Q4 2020 Shake Shack Inc Earnings Call
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Greetings and welcome to the Shake Shack.
Fourth quarter 2020 earnings call.
At this time all participants are in listen only mode of 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 of this conference is being recorded.
I would now like to turn the conference over to your host Rick Paul Senior Vice President of Finance and Investor Relations. Please go ahead Mr. Paul.
Thank you Jerry and good evening, everybody joining me for Shake Shack Conference call. This evening at page I'll CEO, Randy can Ritchie on President and CFO of tower come on.
During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance at.
A presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Reconciliations to comparable GAAP measures are available on our earnings of <unk>.
Index for supplemental materials.
Some of the states statements may be forward looking at.
Actual results may differ materially just for a number of risks and uncertainties, including those discussed at our annual report on form 10-K filed on February 24 of 2020 and form 10-Q filed 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 at Arbutus change.
By now you should have access to a whole quarter to 2020 earnings release, which can be found at desktop shake shack dot com in the news section.
Additionally, we have posted our fourth quarter 2020 supplemental earnings materials, which can be found on the events and presentation section on on site.
So on 8-K for the quarter.
And with that I'll turn the call over to Randy.
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.
As we close the chapter on 2020, I'm, so grateful and proud of the way our shack family has overcome the obstacles that came our way and lead to continued recovery of our business, while supporting each other and our communities. We are on an endless pursuit to create up lifting experiences today more than ever.
And while the reality of this moment remain volatile we're working to build a thriving shack community on the other side of this pandemic.
Focusing on our financial progress, we're encouraged with our Q4 results and the momentum that built through January.
February results did take a step back partially due to the extreme weather experienced across the nation at caused more than a 130 full or partial loss of operating days from shack closures. However, we are just a few short weeks away from turning the dial on a year of Covid and looking forward to continued recovery.
Looking back at Q4, despite the hurdles facing our business and with much of the country is still under varying degrees of Lockdown. We're pleased to report revenue of 157, and a half million dollars at the same shack sales improving of down 17, 4% compared to down 31, seven in the third quarter the.
The end of Q4, roughly half of our shacks were still operating with closed dining rooms and to remain fully closed.
Even under those restrictions, we continue to see sequential positive improvement across all regions when compared to the third quarter.
At certain markets, such as the northeast and southeast close to flat versus the prior year as we exited the quarter.
And our suburban shacks delivered positive growth in physical November and December.
For system wide recovery will take time, especially at our urban regions hardest hit by the pandemic, but we believe we're on the right track to getting there.
Despite the challenges 2020 resulted in the acceleration of many of our strategic initiatives.
Each of which strengthen the foundation and opportunity for our ongoing growth. We know people will gather again and we'll be there to meet that demand as it returns to do so we'll be concentrating our work in the following areas first exo.
Executing against a robust development pipeline that aims to grow the addressable market opportunity for shake Shack, we've got our sights set on accelerated development with great real estate at new and existing markets to revolving formats that allow us to capture sales in new ways second capitalizing on the adoption of our digital tools and doubling down.
One on the investments in those channels, especially shack track. So far we've added 13 exterior windows, which have improved at flow of guest traffic and the experience for end Shack orders end dining and addition of delivery orders about a quarter of App and web orders are now picked up through these windows.
Our curbside program available at more than 70 Shack also continues to show great potential. Although curbside is not feasible for every shack format given low location. We see this as an opportunity to further boost sales long term, especially in suburban markets across all of our shacks, we're working hard at a level of convenience that increasingly allows our guests to experience shake.
Jack on their terms by removing friction points that existed in the past.
Third.
We are focusing on our product elevating the classics of our core menu getting back to offering Buzzworthy <unk>, Ireland, I end smart expansion of existing menu categories, including chicken beverage and frozen customer.
Finally, we continue to stand for something good for our teams for our communities building of the safest possible shacks, we can and enhancing the benefits, we offer creating more jobs and career development opportunities than ever.
Diving on a shack development, we are really excited to accelerate unit growth and we will be targeting between 35 to 40, New company operated shacks. This year, while ramping up in 2022% of 45 to 50 shacks representing in total of about a 45% increase to our year end 2020 shack count over the next two years.
For 2021, roughly 10% of shafts will be of new markets, including Portland, Tampa Indianapolis and more.
While the rest of the class will expand our footprint in existing markets in areas, such as California, the northeast and Florida at.
Just 186 company operated shacks today, we have such a significant ongoing growth opportunity across the country and our broadening multi format strategy allows us even new ways to approach each one.
Despite the current Covid headwind, we see opportunity in urban markets, including our hometown of New York City and.
And what are we looking at incorporate a number of digitally led shadrach formats within those designs.
And our suburban market, we're rebuilding of broad mix of formats, each of which will have some form of shack track incorporating drive up windows walk up windows curbside pickup and enhanced interior of pickup experiences. You'll also see us leaning more heavily into drive through with our first ever drive thru Shack planned later this year at Orlando.
And a number of others planned in the next two years places like Kansas City, Minneapolis, Detroit and more.
Within each of our formats, there's much for us to learn but we're incredibly excited about the journey and the opportunity to continue to elevate the overall shack experience.
More than ever and especially in a post COVID-19 world. We are going to continue to build great gathering places that enrich our neighborhoods and communities, while offering the safety and added convenience that comes with our new and enhanced tools.
Shifting to our license business 2020 was just as tough for our partners around the world and of those in our domestic airport end stadium businesses.
We saw at overall steady recovery here through the fourth quarter as business continue to gradually come back in many markets with average weekly sales improving from $5 3 million of the third quarter to $6 one in the fourth however.
However, just like our company operated business our license environment remains volatile and continues to be highly impacted by the pandemic and this was particularly evident in the first couple of months of this year with weekly sales, taking a step back from the fourth quarter to $5 6 million in fiscal January due to volatility in Asia, and a significant lockdowns affecting the United Kingdom. However.
<unk> sales recently increased to just over $6 million in February.
Year over year trends of also start to improve now that we're lapping the earliest of the COVID-19 impacts seen in Asia in Q1 of last year 2014.
Here in the United States, Our stadium business remains closed with no clear line of sight and how sports will play out for the 'twenty one season or beyond.
Many of our airport locations continue to have greatly reduced traffic remain closed while travel is so limited however, as we see the vaccine rollout continue towards the recovery throughout 2021, we're hopeful we'll be able to get back to some level of operations in the shacks this year.
Throughout all of this.
Our global brand has remained strong and trusted beyond some of the most premier real estate worldwide and we see tremendous white space ahead for our license business.
Marketing to open between 15 and 20, new licensed shacks in 'twenty one.
Precincts at between 20, and 25 next year at <unk> with.
With significant focus in the near term on China and broader Asian market.
We view our international licensed shacks as a compelling route to efficiently and globally scaled the business and the brand.
So critical on highly accretive part of our business, which we intend to grow substantially over the coming years moving.
Moving on to our products as part of our commitment to deliver on elevated and uplifted experience, we pride ourselves on quality sourcing and sort of and craveable menu items will continually working to bring delicious modern fund versions of the classics made from premium ingredients to our guests at.
As I outlined in our company animal welfare policy, we source of fresh, 100% antibiotic and hormone free proteins at a vegetarian fed humanely raised and source verified we're proud of use cage free eggs non GMO bonds and milk from farmers, who do not use artificial growth hormones. Our strategy continues to be to serve the best ingredients.
On best in class of buyers.
The fourth quarter featured our successful hot chicken lineup of perennial favorite with our guests and one we expect to bring back.
As we kicked off 2021 and increasingly focus on chicken.
We extended our offerings of the limited one of our Korean style chicken menu developed with our partners and our South and South Korea, and featuring Kim Chi sourced from a small family operated company in Portland, Oregon Choice Kimchi.
At this launched in January with incredibly high guest demand and a huge amount of media buzz so much so at some shacks of even sold out.
We continue to plan for an exciting <unk> lineup this year, featuring premium burgers chicken and veggie items as well as the expansion of categories, such as cold beverages and frozen custard.
Our winter Citrus eight has been a big hit on one of our strongest selling lemonade is giving us the confidence to keep adding premium price beverages to the menu later this year.
Got some exciting new trios of lemonade flavors coming up in the next two quarters of stay tuned for those on our shake menu, our current black sugar vanilla and brownie batter of hot chocolate shakes have been popular offerings and we'll be looking at do more with frozen cluster throughout the year.
Our marketing initiatives. This year will focus on these culinary moments as well as more seamless guest experience we've been building across both in shack and our digital channels. We've invested heavily in our digital product suite, along with improved data and insight capabilities, which over time will allow us to drive more personalization and targeting in our communication strategy our digi.
Marketing campaigns continue to engage digital users through partnerships, including some recent examples of ways Youtube and others on top of an already robust organic social program will be creating fund buzzworthy moment through innovative collaborations Inc.
Alluding of National series of tone of best chefs across the country.
Finally, and most importantly, we're committed to maintaining the safest possible working environment and the creation of continued development opportunities for our team.
We've made the decision recently to invest in state of the art UV light and air purification systems to ensure a safe and clean working on dining environment for our teams and our guests in shacks.
We're extremely proud of been awarded 100% score for the third year in a row on the human rights campaign corporate equality index for our support of the LGBTQ plus community in the workplace.
A key enabler to our accelerated growth, we're going to keep building teams from new and enhanced recruitment initiatives like brand ambassadors job on promotions and we continue to provide growth for our teams who are encouraging promotions from within.
One of the initiatives. We're most proud of this year is a program we call shift up created in partnership with nonprofit the food Education Fund, we launched shift up as an employee educational program designed to progress the careers of future leaders of shake shack.
<unk> is at 21 week program for entry level managers and includes training and professional financial and leadership skills with the goal of promotion and progression within the company. Our investment in this program includes fully paying our team for every hour spent learning all of the goal of breaking down those barriers that can exist to progressing up the ladder of opportunity at the shack.
And ensuring we prioritize end support diversity equity and inclusion for our entire team lastly.
Lastly, we are proud of share that even through all of the challenge of 2020, we promoted over 500 people with more than 56% of those promotions going to women.
76% to underrepresented minorities.
We're committed to continuing to build on our strong DNI Foundation, we already have in place and believe that shake shack of the company, where everyone has equal opportunity to rise through the regs and build of career for life.
And while this has been and remains an incredibly tough environment for all restaurant workers. We're so thankful for our leadership team members and our home office support team, who together continue to ensure our recovery from this pandemic on.
I'm incredibly proud of the team's work and I also know we have so much more to do.
And with that I'll pass over to Tom for an update on our financial performance.
Thanks, Andy and good evening everybody.
Before we get into the financial of a quick reminder of at our physical come that in the fourth quarter contained an additional 50 <unk> week with normalized performance at this point.
Consistent with our pre released a few weeks ago.
As you just said we saw continued sales improvement during the fourth quarter does that for now.
57, $5 million of types of revenue inclusive of $11 $1 million each day.
The additional debt.
A week on total revenue for the full year of $529 million.
When compared to the third quarter and excluding the 50 <unk> week fourth quarter sales increased 12, 3% sequentially. Another solid continued step forward and a gradual recovery.
Thanks Shack sales in the fourth quarter declined 17, 4% compared to the prior year, an improvement versus the decline of $31 seven tenths of a third quarter. At this improvement was driven primarily by an increase in traffic compared to the third quarter from a decline of 42% for 30% sequentially.
Sequentially.
Similar to prior years in mid December we took our annual menu price increase of approximately 2% on average across all company operated shacks.
The burden of the same shack sales increased from 10, 16% from the third quarter to nearly flat in the fourth quarter and exited the year with positive way.
Can you just have rate of any shack sales is strong and gets the churn low performance.
At the same shack sales, although still underperforming suburban shack also improved from down 43% of third quarter of 1% from the fourth.
As of the end of the fourth quarter of trailing 12 month average unit volume was $3 million significantly impacted by the pandemic over the vast majority of it yet.
Average weekly sales of $62000 in the fourth quarter at six 9% sequential increase and with typical seasonality during the fourth quarter, resulting in lower average weekly sales. We were pleased to see the continued improvement but this trend.
The seasonality of beat continued in fiscal January with a further increase jackfish weekly sales of 60.
63000 of it.
And improvement in same shack sales down just 5% without suburban shacks delivering growth of 8% compared to last share.
As Randy mentioned that drilling has been marked by extreme cold and snow storms across the country, which resulted in approximately 130 for operating days impacted by full and partial equation.
Three of the first three weeks of fiscal February our average weekly sales for 60000 on it with a same shack sales decline of 16% debt at the same period last year.
Despite the continued volatility of cut back traffic and brining capacity until the recent winter weather impact we were pleased with the underlying trends in the business as.
As we approach for one year end off in mid March initial an extensive impact of Covid. We do however remain cautious at bats on near term sales outlook, especially in the urban business.
However, we are more optimistic as we look for further right.
<unk> gradual recovery of vaccine distribution increases and as we enter spring from warmer weather.
In terms of ongoing digital sales mix. This has stayed high at 64% of shack sales for January and 63% from the first three weeks of fiscal February at buffer fourth quarter mix at 59% of delivery being the main contributors of this increase during the colder weather and additional dining room of places at the start of the year.
Consistent with recent quarters, our in App and web channels continue to perform well in 2021 and say the first three weeks of fiscal February sales in those channels were up nearly 300% debt.
The same period last year.
At mid March last year, we welcomed over 2 million new purchases on our App and web representing important momentum and ongoing opportunity at the higher level of its frequency and on digital guests within shack arms of the increasing ability to communicate with them at a much more targeted and personalized number of another channel.
Looking at our digital strength another way when we annualized cheese for digital sales.
Wait for a digital only AUC of one $9 million and at <unk>.
Breathless number in terms of April weight, and clearly highlighting the importance of kids store base today and moving forward for a visit.
With respect of on the enhancement of on digital on Florida guest experience with them working to incorporate deliberate within our own at the web channel.
We piloted this capability on a handful of shacks in late December early January we've now extended this rollout of 100 shack with full nationwide rollout of expected through the end of the second quarter.
We're still in the early testing phase, but looking forward for the longer term opportunity here as we talk at the migration of third party delivery orders for our end channels, ensuring that the most attractive for debt and to maximize the sales opportunity within our ecosystem.
One of the piece of that strategy is in relation to pricing.
Early stages of testing of 5% menu price uplift on all third party delivery marketplaces.
We see the ability of a lower pricing than company owned channel as a key at marketing leader as we look to expand our reach whilst higher prices across all of third party delivery partners will help offset some of the additional costs that comes at this sales channel.
It's too early to share any potential impact of this price increase.
Well of course update you as time goes on and we learn more.
The performance of all of our digital channels and the increasing integration into new shack designs is integral to our future sales growth on initiatives like curbside with its strong adoption to date gives us confidence in the strategy.
We're seeing any half okay, selecting kind of cycling given the option with nearly 190000 guests try and kind of launch.
Average order value is over 20% higher than in shack orders based on vacation.
Moving on to profitability shack level operating margin was 16% in the fourth quarter of 14, 1% at for the full year.
We moved three of the year, we continued to manage costs very closely while protecting areas targeted at maximizing safety of guest experience and sales growth.
As previously mentioned the fourth quarter of exceeded the 50, <unk> week, which primarily benefits at the other operating expense on occupancy lines is the relative proportion of fixed costs.
Food and paper cost for the fourth quarter was 31% of shack sales in line with the prior quarter end, approximately 50 basis points higher than the same period last year at.
The year on year increase was driven by higher packaging costs due to Covid protocol.
In the near term, we expect underlying commodity costs to remain relatively stable at packaging level of staying high due to digital mix.
Labor costs in the fourth quarter of 33% of Shack sales broadly in line with of prior quarter and included at year end retention bonus program, we put in place for our shack team.
As a reminder of the bonus program against each of our hourly team members of an additional 250% of $400 at year end failure. In addition to guaranteeing manager bonuses throughout the fourth quarter.
<unk> is a part of a broader investments in our teams over the course of 2020, we're at a total we paid out at close to 6 million between the onset of Covid and the end of the year to a variety of premium pay and bonus programs.
We continue to be attorney grateful to each and every one of our team members at manager for their hard work commitment and perseverance during this tough time.
We created the oversize of new jobs across the business of our ship, including increasing on a home office employee guidance by nearly 20% of further support our growth over the coming at.
We issued equity grants to our shack general managers and implement at our first paid time off investing program to encourage election corpus for patients with PAH.
Part of our broader commitments, Inc to.
<unk> continues to increase compensation of opportunity of our team members, we increased starting wages at the majority of our shacks from January of this year.
We're launching additional benefits this year, all debt, including at dependent cast flexible spending accounts expanding the length of an eligibility for parental leave and paying our teams up to six hours to get vaccinated this opportunity at becomes available to them at.
Teams are on most critical asset and enabler for growth and we are committed to continue to invest in their wellbeing and development.
Looking at it we expect labor inflation in 2021 per day in the mid single digit range and May experience inefficiency in the short term as we increase hiring and training of new team members to support the continued sales for 10.
Other operating expenses remain elevated in the current environment I'm of 14, 7% of shack sales from the fourth quarter.
<unk> improvement of 10 basis points versus the prior quarter, driven primarily by the 50 <unk> week, partially offset by increased delivery Commission.
Other operating expenses increased by 240 basis points compared to the fourth quarter 2019, driven by higher delivery commissions, partially offset by lower shack maintenance expenses.
Looking forward, we expect operating expenses to remain elevated in the near term G fast enough for it.
Ex Covid specific safety supplies for our team as well at the gradual return of certain other costs in preparation for the expected sales recovery.
Occupancy costs in the fourth quarter for $8, 9% of Shack sales of 150 basis point sequential improvement comparisons of third quarter driven parts of the benefits of the additional sales of 50 <unk> fiscal week together with a $900000 one current rent adjustment related to the closure of <unk>.
Penn station Shack.
Compared to the prior year occupancy was 10 basis points lower than the fourth quarter 2020, again, just the favorable impact of the 50 <unk> week on the Penn station adjustment nearly all of which was offset by sales deleverage.
G&A expenses in the fourth quarter was $19 1 million of sequential increase at the scaled back up investing across the team and support of accelerated growth ahead.
States continue to increase G&A right.
The ramp up of our opening schedule test of broad range of new format for sitting up on dry food and continue to enhance on digital and data capability.
At this stage of the year, we expect our total G&A spend for.
For fiscal 2021 to be between 83 and $86 million.
Within that number of equity based compensation is expected to be around $9 million with an additional 1 million and shack level of labor a step up from 2020 at our performance share plan was adjusted following the unforeseen impacts from Covid.
Pre opening expenses in the fourth quarter of $2 $8 million, a sizeable increase compared to the third quarter driven by eight new shack openings with a robust development schedule for the 2021 and 2022, we'll see Preopening expenses increase accordingly, particularly on the back half of this year.
On a per shack basis, we continue to find ways to optimize preopening operations, especially in existing markets, where we can achieve higher efficiencies across the major cost categories.
We expect fiscal 2021, preopening expense to be between 14 and $15 million.
Impairments and losses on disposals in the fourth quarter was $7 2 million driven by a charge related to the early termination of our Penn station Shack Lee.
Combined with an impairment of our home office expenses based on New York, both of which wouldn't non cash charges.
One of the many resulting impacts from the last year has been the acceleration of of more geographically dispersed workforce, which presented us with the opportunity to write down on some of our home office space and will correspondingly lower some of our rents related G&A going forward over the periods of belief.
We'll continue to make to maintain our headquarters in New York City, where the majority of our team members will be located however, we fully embraced the opportunity for <unk> to be more widely situated across the country, particularly there from some of our back office functions.
Yeah.
On an adjusted pro forma basis, we had a net loss of $1 $3 million for loss of three cents per fully exchanged and diluted share.
On the tax impact of stock based compensation, our adjusted pro forma tax rate during the fourth quarter was 24, 8% and 27 five per cent for the full year in line with expectations.
A full reconciliation of our tax rate can be found in the appendix of our supplemental materials.
Given the uncertainty caused by the COVID-19 pandemic in terms of the timing of a full sales recovery and the resulting impact of of taxable income will not be issuing specific 2021 tax rate guidance at this time.
However, in a normal operating environment, our adjusted pro forma tax rate, excluding the impact of stock based compensation is expected to be between 26 of 28% in line with 2020 level.
Moving to the balance sheet of cash and marketable securities balance at the end of the fourth quarter with $183 $8 million we.
We continue to generate positive cash flow at an operational level, but we'll use cash through 2021, as we ramp up capital expenditures for new shack construction as well as continuing digital investments.
Wrapping up although we still have a long way to go in this recovery and certainly at the February winter storms didn't make like life any easier for confidence in our journey through this and beyond we have an incredible opportunity for growth of head further strengthened by an expanding format strategy a robust digital foundation on our cash.
Net and talented world class team.
We will continue to invest with confidence against that opportunity focused on the long term as we build of business for generations to come.
With that I'll turn it back to you Randy.
Thanks, Tom I want to end of day with a few notes on ESG.
Investing in our communities has always been in our routes since we began as a hotdog cart to support of park 20 years ago, as we continue to expand and evolve our mission to San for something good we are focused more than ever on our ESG efforts, we'll be publishing our second annual stand for something good report in the second quarter as we grow we plan to double down on on.
Our commitments and accountability towards positive change this.
This year in addition to the initiatives we named day, we supported our workers through investments such as premium pay additional pay promoting a diverse workforce margin for employee resource groups on a companywide unconscious bias training and expanding our mentoring program.
The improved sustainability of our supply chain and operations by increasing our commitments to buy more regenerative Lee ranch and non GMO certified beef swells cage free eggs.
We built our shack thoughtfully to optimize energy management with local and public transportation convenience of use of sustainable troops. We've made donations to the equal justice initiatives Fresh Air Fund rore and other local nonprofits.
Proudly provided over 11000 meals to health care and frontline workers and others. We're grateful for the opportunity to give back to our teams guests and communities and are confident we can continue to make a positive impact as we grow in 2021.
For you and your families stay healthy stay safe and with that operator. Please go ahead and open the call for any questions.
Thank you at this time.
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One moment, please while we poll for questions.
Yeah.
The first question is from Lauren.
Silberman Credit Suisse. Please go ahead ma'am.
Thanks, Jim.
Digital sales have been pretty consistent at about 60% plus or minus for the last couple of months is that digital sales mix sustain or to what extent our digital sales dollar of being sustained at debt markets reopen and then can you share of how that digital mix differs across urban versus suburban shack and at the competition that digital mix.
Is it how different is that urban versus suburban shacks.
Yeah, Let me say that Hey, Lorne.
We're very pleased with the digital mix staying high and if you actually look at on supplemental that you can get a you can kind of eyeball them for which the dollars.
Have been retained.
Incredibly high levels of retention.
Within that sort of 60, 63% in February so retaining.
All of the digital sales from the high point of the current.
In terms of.
There really isn't a search of a.
Our headline of range urban versus suburban at Deca.
To some degree of shack to shack, but suffice to say they've been very strong really across the end date.
So whether that be Apple app web or digital.
$2 million you purchased those welcomed to our own Sharma of Super excited about what our momentum in these numbers can make for us on a go for paper.
And Laura on I'll, just add I mean, you saw supplemental as we all just kind of kick up in the first two periods of this year that we should and.
And that was a lot of at due to delivery increasing in cold weather I think while it will be interesting none of us exactly know the encouraging signs on how sticky that sales has been I think it will be interesting as people return of restaurants and as we begin to open more dining rooms of welcome people back to gathering at shake shack and of using our digital tools where that goes.
And.
It starts at 2 million, new new fans of shake shack using our digital tools over the last year is an exciting opportunity that's what will be focused on.
Great and then just Randy you talked about all of the exciting new formats end, both urban and suburban markets I think correctly average store that cost of index.
Can you provide just an update on where you're seeing average build out cost and how are these expanding design also expanding the range of buildout costs.
Yeah, well at the range of expense that's exactly the right way to think about it look we've been pretty consistent about this you'll see this in our numbers in the 10-K at that roughly and I'm, saying approximately 2 million number.
After our Preopening cost is about right at has been pretty static there for a while I think what youll start to see though is this year, we're going to invest in some of those new formats. So there will be some shacks, where we are choosing to spend more when we build some of these drive throughs some of them not all of it really depends on the location of the deal, but certainly now we want.
On an investment we expect it to be.
A little bit elevated this coming year.
And then at the same time, we will balance that out with some of the less expensive for some of the core format shack. Some of the food Court shack, where we're able to spend less and still have some decent sales.
But we do expect to invest in of learning that drive two should give us and as we mentioned doing a handful of those in this next 12 to 18 months is going to be exciting.
And we're not going to hold back on spending the right amount of money to make at great. So stay tuned and we'll see where it goes from there.
Great. Thanks, so much.
Yeah.
The next question is from Jared Garber Goldman Sachs. Please go ahead Sir.
Hi, Thanks for the question actually at kind of a follow up.
Tomorrow on <unk> question, just before but maybe at the flip side. Thanks for the color on the build costs, but on the topline side for new units of Alright. Thank you mentioned that if you annualized current digital sales you are running at basically at digital Adv of one nine how should we be thinking about that sort of $3 million sort of tipping.
<unk> run rate new unit build with.
Keeping in mind sort of this acceleration of the digital business.
Yeah, Yeah, you heard the numbers right that was of Q4 annualized at digital numbers.
That's an impressive number we think it's an impressive number at one point on effective at UBS.
$1 9 million I mean as.
Randy just said you know this is we've built this incredible momentum within their store I'm looking at.
At build on that foundation, but on finding rooms reopen as people come back at work in cities and for making the banks again at back to Shack, we kind of expect it to stay at at bolt.
64%, so it'll level off somewhere on the robot agency and at this point in time, we Havent updates at all 3 million dollar plus average targets.
Updates on that today I think right now our first focus is is getting back to a full recovery and using all of a different neighbors that we have at at the state of two to do that it's still at one of them.
There are many of them so no update to that but yeah.
So certainly an increasingly important part of of how do we get is how do we get back.
Great. Thank you.
Yeah.
We have a question from Michael Thomas Oppenheimer and company. Please go ahead Sir.
Alright, Thanks Hope everybody is well I wanted to follow up on something that Randy touched on in a few minutes ago.
Obviously, nobody knows what's going to happen going forward, but.
In the areas, where you're seeing sort of less restrictions can you just talk about what sort of consumer habits of it's been like on how those of shifted over the last several months at Jos.
Restrictions kind of opened up.
How is that informing you about what you think may happen going forward and did you do anything differently in those areas whether it be marketing.
Digital targeting thanks.
Yes, it's a great question look I think of it is so varied by region and especially in this last few months right.
Reached peak Covid cases in peak restrictions really over that December January timeframe that of just now starting to ease.
Generally the things we point to our this guidance.
Dining rooms are of good thing for us we'd like to open up about 75% of our shacks have some form of a limited dining room open today.
A lot of our shack really benefit when the weather warms up and that's been true of our company. If you look at the seasonality of US forever. So were especially hard hit when we have we of places that are closed but all of it is pointing to the need for us to progress with the digital tools, so even within all of those ups and <unk>.
Down the digital tools continue to be the preferred channel and that's super exciting, whether youre in Ohio, or Texas, or California, or New York City, we're really leaning into that and there is one important thing I want to make sure we talked about at in the script, but.
We have just now launched delivery through our own app.
Actually ordering delivery Tonight myself from my local upper West side Shack in New York City through our App.
And we're really excited about that that is super test I mean, we just just launched literally last week in New York City. So we're excited for that but when you see that starting to happen at just builds more and more more and more thanks.
I look at as I look out at no. One can guess on that were done guessing when COVID-19 ends and as people get vaccinated. We hope of cases stayed low and keep going low.
It's clear to us at as that happens thats good for our business.
We're excited that we continue to strengthen the momentum through January.
And we're hopeful that as we start to lap we're only a couple of few weeks really away from lapping the beginning of the hardest hit times.
On that Covid offered last year. So we're excited for that we're excited to get people back end restaurants and continue to use our digital growth. So lots to do all of that the format and the.
The digital transformation.
Awesome. Thanks, and can you just talk about margin a little bit maybe put some guardrails around what you think maybe margins might look like at different sales volume net sales kind of starting to come back for you guys.
Or maybe talk about what margins could look like as dining rooms, reopen assuming off premise remains elevated versus pre COVID-19 levels.
Is it accretive overall to your margins are you on what's the best way to frame of margins as we think about the go forward.
Yeah on how to say that end.
I mean, I think the best way to think of that margins on a go forward basis as debt.
They they follow on sales.
On the faster we can get back to full recovery on the top line in the past that we will see of bottom line growth Capex are there are obviously, some puts and takes within that.
Some short end some longer term that we don't know yet in terms of.
The extent to which there will be any different margin play for us in some of these formats, but that's we haven't launched some of them yet. So we've got a lot of learning ahead device and say right now.
We're pleased with the progress to date.
At a high degree of cost control across the business as I mentioned throughout the year, yet continuing to spend where we see fit what where safety is a priority where guest experience can be in her on west.
Net sales driving initiatives can be it can be rolled out and they really with the focus on on topline and extending and you have seen we mentioned we have been for a few quarters, we continue to invest in our team on.
We continue to of elevated park.
Packaging costs that will continue for the for the short term on of course, I think of as we come out at the other side of the some of those COVID-19 specific customer will roll off and but again to go back to them to.
To go back to the way I don't think of adding a question on winning just stay focused on maximizing that top line not just as we recover that for the long term as we expand across the country as we build on this sort of foundation of Husky format and that's the way we're going to continue to drive on accretive profitability over the long term.
<unk> continued to of continuous aggressive sales strategy.
Awesome. Thanks, so much.
We are of a question from John Glass Morgan Stanley. Please go ahead Sir.
Thanks, very much for first if I could just ask about some of the early learnings and maybe the sales benefit from both shack tracks, where you put the net I think there was at a small handful and curbside at so I know you said the check is bigger in some cases at obviously there is its early days, but do you have a sense yet what those due to sales overall as of at 10% with 5% of viewing.
An expectation of what it could do over time early days.
John It's we're super excited about it yet at Super It's just way too early and unfortunately. The compares are so challenging right because sales every month are tweaked by so many other factors, having nothing to do with our normal compare what I can say is this.
I've been at a lot of shacks recently watching at witnessing at seeing it live new shacks that opened for the first time with it and what we love about it is the clarity and separation of flow one of shake Shack biggest problems forever has been.
Busy.
And it's hard to get your food and when we can have a shack track window.
On the things just get smoother when we can have delivery couriers out in a separate area things just get smoother.
And we really love that so look our goal is absolutely that shack track should be a long term increase of sales opportunity for US is why were doing it and why we are building in our tools as you said some of the evidence that we do have today, whether curbside or otherwise as people are using it people are choosing at.
And the average check is generally higher when they do so those are good things.
But we've got a lot of normal recovery to have as we go I'm most excited to see as as people return into dining rooms, how do we figure. This out there is going to be some some flow to figure out but.
It's all pointing at a good direction, we believe on shack track.
I just wanted to my second question is I, just wanted to revisit digital and specifically delivery I don't think we've ever learn what delivery as a percentage of your sales maybe I'm wrong, but it's at.
Got any meaningful.
Given the way you've talked about at media, if you're willing to talk just directionally in terms of total digital sales of what that is and as you think about the delivery and the impact to margin you talked about of price increase so what at what has been the drag from of commission standpoint on margins.
The last couple of quarters and what portion of that do you think of is offset by that 5% Ah trial of price increase.
Yeah, Joe I mean, youre right, we havent splits at delivery.
Up until this point.
Haven't today said at within the 63%. So that's a temporary number and then deliveries of an important part of our business. It has been for the last few years and it certainly isn't of Covid environment.
One of the reasons that we don't split by channel end.
And I've said this before is because it's really it's just not at the way we look at the business. We're trying to build a set of experiences for all of guests.
That really can be interchangeable, while we can do is enhanced marketing tools and bringing convenience almost to the cause of.
Last question you just asked one day range.
Consumer behavior, we want these these different channels, including delivery of and certainty of delivery through our own app to be customer acquisition opportunities to provide opportunities to engage with shake shack in a way that you maybe wouldn't have otherwise been able to.
And then from that to drive frequency to drive retention and to drive them for.
Long term sort of customer loyalty and engagement on in terms of the third party delivery channel, yes. It comes with a cost.
It's too early for us to talk to what a 5% uplift we're all at once.
In terms of that channel for the long term at literally in it's in its infancy in terms of being rolled out. So we'll have to update you on that one.
And no specifics to share but delivery.
For the delivery Commission itself sits on the other Opex line and it is definitely the biggest drag to that line.
On the.
Fact that thinking.
To be the case.
Certainly well likely remains elevated in of Covid type of environment. Nonetheless.
No more no specifics that sort of Directionally youre right at meaningful it's expenses I think we've got a lot of opportunity as Randy pointed out at in terms of bringing it back into our own ecosystem.
Although it's still customer and that sort of it doesn't suddenly become for you when it's on our own channels, but it does allow us to engage the guest on direct.
Basis at allows us to say.
Communicate with them at a much more talks at the personalized moniker in forward at the pace that relationship being a sort of third party invisible one Glenn at third party marketplace.
Thank you.
Yeah.
We have a question from John <unk> Jpmorgan. Please go ahead.
Hi, great. Thank you I was hoping if you had a sense of what's happened at some of your near end relevant competition both end.
Urban markets, perhaps most importantly, but also sub urban markets.
No you root for every one of survive and obviously the growth in the the entrepreneurial nature of this industry is really what drives at along but the reality is at the has been difficult for a lot of independent operators. So do you have a sense of you know.
On a percent even if you kind of want to.
Lease fleet.
Ill talk about that at the amount of relevant in your end competition that has come out of it.
In terms of your trade area. This is the first question on secondly.
With so much cash on your balance sheet of $180 million I would assume whether it's.
Asset deals or maybe even brand deals must be crossing your desk at a rate where they perhaps weren't before if you can kind of talk about it at if theres a way to kind of juxtapose, maybe taking advantage of some of that competition, which at least in the near term may have been weakened.
Yes, John so on competition.
You certainly seen that especially on the hardest hit urban areas I mean, I'm sitting here in New York and so many of our friends are still remain closed or barely reopen.
Even our founder and chairman Danny Meyer has not reopened its dining rooms in New York City right. Some of the best restaurants in New York that will take time and hopefully that takes that comes along with people returning to the city for work.
I think it's so different bill right. If you go to Florida, Texas generally things are acting fairly normally so when you look at our some of the more traditional elevated fast food or fast casual that we might compete with at you cover they're doing well, they're winning right at whereas some of the casual dining has been hit a lot harder I think.
You always have sat in the middle there and that has been our sweet spot and I think it's been our sweet spot as we've solely recovered here and we'll be looking at is going to be some level of of less restaurants for a while.
We will probably benefit from that in some form over the near term, but I'm, a believer that great entrepreneurs, especially on the restaurant business I'm going to come back swinging pretty hard and create some great stuff in the meantime, what it creates for US is real estate opportunity and we're capturing that you saw at <unk> seen in our commitment to upgrade and do more youre seeing it in the <unk>.
Kind of real estate, we're looking at.
Whether urban.
I'm walking around New York City every day, saying Wow, that's a great spot, maybe we should look at that.
And suburban.
Where there are many companies even in the drive thru scenario.
That have given up sites and we've got that opportunity. So I think all of that will be a net win.
For Shake Shack, and then on the balance sheet side.
Since we've been born we've been looking for great opportunity. We're thankful that we have the balance sheet debt, we do and we're constantly looking at that right now when you look at our approach we're squarely focused on ramping up growth.
We're seeing at in our guidance here Youre seeing at and the actions, we're taking youre seeing at in the G&A commitment that we've made for this year and we've shared some of those expenses in guidance for that reason because we want you to know that even though our sales will take time to recover you can expect us to keep hiring great people. So that we can meet that demand but.
But we have no plans for any kind of further.
M&A or use of that cash today.
But we never say never we're always looking at at Great opportunities of this brand has a special opportunity down the road.
Thanks.
Okay.
Okay.
The next question.
Just coal book.
Please go ahead.
Yes. Good afternoon. Good afternoon, guys can you hear me okay.
Yep.
Okay great.
Tara I know the comp is moved around the past few months, but the average weekly sales has been seeing pretty steady in the low $60000 range. So I'm. Just wondering is there a reason at the restaurant margin would be much different in the first quarter to date period is what we saw on the fourth quarter.
Well I mean, right now of course, we're not giving guidance.
Guidance as I explained just because the the operating environment continues to be so hard to predict.
So as you think about our margin.
We touched on sort of at the major drivers in that obviously sales is first of all nice right at the margin in our business follows sales and in our cost of sales line, we expect packaging to remain elevated.
That will be through the third quarter and potentially beyond albeit within feed costs, we don't expect any major.
Inflationary on deflation rate moves in that labor, we touched on that we will have mid to mid teens.
Low to mid single digit inflation bandwidth of combination of mandatory and discretionary.
Increases in the labor line as well as the fact that we're adding staff as we continue to anticipate continued gradual sales recovery and so I think you know in the.
Margin as time goes on we'll have these kind of at specific car at some point in the future of they'll start to lessen and roll off and in the meantime from additional customer start to come back into the shack sales recover and it's really it's really impossible to be precise about the timing of that transition.
Very focused on just continuing to do the right things spend the money when it comes to our teams when it comes at safety when it comes at guest experience investing in sales driving initiatives.
And that's really at the fact that obviously at maintaining a close eye on on top of it it's proven that we are.
Very have been very disciplined on that generally end was making the might of dishes.
It's just too hard to put a precise points on it right now on a quarter by quarter basis, or even for 2021 day trying to give you a little bit of color without being able to sort of quantify at this point and for them.
Let me ask at this way is there I mean, I know that as sales recover the margin performance is it going to act in a linear fashion with net sales recovery. So is there a step function or a step or at an average weekly sales level or we should expect maybe a step function improvement and for a step change in the margin performance.
<unk>.
Not that I would call out.
I mean, we've got.
Yeah, the Labor force.
No not that I would call outside of those major line items that I that I talked to you I mean, the only thing I would say as you I guess as you compare Q4 at.
Margin in particular is at obviously, we have the benefit of the 50, <unk> week, which as I mentioned help at helped other opex at to some degree in occupancy.
Due to that fixed nature, we also had a $900000 benefit in the fourth quarter from from that some of.
Instead of <unk>.
Year end of accounting adjustment to do with the termination of at Penn lease and so I think bad debt is keep in mind as you look quarter to quarter at but other than that I would just repeat those major trends in the line items that I've called out so far.
Labor Cogs delivery commissions of say big one.
In other opex, depending on how well that continues to fluctuate.
I decided that there is nothing else really cool at right now.
Okay, and just one last one once the company has delivery of available on its own ecosystem with the goal be to raise prices enough on the third party delivery marketplaces, so that youre really indifferent as to whether the order originates on our marketplace or your own platform.
Well, we want people to.
Order however, they want okay, we want to of great partnerships with third party, we believe in the strength of those marketplaces and those opportunities that said, we want to create our channel as the most preferred channel we wanted to be the best price the most rewarding and the most engaging and that'll come in the form of various ways will connect with <unk>.
On our channels whether it's.
Item specific whether its price over time.
But look at.
The important thing for us is driving sales in all areas and we think it's important to of a full <unk>.
Digital toolbox that includes all of those Chris So I want to I want to have them all and.
Tonight, when I would remind on motor on the shack App and I'm going to have it brought to us by <unk> <unk>, who is our partner of delivery on the shack at.
And that's where I want to engage right now and we'll see we'll see how people choose to do that and hopefully they'll do a mix.
Great. Thanks, guys.
The next question is from Jeffrey Bernstein Barclays. Please go ahead Sir.
Great. Thank you very much maybe just a follow up on that.
Just from a margin standpoint, obviously, it's like you said very difficult to predict.
Months out for him.
I'm, just wondering let alone a quarter out but can you maybe just provide some color in terms of just January I know you said comps were down 5%.
Maybe any directional color on terms of how margins are playing out just in the month of January. So we can get a frame of reference for how that compares as of comp improve so meaningfully from the fourth quarter.
Yeah, I mean, Jeff we're not we're not getting mid quarter guidance at this point.
So nothing really to update when it comes to current margins right now I'm afraid.
Okay, and then as we think about the.
Full year 'twenty, one then I'm on I know there's.
No specific guidance, but as people think about 'twenty, one getting back to 19 levels or at least that's kind of at talk for the broader industry.
Can you give any kind of directional thoughts in terms of whether 'twenty, one would be reasonable to assume back from 19 levels on a tuck in 19, you achieved 80 plus million EBITDA, but I'm, just wondering whether that's a reasonable or whether just broadly speaking you see the investments going through 2021 on the cost inflation.
Making that difficult to return to 19 levels in the year 'twenty one.
Jeff It's all going to be about sales recovery right. I mean, if we can't we've got to see the urban markets begin to come back that's of high part of our a big part of our company still down and continue to be hurt we need to see travel start to happen we need to see.
A regular operating environment and I think we're all some time away from that but we're encouraged for a continued recovery.
We're encouraged to lap this but I do think we're a long way away from <unk>.
Times square of being full of people right and that's just that's just one one visual that helping represent how that's going to change now I personally I'm, an optimist and I believes that cities are going to recover I believe New York is going to recover my.
I hope more quickly than most expect I think travel will begin to come back.
But it's going to take that day. So I think it's very hard to answer that and we're certainly not going to guide to that today and any real detail.
Got it and just lastly, without giving guidance then just in terms of maybe sensitivity just to kind of frame it up weather.
Annual benefit to EBITDA or EPS from a point of comp for 100 basis points of margin or any kind of rough numbers again, not providing any specific guidance, but just as a frame of reference.
Yeah, No no nothing when you think of them on that right now I guess apologies for Randy it at.
It's just it is so challenging right now to be able to predict with any sort of accuracy.
On a go forward basis for me over the next couple of quarters is that as soon as we have kind of line of sight for what we think will kick in and that's like we will absolutely update you in the meantime.
To give you as much color as possible in terms of what we do see end.
On these various lines of but just kind of quantify at this point when it comes at a given forward looking guidance.
Adjusted <unk> rate cases, if you look at the supplemental page 14.
Outside of what we provided sort of of our prepared remarks on some of the Q.
Q4. This is I think an area, where you can just sort of guide you without specific numbers of course in terms of of what we feel that there's going to be the major items from 2021.
Understood. Thank you.
Yes.
Yeah.
The next question is from Andrew Charles Cowen. Please go ahead Sir.
Thank you Randy you talked earlier about the South East just I'm, probably being more opening and we're seeing that would end industry data that's been an outperformer in the south East for you guys from looking at page eight of the supplemental it's certainly been an outperformer in better than average, but can you talk about the dynamic of the northeast.
Based on the southeast just curious for you guys talking to trend a little bit here at one of the south east hasn't been at the strongest region.
Well, yes, I mean northeast as you showed in the supplemental as was incredibly strong in January at just hadn't really straight line. Obviously until this is february a bit of a bit of a step back but generally the northeast has recovered really well at.
South east with the same kind of smaller step back, but I think these are big regions, they're hard to pin down one reason or another I think when we look at the northeast outside of New York City.
We have been pretty strong we've named that that's really the core suburban market right. When we have our shacks in New Jersey, Connecticut Long Island.
Boston suburbs those shacks in the suburban model have recovered more quickly than the urban.
In the southeast we don't have a whole lot of what we deem to be urban shacks right people are generally moving around normally in Florida right for the most part not quite the same at Atlanta, but still.
Pretty good so.
It really is a tale of every city and how you live at I was I was in the same day a couple of weeks ago in a mall in New Jersey that was packed and outside of everyone. Wearing masks you would've thought the world was perfect and then I came out of in Manhattan, and it was at goes down and it was fascinating to experience at at the same day on that right. There is what you see at our charts.
On seven eight of the supplemental that shows that net recovery. So look I think.
Andrew I'll say at this way and I've said this couple of times during the last six months.
With the way, we're looking at the business.
Where we are up does it makes sense that we are up yes, and where we are down does it make sense at were down yes with very few examples of the opposite so that encourages us to see how the flow is going to go in to see how the company's recovery overtime.
Okay and then.
Just one day Nitty.
Nitty gritty question when you get delivery orders through the App. That's obviously you get at present of benefit the data collection, but as we think about other opex just qualitatively. We also see of more favorable commission or cost structure for those orders relative to commission paid on.
Third party marketplaces.
Andrew we havent quantified at the expense, which is any different.
But I think the debt instead of high level of assumption that I would take at five of us that there isn't really one and the.
Delivery at our expenses channel at cost to get to look at whether that order of its taken through a third party marketplace that will take them to of App. So it remains an expensive channel. It will remain a a cost for the drag on the other opex line, while delivery remains high at that as you rightly point in time.
From a data collection perspective, and just owning the transaction and being able to build on that relationship with the guests from at that point.
Basis, the opportunity to drive longer term value through a delivery transaction on our channel versus instead of a transaction of a third party.
Is it something wildly different.
And Andrew the opportunity to market their right the opportunity for us to wake up one day, and say Hey, we want to do free delivery on our site right on our at the opportunity of digitally market differently to drive sales that obviously comes with of course.
<unk> really opens up now.
Makes sense thanks, guys.
We have a question from Brian Mulan Deutsche Bank. Please go ahead Sir.
Thank you pay a follow up on some of the prior commentary on decreased competition and increased real estate opportunities.
On the company on development side is 45 to 50 units the new ceiling for what the organization can handle any given year or does the company now maybe of how to build the capability of potentially opening even more than that.
Here of next year at goes well.
I know that might be getting greedy, but would be great cadence of thought.
Yeah.
Yeah look we're not going to guide beyond what we just gave which is 45 to 50, that's probably the appropriate feeling for next year with everything we know today.
But look you look at the history of this company outside of last year every year since we've been of company, we've been able to grow.
A few more shacks here and we want to make sure we get to that optimal number of where we're still building great restaurants, I do think our format evolution.
Five through and our success of so many others that we've proven before that gives us a lot of opportunity to to look at field.
Feel good about the acceleration of the next two years and we'll keep you posted after that.
Okay. Thanks, and just a follow up on on the domestic license business. You know Randy you spoke to some of the Covid related challenges in the prepared remarks, but as things return of normal is your opportunity here, even bigger than it otherwise would have been I'm just curious how youre thinking about the business over the next several years as anything that gets a little of harvest value.
Yeah, I think we have and we still have a big opportunity in the domestic license business really where we're looking at that is today that is in airports travel centers and stadium event businesses.
Those places of a long road to go here airports.
Look at the flight data you know there's a lot of companies that will say, it's a multiyear comeback so it'll be interesting to see how that shakes out.
Our hope is that we have strong partnerships in airports.
And that we will continue to grow that but.
Here's a perfect example, JFK terminal for we have to shake shacks that are two of the strongest shacks in the system.
And they are closed they have been closed for a year and there is no sign as to when that will open.
Debt to powerful shake shack. So it's M. IX was one of the busiest shacks in our company and the terminal is Gong theyre tearing it down.
Completely because of Covid and of change. So this is gonna be of Weird World I think in airports for a little while that said we were really often running at airports in an exciting way. So I expect there's going to be a bright future for shake shack in airports. The other thing is we're going to open we have won on a roadside in new Jersey.
And we're going to open our second I hope this year is what's called the Vince Lombardi area of anyone who's driven the New Jersey Turnpike out of New York City will know that that's one of the busiest and high traffic.
Type of areas, we want to do more of those we want to change the dialogue on what it means to pull over to get gas at get fed in a way that's entirely different from the traditional fast food experience. So I'm hopeful we can we can get some more of that but we got to see everybody get back on their cars planes and get moving again.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the conference back over to Randy <unk> for closing remarks for security.
Thanks, everyone I know, we've run over and we didn't get to every question. So we will have.
Anyone who has questions feel free to reach out at another time really appreciate you all being with US Tonight and stay safe. Thank you.
Yes.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Yeah.
Okay.