Q4 2023 Shake Shack Inc Earnings Call

Operator: Greetings and welcome to Shake Shack's fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the Shake Shack fourth quarter 2023 earnings call. At this time, all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Arilio, Senior Financial Planning and Analysis Investor Relations. Thank you, sir. You may begin. Thank you, and good morning, everyone.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Michael <unk> Senior financial planning and analysis and Investor Relations. Thank you Sir you may begin.

Michael: Thank you and good morning, everyone. Joining me for Shake Shack Conference call is our CEO, Randy <unk> and CFO Katy Huberty during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for.

Michael Arilio: Joining me for today's conference call is our CEO, Randy Garutti, 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. However, the presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Results prepared in accordance with GAAP reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter.

Michael Arilio: Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. 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 23, 2023, and our other filings with the SEC, including our Form 8-K filed this morning. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our fourth quarter 2023 shareholder letter, which can be found at Investor. ShakeShack.com in the quarterly results section or as an exhibit to our AK for the quarter. We filed an A.K. this morning related to a correction the company identified and brought to its auditors, primarily regarding how the company has accounted for elements of tax depreciation. These errors led to overstatements of income tax expense and understatements of deferred tax assets during the impacted period.

Michael: 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 23, 2023, and our other filings with the SEC, including our form 8-K filed this morning any forward looking statements represent our views only as of today.

Michael: And we assume no obligation to update any forward looking statements if our views change.

Michael: By now you should have access to our fourth quarter 2023 shareholder letter, which can be found at investor Dot Shake Shack Dot com in the quarterly results section or as an exhibit to our 8-K for the quarter we.

Michael: We filed an 8-K this morning related to a correction the company identified and brought to its auditors primarily regarding how the company has accounted for elements of tax depreciation.

Michael: These errors led to Overstatements of income tax expense and understatement of deferred tax assets during the impacted periods.

Michael Arilio: The unaudited amount of the overstatement of prior year non-cash gap income tax expense for fiscal 2021 and 2022, as well as an opening adjustment to the retained earnings balance in fiscal 2021 that is related to prior periods to 2021, can be found in the 8K. We will provide additional details in our upcoming 10K filing, which we expect to be filed on time. I will now turn the call over to Randy. Thanks, Mike. And good morning, everyone.

Michael: Unaudited amount of the overstatement of prior year non cash GAAP income tax expense for fiscal 2020, one and 2022 as well as an opening adjustment to retained earnings balance in fiscal 2021 that is related to prior periods to 'twenty 'twenty. One can be found in the 8-K, we will provide additional details in our.

Michael: Coming 10-K filing, which we expect to be filed on time I will now turn the call over to Randy Thanks, Mike and good morning, everyone I want to congratulate our teams on an exceptional 2023.

Randall J. Garutti: I want to congratulate our teams on an exceptional 2023. This year marked transformative milestones and substantial profitable growth, building upon our already solid foundation for the long-term opportunity ahead. We grew system-wide sales by 24% year-over-year to a record $1.7 billion. We opened 85 total restaurants, the most ever in a single year.

Randy: This year marked a transformative milestones it's substantial profitable growth building upon our already solid foundation for the long term opportunity ahead.

Randy: Screw system wide sales by 24% year over year to a record $1 7 billion. We opened 85 total restaurants, the most ever in a single year.

Randall J. Garutti: Ending 2023 with 518 Shake Shacks across the world, we grew Shack sales by 20% to over $1 billion with 4.4% same store sales growth and a strong class of 41 domestic company-operated restaurants. In just the past four years, we've nearly doubled our footprint, system-wide sales, and total revenue. We have a robust pipeline of opportunities going forward. Importantly, we grew our Shack-level operating profit even faster than our total revenue, expanding restaurant margin by 240 basis points year-over-year to nearly 20%, growing Shack-level operating profit by 37% year-over-year.

Randy: And in 2023 with 518 shake shacks across the World. We grew shack sales by 20% to over $1 billion with four 4% same shack sales growth and a strong class of 41 domestic company operated restaurants in just the past four years, we've nearly doubled our footprint systemwide sales in total.

Revenue, we have a robust pipeline of opportunities going forward.

Randy: Importantly.

Randy: We grew our shack level operating profit even faster than our total revenue expanding restaurant margin by 240 basis points year over year to nearly 20% growing shack level operating profit by 37% year over year with this and 110 basis points of leverage in our G&A, excluding onetime adjustments, we delivered over 80%.

Randall J. Garutti: With this and 110 basis points of leverage in our G&A, excluding one-time adjustments, we delivered over 80% improvement in our adjusted EBITDA to $131.8 million and the end of 2023 with strong momentum in the fourth quarter. Our marketing strategy is delivering positive traffic, and our operational focus is achieving further margin expansion. We executed our five strategic priorities for 2023, and I want to wrap up how we performed for the year across each of these priorities.

<unk> and our adjusted EBITDA to $131 million.

Randy: We ended 2023 with strong momentum in the fourth quarter.

Randy: Our marketing strategy is delivering positive traffic and our operational focus achieving further margin expansion.

Randy: We executed our five strategic priorities for 2023, and I'm going to wrap up how we performed for the year across each of these priorities first.

Randy: Crude and rewarding and retaining a winning team at the beginning of 2023 staffing pressures where material were negatively impacting sales profit guest experience with throughout the year, we improve staffing and retention to the best levels. We've seen in years, she had a direct tie to our stronger labor and restaurant level margin performance.

Randall J. Garutti: At the beginning of 2023, staffing pressures were material. They were negatively impacting sales, profit, and the guest experience. But throughout the year, we improved staffing retention to the best levels we've seen in years, which had a direct tie to our stronger labor and restaurant-level margin performance. Second, we focused on the guest experience. We rolled out kiosks to nearly all our domestic company-operated shacks, a full quarter ahead of expectations, seeing a high single-digit checklist on kiosk shadow versus the traditional cashier experience.

Randy: We focused on the guest experience rolled out kiosks in nearly all of our domestic company operated shacks, a full quarter head of expectations, we're seeing a high single digit check lift on kiosk channel versus the traditional cashier experience. We also made material improvements to how our guests can order through this channel we advanced our commitments culinary innovation our competitive strength.

Randall J. Garutti: We also made material improvements to how our guests can order through this channel. We advanced our commitment to culinary innovation, a competitive strength of Shake Shack, with improvements to our core menu, as well as exciting LTOs including White Truffle Burgers, top-selling Spicy Fries, and a return of Bourbon Bacon Jam. We also forwarded learnings towards future strategies as we are testing combo meals for the first time at drive-thrus and looking to increase dessert occasions through the mini shake and sundae test. Number three, in a targeted development strategy this year, we opened 85 shacks across the globe in 2023, including 18 domestic drive-thrus and our first international licensed drive-thrus in Mexico and Dubai. We launched the two new markets in the Bahamas and Bangkok, the Bahamas also being a new format, our first ever hotel resort shack with a full bar.

Randy: Shake shack with improvements to our core menu.

Randy: As well as exciting L T O us, including White truffle burgers top selling spicy fries and a return of Bourbon Bacon Jam.

Randy: We also forwarded learnings towards future strategies as we were testing combo meals for the first time at drive throughs.

Randy: And looking to increase dessert occasion through many shake and Sunday tests.

Randy: Three and a targeted development strategy. This year, we opened 85 shacks across the globe in 2023, including 18 domestic drive throughs and our first international license drive throughs in Mexico in Dubai.

Randy: We launched two new markets in the Bahamas, and Bangkok, Bahamas also being a new format, our first ever hotel resort, Jack with a full bar.

Randall J. Garutti: We built a solid foundation in development with prototype site designs that'll help us reduce our build costs in the coming years. And we know we have a lot more work to do here, especially on build costs and pre-opening, where we believe 2023 was the high water mark. Last year, we demonstrated meaningful improvement in the restaurant profit market, showed leverage across every Shack-level operating expense line item and drove 240 basis points of expansion for the year to nearly 20%. Importantly, we have line of sight to further margin expansion this year and in 2024. And finally, number five, our commitment to investing with discipline. We leveraged G&A, excluding one-time adjustments, by 110 basis points, and we grew adjusted EBITDA by over 80% to nearly $132 million.

Randy: Built a solid foundation in development with prototype site designs that'll help us reduce our build costs in coming years, and we know we have a lot more work to do here, especially on build costs and pre opening where we believe 2023 was the high watermark.

Randy: Last year, we demonstrated meaningful improvement in restaurant profit margins.

Randy: Showed leverage across every shack level operating expense line item and drove 240 basis points of expansion for the year to nearly 20%.

Importantly, we have line of sight to further margin expansion. This year in 2024, and finally number five our commitment to investing with discipline, we leverage G&A. Excluding one time adjustments of 110 basis points and we grew adjusted EBITDA by over 80% to nearly $132 million. Please.

Randall J. Garutti: We're pleased with our progress in 2023, and our teams are energized and building for what's ahead. Our leadership team has developed our 2024 strategic priorities to drive further profitable growth at Shake Shack with a clear line of sight to generating free cash flow, even while investing for a robust pipeline of growth. Our entire leadership team and the board are fully engaged, committed, and incentivized to continue execution in 2024. So today, I want to go a bit deeper on our new strategic priorities for this year. First,

Randy: Pleased with our progress in 2023, and our teams are energized and building for what's ahead. Our leadership team has developed our 2024 strategic priorities to drive further profitable growth at shake shack with a clear line of sight to generating free cash flow.

Randy: Even while investing for a robust pipeline of growth.

Randy: <unk> leadership team and the board are fully engaged committed and incentivized to continue execution in 2024. So today I want to go a bit deeper on our new strategic priorities for this year first.

Randall J. Garutti: We're committing to delivering a consistent guest experience. Shake Shack has always been differentiated from traditional fast food and fast casual in our food quality, in the look and feel of our shacks, and in the enlightened hospitality we provide our guests. In 2024, we're committed to delivering a great guest experience consistently across all channels. We have core KPIs for operations leadership. For the first time, we're targeting throughput improvement by reducing guest order times by roughly 30 seconds, and even more in our drive-through location.

We're committing to delivering a consistent guest experience.

<unk> has always been differentiated from traditional fast food and fast casual and our food quality and the look and feel of our shacks and an enlightened hospitality, we provide our guests in 'twenty 'twenty four we're committed to delivering a great guest experience consistently across all channels, we have core kpis for ops leadership.

Randy: For the first time, we're targeting throughput improvement by reducing guests order times by roughly 30 seconds and even more in our drive through locations will achieve this through new kitchen flows that will rollout through the year increased real time reporting new training urgency and gold focus while continuing to cook to order at the highest level.

Randall J. Garutti: We'll achieve this through new kitchen flows that will roll out through the year, increased real-time reporting, new training, urgency, and goal focus, while continuing to cook to order at the highest quality level in the burger industry. We believe this can grow sales, energize our teams, and improve guest sentiment. Thank you.

Randy: Quality of the Burger industry. We believe this can grow sales energize, our teams and improve guest sentiment.

Randy: Second our plan this year is to grow sales and strengthen our brand awareness.

Randall J. Garutti: Our plan this year is to grow sales and strengthen our brand awareness. Shake Shack continues to build upon our global brand appeal. We've nearly doubled our footprint since 19, but we believe we're still early in our growth journey at just a small fraction of the scale that our competitors have. And yet, we know that we still have a massive opportunity to increase our brand awareness. As we scale, we're leading into new and expanded marketing, brand partnerships, and additional spending opportunities that are demonstrating success. Our advertising spend, at roughly 1% of sales, is a fraction of many of our peers.

Randy: Shake Shack continues to build upon our global brand appeal.

Randy: Nearly doubled our footprint since 19, but we believe we are still early in our growth journey. That's just a small fraction of the scale of our competitors have and yet we know that we still have a massive opportunity to increase our brand awareness as we scale, but we think it's a new and expanded marketing brand partnerships and additional spending opportunities that are demonstrating success.

Randy: Our advertising spend at roughly 1% of sales is a fraction of many of our peers and we know we can and will invest with success here moving forward.

Randall J. Garutti: We know we can and will invest with success here moving forward. We've improved our overall profitability, increased our scale. We are able to unlock additional funds for advertising this year, and we'll do so with data-driven discipline. On development, we plan to open approximately 40 company-operated shacks and approximately 40 licensed shacks this year in 24.

Randy: As we've improved our overall profitability increased our scale, we are able to unlock additional funds for advertising this year and will do so with data driven discipline.

Randy: On development plan to open approximately 40 company operated shacks and approximately 40 licensed shacks this year and 24, expanding our footprint is key to driving sales and strengthening our brand awareness.

Randall J. Garutti: Expanding our footprint is key to driving sales and strengthening our brand awareness. In 2024, the majority of our company-operated openings will be in existing markets across a variety of formats. We'll also be continuing our license shack development by going deeper into domestic airports, roadsides, and deepening international expansion in a new and existing market. Karen

Randy: In 2020 for the majority of our company operated openings will be in existing markets across a variety of formats will also be continuing our licensed shack development by going deeper in domestic airports roadsides and deepening international expansion into new and existing markets third.

Randall J. Garutti: We're going to make Shake Shack more profitable. In 2023, we will improve restaurant-level margins by 240 basis points to approximately 20%. We plan to further margin expansion in 2024 with our next goal of reaching 20 to 21% shack-level operating profit margin, continuing our work to close the gap to our pre-COVID profitability level. Katie will share more, but our main strategies for improving forward margins and lowering total cost to serve involve work on supply chain and operational efficiency. Many of these initiatives are things that we identified in prior years, such as increasing the number of suppliers as we scale, optimizing our freight, and improvements in labor scheduling and deployment. We've also engaged an external consultant to help find additional.

Randy: Shake shack more profitable.

Randy: In 2023, we improved restaurant level margins by 200 face 40 basis points to approximately 20%. We plan to further margin expansion in 2024 with our next goal of reaching 20%, 21% shack level operating profit margin continuing our work to close the gap to our pre COVID-19 profitability levels can you share more but our main strategy.

Randy: <unk> on improving four wall margins in lowering total cost to serve.

Randy: I'll work on supply chain and operational efficiencies.

Randy: These initiatives are things that we identified in prior years, such as increasing the number of suppliers as we scale optimizing optimizing our freight and improvements in labor scheduling and deployment.

Randy: You've also engaged an external consultant help find additional opportunities and we will also look to leverage G&A, while continuing to invest more in advertising and for the future growth of our business.

Randall J. Garutti: We will also look to leverage GNA while continuing to invest more in advertising and for the future growth of our business. Fourth, we're going to continue to improve how we build an open shack. We believe 23 was the high-water mark for our build and pre-opening costs as we dealt with inflation, supply challenges, and a higher mix of more capital-intensive drive-throughs. This year, we've prioritized our commitment to reducing average net build and pre-opening costs by about 10%. The team has begun to employ early prototype improvements to future shacks as a phase one approach and will be doubling down further this year to capture additional savings over time. Some of this work necessarily caused us to slow down the timing of the 2024 pipeline, and that will cause a back-weighted opening schedule this year.

Randy: Fourth we're going to continue to improve how we build an open shacks.

Randy: Believe 23 was the high watermark for our build and Preopening costs as we dealt with inflation supply challenges and a higher mix of more capital intensive drive throughs.

Randy: This year, we prioritize our commitment to reducing average net build in preopening cost by about 10%. The team has begun to employee early prototype improvements to future shacks into phase one approach it will be doubling down further this year to capture additional savings over time.

Randy: Some of this work necessarily caused us to slow down timing of the 2024 pipeline.

Randy: That will cause a back weighted opening schedule this year.

Randall J. Garutti: But as that work takes hold, we'll begin to see more impact in 2025 as we roll out improved prototypes and a strong pipeline of Shacks in the years ahead. And lastly, we will continue to develop and reward our high-performing teams. Our people have always been and will always be the core focus.

Randy: Is that where it takes hold and begin to see more impact in 2025, as we rollout improved prototypes and a strong pipeline of shacks in the years ahead.

Randy: And lastly, we will continue to develop and reward our high performing teams or people have always been and will always be a key.

Katie Fogarty: High-performing teams help fuel the success we drove this year, and we expect to drive in 2024. Looking ahead, we'll continue to invest in our teams to increase wages, training opportunities, enhance recruitment with AI-enabled recruiting tools, and retention practices to optimize their experience and ultimately drive the business. Now, I'll turn the call over to Katie to recap more of 23 and provide our initial outlook for 2024. Thanks, Randy. And good morning, everyone.

Randy: We're focused high performing teams helped to fuel the success, we drove this year and we expect to drive in 2024.

Randy: You're ahead, we'll continue to invest in our teams to increase wages training opportunities enhance recruitment with AI enabled recruiting tools and retention practices to optimize their experience and ultimately drive the business now I'll turn the call over to Katie to recap more of a 'twenty three and provide our initial outlook for 2024.

Katie: Thanks, Randy and good morning, everyone. The past year with here at solid profitable growth as we have 240 basis points and shack level operating profit margin expansion in the year building up to approximately 20% further closing the gap to pre COVID-19 profitability levels and growing shack level operating profit by nearly 40% year.

Katie Fogarty: The past year was a year of solid profitable growth as we drove 240 basis points of shack level operating profit margin expansion in the year, building up to approximately 20%, further closing the gap to pre-COVID profitability levels, and growing shack level operating profit by nearly 40% year over year to a record of $208.2 million. We did this by successfully implementing our profitability improvement programs in our restaurants and home office, including better forecasting and labor scheduling and other operational and total cost to serve initiatives. And with our commitment to investing with discipline, we levered our G&A excluding one-time adjustments by 110 basis points while still prioritizing advertising and marketing investments. And we grew Adjusted EBITDA by more than 80% year-over-year to a record of $131.8 million.

Katie: Year over year to a record $208 2 million.

Katie: We did this by successfully implementing our profitability improvement programs in our restaurants, and home office, including better forecasting and labor scheduling and other operational and total cost to serve initiatives and with our commitment to investing with discipline, we elaborate our G&A, excluding one time adjustment by 110 basis points, while still prioritizing.

Katie: Advertising and marketing investments and we grew adjusted EBITDA by more than 80% year over year to a record at $131 8 million.

Katie Fogarty: We ended the year on an optimistic note for the fourth quarter with solid execution against marketing and operational strategies that drove strong sales growth with positive traffic and solid flow. And as a result, we were more profitable despite continued inflationary pressures. Fourth quarter total revenue was $286.2 million, up 20% year-over-year, as we opened 24 company-operated and licensed units and grew system-wide sales approximately 21%. Licensing revenue was $10.5 million in the fourth quarter, and licensing sales were $166.4 million, up 24% year-over-year, and with particular strength in our airport and domestic locations and nine open, We face geopolitical pressures in the Middle East and And in both markets, we expect to experience further volatility in our sales for the foreseeable future. Shack sales in the fourth quarter were $275.8 million, growing nearly 20% year over year, supported by opening 15 domestic company-operated shacks and driving strong same-shack sales with positive traffic through our marketing strategy.

Katie: We ended the year on an optimistic note for the fourth quarter with solid execution against marketing and operational strategies that drove strong sales growth with positive traffic and solid flow through and as a result, we were more profitable despite continued inflationary pressures.

Katie: Fourth quarter total revenue was $286 2 million up 20% year over year as we opened 24 company operated and licensed unit angry with system wide sales approximately 21%.

Katie: Licensing revenue was $10 5 million in the fourth quarter and licensing sales were $166 4 million up 24% year over year, and with particular strength in our airport and domestic locations and nine opening we faced geopolitical pressures in the middle East and continue to see macroeconomic pressures in China and in both markets.

Katie: We expect to experience further volatility in our sales for the foreseeable future.

Katie: <unk> sales in the fourth quarter were $275 8 million growing nearly 20% year over year supported by opening 15 domestic company operated shacks and driving strong same shack sales with positive traffic through our marketing strategies.

Katie Fogarty: Our sales outperformed historical seasonality throughout the whole quarter, and all of our regions saw sequential traffic improvement since the third quarter. We grew Same Shack sales by 2.8% versus 2022, with traffic up 1.4%, which accelerated through the quarter, driven by the success of our strategic marketing initiative, as well as approximately 1.4% price mix. We generated 76,000 average weekly sales, up from 74,000 in the third quarter, with mid-single digit price and positive traffic across both in-check and digital channels. In the fourth quarter, Shack-level operating profit was $54.6 million, or 19.8% of Shack sales, 80 basis points higher versus last year, despite continued inflationary pressures across our Shack P&L. And we achieved this with our strong sales performance and strategic initiatives around food costs, labor, and other operational costs driving strong flow-through. In the fourth quarter, food and paper costs were $80.3 million, or 29.1% of Shack sales, flat quarter-over-quarter, and down 40 basis points year-over-year. Food and paper inflation was up mid-single digits year-over-year, led by beef up mid-teens and fries up high-single digits, with pressures broadly across our basket.

Katie: Our sales outperformed historical seasonality throughout the whole quarter and all of our regions saw sequential traffic improvement since the third quarter.

Katie: We grew our same shack sales by two 8% versus 2020 with traffic up one, 4%, which accelerated through the quarter driven by success of our strategic marketing initiatives as well as approximately one 4% price net lease.

Katie: We generated 76000 and average weekly sales up from 74000 in the third quarter with mid single digit price and positive traffic across both in shack and digital channel.

Katie: Fourth quarter Shack level operating profit was $54 6 million or 19, eight 8% of shack sales 80 basis points higher versus last year. Despite continued inflationary pressures across our shop, you know and we achieved this with our strong sales performance and strategic initiatives and food cost labor and other opex driving strong flow through.

Katie: And the fourth quarter food and paper costs were $80 3 million or 29, 1% of shack sales flat quarter over quarter and down 40 basis points year over year food and paper inflation was up mid single digits year over year led by beef up mid teens and price up high single digits with pressures broadly across our basket.

Katie Fogarty: Labor and related expenses were $78.6 million, or 28.5% of Shack sales, down from 28.9% in the fourth quarter of 2022 and down 30 basis points quarter over quarter. With increased sales and positive traffic, the benefits from our strategic initiatives, including improved forecasting and labor scheduling, drove strong flow through on our better sales. Late in the fourth quarter, we implemented the first round of tests of our new labor modules.

Katie: Labor and related expenses were $78 6 million or 28, 5% of shack sales down from 28, 9% in the fourth quarter of 2022, and down 30 basis points quarter over quarter with increased sales and positive traffic the benefits from our strategic initiatives, including improved forecasting and labor scheduling drove strong flow through on our by herself.

Katie: Yeah.

Katie: Late in the fourth quarter, we implemented the first round of test of our new Labor model now as a reminder, this new scheduling scattered leverages the unique characteristics of a shack in terms of channel and menu mix to enhance deployment will take away. There is still early we are pleased with the initial results from this test and expect to expand it to additional shacks in the first quarter with the potential to rollout broadly later this.

Katie Fogarty: Now, as a reminder, this new scheduling standard leverages the unique characteristics of a shack in terms of channel and menu mix to enhance deployment. While takeaways are still early, we are pleased with the initial results from this test and expect to expand it to additional shacks in the first quarter, with the potential to roll out broadly later this year. Other operating expenses were $41.1 million, or 14.9% of Shack sales, up 30 basis points from the fourth quarter of 2022, as we face increased repairs and maintenance expenses, a higher delivery sales mix, and continued inflationary pressures in energy and utilities. Occupancy and related expenses were $21.2 million, or 7.7% of Shack sales, down 20 basis points from the fourth quarter of 2022, driven by sales levels. G&A was $35.8 million, or 12.5% of total revenue.

Katie: Sure.

Katie: Other operating expenses were $41 1 million or 14, 9% of shack sales up 30 basis points from the fourth quarter of 2022, as we faced increased repairs and maintenance expenses, a higher delivery sales mix and continued inflationary pressures in energy and utilities.

Katie: Occupancy and related expenses were $21 2 million or seven 7% of shack sales down 20 basis points from the fourth quarter of 2002, driven by sales leverage.

Yeah.

Katie: G&A was $35 8 million or 12, 5% of total revenue excluding $900000 in one time adjustment G&A was $34 9 million or 12, 2% of total revenue down 130 basis points from 13, 5% of total revenue in the prior year. Despite continued investments needed to support our growth.

Katie Fogarty: Excluding $900,000 in one-time adjustments, G&A was $34.9 million, or 12.2% of total revenue, down 130 basis points from 13.5% of total revenue in the prior year, despite continued investments needed to support our growth across technology, marketing, and operations. We ended 2023 with $125.1 million in GNA, adjusted for legal settlements, professional fees, and other one-time expenses. Pre-opening costs were $5.1 million in the quarter as we opened 15 new company-operated shacks, and depreciation was $24.5 million. On a gap basis, in the quarter, we reported a pre-tax income of $1.5 million and a tax benefit of $5.3 million. On an adjusted pro forma basis, we reported a pre-tax income of $2.4 million and a tax expense of $1.4 million. Excluding the tax impact of equity-based compensation, our adjusted pro forma tax rate in the fourth quarter was 55%.

Katie: Across technology marketing and operations, we ended 2023 with $125 1 million in G&A adjusted for legal settlements professional fees and other one time expenses.

Katie: Preopening costs were $5 1 million in the quarter as we opened 15, New company operated shacks and depreciation was $24 5 million.

Katie: On a GAAP basis in the quarter, we reported a pre tax income of $1 5 million and a tax benefit of $5 3 million on an adjusted pro forma basis, we reported a pretax income of $2 4 million net tax expense of $1 4 million.

Katie: Excluding the tax impact of equity based compensation, our adjusted pro forma tax rate in the fourth quarter with 55% adjustments can be found on page 30 of the shareholder letter.

Katie: We reported fourth quarter, adjusted EBITDA of $31 4 million up approximately 6% year over year or 11% of total revenue, marking a significant improvement relative to 8% of total revenue in the fourth quarter of 'twenty two and for the full year of 2023, we grew adjusted EBITDA by over 80% to 131 $8 million or.

Katie Fogarty: Adjustments can be found on page 30 of the shareholder letter. We reported fourth quarter adjusted EBITDA of $31.4 million, up approximately 60% year over year, or 11% of total revenue, marking a significant improvement relative to 8% of total revenue in the fourth quarter of 2022. And for the full year of 2023, we grew adjusted EBITDA by over 80% to $131.8 million, or 12.1% of total revenue, 400 basis points higher than the prior year. We realized a net income attributable to Shake Shack Inc. of $6.8 million, or $0.15 per diluted share. On an adjusted pro forma basis, we reported a net income attributable to Shake Shack Inc. of $1 million, or $0.02 per fully exchanged and diluted share.

Katie: 12, 1% of total revenue 400 basis points higher than the prior year.

Katie: We realized a net income attributable to shake Shack, Inc of $6 8 million or 15 cents per diluted share.

Katie: On an adjusted pro forma basis, we reported a net income attributable to shake Shack, Inc of $1 million or two cents per fully exchanged and diluted share.

Katie: Finally, our balance sheet is strong as we ended the quarter with $293 2 million in cash and cash equivalents and marketable securities of approximately $8 million from last quarter.

Speaker Change: Now onto guidance for the first quarter and full year of 2024.

Speaker Change: Our guidance assumes no material changes in the macroeconomic or geopolitical landscape and the potential impact of system wide sales for Clos.

Speaker Change: For the first quarter, we guide to total revenue of $288 4 million to $292 8 million with 9.4 to $9 8 million of licensing revenue approximately four company operated openings approximately two licensed shack openings and for same shack sales to be up low single digits year over year.

Katie Fogarty: And finally, our balance sheet is strong, as we entered the quarter with $293.2 million in cash and cash equivalents and marketable securities, up approximately $8 million from last quarter. Now on to guidance for the first quarter and full year of 2024. Our guidance assumes no material changes in the macroeconomic or geopolitical landscape and the potential impact of system-wide sales or costs. For the first quarter, we guide total revenue of $288.4 million to $292.8 million, with $9.4 to $9.8 million of licensing revenue, approximately four company-operated openings, approximately two licensed shack openings, and for same-shack sales to be up low single digits year-over- January same-shack sales were flat, with an approximate low single-digit headwind from unfavorable weather, as well as pressures from comparing over a particularly strong January 2023 average weekly sales that had a large benefit from a high number of shacks that we opened in the fourth quarter of 2022.

Speaker Change: January same shack sales were flat with an approximate low single digit headwind from unfavorable weather as well as pressures from comparing over a particularly strong January 2023 average weekly sales that had a large benefit from a high number of shacks that we opened in the fourth quarter of 2022.

Speaker Change: Outside of weather impacted weeks, though we thought that the underlying strength of our fourth quarter trends continued into January and while we're not providing specific numbers around February our trends have improved from January levels and our guidance reflects this.

Speaker Change: As we execute on our 2024 strategic plan, we are guiding to first quarter shack level operating profit margin of 19% to 19, 5%, representing approximately 70 to 120 basis points improvement year over year.

Speaker Change: And the first quarter, we are planning for low single digit year over year inflation in food and paper costs with pressures led by uncertainty in beef pricing the largest part of our basket for.

Speaker Change: For 2024, we are guiding total revenue of one point to 1212 5 billion growing about 11% to 15% year over year with approximately 40 company operated and 40 license openings both of which are back end weighted and same shack sales to grow by low single digits with low single digit realized price.

Katie Fogarty: Outside of weather-impacted weeks, though, we saw that the underlying strength of our fourth quarter trends continued into January. And while we're not providing specific numbers around February, our trends have improved from January levels, and our guidance reflects that. As we execute on our 2024 strategic plan, we are guiding to a first quarter shack level operating profit margin of 19 to 19.5 percent, representing approximately 70 to 120 basis points improvement year over year. In the first quarter, we were planning for low single-digit, year-over-year inflation in food and paper costs, with pressures led by uncertainty in beef pricing, the largest part of our backlog. For 2024, we are guiding total revenue of $1.21 to $1.25 billion, growing about 11% to 15% year-over-year, with approximately 40 company-operated and 40 licensed openings, both of which are back-end weighted, and same-check sales to grow by low single digits with a low single-digit realized price. Our pricing plans for this year are modest and consistent with our pre-COVID pricing patterns of low

Speaker Change: Our pricing plans for this year are modest and consistent with our pre COVID-19 pricing patterns of low single digits. We recently increased price in our digital channels and plan to take additional menu pricing areas with outside labor inflation, such as California, but for the majority of <unk>, we plan to increase in check menu prices by about 2.5% this year.

Speaker Change: We guide full year license revenue of 45% to $47 million up 11% to 15% year over year as we factor in a degree of continued macroeconomic and geopolitical risks the middle East and China, together, where approximately 40% of our total licensed unit and comprise a material amount of our 40 projected openings for 2024.

Speaker Change: We're targeting another year of restaurant margin expansion as we guide shack level operating profit margin to 20% to 21% as we focus on driving sales and delivering on continued operational improvement.

Speaker Change: The low end of this guidance range, while nearly flat year over year contemplates a weaker sales backdrop, we're seeing staff at staffing backdrop and the potential for even more elevated inflationary pressures in beef and other areas of the supply chain.

Katie Fogarty: We recently increased prices in our digital channels and plan to take additional menu prices in areas with outsized labor inflation, such as California. But for the majority of our shacks, we plan to increase in-shack menu prices by about two and a half percent this year. We guide full-year license revenue of $45 to $47 million, up 11 to 15% year-over-year, as we factor in the degree of continued macroeconomic and geopolitical risk. The Middle East and China together accounted for approximately 40% of our total licensed units and comprised a material amount of our 40 projected openings for 2024. We're targeting another year of restaurant margin expansion as we guide Shack-level operating profit margins to 20 to 21% as we focus on driving sales and delivering on continued operational improvement. The low end of this guidance range, while nearly flat year over year, contemplates a weaker sales backdrop, a worsening staffing backdrop, and the potential for even more elevated inflationary pressures in beef and other areas of the supply chain.

Speaker Change: We guide 2020 for G&A to $139 million to $142 million, which is up 11% to 14% year over year, driven by Atlanta large increase in advertising spending to drive greater brand awareness and sales while still having a disciplined approach to run rate G&A, we are increasing spend on areas of marketing, where we have had.

Speaker Change: High visibility in our return and will continue to closely monitor and adjust accordingly with changes to our business.

We expect approximately $18 million of equity based compensation expense was about $17 million in G&A.

Speaker Change: We guide full year depreciation of $100 million to $105 million and Preopening of approximately 17 million inline with our commitment to reduce preopening cost per shack by at least 10%.

Speaker Change: We guide to adjusted EBITDA of $160 million to $170 million in fiscal 2024. This represents 21% to 29% growth year over year and solidly outpacing total revenue guidance growth for 11% to 15%.

Speaker Change: And finally, the guide for fiscal year 'twenty for adjusted pro forma tax rate, excluding the impact of stock based compensation to be 20% to 25%. Our overall tax rate will be impacted by a number of factors, including our level of profitability tax credit state mix and other impacts. So thank you for your time and with that I'll turn it back to Randy.

Katie Fogarty: We guide 2024 G&A to 139 to 142 million, which is up 11 to 14% year over year, driven by a planned large increase in advertising spending to drive greater brand awareness and sales, while still having a disciplined approach to run rate G&A. We are increasing spend on areas of marketing where we have high visibility in our returns, and we'll continue to closely monitor and adjust accordingly with changes to our business. We expect approximately $18 million of equity-based compensation expense and about $17 million in G&A.

Randy: Thanks, Katie before we open up the call to Q&A I do want to give a brief update on behalf of our board of directors on the CEO search.

Randy: We're really fortunate that the role of CEO of Shake Shack is among the most exciting and biggest opportunities in the industry today.

Had enormous interest.

Randy: The Board search Committee is pleased with how the search is progressing and we're on target, we believe with expectations to transition leadership in the coming months.

Randy: I also want to announce today the company is promoting long tenured leader, Michael Clarke to President of our global license business, Michael has been leading our international and domestic license relationships. Since he joined the company 12 years ago. He's led one of the most nimble and innovative teams in the industry and we'll continue to chart. The course for this exciting and critical part of our growth ahead congrats.

Katie Fogarty: We guide full-year depreciation of $100 million to $105 million and pre-opening of approximately $17 million in line with our commitment to reduce pre-opening costs per shack by at least 10 percent. We guide adjusted EBITDA of $160 to $170 million in fiscal 2024. This represents 21 to 29% growth year over year and solidly outpacing total revenue guidance growth of 11 to 15%. And finally, the guide for fiscal year 24 adjusted pro forma tax rate, excluding the impact of stock-based compensation, is expected to be 20 to 25 percent.

Randy: So Michael and to all of our partners around the globe.

Randy: In the meantime, I remain deeply committed to executing against our strategic priorities to deliver profitable growth in the year ahead and ensure a seamless transition for my successor.

Randy: Most of the confidence of our seasoned leadership team and never been more optimistic about <unk> potential as we build upon this last year's success and enter 2024 with that operator. Thank you and let's go ahead and open up the call for questions.

Katie Fogarty: Our overall tax rate will be impacted by a number of factors, including our level of profitability, tax credit, state mix, and other impacts. So thank you for your time, and with that, I'll turn it back to Randy. Thanks, Katie. Before we open up the call to questions and answers, I do want to give a brief update on behalf of our board of directors on the CEO search. We are really fortunate that the role of CEO of Shake Shack is among the most exciting and biggest opportunities in the industry today. We've had enormous interest. The board search committee is pleased with how the search is progressing, and we're on target, we believe with expectations to transition leadership in the coming months. I also want to announce that today the company is promoting long-tenured leader Michael Clark to president of our global licensed business. Michael has been leading our international and domestic license relationships since he joined the company 12 years ago.

Speaker Change: Thank you.

Speaker Change: At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue. We ask that you limit yourself to one question and a follow up so the others may have the opportunity to ask questions.

<unk> using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Our first question comes from Brian Vaccaro with Raymond James. Please proceed with your question.

Brian Vaccaro: Thank you and good morning, you noted that average weekly sales through the fourth quarter exceeded your normal seasonality and you attributed some of that to your strategic advertising initiatives can you elaborate on the levers that you're pulling there is that mainly focused on markets with lower awareness and kind of any way to frame.

Randall J. Garutti: He's led one of the most nimble and innovative teams in the industry and will continue to chart the course for this exciting and critical part of our growth ahead. Congratulations to Michael and to all of our partners around the globe. In the meantime, I remain deeply committed to executing against our strategic priorities to deliver profitable growth in the year ahead and ensure a seamless transition for my successor. I have the utmost confidence in our seasoned leadership team and have never been more optimistic about Shake Shack's potential as we build upon this year's success and enter 2024. With that, operator, thank you, and let's go ahead and open up the call for questions. Thank you. At this time, we will be conducting a question. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate that your line is in the question. You may press star 2 if you would like to remove your question.

Brian Vaccaro: What percentage of your units you would you would classify as lower awareness and the sales improvement you're seeing behind some of those initiatives.

Speaker Change: Thanks, Brian Yeah, I mean listen first of all want to come back to the point I made overall, we have a big opportunity here to continue to expand this as we scale I think it's important to continue to name listen we're not big enough yet to capture the kind of scale that we'd love to have a Super Bowl commercial someday right.

Speaker Change: Not there yet, but there'll be a day, where that can happen today, we've got a test and learn into the strategies that we're getting a strong return on so when you think about what we've done we started talking about this last quarter and do some of this in the third quarter.

Speaker Change: There's a bunch in the fourth we will continue to do that lots of things happening. There's a few kind of lower brand awareness.

Speaker Change: Markets, where we did employ various media test most of what we're doing is increasing our one to one performance marketing efforts that we're getting smarter every day.

Operator: We ask that you limit yourself to one question and a follow-up so that others may have the opportunity to ask. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions. Our first question comes from Brian Vaccaro with Raymond James. Please proceed with your question. Thank you, and good morning. You noted that average weekly sales through the fourth quarter exceeded your normal seasonality, and you attributed some of that to your strategic advertising initiatives. Can you elaborate on the levers that you're pulling there?

Speaker Change: <unk> raised on some of our marketing efforts there, we're just getting a better connection directly to our guests we're doing various really fun brand partnerships things like our partnership with trolls. The movie in the fourth quarter and other things that continue on down the line that we use our colder temperature to do we.

Speaker Change: We also are doing things in our own channels. If you saw we did a promotion with a chicken dance if anybody in the NFL does a chicken dance, we were gonna do free chicken shacks in our App. So that there's a couple of others like that drove a lot of traffic to our channels, which really like we also do things with third party.

Randall J. Garutti: Is that mainly focused on markets with lower awareness, and is there any way to frame what percentage of your units you would classify as lower awareness and the sales improvement you're seeing behind some of those initiatives? Thanks, Brian. Yeah, I mean, listen. First of all, I want to come back to the point I made overall.

Speaker Change: DSP is from time to time to promote those channels, where we see a good return so all kinds of different things right. Now for instance, we're doing three Fridays right through.

Randall J. Garutti: We have big opportunities here to continue to expand this as we scale. I think it's important to continue to name, listen. We're not big enough yet to capture the kind of scale that we'd love to have a Super Bowl commercial someday, right? We're just not there yet, but there'll be a day when that can happen.

Speaker Change: Six seven week period in this time of year.

Speaker Change: That captures what we love about that is it captures rguest it drives frequency it kind of helps lapsed guests in the app.

Randall J. Garutti: Today, we've got to test and learn into the strategies that we're getting a strong return on. So when you think about what we've done, we started talking about this last quarter and did some of this in the third quarter. We did a bunch in the fourth, and we'll continue to do that. Lots of things happening. There are a few kind of lower brand awareness markets where we did employ various media tests.

Speaker Change: Gopher in order and within all of that my final point is we've been really happy to see that these things not only accretive to sales, but also a profit when we do things like that we're not seeing we're not doing them to lose profit we're doing them with with positive profit gains so really happy to see it and I think the main.

Randall J. Garutti: Most of what we're doing is increasing our one-to-one performance marketing efforts that we're getting smarter every day. We use Braze for some of our marketing efforts there. We're just getting a better connection directly to our guests. We're doing various really fun brand partnerships, things like our partnership with Trolls, the movie in the fourth quarter, and other things that continue on down the line that we use our culinary template to do. We are also doing things on our own channels. If you saw, we did a fun promotion with a chicken dance. If anybody in the NFL did a chicken dance, we were going to give out free chicken shacks in our app.

Speaker Change: We want you to take away is as we increase that.

Speaker Change: To some extent this year will keep testing and learning and new strategies and all kinds of markets to see where it hits best So we've got a lot of opportunity ahead and the marketing team is is setup to fire a lot this year.

Speaker Change: Alright, that's great and then sorry, if I missed it but can you level set where it was advertising spend in 2023 and what's embedded in your guidance kind of ballpark and what's in guidance and advertising for 2024.

Speaker Change: Yeah, so you're going to get the 2023 number in the 10-K, so I don't want to front run that but what I will say is that our guidance is.

Randall J. Garutti: So that and a couple others like that drove a lot of traffic to our channels, which we really like. We also do things with third-party DSPs from time to time to promote those channels where we see a good return. All kinds of different things.

Speaker Change: The material step up in our underlying G&A or advertising spend and what's really important is that you know taking out that that increase in advertising. We are showing continued discipline and leverage on our kind of underlying run rate G&A and so it's been great to be able to see.

Randall J. Garutti: Right now, for instance, we're doing free Fridays for about a six, seven-week period this time of year. What we love about that is it attracts our guests. It drives frequency.

Randall J. Garutti: It kind of helps lapsed guests in the app go for an order. And within all of that, my final point is, we've been really happy to see that these things are creative for sales but also for profit. When we do things like that, we're not doing them to lose profit. We're doing them with positive profit gains. So we're really happy to see it.

Speaker Change: Drive increased profitability here and also be able to unlock them you know that that really powerful source of funds to help drive the future growth of the company.

Speaker Change: Great and if I could just ask one quick follow up on the topic of throughput obviously.

Randall J. Garutti: And I think the main point we want to take away is as we increase that to some extent this year, we'll keep testing and learning new strategies in all kinds of markets to see where it hits best. So we've got a lot of opportunity ahead, and the marketing team is set up to fire a lot this year. All right, that's great.

Speaker Change: The time to get your food and average ticket times is really important to the guest experience and being consistent on that metric. I think you said you are looking at you're targeting a 32nd improvement with even more in the drive through but can you level set what your average ticket time is today any perspective on how that's trended over time or perhaps how.

Katie Fogarty: And sorry if I missed it, but Katie, can you level set where advertising spend will be in 2023? And what's embedded in your guidance, a kind of ballparking what's in guidance and advertising for 2024? Yeah, so you're going to get the 2023 number in the 10K, so I don't want to front-run that, but what I will say is that our guidance assumes a material step-up in our underlying GNA, or advertising spend. And what's really important is that, you know, taking out that increase in advertising, we are showing continued discipline and leverage on our kind of underlying run rate GNA. So it's been great to be able to, you know, see, you know, drive increased profitability here and also be able to unlock that really powerful source of funds to help drive the future growth of the company.

Variable across the country just to help us frame the opportunity on that thank you. Yeah. We haven't really really specific numbers on that we generally said over time, it's been this sort of six to eight minute ticket times as we took fresh to order over time, it's really not a regional question. It's more of a volume question, obviously when your busier, sometimes those times extend.

Speaker Change: Our goal for this year is consistency and continuing to improve and be relied upon.

Speaker Change: At her for what our guests can expect so that's the goal we've set out there our ambitious target for our teams to to knock 30 seconds off the average order over the course of this year, that's going to take time, it's not tomorrow. This will be through the year as we go and as we kind of exit the year, that's really been our bogey.

Speaker Change: Thank you.

Speaker Change: Thank you Peter.

Speaker Change: Operator, the questions to two one because we have a lot of people on the line. So thank you.

Speaker Change: Yes.

Speaker Change: Yeah.

Randall J. Garutti: And if I could just ask one quick follow-up on the topic of throughput. Obviously, the time to get your food and average ticket times is really important to the guest experience, and being consistent on that metric. I think you said you're looking at, you're targeting a 30-second improvement with even more in the drive-through. But can you give us an idea of what your average ticket time is today, any perspective on how that's trended over time, or perhaps how variable across the country, just to help us frame the opportunity on that? Thank you. You know, we haven't really released specific numbers on that. We've generally said over time it's been this sort of six to eight-minute ticket time as we cook fresh to order over time. It's really not a regional question. It's more of a volume question.

Speaker Change: Our next question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia: It was actually really excited to hear about the initiatives on through but you know I'm one of those people who would love to get people on faster. So I definitely appreciate that I'm sure you have a lot of unmet demand can you talk about the labor modules that you tested I think that a few locations in the fourth quarter and is that the same as what you saw.

Sharon Zackfia: Talking about with new kitchen, close and kind of the timing of real time reporting and what that kind of looks like at the unit level. Thanks.

Sharon Zackfia: Sure itself with its win with Randy but on the labor module side.

Sharon Zackfia: They're these are two different things, how we flow our food to go our kitchens is very different than how we're thinking about them kind of being a better and more bespoke deployment.

Randall J. Garutti: Obviously, when you're busier, sometimes those times extend. Our goal for this year is consistency and to continue to just improve and be relied upon better for what our guests can expect. So that's the goal we've set out there, an ambitious target for our teams to knock 30 seconds off the average order over the course of this year. That's going to take time. It's not tomorrow.

You know over the course of Shake Shack history as I'm sure you followed we've evolved and we've added more channels our menu has changed.

Sharon Zackfia: Change in as you've grown across the country. There are just shacks with different characteristics than others.

Sharon Zackfia: And so, especially with the kiosk rollout that we did last year. We thought it was the right time to revisit with time and motion studies and.

Randall J. Garutti: This will be through the year as we go and as we kind of end the year. That's really been our goal. Thank you. All right. Thanks very much.

Sharon Zackfia: And the great data that the team has built up here.

Operator: Thank you. If we could keep the operator of the questions to one because we have a lot of people on the line, our next question comes from Sharon Zackfia with William Blair. Please proceed with your question. It's actually really exciting to hear about the initiatives on throughput. You know, I'm one of those people who would love to get through the line faster, so I definitely appreciate that.

Sharon Zackfia: I really bespoke per shack staffing and deployment model.

Sharon Zackfia: And we did the first round of the tests late last year, we're really encouraged by the results. There we talked about you know rolling out two more shacks. This year. It's important to note none of that is actually embedded in our guidance for 2024 shack level operating profit margin improvement. So it's something that we're still rolling out here.

Katie Fogarty: I'm sure you have a lot of unmet demand. Can you talk about the labor modules that you tested, I think, at a few locations in the fourth quarter? And is that the same as what you're talking about with new kitchen flows and kind of the timing of real-time reporting and what that kind of looks like at the unit level? Thanks.

Sharon Zackfia: And you know what I would say too is that it's not just about reducing the number of people in the shack is actually about right sizing. The deployment. We have there. So there are some areas, where we feel it's appropriate at certain times of the day to add more people and we think that that's important for our ability to execute.

Katie Fogarty: Sure, so I'll put this one with Randy, but on the labor module side, these are two different things. How we flow food through our kitchens is very different than how we're thinking about kind of, you know, better and more bespoke deployment. You know, over the course of Shake Shack's history, as I'm sure you've followed, we've evolved, we've added more channels, our menu has, you know, changed, and as we've grown across the country, there are just shacks with different characteristics than others. And so, you know, especially with the kiosk rollout that we did last year, we felt it was the right time to revisit, with time and And we did the first run of the test late last year.

Sharon Zackfia: Have a great guest experience and capitalize on the opportunity there and by different format, but Randy do you want to take that just on the kitchen flow just to be more specific. This is something this is going to always evolved forever right. I mean. This is this is every restaurant every day continuing to try to figure out the best way to move food in but can remain keep integrity in how we cook off.

Sharon Zackfia: Food.

We've been working on really for the better part of the last year and a half is testing various different flows that can help that same great food move through the kitchen in a more organized way.

Randy: That saves time.

Randy: And that's what we're working on and that'll take you to the small percentage of our restaurants doing that today.

Katie Fogarty: We're really encouraged by the results there. We talked about, you know, rolling out some more shacks this year. It's important to note none of that is actually embedded in our guidance for 2024 Shack Level Operating Profit Margin Improvement. So it's something that, you know, we're still rolling out here. And, you know, what I would say, too, is that it's not just about, you know, reducing the number of people in the shack.

Randy: Most of our new restaurants will open with our linear kitchen changes that flow some of our existing restaurants will convert but it's more about just how we move the food and it's not really about renovations and or any other major cost I think it's really just about a different flow through so we got a lot of work to do on that among other things and that's it.

Katie Fogarty: It's actually about right-sizing the deployment we have there. So there are some areas where, you know, we feel it's appropriate at certain times of the day to add more people in. We think that that's important for our ability to deliver a great guest experience and capitalize on, you know, the opportunity there and in different formats. But Randy, do you want to take that?

Randy: It works.

Randy: Okay.

Okay.

Randy: Our next question comes from Brian Mullan with Piper Sandler. Please proceed.

Brian Mullan: Hey, Thank you just a question on the drive throughs.

Brian Mullan: Could you just speak to how those are doing in general.

Brian Mullan: Understanding there had been some learnings maybe some locations you might have done differently in certain instances just looking to understand your degree of optimism about drive throughs overall and if you think they have a solid long term future at shake shack any thoughts would be great.

Randall J. Garutti: Yeah, just on the kitchen flow, just to be more specific, this is something that's going to evolve forever, right? I mean, this is every restaurant every day, continuing to try to figure out the best way to move food but can remain, maintain integrity in how we cook our food. What we've been working on for the better part of the last year and a half is testing various different flows that can help that same great food move through the kitchen in a more organized way that saves time. And that's what we're working on. And that'll take, you know, the small percentage of our restaurants doing that today. And, you know, most of our new restaurants will open with our linear kitchen. That changes the flow of the text.

Speaker Change: Yes. Thanks.

Speaker Change: The answer for the long term future as you bet, we're big believers in it I think in order to capture market share continue to hit our major growth goals and hit the white space that this country has we want to make sure you drive through work. We know we've had lots of things that we've learned.

Speaker Change: Have about 30 right now we opened 18 last year, we will have a smaller percentage of the class in 2024, but still a significant commitment this year and the years ahead. So we continue to learn as I've said in previous.

Randall J. Garutti: Some of our existing restaurants will convert. But it's more about just how we move the food, and it's not really about renovations and all any other major costly things. It's really just about a different flow of food.

Randall J. Garutti: So we've got a lot of work to do on that, among other things, and that's in the works. Our next question comes from Brian Mullen with Piper Sandler. Please proceed. Hey, thank you. Just a question on the drive-thrus. Could you speak to how those are doing in general, you know, understanding there have been some learnings, maybe some locations you might have done differently in certain instances, just looking to understand your degree of optimism about drive-thrus overall and if you think they have a solid long-term future at Shake Shack? Any thoughts or suggestions would be great.

Speaker Change: Previous conversations about drive through we've got some that are below our targets somewhere above right or a loss in the middle and I think what we're learning is best positioning that's real estate that's flow and then you take that into the operational flow and locking in what we believe now are prototype for the coming years will be.

Speaker Change: Be a little bit smaller a little bit less seats.

Speaker Change: And we're taking significant.

Speaker Change: <unk> costs out of the cost to build so that's been really the work and the flow. So that over time, we can continue to drive stronger returns here, but really excited about drop through and we will we will say, we still have a chance to learn and it's all it's all going to continue to roll forward. We're excited this year to open some drive throughs in some of our higher brand awareness markets. We've got some.

Randall J. Garutti: Yeah, thanks. The answer for the long-term future is you bet. We're big believers in it. I think in order to capture market share, continue to hit our major growth goals, and hit the white space that this country has, we want to drive through work. We know we've had lots of things that we've learned. We have about 30 right now.

Randall J. Garutti: We opened 18 last year. We'll have a smaller percentage of the class in 2024, but still a significant commitment this year and the years ahead. So we continue to learn. As I've said in previous conversations about drive-through, we've got some that are below our targets, some that are above, and lots in the middle. And I think what we're learning is the best positioning, the best real estate, the best flow, and then you take that into the operational flow and lock in what we believe now our prototype for the coming years will be a little bit smaller, a little bit less seats, and we're taking significant costs out of the cost to build. So that's really the work in the flow so that, over time, we can continue to drive stronger returns here.

Speaker Change: In California, we've got some in New York, New Jersey, and that will be exciting for us to learn how that goes and how people choose to use shake shack.

To drive through experience.

Our next question comes from Sara Senatore with Bank of America. Please proceed with your question.

Sara Senatore: Okay. Thank you very much I just wanted to ask a little bit about how you're thinking about the margin outlook versus the same store sales you know you've done a lot of work on restaurant level margins, but if I go back and look at our sort of initial guide for this year restaurant level margins I think it was 19 to 20 and comp was kind of low <unk>.

Randall J. Garutti: But we're really excited about drive-through, and we will say we still have a ton to learn, and it's all going to continue to roll forward. We're excited this year to open some drive-throughs in some of our higher brand awareness markets. We've got some in California, we've got some in New York, New Jersey, and that will be exciting for us to learn how that goes and how people choose to use Shake Shack as a drive-through experience. Our next question comes from Sarah Senator with Bank of America. Please proceed with your call. Oh, great. Thank you very much.

Sara Senatore: The mid single so you came in at the high end of the range for both.

Sara Senatore: But so is that sort of how we should be thinking about this which is there are kind of puts and takes it even though you have opportunities maybe on the margin side and if you could talk a little bit about what you think the biggest ones are that would be helpful.

Katie Fogarty: I just wanted to ask a little bit about how you're thinking about, you know, the margin outlook versus the same search sales. You know, you've done a lot of work on restaurant-level margins. But if I go back and look at the sort of initial guide for this year, restaurant-level margins were 19 to 20, and comp was kind of a low single to mid single. So you came in at the high end of the range for both.

Sara Senatore: But we should really be thinking about this as sort of a you know you need a certain amount of comp to lever them the expenses.

Speaker Change: Great. So yeah, our guidance for this year is for low single digits.

Speaker Change: Same shack sales growth.

Speaker Change: We are anticipating to have positive traffic.

Speaker Change: And we're taking you know, especially at our most of our shacks.

Katie Fogarty: But so is that sort of how we should be thinking about this, which is that there are kind of puts and takes. So even though you have opportunities maybe on the margin side, and if you could talk a little bit about what you think the biggest ones are, that would be helpful. But we should really be thinking about this as sort of, you know, you need a certain amount of compensation to cover the expenses. Great.

Less price more consistent with what we did in pre COVID-19 areas.

Speaker Change: Times.

Speaker Change: We're also at the same time now you know we talked about having a meaningful step up in advertising expense and we'll see how that helps to benefit them in.

Katie Fogarty: So, you know, our guidance for this year is for low single-digits, same check sales growth. We, you know, are anticipating to have positive traffic, and we're taking, you know, especially at most of our shacks, you know, a lower price, more consistent with what we did in pre-COVID areas and times. At the same time, though, we talked about having a meaningful step up in advertising expense and, you know, we'll see how that helps to benefit and impact our company. We're certainly doing that with, you know, strong confidence in what we've seen before historically with that and bringing that up to new levels, more meaningfully higher levels. On the point of our restaurant margin guidance for 20 to 21 percent, you know, we saw certainly, you know, throughout last year and especially in the fourth quarter, very strong flow through on these incremental sales. And so we're excited for what's ahead. We also have a number of initiatives on our operational improvement plan, though, through total cost to serve, work that our supply chain team is doing to help offset inflationary pressures.

Speaker Change: And impact our copper and we're certainly doing that.

Speaker Change: With strong confidence in what we've seen before historically with that and bringing that up to new levels were meaningfully higher levels.

Speaker Change: On the point on our restaurant margin guidance for 20% to 21%. We saw certainly yeah throughout last year, and especially in the fourth quarter, a very strong flow through on these incremental sales and so we're excited for what's ahead. We also have a number of initiatives on our operational improvement plan, though.

Speaker Change: Three a total cost of surge work that our supply chain team is doing to help offset inflationary pressures. Some of that's in the guidance, but also you know theres a lot of white space opportunity is still available there.

And then on Labor you know, we've been really efficient with the added sales that we've been seeing as a result of our marketing efforts.

Speaker Change: And expect to continue to have opportunity on that side.

Speaker Change: Yes.

Speaker Change: Our next question comes from Michael <unk> with Oppenheimer. Please proceed.

Katie Fogarty: Some of that's in the guidance, but also, you know, there's a lot of white space opportunities still available there. And then on labor, you know, we've been really efficient with the added sales that we've been seeing as a result of our marketing efforts, and we expect to continue to have opportunities on that side. Our next question comes from Michael Tamas with Oppenheimer. Please proceed. Hi, good morning.

Michael Clarke: Hi, Good morning. Thank you you talked about some interesting sales drivers in the 'twenty, four including combo meals and desserts and increasing your marketing spend obviously you.

Michael Clarke: Can you talk about some of the work you've done that for Jeff.

Michael Clarke: The right strategies, maybe why now.

Michael Clarke: And then related to that do you think those platforms are required to hit the positive traffic or youre talking about for 'twenty four we're getting a core existing strategies get you there. Thank you.

Randall J. Garutti: Thank you. You talked about some interesting sales drivers in the 20th... You know, can you talk about some of the work you've done? http://TheBusinessProfessor.com and then related to that. The Bulletproof Executive 2013, www.mytrendyphone.com. Thanks for tuning in. We'll see you next time.

Michael Great question, I think those strategies that I named specifically on the tests of combo meals Sunday as many shakes those are not core to our assumptions at all and this year would be immaterial at best and what we want to do there why are we looking at that well chicken pick automobile show checks never had a com will be on the history of the company.

Randall J. Garutti: Michael, great question. I think those strategies that I named specifically on the tests for combo meals, sundaes, mini shakes, those are not core to our assumptions at all, and this year would be immaterial at best. And what we want to do there, why are we looking at that? Well, shake, let's say combo meals. Shake Shack's never had a combo meal in the history of the company.

Michael Clarke: Time will tell if that's the right thing if that's what our guests want what we wanted to do in and as part of our drive thru goals. As you know that speed is as a goal here, we know shake shacks not the fastest and we wanted to test how people react to that and I think the initial news as well a lot of people like combo meals a drive through.

Randall J. Garutti: Time will tell if that's the right thing, if that's what our guests want. What we wanted to do, and as part of our drive-thru goals, is you know that speed is a goal here. We know Shake Shack's not the fastest, and we want to test how people react to that. And I think the initial news is, well, a lot of people like combo meals at the drive-thru. That's not, and shouldn't be a shocker to anybody in the industry.

Michael Clarke: That's not it shouldn't be a shock to anybody in the industry. The question is whether that will be the right thing for us long term. So we are trying various pricing strategies, various visual and merchandising strategies and things that do not put us in that fast food category, but still really good about contingencies of the guests on our kind of dessert destination goals.

Randall J. Garutti: The question is whether that'll be the right thing for us long term. So we're trying various pricing strategies, various visual and merchandising strategies, and things that do not put us in that fast food category but still really give that consistency to the guests. On our kind of dessert destination goals, look, Shake Shack before COVID had concrete, right? Our frozen custard sundaes.

Michael Clarke: Well at Shake Shack.

Michael Clarke: Covid had concretes right our frozen custard Sundays, we've continued to hear from guests they want us to continue to have more options.

Michael Clarke: And what we're doing there is bringing back Sundays, we're gonna be expanding those tests, we have many shakes out a number of shacks right now, we'll be expanding that test, but not rolling out to the entire fleet. Just yet. These are things we want to tweak get right and the whole goal. There is can we increased some of that day part expansion can we get some more afternoon till we get a little average check and how those things.

Randall J. Garutti: We've continued to hear from guests. They want us to continue to have more options. And what we're doing there is bringing back sundaes. We're going to be expanding those tests. We have mini shakes at a number of shacks right now.

Michael Clarke: Work into the digital universe that we live in today, So I love the new innovation as you know we're really good at it here and we got to keep doing it but we're doing it prudently. So all in all the factors in the guide that we gave are really based on what we see as kind of a run rate opportunity a lot of that increased marketing opportunity and hopefully you know what.

Randall J. Garutti: We'll be expanding that test, but not rolling it out to the entire fleet just yet. These are things we want to tweak, get right, and the whole goal there is, can we increase some of that daytime part expansion? Can we get some more afternoon? Can we get a little average check? And how do those things work in the digital universe that we live in today?

Michael Clarke: Comedy that cooperates and and lots of opportunity. There those are the things that we have some someone will be out of our control and the things that are we're going to keep driving the business.

Randall J. Garutti: So I love venue innovation. As you know, we're really good at it here. We got to keep doing it, but we're doing it prudently. So all in all, the factors in the guide that we gave are really based on what we see as kind of our run rate opportunity, a lot of that increased marketing opportunity, and hopefully, you know, the comedy that cooperates and lots of opportunities. Those are the things that will be out of our control, and the things that aren't, we're going to keep driving the business. Our next question comes from Andrew Charles with TD Cowen. Please proceed. Great, thank you.

Michael Clarke: Yeah.

Michael Clarke: Our next question comes from Andrew Charles with TD Cowen. Please proceed.

Andrew Charles: Great. Thank you Katy I, just want to better understand the components of the 2020 for low single digit same store sales guidance some beds expectations for two 5% price and positive traffic. So inherently as mix expected to be negative I would think with the kiosk efforts and the traction youre seeing there the high single digit boosting ticket that youre seeing theoretically that should be a good guy.

Andrew Charles: But its delivery sales embedded to be a continued headwind through 'twenty four.

Katie Fogarty: Katie, I just want to better understand the components of the 2024 low single-digit same store sales guidance. You know, this embeds expectations for two and a half percent price increases and positive traffic. So, inherently, is mixed expected to be negative?

Speaker Change: For some more color on the components. Thanks.

Katy Huberty: Sure. So yeah, we talked about a low single digit priced that we're expecting for the year. Don traffic you know, we're going ourselves, where we're targeting to have positive traffic. We've embedded some you know some range, though on that side in that guide them and you know kiosk over all I have to say you know we're really excited by what it continues to provide for.

Katie Fogarty: I would think with the kiosk efforts and the traction you're seeing there, the high single-digit boost in ticket prices that you're seeing, theoretically, that should be a good guy. But, you know, are delivery sales embedded to be a continued headwind through 24? I'm just looking for some more color within the components.

Katy Huberty: Our sales on kiosk in the fourth quarter doubled year over year, and we implemented some new technology upgrades in that channel to continue to drive.

Katie Fogarty: Thanks. Sure. So, yeah, we talked about a low single-digit price that we're expecting for the year. And on traffic, you know, we're goaling ourselves; we're targeting to have positive traffic. We've embedded some, you know, some ranges on that side in that guide. And, you know, the kiosk overall, I have to say, we're really excited by what it continues to provide for us. Our sales on kiosks in the fourth quarter doubled year over year, and we implemented some, you know, new technology upgrades in that channel to continue to drive increased attach rates and customization. But, you know, well, we'll have to see how that continues to play out through the rest of the year. Our next question comes from Jake Bartlett with Truist Securities. Great, thanks for taking the question. You know, on the margin expansion guidance for 24, great to see that. I'm wondering if you can just help us understand what's driving it.

Katy Huberty: Increase attach rates and customization.

Katy Huberty: But you know well.

Katy Huberty: We'll have to see how that continues to play out through the rest of the year.

Katy Huberty: Yeah.

Katy Huberty: Okay.

Katy Huberty: Our next question comes from Jake Bartlett with Trust Securities. Please.

Jake Rowland Bartlett: Great. Thanks for taking the question.

Jake Rowland Bartlett: The margin expansion guidance for 'twenty four great to see that I'm wondering if you can just help us understand what's driving and it looks like just cogs.

Jake Rowland Bartlett: Cost inflation being flat to low single digits.

Speaker Change: Low singles as a place would be a contributor so so if you could maybe disaggregate.

Speaker Change: The drivers, including what you're proactively doing some of the supply chain initiatives labor initiatives, just trying to kind of understand you.

Speaker Change: More specifically, what your actions or doing to your margin outlook.

Katie Fogarty: It looks like, you know, just COGS or, you know, commodity cost inflation being flat in low single digits and, you know, low singles as a price would be a contributor. So, if you could maybe disaggregate the drivers, including what you're proactively doing, some of the supply chain initiatives, labor initiatives, just trying to kind of understand, you know, more specifically what your actions are doing to your margin. Yeah, absolutely.

Speaker Change: Yeah, absolutely. So first of all you know again really excited to have the strategies in place and the competence here to sit here and guide for 'twenty to 'twenty, 1% shack level operating profit margin for 'twenty 'twenty four marking another year of continued profitability improvement I think you know when we go through the P&L.

On food and paper, we put our inflation outlook to be flat to up low single digits year over year for the full year. It's important to note, though that you know are our initiatives that we're doing on supply chain, whether it's you know increasing the number of suppliers optimizing our freight and other initiatives.

Katie Fogarty: So first of all, you know, again, really excited to have the strategies in place and the confidence here to sit here and guide for a 20 to 21% check level operating profit margin for 2024, marking another year of continued profitability improvement. I think, you know, when we go through the P&L on food and paper, we put our inflation outlook to be flat to low single digits year over year for the full year. It's important to note, though, that, you know, our initiatives that we're doing in the supply chain, whether it's increasing the number of suppliers, optimizing our freight, and other initiatives are driving that to be flat to upload single digit levels. We would have been in a worse position had we not had these operational improvement programs already in place.

Speaker Change: We are driving that to be flat.

Speaker Change: Flat to up low single digit level, we would've been in a worse position had we not had these operational improvement programs already in place.

Speaker Change: The one thing I'll caveat there, though is that this is the largest uncertainty to that basket and it's something that we are watching closely.

Speaker Change: On labor, we have been driving very strong flow through them.

Speaker Change: As a result of our increased sports better labor or better overall sales forecasting and our better deployment and just really leveraging increased sales and traffic that we've seen over all of the company. So those are two areas, where we really you know do you expect to show continued improvement.

Katie Fogarty: The one thing I'll caveat there, though, is that beef is the largest uncertainty in that basket, and it's something that we are watching closely. On, you know, labor, we have been driving very strong flow through as a result of our improved better overall sales forecasting and our better deployment and just really leveraging increased sales and traffic that we've seen overall at the company. So those are two areas where we really, you know, do expect to see continued improvement in 2024. Also, both areas where we are facing inflationary pressures on wages in particular, we're kind of anticipating a low single-digit increase. But, you know, we all know that there are certain areas of the country that are going up a lot more than that.

Speaker Change: And in 2024 also both areas, where you know we are facing some inflationary pressures on wages particular, we're kind of anticipating a low single digit.

Speaker Change: Increase but you know we all know that there's the answer in areas of the country that are going up you know a lot more than that and you know with with the programs that we have in place and we're confident in our ability to navigate these continued inflationary waters.

Katie Fogarty: And, you know, with the programs that we have in place, we're confident in our ability to navigate these continued inflationary waters. Our next question comes from Peter Sella with VTIG. Great. Thanks.

Our next question comes from Peter Cella with B P. I G fees.

Peter Cella: Great. Thanks, Thanks for taking the question I didn't want to come back to the advertising discussion.

Randall J. Garutti: Thanks for taking the question. I didn't want to come back to the advertising discussion. I think in 3Q, Shake Shack targeted more advertising in the West. Can you just give us a sense of where you were spending the incremental dollars or where you were testing some more advertising in 4Q? And just in terms of 2024, are you targeting specific regions, or how do we think about your spending on advertising next year or this year rather? Yeah, thanks. To answer your question about last year, yeah, we did.

I think I'm, sorry, Q shake shack targeted more advertising and in the West can you just give us a sense on where you were spending the incremental dollars are where you were testing some more advertising and <unk> and just in terms of 2024 are you targeting specific regions or how do we think about you.

Peter Cella: We're spending.

Peter Cella: On advertising next year or this year rather.

Peter Cella: Yes.

Peter Cella: Answer across our last year, Yeah. We did we continued some of those tests on the West coast that we saw some strong returns for we did some things in Texas, that's been a big growing market for US we opened a lot of restaurants in Texas last year. So there was appointed test and learn happening there.

Randall J. Garutti: We continued some of those tests on the West Coast that we saw some strong return on. We did some things in Texas, which is a big growing market for us. We opened a lot of restaurants in Texas last year, so there was a pointed test and learn happening there. And for this year, you know, we will keep you posted. I think the teams will continue to learn on that.

Peter Cella: And for this year, we will keep you posted I think the team is continuing to learn on that a lot of this is really directed at.

Randall J. Garutti: A lot of this is really directed at the markets where we think we can have the highest return, balanced with some spend where we have lower brand awareness. And we just want to make sure that we keep hitting those and having people know who we are, what we do, and the exciting opportunity we have. Sometimes it'll go along with the openings, our new shack openings and where those go, where we choose to spend. But generally, it's really a lot of one-to-one performance marketing and digital opportunities that we see where most of the ramping of spend will go. We think that's the best way to do it at this scale. So when we hear the word advertising, you know, it's not going to be a whole lot of TV commercials and the things you might traditionally think.

Peter Cella: The markets, where we think we can have the highest return balanced with some spend where we have lower brand awareness and we just want to make sure that we keep hitting those and having people know who we are what we do and driving the exciting opportunity we have sometimes it'll go along with the openings.

Peter Cella: Our new shack openings, and where those go where we choose to spend but generally it's really a lot of one to one performance marketing digital opportunities that we see where we're most of the ramping of spend will go. We've had is the best way to do it at a scale.

Peter Cella: So when we hear the word advertising you know, it's not going to be a whole lot of TV commercials of the things you might traditionally thank at this scale most of the best way. We can game is is on digital channels that we've seen strong returns on.

Randall J. Garutti: At this scale, most of the best ways we can gain are on digital channels that we've seen strong returns on. Our next question comes from Brian Harbour with Morgan Stanley. Yeah, thank you. Thank you. Good morning.

Peter Cella: Yes.

Peter Cella: Our next question comes from Brian Harper with Morgan Stanley. Please.

Brian Harper: Yes. Thank you. Thank you good morning.

Randall J. Garutti: With kind of the improving traffic trend in the fourth quarter, you know, what do you think was most impactful to that? Maybe it was some of the advertising, but just curious about your thoughts there. And I know that there was a little bit of divergence between New York and the other regions. And if you had any thoughts on kind of what drove that? Well, I think these are the things that we've been pointing out on the call today. I think they're all of those things.

Peter Cella:

Brian Harper: It was kind of improving traffic trends in the fourth quarter. You know what do you think was most impactful to that maybe it was some of the advertising, but just curious your thoughts there and I know that there was a little bit of divergence.

Brian Harper: Between New York and the other regions and if you had any thoughts on kind of what drove that.

Brian Harper: Okay.

Speaker Change: Well I think Uh huh.

Speaker Change: Things that we've been pointing out to the call today I think they're all of those things you got a good L. T O, we had strong and improving.

Randall J. Garutti: We had a good LPO. We had strong and improving comp throughout the quarter. We did a lot of that advertising, you know, targeting various different promos and opportunities that we've shared both on our channels and on other channels. So I think it's been a really well-played playbook by our marketing team. And again, a lot of that, as we keep saying on this call, increasing the overall spend to get us to a point where we can continue to test and confidently employ data-driven, disciplined spend across our marketing channel. So I think that was really a good part of Q4 and just a solid lineup of operational execution across companies. And then in New York specifically, you know, we've been opening a number of restaurants, so, you know, we've kind of put some of those pressures there. It's more on the, you know, infill pressures, the things that we've normally seen throughout the year. Our next question comes from David Tarantino at Baird. Please proceed with your question. Hi, good morning.

Speaker Change: Through the quarter, we had a lot of that advertising targeting various different promos and opportunities that we've shared both in our channels and in other channels. So I think it's been a really.

Speaker Change: Well played a playbook by our marketing team and again a lot of that is as long as we keep saying, let's call increasing the overall spend to get us to a point, where we can continue to test and confidently.

Speaker Change: <unk> data driven disciplined spanned across our marketing channels. So I think that was really a good part of Q4 and.

Speaker Change: And just to just a solid lineup of operational execution across company.

Speaker Change: Then in New York, specifically, you know we've been opening number of restaurants. So I'm you know we've kind of put some of those pressures. There is more on the you know until pressures. It means that we've normally seen throughout the year.

Speaker Change: Yeah.

Our next question comes from David Tarantino with Baird. Please proceed with your question.

Speaker Change: Hi.

David E. Tarantino: Good morning.

David E. Tarantino: You made really impressive progress on improving shop-level profitability, so I was just wondering if you could maybe frame up where you think you are on your journey to improve profitability. And I think, Randy, you mentioned a reference to getting back to pre-COVID. Profitability, and I'm just wondering if, http://TheBusinessProfessor.com 2% shop level margins are slightly higher than that in 2019. Is that the right way to think about your goals?

David E. Tarantino: You made a really impressive progress on improving the shop level profitability. So I was just wondering if you could maybe frame up where you think you are in your journey to improve profitability.

David E. Tarantino: And I think Randy you mentioned, a reference to getting back to pre COVID-19 profitability and I'm. Just wondering if we should be reading that as your goal I think I think you had 22% shop level margins are slightly higher than that in 2019 is that it's not the right way to think about your goals or I guess any way to.

Randall J. Garutti: Or I guess any way to frame up kind of the long-term picture on, Thanks, David. I think the goal is 20 to 21 this year in 2024. That's the clear guide.

Speaker Change: Frame up kind of the long term picture on profitability. Thanks.

Randy: Thanks, David I think the goal is 'twenty to 'twenty. One this year in 2024, that's a clear guide Thats what were working on as we've said in the call lots of initiatives that have been working a lot more that are coming both to expand upon the current as well as add new things and we'd be really clear on the in the notes today about what those look like.

Randall J. Garutti: That's what we're working on. As we said in the call, lots of initiatives that have been working, and lots more that are coming, both to expand upon the current as well as add new things. And we've been really clear in the notes today about what those look like.

Randall J. Garutti: We know we had a higher shackle of a lot of profit overall pre-COVID. The company is twice the size right now. It changed a lot, and we're going to continue to drive that. Our goal will always be to continue to expand on that profitability. That's what we've shown this year, over 240 bits of leverage this year, and targeting and guiding for more this year. Lots of opportunity left in the tank, and we want to do it deliberately and in concert with the overall successful growth that we've had. So it's a profitable growth journey overall. Our next question comes from Jeffrey Bernstein with Barclays. Great, thank you very much.

Randy: Look we know we had a higher shack level op profit overall pre COVID-19.

He is twice the size right now changed a lot and we're going to continue to drive that our goal will always be to continue to expand on that profitability. That's what we've shown this year over 240 bps of leverage this year.

Randy: Targeting and guiding for more this year lots of opportunity left in the tank and we want to do it deliberately and in concert with the overall successful growth that we've had so it is a profitable grocery overall.

Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with.

Jeffrey A. Bernstein: Great. Thank you very much.

Jeffrey A. Bernstein: Focusing on the cost side of things, I see a two-part question. The first, Randy, you mentioned the unit cost build reductions of 10%, which you've talked about before. I'm just wondering if there are any concerns, and they like to enter markets with the wow factor. So I'm just wondering where the biggest opportunity is in the front and the back of the house to pull out that 10% plus.

Jeffrey A. Bernstein: Focusing on the cost side of things actually a two part question. The first Randy I mentioned that unit cost build reductions of 10%, which you've talked about before just wondering if there are any concerns on that.

Jeffrey A. Bernstein: I'd like to enter markets with the wild factor. So I'm, just wondering where the biggest opportunity in the front and the back of the house is to pull out that 10% plus.

Randall J. Garutti: And then just to follow up, Katie, you mentioned G&A leverage again in 24, which is clearly impressive considering your outsized growth. I'm just wondering if you could bucket the primary areas of opportunity relative to that revenue growth, so the leverage that you're expecting to achieve there. Thank you.

Jeffrey A. Bernstein: And then just a follow up Katie you mentioned G&A leverage again.

Jeffrey A. Bernstein: 24, which was clearly impressive considering your outsize growth I'm just wondering if you could bucket the primary areas of opportunity.

Jeffrey A. Bernstein: Relative to that revenue growth for the leverage that you're expecting to achieve there. Thank you.

Katie: Thanks, Trevor Yeah, we love to open with the Wow as you said, we've got a history of doing that pretty well want to continue to do that we're going to build beautiful restaurants. This these goals do not take away anything from the differentiating factor. We believe is critical to shake Shack, which is we just don't look and feel like fast food.

Randall J. Garutti: Yeah, we love to open with a wow, as you said, and we've had a history of doing that pretty well. I want to continue to do that. We're going to build beautiful restaurants. But these goals do not take away anything from the differentiating factor we believe is critical to Shake Shack, which is, you know, we just don't look and feel like fast food.

Randall J. Garutti: We are serving a premium product and a premium experience. We're going to continue to do that. I think where the team's been targeting, obviously, we've dealt with a tough construction environment. Every company you talk to is dealing with the same thing. Ours is no different.

Katie: We are serving a premium product at a premium experience, we're going to continue to do that I think one of the teams been targeting obviously, we've dealt with a tough construction environment. Every company you talk to is dealing with the same thing.

Katie: This is no different but we've also increased some of our more expensive formats in drive thru. So as I've said that a lot of the work is nuts and bolts of the guts of the building that you won't ever see or appreciate that we are figuring out how to do more effectively and efficiently by by carving out time some of the things I think you've noticed but what we know we can.

Randall J. Garutti: But we've also increased some of our more expensive formats and drive-throughs. So, as I've said, a lot of the work is nuts and bolts in the guts of the building that you won't ever see or appreciate that we are figuring out how to do more effectively and efficiently by carving out time. Some of the things I still don't think you'll notice, but what we know we can do now, after learning quite a bit in the last few years as we've ramped up our growth, is take down the overall size of some Shacks, taking down some of the complicated factors of some Shacks as we learn what our guests really want, how often, and provide for peak opportunity. There'll be a good mix this year of our core Shacks, which you kind of know and love and what we do, as well as some of the drive-throughs where we want to continue to expand.

Katie: Do know after learning quite a bit in this last few years as we've ramped our growth is taking down the overall size of some shacks taking down some of the complicated factors of some shacks as we learn what our guests really want how often do and provide for peak opportunity.

Katie: There'll be a good mix this year of our core shocks that you kind of know and love and in what we do as well as some of the drive throughs, where we want to continue to expand again 2020 for these restaurants are designed.

Randall J. Garutti: Again, 2024, these restaurants were designed, you know, a year or two ago, and not as much immediate opportunity. So, we feel really good about what the team is delivering at this approximately 10% target goal, including, by the way, our pre-opening expenses, which we know we can save upon. But as we get into 2025 and beyond, we think we'll sort of harvest even more of that. And that's the goal.

Katie: Year or two ago and it is not as much immediate opportunity. So we feel real good about what the team is delivering at this approximately 10% target goal, including by the way our Preopening expenses, which we know we can save upon but as we get into 'twenty five and beyond we think will sort of harvest even more of that and that's the goal. We think there's just a lot of opportunity.

Katie Fogarty: You know, we think there's just a lot of opportunity for us to continue to build dynamic, wow restaurants that differentiate while taking costs out. So, that is the commitment, and our team's working hard on it. And on your question on G&A, you probably would surmise from our conference call today and also our materials is that, you know, we really continue to put a priority on investments that drive sales and drive the future growth of our restaurant. And so we're continuing to take a very disciplined approach to that.

Katie: And for us to continue to build a dynamic while restaurants that differentiate while taking cost out so that is the commitment and our team's working hard on it.

Katie: And on your question on G&A.

Katie: What you probably have some is from you know are our conference call. Today and then also our materials is that you know we really continue to put a priority on investments that drive sales and drive the future growth of our restaurant.

Katie: And so we're continuing to take a very disciplined approach to that and you'll see that in our G&A investment in and in other parts of the P&L and.

Katie Fogarty: You will see that in our DNA investments and in other parts of the P&L. So again, it's about, you know, taking a meaningful step up in advertising expense but, at the same time, kind of on the run rate side of the business, being very prudent, very disciplined about the investments that we're making there so that we can prioritize the investments, you know, needed for the long-term growth of the company. Our next question comes from Jeff Farmer with Gordon Haskins. Yeah, good morning.

Katie: So again, it's about you know taking a meaningful step up in advertising expense, but at the same time, you know kind of on a run rate side of the business being very prudent very disciplined about the investments that we're making there. So that we can prioritize the investments needed for the long term growth of the company.

Katie: Our next question comes from Jeff Farmer with Gordon Haskett. Please.

Jeff Farmer: Yeah. Good morning, and thank you just another follow up on menu pricing Katie I think you mentioned two 5% pricing for the majority of the system in 2024, but inclusive of the pricing and the California restaurants, and I think you guys. Just mentioned the three P D menu price increase.

Katie Fogarty: And thank you. Just another follow-up on menu pricing, Katie. I think you mentioned two and a half percent pricing for the majority of the system in 2024. But inclusive of the pricing in the California restaurants, and I think you guys just mentioned the 3PD menu price increase. What would that equate to for total system pricing in 2024? Yeah, so what we're thinking about, you know, that two and a half percent. First of all, there are two numbers that are two and a half percent here. So first of all, two and a half percent is what we're kind of targeting for the realized price for 2024. There's going to be some areas where we take more than that to offset wage inflationary pressures. You know, you talked about California. It's an area where, you know, they're taking it up a lot in some of our markets.

Jeff Farmer: What would that equate to for total system pricing in 'twenty to 'twenty four.

Jeff Farmer: Yeah, So what we're thinking about that two and a half per science. So first of all there are two numbers that are 2.5% here. So first of all Q&A present is what we're kind of targeting for about realized price for 2024, there's going be some areas, where we're taking more than that to offset our wage inflationary pressures you know you talked about cap land area.

Jeff Farmer: There were you know they are taking it up a lot with them in some of our markets.

Katie Fogarty: And we're going to be taking prices there to help offset those pressures. We have also increased the premium that we're charging on our digital channels. We're still underpriced relative to kind of our peer average. I still think we have room on that side, but we continue to test and learn in that channel. And then, you know, overall, the other two and a half percent to mention is that it's pretty much your average shack outside of a big wage inflationary zone.

Jeff Farmer: And we're gonna be taking price there too to help offset those pressures and we also increased the premium that we're charging on our digital channels.

Jeff Farmer: We're still underpriced relative to kind of virus or average I don't think we have room on that side, but continue to test and learn.

And that channel and then you know overall you know the other 2.5% you mentioned is that's pretty much you know your average shack outside of a big wage inflationary you know Don that's about the overall price that we're looking to take this year.

Katie Fogarty: That's about the overall price that we're looking to take this year. And, you know, that's very consistent with the pre-COVID pricing patterns that we've had. So, you know, most of our facts will have kind of that lower single-digit menu price increase this year. Our next question comes from Andy Barish with Jeffreys. Please proceed with your question. Good morning.

Jeff Farmer: And you know that's very consistent with our pre COVID-19 pricing patterns that we've had so you know most of our shacks will have a kind of that that lower single digit menu price increase this year.

Jeff Farmer: Yes.

Jeff Farmer: Our next question comes from Andy Barish with Jefferies. Please proceed with your question.

Andy Barish: Hey, good morning.

Andy Barish: I guess for Randy, although this may change as you hand over the reins, is 40 company-owned units kind of the right pace that the company is sort of settling into, you know, just kind of looking at teams and retention and operational consistency and all those kind of things? Or is there something, as you know, bill costs, you know, maybe come down that could accelerate that? Well, we're not going to guide past this year.

Andy Barish: I guess for Randy Although this may change as you hand over the reins is.

Andy Barish: It's 40 company owned units kind of the right pace that the company is sort of settling into you know just kind of looking at teams and retention and operational consistency and all those kind of things or is there something as bill costs.

Andy Barish: Maybe come down that that could accelerate that.

Speaker Change: Well, we're not going to guide past this year from 40 is a number we like we obviously pulled forward a little bit this year and got to 41 for the company operated domestic on license, we pulled forward a bunch and got to 45 well ahead of guidance. We think 40 is a good number there as well so you're looking at 85 restaurants last year about 80, this year, but we like that number.

Randall J. Garutti: Forty is a number we like. We obviously pulled forward a little bit this year and got to 41 when the company operated domestically on license. We pulled forward a bunch and got to 45 well ahead of guidance. We think 40 is a good number there as well. So, you're looking at kind of 85 restaurants last year and about 80 this year. We like that number.

Randall J. Garutti: That doesn't mean anything about what we will choose to do next year. Let's talk about what we're looking at. We're building a pipeline for the future that will allow us to continue to grow with strong returns. As I noted in my comments, I think it's important to say, you know, when you – we've taken the last couple of years to sort of pull back a little bit and say, okay, cool, what have we learned? Our restaurants have gotten more expensive. How are we going to make them less expensive, and how are we going to do them better so that we can open better restaurants over time with stronger returns for the long term?

Speaker Change: That doesn't mean anything about what we will choose to do next year.

Speaker Change: What we're looking at we're building a pipeline.

Speaker Change: For the future that will allow us to continue to grow with strong returns.

Speaker Change: As I noted in my comments I think it is important to say.

Speaker Change: When you when you we've taken this last couple of years to sort of pull back a little bit and say, okay. Cool what do we learn our restaurants who've got more expensive how are we going to make them less expensive than how are we going to do them better. So that we can open better restaurants over time with stronger returns for the long term and that process has unfortunately causes what it'll be a backward.

Randall J. Garutti: And that process has, you know, unfortunately caused what will be a back-weighted sales year this year. So, a lot of the new shack sales will come at the back end of the year. But that was smart work, you know.

Speaker Change: <unk> sales year. This year, so a lot of the new shack sales will come at the backend of the year.

Speaker Change: But.

Speaker Change: Yeah that was smart work you know that was work to make sure that we were.

Randall J. Garutti: That was work to make sure that we were investing with discipline and putting our CapEx to work in the right places. So, we really like that. I won't speak for what's ahead other than this year. Be safe out there. Be well.

Speaker Change: Investing with discipline.

Speaker Change: Putting our capex work in the right places so we really like that I won't speak for what's ahead.

Speaker Change: Other than this year, we feel good about 40.

Speaker Change: Okay.

Randall J. Garutti: Be safe out there. Our next question comes from Jim Sanderson with North Coast Research. Please proceed. Hey, thanks for the question. Congratulations on a great quarter. I wanted to go back to the combo testing.

Speaker Change: Our next question comes from Jim Sanderson with Northcoast Research. Please proceed.

James Jon Sanderson: Hey, Thanks for the question congratulations on a great quarter I wanted to go back to the combo test you. Just if you could provide some more insights on what metrics Youre testing, whether this is looking at them discounts to our cart or if youre trying to build kids' meals family bundles that might move average checkup, just any thoughts on the test in house.

Randall J. Garutti: Just if you could provide some more insights on what metrics you're testing, whether this is looking at discounts for a la carte or if you're trying to build kids' meals, family bundles that might move average check up, just any thoughts on the test and how this might impact average check going forward and also why only through the drive-thru. Thank you. Yeah, thanks, Jim. And again, this is not going to be, do not expect any material rollout of this strategy this year. This is something that we really want to learn about.

James Jon Sanderson: This might impact average check going forward and also why only through the drive through thank you.

Speaker Change: Yes, Thanks, Jim.

Speaker Change: Again, this is not going to be do not expect any material rollout of this strategy. This year is that something that we really want to learn into this is not something you can flip on and off easily and in a company like ours, who has never done. It. So what are we looking for number one we're looking forward to our guests want to order that way right that'll be the kind of first kpis. We have they were gonna look at various pricing strategies do we need a discount or is it.

Randall J. Garutti: This is not something you flip on and off easily in a company like ours who's never done it. So what are we looking for? Number one, we're looking for: do our guests want to order that way, right? That'll be the kind of first KPI we have.

Randall J. Garutti: Then we're going to look at various pricing strategies. Do we need a discount, or is it really just about ease of ordering? Testing various levels of a bundled discount and how that feels at Shake Shack. Can we increase items per check, right?

Speaker Change: It really just about ease of ordering.

Speaker Change: She testing various levels of a of a bundled discount and how that feels that shake shack can we increase our items per check right what happens to both beverage and shake attaches at shake Shack and we're different we saw a lot of sheets, what happens in the combo meal environment issue.

Randall J. Garutti: What happens to both the beverage and the shake attach? This is Shake Shack, right? They were different.

Randall J. Garutti: We sell a lot of shakes. What happens in the combo meal environment is that shake. These are the things we're looking at. And ultimately, can it contribute to a better ticket time, right? Does it help our team in the back as well as the person ordering?

Speaker Change: So these are things, we're looking at and ultimately contribute to a better ticket times right does it help our team in the back as well as the person ordering and I think where you see the most.

Randall J. Garutti: I think where you see the most pressure of ordering time is always at a drive-thru window, right? In most of our other channels, especially now with the kiosk, it's a lot more relaxed ordering process. You don't have to feel like you've got to move forward. But in a drive-thru, you inevitably feel that way. And so that's why we're testing in a drive-thru. And so it's only at kind of a handful of our restaurants. I expect it'll kind of stay at that test level for some period of time, and we'll look at it.

Speaker Change:

Pressure of ordering time is always at a drive through window right that in most of our other channels, especially now with kiosks. It's a lot more relaxed ordering process you don't have to feel like you've got to move forward, but it didn't drop through you inevitably feel that way and so that's why we're testing in a drive thru. So it's only at kind of a couple of handfuls of our restaurant.

Speaker Change: So I expect it will kind of stay at that test level for some period of time, and we'll look at it and like obviously the industry figured out a long time ago that this is a good strategy, whether it's a good strategy for shake shack remains to be seen we're excited about what we're seeing and learning and we'll keep you posted if it goes forward.

Randall J. Garutti: And, obviously, the industry figured out a long time ago that this is a good strategy. Whether it's a good strategy for Shake Shack remains to be seen. We're excited about what we're seeing and learning, and we'll keep you posted if it goes forward. We've reached the end of our question and answer session. I would now like to turn the floor back over to Randy Garutti.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: We've reached the end of our question and answer session I would now like to turn the floor back over to Randy.

Randall J. Garutti: Hey, everybody. We appreciate all the time today. We'll look forward to seeing you at Shake Shack soon. Take care.

Randy: Hey, Thanks, everybody I appreciate all the time today and we'll look forward to seeing you this accident take care.

Operator: ... This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. www.larryweaver.com BF-WATCH TV 2021, The Ultimate Parody Site! BF-WATCH TV 2021

Randy: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Randy: [music].

Randy:

Randy: Mhm.

Randy: Hum.

Hmm.

Randy: [music].