Q2 2023 Shake Shack Inc Earnings Call
Greetings and welcome to Shake Shack second quarter 2023 earnings call. At this time all participants are in a listen only mode. A 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. Please note this call.
France is being recorded I will now turn the conference over to Michael or Yellow director of S. P. N. Thank you you may begin.
Thank you and good morning, everyone. Joining me for Shake Shacks Conference call is our CEO , Randy already and CFO Katie Fogarty during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance.
Some of 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 23rd 2023, any forward looking statements represent our views only as of today and we assume no obligation to update any forward looking statements if our view.
Use changed by now you should have access to our second quarter 2023 shareholder letter, which can be found at investor Dot Shake Shack dotcom and the quarterly results section, whereas an exhibit to our 8-K for the quarter. As a reminder, during last year's second quarter, our shack level operating profit saw a benefit of 40 basis points from one time credit.
Related to our 2022 leadership retreat during today's call.
We will discuss year over year shack level operating profit and cost comparisons. Excluding these credits in order to provide a more like for like comparison I'll now turn the call over to Randy Thanks, Mike and good morning, everyone.
Our team continued to execute our strategic plan through the second quarter and into July we grew total revenue by 18% to $272 million with 3% growth in same shack sales average weekly sales of 77000, and trailing 12 months <unk> across our shacks at $3 9 million, we grew system wide sales by 21% year.
Over year to $426 million as we continue to accelerate the growth in our licensed business across new and existing markets.
Company operated business, we opened 10, new shacks with 23 currently under construction well on our way to opening about 40, new shacks. This year in our license business. Our partners opened 13 shacks in the quarter, we target opening 35 shacks this year, representing 17% system wide unit growth year over year since the quarter ended we've seen an uptick in.
Sales momentum with fiscal July same shack sales up four 5% and strong performance around the company as.
As we strengthen the company for the future our commitment is to being a profitable growth company.
In the second quarter, our teams delivered 21% shack level operating profit our highest level since 2019, and a 240 basis point gain over last year.
We are disciplined we're more efficient across our shacks G&A and capex expenses in.
In our restaurants.
<unk> identified numerous areas for improved process and cost reductions that we executed against in the quarter with the aim of growing profitability, while delivering a great guest experience.
Still early days in seeing the full potential from this work, but with these strategies will continue to improve how we run our shacks all the while still improving upon our already strong returns and great guest experience.
Our same shack sales slowed in may before rebounding through June and strengthening into July our highly successful white truffle L. T O that contributed to our strong performance in the first quarter and April sold out early.
July we pivoted to promoting our avocado Bacon burgers and chicken. We're looking ahead to September when our L. T. OS will focus on the return of a guest favorite hot chicken as well as a new menu item the spicy shack Mysore Burger to bring the heat in the year at all.
I'm, particularly excited about our culinary lineup for next year as well as we continue to evolve and improve the level of guest data and insights that we're weaving into our culinary story.
Let me give a mid year update now on how we're tracking against our 2023 strategic plan.
Our first priority is on recruiting rewarding and retaining a winning team I'm proud to report that while staffing is always challenging in the restaurant business. Our teams have done incredible work towards improving our retention and turnover year to date, we're experiencing the best turnover numbers, we've seen in years, our team members are earning competitive wages there.
Paying longer and all of this is contributing to our operational execution and profitability in the shacks.
Our near and long term benefits and returns on this investment in people and retention cannot be overstated.
Our people remain our priority and we're continuing to look at ways to improve their experience and opportunities for advancement in the shacks.
Just one data point in the last 24 months with the introduction of our shift up leadership curriculum more than 180 shack leaders across the country have taken the 18 week course, and many have graduated from hourly supervisory rolls into the next level of management fueling their development and building a pipeline of leaders ready to take on the growth at <unk>.
Our second priority is our relentless focus on the guest experience.
We continue to execute a broad culinary strategy of improving our core menu, while delivering exceptional L. T OS that we keep that keep operations running smooth and efficient.
In addition to the comments I made earlier, we also launched our veggie Shack Burger and nondairy shake both of which have received a solid reception.
We're featuring a great lineup of shakes this summer as well as a caffeinated option for our eliminates and some shacks this quarter, you'll see us testing, a new mini shake size as well as a small test springing Sundays back to the menu as we look to broaden the optionality and operational ease in our dessert category for the long term.
We also continue to expand our kiosks, which would be in nearly all shacks by the end of the third quarter, a full quarter ahead of our expectations.
We doubled our kiosk sales year over year as guests return in shack and choose this as their preferred experience kiosks to enhance guest convenience, while driving a higher average check and in turn profitability.
While kiosk is a key driver of the guest experience and our sales and profitability improvement strategy. We've only begun to explore the potential full capabilities of kiosks, such as upselling and connecting personalized marketing across channels. One of our primary focuses of digital investment next year will be improving the kiosk experience towards greater omnichannel adoption and long term guest connection.
With our exciting culinary innovation continued kiosk rollout menu strategy and digital tools guest perception and value scores continue to improve.
Our third priority is our targeted development strategy with a focus on drive thru and maximizing our total addressable market with great returns over the long term.
<unk> consistently said we are investing for learning early on so what are we learned so far.
We've opened some amazing drive throughs in the second quarter across the country, including Lancaster, Pennsylvania, Richmond, Virginia, as well as deepening our footprint in Texas in Sugarland, and Mckinney as well as Katie and San Marcos subsequent to the quarter.
Each of these have started stronger than expectation and give us confidence in the ultimate potential for drive through where we picked great real estate specific for drive through we are capable of driving strong au vs and profitability. All told of 18 drive throughs were operating today, we have some great shacks performing above our long term sales targets.
You have some below our targets and we have a lot in the middle that we're learning from tweaking and improving all around and we have confidence and where they're headed in some cases, we've hit our cost to build metrics and in others. We've invested more than our targets, which has contributed to a higher cost to build overall this year.
We remain encouraged by the drive thru opportunity and we're continuing to refine and take down cost to build and improve the model overall.
We're expecting to open about 15 drive throughs this year and a similar amount in the coming years.
We're ensuring future sites take in a lot of the learnings that we've gotten thus far and will continue to improve each and every day.
We are bringing down build costs and prototyping future shacks with 2023 drive through build costs already trending down about 10% year over year. We believe we can build a more standardized operation and a smaller footprint with less seats and a lower cost to build overall, while still enhancing the great guest experience shake shack is known for.
While this number may vary in the future due to geographic mix of openings. This gives us confidence we can bring down bill cost overtime next.
Next year, we're particularly excited to have much more of a drive thru class and our strong coastal markets in long Island, New Jersey, and California, where we generally expect higher au vs with higher brand awareness.
We are continuing to focus on the guest experience.
And operational improvements specific to our drivers and we look forward to material progress overtime.
On our license business. Our team is hard at work with our partners to open new shacks and expand our business across the globe and physical April we opened our first shack in Thailand and in physical July we opened our first resort shack with a bar in the Bahamas, and the Atlantis resort our strong performance in the second quarter was primarily driven by outperformance in our licensed business.
<unk>, which is one of our largest markets.
Our airports and new roadside shacks in New Jersey in upstate New York are thriving and capitalizing on busy summer travel patterns. We have a long runway ahead for our domestic license business with 36 licensed shacks across the U S, including 18 airports 11 stadiums six shacks in roadway travel plazas, and one museum and based on the strength of it.
This business and the continued optimism shared by our partners around the globe. We expect approximately 35, new licensed shacks shack openings this year.
Our fourth priority is being even more profitable in our shacks.
Second quarter restaurant margin expanded 240 basis points year over year to 21% Mark in the first quarter since 2019, where our restaurant margin grew back above 20%.
It's a testament to our continued progress on our key initiatives as we achieved 21% despite high single digit food and paper inflation in the quarter.
Finally, the fifth pillar of our plan as we build an enduring business. We are committed to investing with discipline, we're deploying capital towards strong returns in four main areas. We're building shacks updating our current shacks investing in our digital infrastructure and structuring our home office capabilities to support our restaurants.
Looking ahead, we are already seeing evidence that we have the right strategies in place to lower this cost materially next year and even further in the coming years as new prototypes come into design.
Our commitment is to target lowering build cost next year by about 10% for the overall class as we take down bill costs and improves shack level operating profit, we expect to continue to improve overall shack returns well into the future.
We've got the right plan in place and we're pleased to see progress taking root as we continue the evolution of shake Shack, we remain one of the fastest growing publicly traded restaurant companies and we're growing profitably, while strengthening our brand and our opportunity ahead.
I'll hand, it off to Katie to share more about the details of the quarter and expectations for the rest of the year. Good morning, everyone. We are pleased with the results of our second quarter and our continued execution against our 2023 strategic plan, we expanded our restaurant margin by 240 basis points year over year to 21%.
Border.
Many of these are still early days in the making and we're building on them as he progressed throughout the year.
So first we are working closely with our operators on execution improvement plans across our shacks major call outs here are better alignment on new standards and demand generated labor schedules further increasing operating hours driving waste reduction teeny disciplined and other initiatives. We are leveraging fresh weekly sales forecast in her shack to schedule.
Labour incorporating macro and micro drivers this is helping us be more nimble and our expense management when sales tights turn or even just modestly shift at the shack level in either direction.
Second our kiosk retrofit plan is already showing substantial impact and we see a long runway for future improvements that can enhance what kiosk can offer in terms of driving sales and labour efficiencies. We ended the quarter with nearly 250 shack that kiosks and grew archaize sales by more than 100% year over year, we're seeing at least a hyphen.
<unk> digit percent lift an average order values and kiosk versus and check. This is driven by higher IPC and mix at T. S orders tend to skew to dine in we were also able to use less packaging than in our digital orders, but labour savings. Aside. This makes kiosks are most profitable channel kiosk is also a channel where we can get more guest at data to.
Finally, we're also working with our operators to enhance the auditing and reporting enter shacks and more quickly address over and understaffing situations as well as making sure that we have the appropriate number of managers to support our shacks Intergrowth. We're still early days in this journey, but we're confident that this will help us better control are are really labor expense and provide a more consistent gassed experience.
We are reassured by your results and we look forward to showing continued progress through the rest of the year on these and other initiatives that we have in flight to in order to improve on our profitability and deliver great guest experiences.
Onto the second quarter results total revenue with $271.8 million up 17.8% year over year Shaq sales grew 17.4% to $261.8 million licensing revenue grew 29.8 per cent to 10 million.
System wide sales reached a record high at $426 3 million of 21.2% year over year, we maintain discipline unexpected integral to our 2023 strategic plan. We grew adjusted EBITDA by 61.9% year over year to $37.1 million, reaching 13.6 per cent of total revenue.
We grew in check traffic by 4.7% in the quarter and we generated a positive 10.7 same check sales and are in check channel is more guests are migrating to there in person habits and our wider scale kiosk rollout is having a positive impact on our mixing IPC trends in that channel.
And check in kiosk in particular are are most part profitable channels and we continue to focus our efforts on shifting ourselves here as we execute against our plan to shows is sustained improvement in her overall restaurant margin.
Are strong in check performance was offset by softer digital performance delivery traffic was down more than overall traffic representing the continued positive trend towards our guest returning to our shack also from time to time as we deepen our footprint in open checks close to others. We may see near term traffic offsets as those neighborhoods and share delivery Radiuses take.
Time to shake out and this was the case in the second quarter as we saw some sales impact that was heavily weighted on delivery and markets, such as California, and handful of checks on the east coast. They would plan for as we build critical mass in these key markets.
<unk> blended to an overall positive 3.0 per cent same check sales and negative 1.3 per cent traffic versus prior year.
We realize high single digit price in the quarter, we rolled off the comp benefit from the March 2020, 233.5% total menu price increase an additional five per cent premium in her delivery channels and we're only raising price by two per cent in select locations at the back half of the second quarter.
R. Two Q same check sales were pressured by approximately 100 basis points of mixed as he sold out of our premium White Truffle L. T. O ahead of schedule due to high and unexpected guests demand. It's hard to know the full traffic impact that has had on the court without.
In addition, we continue to see get shipped back to you in check and that's at smaller group sizes and our digital channels, but we also saw a smaller group sizes across all of our channels as people return to more normalized patterns, especially in our urban areas.
July theme Shack sales rose 4.5 per cent an improvement from June driven by improving next July 18th AWS with 77000 within that was three per cent higher year over year, we generated record high kiosk average weekly failed and continue to grow in check traffic or urban markets, such as Washington, D C, Boston and New York City.
Performed well, we had a positive impact from high single digit price.
Our license partners opened 13, new Saxon quarter growing our total license shack counted 201, together, we grew sales by 27.9% year over year to 164.5 million with a modest headwind from effects.
We grew sales in our domestic license business by more than 50% year over year led by our airports and roadway location, we had robust performance in China, We open strong in Thailand and that was our first new country open in three years in June we opened our first license drive through Shaq and Dubai.
Onto our restaurant profitability in the second quarter <unk> shack level operating profit was $54.9 million or 21% of <unk> sales marketing 240 basis points of expansion versus last year. Despite continued inflationary pressures across our four well piano.
Food and pay per class, where $75.8 million or 29%, a shack sales down 100 basis points versus last year, and 40 basis points versus the prior quarter, we benefited from improve ways trends in our shacks and reduce packaging small wears economy usage in her off from its orders.
Blended food and paper inflation rose high single digits year over year beef was up high single digits as well as continued inflationary pressures and custard and buns and and over 20% year over year increase in our Fry Cos importantly, our supply chain chain team has identified areas for cost efficiencies to help address persistent inflationary pressures, which we ain't.
Has to pay to start having an impact later this year with continued plans for focus improvement into 2024.
Labor and related expenses were $75.2 million or 28.7%, a shack failed down 80 basis points versus last year and down 170 basis point quarter over quarter. This quarter, we increased our focus on training to improve turnover and seek efficiencies across our operations as well as introduce several new strategies to better control our labor expenses within the shack.
Act.
Our second quarter has typically marked our strongest sales and profitability of the year and requires more staffing than other quarters to support the higher demand however, with our properly enhancement strategies, including dynamic sales and Labour budgeting working closely with our operators to drive more standardized labor scheduling practices as well as early learnings on kiosk labor utilization.
Evolutions in training, we've been able to streamline hourly labor and our shack spelled quarter over quarter and year over year altogether. This is translated to us using 50 fewer hours per <unk> per week in the quarter versus last year, resulting in 100 basis points of margin tailwind versus 2022.
As is typical for our growing business or labor expenses impacted by supporting some recent nso's. However, our profitability trends inner N. S has improved throughout the quarter and we have plans in place and operations in development to further reduce the expense being her from opening new from new openings scheduled on our overall restaurant profitability line.
Other operating expenses were $36.1 million or 13.8%, a shack sale down 60 basis points from the second quarter of 2022.
<unk> adjusted G&A expense rose, 3.6% year over year versus total revenue that grew 17.8% year over year we.
We're making continued investments around our digital marketing efforts leveraging personally personalised marketing to our guest investing in guest data and analytics or kiosk and other various marketing strategies to drive greater sales and brand awareness. We're also investing in technology and data broadly across the company automating labor scheduling and compliance as well as making improve.
But taken over all the investments we made in the second quarter, partially offset by efficiencies and other department as we continue to invest with discipline and G&A and target <unk> <unk> delivering leverage this year.
Preopening costs were 5.6 million a quarter with are more even waited development schedule versus last year.
At the end of the third quarter. We expect you have opened 27 units compared to 14 in the prior year, we have plans in place around development training and operations as we target lowering our preopening expenses by about 10% per shaq and 2024 versus this year's level.
And a quarter depreciation was 22.3 million up 23% year over year as we continue to invest in your shack.
<unk>, we realized net income attributable to shake Shack, Inc of $6.9 million or 16 cents per <unk> per diluted share, we reported and adjusted pro forma net income of 7.9 million or 18 cents per fully exchange and diluted share. This is the highest level of earnings per share that we've had reported and more than three years.
Are adjusted pro forma tax rate, excluding the tax impact of equity based compensation was 15.6 per cent.
Finally, our balance sheet remained salad with $295 $2 million in cash and cash equivalents and marketable securities at the end of the quarter. This is an increase from $293.4 million in the prior quarter.
We invested $40.4 million in Capex in the quarter up 48% year over year, we've opened twenty-one check the date and are on track for twice the number of openings by the end of the third quarter versus last year. This more even waited opening schedule is a primary driver behind the growth in our capex spending year over year.
And it's Randy noted, while it's hard to predict with full precision. We expect that this will be the peak of pressures on our bill costs and we are starting to see traction from our efforts to lower a bill costs into 2024 and beyond. An addition, we've incurred expenses related to the more than 30 kiosk retrofit in this quarter and have about 15 left to go which we expect will be completed by the end of the third quarter.
<unk> we.
We also encourage elevated maintenance capex is our teams made the necessary replacement to lower on them and are shacks and ensure a more consistent gassed experience.
Now onto guidance, which balances the strong underlying business factors that we've seen in the first half of the year with a degree of uncertainty around the consumer spending outlook and inflationary headwind.
This ranch does not reflect any additional unknown delays to our development schedule or any changes to the macro landscape beyond where what we're experiencing today.
For the third quarter, We guide total revenue of 273.5 to 278 million with 10.5 to 11 million of licensing revenue 10 to 12 company operated opening.
11 to 13 license shack openings and first name Shaq sales to grow by low to mid single digits. You every year with that high end very consistent with a 4.5% same shack sales that we generate in July .
Third quarter price will be up high single digits year over year we.
We expect to see mixed headwinds until we launch our hot chicken and Burger L. T O at the end of the quarter and as a reminder, historically, we've seen AWS sequentially decline into August filing peak summer travel and then again in September around back to school.
We are guiding three Q20, twenty-three restaurant margins to be approximately 20 per cent as we're factoring in continued execution of our margin driving initiatives balance with uncertainty around inflationary outlook for beef our.
Guidance reflects beef rising by low double double digits year over year. However, if prices were to rise by more than this level all us equal, giving me do not hedge on this important line item. We would expect to fall below are approximately 20 per cent restaurant margin guidance, but the third quarter.
We expect food and paper inflation for the third quarter to be up mid single digits year over year, and we expect labour inflation to be in the mid single digit range here over here.
Based on the strength that we've seen in the second quarter and are optimistic outlook for the third quarter, we're adjusting our revenue guidance and increasing our profitability targets for the full year 2023.
So for full year 2023, our guidance calls for total revenue of 1.07 to 1.8 billion growing 18% to 21% year over year same.
<unk> sales to grow by low to mid single digits with mid to high single digits price. We are rolling off the high single digit price. We took in October 2022, we expect to end of the year running at just a low single digit price, which is in line with our more normal pricing patterns and this will be a pressure to our same checks sales in the fourth quarter.
We expect licensing revenue to reach $40 million to $41 million.
Well, we are not providing specific fourthquarter guidance at this time, we expect to see typical seasonality in both our sales and profitability from the third to the fourth quarter. As a reminder, prior to Covid fourthquarter restaurant margin seasonally or lower than the third quarter levels, and that's largely driven by lower sale.
Well this year, we expect to outperform that historical pre COVID-19 margin seasonality given the strong successfully we're seeing in our strategic priorities east inflationary risks are real and present, a headwind to our profitability through the rest of the year. We expect this in addition to rolling off that significant October 22 price increase in ending the year with just about two per cent price against it brought in.
Placing every pressures, where we're seeing to impact our fourth quarter flow through overall.
However, all else equal if beef inflation was consistent with last year's performance and consumer spending patterns remains strong we see a path for a restaurant margin to exceed 20 per cent for the full year.
We expect to open approximately 75 shack system why this year about 40 of them will be domestic company operated in approximately 35 will be operated by your license partner.
We got 2023 G&A of 125 to 130 million absent that 3.3, and legal and professional fees that are <unk> are excluded from adjusted EBITDA in the first and second quarters.
At the midpoint G&A would be 11.9% of total revenue approximately 75 basis points of leverage versus 20 twenty-two level.
Some other guidance points equity based compensation expensive approximately 70 million Preopening of 17 to 19 million depreciation of 88 to 93 million and adjusted pro forma tax rate, excluding the impact of equity based compensation to be 16 to 18 per cent.
Altogether based on their performance. So far this year, we are raising our our fiscal 2023 adjusted EBITDA to 120 to 130 million, representing approximately 65 to 80 per cent growth year over year and thank you Ain't that turn it back to Randy. Thanks, So much Judy we're really proud of the team and the way they continue to execute our strategic plan.
Strawberry sales and better profitability across our shucks.
Because I don't want to end with a note of special effects as you mentioned in early this morning.
<unk> K, we announced that our longtime <unk> cough will be leaving the company after more than 13 years <unk>.
<unk> shakes shock when we opened our fourth Jack ever in Miami Beach, and he's been a key fixture in all we've done to build this special Brian and culture.
Hartzell and leadership suits are the foundation of <unk> and so much of what we've accomplished as a team husband, thanks to whose contributions.
<unk> will be greatly missed who were excited for him and his next chapter and for <unk>. Because we look ahead to add a new leadership.
That will be transitioning out of the company September 7th.
We will be getting an executive search for his replacement in the meantime, Zac is built an exceptional team and along with our executive team. We will continue the operational excellence and improvements we shared earlier in this call to ensure progress moving forward.
With that operator, please open up the call for questions.
Thank you if you would like to ask a question. Please press star one and your telephone keypad a confirmation till indicate your line is in the question queue. You may start to if you would like to remove your question from the queue and for participants using speaker equipment and made the necessary to pick up your handset before pressing the started keys.
In doing so much to continue to bring that down over time. It seems doing great work on it. So it takes time <unk> got shots that are already designed and play some of those will be more expensive drive through some of those would be more expensive places like are named in New York, California, but overall next year, we're targeting a 2.3 million dollar average roughly and we're gonna we're gonna we're gonna <unk>.
All to that as we look at year's forward, depending on the mix of shocks, we believe and we're targeting lots of improvements in how we build our restaurants the way, we do it but but but still doing it in the shake Shack way. So we believe this is a great opportunity for us long term and we're committed to having this be an important fixture of our street.
G G plan and this coming year.
Okay. Thanks, a lot just as a follow up you know I think a part of the <unk> cooperation agreement.
The company has agreed to work with smelled, so I consultants to work at ways to be more efficient you know my question is just given all the various strategic efforts that are are.
Underway internally.
Do you do you expect any console.
<unk> would yield even more efficiencies above and beyond.
I've entered into an agreement.
That's right Yeah <unk> the team right now has been and you see this in the results of the quarter in in in our guard forward really focused on improving somebody thinks of the company that that's taken rude as you can see we will be and we're working with the working group of our board and <unk> with talking to consult.
And thinking about what that scope might look like and we're continuing to define.
To find that and we'll certainly let you know, but we believe that's going to be another exciting opportunity for us to dive deeper into some of the things, we're already doing and and identify some other thing. So yeah. We're looking forward to that that's going to take time and we'll keep you posted as it goes.
Our next question is from Michael Tevis with Oppenheimer and company. Please proceed.
Thanks. Good morning, you know it sounds like you're just getting started on some of the opportunities to expand your restaurant margins.
20 per cent you're targeting this year. So you know your pricing normalizes and hopefully inflation does as well.
To pull on a core basis to expand margins.
20 per cent range or do you think you need.
And just sort of outpaced inflation to do that.
Alright, yeah, and so we talked about on call today, the 240 basis points margin improvement that we showed year over year. The bulk majority of that the majority of that is coming from our operational improvement plan and you know some of these we factored into our guidance others were learning more is it.
Time goes along but you know we're really encouraged by what we're saying we're not gonna give longterm guidance at this point. So nothing you know beyond what we've given them for the full year target of 19, and a quarter to 20 per cent and but these are you know kind of really improving the foundation of shake shack and helping us to become a more profitable company over the longterm.
Our next question is from Brian Harper with Morgan Stanley . Please proceed.
<unk>. Good morning, Uhm I was curious you you just provide more details from a mixed impact because I I realize that kind of delivery is coming off you talked about that piece, but are you are you seem pretty good attached.
<unk> your new menu items, how much more do you think can kind of come from from kiosks overtime. If we separate out some of the different books drivers <unk>.
Sure. So really then what are the most important mixed headwinds that we had in the quarter with the fact that we sold out of our highly successful white Truffle L. T. O. Early we think that was about 100 basis points of just mixed alone in the quarter hard to tell with that traffic impact was but we know that are most successful are great L. T O as they are traffic.
Infrequency drivers as well within each of our channels you know what we're seeing overall is is pretty consistent we're seeing better mixed trends within our <unk> channel, though just as we're driving deeper kiosk adoption, you're getting that natural blip on that side, but across the board. You know we do have you know higher you know higher tax rates of items per protein.
Mm year over year, and we're pretty encouraged by what we're seeing there now.
Overall, what you're seeing it at the company level, though is that channel shift mix of more people coming in shack those tend to be less people per per order, especially in our urban markets and that's at natural shift that we've been seeing since you know pretty much last year and <unk> and to know.
Our next question is from Peter cellar with B T. I T. Please proceed.
Yeah, great and good morning, <unk> <unk>.
I wanted to ask on the kiosk I think you mentioned the high single digit check lift can you elaborate a little bit on.
On that <unk> are you seeing that just more customization add ons or was it or you're seeing more group sizes, just trying to understand what's driving that high single digit <unk> lift.
Right Yeah. So it's really exciting what we're pretty consistently seeing them in our taxes were accelerating our kiosk retrofit program. Here is that you know once we kind of shift that gas from the cashier into the kiosk channels. They tend to you know we have a high single digit at least check left right, there and would that coming from.
Is really I think people being able to sit with the visual merchandising of our product you see a higher incidence of L. T O sales on that and I think that you know when you get to see the very exciting items that were promoting up their guests are interested in that I think it comes across a little bit differently on the kiosk channel then in our traditional menu board you're also seeing greater instances of sales of.
Our premium cold beverage as well, which is and shakes, which has you know obviously very nice margin on that side. So that's most of what we're seeing but what's really exciting also is that we're still in the very early days here you know, there's a lot of opportunity for us to invest you know send some money around driving more up selling the kiosk channel our priority.
Today is driving too fat greater adoption of it you're gonna see you know you'll expect to see from US continued strategies to drive you know more up fell on that channel.
Our next question is from Andrew Charles with T. D. Cowan. Please proceed.
Great. Thanks, two questions for me you know first <unk> I know beef, obviously remains pretty volatile, but two qb's inflation high school digits is more favorable than your long the low double digit forecast I didn't know contract fee, but is there any mitigation strategy that contributed about was that strictly you know more people spot rates and then just kind of a question on the <unk>.
<unk> you know appreciate disclosure for July up 4.5%, you'll get the guidance for low to mid single digits is there a reason to believe same store sales or would decrease from July just harder comparisons in August September or would you just label the gardens to be conservative.
Okay, great. So it looks like the first so you know as.
As we progressed throughout the quarter M. B, if it was a little bit more favorable I mean, we're talking about high single digits versus low double digits kinda very much on the cusp, there and we really started to see beef they'll pick up more uhm in July . So that is something that we are watching very closely reflected that view into of what we're seeing today into our guidance.
And then on the <unk> you know we were running a 4.5% in July ran a 4.5% in July you know think about that <unk>. The mid single digits range is being kind of around that four and a half to five per cent range and how we typically progress throughout the quarter on AWS is August is a little bit lower than.
Uhm 10 July and then we do see a more significant drop off in September it'll be interesting to see how this year September 8th last year, we had a more muted decline in September versus August , but in pre Covid <unk>, you know times that was a little bit more more pronounced.
Our next question is from G. Bartlett withdrew his securities. Please proceed.
Great. Thanks, Thanks for taking the question you know my first one is on the consumer in the past you you've made some comments about whether there's any specific moments lower income or.
<unk> any comments you can see and what you're seeing from just underlying strength of demand.
Yeah, Jacob you've seen this kind of broadly in our industry and a lot of issues generally I think we're all surprised at how resilient. The consumer has been actually actually I got what we said in the past is stood true in this last quarter, which is we generally benefit from a higher end consumer you're seeing that also in the strength of some of our <unk>.
<unk> people being willing to spend a little bit more but we're not immune to the lower consumer trading down you know and you'll probably see some of that in our numbers in this quarter and moving forward right, there's going to be more battles on discounting and you're kind of traditional fast food that we're going to compete against from time to time and that's gonna be a pressure.
During this this on certain time and we expect that that's built into the guide as we go it's built into how we're thinking about things, but I think in general the consumer.
Consumer Hayden pretty resilient. So you know we're happy with that we're looking ahead to continue to build on the strategies. We've we've employed so far that you heard a lot about today.
Our next question is from Brian for Cara with Raymond James. Please proceed.
Alright, Thanks, and good morning, I just wanted to ask about the Labour improvements Katie I think he said wage inflation up in the mid single digits. If I heard correctly, so cost per week at least on our maps down year on year. So could you just provide a little more color on the benefits you're seeing some kiosks and also the.
Dynamic labor scheduling just more perspective on that I'm curious if your the hours are so like where is that during the day during the week as it clustered in a certain set of stores that were significantly underperforming just wait and any incremental clarity that'll be helpful.
Yeah, absolutely. So just to kind of reminder of what we're doing on that site Uhm. So first of all you know working with our operators is very closely and <unk> digging in and buildings bespoke labor schedules for the shack, they're kind of the most pressure.
And that has been you know really helpful way of managing kind of our lower performing shack base and working with them to help make those more profitable on the dynamic labor scheduling side. This is an important point you know we switch to a more demand base more real time, what we're seeing on the ground forecast at leveraging.
Both micro and macro variables across all of our shacks in the quarter and this is a really hard one to measure the full benefit, but what I will say is that it fails.
Typed turn in either direction, you're able to be much more nimble and react much more you know much quicker to changes in consumer behavior, where we can staff up and staff down to reflect that change instead of being a little bit more Aladdin delayed and we're also working closely to audit labor schedules as well and just to make sure that we're.
Adhering to our standards, which is really helped kind of bridges that overall and then kiosk overall you know with the 250 shack that we have in place right now and continuing to drive a kiosk adoption. We're starting to see you know some early signs of labor savings on that and you know that's been helpful and we're gonna continue to leverage that over time the number.
<unk> that we gave them in my prepared remarks does that we're running 50 fewer hours this year versus last year. So yeah, a pretty good clip of savings on that side and it you know that's helping to offset some of the other pressures that we're facing I'm in labor and that plus or higher price contributed to.
The two leopards that we produced in the quarter.
Our next question is from David <unk> with their please proceed.
Hi, good morning.
My questions more about kind of the strategy you know with respect you kind of optimizing the model to lower costs and shift the behavior towards kiosks and my my question is really related to you know how are you measuring the guests experiences.
Go through this transition it seems like you're making a lot of progress early on on the cough side, but are you.
To make sure that you're not changing.
Experience in a way that you don't want longer term.
David I Love that question I'm. So thankful you ask that because that's at the core of everything that we think about right and as we think about improving the operating model, we need to do that through ways that only increase and improve the guest experience. That's a part of our strategic plan you heard me talk about it earlier and it'll be a part of our strategic plan next year and.
Involved in new ways. So a couple of things what we're learning is as we do these digital tools like kiosk or app or whatever we need to build them. So guess preferred and that they really enjoy those experiences what we're seeing in our guests scores that we track a lot and get more and more data from is that they're improving and improving through the time that.
We are improving as operational execution I know that part of the what we need to do better as well as just consistency standardization. So that guests can count on what they need to count on for Shake Shack day. After day, you can know when your food's Gonna come out you can know that it's going to be ready you can count on it being exactly the same standardization and <unk>.
Doing that better is going to lead to better guest experience, we know that we're doing that but in the shops as well, we're actually ramping up efforts of the things that we do for instance, and most shacks now when you come in and you used to have kind of that stress of waiting for your buzzer are waiting for us to text you now in most <unk> most of the time, we're gonna run your.
Food <unk>, we're adding that added level of service. So we've been doing that for about a year now that's all part of the shift in the way we can optimize our labor instead of taking an order where guests would prefer to do it themselves and our kiosk benefit in all the ways. You heard we can spend that time and effort and put our hospitality towards a different part of the experience and we.
Found that people are really enjoying that that has been just the just the distress her in added experience and as we think about cutting costs and bringing things down we gotta do it in ways as I said that improve so if we're gonna have a smaller dining room, it's still gotta be a great dining room that has the right amount of seats and all the things that we're doing we're gonna add to that so uhm.
Thank you for that question and you can assure and our shareholders can be assured that we will not do anything but work to improve I guess experience as we talk about also improving the economic model.
Our next question is from Jeffrey Bernstein with Barclays. Please proceed.
Great. Thank you.
One clarification amount of questions. The clarification acceleration Ya sore in July from accomplished but I'm just wondering if there's anything you specifically attribute that to any new drivers or perhaps change of consumer behavior.
Drug that improvement.
Otherwise my shows.
Are you there.
Okay, but.
Oh just wanted <unk>.
Yeah can you mentioned, the 75 basis points of leverage in twenty-three, which is obviously oppressive.
I'm just wondering what's the biggest buckets of savings or whether you think there's more opportunity for leverage in 24 and beyond maybe it for Ya benchmark itself against just trying to figure out how you define what the right ultimate local is thank you yeah.
Thanks, I'll on the on the <unk>, we're really encouraged by quarter to date seeing some of the strongest comp that we've seen all year a few fix as we talked about we had a return of a strong L. T O.
With Bourbon Bacon, we add some of the other menu things happening that are really good and I think we're just continuing to see some of that trend that benefits shakes you at some of the things that we were most hit on whether it's urban or offices tourism travel the kind of way people move those things continue to improve in general mobility for US. We are we are <unk>.
Some hits in the mid distance consumer that are different from last year, but generally those trends continue to benefit <unk> and it's just been good. It's just been a really good momentum through July . So we're encouraged by that and and really it's been strengthening since mid June . So that's good we'll see where it goes we've got tougher compares as we go.
Go through the year, but we feel good about that on June I look we need to keep investing where we need to invest we're we're happy that just Katie sure. We're tracking towards leverage this year and we can look at some of that next year as well, but we're not gonna fully god, they're just yet we've got to make sure we're making the investments, but we're we're leaving.
Hey, guys I'm, just talking about you know some of the salesman, but I think you mentioned on the coast and in regards to.
You know maybe some some delivery sales could could you check that out for us.
How much and how long do you think that'll last and is that.
Restaurants, as well as consumer behavior or or or mostly you know your development that's impacting some of the the best seller.
Thanks, Yeah, I think it's near term and you start to lap some of those there's going to be always there has been since the day. We created this company at every restaurant you're gonna see from time to time, you're gonna see in fact, when you open a restaurant close to another and I think we've got a couple of handfuls of restaurants that are in that category. Some in L. A where we open five new shacks on top of <unk>.
Other restaurants.
Those are our whole goal is market share overall and building a strong market. We have a long long run way to do so we're confident that from time to time the world. We live in today, you may eat up a section of a delivery radius for instance, and just start to share that portion of delivery sales that may happen, but we do think we roll off some of those but let's.
Go back to the important strategy of development, we've got a long runway ahead and part of our strategy is to cluster are shacks, a little bit closer together, we know and you're seeing that in our profitability measures that we're continuing to improve so we know that from time to time. When you do that you might impact salesman and all the restaurants, but you're also gonna impact our ability to open bed.
<unk> faster have stronger profitability sooner and over the long run. So we feel really good about all those decisions and you know when it will also keep taken that learning and making sure. Our development schedule is is is taken that in and and spreading out our shots as best that makes sense and still building lots of restaurants.
I think we're still the thing that I think needs to be said that even we remain surprised by from time to time is <unk> <unk>.
<unk> brand that punches so far above its weight, but in reality. There are many places in this country, where our brand awareness still needs to grow where we're actually still coming up and you know we're not the incumbent and that takes time and I think our history has shown that we do that really well over time, but it does take time and we're confident we'll keep doing that and.
And you'll see us committing more and more to marketing and funding brand awareness. So that we can continue to grow our overall base of guess.
Our next question is from John I haven't co with J P. Morgan. Please proceed.
Hi, Thank you I hope everyone as well.
I know we've talked about you know previously and I was just you know trying to get to you know capitalized cost per new unit I know, it's not a fair calculation and and I Dunno, you'll correct me for the reasons, why but and fiscal twenty-three you know just taking your capex divided by the number of units it was around 4 million and <unk>.
First half of 24, it's actually excuse me that that was a 22 and first half of twenty-three we're actually running a little bit ahead of 4 million, though I do understand you know it does sound like you're doing some projects to convert R&M into cap Capex, and obviously kiosk cost some money you.
You know, but it actually is running.
Ahead of $4 million in the first half of 23, so as we think about.
You know that 24 number just try to get it as clean as possible I mean, what what do you think you know the capitalized cost per new unit is going to be in 24, I know you said 10 per cent less but 10% less of what.
Well, Jonathan overall feel free to jump in your Kitty I think we're not gotten to twenty-four today. What we're gonna do is continue to bring down those cause you have to remember in your numbers that you are quoting you you are not giving credit to the significant digital investments tech investments.
Many other capex investments that happen around this company that are not about the individual units. Those are things that have to happen as you grow a restaurant company, especially that are still small scale. So some of those may be outsides in total dollars today, but where are we where are we out and committing to this community taken down that overall cost to build and.
Improving the numbers you just said in 24 and beyond I expect we will maybe by your measure certainly by the measures that we share and that's our goal to improve our overall return on capital for individual restaurants in our company overall and I think I'll just take it because I don't think we're I don't think we've talked about you on this call really take a look at the EBIT did you also need.
<unk> growth of this company year over year. It is significant it is materially game changing in the percentage growth of adjusted EBITDA over the over this year and we expect to continue to generate a significant adjusted EBITDA next year in a lot of cash. So I think it's gonna be a good it's gonna be a good year for all of them.
Metrics, you're asking about and and those things take time as I said you you know you've got a lot of restaurants design an in flight you can't change those things mid flight, but we're putting all the things in place that will improve that next year and in the years ago.
Our next question is from Jim Sanderson with North Coast Research. Please proceed.
Hey, Thanks for the question and congratulations on the improvement in <unk>, one of the dig into the details on the labor hours per week is that only for stores that have the kiosk or is that a system wide number the two sided.
Hi, Yes, no that's system wide and it's not just kiosk that's driving that it is you know a blend of higher retention. It's a you know <unk> of what we're doing on the scheduling side kiosk is certainly a little bit of a health, but we're definitely and learning more and more as to what he asked can bring us in terms of labor savings as we drive.
Deeper chios adoption across our tech base.
Our next question is from Jeff Farmer with Gordon Haskell. Please proceed great. Good morning, and thank you have a follow up in a question. So just following up on Michael's earlier question, which was one of the first on the earnings call you guys meet some huge strides or have made some huge drug driving them.
Proved restaurant local margins.
Long list of initiatives have helped to do that but.
As we look out into 2024, juicy additional opportunities to drive further improvement.
We're not gotten there just yet we're always looking for further improvement we are well, let's let's let's celebrate for a moment to being up 240 basis points from last year and looking ahead at our guards being significantly up from the guide for the order for next year from last year. So we'll start there were continually committed.
If you if you hear our comments on strategic plan towards improving our restaurants overall profitability cost to build in the metrics that we use so we'll keep you posted on what twenty-four looks like as we get closer to that ear.
And our final question if from Brian Vaccaro with Raymond James. Please proceed.
Alright, yeah. Thank you I just want one last big picture question, and I guess, it's tied to the mix a little bit as well, but I I guess as you've expanded into new markets and you're reaching a different consumer in the suburbs. Randy you know maybe some that are a little older a different stage of life, you know more modest income levels.
Have you I'm just curious what you've learned about the brand and any differences you've noticed in customer perceptions around value quality anything along those lines and and and just how you're sort of adjusting or plan to adjust your strategy. You'll go forward brand proposition et cetera, as you adapt to some of those differences.
Yeah, that's great we think about that a lot big picture longterm. It. It goes back to look at what I said earlier, our when we have strong brand awareness and I'm very many markets, where we do we generally tend to capture all types. All the time strong a V. As strong checks right where are we enter with <unk> lesser brand.
Awareness and consideration we've got more work to do in those take time or evidence for US has shown that over time, we continue to build that and build that bill that is really strong, but we're we're we're not immune to opening in a place where people don't really notice. So what do we do with that a couple of things, we've gotten better and better and our pricing when you think about the geographic.
Charity of our pricing and our ability to take price and our more expensive, but also higher brand awareness markets. We generally tend to take more price there were generally more cautious in those lower bandwidth. So we think having the right price having the right opportunity is is is really important as we look across shock.
But we've also got optimize other costs and the restaurants right and we've been able to do that on down the line and you're seeing that in in the improvement I think what's always amazing to me even almost 500 checks in it is journey is that you know even when we open in four shacks in Texas in the last two months all drive throughs.
It's amazing to me, how many people come out celebrate with us and and really continue to start with a bang and I think that says something for the continued probably stronger than ever brand, we have but you've you're hearing me acknowledged loud and clear that we've got also build right where it was the other thing we we haven't.
Done a lot of in the history of company, we've never really done traditional mass media advertising. We've done a lot of you know local shake shack style guerilla marketing, if you will and in the coming years and you'll see this probably next year, we're gonna commit to increasing our overall marketing spending so.
That we can drive brand awareness and drunk all kinds of guests in the places where you talked about but but broadly when you can when you can execute a 21% operating profit. There's few restaurant companies in this country that have ever done that and for us to do that a scale in this quarter I think that's where we added and and I hope that's the note that.
People here a lot going forward as we've grown sales as we are materially growing. This company, we are profitable growth company and it's it's really exciting time for us so.
With that Ah operator, I think we finished the questions I just want to say, thank you to everybody on the call and we look forward to being a touch thanks.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
[music].
Mmm.
[noise] [music].