Q2 2024 Shake Shack Inc Earnings Call

Greetings and welcome to Shake Shack second quarter 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: Welcome to Shake Shack's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone's required operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded.

Please note this conference is being recorded.

Michael Oriolo: I will now turn the conference over to Michael Oriolo, Vice President, FP&A, and Investor Relations. Thank you. You may begin.

Megan Remark: Now I'll turn the conference over to make all our yellow Vice President S. P N E and Investor Relations. Thank you you may begin.

Michael Oriolo: Thank you, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch, and CFO, Katie Fogery. 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, whereas the substitute for results prepared in accordance with GAAP. Reconciliation to comparable gap measures is available in our earnings release and the financial details section of our shareholder letter.

Katy Fogarty: Thank you and good morning, everyone. Joining me for Shake Shack. This conference call is our CEO, Rob Lynch CFO Katy Fogarty 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 results prepared in accordance with GAAP.

Operator: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available 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 29, 2024. 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. Thank you, Mike. And good morning, everyone.

Katy Fogarty: Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter.

Michael Oriolo: 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 29, 2024. 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.

Katy Fogarty: 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 29, 2020 for 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 right now you should have.

Michael Oriolo: By now, you should have access to our second quarter, 2024 shareholder letter, which can be found at investor.shakeshack.com, in the quarter of the results section, whereas an exhibit to our EK for the quarter.

Rob: Access to our second quarter 2024 shareholder letter, which can be found at investor Dot Shake Shack Dot com in the quarterly results section, whereas an exhibit to our 8-K for the quarter I will now turn the call over to Rob.

Rob Lynch: I will now turn the call over to Rob. Thank you, Mike, and good morning, everyone. I'm very excited to be here today, speaking to you as the new CEO of Shake Shack. Thanks to all of you for joining us on the call today.

Rob: Thank you, Mike and good morning, everyone I'm very excited to be here today speaking to you as the new CEO Shake shack.

Rob: I'm very excited to be here today speaking to you as the new CEO of Shake Shack. There's great momentum in the business, and that momentum has continued into July, where we finished the month up 4.1% on Shake Shack sales. In my first 90 days, I spent a lot of time in the field learning how to make the best burgers in the business, hand bread our 100% all-natural and antibiotic-free chicken, hand spin our premium frozen custard shakes, and perfectly fry our beloved crinkle-cut fries.

Speaker Change: Thanks to all of you for joining us on the call today.

Rob Lynch: First, I want to take a moment to recognize Randy Garoudi for leading Shake Shack since the inception, and for as many accomplishments in building this great brand. I also want to thank him for how he thoughtfully transitioned this CEO role to me. His wise counsel and generous commitment to my success has absolutely helped me get off to a fast start. Speaking of fast starts, I'm happy to share with you that Shake Shack had a strong second quarter, growing same Shake Shack sales by 4%, expanding restaurant-level profit margin by 100 basis points to 22%, the strongest quarterly results since 3Q 2019, and growing adjusted EBITDA by 27%.

Speaker Change: First I want to take a moment to recognize Randy Curry, leading shake shack since the inception and for his many accomplishments in building this great brand.

Speaker Change: Also want to thank him for how he thoughtfully transitioned the CEO role to me is.

Speaker Change: His wise counsel and generous commitment to my success is absolutely helped me get off to a fast start.

Speaker Change: Speaking of fast start I'm happy to share with you that shake Shack had a strong second quarter growing same shack sales by 4% expanding restaurant level profit margin by 100 basis points to 22% the strongest quarterly results since <unk> 2019, and growing adjusted EBITDA by 27%.

Rob Lynch: There's great momentum in the business, and that momentum has continued into July, where we finished the month up 4.1% on same ShakeShack sales. In my first 90 days, I spent a lot of time in the field learning how to make the best burgers in the business, hand-bread or 100% all natural and antibiotic-free chicken, hand-spin our premium frozen custard shakes, and perfectly fry our beloved Crinkle Cup fries. All while learning to embody the enlightened hospitality that is this company's special sauce. I would like to give a shout out to the great people in the Shacks of Houston and San Diego for being patient with me while training.

Speaker Change: There's great momentum in the business and that momentum has continued into July where we finished the month up four 1% on same shack sales.

Speaker Change: In my first 90 days I've spent a lot of time in the field learning how to make the best burgers in the business' hand bread are 100% all natural and antibiotic free chicken has been our premium frozen custard shakes and perfectly try our beloved crinkle cut fries, all while learning to embody the enlightened hospitality is this company special sauce.

Speaker Change: Yes.

Speaker Change: I would like to give a shout out to the great people in the shacks in Houston and San Diego are being patient with me while training. It truly is our people that makes shake shack so amazing.

Rob Lynch: It truly is our people that make Shake Shack so amazing.

Rob Lynch: My first official day in the job was a dream come true as I opened Shake Shack's first restaurant in my hometown at Pittsburgh, PA. I couldn't have written the script any better. I'm happy to report that it is doing fantastic, and I can't wait to open many more successful Shakeshacks there. We are opening a lot of great Shaks right now, including the 12 new company-operated Shaks in Q2, exceeding our expectations and continuing the development momentum, critical to our future growth. There's so many things to be excited about right now, Shake Shack. The same Shack sales growth are improvements in restaurant-level profit margins and the unit growth across the globe, to name a few.

Speaker Change: My first official day on the job was a dream come true as I opened shake shacks first restaurant in my hometown of Pittsburgh P. E. I couldn't have written the script any better.

Speaker Change: I'm happy to report that he is doing fantastic and I can't wait to open many more successful shacks there.

Rob: We are opening a lot of great Shacks right now, including 12 new company-operated Shacks in Q2, exceeding our expectations and continuing the development momentum critical to our future growth. But what initially attracted me to this opportunity was the simple fact that Shake Shack has my favorite burger on the planet.

Speaker Change: We are opening a lot of great shacks right now, including the 12, New company operated shacks in Q2 exceeding our expectations and continuing the development momentum critical to our future growth.

Speaker Change: There's so many things to be excited about right now shake shack the same shack sales growth our improvements in restaurant level profit margins and the unit growth across the globe to name a few.

Rob Lynch: But what initially attracted me to this opportunity was the simple fact that Shake Shack has my favorite burger on the planet. And as I'd done further into the brand's DNA, I was drawing even more to the founding principles around enlightened hospitality, particularly the uncompromising commitment to our team members, guests, communities, suppliers, and investors. I love that we use premium ingredients. They focus on ensuring the best customer experience and facilitate strong team member engagement. Shake Shack truly is the standard for how our industry should and can operate. My excitement and conviction is only increased in my first couple months of CEO.

Speaker Change: But what initially attracted me to this opportunity with the simple fact that shake Shack has my favorite Burger on the planet.

Speaker Change: As I dug further into the brand's DNA I was trying even more to the founding principles around enlightened hospitality, particularly the uncompromising commitment to our team members guests communities suppliers and investors I loved that we use premium ingredients they focused on ensuring the best customer experience and facilitate strong team member.

Speaker Change: Our engagement share.

Rob: Shake Shack truly is the standard for how our industry should and can operate. My excitement and conviction have only increased in my first couple months as CEO. The strong foundation that Danny and Randy built has positioned Shake Shack to perform incredibly well and is one of the few restaurant companies growing revenue, units, and adjusted EBITDA all at double digits, and I see even greater potential for this unrivaled brand, which is driving healthy Shake Shack sales and building brand awareness and affinity.

Speaker Change: Shake shack truly as the standard for our industry should and can operate.

Speaker Change: My excitement and conviction has only increased in my first couple of months as CEO. The strong foundation that Danny and Randy build his position shake shack to perform incredibly well and is one of the few restaurant companies growing revenue units and adjusted EBITDA, all at double digits and I see even greater potential for this unrivaled brand.

Rob Lynch: The strong foundation that Danny and Randy built in his position Shake Shack to perform incredibly well and is one of the few restaurant companies growing revenue, units, and adjusted EBITDA all at double digits. And I see even greater potential for this unrivaled brand. As I've dug into the business fundamentals, I've spent lots of time with our executive team learning both the what and why across all aspects of the business.

Speaker Change: As I've dug into the business fundamentals have spent lots of time with our executive team learning, both the what and why across all aspects of the business while still in the early stages of forming our long range growth strategy I do want to share some of my early learnings and provide the three key areas where I'm focused.

Rob Lynch: While still in the early stages of forming our long-range growth strategy, I do want to share some of my early learnings and provide the three key areas where I'm focused, which are driving healthy St. Shack sales and building brand awareness and affinity, opening more Shack's globally with great returns for us and our licensed partners, and improving profitability through improved productivity at our restaurants and corporate operations. I would like to talk a little bit about each of these important areas of focus. First, driving healthy St. Shack's sales and building the Shake Shack brand. The team has done a great job driving St.

Speaker Change: Which are driving healthy same shack sales and building brand awareness and affinity open.

Speaker Change: Opening more shacks globally with great returns for us and our licensed partners and improving profitability through improved productivity at our restaurants and corporate operations.

Speaker Change: I would like to talk a little bit about each of these important areas of focus.

Speaker Change: First driving healthy same shack sales and building the shake Shack brand.

Speaker Change: The team has done a great job driving same shack sales, especially in the current challenging macroeconomic environment and we are proud to report this past quarter with the 14th straight quarter of positive same shack sales.

Rob Lynch: Shack's sales, especially in the current challenging macroeconomic environment, and we are proud to report this past quarter with the 14th straight quarter of positive st. Shack's sales. Our ability to maintain our premium products and premium positioning while continuing to meet the ever-changing needs of our guests is paramount for the long-term success of our company. There has been much discussion about customers moving to a more value-oriented mindset, and that the industry has started to wage value wars and a fight for transactions. In this environment, many believe that Shake Shack's premium positioning is a liability, but to the contrary, I believe that is truly one of our strengths.

Speaker Change: Our ability to maintain our premium products and premium positioning while continuing to meet the ever changing needs of our guests is paramount to the long term success of our company.

Rob: There has been much discussion about customers moving to a more value-oriented mindset and that the industry has started to wage value wars and a fight for transaction. And it is remarkable that we've been able to do this while also growing our restaurant-level profit margin. Shake Shack celebrated its 20th anniversary in the second quarter, and the company is still in the early innings with an amazing amount of growth on the horizon.

Speaker Change: There's been much discussion about customers moving to a more value oriented mindset and that the industry is starting to wage value wars in a fight for transactions.

Speaker Change: In this environment, many believe that shake shack premium positioning as a liability but.

Speaker Change: But to the contrary I believe that is truly one of our strengths. Our team has been nimble and began to employ strategic promotions to earn more than our fair share of transactions.

Rob Lynch: Our team has been nimble and begun to employ strategic promotions to earn more than our fair share of transactions, and it is remarkable that we've been able to do this while also growing our restaurant-level profit margins. Our team has truly struck the right balance between product innovation, pricing to mitigate inflation, technology implementations, and strategic promotions. This is the model that we will leverage moving forward, regardless of the macroeconomic environment, and given results so far, I have a lot of confidence in this team's ability to keep the momentum going.

Speaker Change: It is remarkable that we've been able to do this while also growing our restaurant level profit margins. Our teams have truly struck the right balance between product innovation pricing to mitigate inflation technology implementations and strategic promotions.

Speaker Change: This is the model that we will leverage moving forward, regardless of the macroeconomic environment and gave them results. So far I have a lot of confidence in this team's ability to keep the momentum going.

Rob Lynch: Shake Shack celebrated its 20th anniversary in the second quarter, and the company has still an early innings with an amazing amount of growth on the horizon. As you know, Shake Shack has built a strong brand and has an unbelievable story. Beginning as a single-hot dog cart serving fine-signing quality food in Madison Square Park and flourishing to more than 550 Shacks worldwide today. That said, it has been very eye-opening to see how many people across this country don't yet know what Shake Shack is. We believe there's still a great deal of untapped potential for this brand in domestic and global markets, which makes me incredibly optimistic for the future.

Speaker Change: Shake shack celebrated its 20th anniversary in the second quarter and the company is still in early innings with an amazing amount of growth on the horizon.

Speaker Change: As you know shake Shack has built a strong brand and has an unbelievable story beginning as a single hotdog cart, serving fine dining quality food in Madison Square Park and flourishing the more than 550 shacks worldwide today.

Speaker Change: That said it has been very eye opening to see how many people across this country don't yet know what shake shack is.

Speaker Change: We believe there is still a great deal of untapped potential for this brand in domestic and global markets, which makes me incredibly optimistic for the future.

Rob Lynch: As I work with the team to understand this opportunity, I'd like to share my framework for building a successful marketing strategy. It is based on answering three questions. Who is our target audience? What is going to either increase or change their behavior? And how do we efficiently and effectively reach that? Our marketing team has done a very good job in answering many of these questions already, as evidenced by their ability to deliver strong, same-Shack sales in a tough environment. As we continue to operate in this ever-changing consumer landscape, it will be critical for us to challenge ourselves to further optimize our approach as we continue to increase our investments in marketing.

Rob: As I work with the team to understand this opportunity, I'd like to share my framework for building a successful marketing strategy. Our marketing team has done a very good job answering many of these questions already, as evidenced by their ability to deliver strong same-shack sales in a tough environment. As we continue to operate in this ever-changing consumer landscape, it will be critical for us to challenge ourselves to further optimize our approach as we continue to increase our investments in marketing. This productivity will afford us the opportunity to explore new real estate options while aiming to maintain the same levels of return and profitability.

Speaker Change: As I worked with the team to understand this opportunity I'd like to share my framework for building a successful marketing strategy is based on answering three questions.

Speaker Change: Our target audience.

Speaker Change: What is going to either increase or change their behavior, and how do we efficiently and effectively reach that.

Speaker Change: Our marketing team has done a very good job of answering many of these questions already as evidenced by their ability to deliver strong same shack sales in a tough environment as we continue to operate in this ever changing consumer landscape. It will be critical for us to challenge ourselves to further optimize our approach as we continue to increase our investments in marketing.

Rob Lynch: These investments in marketing and media will drive greater awareness and try out the company's scales. However, I want to be clear; it is not simply about spending more advertising dollars at the expense of profitability. We will ensure that our marketing investments continue to generate the same significant returns that they do today. Our profit objectives will not come into expense of marketing spending for the sake of marketing.

Speaker Change: These investments in marketing and media will drive greater awareness and trial as the company scales. However, I want to be clear. It is not simply about spending more advertising dollars at the expense of profitability. We will ensure that our marketing investments continue to generate the same significant returns that they do today, our profit objectives will not come at the expense of marketing spend.

Speaker Change: Pending for the sake of marketing.

Rob Lynch: Our second area of focus is opening restaurants with best-in-class cash-on-cash returns. As you know, the team has been very focused on taking costs out of our new builds and have committed to approximately a 10% reduction in build costs in 2024, and building a 2025 pipeline with further improved build costs. This productivity will afford us the opportunity to explore new real estate options while aiming to maintain the same levels of return and profitability. I'm also working closely with our development, marketing, and operations teams to optimize our drive-through format, which will be an unlock for us to enter into markets where our traditional foot traffic will be replaced with car traffic.

Speaker Change: Our second area of focus is opening restaurants with best in class cash on cash returns.

Speaker Change: As you know the team has been very focused on taking costs out of our new builds and have committed to approximately a 10% reduction in build cod in 'twenty 'twenty four and building a 2025 pipeline with further improved build costs.

Speaker Change: This productivity will afford us the opportunity to explore new real estate options, while aiming to maintain the same levels of return and profitability.

Rob: I'm also working closely with our development, marketing, and operations teams to optimize our drive-thru format, which will be an unlock for us to enter into markets where our traditional foot traffic will be replaced by car traffic. The third area of focus I will speak to is our focus on driving profitability. The team has done an incredible job expanding restaurant margins over the last few years. Adjusted EBITDA margins expanded by nearly 800 basis points from 2020 to 2023.

Speaker Change: I'm also working closely with our development marketing and operations teams to optimize our drive thru format, which will be an unlock for us to enter into markets, where our traditional foot traffic will be replaced with car traffic.

Rob Lynch: The third area of focus I will speak to is our focus on driving profitability. The team has done an incredible job expanding restaurant margins over the last few years. From 2020 to 2023, CHAC restaurant level profit margins expanded 560 basis points, and we expect to generate another 70 to 110 basis points of margin expansion in 2024. Adjusted EBITDA margins expanded nearly 800 basis points from 2020 to 2023. Despite this great progress, I see even further opportunity to become more efficient across regions and formats. CHAC is a brand that has been built primarily on foot traffic in areas like New York City, San Francisco, and Chicago, where we have larger units built to capture existing traffic just from people walking by.

Speaker Change: The third area of focus I'll speak to is our focus on driving profitability.

Speaker Change: The team has done an incredible job expanding restaurant margins over the last few years from 'twenty to 'twenty to 'twenty twenty-three shack restaurant level profit margins expanded 560 basis points and we expect to generate another 70 to 110 basis points of margin expansion in 2024.

Speaker Change: Adjusted EBITDA margins expanded nearly 800 basis points from 2020 to 2023.

Speaker Change: Despite this great progress I see even further opportunity to become more efficient across regions and formats.

Rob: Shake Shack is a brand that has been built primarily on foot traffic in areas like New York City, San Francisco, and Chicago, where we have larger units built to capture existing traffic just from people walking by.

Speaker Change: <unk> is a brand that had been built primarily on foot traffic in areas like New York City, San Francisco, and Chicago, where we have larger units built to capture existing traffic just from people walking by.

Rob Lynch: As we continue to build out and diversify formats, including drive-throughs, and leverage third-party delivery as a component of our revenue model, there's an opportunity to get more efficient in how we operate and deliver across channels with the utmost productivity.

Speaker Change: As we continue to build out and diversify formats, including drive throughs and leveraged third party delivery is a component of our revenue model, there's an opportunity to get more efficient in how we operate and deliver across channels with the utmost productivity.

Rob Lynch: As part of this effort, I'm excited to have hired Stephanie Centella as our Chief Operations Officer, who has been in her seat for just a few weeks now. Having worked with Stephanie in the past, I can vouch for her proven track record of driving profitability, leading high-performance teams, and spearheading operational innovations. But the momentum that CHAC is evident, and I see significant opportunity to further enhance the already great work being done. Our three focus areas are directly related to driving strong unit level economics and increasing ROI, which will ultimately lead to long-term shareholder value creation.

Darin Towers: As part of this effort I'm excited to have higher it's definitely send towers, our chief operations Officer, who has been a hot seat for just a few weeks now.

Katie: As part of this effort, I'm excited to have hired Stephanie Centel as our Chief Operations Officer, who has been in our seat for just a few weeks. With that, I'll turn the call over to Katie for a more detailed discussion on the second quarter financial results. Okay, Katie?

Speaker Change: Having worked with Stephanie in the past I can vouch for her proven track record of driving profitability, leading high performance team spearheading operational innovations.

Stephanie: But the momentum at shake Shack is evident and I see significant opportunity to further enhance the already great work being done.

Speaker Change: Our three focus areas are directly related to driving strong unit level, economics, and increasing ROI, which will ultimately lead to long term shareholder value creation.

Rob Lynch: I'll be working further with the executive team on shaping our long-range strategic plan with a focus on continuing our strong momentum into 2025. I'm extremely optimistic about the future of Shake Shack and look forward to sharing more in the coming months.

Speaker Change: I'll be working further with the executive team on shaping our long range strategic plan with a focus on continuing our strong momentum into 2025 I'm extremely optimistic about the future of shake shack and look forward to sharing more in the coming months.

Katie Fogerty: With that, I'll turn the call over to Katie for a more detailed discussion on second quarter financial results. Katie? Great, thank you, Rob, and good morning, everyone. We're proud of our second quarter results, which continue the trend that we have seen in each quarter over the past three years. Generating positive same-shack sales and double-digit revenue, restaurant-level profit and adjusted EBITDA growth. In this quarter, we achieved the highest level of Shack sales, total revenue, restaurant level profits, and adjusted EBITDA on record, along with the highest restaurant and adjusted EBITDA margins since 2019. In the second quarter, relative to last year, we grew total revenue by 16.4%, expanded restaurant level profit margins by 100 basis points, grew adjusted EBITDA by 27.4% to 14.9% of total revenue, that's up 130 basis points, and we generated 20.6 million in free cash flow.

Speaker Change: With that I'll turn the call over to Katy for a more detailed discussion on second quarter financial results Katy great. Thank you Robin Good morning, everyone. We're proud of our second quarter results, which continued the trend that we've seen in each quarter over the past three years generating positive same shack sales and double digit revenue restaurant level profit and adjusted EBITDA.

Katie: Great. Thank you, Rob, and good morning, everyone. We're proud of our second quarter results, which continue the trend that we have seen in each quarter over the past three years, generating positive same-shack sales and double-digit revenue, restaurant-level profit, and adjusted EBITDA growth. And this quarter, we achieved the highest level of shack sales, total revenue, restaurant-level profits, and adjusted EBITDA on record, along with the highest restaurant and adjusted EBITDA margin since 2019.

Katy Fogarty: Growth and this quarter, we achieved the highest level of shack sales total revenue restaurant level profit and adjusted EBITDA on record along with the highest restaurant and adjusted EBITDA margin in 2019.

Katie: In the second quarter, relative to last year, we grew total revenue by 16.4%, expanded restaurant-level profit margins by 100 basis points, grew adjusted EBITDA by 27.4% to 14.9% of total revenue—that's up 130 basis points—and we generated $20.6 million in free cash flow, which is the highest on record.

Katy Fogarty: And the second quarter relative to last year. We grew total revenue by 16.4% expanded restaurant level profit margins by 100 basis points grew adjusted EBITDA by 27, 4% to 14, 9% of total revenue that's up 130 basis points and we generated $20 6 million in free cash flow is the highest on record.

Katie Fogerty: This is the highest on record. We are on a solid path to once again generating positive free cash flow on an annual basis. Onto the details of our second quarter results. We grew total revenue by 16.4% year over year to 316.5 million and system-wide sales by 13.5% to 483.7 million, marking two record achievements for Shake Shack. We opened 23 Shack system-wide with strong sales performance out of the gate and achieved the 14th consecutive quarter of positive same-Shack sales. In just the past three years, we have nearly doubled our trailing 12-month system-wide sales to now $1.8 billion.

Katy Fogarty: We are on a solid path to once again generating positive free cash flow on an annual basis.

Speaker Change: Onto the details of our second quarter results.

Katie: We are on a solid path to once again generating positive free cash flow on an annual basis. We grew total revenue by 16.4% year-over-year to $316.5 million and system-wide sales by 13.5% to $483.7 million, marking two record achievements for Shake Shack. We opened 23 shacks system-wide with strong sales performance out of the gate and achieved the 14th consecutive quarter of positive same-shack sales. In just the past three years, we have nearly doubled our trailing 12-month system-wide sales to now $1.8 billion.

Katy Fogarty: We grew total revenues by 16.4% year over year to $316 5 million and system wide sales by 13, 5% to $483 7 million Mark in Q record achievements for shake Shack, we opened twenty-three shack system wide with strong sales performance out of the gate and achieved the 14th consecutive quarter of positive same shack.

Katy Fogarty: Sales in just the past three years, we have nearly doubled our trailing 12 month, Mr myself to now one $8 billion.

Katie Fogerty: In our license business, we grew sales by 8.4% year over year to 178.3 million, with 11 new license-shack openings and a low single-digit sales headwind from foreign exchange. We saw strong growth in our domestic business led by airports and railway travel classes. We also opened our first Shack in Canada up in Toronto with very strong performance and a line outside the Shack starting at 5 a.m. on opening debt. We are proud of our entrance in this market and offering locally-inspired many items like the maple-faulted pretzel shake. Our strong domestic performance was matched with growth in Mexico, as well as the UAE and the Philippines in Japan.

Katy Fogarty: And our license business, we grew sales by eight 4% year over year to $178 3 million with 11, new licensed shack openings and a low single digit sales headwind from foreign exchange, we saw strong growth in our domestic business led by airport and we're already traveled pad that we.

Katie: We also opened our first shack in Canada, in Toronto, with very strong performance and a line outside the shack starting at 5 a.m. on opening day. In our domestic company-operated business, we grew shack sales 16.7% year-over-year to $305.5 million, with 12 shack openings and 4% year-over-year growth in same-shack sales. Traffic was down 80 basis points and checks rose mid-single digits, as pricing was partially offset by planned marketing strategies that resulted in a negative low-single-digit mix.

Katy Fogarty: We also opened our first shack in Canada up in Toronto, with very strong performance and a line outside of the shack starting at five a M on opening that we.

Katy Fogarty: We are proud of our entrance in this market and offering locally inspired menu items like the maple soft pretzel shake.

Katy Fogarty: Our strong domestic performance that matched with growth in Mexico, as well as the UAE and the Philippines and Japan. However, this was somewhat offset by continued macro pressures and mainland China and pockets of India, and we will expect to persist for the foreseeable future.

Katie Fogerty: However, this was somewhat offset by continuing macro-crushers in mainland China and pockets of India that we will expect to persist for the foreseeable future. In our domestic company operated business, we grew Shack sales 16.7% year over year to 305.5 million, with 12 Shack openings and 4% year over year growth in same-Shack sales. Traffic was down 80 basis points, and Shack rose mid-single digits as pricing was partially offset by planned marketing strategies that resulted in a negative low single-digit mix. We continue to see a positive impact from stronger TX mix driven by higher catch rates, especially on beverages and custom add-ons.

Katy Fogarty: And our domestic company operated business. We grew shack fell 16, 7% year over year to $305 5 million with 12 shack opening and 4% year over year growth in same checks out.

Speaker Change: I think was down 80 basis points and check was mid single digits as pricing was partially offset by planned marketing strategies that resulted in a negative low single digit neck.

Speaker Change: We continue to see a positive impact from stronger kiosk snacks, driven by higher attach rates, especially on beverages and custom add on.

Katie Fogerty: During the quarter, we laughed about 2% pricing mid-wet May and exited the quarter with approximately 4% in Shack menu pricing and a blended approximate 6% menu pricing across all channels. As a reminder, we will last the additional 1% of price in October. Throughout the quarter, we remain focused on driving sales through our marketing initiatives and culinary innovation, as well as operational improvement. In April, we launched an exciting new promotion, highlighting our no antibiotics ever in no added hormone chicken-checked sandwich. We saw strong incremental sales and a lift in brand awareness. Then, right as Memorial Day weekend hit, we launched our Summer Barbecue menu, highlighting two limited time offering sandwiches and our barbecue spiced fries.

Speaker Change: During the quarter, we lapped about cheaper scent pricing they'd wet may and exited the quarter with approximately 4% in shack menu pricing and a blended approximate 6% menu pricing across all channels.

Speaker Change: As a reminder, we will lap the additional 1% of price in October.

Katie: Throughout the quarter, we remained focused on driving sales through our marketing initiatives and culinary innovations, as well as operational improvement. In April, we launched an exciting new promotion highlighting our No Antibiotics Ever and No Added Hormone Chicken Shack Sandwich. We saw strong incremental sales and a lift in brand awareness. Compared to the first quarter, we drove improvements in our same-shack sales trends in all regions. We grew same-shack sales by mid-teens in Florida and Arizona and high single digits in markets such as Washington, D.C., and Michigan.

Speaker Change: At the quarter, we remain focused on driving sales through our marketing initiatives and culinary innovation as well as the operational improvement in April we launched an exciting new promotion highlighting our no antibiotics ever and no added hormones chicken shack sandwich, we saw strong incremental sales and a lift in brand awareness there.

Speaker Change: And then right at Memorial Day weekend, we launched our summer Bbq menu, highlighting two limited time offerings damages and or Barbequed Spice right. Our sandwich offering include the Smoky Classic Barbeque Burger, which features a smoky barbecue sauce and crispy onions, and then you also had the Carolina Barbeque Burger, which has a tangy barbecue sauce talk with our hand battered.

Katie Fogerty: Our sandwich offering includes the Smoky Classic Barbecue Burger, which features a smoky barbecue sauce and crispy onions, and then we also had the Carolina Barbecue Burger, which has a tangy barbecue sauce topped with our hand-battered and made-to-order fried pickles. These two sandwiches and our barbecue fry offerings have been a hit, and we hope that everyone gives our LTO burgers a try. Compared to the first quarter, we drove improvements in our same-track sales trends in all regions. We grew same-track sales by mid-teens in Porta and Arizona and high single digits in markets such as Washington, D.C.

Katie Fogerty: and Michigan. In California, our same-track sales improved exponentially from negative low single digits to positive, as we implemented approximately seven percent menu price to help offset the mandated increase in wages. Finally, in New York City, our shacks remain impacted by ample pressures, particularly in third-party delivery. We showed continued improvement on restaurant level profit in the quarter, as we achieved 67.1 million or 22 percent of Shacks sales, 100 basis points better than last year. We did this with menu price and cost saving mostly in labor and food and paper that are helping us grow profitability and unlock additional investments for marketing strategies to drive greater brand awareness against a challenging industry.

Katie: In California, our same-shack sales improved sequentially from negative low single digits to positive, as we implemented approximately 7% of a menu price to help offset the mandated increase in wages. Food and paper costs were $85.1 million, or 27.8% of Shack sales, down 120 basis points versus last year and down 80 basis points versus the last quarter, as menu price and strategic cost savings in our supply chain helped us offset underlying low single-digit inflationary pressures, including fees and fries of mid-single digits and certain costs related to our sales driving initiative.

Katie Fogerty: We are pleased with our current improvements on operations and execution on cost savings and have a strong line of sight to a substantial opportunity ahead for added efficiencies and profitability. Food and paper costs were 85.1 million or 27.8 percent of shacks sales, down 120 basis points versus last year and down 80 basis points versus the last quarter, as menu price and strategic cost savings and our supply chain helped us offset underlying low single digit inflationary pressures. We are pleased with our current improvements on trading fees and fries of mid single digits and certain cost related to our sales driving initiatives.

Speaker Change: <unk> had a strong line of sight to a substantial opportunity ahead for added efficiencies and profitability.

Speaker Change: Food and paper costs were $85 1 million or 27, 8% of shack sales down 120 basis points versus last year, and down 80 basis points versus the last quarter at menu price and strategic cost savings in our supply chain helped us offset underlying low single digit inflationary pressures, including fees and fried of mid single digit.

Speaker Change: And certain costs related to our sales driving initiatives.

Speaker Change: Labor and related expenses were $86 6 million or $86 2 million, excluding 445000 of expense related to California health care charges for fiscal 2020 through 2023 that do not represent in fiscal 2020 for labor and related expenses.

Katie Fogerty: Labor and related expenses were 86.6 million, or 86.2 million excluding 445,000 of expense related to California healthcare charges for fiscal 2020 through 2023 that do not represent fiscal 2024 labor and related expense. Excluding this expense, labor was 28.2 percent of shacks sales, down 50 basis points versus last year as we've benefited from menu price sales leverage and operational strategies. This was offset by a 90 basis point impact from wage inflation, mostly in California. Other operating expenses were 44 million or 14.4 percent of Shack's sales, of 60 basis points year over year, as we invested more in shack level marketing and other expenses to support our sales strategies.

Speaker Change: Excluding this expense labor was 28, 2% of shack sales down 50 basis points versus last year as we benefited from menu pricing sales leverage and operational strategies. This was offset by a 90 basis point impact from wage inflation, mostly in California.

Speaker Change: Other operating expenses were $44 million or 14, 4% of shack sales up 60 basis points year over year as we invested more in shack level marketing and other expenses to support our sales strategy.

Katie Fogerty: Occupancy and related expenses were 23.2 million or 7.6 percent of shack sales, approximately in line with last year's levels. All in, we are very pleased with the level of margin improvement we delivered in the quarter as we continue to build back our profitability levels, which is vital to our long term growth. GNA was 36.3 million, excluding 2 million in one time adjustment. GNA was 34.3 million or 10.8 percent of total revenue, 20 basis points favorable to last year. The increase in GNA was driven by a significant growth in marketing to drive higher brand awareness and sales, as well as strategic investments and our people to support our growth and executive transition.

Katie Fogerty: Pre-opening costs were $4 million in the quarter, down 28% year of a year, as we showed strong progress against our target to reduce pre-opening expenses per shack by at least 10% this year. All in, we grew adjusted EBITDA by about 27% year of a year to a second quarter record high of $47.2 million, or 14.9% of total revenue. This is up 130 basis points from last year and the best second quarter adjusted EBITDA margins since 2019. Depreciation was 25.5 million, 14.6% year of a year. We realized net income attributable to Shake Shack Inc. of 9.7 million or 23 cents per diluted share.

Katie: All in, we grew Adjusted EBITDA by about 27% year over year to a second quarter record high of $47.2 million, or 14.9% of total revenue. This is up 130 basis points from last year and the best second quarter Adjusted EBITDA margin since 2019. We reported an adjusted pro forma net income of $12.1 million, or $0.27 per fully exchanged and diluted share. Our GAAP tax rate was 23.4%, and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was $22.7 million.

Katie Fogerty: We reported an adjusted pre-opened income of 12.1 million, or 27 cents per fully exchanged and diluted share. Our gap tax rate was 23.4%, and our adjusted pre-opened tax rate excluding the tax impact of equity-based compensation was 22.7. Finally, our balance sheet remained solid with 304.4 million in cash and cash equivalents and marketable securities at the end of the quarter. This is up 19.6 million versus the prior quarter, as we grew operating cashflow by approximately 26% year of a year and made investments in the approximately 40 Shacks that are currently opened in under construction today.

Speaker Change: Cash and cash equivalents and marketable securities at the end of the quarter, which was up $19 6 million versus the prior quarter. As we grew operating cash flow by approximately 26% year over year and made investments in the approximately 40 shacks that are currently opened and under construction today.

Katie Fogerty: Now onto our guidance, which reflects a degree of uncertainty around the macroeconomic outlook. We are planning to hold onto many of the trends that we've seen in the first half of the year with mid-chains growth and Shack sales, positive same Shack sales, and expanding restaurant level profit margins in the second half of the year. For the third quarter, we got a total revenue of 311.6 million to 317 million, up 12.8 to 14.8% year of a year with 11.6 to 12 million of licensing revenue with approximately 7 licensed openings. Same Shack sales to be up low single digits year of year with a low single digit price mix and 6 to 7 company operated openings and restaurant level profit margins of 20 to 20.5%.

Speaker Change: Now onto our guidance, which reflects a degree of uncertainty around the macroeconomic outlook.

Speaker Change: We are planning to hold onto many of the trends that we've seen in the first half of the year with mid teens growth in shack sales positive same shack sales and expanding restaurant level profit margins in the second half of the year.

Rob: For the third quarter, we got a total revenue of $311.6 million to $317 million, up 12.8 to 14.8% year-over-year, with $11.6 to $12 million of licensing revenue, and approximately seven license openings. And restaurant level profit margins of 20.6 to 21 percent. This represents 70 to 110 basis points of expansion year over year. Our fiscal 2024 adjusted EBITDA guidance is $165 to $170 million, representing approximately 25 to 29 percent growth year-over-year, nearly double our expected total revenue growth rate, and representing a margin of approximately 13.3 to 13.6 percent, at least 120 basis points higher than the prior year, and the highest adjusted EBITDA margin since 2019. Thank you, Katie.

Speaker Change: For the third quarter total revenue of $311 6 million to $317 million up 12, 8% to 14, 8% year over year with 11, 6% to $12 million of licensing revenue with approximately seven licensed opening.

Speaker Change: Same shack sales to be up low single digits year over year with low single digit price mix and fixed to seven company operated openings and restaurant level profit margins of 20% to 25%.

Katie Fogerty: For the fifth quarter year, 2024 guidance, you guide total revenue of approximately 1.24 to 1.25 billion, growing about 14 to 15% year of a year. Same Shack sales to grow by low single digits year of a year, approximately 40 company operated new Shack openings and approximately 40 licensed openings. We expect licensing revenue to reach 44 to 45 million. Restaurant level profit margins of 20.6 to 21% this represents 70 to 110 basis points of expansion year by year. Our 2024 GNA guidance is 143 to 146 million, and equity based compensation expense is approximately 18 million. The GNA guidance does not include the 5.1 million in non-recurring costs that are excluded from adjusted EBITDA year to date.

Speaker Change: For the fiscal year 2020 for guidance.

Speaker Change: Guy total revenue of approximately 1.24 to one 5 billion growing about 14% to 15% year over year.

Katie Fogerty: We guide full year pre-opening of 17 million depreciation of 103 to 105 million and adjusted performer tax rate that excludes the impact of equity based compensation to be 20 to 23%. Our fiscal 2024 adjusted EBITDA guidance is 165 to 170 million, representing approximately 25 to 29% growth year over year, nearly double our expected total revenue growth rate and representing a margin of approximately 13.3 to 13.6%. At least 120 basis points higher than the prior year and the highest adjusted EBITDA margin since 2019.

Katie Fogerty: Thank you. It's a great time to be an investor, team member, or guest of Shake Shack. I'm so thankful to our amazing people for all that they do to make Shake Shack a company that we can all be proud of. I look forward to continuing our strong start to the third quarter and to working with our team to build this brand for years to come.

Rob: I look forward to continuing our strong start to the third quarter and to working with our team to build this brand for years to come. Obviously, driving profitable comp growth is priority number one for us, and I believe there's a huge amount of opportunity to do that, and it's in multiple ways. One of those ways is what you are highlighting, our ability to drive brand equity and greater awareness and understanding of our premium ingredients and premium experience that we offer through enlightened hospitality, but there are a lot of other levers, too.

Operator: And with that operator, please open up the call for questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue and for our participants using speaker equipment. You may need to pick up your handset before pressing the star keys.

Speaker Change: Pick up your handset before pressing the star. He is our first question is from Brian Mullan with Piper Sandler. Please proceed.

Brian Mullan: Our first question is from Brian Mullan with Piper Sandler. Please proceed. Thank you. I just wanted to ask about the broader advertising and brand awareness opportunity. There was a line in the letter that talked about sharing your premium ingredients story as a key differentiator. So, Rob, maybe that gives a clue what you have in mind for the coming years.

Brian Mullan: Okay. Thank you.

Brian Mullan: I just wanted to ask about the broader advertising and brand awareness opportunity. There. There was a line in the letter that talked about sharing your premium ingredients story is a key differentiator.

Rob: So Rob maybe that gives a clue what you have in mind for the coming years, but would love. If you could just elaborate on that how are you going to get that message out there to consumers and how you see this evolving over time as the company continues to get bigger.

Rob Lynch: But with love, if you could just elaborate on that, how are you going to get that message out there to consumers and how you see this evolving over time as the company continues to get bigger?

Rob Lynch: Great question, Brian. I'm obviously driving profitable comp roles as priority number one for us. And I believe there's a huge amount of opportunity to do that. And it's in multiple ways. One of those ways is what you are highlighting: our ability to drive brand equity and greater awareness and understanding of our premium ingredients and premium experience that we offer through enlightened hospitality. But there are a lot of other levers, too. Product innovation is a huge opportunity for us to drive both new customers as well as frequency. I think we have a lot of trial driving opportunity by going out into these new markets where we don't currently serve.

Rob: Yeah, Great question, Brian, obviously, driving profitable comp growth is priority number one for us and I believe there's a huge amount of opportunity to do that and it's in multiple ways. One of it one of those ways is what you are highlighting our ability to drive brand equity.

Rob: And greater awareness and understanding of our premium ingredients and premium experience that we offer through enlightened hospitality, but theres a lot of other levers to product innovation is a huge opportunity for us to drive both.

Rob: Product innovation is a huge opportunity for us to drive both new customers as well as frequency. I think we have a lot of trial driving opportunity by going out into these new markets where we don't currently serve, but once we get there, we really don't have a problem driving trial. When we open these shacks, we have lines around the corner.

Rob Lynch: But once we get there, we really don't have a problem driving trial. When we open these shacks, we have lined around the corner. Our first couple of weeks of sales are bigger than I've ever seen in any concept. So people really come to try Shake Shack. Our job is to drive frequency and brand marketing, and how we position the brand will help that. It'll also be help by strategically building a product innovation calendar that brings our best customers back more often.

Rob: Our first couple, And, you know, brand marketing and how we position the brand will help that. It will also be helped by strategically building a product innovation calendar that brings our best customers back more often. One of the biggest levers that we have is not actually – to drive comps is not actually marketing at all. It's improving our speed of service and our throughput. You know, our service times are still kind of in that range of where we were in the early days when we were kind of a New York brand, and people would wait a long time. We have to get faster. We're shining a light on that in operations, and that's going to drive comps as well.

Rob Lynch: And one of the biggest levers that we have is not actually to drive comps, is not actually marketing at all. It's improving our speed of service and our throughput. You know, our service times are still kind of in that range of where we have been in the early days where we were kind of a New York brand and people would wait a long time. We have to get faster. We're shining a light on that on operations. That's going to drive comps as well.

Rob: You know, we've talked a lot about value perception, and, you know, I think that was one of the big question marks around whether we could, you know, persevere through these value-oriented times. I think, you know, the last four or five months have shown that, you know, value isn't just about price. It's about the benefits that you offer to your guests at a fair price. And I think, you know, our comps show that we're able to do that.

Rob Lynch: We've talked a lot about value perception. And I think that was one of the big question marks around could we persevere through these value-oriented times. I think the last four or five months have shown that value isn't just about price. It's about the benefits that you offer to your guests at a fair price. And I think our crop show that we're able to do that. I think we can get even better at that.

Rob: I think we can get even better at that. And then the last piece that we're doing to drive comps moving forward is, you know, we're building out a loyalty marketing platform. You know, that's a big part of the opportunity here at Shake Shack. I think the team has done a great job on the tech side; kiosks implemented in all of our shacks have really been a big positive for us, but we still are unable to execute against the one-to-one marketing platform. That's going to be a big part of that model too.

Rob Lynch: And then the last piece. that we're doing to drive comps, moving forward is, you know, we're building out a loyalty marketing platform, you know, that's a big part of the opportunity here at Shake Shack. I think the team has done a great job on tech. Kiosks implemented in all of our Shacks have really been a big positive for us, but we still are unable to execute against the one-to-one marketing platform. That's going to be a big part of that model too. So we have a lot of different levers, untapped opportunities to drive same-shack sales, moving forward.

Rob: So we have a lot of different levers, untapped opportunities to drive Shake Shack sales moving forward. Brand positioning is just one of them. Thank you very much and congratulations again, Rob.

Rob Lynch: Brand positioning is just one of them.

Lauren Silberman: Our next question is from Lauren Silberman with Doisha Baines. Please proceed. Thank you very much, and congrats again, Rob. You mentioned working with the development team on optimizing the drive-through format. Can you just give your initial assessment on the success of the drive-through thus far? And then, obviously, there is a 450-unipotential number. There's a number out there, which is viewed as a bit stale, given that the time of the IPO. Do you think drive-throughs are the key unlock to increasing that addressable market or any initial assessment?

Speaker Change: You mentioned working with the development team on optimizing the drive thru format can you just give your initial assessment on the success at the drive thru, thus far and then obviously there is a 450 and a potential number out there which is viewed as a bit stale given at the time of the IPO do you think drive throughs are the key unlock to increasing that addressable market or any initial.

Speaker Change: <unk> assessment.

Rob Lynch: Yeah, great question, Lauren. I mean, if you ask anybody in this building, you'll know that I'm the biggest drive-through pusher in Shake Shack. So I do think it's a huge unlock.

Speaker Change: Yeah, Great question, Lauren I mean, I you know if you ask anybody in this building you'll know that I'm like the biggest drive thru pusher and.

Speaker Change: And at Shake Shack, So I do think it's a huge unlock I I've I've framed it up internally and externally is moving from you know our.

Rob Lynch: I've framed it up internally and externally as moving from a business that used to deliver against walk-up traffic to a business that's going to need to deliver against drive-up traffic. You talk about the success of the drive-through. We really haven't had that yet. I got to give credit to the team.

Speaker Change: A business that used to you know.

Speaker Change: To deliver against walkup traffic to a business, that's going to need to deliver against drive up traffic.

Speaker Change: You talk about success of the drive through we really haven't haven't had that yet you know I got to give credit to the team you know shake shack was primarily almost exclusively a dine in business when the pandemic hit and you know that was obviously a tough time for this company and for the everyone involved in and they moved.

Rob Lynch: Shake Shack was primarily, almost exclusively, a dining business when the pandemic hit. That was obviously a tough time for this company and for everyone involved. They moved quickly to try to mitigate that and incorporate things like third-party delivery and drive-throughs into the business model. They did that without having a lot of drive-through expertise. Today, our drive-through times are exceedingly too long, and we're going to fix all of that. There's multiple facets there. One is the ordering process. Today, the menu on the drive-through board looks exactly the same as the menu in the dining room. We don't have tools like combos and other things really implemented at scale that can improve the speed of ordering and the lack of stress on the kitchens and how they make things.

Rob Lynch: So that's a big part of it. We don't have standardized linear lines across all of our drive-throughs, and so people are moving around. It's a lot of steps to get to the drive-through window. There are a lot of opportunity and drive-through to get it faster. We execute pretty good accuracy. The team does a great job making food fresh and making it right. We got to get faster, and we will.

Rob Lynch: Once we get that unlocked solved, we'll have a lot more confidence building these things in a lot more markets. Today, given the current speed, I think there's been a hesitancy because we haven't seen the returns on the drive-throughs yet because they haven't drove a lot of incremental throughput. That's going to change. We're going to focus on drive-throughs. Stephanie is going to help the team evolve our drive-through strategy, and it will be an unlock for us to get that tam where I think all of you expect us to go.

Rob Lynch: We're going to focus on drive-throughs and drive-throughs.

Brian Vaccaro: Our next question is from Brian Vaccaro with Raymond James. Please proceed. Thanks. Good morning. Yeah, I got to follow up just on option margins, and I realized Stephanie's only in for a few weeks, but Robbie, obviously, got experience on the upside. So, as you dug in the last couple of months, I'm just curious to get your take on what some of the biggest opportunities are to optimize the back of house and improve the guest experience. So what degree might there be opportunities on the equipment side to reduce cook times or make your shakes more efficiently, or any tools to better anticipate demand, understanding your cook to order.

Rob Lynch: Just anything there would be great, and then the second question on that would just be at 4 million AUVs. Is there any structural reasons that you couldn't meaningfully narrow the gap in your store margins versus best-in-class fast casual beers? Thank you.

Rob Lynch: So great questions. You know what I would tell you is that Stephanie, I almost don't even know that Stephanie started because all she's doing is spending all of her time in our shacks. I mean she is digging in, and she is visiting a lot of our major markets. She is training. She is learning, and I probably get about five texts from her every day about opportunities for us to get better.

Rob: So great questions. You know, what I would tell you is that Stephanie. Yeah, great question. I am very focused on the cash-on-cash returns that we're going to garner from our shacks moving forward. The team has done a great job. It's benefiting to a certain extent just because some of the cost of materials and the build-outs are coming down. We've benefited from that, but also, our team has taken a very thoughtful approach to RFPing a lot of the things that go into building shacks, from the contractors that we use, the architects that we use. Across all facets of building a new shack, the team has really challenged themselves on how they can get better. The equipment that we're putting in, we've RFPed.

Speaker Change: Five texts from her everyday about opportunities for us to get better so the <unk>.

Rob Lynch: So the answer to your first question is absolutely yes. There are opportunities for us to improve operational efficiencies in almost every way. What we will do is compromise the quality of our food. You know this brand has been built on the best burgers in the business and making food that people are willing to stand in line for. And that is not going to change. But if we can leverage equipment technology, if we can leverage operational processes, if we can just change some of the things that we measure and focus on, all of those things are going to have an impact on speed. Is my primary focus and Stephanie's primary focus is increasing throughput.

Speaker Change: Answer to your first question is absolutely, yes, there are opportunities for us to improve operational efficiencies in almost every way.

Speaker Change: What we won't do is compromise the quality of our food.

Speaker Change: We this brand has been built on the best burgers in the business and making food that people are willing to stand in line for and that you know that's not going to change, but if we can leverage equipment technology, if we can leverage operational processes.

Speaker Change: If we can just change some of the things that we measure and focus on all of those things are going to have an impact on speed is my primary focus on Stephanie's primary focus is increasing throughput and then you know labor productivity as a secondary focus so where we got to get our great food out faster and.

Rob Lynch: And then you know labor productivity is a secondary focus. So we got to get our great food out faster. And once we get those processes in place that allow for that, we'll be able to really explore how we can get more fishing effective with our labor.

Speaker Change: Once we get those processes in place that allow for that we'll be able to really explore how we can get more efficient and effective with our with our labor. So that's the first question and you know kind of rolls right into the second question 4 million Evs. That's you know there's there's there's a handful of brands in the industry doing that level of sales.

Rob Lynch: So that's the first question. And you know it kind of rolls right into the second question. Four million AUVs; there's a handful of brands in the industry doing that level of sales. And so, yeah, we should be able to deliver great margins. We're really happy with the margins that we delivered in Q2. And I think there's aspirations for us to continue to get more productive. So yeah, there's upside for sure in the operations of the business.

Michael Davis: Our next question is from Michael Davis with Oppenheimer and Company. Please proceed. Hi, thanks. Good morning.

Michael Davis: I just want to discuss near-term clarification and sort of a bigger picture question. You know, on the near term traffic in June, turn negative relative to the flat that you saw in April and May. You called out some of the slowing marketing investments. But then you said July traffic in term positive, which I think is also a little bit better. and then what we're hearing from a lot of restaurants. So can you impact for us what you think is going on in July, particularly against the industry?

Rob Lynch: And then Rob, I'd love to hear your thoughts on what you think the most impactful drivers that you can unlock on the sale side over the next 12 months versus those that might be a little bit longer term, maybe the next two or three years. And how do you think you can achieve this without handcuffing future margins, like you mentioned. I mean, does it require some cost reductions in other areas of the business, or how do you think about that?

Rob Lynch: Thanks.

Rob Lynch: Great questions. You know, we're really happy with our traffic in July, and it's really representative of the power of this brand when we get the model right, which is kind of what we've continued to optimize over the last four or five months. And, you know, that's, I got to hand it to the marketing team, you know, for a long time, this brand didn't have a lot of activations and a lot of promotions and a lot of marketing. And they have, you know, in a short period of time, figured out some real unlocks for how we can drive incremental traffic, you know, in this business.

Rob Lynch: And so, you know, in June, it was a little bit of a fall off and kind of our marketing push, and we did see commensurately a little bit of the traffic impact from that. And it's really encouraging that in July, when we came back full steam, we saw it bounce back. So I feel really confident that in the short term, we're going to be able to leverage those tools and those capabilities to continue to, you know, garner more than our fair share of traffic, you know, which ties to your second point around near term sales.

Rob Lynch: We're going to continue doing that.

Rob Lynch: I mean, we have a very strong back half calendar plan from both a marketing standpoint, as well as a product standpoint. So that's why, you know, we're comfortable reiterating our guide for positive comps in the back half, and, you know, the fact that we've been able to do that. While driving those comps, while still delivering, you know, really strong margins. And we're committing to delivering strong margins in the back half. You know, as a testament to the strength of that balanced approach that the team has been employed in Q2.

Andrew Charles: Our next question is from Andrew Charles with TD Cowan. Please proceed. Great. Thank you.

Katie Fogerty: I had a question to follow up for Katie. Katie, I'd love to better understand the oil learnings from the labor scheduling tool. You know, how many stores now include this? And in the early stages, the tool delivered the efficiencies you're hoping it would.

Katie Fogerty: And then just as a follow up on the marketing, you know, the GNA guidance was nudged a little higher. Well, stock based comp was not so lower. So we think about this right. There's about an incremental $2 to $3 million investment in GNA for marketing in 2024.

Katie Fogerty: Hi. So first of all, on labor. So, you know, just to remind everybody we are in the process of kind of refining our labor allocation in our shacks to really account for the unique channel menu mix and peak periods of all of our restaurants. So we started that test early last or early this year, and we have, you know, we're really pleased with the results from that. We've talked about rolling that out.

Katie Fogerty: We have a commitment to roll that out by the end of this year, and we are well on track for that.

Katie Fogerty: And then also on your point around GNA, you know, we are making additional investments in marketing.

Katie Fogerty: We also have had, you know, room in there for an increase around what we talked about: investments in our people and executive transition expenses. When you take out executive transition expenses, we are still on a path excluding our increase in marketing and advertising as investments. We are still on a path to lever that versus last year.

Christine Chow: Our next question is from Christine Chow with Goldman Sachs. Please proceed. Thank you. So congrats on a great quarter. It's really great to see in the shareholder's letter. You mentioned that your recent new units are exceeding your sales expectations, but at the same time you're effectively lowering your bill costs. So what are some of the things that you've done that has driven this success? So are you picking the right markets? You are you benefiting from the brand awareness, finding the right formats, etc.

Speaker Change: Question is from Christine Cho with Goldman Sachs. Please proceed.

Christine Cho: So ah congrats on a great quarter.

Speaker Change: It's really great to see in the shareholder letter you mentioned that your recent new units are exceeding your sales expectations are.

Christine Cho: But at the same time, you are effectively lowering your bill costs. So what are some of the things that you've done that has driven the success, though are you picking the right markets. You know are you benefiting from the brand awareness is finding the right formats et cetera, and how do you plan to keep this momentum going forward, while keeping the returns in check as you think about.

Rob Lynch: And how do you plan to keep this momentum going forward while keeping the returns in check as you think about further expansion? And also just how does the increased drive-throughs also fit into this equation as well.

Speaker Change: Further expansion and also just how does the increased drive throughs also fit into this equation as well. Thank you.

Rob Lynch: Thank you. Yeah, great question. I am very focused on the cash on cash returns that we're going to garner from our Shacks moving forward. The team has done a great job. It's been benefited to a certain extent just on some of the costs and materials and the buildouts coming down. So we've benefited from that. But also our team has taken a very thoughtful approach to RFPing a lot of the things that go into building Shacks from the contractors that we use, the architects that we use. So across all facets of building a new Shack, the team has really challenged themselves on how they can get better.

Speaker Change: Yeah, Great question I am very focused on the cash on cash returns that we're gonna garner from our shacks moving forward. The team has done a great job. It's been benefited to a certain extent just on some of the cost of materials and the build outs coming down so we'd been.

Rob: There are a lot of things that the team has done by taking a really focused approach on getting those costs down. The other thing that's going to drive those returns is we have moved to a more standardized kitchen model. For a long time, every shack was kind of a unique shack that the ops teams had to kind of figure out.

Rob Lynch: The equipment that we're putting in, we've RFPed. There's a lot of things that the team has done by taking a really focused approach on getting those costs down.

Rob Lynch: The other thing that's going to drive those returns is we have moved to a more standardized kitchen model. For a long time, every Shack was kind of a unique Shack that the ops teams had to figure out. A lot of times we're going into pieces of real estate that made it hard to standardize. We've moved to a bit more of a model. As we scale, we're going to have to be more standardized. So we're building standard formats for larger Shacks with larger real estate and standard formats for places where we have to go in and lift smaller footprints.

Rob: A lot of times, we were going into pieces of real estate that made it hard to standardize. We've moved to a bit more of a model. As we scale, we're going to have to be more standardized. We're building standard formats for larger shacks with larger real estate and standard formats for places where we have to go in with smaller footprints.

Rob: That standardization is going to make it easier and more efficient and productive for us to build and operate our shacks on a run-rate basis. In your letter, you did kind of mention a very big part of our system located in and around the greater, you know, New York City area, and that's where we're going to get the most return on our investment in the near term. We are exploring how we can most effectively market in these other regions that drive growth. Our fastest growing region right now is the Southeast, and we're building a lot of shacks there.

Rob Lynch: That standardization is going to make it easier and more efficient and productive for us to build and operate our Shacks on a run-rate basis.

Brian Harbor: Our next question is from Brian Harbor with Morgan Stanley. Please proceed. Yeah, thanks. Good morning, guys. In your letter, you did kind of mention weight time improvements. I was just curious what's been most impactful there.

Rob Lynch: Rob, having spent more time inside of Shack lately. What do you think could really continue to drive that improvement to be the service? I'll talk at the macro level, and then Katie can weigh in on some of the recent results and improvements. At the macro level, look, Shake Shack, as we all know, delivers high AVs, and there's always been strong demand and strong trial of our restaurants and our Shacks when they open up. I think speed of service is always something we kind of talk about but hasn't necessarily been a religion. It's kind of fallen, you know, secondarily to some of the innovations that we can deliver, and some of the, you know, the way we make our products is more important.

Rob Lynch: And we're just kind of, we're just kind of maybe reprioritizing. I think, you know, once again, as you move from all of your Shacks being in Manhattan and in the New York City area where a lot of folks are walking up to the Shacks and, you know, they're used to kind of waiting in line to get Shake Shack, and we start to compete against other brands in other markets in Ohio and Georgia and Texas and all these other places. You know, speed becomes something as part of the overall guest experience and is a big part of that, especially as you move into more drive-through format.

Katie Fogerty: So we've really just kind of changed the way we think about it, like into that holistic guest experience. Food quality, taste is part of that and light and hospitality and the how we make the guest feel as part of that. But convenience, accessibility, and speed are also part of the holistic guest experience, and we're just kind of putting those up the ladder and the order of prioritization. So, as we move forward, we're going to start making, you know, some strategic decisions on how we operate the equipment we use, how we think about the kitchen, and in regards to making sure that we're delivering better speed.

Katie Fogerty: So that's, that's the big picture. I'll let Katie talk to specifically what's happened in on and Q2.

Katie Fogerty: Yeah, great.

Katie Fogerty: So, you know, we have, it's just for everybody's benefit, you know, starting this year, we started to really talk about speed of service as a KPI for our operators. And, you know, we've shown continuous improvement on it. We did again in the second quarter; a lot of this is through, you know, reporting and making sure that we're, you know, on top of it and identifying opportunities.

Katie Fogerty: But I think what you're hearing from Rob is that, you know, that opportunity to really move the needle is more on the transformational side. And so I think that's what, you know, we're really excited about addressing going forward.

Peter Saleh: Our next question is from Peter Salah with BTIG. Please proceed. Great. Thanks for taking the question, and congrats on another strong quarter. I did want to come back to the conversation on, on the marketing and advertising. You know, over the past year, you guys have been sprinkling in this marketing into different regions of the country. I was hoping to give us a sense on where you spent some of these add dollars this quarter, and where you anticipate spending some of the add dollars in the back end of the year. And then just on the return hurdle, what are you guys looking for in terms of return for this investment?

Rob Lynch: I know, in the past, we've heard brands talk about, you know, three dollars of sales for every dollar invested. Can you give us a sense of what your return hurdle is on the advertising and marketing spending that you were doing now? Thank you.

Rob Lynch: Thanks, Pete. So, you know, we obviously still have a very big part of our system located in and around the greater, you know, New York City area. And that's where we're going to get. You know, the most return on our investment in the near term. We are exploring, you know, how we can most effectively market in these other regions to drive growth, our fastest growing region. Right now, it's the Southeast, and you know, we're building a lot of Shacks there. And so we definitely want to continue to propagate that. You know, we want to go in and win in markets that are most conducive with structural economics that are most likely to drive the highest margins, right?

Rob: And so we definitely want to continue to propagate that. We want to go in and win in markets that are most conducive to structural economics that are most likely to drive the highest margins. So strong real estate at an affordable cost, good construction costs, good labor costs, and strong market growth.

Rob Lynch: So, you know, strong real estate, you know, a strong real estate at an affordable cost, good construction costs, good labor costs, strong market growth. So we're going to continue to invest in markets where we derive the best returns. I don't think we've disclosed our marketing ROI, and I don't know that we're ready to do that, but I can tell you that that three to one number that you put out there is low relative to what we see. So, I think there's a huge upside potential on marketing here because there's just been such a lack thereof. You know, in the 20 years that Shake Shack has been around, like the brand hasn't had the market.

Rob: So we're going to continue to invest in markets where we derive the best returns. I don't think we've disclosed our marketing ROI, and I don't know that we're ready to do that, but I can tell you that that three to one number that you put out there is low relative to what we see. So I think there's a huge upside potential for marketing here because there's just been such a lack of it in the 20 years that Shake Shack has been around. The brand hasn't had the market.

Speaker Change: Because there's just been such a lack thereof, and you know in the 20 years that shake shack has been around like the brand Hasnt had the market the brands products and you know danny's reputation and a lot of these things have driven a lot of brand heat a lot of excitement a lot of trial as we enter into these new markets it's going.

Rob: The brand's products and Danny's reputation and a lot of these things have driven a lot of brand heat, a lot of excitement, a lot of trial. As we enter these new markets, it's going to take more than that. We're really excited about the fact that the returns that we see on our marketing investments are some of the best I've seen in the industry, and we're going to continue to double down there because we believe that it's going to drive profitable growth. As we mentioned in our earlier discussion, we're not just spending on marketing because that's... Our next question is from Jake Bartlett with Truist Security. Great questions, you know; I would tell you that, yes. Hello, everyone.

Rob Lynch: The brand's products and, you know, Danny's reputation and a lot of these things have driven a lot of brand heat, a lot of excitement, a lot of trial.

Rob Lynch: As we enter into these new markets, it's going to take more than that. And, you know, we're really excited about the fact that the returns that we see on our marketing investments are some of the best I've seen in the industry. And we're going to continue to double down there because we believe that it's going to drive profitable growth. As we mentioned, you know, and in our earlier discussion, we're not just spending marketing because, you know, that's we want to drive top line at all costs. Like we are taking a very plan for approach, making sure, testing that when we go in and we invest in a market, we're going to get strong returns and it's going to be profit positive.

Speaker Change: Take more than that and you know where we're really excited about the fact that the returns that we see on our marketing investments are some of the best I've seen in the industry and we're going to continue to double down there because we believe that it's going to drive profitable growth as we mentioned you know in our in our earlier discussion.

Jake Bartlett: Our next question is from Jake Bartlett with Truly Securities. Please proceed. Great. Thanks for taking the question. You know, mine is on Cadence. And the first part of that is on the restaurant level margins. You know, I think guidance for the third quarter implies there may be flat, maybe a little bit down at the midpoint, but you raise the year. So it looks like there's another, you know, expectation for acceleration or bigger increase in the fourth quarter. So maybe just help us understand what's going on from the third quarter to the fourth in terms of the year-over-year change.

Jake Bartlett: And then I had another question about sales momentum.

Katie Fogerty: Great. Yeah. We're really excited about the margin expansion and path that we're on here, and our guidance, you know, implies still the pretty substantial increase in margins in the second half of the year. We are guidance calls for a 70 to 100 basis points of margin improvement year over year for the full year.

Katie Fogerty: There are a little bit of unique dynamics in the third quarter versus the fourth quarter. And just also highlight, we are laughing in the third quarter, you know, very substantial improvement versus the prior year. We had about 390 basis points of improvement in the third quarter of last year. So there's, you know, some shift around with, you know, food and paper inflation and some investments that we're making to drive brand awareness. But, you know, the second half of the year is shaping up to be another very strong margin expansion opportunity for us.

Sara Senatore: Our next question is from Sara Senatore with Bank of America. Please proceed. Thank you. I guess clarification, and then a question, if I may. So, one, the first clarification in me, Rob, he said that there's been some questioning about the premium positioning, but as a problem in the current environment, but I guess I would actually think it would be a positive given, you know, we've seen higher income consumers spend much more robustly than lower income consumers.

Rob Lynch: So the clarification is in my wrong in assuming that the Shake Shack customers perhaps higher income than others and maybe particularly higher income than perhaps the traditional fast food hamburgers. And then the question is maybe more at a philosophical nature, but can you help me understand I always think of Shake Shack's kitchen as perhaps more like a full service restaurant, just in the sense of, you know, everything is made to order. And less like a traditional fast food restaurant. So as I think about, you know, what the margins should look like or what the throughput should look like, should I be comping it more to, you know, full service as I think about, you know, restaurant level margin or, you know, more towards your fast casual peers who tend to have more like an assembly line approach to production.

Rob Lynch: Thanks.

Rob Lynch: Great questions. You know, I would tell you that yes, we do have an overrepresentation of higher income guests, which I think protects us from the current economic environment. That being said, I think Shake Shack can appeal to everyone.

Rob Lynch: I think that we have to find ways to get more efficient, more productive so that we can bring Shake Shack to penetrate more deeply into some of the lower income opportunities.

Rob Lynch: You know, my vision coming here is to scale this thing and really bring Shake Shack to every market across the globe. And in order to do that, we have to be broadly appealing. So the answer to your question is yes today. What you said is an exact representation of what we're seeing, that we do have some protection against the kind of the challenge up against the lower income segment, but we're working to make to merely broaden our brand to not be only for the highest income, you know, burger eaters. On the second question, the Shake Shack kitchen, you're absolutely right.

Rob Lynch: It is it is a fine dining model. We've got stations; it's almost like a symphony in the back of the restaurant where, you know, we've got lots of people doing different stuff, and it kind of all comes together in a beautiful, you know, crescendo at the expo line, and then we take it to our customer or guest. And, you know, I'm not saying that all of that's going to change. We're not going to change the fact that we, you know, make burgers when you order them. We're not going to change the fact that, you know, we use the highest quality ingredients.

Rob Lynch: We're not going to change the things that make Shake Shack special, but there's definitely an opportunity for us to streamline the operations, move to a bit more of an assembly line model. Not, not necessarily because, you know, in a way that's, you know, we're going to have a lot of different things sitting around, and the quality of our products are going to go down. But just to make sure that we are able to meet the customer's expectations that pulls up to a drive through and, you know, Kansas City, Missouri. Like, they're not going to, they're not the same appetite for waiting for their food is, you know, Madison Square Park.

Speaker Change: Different things sitting around and the quality of our products are going to go down, but just to make sure that we are able to meet the customer's expectations that pulls up to a drive through and you know, Kansas City, Missouri like Theyre not going to they're not at the same appetite for waiting for their food as you know Madison Square Park.

Speaker Change: So we have to do things that are going to meet the customers' needs holistically on guest satisfaction and enlightened hospitality. So that's that's work to be done, but so much upside there and Stephanie is laser focused on that right now.

Rob Lynch: So, we have to do things that are going to meet the customers' needs holistically on guest satisfaction and enlightened hospitality. So, that's, that's work to be done, but so much upside there. And Stephanie is laser focused on that right now. Yeah.

Speaker Change: Yeah.

Daniel Guglielmo: Our next question is from Daniel Guglielmo with Capital One Securities. Please proceed.

Speaker Change: Our next question is from Daniel Gleim, Moe with capital One Securities. Please proceed.

Daniel Gleim: Hello, everyone and thank you for taking my question.

Rob Lynch: Hello, everyone. Thank you for taking my question. Rahul, you mentioned the untapped potential in the global markets. What percentage do you think is a good long-term target for the licensing revenue line? And what are some risks you all think through if you take that percentage up too high, too fast?

Rob: Thank you for taking my question. Rob, you mentioned the untapped potential in the global markets. What percentage do you think is a good long-term target for the licensing revenue line? And what are some risks you all think through if you take that percentage up too high too fast? Our next question is from Jeff Farmer with Clarendon Haskell. Hi, good morning, and thank you.

Rob Lynch: Yeah, I don't think we're disclosing exactly what the growth rate or the percent business is going to be on the licensing business. But what I will tell you is that my background, a lot of it has been spent in franchise businesses. And I know the power of getting great licensees or franchisees excited about growth. And we are focused on that. Our team, led by Michael Carr, who leads our international and licensed business, is energized by the fact that I have kind of challenged them to take the reins off and grow that licensed business. We have a lot of white space internationally to go out and open Shake Shacks where a lot of people want them and don't yet have access to them.

Rob Lynch: So new market potential is a big opportunity for us internationally. But there's also a lot of remaining opportunity in markets that we've already penetrated, where we have great partners. I would tell you that in my experience, Shake Shack has some of the best franchise partners that I've been around, just looking at the business model, looking at the way this team has worked with our partners to grow and foster this brand. So license revenue will be a big part of our plan moving forward.

Speaker Change: It will be a big part of our plan moving forward.

Jeff Farmer: Our next question is from Jeff Farmer with Clared and Haske. Please proceed. Good morning, and thank you. You've noted that Shack is in the early stages of what Kiosk can do for the business, sort of, quote-unquote.

Speaker Change: Our next question is from Jeff Farmer with clearer the Haskett. Please proceed.

Rob: You've noted that Shack is in the early stages of what kiosks can do for the business, sort of quote unquote. I'm just curious if you can provide a little bit more color on, And so there's so much opportunity for us to drive improvements there. Our next question is from Andy Barish with Jeff. And those two barriers are, you know, the speed of service and some of the value perception. Yeah, great questions.

Jeff Farmer: Morning, and thank you are you you've noted that check is in the early stages of what kiosk can do for the business sort of quote unquote I'm. Just curious if you can provide a little bit more color on what you see as sort of the either the near term or intermediate term opportunities with the kiosks.

Rob Lynch: I'm just curious if you can provide a little bit more color on what you see as sort of either the near term or intermediate term opportunities with the kiosks. Yeah, I mean when I think about the kiosks business, I think about two primary contributions to our business. One is upsell. You know, when you go through a kiosks experience, we can guarantee that the upsell opportunities are made. Sometimes we have amazing team members, but sometimes that is not always a priority. When you've got 40 people online, you're trying to get through it as quick as possible.

Speaker Change: Yeah, I mean, when I think about the kiosk business I think about.

Speaker Change: Two primary.

Speaker Change: Contributions to our business one is upsell.

Rob Lynch: So there is I think a strong opportunity to continue to optimize the way we execute that, to drive items, project, and mix improvement. And then the second piece is how we think about our labor model and how we think about taking orders and how many people we need to do that and how we execute, you know, enlightened hospitality in the best way. We may redistribute that labor from taking orders once the kiosks have proven to be, you know, the optimal way to making sure that those folks are out in the dining room, taking care of our guests or contributing to the team in the kitchen.

Rob Lynch: So, you know, upsell, mixed benefit, and labor optimization are two long-term benefits for the kiosks.

David Tarantino: Our next question is from David Tarantino with Baird. Please proceed. Hi, good morning. My question's on speed of service and throughput, which has been mentioned several times on the call. I was just wondering if you have any way to frame up what you think this sale's opportunity from that is, you know, I guess you have examples that would give you confidence that this is, you know, a few points of sales, maybe ten points of sales. I don't know if there's any way that you can frame up how big of an opportunity this might be.

Rob Lynch: And then, Rob, I'm curious as a second part of this, whether you think menu simplification could be part of the strategy to accomplish that. So thanks, David. I mean, what I would tell you is, you know, we don't have a crystal ball to know exactly what the throughput is going to do. But I'll just give you our speed of service and our drive-throughs, which are only in 30 to 35 Shacks today, is 2X what it needs to be. And so we, there's so much opportunity for us to drive improvements there. I mean, you know, you've heard on some other calls during this earnings season about the negative impact that a lack of throughput can have on comps and can have on revenue in general.

Speaker Change: Throughs, which are only in 30 to 35 shacks today.

Speaker Change: Is two X what it needs to be.

Speaker Change: And so we definitely there's so much opportunity for us to drive improvements there I mean.

Speaker Change: You know you've heard on some other calls during this earnings season about the negative impact that a lack of throughput can have on comps and can have on revenue in general.

Rob Lynch: I don't know that there is another brand that has more upside opportunity on throughput than we do. And so, you know, I don't think we're going to tag a same same Shack sales number on that and guide to that. But I think you can have a lot of confidence that we are hyper-focused on improving throughput across a lot of different dynamics. When you talk about menu simplification, I actually don't think our menu is overly complex. I mean, you're talking to a guy who was at Taco Bell. We had 150 items on the menu. Like, we don't have that level of complexity.

Speaker Change: I don't know that there is another brand that has more upside opportunity on throughput than we do and so you know I don't think we're going to tag a same store same shack sales number on that and guide to that but I think you're going to have a lot of confidence that we are hyper focused on improving throughput.

Speaker Change: But across a lot of different dynamics.

Rob Lynch: We do have opportunities to optimize the complexity of the ordering process through the drive-through. So, I don't know that we're necessarily looking at removing a lot of things from the menu holistically. But we are absolutely going to explore how we can make the best use of what we have on the menu through the drive-through to make sure that we're optimizing speed of service in that channel.

Andy Barish: Our next question is from Andy Barish. Would Jeff Rees please proceed? Hi Rob and Katie. Two quick ones. I was wondering, as you've dug in, Rob, just in back to the point on, you know, sort of the value-seeking, guess, or the competitive, you know, $5 meals out there. What do you think the overlap is? I mean, clearly there are some aspirational guests who want to enjoy Shake Shack. Have you kind of teased that out in terms of that lower end consumer? Yeah, I mean, it comes back once again to this discussion around trial and frequency.

Rob Lynch: I would argue that every human in their right mind wants to check-shack. I mean, it's literally the best trigger-free shake drink you can get. I mean, just like maybe I'm biased, but that's why I'm here because that's how I feel. And so once again, we do not have a problem driving trial. I think, you know, when we opened that shack in Pittsburgh where I'm from, there's a lot of hard work and blue-collar people in line to try Shake Shack when we opened that day when I was there. The problem or the challenge, I should say, and the opportunity is really what it is, is for us to be able to mitigate the barriers to frequency.

Speaker Change: <unk> the challenge I should say and that the opportunity is really what it is is for us to be able to mitigate the barriers to frequency and those two barriers are you know the speed of service.

Rob Lynch: And those two barriers are, you know, the speed of service and some of the value perception. And, you know, we're working on both of those things. And once again, we're not going to degrade the quality of the experience. We're not going to degrade the quality of our products.

Speaker Change: And some of the value perception.

Speaker Change: And you know we're working on both of those things and once again, we're not going to degrade the quality of the experience, we're not going to degrade the quality of our products, but I do think there are opportunities for us to evolve our menu strategy evolve our L. T O strategy evolve our the way we approach.

Rob Lynch: But I do think there are opportunities for us to evolve our menu strategy, evolve our LTO strategy, evolve the way we approach, you know, how we position things across our revenue model and our menu to drive a better value. I think, you know, those are the two things that are really going to help us to drive frequency. So I don't think it's, it's like, hey, lower-income customers don't want Shake Shack. They do. And frankly, they show up and try it, and they love it. But it becomes more of a special occasion. I don't want to be a special occasion.

Speaker Change: You know, how we position things across our R. R.

Rob Lynch: Like, I want to be something that is a, you know, Friday night staple for the family, you know, that is an after work stop on the way home. And in order for those things to happen, we got to work on our speed of service, and we got to work on our value perception. So, from a brand positioning standpoint, that's where a lot of our effort is.

Sharon Zacacio: Our next question is from Sharon Zacacio with William Blair; please proceed. I see who are going in alphabetical order. So happy to be busy here. I guess a question on the speed of service in tandem with loyalty. Is there a national sequencing where you would want to attack speed of service before you would actually implement a loyalty program and, you know, within loyalty. You know, what is a peer that you would want to emulate or how do you think about how loyalty would manifest for Shake Shack?

Rob Lynch: Yeah, great questions. I don't know that we're necessarily thinking about it as speed of service versus loyalty. I mean, I am a big believer, Sharon. I think that the overarching point is a good one. If you spend a ton of marketing dollars driving people to your Shack and the experience holistically isn't the best it can be, you're probably not getting the same ROI on those marketing dollars. And the fact that we do get such a high ROI on our marketing dollars with longer wait times and maybe, you know, some of those challenges that we've talked about, is really encouraging.

Rob: I'll, you know, I don't know that we're necessarily thinking about it as speed of service versus loyalty. I mean, I am a big believer, Sharon. I think that the overarching point is a good one. If you spend a ton of marketing dollars driving people to your shacks, and the overall experience isn't the best it can be, you're probably not getting the same ROI on those marketing dollars. And the fact that we do get such a high ROI on our marketing dollars with longer wait times and maybe, you know, some of those challenges that we've talked about is really encouraging that when we do solve some of those challenges, we're going So that's, that's the first piece.

Speaker Change: But the overarching point is a good one.

Speaker Change: If you spend a ton of marketing dollars driving people to your shacks and the experience Holistically is in.

Speaker Change: The best it can be you're probably not getting the same ROI on those marketing dollars and the fact that we do get such a hot high ROI on our marketing dollars with longer wait times.

Rob: The second piece in terms of loyalty, you know, I mean, I came here from Papa John's, and Papa John's is an e-commerce business that has, you know, I think at this point, and I could throw a number out there, because I don't know, because I haven't been there for 90 days, but they have somewhere between 25 and 30 million loyal customers. And I know that those customers are their most valuable customers. And so I was there as we built that loyalty program from 12 million to today, probably close to 30 million. And I saw the power of that.

Speaker Change: And maybe you know some of those challenges that we've talked about is really encouraging that when we do solve some of those challenges we're going to get even higher rois on those marketing investments. So that's the first piece the second piece in terms of loyalty.

Rob Lynch: When we do solve some of those challenges, we're going to get even higher ROI on those marketing investments.

Rob Lynch: So that's that's the first piece. The second piece in terms of loyalty, you know, I, as everyone knows, I mean, I came here from Papa John's and Papa John's is an e-commerce business that has, you know, I think at this point. And I get to throw a number out there because I don't know because I haven't been there for 90 days, but they have somewhere between 25 and 30 million loyalty customers. And I know that those customers are their most valuable customers. And so I was there as we built that loyalty program from 12 million to today, probably close to 30 million.

Rob: And so, you know, that's what we aspire to. We aspire to be able to build a platform that has the capability that allows us to build one-to-one relationships with our customers. It's not just about discounts. I mean, a really awesome loyalty program delivers more value than just discounts. It allows access to early product offerings. It allows, you know, access to swag that customers, you know, our most loyal customers really want. So there are a lot of other things to build that relationship and drive loyalty slash frequency besides just discounting.

Rob Lynch: And I saw the power of that. And so, you know, that's what we aspire to. We aspire to be able to build a platform that has a capability that allows us to build one-to-one relationships with our guests. It's not just about discounts. I mean, a really awesome loyalty program delivers more values than just discounts. It allows access to early product offerings. It allows, you know, access to swag that customers, you know, our most most loyal customers really want. So there's a lot of other things to build that relationship and drive loyalty slash frequency besides just discounting.

Rob Lynch: So that's the kind of model that we're working on building here.

Rob: So that's the kind of model that we're working on building here. So that's really the growth opportunity for us, and we're gonna strike the right balance. We're gonna continue to build shacks that do four and five million AUVs and have kind of this neighborhood walk-up feel, but we're also gonna be investing in shacks that are more appealing to kind of that QSR, traditional QSR customer. We feel like we're gonna have the strategy to be able to do both well. Our next question is from Chris O'Call with Stiefel.

Jim Sanderson: Our next question is from Jim Sanderson with North Coast Research. Please proceed. Hey, thanks for the question. I just wanted to clarify a unit growth.

Katie Fogerty: I think it was a little bit softer in third quarter, and it's going to put a bit of pressure on fourth quarter as far as getting to the 40 units for company in license to anything to call out there of concern, or is this just timing market issues. Yeah, so we opened 12 on the company-operated side. We opened 12 restaurants in the second quarter. That was a little ahead of our guidance range. We're going to be opening about 6 to 7 in the third quarter, and we are targeting to have approximately 40 for the full year.

Rob Lynch: Just a little bit of timing shifts on that side. We're on a very silent path on the development both for company-operated and also for our license business. Yeah, and I'll just later in there that we are really excited about how these Shacks are opening. I mean the Q2 openings have been really strong performance. I think it's a testament to the development teams building Shacks that are easier to operate, the operations team making sure that we get off to a good start and have a lot of team members and managers lined up in the queue to open these Shacks with excellence.

Rob Lynch: We're not just opening Shacks to get to get into an opening number. We're being thoughtful and planful about making sure that these Shacks get off to a great start, and the sales results from our new Shack openings and Q2 are indicative of that strategy. So really positive results here today on new store openings.

Jeffrey Bernstein: Our next question is from Jeffrey Bernstein.

Rob Lynch: Barth, please, please proceed. Good morning. Thanks for the question. This is product on for Jeff. Rob, just a high level question on QSR discounting again. You were sitting on the other side of the fence not too long ago. In your prior role, what did you see play out when QSR went up against fat casual? Did fat casual historically see traffic with those price sensitive guests or didn't respond with greater value or bundling of its own? Any perspective you can share from your days in the pizza category. We're really helpful. Thank you. Yeah, you know, it's an interesting question.

Rob Lynch: There's so many nuances across this great industry that we all cover and work in. I mean, pizza is kind of a unique animal in the sense that it is hyper value driven and there's not a huge amount of pricing power there. People shop it like they shop e-commerce and retail. They're looking at multiple different options and looking for deals, right? QSR is very different than that. You know, as a Taco Bell and Arbise, you know, that industry, most people, it's not a pre-planned purchase. Most people with an impulse purchase, they're driving down the road and making a decision on where they're going to stop within one minute of excluding that transaction.

Rob Lynch: You know, I would say the Shake Shack and its life cycle today is kind of in the middle there. I mean, Shake Shack is still a little bit of a destination, special occasion type, you know, restaurant concept. And so people are planning to go there. And so it is; it is like, okay, I know what I'm getting, and I'm willing to pay for it, and I'm going to go there. You know, we want, and that's great. And that, like I said earlier, that insulates us a little bit from some of these value wars that are going on in QSR.

Rob Lynch: That being said, I think we have the opportunity to play on both fronts. I think we have the opportunity to still be that special destination in this industry, but we can pick up a lot of volume by opening up our aperture to be more in line with some of the more traditional QSR impulse purchases. And as we build, you know, shacks on sides of highways with drive-throughs, we have to be. So that's really the growth opportunity for us. And we're going to strike the right balance. We're going to continue to build Shacks that do four or five million, you know, AUVs, and have kind of this neighborhood walk-up feel.

Speaker Change: We're going to strike the right balance we're going to continue to build shacks that do four and 5 million you know au vs and have kind of this neighborhood walk up deal, but we're also gonna be you know investing in shacks that are that are more appealing to kind of that that Q S. Our traditional to us our customer and we feel.

Rob Lynch: So we're also going to be, you know, investing in Shacks that are more appealing to kind of that QSR, traditional QSR customer. And we feel like we're going to have the strategy to be able to do both. Well.

Speaker Change: We're gonna have the strategy to be able to do both well.

Chris O'Call: Our next question is from Chris O'Call, which default please to receive? Thanks, good morning guys. How are you thinking about pricing as you go through this year?

Chris <unk>: Our next question is from Chris <unk> with Stifel. Please proceed.

Chris: Thanks, Good morning, guys, Bob how are you thinking about pricing as you go through this year and do you believe the promotional and L. T. You offers that you're planning need to limit check growth in the current environment.

Rob Lynch: And do you believe the promotional and LTO offers that you're planning need to limit check growth in the current environment? So, you know, very top line I will tell you, you know, I come from working at Procter and Gamble up against Walmart, and I, you know, ascribe to the kind of Sam Walton's pricing philosophy. Like, you know, we, I believe that you take pricing to hold margin. I believe that pricing is a tool to mitigate inflation, whether that be commodity inflation or wage inflation or any other form of inflation like we've seen over the last three years at scale.

Rob Lynch: So, pricing is not a way to drive sales. Like, it can, you know, that can be an outcome, but that's not a strategy. We need to drive sales by doing all the things we talked about earlier, delivering great product innovation, delivering our brand promise and building our brand equity, focused on throughput and delivering some type of one-to-one loyalty platform. So, that's what's going to drive our top line. We're going to use pricing to mitigate inflation. And so, I mean, you know, probably as well as we do what inflation looks like over the upcoming 12 to 18 months. Our plan will be to leverage pricing to mitigate that.

Rob Lynch: So, that's kind of how we think about how I think about pricing in terms of, you know, this value customer and what's going on in QSR. You know, I actually think that we've probably benefited from the hyperinflation in QSR; kind of narrowed a little bit of that span of absolute price point between the likes of traditional burger QSR players and Shake Shack. So, I actually think we're in a really well positioned to be competitive.

Speaker Change: The likes of traditional Burger <unk> players and shake shack. So I actually think we're in a we're really well positioned to be competitive and I'll tell you like we just had a great as I say, we I mean I got to experience six weeks of it I'm sitting here talking to you about all the great work that this team is doing that I can't take any credit for it.

Rob Lynch: And I'll tell you, like, I just had a great, I say we, I mean, I got to experience six weeks of it. I'm sitting here talking to you about all the great work that this team's doing that I can't take any credit for. They've been able to really find a way to be not just, you know, hang on during $5 meal deals, but actually thrive. And so, you know, we're learning from that. We're learning from what worked and what didn't. And I think we're only going to get better at competing in that environment.

Chris: They've they've been able to really find a you know a way to be not just hang on during five dollar meal deals, but actually thrive and so you know we're learning from that were learning from what worked and what didn't and I think we're only going to get better at competing in that environment.

Chris: And then you know looking forward our ability to impact our menu and are in a strategic way to open up our aperture to be more appealing to both the middle and potentially lower income.

Rob Lynch: And then, you know, looking forward, our ability to impact our menu in a strategic way to open up our aperture to be more appealing to both the middle and potentially lower income customers is all upside opportunity for us.

Chris: Customers as all upside opportunity for us.

Rao Crow: Our final question is from Rao Crow with JP Morgan. Please proceed. Good morning, guys.

Chris: Our final question is from Russell Crowe with J P. Morgan. Please proceed.

Russell Crowe: Good morning, guys, Rob good to meet you.

Rob: Good morning, guys. Rob, it's good to meet you. I'm just curious about your philosophy on how you plan to grow the core G&A over time. I mean, how do you view this from both as an investment and an expense standpoint at this stage of Shack's lifecycle? And if you can dive into the growth components moving in relation to the mid-teens or double-digit revenue growth runway you have down the line, and what are some of the core buckets where you can focus on more outside marketing?

Rob Lynch: Rob, good to meet you. I'm just curious on your philosophy on how you plan to grow the code G and A over time. I mean, how do you view this from both as an investment and an expense standpoint at this stage of Shaq's life cycle? And if you can dive into the growth components, a moving in relation with the mid-teens or double-digit revenue growth runway, you have down the line. And what are some of the core buckets where you can focus on more outside market?

Rob Lynch: Yeah, so, you know, I come from Arby's where we were private equity owned, and so, you know, I have a very strong desire to be a good steward of the P&L. You know, I think when I join, everyone talk about me as a marketing guy, and hey, I'll take it. I love marketing. I love delivering on the needs of our guests. But I also, I'm very, very return on investment focused, and so, you know, G&A is a tool for us, and it's a bit unique in the sense that, you know, we're a company-owned concept, right?

Rob Lynch: So, similar to a Chipotle or Starbucks, like when we invest in marketing, those dollars come directly out of our income line. And so, we better get a good return in order to justify that investment. So, that's, that's really how I think about it, and that, you know, earlier question was a great question. Like as we continue to improve our operations and our throughput, we're just going to get more and more return from our marketing investment. So, we'll continue to test and learn; we'll continue to optimize on the marketing investment. But G&A overall, we're at a point now; I feel like we're at a point now where we've got enough scale, where we should be starting to get more and more leverage on our G&A.

Speaker Change: Cutting investment so we'll continue to test and learn we will continue to optimize them on the marketing investment G&A overall, we're at a point now you know Oh I see.

Speaker Change: Feel like we're at a point now where we've got enough scale, where we should be starting to get more and more leverage on our G&A. So you know both at the corporate level, we should get more leverage but also of the above restaurant level as we built we're building shacks, we're growing our units double digits every year on.

Rob Lynch: So, you know, both at the corporate level, we should get more leverage, but also at the above restaurant level, as we build, we're building shacks. We're growing our units, double digits every year on a rate basis. Like, that has to scale; that has to leverage; we have to get leverage there. So, I actually think we're going to get more productive and more efficient moving forward while we continue to increase our marketing investment because we're getting such great returns. I hope that answers your question.

Speaker Change: Present on a rate basis like.

Chris: That has to scale that has to lever we have to get leverage there. So I actually think we're going to get more productive and more efficient moving forward. While we continue to increase our marketing investment because we're getting such great returns I hope that answers your question.

Rob Lynch: Thank you.

Operator: We have reached the end of our question and answer session.

Rob Lynch: I would like to pass the conference back over to management for closing remarks. So, I just want to thank everybody for joining on the call today. It's obviously an incredibly exciting time to be here at Shake Shack. I'm humbled and thankful that they allowed me to come and be a part of building this great brand and this great story that is really just getting started. So, I look forward to working with all of you on helping, you know, you understand really what's in store and look forward to speaking again on our next quarter results.

Rob: So I just want to thank everybody for joining us on the call today. It's obviously an incredibly exciting time to be here at Shake Shack. I'm humbled and thankful that they allowed me to come and be a part of building this great brand and this great story that is really just getting started. So I look forward to working with all of you to help you understand really what's in store and look forward to speaking again about our next quarter results.

Operator: Thank you.

Operator: This was the food. Today's conference.

Operator: You made disconnect your lines at this time, and thank you for your participation.