total shack sales with our shack App and web channels showing the most significant growth nearly three times higher than last year.

As part of this we're also seeing strong growth in a number of gas purchasing for the first off on our own digital channels, which has more than doubled over the last eight weeks.

Now our own channels remain our primary focus and our longer term digital strategy and we believe they continue to represent our most significant opportunity to directly connect with and drive frequency and loyalty with our guess.

We've been very clear about this strategy over the last year and intend to use this moment to further those commitments and investments to ensure we capture the significant ongoing growth opportunity.

We've talked a lot about the importance of delivery over the last few years, we've taken the time to adapt our strategy to expand our integrated partnerships with more marketplaces, including liberates door at Ash Postmates and caveats. In addition to our previously exclusive relationship with Grubhub.

Aren't 10 by doing so it's a provide maximum access to shake shack during and beyond this crisis.

Drive both near and long term sales all the strategic imperatives for delivery, we discussed over the last year remain important.

Leading with a commitment to improving the guest experience building, a long term and engaging direct relationship with those guests.

Moving forward, we expect to continue to partner with all major delivery service providers to ensure our guests have the maximum amount of choice wherever and whenever they want their shocks.

In addition to these digital strategies <unk> coming up with other new and creative ways to engage with I guess give them access to their shacks.

One of these for the launch of a cook at home Shack Burger meal kit in collaboration with gold belt curated online marketplace for regional and our kids No foods.

Ready to Cook boxes are shipped with all the staples needed to recreate a classic shopper.

They will prove to be a winner with over 12000 kits sold so far and that's created significant amount of positive market exposure in the process.

In terms of menu innovation, our focus has been one of simplification and streamlining as we manage through this challenging operational period as a result, we temporarily removed a couple of noncore items from our menu pause previously planned LT OWS and we'll continue to evaluate the best timing for launch of additional menu items, such as hot chicken and more we can see.

Due to testing create in the background and more to come here as we move through this period of recovery.

Throughout all of this our number one priority has been made safeguarding the health of our team guests and communities, while we work to keep our shacks open to the best of our ability.

Our team has been sure ROIC during this time.

As of April 29, all but 17 of our domestic company operated Jackson remain open.

Only due to the entrepreneurial spirit and dedication of our Shack leadership team members and are committed home office support.

I'd also like to thank our supply chain team and all of our suppliers around the country could've gone above and beyond to ensure our shacks are stocked with the necessary supplies and equipment they need to protect our employees and Argus [noise].

We've taken significant actions to ensure Maxim safety for our team members and guests in these times.

Interest increase cleaning <unk> sanitizing hand, washing protocols basically distancing gloves, a basket all times. During this time, we also need to make some tough decisions, but long term health and more business, which include the need to full over a thousand team members across the shacks in our home office.

Drastically reduced discretionary expenditure.

And our home office and executive teams have taken pay reductions I.

I'm proud to say, we committed to paying 100% about for load team members medical insurance through July 1st.

Guaranteed full pay for our shack general managers, even if they're shacks are course.

The best news is that a sales have continued to steadily increase over recent weeks weve gradually be gotten to bring back a number of our fellow team members in our recruiting function. It's hard at work has been restart hiring and checks for continued gradual recovery and a return to the growth we expect ads.

Say, thank you to those in our shacks everyday these difficult times across all company operated shacks nationwide.

The increase hourly wages by 10% through June Threerd and guaranteed bonuses for the second quarter for all active shack managers.

Throughout our license shock business. It is a country by country and day to day story working closely with our domestic and international license partners as their businesses remain deeply in packet.

We expect that each region of the tapestry of different challenges formats and reopening approaches based on local government requirements domestically all eight of our stadium businesses are closed for the foreseeable future.

Eight of our 13 domestic airport locations are close.

And with those remaining open doing a fraction normal cells with travel overall deeply restricted.

Across the world. The vast majority of shacks are operating with reduced hours and alternative models similar to the U.S.

After a blanket closure, we just reopen two of our 12 shacks in the UK.

Largest region the middle East in Turkey, Many shacks remain close those open or seen dramatically reduced sales in Mexico, you have just two or three shacks open for takeout and delivery only.

Across Asia, All 13, shacks in Japan remain closed, Singapore, and the Philippines or open and modified formats, but all are facing significant sales reductions. There is however, some directionally positive news on the horizon.

Shacks in Korea, China, Hong Kong have reopen dining rooms, you know limited capacity and see mostly increasing sales, albeit slowly.

Needless to say, we do expect our license operations remain impacted for an uncertain period of time and the significant development plans. We had for this part of the business in 2020 or temporarily pause.

But it is important to remember that our global license business has secured real estate in some of the world's best locations [laughter], We believe great locations stand the test of Sun.

And it's just a matter of when not if they get back to growth again.

We're working closely with our dedicated a world class partners as we move to recovery and then back to grow sharing best practices and rebuilding together.

Looking ahead.

Well shake Shack look like through these next few months and into the future and how do we capitalize on this moment to strengthen our company.

We're starting to plan for dining rooms, albeit in a restricted and modify capacity just slowly reopen regionally, we'll be working closely with local authorities CDC guidelines and or landlords in this process.

We clearly falling all social distancing and other safety restrictions and recommendations.

We expect.

The majority of our increase cleaning that it takes the procedures are here to say we plan to move thoughtfully through this next phase of operations in order to keep our teams and guess safe at all times, we expect dining rooms, where we choose to reopen to be operating with significantly limited seating capacity.

Social distancing requirements will result in cashiers and kiosk also operating have reduced capacity, while we shift guest to mobile and contact list preordering.

We'll be clearly identifying separate areas and spacing for both ordering pickup and delivery careers.

Fortunate and many of our shacks that outside seating, which would be opening to some level any Chuck will likely have some degree of specific adjustment to operations in order to comply with all guidance and regulations and ensure safety remains the utmost priority.

And we're thrilled to announce today the beginning of a plan to add what we're entering the referring to as the shack track.

There's a prime example of how we intend to use the learning from our recent business pivots and turn them into long term improvement for the shack experience.

Jack truck will result in interior and exterior pickup windows or new pickup areas to improve flow and encouraged digital preorder.

We've been studying current shack layouts and future shack designs in order to identify where this model can be quickly at it.

It may take time, and many forms but all towards the goal is continuing to build the community gathering places the world needs, while adding a level of convenient safety distance and frictionless pick up to meet the needs of our guest.

The supplemental deck, you'll see a rendering example of what this could look like in both a walk up and drive up scenario.

Well, we recently renovated upper west side and Grand Central locations, we started to implement this thinking but the current moment has reinforced have necessary and beneficial this strategy will be for shake shack [noise].

Across urban suburban shopping center and pad site locations. We expect these new pickup points with both interior Andorra exterior access to support our goals of convenience, while allowing shacks to be but they've always been for our fast. These plans will take time, but we're bullish on the opportunity we believe they represent.

Let me Tom we're going to continue to invest in improved the n. and digital experience, including order had functionality through our app and web channels as well as the delivery experience, which we still plan to ultimately integrate within our own channels overtime.

Earlier this year, we shared our plans to develop a new and improved mobile first digital experience starting with the rebuild of our web platform and then extending to our.

We intend is to create an experience that will be even more personalized more engaging easy to use that will allow us to have an increase control or direct messaging marketing the creating even stronger relationship with our digital guess, there's no doubt that this period of time is only reinforce these channels will be key avenues in which we can capture future growth we fully into.

And to do just that.

On the subject of new Shack development.

During this covert 19 crisis, we have pause all design and construction of new shacks.

We are committed to getting back on track with those development plans at the execution of our broader growth strategy as quickly as possible and our teams are poised to do so when the time is right now.

The first quarter. This year, we opened for domestic company operated shocks and we have an additional Ajax what construction was either complete or near complete Govan 19 hit U.S.

On a fully complete nobody knows shacks as soon as it makes sense to do so, albeit today, we do not have from timing at the moment.

Additionally, we have another nine Jackson, a partial state of construction, but at that are also currently balls.

Strong pipeline, a future shack with sign leases some already and design.

We've also identified a number of potential future sites, but at this point [noise], it's too early.

To give any specific guidance around the timing or number of shacks for either 2020 or beyond we'll update you as our planning your evolves.

And we believe with the strongest balance sheet, we've ever had particularly following our recent equity raise that the shake shack brand within an incredibly strong position as additional real estate and development opportunities become available.

Well, we're ready to capture the white space ahead, what could be a forever changed retail and restaurant environment.

So taking this time to look at the opportunity to improve terms with our current portfolio sit within certain leases in process and the capture some great real estate and what we expect to be an attractive market for us we fully intend to keep building those necessary community gathering places the world will need while evolving our model to be more convenient more rewarding.

More accessible than ever.

Now I'll turn it over to tar to give some more color on a first quarter results and current trends.

Thanks, Good afternoon, everyone.

Let's see I like to reiterate that frankly, all oh teams in the shacks and I'll hand off his teams supporting all shock as we continue to work seeding very challenging unsettled time.

It's been incredible to watch the speed and energy with which everyone. In the company has come together to navigate through this crisis essential we come at the other side, even stronger than when we went to it.

Unlike other circumstances I went through the details at the first quarter, but will focus more on how we're performing before the severe impact of kind of at nine can hit funny during March and then get some additional color on current quarter State professional Chen.

Oh priorities right kind of at 19% to keep our teams and guest.

First and foremost, while keeping all shacks type and wherever we can change that.

From a financial perspective, we've seen a material impact sales performance and the number of new cost answer that business I'll talk more about some of Thats a maintenance.

We remain focused on preserving cash, yes, strategic they continuing to invest in key areas at the business will solidify our position of strength and its show, we're well positioned to move quickly back to all novel 10 growth agenda as market conditions continue to quit.

Hi, it's just there's going to full impact if the type of 19 I break outperformance in the first cheaper and yeah. It was in line with our expectation.

Same shack sales down approximately 2%.

Sales still stick to steep decline following the kind of at 19 I break March same shack sales were down approximately 29%, resulting in total comp for the first quarter being down 12.8 cents total revenue for the first quarter, increasing 8% $243.1 million.

I thought at the end of the first quarter I'll trailing 12 month average unit volume was $3.9 million with average weekly sales $65000 during the quarter.

In March across all company operated shacks, a weekly sales impacted severity as quickly as the business reacted to dining room closure city and state cookies more pleasure and ultimately stay at home or just.

But the shacks and I'll come back in the last three weeks of all fiscal period, ending the 25th March same shack sales decreased 10%, 46% and 73% respectively compared to the same fiscal weeks last year.

Well placed to say that we've seen consistent improvements to be sales trends each successive week. So that no at the end up much not just Randy mentioned due to the success of our digital strategy and the flexibility of all shack Kim.

Overall, most recent fiscal week and thing last Wednesday, the 29th of April same shack sales were down 45 cents compared to the same period last year total shack sales, but I was 34%.

Average weekly sales for the weekend think twice Tonight to make will more than doubled to $49000 compared to the weekend thing 20 that much.

You can see the weekly Kate and is gradually improving performance on page six about supplemental material.

Well, we show perspective, despite all regions being significantly impacted there also notable differences in performance as well as the speed with which the markets the demonstrating a prison.

All regions have seen improving we could have a week sales over the last four weeks, although with all material exposure to acutely impacted markets like New York City and other open interest heavy location, we expect recoveries to be slow and especially regions than others.

And as you can see on page eight of our supplemental materials, New York City is still acutely impacted and with a significant proportion of ourselves originating head. It represents material drag on all I've always felt.

Many of a high sodium shacks in New York Some in transit center, many in high tourists neighborhood, but it's not surprising to us away everything more significant decline here in this moment.

We're encouraged to see shacks across the rest of the country faring better than coming back gradually and have confidence in the strength of on your business post kind of at 19, albeit we expect a slow a path to full recovery hit.

As it relates to all profitability shack level operating profit margin for the first quarter was 19.1% highly impacted by the sales deterioration caused by the kind of it 19 I break in much.

[noise] shack level operating profit margin during the first two periods of the quartet, excluding a one time inventory adjustment benefit was 20.1 per cent compared to 19.3% for the same period last year.

It's 80 basis points improvement was driven by labor cost control a favorable feed cost.

Shack level operating profit margin fiscal much decreased to 15.9%.

From an already by the reduced sales caused by the outbreak.

The aforementioned inventory adjustments had a 40 basis point benefit shack level operating profit margin for the full quota.

I mentioned earlier that when times were encountering a number of new and increased operating costs in a shacks specific to kind of at 19.

These include supplies and equipment, we deem necessary to keep our Tina I guess they.

Just faced coverings and collapse.

Additional unsecure packaging orders.

Actual signage and cleaning supplies among others.

Thank you used to be on getting for a period of time.

A sales coverage around popped wheels, they fully expect doing kinda labor inefficiencies for period of time compared to previous staffing model as we work to establish new price calls and operating levels and the shack.

With a goal to remain as efficient as possible, while always offerings safe and high quality service talk community.

In addition, whilst we've seen strong gross partly as a result, and the expansion of I'll just delivery partners. These sales do you come at a high cost due to the Nonexclusive Commission agreements with the various market places.

We're also closely monitoring the ongoing volatility in the beef market as a starting to see a material increase driven by industry constraints due to plant closure.

Over the last month, we've seen significant increases in beef with the largest increase being realized for the most recent week.

From a cost standpoint, we're in a slightly more predictable position, but chicken and pork due to locks didn't pricing agreements hope it will continue to modest monitor the broader environment closely.

Moving on to cash with an operating in a conservative cash preservation lives with strong cost management discipline since the initial impact from a pivot 19, and we'll continue to do so until the operating environment funny stabilize.

As a cautionary measure Omar said 24, we drew down another $50 million revolving credit facility. If subsequently finalize the number of enhanced modifications to our credit agreements reflect the current an ongoing impact what kind of at 19.

In addition to further strengthen our balance sheet and secure our ability to revert to grow quickly.

We raised gross proceeds of $150 million from an equity offering on Friday April 17th.

This represents a twice our initial talks amounting to 75 million by an approximate 10 million at the market rates as well as $114 million block intra day trade lots of becoming possible following significant reverse inquiries from both existing and new shareholders.

We were extremely pleased with the outcome here and I love to 29th of April has $247 million in cash and marketable securities pushing out in an extremely strong position to continues to weather the storm.

Exit ready to quickly resume execution of all long term strategic lifestyle.

Context, answering twentytwenty, we had $74 million in cash and marketable securities against the previous high points of 92 million at the end of Q2 2018.

As far the strengthening of our available liquidity allows us to continue just strategically invest during this time with depressed sales solidifies, our strength and ability to revert to growth and gives us the opportunity to plan even longer to capture the many opportunities as opposed to kind of 19 wells could provide.

At current sales levels Oh, we take has been has reduced to approximately 800 $800000 per week.

This number seems.

Hey increase guaranteed second quarter thickness across shack team that Randy mentioned earlier.

It also excludes news shack capital expenditure, which for the most probably been placed some temporary hold.

Cash burn as a key performance indicator for us as we decide the timing and degree of deploying gross capital. Although as I mentioned, we are we starting a number of key digital initiative as we believe these continues to be a critical differentiator for the business an opportunity for continued growth.

We significantly reduced discretionary spends in DNA in late March on a county running at approximately 75% of our original G and H budget, but again.

A sales continue to recover will gradually increase the spend over the extensive there so timing narrow has not yet the tenant.

I don't know so we do however, digital marketing and technology to be two areas, where we will increase investment spending as the quarter progressive.

Finally, we're continuing to evaluate stuff off the tax regulatory changes that were not to subsequent to the quota.

We expect significantly benefit from the retroactive change the recovery period to the qualified investment property, which will make the cost of all leasehold improvements eligible for 100% bonus depreciation.

Most of the 39 year carrier inactive attached before.

The full extends the fifth and other regulatory changes will be reflected in our Q cheapen up. So we expect this changed well eliminates all GRA payment obligations for the rest of this year.

As usual we have also included a reconciliation of our effective tax rate in our supplemental materials.

And finally in sounds it might look we would treat all financial guidance for Twentytwenty in mid March given the level of ongoing uncertainty surrounding kind of at 19, and we'll continue to update you as we have more information to share with that I'll pass you back to rally people Clayton will come in.

I saw I want to take this opportunity to just say thank you for all of you today for joining us today in the mid to this crisis, our responsibility and commitment to our communities has never been more important.

And our teams just keep stepping up to that challenge Jackson around the country have been providing countless meal for meals for hospital workers first responders firefighters Humane Society feedbacks and more a daily examples of our core values of light hospitality.

While we work through this extremely challenging time I could not be more thankful for shack home office teams and their dedication to keeping our shacks operating.

I couldn't be more grateful to our guests for their continued trust and support.

During this time, we are working hard to take the lessons learned now and bring them into our business plan moving forward, ensuring we come out even stronger on the other side more prepared for anything that could come our way.

Remember shake Shack was born as a community gathering place in Madison Square Park in New York City, you can bet that when the day comps were friends families coworkers travelers.

Everyone in our communities chooses to gather again.

Shake Shack will remain a place they choose to do so.

With that operator, you can go ahead and open the lines for questions.

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Yeah.

Your first question comes from minus Sharon.

With William Blair. Please proceed with your question.

[noise] or some of that roughly you're getting through the app and through the shock website, and what I'm really trying to get out.

As you know how much information are you getting on your customers at this point and how does that kind of flush and with any ideas you might have about loyalty either imminently or Sharon feature.

Yeah, I sure I'm sorry at the beginning of your question you were muted could you I'm sorry to make really caught about the last 10 SEC I'm sorry [laughter] question. That's okay. This is the joy everywhere I can't remember on the new World [laughter], Yeah. So congratulations on the on the 80% digital I guess, what I'm curious about is is what percent of that.

Are you getting information for either on the customer either.

Your website and kind of along with that how does that inform what you're learning about your customer then and then epicentral thoughts on loyalty layering into that platform.

Absolutely. So look I think it's really exciting to see how quickly our tools that were built for a much lower present percentage of sales have grown and very literally keeping us a in business. So we're excited about that we haven't you either people can check out as it gets.

They can check out with full information when they travel information obviously, we got.

Quite a bit of data is that we only used to connect with them. If there if there are willing.

And if they want to be a part of that so those data is rich the connection is rich and we're really excited about what this means because you know as you know from the industry and we expect this ourselves those guess tend to be sticky or they tend to hang in there with you and that's I think especially during this time guests that are experiencing.

Hey, Jack.

It's been like a coming home you know the amount of Butoh social media posting we've seen a fit when people get their goal belly of pack at home that took their shack Burger King.

It's a it's a strange time and when you can connect with those things that are comfortable it really matters as we look at loyalty or other things down. The road you were going to continue to test various things we've seen some good success with various promos through our delivery.

Partnerships in this over this last month I want to begin to be able to do more and more of that as we continue to invest and build in our towards we've got a lot more building to do.

These digital tools have a lot of growth to be done, but that's where the investment as and we're really excited about what it's going to be force in the future.

Thank you.

Your next question comes from one of Nicole Miller with Piper Please.

Please proceed with your question.

Thank you and thanks for a great update this afternoon.

One question would be the globally partnership I mean that was this really fine we experienced it on our I'm. Just wondering you know, it's clearly aligned with the DNA of supporting the community how much of it was novelty could it be permanent even if it's not what did you learn.

It's a great question Nicole Thank you for hanging in there with that said and I think.

What we've learned is there's an incredible demand for shake shack all around the country one of the powerful things about I think like go values. It starts to tell you where people.

Order right and it's a way for US all the time to maybe even learn about real estate decisions how to see the market, where there's different demand that we may or may not even though.

And we're going to be listening and learning through that look I don't think it's gonna be a material part of our business anytime soon we certainly want to be back token shack burgers for you in our shacks more than more than having you have it at home, although we love that for the moment, but we'll be keeping on it I think it's gonna give us an optimistic about other products down the road and who knows who knows what.

This could mean I also just want to follow up on one thing from the previous question too as we look at our digital channels one of the cool ways, where people are experiencing shake shack right. Now is when you do go to the shock.

We have a QR code outside the window, where you can scan that the menu Pops up your immediately in our channel and you can order. So you don't even have to wait online you don't even have to no you're going to fully contact whats ordering.

And it's just there's another great way, we can connect with people so lots of fun things, both on new channels like gold belly and our own.

Your next question comes from line of Kathryn.

With Goldman Sachs. Please proceed with your question.

Great I think you actually one point of clarification as Harry you kind of went out a little bit when you're talking about the weekly cash burn and the assumptions, you're making their 50 been kinda back from that point, but really the question and I wanted to ask with about add the pipeline insights to watch and yeah. The shack tracking super interest.

Hey, I'm wondering if that changes the way I'm in a post covered world that you think about site selection. If you anticipate there'd be more you know more sites are different price opening up that maybe shake shack might look a little different post Kobin then the more unique BARDA scale a unit.

Seen so far thank you.

Yeah. He take its all right and so yeah, I apologize I'm not sure what happened at that but talk to the cash present, a discussion, but so what I said was at all currency sales levels coming off the last week and all cash burn as noted by $837 a week.

So that's obviously an improvement from business update we posted a couple of weeks ago and not a suit.

So.

Cash rent payments of $800000 a week and so we're pleased with that progress then and you know we expect that continue to improve as bells gradually so financially or whatever.

And carry on the on the on the shock track I think it's gonna be fun alert look we've got to try this out we've got to do at a different places I think one other thing we've learned at this time is that and as we look ahead.

Hey more than ever.

We want to build community gathering places I truly believe the world will gather again, we shouldn't do it in the same way right now, but as time passes I believe we will be thirsty to do that as a society as human beings people want to gather thought that you make so we're going to keep building those are going to keep building really special architecture and design as we have.

At the beginning that's a very thing that has always said shake shack apart and in this time, we're really looking forward to building more of those.

In addition to that we want to make those shacks and others, even more accessible even more convenient no matter. How you want to order and we can do that and have people continue to gather over the long term you know there are shocks like we have one that's nearly built in University village in Seattle, That's a great community gathering place, it's a beautiful design.

And we're going to add one of those shack track windows to it right and I think it'll be an exciting way to do it we have a couple other shacks, where they would never intended as a drive through but now we think we might build a punch a hole in the side of the building creator Alain and allow you to have preordered on our channels and dry.

Five up and pick it up maybe able to set that up for delivery couriers all of that in the near term. It's a separate people to give people space a lot of crowd control over the long term you try to give you. A however, you want your shack with convenience. So yeah I think it's we I think due to the direct part of your question I think it will open up new opportunities for us it real.

The state I think look we have never had more more cash on our balance sheet. Then we have right now today, that's a tremendous position for a company to be it. During this time and we intend to use that wisely. When the time is right and capitalize on what we expect will be a change retail environment and I think there will be.

There will be companies like ours.

That can expect to be.

Even more confident than we were before by developers landlords to capture the best pieces real estate out there.

Your next question comes from mine of Lauren Silberman with Credit Suisse. Please proceed with your question.

Hi, Thanks, that's a quick follow up in the prior question what exact using the existing shack, we'll be able to be retrofit. It for the new enhancement and how could I knew design Ashley impact indefinitely.

And then just a question on the recent comic right now what do you think are the primary driver.

Anything you can share about what you're seeing on a computer consumer behavior side, and then just to clarify topic tour.

Sure.

He accomplished screws quotes towards let's start with the comp and so yes close stores of the 17 or that has been those are out in the call base. We've seen gradual improvement every week for the last six weeks as we've shown since the since the bottom occurred towards the end of March I think it's.

Really been a few things there's been.

What I believe is has been tremendous efforts by our team to quickly and radically alter the way that we operate today for those drive up pickups, curbside and keeping everyone out of dining room I think it's extraordinary what the team's done I think people are getting used to that and I dig diners and guests are looking around and saying I want.

Eat out when I do I need to trust that Brad I needed to be safe in the way that we have done that I believe has given us a lot of points in our community.

Additionally, the digital initiatives seeing or the ability of our app and web channels to grow and be the leader of our sales right now.

Well as the integrated partnerships that we've continued to add with new delivery companies, it's giving people the opportunity to experience shake shack. During this time quite a bit when it comes to the shacks, how many will be able to directly benefit from a check track kind of set up.

It's hard to say, we're really reviewing those now there's been some thatll be really obvious but to be something that'll really look and feel like a normal shock, but what would be working towards is as best as possible in the current designed to have separate areas to have a windows in shelves that can be accessed separately just to keep people as much.

It is possible separate this would be tough shake shacks are crowded places, we're gonna be working carefully to kit to disperse goes crowds a while still try to maintain the best we can I don't expect it isn't material increase in a new shack filled.

We do expect will probably be some level of capex as we look to to do this at current Jackson or do a quickly or we're going to do it wasn't where we can and there'll be lots of things were going to learn by no means that we figured this out yet but.

But it's something we believe in and something we're excited that catastrophe places and get a gallon.

Yeah.

Your next question comes from line of Jake Bartlett with Suntrust. Please proceed with your question.

Great. Thanks for taking the question you might as around restaurant level margins and.

Clarify Terry you said that the restaurant margins were up 15% you in March of despite seeing for sales being down 29% or maybe just I'm surprised by that levels. If you could confirm that just.

At the current levels of same store sales, what does what does but wouldn't restaurant level margins look like or maybe said another way what is the breakeven given how the bid the the stores are being operated right now.

Yeah, I mean my Jake.

I mean, that's the teams did a great job I'm really across the company and the particularly in the shacks of bridge funding as quickly as they possibly could as it relates it's a cost within the shacks unbearable coastal take also and labor costs are trying to react as quickly as possible to this week over week.

Sales trends that I talked about it so I think hats off to them for moving as quickly as they did.

But they still so a meaningful impact to margins in the quarter with that kind of the sales drop off but when it comes so looking for it and why we all know I would say you and you sort of made the pivot you'll sell from shack level operating margin say cash, but really we're very focused on that cash but.

That's supposed to pull nice then that's when we'll be looking set to continue to improve as sales come back ultimately of course with the intensive getting back to the high margin business, but that we wasn't okay that 19 hit but yeah, that's not going to happen tomorrow and this is gonna be a path to get that and Jeff.

<unk> costs will start coming back into the business in a different kinda back into the business at different times, Oh, They say as Randy mentioned with what we're really pleased to be bringing back that stuff team members back into those shacks Oh sales for copper.

Got it ownership inefficiencies and just extra cost and they know and the operating models right and I wish it what anybody hope for the <unk> says, we opened dining room, there that's not necessarily going to get an easier in the short term actually we opened dining room under such restrictive in such a constructive environment. So I think cash then.

It is the key area of focus and watch as of today and we're not getting any forward looking statements as it relates that when you breakeven point.

On the cool today, but pleased with the thesis for questions as far as the last few weeks so.

With sales continuing to increase.

Looking forward to that continuing to to get better I will say you know what else I start to the spend a little bit more too as we alluded to we're really excited to get somebody fiscal investments in digital stretches back on track after sort of loan pools and stuff like getting this business back on the from the coming out the other side.

Your next question comes from one of John Glass with Morgan Stanley. Please proceed with your question.

Thanks very much in thanks, Thanks for all the detail around sales and cost when it when they look at your sales declines even even outside of New York City sales are down 35% to 40%, which in a way surprises me just given it's a limited service brand we've seen some others even without drive-thrus.

Less severe doubt declines in sales.

Is there another way to cut that data to look at like the suburban stores when you get away from like tourist areas areas, which would be more impacted by traffic. Some other way to help understand if there was a differentiation either way people are you just not using your brand differently or is it just the geography some locations you're in that causes more significant sales declines.

Well, John I think there's so many variations within that and it's the right question, but the most heavily impacted or the deepest urban environments, right, New York City, and urban stores shacks and many other places around the country.

The hard part when you really try to break it down is look there's some there's many malls, where where either close because were inside but we're open for them all as close right. So it's hard to say well a mall or a suburban a shock is doing okay. I think shake shacks real estate has been its strength.

Right and there's no doubt that in times like this we're not a brand with 2000 units around the country that has a widely dispersed portfolio. We have just 167 company opera Jack.

They're all in really good location really good locations are deeply impacted by this moment and I think it's just a little bit harder said, but but generally you're right to say that suburban kinda does a little bit better. During this time, because you can access the more easily.

But it's you know we've seen some fascinating trends and you know it really is it really is alerting moment and it's even if a lot different kinds of real estate opportunities that we have today and we'll have in the future as things there's things return, but look I think shake shack being a little more impacted than your average.

Fast casual or certainly then the QSR just because of the kind of real said, we have zero drive through official drivers right.

So.

Working on it learn a lot and good news is each each one of those regions has slowly picked up every single week.

Your next question comes from Arnaud, John Ivankoe with JP Morgan. Please proceed with your question Hi, Thank you very much hope everyone as well yeah. The first just a clarification I think Randy you said that some stores are actually up year over year. So I mean could you explain like what the characteristics.

Of our of those stores and secondly, I'm, having $247 million of cash is a lot of money given what your cash spring is and what their capex will be likely for the next several years are you beginning to think about other strategic or non shake shack opportunities now that you have a truly fortress balance sheet.

Yeah, Hey, we really do have I mean at that level. The most cash we've ever had in this company ever in the history of this company is over $90 million. We now have nearly 250 to 250 million that is a truly fortress balance sheet to withstand anything no matter how long mistakes.

We believe we can withstand it and I do think it creates tremendous opportunity for us first and foremost shown on our own channels to continue to build and we believe b b truly opportunistic in our growth moving forward now we've got US we got to get pass. This thing we're not gonna get over our skis, we're going to make sure that we preserve the cash we have and so that we can do that.

We have no current plans for anything outside of building our own shacks, we got a big country in a big World out there and we want to do that but you never know and you know liquidity was the number one goal over this last two months, we've achieved that were really I'm really.

Happy about that in terms of shacks that are up it's funny you know there first of all there's not that many [laughter] given the numbers. So let's be real what are the ones that are it's interesting they tend to be those shacks that are where you can clearly see where stay at home would help.

Some of the ones that are easily accessible via car via drive up and via where people are being right now threw out there kind of work what could help so let's just say that Midtown Manhattan is not one of them. If it gives you. An example, right. So we we it's the opposite of that that is seeing.

More of the shrank right now, but we think you know we pick though all continue to what we hope continue to come back if if trends continue.

Yes.

Your next question comes from line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Thank you very much.

Just a question as we think about the reopening to come I mean, obviously, you're primarily or do a lot of dine in business. So that's a big opportunity for you I'm just wondering if youve given any sort of can share anything in terms of right. Your thoughts on timing and maybe how the strategy changes in terms of social distancing.

Like you said your gathering place, but doesn't necessarily fit well with that type of.

Apartments, any thoughts around the profitability Thatll come out with you know these capacity constraints or maybe you have already opened some of the dining rooms in terms of any learnings you can share in terms of the improved comp or <unk>.

The risk of losing pickup at the expense of the Darden being reopened anything that would be great. Thank you.

Hi, Thank you. So you got one person a world where dying to reopen has been in mainland China in Shanghai in Hong Kong and Korea, a those are severely limited dining rooms in each country has their own methods. We learned a lot from our partners overseas and I think we're taking a lot of that to our ops teams here. So it domestically.

There are zero shacks that I've done in room open and we haven't announced yet when or how exactly do that but we are we're watching we're watching closely we're making sure. It can be done safely you've obviously seen regions like Texas, Georgia, and some others begin to open in restaurants being some being aggressive some being more cautious we're gonna.

Take the more cautious right and when we do you will see a lot of blocked off or removed tables, you'll see a lot of space between any guest you'll see the line very clearly delineated with space in between and you'll see pick up here is spread out as possible and by the way, you'll see our staff as spread out as possible.

For their own safety. So it's gonna take time, we'd have to work with throttles right. Now there is no. Good reason to just start to try to do all the sales that these shacks. Once did that is not the same thing and it's it's what we need to be careful about that that said our.

Teams are being incredibly entrepreneurial and as aggressive as they can to get back to sales that that the opportunities. There. So I think I think where they continue to encourage people are my hope is that whether you stay or take it to go in the new environment, you still preorder as often as possible.

I think the opportunity, which we had started with kiosks with our App and web channels, our own channels are incredibly attractive to people and they're more. So every day. So we're excited to see that continue to go we'll see we'll go no go slowly and we'll go deliberately and with discipline.

Your next question comes from one of Andrew Charles with Cowen and company. Please proceed with your question.

Great. Thank you and I Hope you guys are all staying well two separate questions from me Tara and one cute can you quantify the revenue dollar impact the temporarily closed company stores. Given this wasn't picked up in same store sales calculation and the Randy My question for you is that when we eventually get back to the new normal what factors are you evaluating to determine if you want to return.

Turn to an exclusive third party delivery partner or continues what you're doing now with several partners.

Oh handy, we actually haven't quantified that revenue number for Q1.

So I mean it was the if it all if they were fortunate it wasn't very many shacks.

Towards the end of the quotes or the we haven't broken ironic.

And just for context, everyone understands the kind of shocks that are closing why it's a certain shacks are interior of a mall, that's close and we're not able to reopen or certain shacks.

Yeah like Grand Central station that is just experiencing you know wildly lower numbers. So we close that Chuck.

And some others, where it whether it's inside of hotel or in a truly destinations or is there like international drive in Orlando those trucks are close.

In terms of delivery partnerships, Andrew at the moment, we don't see a scenario, where we would return to an exclusive arrangement we're really.

I think what's become clearer to us through the first quarter and certainly now we want to give opportunity for our guests.

To have it whatever reason, they're in and whichever platform. They choose to use we want to make sure that where their form.

We really form strong relationships with all of those partners. We're excited about that and what it means for our future as things are as things return to more normal see overtime, we hope and obviously, we're doing greatly elevated delivery, you know who knows where that will go.

Hopefully people start to come out more and do more in person or preordering continue to use our channels as the preferable channel of it in the meantime, and ongoing we're going to work with Scott with all the major partners because we believe that's the best thing for the business model.

Your next question comes from mine of Brett Levy with MKM Partners. Please proceed with your question.

Great. Thanks for the call and Oh, yes, or whatever else everyone else is that I hope you all are doing well.

No you talked about a lot of things you've always been a management team that's been thoughtful and methodical in your approach to different it to introducing initiatives but.

Throughout this call.

Do you obviously have a lot of operational protocols that you're putting in place reopenings that multiple delivery partners. These digital advancements.

And you're still going to have other areas on the build out and menu. So it seems like you have quite a bit on your plate. How are you thinking about prioritizing once you've gotten to the reopening and also.

What tick up what do you need to see to to get a steady state where you're a corporate infrastructure is rebuilt and you got to whatever you consider full corporate staff. Thank you.

Brett such a.

Important and appreciate the question. Thank you I think.

Number one you've got to see safety, you've got to see environments, where our team and our guests can remain safe.

Everything has to be driven from there.

Once we see that we're going to make sure that the priorities are done to take care of our team and begin to grow sales again, when you look at those initiatives within all that can do that so for instance on the opposite side, we've called down our menu of a touch yeah. We've taken off some of the things that are harder to operate and.

Our our a smaller percentage of our sales. So we have not introducing the LTL is for the moments, we really got a nice core menu.

That will do in there. So that's that's a perfect example of the other side.

As we look at other priorities it'll be a lot of our digital initiatives. The investments will begin in our tech and marketing where they've been anyway, but certainly.

As we come back we're going to want to make sure those tools are as robust safe.

In capturing the opportunity to grow as possible.

That's really where it's it's gonna be but I think we do we're being disciplined you know.

Look there's there's really good signals if you look at the graphs and you see the recovery that we've begun to have but we're still below our sales and we expect I'll leave the case for some time. So we've got to make sure that we're disciplined we are not spending anything that is unnecessary. We certainly don't expect a whole lot of travel or other things like that.

I would normally be part of our ordinary course.

And as things start to come we'll start to add that back appropriately we've got to understand what the new normal level sales will be.

And then the last thing I'd say that it's going to be time soon to figure out how to support new openings right. We have not had an opening in a couple of months and openings will be different now they will be challenging maybe opening without a dining room a in a new opening will have to see.

So we're going to make sure that we can prioritize our ability to do that do that well and make sure throughout the company. We are staffed as possible at an appropriate level. So we're continuing to be prudent with our cost structure, but not cutting the opportunity to gain sales where we can.

Your next question comes from mine of Jim Sanderson with Northcoast Research. Please proceed with your question.

Hey, Thanks for the question, Doug just wanted to dig in a little bit more to beef costs to refer a lot about the ground beef pricing increasing one.

Hoping you can provide some feedback on your own unique blend and how that's trending relative to ground beef costs, and then remind us of what share of food costs are related directly to be thank you.

Yeah look generally in the first quarter. It was fine you know the beef basket has roughly been around a third of our of our company for many years so call it that roughly approximately.

What has been something we're watching literally every hour now is.

The supply and cost of those as you've seen a lot of headlines lately. We are happy to say that at the moment, we've had zero supply challenges in getting our before the plants that we use have not been impacted although many plants you've seen across the country are working ever do schedules, we do not today expect the supply issue.

However costs have really jumped Oh. This last few weeks in some expectation of moving forward I think you're starting to see some you started some challenges in that market. It's something we've got to watch very closely we're expecting much higher costs on the beef market at the moment.

And we don't expect that to be a long term problem, but I think as is as is the moment right now nobody knows exactly on all these issues. So we're watching closely we believe our supplies intact and we believe is going you're more expensive on the rest of the baskets, we're kind of right, where we were there some wins there are some losses chicken bake in those things we've we've.

Locked in supply and cost so we feel good about that and [laughter] excuse me.

Generally we don't see an issue in any major direction there'll be some fluctuations with the rest of the basket for the moment. So beef has really been watching we'll keep you posted.

[laughter].

Ladies and gentlemen, we have reached the end of the question answer session and I would like to turn the call back to Mr., Randy Rudy CEO for closing remarks.

Thank you so much for everyone for taking the time to be with US today, we look forward to continue to be in touch and trying to turn to take care of our team as we are slowly recover here.

And we hope we can see a at a shack sometime soon thanks, everybody take care.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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