Q3 2020 Shake Shack Inc Earnings Call
The only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host senior Vice President of Finance and Investor Relations Rick. Thank.
Rick you may begin.
Thank you Paul and good evening, everybody joining me for Shake Shack Conference calls it you'll see open Dick routine.
CFO Tom <unk>.
During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in the body weight you got the point.
The presentation of this additional information should not be considered in isolation I just thought that you push all paid in accordance with GAAP.
Reconciliations to comparable GAAP measures are available in our earnings release, and the appendix of supplemental materials.
So today's statements may be forward looking and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on form 10-K filed on February 24 2020.
Form 10-Q caught on July 31st 2020.
Any forward looking statements represent our views only as of today and we assume no obligation to update any forward looking statements can help you to change.
By now you should have access to our third quarter 2020 earnings release, which can be found in does that shake shack dot com in the news section.
Additionally, we have posted our third quarter 2020 supplemental earnings material, which can be found in the effects and presentations that you don't quite well.
Well I think I get it to our 8-K for the quarter.
With that I will turn the call it that's why they.
Thanks, Rick and good evening, everyone. We hope you your families and our entire shake shack community are staying healthy and safe through these challenging times.
Burger by Burger Shake Shack continues to come back a.
Our business started this most recent quarter showed steady recovery. Thanks to the hard work and dedication of our team their agility in adapting new shacks protocols and bottles and an increasingly strong suite of digital capabilities. As a result, yes, I've been able to enjoy their shack the way they want it with a choice of convenient and safe ordering and pick up.
Options as we continue to expand and elevate the shake shack experience.
Since our last update at the end of July forward momentum has continued and we're encouraged to see a strong recovery in both sales and profitability with many shacks are turning to or even exceeding last years results.
Your your company operated Shack sales declined 17% in the third quarter compared to a decline of 39% during the second quarter and further improved to a decline of just 5%.
Fiscal October.
Same shack sales have also improved sequentially in every single one of the last six months.
Encouraging path to recovery considering the drag that are high traffic urban locations continue to have on the business well suburban shacks are collectively getting close to full recovery import.
Importantly, we're almost back to a steady state development schedule and we are ramping up the opening of new locations to the remainder of the year and into 2021 and beyond.
At the end of fiscal October Weve opened 33 shacks during this challenging year, including 15 domestic company operated which four were opening a third quarter.
The consistency with which our sales continue to recover it gives us added confidence in the gradual return to a more normal operating environment as expected with urban location still acutely impacted by the pandemic.
Suburban shacks continue to recover more quickly.
As shown strong improvement in recent months, particularly due to increases in in shack ordering and higher levels of retention of our digital sales.
From a regional perspective, we continue to experience a broad range of performance when it comes to the speed and level of sales recover at times, it's based on the extent to which dining rooms are open and also the relative concentration of urban shocks, which are understandably more impacted by office tourist in high traffic.
York City, particularly Manhattan continues to lag other regions. We expect this to be an ongoing headwind for the business until the city fully recovers.
Stations, but sales in the opening month, among the highest of any international shack opening.
Amazing when you consider the environment, we're operating in a testament to the continued strength of the shake shack ran across the globe.
The most deeply impacted part of our entire company does remain a license to airport and stadium business with travel still severely depressed and stadiums clothes only nine of our twenty-two domestic license checks are open as of the end of the fifth of October and we expect that to continue to be the case for the foreseeable future as a whole back recovery and is highly <unk>.
Possible piece of our business. However, we continue to take a long view here in normal times.
Needless on the best track locations in the world, providing both high traffic and high Brown visibility or excited for the day they will eventually reopen.
In the meantime, we'll be working with our domestic license operating partners of support new open as those opportunities arise such as Salt Lake City Airport for example, which opened in September and as we look to the future of license Shacks. We expect open 12 to 14 net license checks for the full year 2025.
Five six new license shacks expect open in the fourth quarter as.
As well as looking ahead to 15 to 20 do you like to check for 2021.
Moving on the company operated new development.
Despite the necessary pause earlier in the year, we're back to growth and we've been game regaining momentum in recent months. We open 12 shacks at the end of the third quarter and we're anticipating reaching a total of 18 to 20, New company operated checks by the year and.
Both rescinded upcoming shacks Orange fantastic location, such as Valley Fair in Santa Clara University village in Seattle freestanding Shack in Pasadena.
And locations that continue our penetration of key markets across Texas Salt Lake City in Colorado.
We're pleased with the operating results of those open so far with a 2020 class average continuing to outperform the company average weekly sales during the third quarter.
Make no mistake before and after Covid our strategy is to win market by market with a focus on top to your real estate across the United States.
And our vaulting multi shack format model positions us to take advantage of current real estate opportunities emerging across the country, particularly as we look at openings in the next year and beyond.
We are aggressively pursuing and developing sites, where we can watch our new drive through our shack track drive up and walk up models as well as the continuation of core shack format that generate a compelling returns for years.
I didn't want to provide an update and the direction for each of these new shack mops first on the recent launch of our curbside pick up in place now at nearly 70 shacks nationally this.
This model was created to solve the need for safe contact was pick up we executed on this quickly less than three months at the peak of Covid.
Since launch Shaq's offering curbside I've been experiencing about a third of all eligible app orders in that format and it's been with limited market. Given this level of adoption. We feel good. This is meeting a real guess neat.
We're excited to continue to evolve and improve this as we learn more and add this option to future shacks wherever the layout allows for it <unk>.
<unk> on a roll out of other versions of check track.
With the objective of add inconvenience and preordering.
Combined with a fast and frictionless experienced to pick up.
As we look ahead most shacks in the pipeline will have some version of a shatter either through an enhanced into your pick up model and extra walk up window or drive up option such as our upcoming retrofit in Vernon Hills, Illinois, and not only do these models eight and social distancing, but we believe there'll be a favorite option for guests looking for speed inconvenience on that.
Go in a post covid environment throughout.
Throughout the end of this year will complete seven to nine shack retrofits, an existing shacks and next year, most new shacks will have some version of a shatter we expect roughly half the class to have either an exterior walkup window, where drive up window as they open.
Too early to talk about results, but our goal will be to drive convenience frequency and longterm sales growth through this model.
And finally, we're getting really excited to watch her first ever drive through location late next year.
Shaq drive through it will be a modern version of the traditional drive late experienced supported by technology enabled hospitality and innovative design all while maintaining our core tradition of building community gathering places with you. This model for us as an important step towards increasing our addressable market opportunity and we're making a big commitment to this learning what.
It'd be targeting between five and eight drive throughs over the next 24 months.
As we looked at 2021.
We intend to return to the full development schedule that was in place before Covid, we're targeting between 35 and 40 New company operated checks for next year will be launching a new cities like Portland in Indianapolis, all going deeper in California, the Midwest and some of our other strong markets on the east coast. Our approach will be to build a balanced set of formats cross are poor.
<unk> and to continue to diversify across markets as we look to ramp up Shaq unit development in 2022 and beyond.
And with this opportunity to head will also definitely in the future of the shack digital experience.
Influx of new and returning guest or digital channels over the course of this year has given us a real opportunity to update and enhance our tools.
Enabling new ways to provide hospitality at the core of the shack experience.
Confident in our continued focus on our App and web channels as these allow us to connect with our guests more frequently and they continue to perform with a higher average check as.
As we mentioned our last call, we're looking forward to offering delivery via our own shop currently targeting limited testing of this functionality towards the end of this year with broader testing and rolled out over the first half of next year.
It'll be hugely positive for our digital strategy for host reasons, including the ability to create consistent personal experiences with our guests across our own channels combined with the additional data and insight, but allow us to better understand those guests and connect with them more directly as part of our broader digital strategy.
Turning to the menu the return of Hot Chicken has received a fiery welcome back by our fans knew this your guests were you able to order hot spicy fries and hot chicken bites, each with our new ranch sauce.
Who've been offering three levels of spicy hot extra hot fire and fire. The <unk> the latter only available to a digital channels.
And since launching this hot menu offering in September you saw significant step up in our overall chicken sales the 40% more chicken items sold versus the previous two months.
The third quarter, we also launched our pumpkin shaped for the third year in a row made with the highest quality ingredients, we use real pumpkin cinnamon nutmeg and top of a delicious toasted pumpkin cheese.
As winter approaches we're looking forward to return a another fan favorite <unk> holiday shakes, bringing back Christmas Cookie and two new flavors chocolate spice in candy cane marshmallow and.
In 2021, the team is excited to bring a regional favorite from a Korean checks to the U S. A spicy Korean style fried chicken sandwich, featuring a goat <unk> chicken broth top with roasted sesame seeds <unk> with white Kim Chi slot.
Aversion to this menu item is running as an L. T O right now our South Korean shacks into Great example of the way our international presence can enhance and elevate our brand as we sure exciting and innovative menu items across the world.
Covid resulted in more of a focus and simplification in the short term, we're excited to be getting back to more regular cadence and a limited time offer is a 21 with a culinary calendar that raises the bar with bold in the chicken flavors.
Any expanded testing of our exciting new veggie shack.
As well as innovation around our beverage in customer program.
Wrapping up a progress in recent months is encouraged and nearly every corner of our business. We are certainly not out of the woods. When it comes to the impacts on the Pandemics, but each day brings us new momentum and confidence we're on the wet with innovation and work taking place across the entire company. We remain squarely focused on the safety of our operations yeah.
Ongoing enhancement expansion of access across formats and channels and a significant white space for growth globally that remains ahead of us were incredibly grateful to each and every team member both in the shacks in our home office to make this company that very special place that it is each and every day.
With that trying to take you through the financials.
Thanks, Andrew.
Okay have you have just says what pleased with a steady and consistent progressed in October <unk> ultimate recovery as well as the great. What can you run across the entire company, we're getting stronger every day and will continue to diligently execute against a key strategic fixing.
<unk> like the like the head.
The 10th of first quarter results total revenue does that sound instead of 2.4 million done at 4.1 million and licensing bathroom.
[noise] misrepresented a total shock sales decline of 17th is that they liked the thing that I need to kind of 24%.
<unk>.
With a link compared to the second quarter, 'tatoes shack sales and licensing revenue increased 41%.
Two 1% respectively.
At the end of the headquarter trading 12 month average you let him was $3 million is a significant portion of this training trained 12 month time period and since Covid input.
Average weekly failed to talk line that check to monitors we live through this recovery with 58000 on it that quota and increase sequentially Tonight that period, ending with fiscal September at 61000.
Reschedule. This appointment continue so I'll make sure you can pick <unk> period of October what happened to me too failed, let's take the 2000. Let me then can you just the state that in more detail on page six about supplemental materials.
Same check sales continue to say started times that recovery declaiming, 51.7% change the third quartet compared to the same period last yet.
Moving from a declaring that 49% through to take.
Consistent without total sales trend.
<unk> both of them. Please to definitely fix per month since April with fiscal September same checks out then 23%.
It's gonna pay the southern <unk>, 2021%.
Traffic declined 42% from the third quarter, all set Personate bye posted price makes at 10.3%.
It's near me the price mixed <unk> this driven by a significant increase in average check cause I already from Atlantis for style snakes can bring with an overall increase in that check cause we've seen <unk> since it's down to the pandemic.
Is there anything mentioned were encouraged but improvement in performance.
I'll put that in and up and checks.
As a reminder, I'll come based today is comprised of roughly 50 50 opens the bathroom check well the other <unk> had a high revenue contribution pre covid at approximately 60 per cent of <unk> compared to approximately 50% of the third quarter.
Same shack sales or else the bedroom copay shacks within 16% and that's at school checking pet to the try yeah, an improvement from the decline of 38% during the second quarter, and then again improved and pistillate type of Sadam just 4%.
Seven milk, it's real fishing steady improvement however, still impact it's a much greater degree by kind of it.
<unk> the planes, 43% to you said <unk> <unk> <unk>.
This is a claim that 57% in the second quarter, but also shed continued improvement in physical like table, two 833% and can you let me get the claim.
Same shack sales improved across the <unk> region on a sequential basis with performance driven by increases in in check dining <unk> urban and suburban checks combined with the continued strength digital channels.
We do have that that continues to see levels. If we show performance improvement different based primarily upon the relative proportion of urban shacks in the region.
The companies check so they'll southeast region for example of which I have a 80 per cent of Sympathin within 25 per cent year with you in the third quarter significantly pain shooting pain down 41% in the second quarter and subsequently and proven fifth at 10, 15%, it's been fifth what type of.
Reasons, which I'm more significantly comprised of other medications continues to be the hardest hit with nukes that the payment nice to cute you can unplug. This and you heard from if there's no Mr. <unk> and then to get.
All of our retail performance is clearly later on some pages eight and nine about supplement with that we're happy to help with the additional questions Spice it up to the cool.
Digital channels remain the leading order method, representing 60% of total shack sales during the third quarter.
In line with the 62% we last reported the physical July.
If you can see on page 12 of supplemental discount relatively constant threat, the third quartet and throw them. Most recent fiscal note that type of with it still fails mixes 58%.
Within Shack thousand. Please we've maintained a high level of pitched, a a technician with more than 90% of digital sounds retained in fiscal October compared to the high point in fiscal me.
During the third quarter instead of that the second <unk> a native weapon channels. When combined continues to be the fastest growing channel and are you into the basis with sales more than three times that that's a Friday yeah.
And I'll ask her was shed that without the day of 800001st time touch that store Apple web channels between early March in the end of July but please let's try. This is continued threat say that increasing so they have a 1.4 million fifth time purchases on those channels didn't send me much.
Looking for it in that moment into the fourth quarter. The pizza and then progressed that closely watching the performance of in checks out the taken any enlightenment bolting city and state dining regulation.
At the end of the fiscal October nearly ultimate that company outbreak of checks will open with a proximity 80% to play with open dining rooms to varying capacity restrictions and the majority of shacks all thank utilize an outdoor patio space.
Well what comes with them and a phone longterm recovery, we know the timing with that person to pre covid level is highly dependent upon the return if a high traffic areas that contributed to many of a stroke. This check sales. There is some extra lines and travel school's upstairs major gathering as well as the ultimately fully open dining room.
The timing of that recovery remains unknown today with.
The colder weather and the increasing number of reported kind of of cases, we do expect styles over the coming months to be precious.
We do have the benefits of a 50 said, we can this fiscal year, which will be accretive on an absolute dollar basis, but the underlying business continues to face a very challenging volatile upgrades of apartments, certainly through the end of this year.
I'm, taking a look discontinued I'm 17 consideration will only be providing the earlier mentioned unit Titans at this time.
Maybe into the strong recovery of shock level operating profit for the third quarter very pleased with a significant improvement yet.
A shatter my lost earnings we exited the second quartet with approximately 5% shaq level up waiting perfect and physical <unk>.
Just above 2% for the second quarter.
Since that time, the combination of sales improvement the normalization of East Coast and continued disciplined expense management across the business doesn't that's a significant recovery with shock level of operating profit margin in the third quarter and proving to 14.82 cents.
Performance improved sequentially strike the quartet with physical July August and a five week fiscal September delivering shock level of profitability of 12% 14th at them and 17% respectively.
In addition to benefit from recovering sounds throughout the quarter. We also so a number of improvements because various check level expenses.
Figures and paint the customer quarter past eight the sense of shaq sales higher.
Hi, as in the same period last year by 100 basis points due to increased paper and packaging costs with full or just package to go.
On a sequential quarterly basis, we still an improvement of 350 basis points compared to the second floor jet primarily due to the stabilization that because.
No that'll be getting time to debate any major food cuss, Joe just getting into the change is getting into the fourth quarter paper costs will remain elevated excuse me the continuation of those increased numbers of packaging.
Labour another related customers third quarter, the 30 per cent of checks out an appointment at 460 basis points compared to the second quarter and an increase of 207, two basic <unk> compared to the prior year <unk> famous leverage across fixed labor expenses.
The sequential cool, okay appointment with significant and choose to increase sales performance as well as somewhat lessened covid specific headwinds on this line. That's just paid your inclusion.
We're pleased with improvement here that will continue to pass some level of labor inefficiency as we manage social distancing in safety breaks Coke together with open but limited capacity dining room.
We remain incredibly grateful for the resilience and the commitment shown by up to them from the checks and the recognition we extended premium pay for <unk> two members to reach the end of the fiscal Okay and also guaranteed manager bonuses in the third quarter is.
In September we further extended the support Fronczak teams through the fourth quarter by introducing a year end bonus for all out with a team member number please to be able to show I'll continue to appreciation in this way.
This investment in our team had a 2.1 million dollar impact during the third quarter within the Nathan line and was in addition to the $2.4 million already paid in the second quarter.
Other operating expenses and a quarter of a 14.8% an improvement in 120 basis points compared to the second quarter and an increase of 240 basic point to you're ready it due primarily to increase to liberate commissions combined with the loss of sales leverage I'm fixed expenses.
Compared to the prior yeah. The increases in every commissions during the third quarter was partially I'll set my savings and reduced maintenance expenses within the shacks, which we didn't know what to expect to continue as we enter the fourth quarter.
This we look to the fourth quarter as I mentioned, alright, Spectation is it failed, we'll face pressure to to the challenges at the ongoing covid environment as well as the on the South Dakota, whether across the significant number of a region.
With a continued recovery of shock level operating profit highly correlated to sales performance in terms of leverage them fixed costs combined with the continuation if there's an elevated customer p&l's specific to the pandemic. We also expect and the only thing improvements in shock liberal place in much in the fourth quarter to face pressure.
Strong cost management will continue with the safety of our team and I'll get so by the way being our first priority.
Moving onto GMA, which in the third quarter was $50 million and taken 1.7 million related to notice cashed items.
I'll continue to cover it through the third quarter and a strong balance sheet with gradually increased investment in key areas across the business, while slowly bringing back up team in preparation for the growth ahead and.
In particular across the digital missed it but also in marketing decreasing and development as we focus on that significant longterm break opportunity. We remain bullish on the size of the options that we have a heads and we're committed to investing in order to reap those benefits quickly and meaningfully.
Okay. So we're looking at it through the remainder of this year, we expect a full quota total G&A spend to approach the same level of spend as the fourth coach at 2019.
Preopening expense for the third quarter was $1.8 million is $500000 in non-cash deferred rent expense related to shock locations room possession of but had not yet open.
Now that developments back to a full lightning scheduled this spend will increase meaningfully and is expected to more than double sequentially through the fourth quarter. As we can keep the she is I'm gonna schedule and went back up to the 35 to 40 units you mentioned for 2021 and number of which should I put in the first half of the year.
Finally, despite the challenges about breaking within a global pandemic well it cause continues to complete the successful final phase appropriate countries, which centers around on shock level supply inventory and then voice management system with a focus on automation and time savings for a <unk>.
Please confirm that this is not fully go back and I'd like to thank me in tight budget concrete team, so that incredible achievements such challenging conditions.
Oh, no no just a pro forma basis at a net loss of $4.4 million or 11 cents, a funny exchange since I need to check.
Excluding the tax impact Stoke based compensation are adjusted pro forma tax rates in the first quarter was 29.3% slightly higher than guidance given out of there and the urge you primarily to combination of state makes in lower tax credits.
What's the date that makes us approximately 28% and is in line with a full your expectations at this time.
Similar to prior quarters, a full reconciliation of our tax rate is included in the appendix about supplemental materials.
Okay Awesome marketable securities balance at the end of the quarter was 109, two 1.8 my name's on it the police of January as opposed to free cashflow for the <unk>. We do expect an increase in cash used during the fourth quarter is all Catholic spend it shut the new shot construction ramp back up with a robust 2021 development schedule ahead of us.
We're very pleased with a significant improvements in performance across the company from a recovering sales and profitability to the strong performance about digital business we.
We do have I have a roommate and challenging and volatile time, but I'll foundation as strong as as off balance sheet from the focus on my clear roadmap for growth ahead of us with that I'll send me back to Randy.
Thanks, <unk> I do want to add today as tall, noting a milestone that none of us could have ever dreams back with the first shock and Madison Square Park. We recently opened our 300 shock in the world.
All places Madison, Wisconsin, I could not be more proud of the hard work received from our team. The last 16 years to reach this occasion throughout this journey, we've had our share of trials and challenges is the perseverance of this team that got us where we are today I also Wanna shock excuse me don't Wanna Panic on loyal Shack band.
I'm stuck with us and are coming back to enjoy their shack in more ways than they ever played before above.
Above all count on us to always we didn't work purpose to stand for something good while creating uplifting experiences carrying first of our team members inspiring them to provide boundless hospitality to our guest can unique suppliers and investors.
You and your family say safe stay healthy with that operator, we can go ahead and open up to call for questions.
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Yeah.
Thank you. Our first question comes from Michael Thomas from Upper Heimer Oppenheimer and company. Please proceed with your question.
Banks hope everyone hope everyone's well, obviously you gave us the October numbers, but.
I'm pretty cautious on sales over the next several months. So can you just kind of talk about that in general is there anything you're seeing right now or is that just what you think is gonna happen and maybe can you parse it out between.
[noise] locations in suburban locations clearly somebody off premise strategies are driving.
Nice sales improvement for your suburban location. So just trying to understand a couple of those differences bedroom. Yeah. In fact, my golf start I mean first of all we've given everything but the previous seven days of sales. So you have basically everything midcourt. So you're seeing exactly where that stands October have you been our best months' obviously.
Throughout covid with tremendous improvement everywhere, but if you look at every single region has gotten better through the quarter sequentially and through October so basically quarter to date Europe. Today, I think you have to be cautious as you look out at Covid cases, increasing volatility we have an.
<unk> coming up I think there's a lot of unknowns in our country right now and globally, you'll have your cases in Europe, and how that may impact their economy. I think we just have to be cautious we're really really happy with how the team has continued on recovery and that momentum has moved us forward too I mean, recapturing as you see nearly three <unk>.
Orders of our profit at the shack level, which I think is extraordinary work so coming back feeling really good about the momentum, but being cautious being cautious as we head into a new season with spiking cases, and one where we are you know we're prudent in our preparations were disciplined and our approach and our cost management and we make sure we're set up for.
Or success no matter what comes our way in the next few months.
Great. Thanks, and then can you just talking about margins a little bit you know the relationship between sales and margins I mean doing a 15% margin. When your sales are down almost 30% seems pretty solid. So just trying to understand is there anything in this corner that's maybe unique.
Dining room to kind of continue to reopen and get back to full strength is that something that.
Could potentially create a little bit of choppiness in the margins here and just sort of longer term as you get back to a full sales recovery like some others in the industry I've talked about their margins getting back above pretty covered level. So is that something you'd think that you guys can achieve is there a path to that or how're you guys thinking about margins you know sort of on the other side of Covid.
Yeah.
Yeah, Hey, Michael Uhm, Yeah, I'm, and we're really pleased with the the improvement in the third quarter up to that 14.8% of the teams are doing an incredible job in the <unk> in the shacks I'm, making obviously in a good progress that getting back to that pre kind of it at number also with improving performance on that line throughout the quarter.
You know as as we alluded to in the prepared remarks and.
Margin does folate sales and you can you can see that with with these patterns and so that's why we're equally as cautious and sort of southern goodness to that line item as we head into winter in this type of an environment Uhm, There's there's nothing I would specifically Kuwait and the quota that made those margins higher than that.
A M. A reported it was great work across the company if anything we've still got some headwinds and those numbers to take me when it comes to kind of paper and packaging and the thing in the paper line and I'm also in the labor line as we extended that premium pay as we've put in the year end bonuses, we continue to really fight.
Cause.
I'm thinking I'm looking after our teens so to the extent that they start to normalize then.
[noise] side of sales those will help margins improve and you no longer term when it comes to lodge, an expansion windowed updating any of those target numbers at today with more focused on the the pop back to recovery, but we'd go wrong with you still a pretty small company and in the long term, we we're very focused on getting back to.
The healthy top and bottom line gross but we were delivering before and continuing to expand opportunities to even improves days do some of these formats that we're looking at and and a very successful to date and grubbing digital business, but right now I know that know that I'm, taking anything along with him.
Thank you.
Thank you. Our next question comes from Jake Bartlett with Truth. Please proceed with your question.
Great. Thanks for taking the question and and and congrats on all the hard work out there in the in the progress you're making.
My question was really about the infection in sales in September and October and I'm wondering if you can frame what you think the biggest drivers to that whether it's just you increasing demand whether it's increasing a guy indoor dining you just being available maybe the curbside additions and then also the the.
Hot Chicken Sandwich, how would you frame, which which are the kind of the biggest drivers to to the improvement from August to September and October.
Yeah, Jake I think they've all been really important you. Obviously, we've had an economic continued gradual recovery through the third quarter and a macro sense people are returning we've had many more dining rooms open around three quarters of our dining room to open at this point so that obviously always helps.
And you're just seeing it everywhere right, you're seeing across the regions and hot chicken, obviously helps that was a fun one people love that and they come back for it that's a really great menu items, but I think the biggest thing would be our continued commitment and work towards digital you know if you really look at how people are using shake shack still roughly 60.
Per cent of our sales are coming from digital and we've held onto it's important statistic that we said earlier, we felt onto 90% of that digital sales as in shock as continued to return that's a really good side of our business and something will be continuing to work towards both of our channels keep getting better and better or making deepened.
Vestments and that we're excited to launch a delivery through our App <unk> I hope in a limited basis through the end of this year.
And continued apartment with a great a third party delivery service providers that are out there. So I'd say, it's a combination of everything including our teams really just the ability to keep pivoting.
And we hope that continues right yeah that trend has been a very clear trend for six straight months and our goal is to keep that going and and we'll see how close you know there's a lot of a lot of moving parts with a lot of positivity reasons should be positive and forward looking right now.
Thank you. Our next question comes from Chris I'll call of Stifel. Please proceed with your question.
Thanks. Good afternoon, guys. This is actually Alicorn for Chris your resumption of a full development schedule an extra it seems to suggest you know you're pretty pleased with recent opening performance can help kind of frame up how these openings to perform relative to kind of years past are we talking sales volumes 60, 70% of prior levels and have you seen.
Any sort of shortening on the honeymoon.
Oh, well honeymoons are different this this time around [laughter], we're not doing the same kind of a huge openings that we're doing in terms of press, we actually barely Margaret them at all by strategy really trying to open pretty quietly right now I think the last we've talked about it before this classes open so.
Uprising, we well given covid, Jim patch rights, we've got some great Jackson, we've opened this year and as of late so I'm gonna want that I imagine you know when you look at University village in Seattle, and I was wondering what the country's great outdoor die you know shopping destinations. We've got this new free standard Pasadena upcoming.
We're gonna be doing a real flagship shaq and charity Quique Creek in Colorado in the Denver area. So we're excited about how we've been performing the classes. I noted this year is continuing to perform above the company average, which is exciting and you know I think.
We hope there'll be a different kind of gross right without the kind of usual craziness that we allow so many of these restaurants by the way when we open them, we open them in a limited digital cents.
And with limited or no dining rooms. So those are the things that we've been adding on adding all the time and as we look ahead at the 35 to 40 for next year I'm really just returning to our you know the previous growth that we had seen we're super excited to get back to work you know, we we we <unk>, we had to pause, but we've caught up with.
Get 18 to 20 shacks in this country continue to open internationally, we just opened a restaurant today in the Philippines.
And and and that's really exciting and we've got more to calm. So shake Shack is Grove company you barely scratches surfaces of our unit opportunity I think all the models were looking towards the goal is to increase that opportunity.
And keep going and we'll get back at it for next year.
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Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with your question.
Hi, guys. This is actually just priester on for your first day and thanks for the question just wanted to dig into a a higher average talk a little bit just kind of over a pan dramatic how have the number of entrees for order trended just trying to dig into whether it is an increase the number of customers her order or if it's just each individual customers ordering.
More if it's a ladder kind of what parts of the menu, where there may be adding on her exploring or any additional learners from the digital side of things that I may not have added on at the restaurant.
Okay. This is Tara yeah, I mean, we haven't yeah, breaking down the average check bye bye sort of items will entree, but when you know when we look back on page. So average check was always higher than our other channels and what we've seen through the pet.
They make it that continues to be the case. Some so it was hard before and it's increased taken difficultly through the pandemic as well as representing M. A much higher percentage of my little styles with that makes it increased in sex waiting that's the that's the sort of shit.
Oh I put an echo.
Street.
Mhm.
[noise] I'm, sorry about that was strange noises that go with it. So that's just sort of shift that's really impact them at 10.3 per cent price snakes, and you know, it's always hard to tell them what a true customers behavior is when you're looking at these chair.
<unk>, but we certainly believe that when we look at the items to check and we look at but it's containment behavior three the last six months.
The pandemic <unk> that it's generally more people to order, but yeah. So it was going to be the case 70, Moulton team staying with a nice job you know using a whole heisted tools. When we have a L. T OS and things like that but generally speaking, we think I think besides mister check through email and check with gorgeous.
Thank you. Our next question comes from James Sanderson with Northcoast Research. Please proceed with your question.
Hey, Thanks for the question I wanted to dig into a little bit more detail about store margins as I understand that you.
Your average weekly sales if they stood October levels can I assume that the store Murgeon would remain about 17% like we saw in September and then I have a follow up on the drive through.
Well you know, we're not giving any forward looking statements today at or I imagine. So you know the best we can do I think in the world, but it is bola tile and fast changing as this one is just keep you up to date with with the result, as they are so you're getting you can look at each of online I Susan that P&l's right.
Pandemic in each one of them does that offend you can we can pull it through the day that wouldn't be I think it would be helpful. Today to make to make forward looking statements on that basis, but hopefully with giving us color to understand where the big losers with police that pieces stabilized strict uncle, but in a paper and packaging will continue to be elevated.
As I mentioned it seems to have done a great job of labor, but we still have some headwinds does it just relates to the border environment with with Covid Covid and and the other all thanks line will continue to be impacted by potentially things like milk thing coming back in you know the delivery mix and various other things. So hopefully the dates at least gives me it gives.
<unk>, some some kind of but nothing nothing additional to do today.
And Jane hundred just yep.
Other thing Uhm is generally you gotta understand that the 13 week period in the the third March can contribute Austin to a higher shackle of law profit in that box would you saw septembers generally it's not comparable to <unk> to compare a 12 week to a 13 week when you're thinking about that [laughter].
<unk> just a quick follow up on the drive through prototype I I I'm not sure. If you've described any of the maybe digital technology that will link up to the drive throughs, you're looking at whether it'll have digital many boards payment processing at the drive through window or other things like that that will accelerate throughput other techno.
Which enhancements.
We haven't yet you know I think for us, we're not going to make our K P. I the fastest drive through in World right. We we want to we still cook things to order, we're going to continue to do that and the drive through operations of that will take time. So we will not we're not going for the fastest were going for the high.
Is quality most premium Burger that we've always done so we'll likely have some really good digital technology involved in that will will also keep it pretty simple we want this to be a someone's option. If you Wanna order that way if you'd like to preorder, we'll have that option available 40th through shaq track and I'm really.
Just engaging more and more people and however, they want to travel and get their shack. So we're excited about it a lot of questions to be answered will be building. This first straw.
You're in as I noted, we're gonna make a commitment to a number of them, we really want to see whether they can go and we've got some great sites lined up.
Posted.
Thank you. Our next question comes from Brian Van with Cowen and co. Please proceed with your question.
Cause he just another follow up on the drive throughs, you know I appreciate that it's kind of a smaller mix of.
The next couple of years Resona, we will build over time, but.
Just you know Tara as use as you've talked to developers my in laws are you finding you know the opportunity to to secure some of these sites for.
I think it was around $2 million in the past for what these restaurants, historically costs and I guess just from the context drive through you know one of your competitors.
Spoken to sort of a 10% higher development cost or the savings maybe offset there for the drive throughs with you know the non drive throughs, maybe a little bit lower than that 2 million.
Thanks here I think all of this hey, and all of this is learning that we have ahead of US you know we haven't built a drive through yet [laughter] Randy mentioned that says it's the late late next year. So I think we will reserve the right to come back to you. Once we have some of those data points you know some of these new formats drive through.
Is one of them some of these new formats make result, and a touch higher capex spend some build them, but we'll see you know we're excited about it number even if they do with you know what what is Randy mentioned within an all prepared remarks, we're very focused on really expanding that addressable market and expanding as a U b O P.
<unk> is there any days.
One one is not yet built that will will come back to you when we got some of the other days learning.
Thank you. Our next question comes from her North of Bird. Please proceed with your question.
Hi.
Thanks for taking the question I think you mentioned earlier in the prepared remarks are on prior conference calls that you've been attract and a lot of new customers to the brand or our first time purchasing on your App. So I guess I was wondering if there's any perspective, you can chair demographics of that customer maybe now that you've been collecting more data helena newer customers or.
Engaging with your brand relative to legacy customers. Thank you.
Yeah, Hey, Yeah, <unk>, where many but we're really pleased with the continued very strong numbers that we have when it comes to me patches on the digital channels as you lightning <unk> and not nothing to share specific today in terms of those behaviors of those demographics and Anthony what we're still at the very early stages of that with with them very.
Pleased with this acquisition numbers and now we will continue to build that digital and marketing infrastructure that this will take infrastructure to make sure that we can continue to really leverage it not at all not channels will focus on bringing delivery of the service into orange channels double current atheists, they add some weapons to come and pick up <unk>.
Just a bringing that it will be almost the final piece of the puzzle where we can we can really focus on on offering ever saying that anyone else could within that within the shape check ecosystem. Another line of those to to build on those relationships to better segment, those customers and to your point understand demographics them.
Behavior and talk to them more holistically coastal this across all those channels to start to sort of focus on referrals and frequency and someone ZIP code six right at the beginning of that journey Uhm, we feel really good about the progress. They fall we're very excited about the progress behind the scenes as we have been building at those tools and that.
That data infrastructure, but uhm a lot to learn so any day.
Thank you. Our next question comes from then Doherty with Raymond James. Please proceed with your question.
Hi, guys would stand darker neon for Brian thinking about closing out the year could you perhaps provide some color on every average weekly sales volumes in the fourth quarter. How is that seasonality typically played out through the corner say pre covid or last year.
Yeah, I mean, nothing really specific the mood wanted to give you today I'll say as it relates to fourthquarter expectations M. I think will likely to see even whether seasonality is something that's relevant in an environment to smell. The tylosis honestly, yeah. We can we talked about the fact that.
We've we've still got <unk>.
State to taking changing yeah dining in Covid, an incapacity restrictions and yeah. The first step forward, sometimes you go to step back and and and a significant portion of our regions or a bank to enter a colder weather periods, where we've got a majority about shaq's today using angel package to help with some of those <unk>.
<unk> so season I'll take something we think it could've less relevant and in an environment is Lola time of this <unk> instead of giving specific and like an specific guidance for the fourth quarter.
Yeah, and you can you can see if you just look at yours pass in our in our in our quarters. You know generally you do see the fourth quarter is slower seasonally right. We have very strong for a strong third quarter average weekly sales Jeremy So generally that's the trend and then as Tar said.
This is a different kind of year. So we'll see you know, we'll see we're keeping an eye on that it's been pay as you can see through October. It has increased sequentially every month since Covid began so that's really good news, we'll see if that same seasonality plays out now.
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At this time there are no further questions I would like to turn the floor back over to management for closing comments.
Thanks, So much I really appreciate everybody, taking the time and I was a busy night in a busy time I appreciate your support for the Shack and our team look forward to seeing you too take care.
Thank you. This concludes today's conference to my disconnect. Your lines at this time. Thank you for your participation.