Q4 2024 Shake Shack Inc Earnings Call
and Michael O'Neill. Thank you. Thank you.
Speaker Change: Greetings. Welcome to Shake Shack's fourth 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.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Oriolo, Vice President of P&A and Investor Relations. Thank you. You may begin.
Speaker Change: Thank you and good morning everyone. Joining me for Shake Shack's conference call is our CEO Rob Lynch and CFO Katie Fogerty.
Speaker Change: 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.
Speaker Change: Reconciliations to comparable gap measures are available in our earnings release and the financial details section of our shareholder letter.
Speaker Change: 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, and the company's other filings as filed with the SEC.
Speaker Change: 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.
Rob Lynch: By now, you should have access to our fourth quarter 2024 shareholder letter, which can be found at investor.shakeshack.com. In the quarterly results section, we're adding an exhibit to our AK for the quarter. I will now turn the call over to Rob.
Rob Lynch: Thank you, Mike, and good morning, everyone. I want to congratulate our teams on an exceptional 2024. We finished the year strong with fourth-quarter revenue up 14.8%, driven by 4.3% same-shack sales.
Rob Lynch: Restaurant level margins expanded nearly 300 basis points to 22.7% and adjusted EBITDA grew almost 50%.
Rob Lynch: As we enter 2025, we have reached numerous milestones and achievements worth celebrating.
Speaker Change: 2024 marked the 20th anniversary since Danny and Randy opened the first Shake Shack, originating from a hot dog cart in New York's Madison Square Park.
Rob Lynch: In January, we celebrated the 10th anniversary of our IPO. At the time of our IPO, we had only 31 company-operated shacks, but the team dreamed of expanding one day to 450 shacks.
Rob Lynch: With 329 company-operated shacks today, we're now setting our sights much higher, targeting at least 1,500 company-operated shacks across the U.S., more than four times our current size.
Rob Lynch: Shake Shack is doubling down on our mission to deliver the best fine casual experience to our guests, team members, and communities, fostering pride within our company, generating strong financial returns for our employees and shareholders.
Rob Lynch: To that end, we have established three-year financial targets. Low teens total revenue growth, low teens unit growth, at least approximately 22% restaurant level margins, and EBITDA growth in the low to mid-teens, outpacing top-line growth.
Rob Lynch: These targets reflect our strong financial performance to date and our confidence in our strategy, which we believe could lead to results exceeding these projections.
Rob Lynch: We've talked a lot about the designation of fine casual in the past. Today, I want to reinforce the importance of and clearly define what fine casual means, because it is who we are and why Shake Shack is different.
Rob Lynch: Most of you know our brand was founded by an acclaimed fine dining company, Union Square Hospitality Group, and we aspire every day to deliver the same quality of ingredients and hospitality that you would expect from the best fine dining restaurants.
Rob Lynch: As you also know, Shake Shack was born in a public park, which meant that we brought this elevated food to all, making our food and hospitality accessible to everyone in the Madison Square Park and New York City community.
Rob Lynch: That's really what Shake Shack is all about, delivering the highest quality food and hospitality to communities around the world, and in doing so, improving the world in which we live, work, and play.
Rob Lynch: We've made significant strides towards this mission in my first eight months, but the real potential lies ahead as we execute our 2025 strategic priorities. I'll now outline these six priorities, highlighting both our accomplishments to date and our plans for the future.
Rob Lynch: Our first strategic priority is to build a culture of leaders.
Rob Lynch: Everything we do starts with our people. They are the driving force behind our enlightened hospitality model and commensurately our results.
Rob Lynch: We need to ensure that we have hundreds of leaders in waiting to support our growth. As a largely company-operated system, we determine the success of our new shacks by our readiness to open and operate them at scale.
Rob Lynch: We are building a training and development program that will identify, prepare, and place our best candidates into leadership positions throughout our company.
Rob Lynch: A company that is growing as fast as we aspire to grow is an amazing place for future leaders to build their careers and achieve their full potential.
Rob Lynch: We are building an infrastructure that will support that moving forward versus having to hire externally. We aspire to increase the number of internal promotions by 10% in 2025, and we'll continue to increase internal promotions sequentially moving forward.
Rob Lynch: Two programs that we have implemented to help us accomplish this goal are Shift Up and Lead to Succeed.
Rob Lynch: SHIFT UP nominates high-performing hourly team members for an 18-week intensive development program designed to provide the tools and business acumen needed to run a 4 million AUV shack.
Rob Lynch: In 2024, we retained 100% of the graduates from the program, with nearly one-third of participants being promoted to manager roles, and we expect this number to grow in 2025.
Rob Lynch: The need to promote from within is vital to our growth due to our unique group model rooted in fine dining where everything is created fresh to order.
Rob Lynch: As a result, this requires a different type of manager versus traditional QSR, and promoting from within helps ensure that we are opening our new restaurants with excellence.
Rob Lynch: Our Lead to Succeed program teaches our newly promoted managers in our support centers the crucial skills needed to transition from an individual contributor to leading others.
Rob Lynch: This investment in our teams has been integral in achieving our best retention levels on record in 2024.
Our second strategic priority is to optimize restaurant operations.
Rob Lynch: In 2024, we began testing a standard scorecard as a way to measure performance across all of our shacks.
Rob Lynch: This management tool focuses on improving across our KPIs of people, which includes metrics such as staffing and retention, performance, which includes metrics such as speed of service, and profit.
Rob Lynch: We officially rolled out the scorecard in January and are excited to see improvements across these three focus areas.
Rob Lynch: We delivered an exceptional year across our operational and guest metrics, while expanding restaurant level margins by 150 base points to 21.4%.
Rob Lynch: We introduced speed of service as a key KPI for operators in 2024 and saw immediate improvement.
Average wait times drop by approximately one minute year-over-year.
Rob Lynch: Order accuracy also reached the best levels on record in 2024. On labor, we drove productivity through improved hourly and manager scheduling with enhanced reporting that leverages real-time data and analytics.
Rob Lynch: At the same time, we pilot a new activity-versus-sales-based labor model that uses time-motion studies to optimize staffing and deployment schedules across various formats, menu mixes, sales channels, and other key variables.
Rob Lynch: The model was fully rolled out during 4Q2024 and drove approximately 80 basis points of leverage in the fourth quarter. Of course, the key metric for labor is talent, and our sourcing, training, and retention continue to improve.
Rob Lynch: All of these work streams will have both short and long-term positive impacts on the operations of our shacks.
So what is next?
Rob Lynch: This fiscal year, we will be standing up a kitchen innovation lab in close proximity to our brand new Atlanta Support Center, which will provide a launch pad for innovation largely focused on delivering improved service times and convenience for our guests.
This, too, will provide both short-term and long-term benefits.
Rob Lynch: In the short term, it will allow our teams to test process optimizations, including new equipment, and allow us to learn, refine, and test again, dramatically accelerating a process that historically took a lot longer.
Rob Lynch: This approach will provide insights in 2025 that we can implement into 2026 and beyond with improved speed ultimately leading to higher frequency.
Rob Lynch: We also see longer-term benefits through new kitchen design tests which allow faster rollout of new formats and ensure strong cash on cash returns.
Rob Lynch: Optimizing our operations also applies to our supply chain. We leveraged our scale across the supply chain, onboarding new suppliers and implementing other strategic initiatives. For instance, introducing competitive suppliers drove savings in paper and packaging in 2024.
Rob Lynch: Across our supply chain strategies we offset nearly 30 basis points of inflationary pressures. We anticipate even greater savings in 2025 and beyond.
Rob Lynch: Our third strategic priority is driving comp sales by increasing guest frequency.
Rob Lynch: In 2024, we drove strong same shack sales of 3.6% and nearly flat traffic despite significant macro industry headwinds. We accomplished this through our sales driving initiatives and invested more in marketing and advertising to drive awareness.
Rob Lynch: Through campaigns like our Chicken Sundays, which we ran in April and again in the 4th quarter, we drove strong incremental checks and saw chicken awareness improve 5% year-over-year in the 4th quarter.
Rob Lynch: Second, we launched our Worth It Brand campaigns in New York and Miami, highlighting our very own Shaq Burger and Chicken Shaq products and ingredients in our creative. The campaign effectively improved awareness and brand familiarity.
Rob Lynch: Third, we drove sales through culinary innovation with LTOs such as Summer Barbecue and Korean Barbecue along with the return of our revamped Black Truffle menu. The 2024 edition of Black Truffle is outperforming our truffle menus from both 2021 and 2023.
Rob Lynch: Shake Shack's DNA is built on culinary innovation and doing what a traditional QSR cannot and will not do. Looking ahead, we are excited to drive guest frequency and overall check through menu innovation.
Rob Lynch: In 2025, you will see us increase product tests to drive incremental visits and mix, as well as invest in guest recognition.
Rob Lynch: which will allow us to extend even more hospitality by connecting our app and web known guests with the InShack experience with the kiosk.
Rob Lynch: We expect this to be a huge unlock for Shake Shack and allows us to connect the dots to provide targeted offers to our guests and give that really important incremental driver for frequency over time.
Rob Lynch: In 2026, we expect to continue to refine and test our new creative against our new media mix model. This will help us make more strategic decisions on what channels we disproportionately invest in going forward, which we expect to positively impact 2026 and beyond.
Rob Lynch: Our fourth strategic priority is to build and operate our shacks with best-in-class returns. As I mentioned earlier, our mission is to bring the world's best fine casual experience to as many guests, team members, and communities as possible.
Rob Lynch: In 2024, we opened 43 company-operated shacks, the highest number that we've ever opened in a single year.
Rob Lynch: We reduced net build costs in 2024 to $2.4 million and in 2025 have committed to further improving net build costs to approximately $2.2 million.
Rob Lynch: Last year, we began leveraging our scale to achieve greater purchasing efficiencies, and we brought our design teams in-house. This year, we plan to condense build timelines by nearly two months, with increased consistency and lower cost.
Rob Lynch: We also plan to build our new prototype drive-throughs, which are designed to improve speed, accuracy, and reduce cost to maintain.
Rob Lynch: I remain highly confident in driving strong cash-on-cash returns as we increase restaurant-level margins and bring down bill costs. Recent classes are tracking well compared to our long-term targets of at least 30 to 33 percent.
Our fifth strategic priority is to accelerate our licensed business.
Rob Lynch: In 2024, we expanded into three new markets, Canada, Israel, and Malaysia, and grew our licensed footprint to 250 shacks across 20 different countries.
Rob Lynch: We opened 33 new license shacks in 2024 and expect to accelerate the number of openings in 2025 to 35 to 40.
Rob Lynch: In the fourth quarter, we also launched our partnership with Delta and began serving Shake Shack 35,000 feet in the air. Today, we offer meals through pre-selection via Delta's first-class menu on all qualifying domestic flights originating from Boston Logan Airport, with plans to expand our reach to additional airports in the near future.
Rob Lynch: This is a great example of the power of the Shake Shack brand, which we increasingly look to leverage in the future. We will also be building the foundation for accelerated growth going forward by focusing on targeted culinary innovation in diversifying formats in our licensed markets around the world.
Rob Lynch: For example, to address local tastes and a gap in our menu, we recently launched the first ever fish sandwich LTO in Hong Kong, which has been well received with a lot of excitement from our guests.
Rob Lynch: Lastly, our sixth strategic priority is to invest in long-term strategic capabilities.
Rob Lynch: This year, we are investing across the business to ensure we have the right people and capabilities to achieve continued profitable growth and accelerate our business as we work towards our bright, long-term potential of at least 1,500 company-operated shacks.
Rob Lynch: In January, we stood up a new transformation office to drive cross-functional collaboration and execution on the projects that are most critical to the company. We're also making investments in our tech platform to build out guest recognition and investing on a new kitchen innovation lab.
Rob Lynch: We're making these investments while still committing to growing adjusted EBITDA at a faster rate than total revenue and see potential upside based on execution of these strategic priorities.
Rob Lynch: As you can see, there's a lot going on at Shake Shack. We are very focused on becoming more productive so that as we increase our investments to drive same shack sales and sales from new shack openings, we become even more profitable, which then allows us to continue to invest in our growth moving forward.
Rob Lynch: With that, I'll turn the call over to Katie to recap more on 2024 and provide more detail on our outlook for first quarter and fiscal year 2025.
Thank you.
Katie Fogerty: Thanks, Rob, and good morning, everyone. We ended the year on a high note and are on a solid path for 2025, with continued success from our marketing and operational strategies, including faster speed of service and enhanced labor management, driving strong, solid sales and record flow-through. Over the past 14 quarters, we have consistently proven our ability to grow our sales and adjusted EBITDA while also making investments in our business to build a strong foundation for the future.
Katie Fogerty: This quarter also marks our 10th consecutive quarter that we have expanded our restaurant-level profit margins year-over-year and our 16th consecutive quarter that we've generated positive same-shack sales.
Katie Fogerty: Our guidance for this year and the next three years underscores our confidence in maintaining this trajectory of success.
Katie Fogerty: In 2024, we expanded our restaurant-level profit margins by 150 basis points to 21.4%.
Katie Fogerty: We grew restaurant-level profit by 24% year-over-year to set a new record of $257.9 million, and we drove 33% year-over-year growth in adjusted EBITDA, reaching a record $175.6 million.
Katie Fogerty: We open 43 company-operated shacks in the year, marking our largest class on record, and we expect to open even more shacks in 2025.
Katie Fogerty: We are really proud of the results from our fourth quarter that highlight the broad-based strength in our business.
Fourth quarter total revenue was $328.7 million, up 15% year-over-year.
supported by the opening of 19 new company-operated shacks.
and nine new license jacks.
Katie Fogerty: leading to a 13% year-over-year growth in system-wide sales. Our licensing revenue reached $12.1 million in the fourth quarter, with licensing sales at $184.1 million, up 11% year-over-year.
Katie Fogerty: Shack sales in the fourth quarter were $316.6 million, growing approximately 15% year over year, supported by a strong new shack openings and 4.3% year over year growth in same shack sales, with traffic down slightly impacted by infill and weather and price mix of 4.8%.
Katie Fogerty: Our intact pricing was up approximately 4.5% and our total price, inclusive of additional price to address delivery cost headwinds, was up approximately 6%.
Katie Fogerty: We generated $79,000 in average weekly sales, up 4% from $76,000 in the third quarter, and also up 4% from $76,000 in the fourth quarter of 2023.
Katie Fogerty: Our trends first quarter to date have been choppy, and this is largely due to the headwinds from the significant weather pressures and the impacts from the tragic Los Angeles wildfires.
Katie Fogerty: In January, we faced approximately 150 to 200 basis points of same-shack sales pressures from the weather and the fires, yet we still grew same-shack sales by 3.7% in the month, showing the strength in our underlying business.
Katie Fogerty: Los Angeles is a very important market for Shake Shack. In fact, we opened our first Shack in California in 2016 in West Hollywood and we've been serving the Los Angeles community ever since. We are immensely proud of our amazing leaders and teams there as we have now grown to 27 Shacks in the area.
Katie Fogerty: Our motto at Shake Shack is to stand for something good. And that doesn't just apply to our commitment to using the best ingredients in our food. It's also about how we show it for our teams and our communities.
Katie Fogerty: We're really grateful that all of our Los Angeles area leaders and team members were safe and accounted for during the fires.
Katie Fogerty: They were so quick to stand up to support our community and our first responders. Across the country, our team members and support staff also stood up to financially assist those directly impacted from the fires through meaningful donations and company matches to our Special Employee Fund.
Katie Fogerty: We expect a degree of residual impact from the fires to persist for a while, and the weather has been highly uncertain quarter to date. However, we believe our broad-based operations, marketing, and culinary strategic focus will continue to drive improved guest experience and sales, and this will help us navigate these temporary impacts.
Katie Fogerty: Fourth quarter restaurant-level profit was $71.9 million, or 22.7% of shack sales, 290 basis points higher than last year, as we showed strong execution across our operational improvement strategies, including labor management and optimizing our supply chain.
Katie Fogerty: In the fourth quarter, food and paper costs were $88.6 million, or 28% of SHAC sales, down 20 basis points quarter over quarter, and down 110 basis points year over year.
Katie Fogerty: Blended food and paper inflation was nearly flat after taking into account the low single-digit benefit from identified deficiencies in our supply chain.
Katie Fogerty: Our beef cut costs rose by low single digits, somewhat less than our expectations, and our paper and packaging costs decreased by mid-single digits year over year.
Katie Fogerty: Labor and related expenses were $85.1 million, or 26.9% of SHAC sales, down 160 basis points year-over-year, and down 110 basis points quarter-over-quarter, primarily led by the positive benefits from the first full quarter of our new labor scheduling system that drove 80 basis points of benefit.
Katie Fogerty: Other operating expenses were $47 million, or 14.8% of shack sales, down 10 basis points from the fourth quarter of 2023, and also down 10 basis points versus last quarter.
Katie Fogerty: Our improvement year-over-year was a function of identified efficiencies in R&M and professional services, as well as more favorable utility spend. This was partially offset by planned increases in advertising expense.
Katie Fogerty: Occupancy and related expenses were $24 million, or 7.6% of SHAC sales, also down 10 basis points from the fourth quarter of 2023 and versus last quarter, driven by the growth in SHAC sales.
GNA was $41.1 million or 12.5% of total revenue.
Katie Fogerty: Excluding $800,000 in one-time adjustments, G&A was $40.3 million, or 12.3% of total revenue. For the full year, G&A was $149 million, or $142.3 million excluding one-time adjustments.
Katie Fogerty: approximately 11.4% of total revenue. This was down 10 basis points from 2023 levels, despite nearly doubling our advertising year over year, as we showed significant improvements in how we've managed our underlying spending across other areas in G&A.
Katie Fogerty: As a reminder, a portion of our advertising spend is in other operating expense, however, the majority of the spend is in G&A.
Katie Fogerty: Pre-opening costs were $5.1 million in the quarter as we opened 19 new company-operated shacks. We made significant progress on reducing our cash and non-cash pre-opening expense in the year, bringing it down by nearly 23% per shack year over year.
Depreciation was 25.8 million.
Katie Fogerty: On a GAAP basis in the quarter, we reported a pre-tax income of $12.9 million and a tax expense of $3.6 million. On an adjusted pro forma basis, we reported a pre-tax income of $15 million and a tax expense of $3.3 million.
Katie Fogerty: Excluding the tax impact of equity-based compensation, our adjusted performance tax rate in the quarter was 29.8%.
Katie Fogerty: We reported fourth quarter adjusted EBITDA of $46.7 million, up approximately 49% year-over-year, or 14.2% of total revenue, improving 320 basis points from 11% of total revenue in the fourth quarter of 2023.
Katie Fogerty: For the full year, we grew adjusted EBITDA by 33%, to $175.6 million, or 14% of total revenue, 190 basis points higher than the prior year.
Katie Fogerty: We realized a net income attributable to Shake Shack Inc. of $8.7 million, or $0.21 per diluted share. On an adjusted pro forma basis, we reported a net income attributable to Shake Shack Inc. of $11.6 million, or $0.26 per fully exchanged and diluted share.
Katie Fogerty: Our balance sheet is strong. We ended the year with $320.7 million in cash and cash equivalents and generated a record $36 million in free cash flow.
Katie Fogerty: The first time that we have generated positive free cash flow on the year since 2017. Now on to our guidance for the first quarter and full year 2025.
Katie Fogerty: Our guidance assumes no material changes in the macroeconomic or geopolitical landscape and the potential impact of system-wide sales or costs, including any outside impacts from potential tariffs.
Katie Fogerty: For the first quarter of 2025, we guide total revenue of $326.5 to $330.9 million, with $10.5 to $10.9 million of licensing revenue.
Katie Fogerty: 3-4 company-operated shack openings, 5-6 licensed shack openings, and for same-shack sales to be up 2.5-3.5% year-over-year.
Katie Fogerty: We are seeing weather and the lingering impacts from the L.A. wildfires continue into February, and we expect some of our Los Angeles shacks to take a while to fully recover. We are also lapping over the strong launch of our Korean BBQ LTO from last year. These factors and the Easter shift together is an approximate low single-digit impact to our same-shack sales guidance in the first quarter.
Katie Fogerty: In March, we will be rolling off the approximate 3.5% price that we took on menu last year. We plan to exit the quarter with approximately 2% in-check pricing and a blended 3% overall price.
Katie Fogerty: We guide restaurant-level profit margins of 20 to 20.5%, representing 50 to 100 basis points of improvement year-over-year, despite the weather, wildfire, and inflationary headwinds that we are facing.
Katie Fogerty: We are planning for low single-digit year-over-year inflation in food and paper costs after baking in the positive benefits from our supply chain strategies, with pressures led by uncertainty in our beef pricing that represents 25-30% of our blended food and paper basket.
Katie Fogerty: Additionally, our marketing plan for this year is more evenly split over the quarters versus last year that was backend weighted. This cadence will result in a higher step-up year-over-year in both other operating expense and G&A in the first half of the year, tapering off in the back half.
Katie Fogerty: On to our full year 2025 outlook. We are largely reiterating the guidance that we provided at ICR Conference in early January, while we're also raising our outlook for adjusted EBITDA based on increased confidence in our outlook for restaurant-level profit margins to reach approximately 22 percent this year.
Katie Fogerty: Our pricing plans for this year remain modest, as our in-shack price will be up about 2% year-over-year, and our overall price across all channels will be up approximately 3%.
Katie Fogerty: Our Commodity Outlook reflects our expectations for low single-digit inflation led by beef up mid to high single digits and does not contemplate any potential outsize impacts related to tariffs.
Katie Fogerty: We're planning for labor inflation to be in the low single-digit range.
Katie Fogerty: We're now guiding for adjusted EBITDA of $205-215 million, representing 17-22% growth year-over-year, as operationally we are tracking strong against our 3-year target of low-to-mid teens growth.
Katie Fogerty: To close, I want to extend my heartfelt gratitude to our more than 12,000 team members and our 329 company-operated SHACs.
Katie Fogerty: and our employees and our support centers for their outstanding work in 2024.
Katie Fogerty: Your dedication to our guests, to supporting one another, and to executing our strategic priorities has been truly remarkable. Thank you to your efforts. We exceeded nearly all of our goals and targets.
Katie Fogerty: And we're really excited about the opportunities that lie ahead. We believe that we have the right plan in place to help us unlock our growth potential. We have confidence as we look forward to our target to grow to at least 1,500 company-operated checks over time, and we are very much looking forward to updating you on our progress against our 2025 strategic priorities throughout the year.
Rob Lynch: and thank you for your time. With that, I'll turn it back to Rob.
Thank you, Katie.
Speaker Change: Building off of a strong 2024, we are excited about the opportunities ahead and look forward to making progress against our new set of strategic priorities in 2025.
Speaker Change: Above all, I'm so grateful to our dedicated teams bringing their hearts, minds, and focus to their endeavors every single day. Thank you all for your time today.
And with that, Operator, please open the call for questions.
Speaker Change: and Michael Fogertey. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question. One moment while we poll for questions.
Speaker Change: Our first question is from Michael Thomas with Oppenheimer and Company. Please proceed.
Bye-bye. Thanks. Good morning.
Speaker Change: You know, you guys just talked about increased confidence in getting to that 22% restaurant margin this year, and that suggests about 60 basis points of expansion versus 24.
Speaker Change: You know, this is despite, I think, a more choppy top-line environment since ICR. So can you maybe just unpack for us what's driving that increased confidence and talk about maybe some of those incremental initiatives throughout 25 that give you the confidence in this target? Thank you.
and Michael O'Neill. Thank you. Thank you.
Michael O'neill: Great, yeah, thanks for the question. Yeah, we raised our full year 2025 adjusted EBITDA to 205 to 215.
Speaker Change: And that's really a function of our increased confidence to achieve this approximately 22% restaurant profit margin we expect to get this year.
Speaker Change: The reasons why we're going to be expanding margins this year by about that 60 basis points is pretty evenly split through just better labor management. The implementation of our new labor model that we put in place in fourth quarter has gone exceptionally well. We're continuing to see really strong performance from that scheduling system in the first quarter of this year, and it's helping us to offset some of the sales pressures that we're seeing from the weather and the wildfires.
Speaker Change: and I have good confidence that that will continue throughout the rest of the year.
Speaker Change: And then on, you know, other initiatives that we're working on, I would say, you know, part of it is, you know, we, the margin expansion that we delivered in the fourth quarter was really evenly split between labor management and then also on our supply chain. And we are continuing to do great work. They're uncovering opportunities to get more efficient, bring on more suppliers and optimize our freight. While also from an operational standpoint, you know, improve the way that we are running our ships in our shacks to help.
Speaker Change: and they will help minimize waste. So those are the big buckets that will help carry us through this year and give us increased confidence.
Speaker Change: Our next question is from Christine Cho with Goldman Sachs. Please proceed.
Christine Cho: Yeah, hi, thank you. So it was really encouraging to see kind of the 3.7% safety sales growth in January despite the weather headwinds and the impact of the LA wildfire. Can you help us unpack that growth a little bit for us? Thank you so much.
and Michael O'Brien. Thank you. Thank you.
Christine Cho: Yeah, so we had a really strong January despite these pressures. We talked about 150 to 200 basis points of pressure from traffic pressure from the fires and from weather. As far as the components of the comp, we were running about a 6% price heading into the year that's kind of leveled off to about 5% for the rest of the quarter. And so when you take those together, we just think that it signifies very strong performance
Christine Cho: business, the fact that our marketing and operational strategies are helping us to deliver strong performance against, you know, and helping us to offset some of these weather and wildfire pressures.
Speaker Change: Our next question is from Brian Vaccaro with Raymond James. Please proceed.
Brian Vaccaro: Hi, thanks and good morning. I had a question on the store margins and
Speaker Change: on labor specifically, and you spoke to the Phase II labor model efficiency, but I also wanted to ask you about the improvement that you're seeing just from running tighter operations.
Speaker Change: more sort of your maybe lower performing stores starting to achieve more of your new KPI targets. So I guess on that topic of attainment, is there a way to frame the improvement you're seeing on sort of bringing up the lower performing stores and what the opportunity might be there if more of those stores start hitting more of your targeted KPIs?
and Michael O'Neill. Thank you. Thank you.
Speaker Change: So, on the improvements that we're seeing from the labor model, you know, I'd really, I actually think that that is very coupled with the operational improvements that we're seeing.
Speaker Change: And by implementing this new labor scheduling system, we do believe that we're providing a better guest experience and we're enhancing our returns. However, it really is only able to be executed by the strength of our operations.
Speaker Change: And so I think both of those run hand-in-hand, you know, we wouldn't be able to have the new scheduling system go into place so successfully if not for the work of all of our operators and their improvements on that side.
Brian Vaccaro: I'll let Rob talk to the scorecard and, you know, what we're seeing there. Yeah. Hi, Brian. I mean, I would say that it's pretty consistent with what we've been saying for the last six months. You know, it's, I, the new labor model is great. I wish we had some kind of like.
Brian Vaccaro: proprietary AI software that's driving a lot of these results, like it's literally great discipline operating restaurants.
Brian Vaccaro: Our new leadership has permeated her philosophies down through the organization. And so, you know, part of it is the amount of hours that are being allocated because of the activity based labor model versus the sales base.
Brian Vaccaro: But a big part of it is just adherence to what's being allocated. So it's the discipline to hit the numbers that are in the schedule.
Brian Vaccaro: really focused on in the past, and it's incredibly focused on now. So, to your question around the lowest-performing shacks,
Brian Vaccaro: even those shacks now have much better adherence to their labor scheduling than they had in the past, which is definitely driving increased profitability and hence our confidence in our ability to add 60-plus basis points of restaurant-level margin this year.
Speaker Change: Our next question is from Jeffrey Bernstein with Barclays. Please proceed.
Great, thank you very much.
Speaker Change: I just wanted to follow up on the restaurant margin topic. Looking beyond this year, you guys gave a three-year guidance at ICR last month and reiterated this morning for restaurant margin of at least 22 percent.
Speaker Change: that is similar to the 22% you're projecting for this year.
Speaker Change: I think there were some investors that were hoping for maybe a little more context behind the at least 22%.
Speaker Change: just because it seems like it's a open-ended but at 22% it wouldn't demonstrate any improvement from here but yet we know you have a variety of initiatives and it seems like you're increasingly confident in those so I'm just wondering if you can give
Speaker Change: Any kind of color, whether it's a range, or an annual goal, or potential magnitude of upsides. Rob, I think you mentioned there was potential upside to those targets, so just trying to get some frame of reference for when you say at least 22%, kind of a little more context behind what that could be. Thank you.
Speaker Change: Yeah, it's a great question. You know, our aspiration is to continue to get more efficient and more productive. Everything we talked about
Speaker Change: this morning and everything we talk about in our calls with all of the investment community really talks about all of the initiatives that we're putting in that are transforming our operations, improving
Speaker Change: our guest satisfaction, improving our team member experience, improving our retention, and eventually that flows down to, you know, margin.
So, we will keep the investment community.
very close to that as we continue to see
Speaker Change: progress and as we continue to advance the initiatives that we have in place today towards driving more productivity.
Speaker Change: Our guide is a baseline. It's representative of what is in the model today and what we believe we can execute today. That doesn't mean we don't have.
Speaker Change: You know five six seven other big initiatives in place with the intention of continuous improvement
That being said...
Speaker Change: We also see headwinds on the horizon. We also see, you know, a volatile commodity.
Speaker Change: situation, both on, you know, ingredients as well as equipment and other costs to our business, given kind of the uncertainty of the current environment. So we're trying to be thoughtful and planful and take both the upside into account, but also some of the risks that are facing
and kind of the industry as a whole right now.
Please see the complete disclaimer at https://sites.google.com
Speaker Change: And I'll just add on that, you know, with what Rob just discussed.
Speaker Change: You know, we are planning, and our plans for this year reflect us returning to a more normalized price environment of that, you know, kind of 2% for in check, 3% overall, and our outlook for the next 3 years doesn't really contemplate any big step ups in pricing. So, what we are doing here is really relying on operational efficiencies and other strategic initiatives to continue to expand our margins while still trying to navigate the pressures that Rob outlined.
Yeah, I mean, product, innovation, and productivity.
are better than pricing.
Speaker Change: So we're focused on developing a culinary innovation pipeline, a menu strategy that where we have items that complement each other to drive both comp sales as well as margin enhancements.
Speaker Change: and obviously all the operating productivity that we've already talked about. I mean, you couple that, our goal would be to minimize the amount of pricing that we have to take.
Speaker Change: which is then going to continue to improve our value perception relative to the industry. We already know that we have the best food, the best ingredients, and if we can become more productive...
Speaker Change: and more inventive around our innovation and achieve our financial targets without having to take as much pricing. That's going to become a virtuous cycle that's just going to drive transaction growth for a long time. So that's really what we're focused on doing.
Speaker Change: Our next question is from Sharon Zaxia with William Blair. Please proceed.
Speaker Change: Hi, good morning. Thanks for taking the question. You guys just mentioned a lot of uncertainties with the commodity environment, and Katie, I know
You said you don't have any kind of tariff impact.
and your guide, are you guys exposed?
Speaker Change: to Canadian or Mexican produce or imports in your business or would you just expect there to be potentially broader inflation if tariffs were impacted?
Speaker Change: Yeah, I think, you know, we source domestically for our company operations, we source the vast majority of our ingredients domestically. So we do not have a huge amount, excuse me, of exposure. That being said,
All of these things live together, right?
Speaker Change: We don't have a breakfast business, a big breakfast business. So, you know, we don't have the exposure to eggs. But other, you know, restaurant companies that have exposure to eggs may be moving away from eggs in the time being, which means they're going to offer more beef products or chicken products that to complement or to substitute for for that high cost.
Speaker Change: item. And when that consumption demand changes, it has the potential to change even some domestic pricing. So we're just trying to be thoughtful and planful and making it, you know, as Katie highlighted, a lot of the work we've done in our supply chain
Speaker Change: has been around creating multiple sources of supply, new vendors, new partners, that has been a big focus for us.
Speaker Change: both from a business continuity standpoint, but also from a sourcing and price standpoint. So as we look at the environment, we're being very,
Speaker Change: balance our sources of supply with pricing and make sure we have access to the best suppliers at the best prices. But that's more context than maybe you asked for. I would tell you that the vast majority of our ingredients are sourced domestically.
Speaker Change: Our next question is from Brian Mullen with Piper Sandler. Please proceed.
Brian Mullen: Thank you. Just a question on loyalty. Can you talk about the roadmap for an eventual launch? And, you know, related to that, you know, I know I think with Shake Shack, the goal is to make sure there's enlightened hospitality expressed digitally. You know, my question is just how do you strike the right balance between
Brian Mullen: basic blocking and tackling and maybe replicating what have made other programs successful versus also trying to make it very unique for Shake Shack. Any thoughts on all that?
Brian Mullen: Yeah, I think, you know, we have gotten very successful this year at delivering kind of surgical incentives to drive incremental.
Brian Mullen: purchases. I mean, the marketing investments that Katie talks about, a lot of those are kind of performance marketing as opposed to big, you know, national advertising campaigns. So we're always going to have a component of our business.
Brian Mullen: that is focused on delivering incentives. So loyalty and understanding our customers will give us even greater insights to be able to be even better at delivering those targeted incentives. But that's not where it stops.
Brian Mullen: It's also about making sure that we understand our guests and their historical purchase behavior and their needs.
Brian Mullen: so that we can deliver information and insights as well. So, if you are somebody who traditionally has bought
a premium
Brian Mullen: you know, burger, LTO burger, like a truffle burger or what have you, and you come in to our kiosk.
and you order a Shaq burger.
Brian Mullen: but in a way that it might add value to this customer by saying, well, did you know that we currently have
Brian Mullen: this great new LTO burger that, you know, is here for a limited time. And in doing so, we're going to improve, potentially improve the experience that that guest has.
Brian Mullen: on that occasion, but we're also going to drive self-selection trade-up, which is going to improve our comp and is going to improve our margins. So it really is a virtuous cycle. We're right now trying to stay away from a pure points discounting loyalty program. We don't feel like that
Brian Mullen: is necessary for us, we feel like we can do it in an enlightened hospitality way, which is about understanding our guests and being able to deliver on their unmet needs. So those are two examples of how we're going to leverage the loyalty platform.
Andrew Charles: Our next question is from Andrew Charles with TD Cowen. Please proceed.
Andrew Charles: Thanks. You mentioned advertising doubled year over year, which implies about an increase, about a point of the percent of sales to help drive the sales momentum in 4Q. What's embedded in guidance for advertising spend in 2025?
Andrew Charles: Hi, Andrew. Yes, so we had a, you know, a really successful year of ramping advertising last year. We learned a lot. We are excited for, you know, to kind of keep that level of investment up there. We're growing it less significantly. You know, certainly our plans are less significant.
Andrew Charles: in 2025 than they were in 2024. But we feel like we have really good plan in place and learnings that we've achieved from what we did last year. Just for everybody's knowledge, a portion of that will hit other operating expense in our restaurant expense line. Most of that is going to be in G&A. And for modeling purposes, just a reminder that last year we did see more of a ramp up in our advertising spend towards the end of the year.
Andrew Charles: This year we're planning it for it to be more evenly paced, both across other operating expense and also on GNA.
So just to build on that
Andrew Charles: Katie, you know, we are going to increase advertising, not at the same rate as Katie talked about, but that's because we're increasing our investment in GNA in operations and development.
So, and tech. So, you know
Andrew Charles: We could go out and double our advertising this year and get the same rate of return on that Advertising as we've gotten in the past
or we can go out.
and Make DNA Investments Possible.
and running better operations, increasing throughput, increasing guest satisfaction.
Andrew Charles: So, the marketing investment that goes into driving that occasion has a higher lifetime value for us because there's going to be a higher probability of repeat purchase because of a better guest experience.
Andrew Charles: Same with development, you know, we are one of our, you know, obviously thing we're not as developed as a lot of our competitors, 329 company operated shacks across the US.
Andrew Charles: The more shacks we build, the more access we create for people, the more convenient access we create for people, the better returns we're going to get on our marketing investment, right? Because
Proximity.
or lack thereof is a barrier potentially to frequency.
So, the more shacks we can build in more neighborhoods.
Andrew Charles: The more convenience we're going to offer, the better return we're going to get on our marketing investment.
Andrew Charles: for the last few months, like 2025, we've got great, you know, we put a guide out there, we've got great ambitions to have a great year, but it's also a year of investment. It's a year of building the infrastructure in operations, development, and tech.
that is then going to give us
even greater returns when we increase our marketing investment.
moving forward in 26 and beyond.
Speaker Change: Just want to make sure it's not about us kind of taking our foot off the gas on the marketing.
Andrew Charles: model, it's about us believing we have culinary operations development and tech opportunities to build that will give us even greater returns from those investments moving forward.
Speaker Change: Our next question is from Peter Salah with BTIG. Please proceed.
Peter Salah: Great, thanks. I did want to follow up on that question on the advertising. You know, Rob, can you just talk a little bit about how the strategy may be a little bit different in 25 versus 24? I know you guys
Peter Salah: said that you know it'll be more evenly spaced but I think last we spoke you said you know you haven't really leaned on a call to action or any price point advertising is that something that could be in the cards for 2025 just a little bit more call to action on the advertising strategy?
Peter Salah: Yeah, Pete, I mean it could be. We're current, you know, I just hired a new...
Peter Salah: Chief Communications Officer at Luke Derwin, and he and I'm taking, you know, a very active role.
Peter Salah: and the brand positioning and marketing work that we are doing, the foundational work that is so important.
to really making the media dollars.
Deliver great returns right, you know bad strategy
Peter Salah: great media, bad output. So I'm not saying we have a bad strategy, but we definitely have work to do on how we bring the Shake Shack brand to life. There are so many great things for us to talk about. We need to distill that.
Peter Salah: and we need to communicate that in a compelling and concise way and we haven't yet got that all the way to bright so we are still
Peter Salah: developing that strategic brief. Like, what is our, you know, single point of communication moving forward? Once we have that, there will be opportunities to deliver that from a pure branding standpoint, but there will also be opportunities for us to leverage those insights.
to drive, you know, closer in purchase occasions.
Peter Salah: through price-pointed promotions or price-pointed LTO promotions or those types of things which we haven't done.
Peter Salah: a lot of that in the past. We've done targeted surgical incentives through our digital channels. We haven't done a lot of price-pointed advertised promos. I think that's definitely something that we're looking at and we can leverage probably more in the back half this year or even in the front half of 2026.
Speaker Change: Our next question is from Brian Harper with Morgan Stanley. Please proceed.
Brian Harper: Yeah, thanks. Good morning, guys. Just on the same shack sales side, I guess, you know, you provide kind of that regional color in your letter. Seems like a couple regions got better, a couple, you know, faded a little bit. Can you just comment on what drove some of that?
Brian Harper: into this this year, you know as you think about kind of
you know, at least 3%.
Speaker Change: Seams for Sales, I think, was what you spoke about. That's obviously...
Speaker Change: mostly pricing, I would sort of infer that you might be looking for a bit of traffic growth and maybe some offset from
Speaker Change: mix. Obviously, you did kind of see that in 24 as well. Is that kind of accurate or do you see any sort of changes in those pieces based on the strategies you're deploying this year?
Speaker Change: Yeah, so to start with the first part of your question on 4Q, same-check sales, and kind of heading into January and how those trends looked.
Speaker Change: and Michael O'Neill. Overall, when you adjust for weather and the fires, our trends are actually quite consistent. The regions where we're seeing strength are just areas where we're still building brand awareness. I'll talk about Florida. It's been a particularly strong market for us.
and operations are incredibly strong in that market as well.
Speaker Change: What we are seeing, though, and I think this is a helpful color for the rest of the year and kind of lines up to the strategies that Rob has talked about, is, you know, in January, towards the end of January, we were lapping the launch of our Korean barbecue LTO last year, and we did not have a new product to go against that. And so, you know, we're seeing that plus, you know, the continued impacts of weather.
Rob Lynch: and some calendar shifts be about a low single-digit pressure to our traffic overall for the first quarter. And, you know, when we talk about the investments that we're making and our focus on culinary and a culinary calendar, you know, that is very important and will help us get ahead of issues like this going forward. Rob, do you want to add some more on this? I would just say, you know, you nailed it.
Rob Lynch: The representation of that is what Katie's talking about. We had a great Korean barbecue launch last February and we didn't really have something planned to comp over that this February.
Rob Lynch: And that's, you know, that hasn't been the way this railroad has been run. It's been...
To their credit, an amazing culinary machine.
Rob Lynch: But that culinary has really been more about the focus just on bringing great food to life. Like, we need to continue to do that, but we need to do it in a strategic way that makes sure we don't have.
100, 150 basis point gaps in our comp model
annual year-over-year innovation plan.
Rob Lynch: behind it. So, you know, those are the things that we are remediating. Those are the things that we are fixing. I keep talking about, like, we're gonna have a great 2025, but, like, we're building all of that 2025. So if I'm sitting here in 2026,
Rob Lynch: telling you that we didn't have a great innovation calendar to lap what we did in 2025, then shame on me, because that is the work that we're doing today to make sure that that type of scenario never plays out again.
and many more. Thank you. Thank you.
and Michael O'Brien. Thank you. Thank you.
Speaker Change: Our next question is from Jake Bartlett with Truist Securities. Please proceed.
Jake Bartlett: Great. Thanks for taking the question. Rob, I just wanted to build on actually that last comment, and that's the the cadence of LTOs. And so, you know, definitely note that
Jake Bartlett: January, February there's been an LTO in years past and there's not this year so I guess the question is does something come you know going forward you know soon or any anything that is different about the the cadence of LTOs in 20 in 25
Jake Bartlett: And maybe, you know, what your vision is going forward. It seems like there's about, you know, three LTOs a year historically. Is that what you think should be the case, you know, going forward? How should we expect 25 to be different, but also what does the future look like in your
Jake Bartlett: Yeah, I think every brand is different. Every brand is different based on their purchase cycles and how they engage and interact with their guest base, right? I think the right cadence for this brand is similar to what you just articulated, three to four
Jake Bartlett: big LTO windows a year. We made the strategic decision this year
Speaker Change: to stick with truffle? Like, technically, right now, we do have an LTO. It's truffle, but it's been in market for over four months now. And I think we're seeing that that's probably a little bit too long to continue to stimulate demand. We're a bit enamored with truffle.
Speaker Change: We love it. Our guests love it. It has been incredibly successful.
Bye.
Speaker Change: the duration of it, I think we're still seeing strong repeat, but we're not getting as much trial after, you know, four and a half months. So as we look to the future, our goal will be to strike that the right balance between giving people a window
Speaker Change: to be able to kind of drive repeat frequency around an LTO that they really love, but also making sure we have refreshed our LTOs enough
Speaker Change: quickly enough to continue to stimulate, you know, new trial and new demand of new items. So I hope that is kind of the answer, you know, the information you're looking for.
and Michael O'Neill. Thank you. Thank you.
Speaker Change: Our next question is from Lauren Silberman with Credit Suisse. Please proceed.
Speaker Change: Thank you. So industry, comps, challenging exit in 24-25 early on. Obviously, you have the noise of weather and holiday, shifts. Some of your peers have also had mixed commentary around the consumer. Can you just talk about what you're seeing with the underlying consumer, any discernible changes in behaviors or thoughts on the relative resiliency?
Speaker Change: at Shake Shack. Thank you. Sure. Sure. Hi, Lauren. So, you know, when I got here in May,
Speaker Change: When I, you know, just got here, I might have had a little bit of that trepidation because, yeah, you're, you know, you're premium priced, everyone's racing to value. Does that create a risk? And what we learned last year?
is it's it's just the opposite. We
to a certain extent, because of our footprint.
are a bit insulated from the hyper value conscious guest.
We are, our shacks are typically
Speaker Change: in the markets they're in at the corner of Maine and Maine, great real estate, great assets.
Speaker Change: And historically, you know, our premium positioning has attracted a higher income.
cast and has
Speaker Change: You know, people that are a little bit less price sensitive.
Speaker Change: So, as we aspire to get to 1,500 shacks, that dynamic will obviously evolve as we penetrate more markets and go into, you know, more mixed...
demographic.
Speaker Change: areas, but right now, we're seeing a lot of strength with our guests and, you know, the Truffle Burger is our highest-priced LTO in history.
and has performed.
better than almost any LTO in history.
So, those data points.
Speaker Change: imply that there's still a lot of demand for high-quality food that people still determine is a great value.
mainstream QSR competition.
the gap is actually narrowed a bit.
Speaker Change: on our core offerings, particularly our shack burger and our double shack burger. So, we feel really good about our value equation, and our guests have shown up and shown us that we can continue to win with this premium strategy.
Speaker Change: Our next question is from David Tarantino with Baird. Please proceed.
David Tarantino: Hi, good morning. Rob, my question is about speed of service. You mentioned many times about that being a priority. You also indicated that...
David Tarantino: wait times improved by more than a minute year over year. So I was hoping you could perhaps put the opportunity for speed of service into context, you know, so for example, you know kind of where are you today?
David Tarantino: on wait times, where do you want to be, and just to kind of frame up kind of, you know, how much progress has been made already and how much more might be to come. Thanks.
Speaker Change: Yeah, it was a great question. I'll just, I'll give you a little walk through history very quickly. You know, when I was at Taco Bell, we used to talk about
Speaker Change: Every second off of the drive-through delivery time was worth a million dollars in sale to the system.
because when you're at max capacity during your peak hours
Speaker Change: When you drive throughput, you're driving incremental sales. And they had measured how many people drove off the lot or, you know, how the, when the line got to a certain point.
Speaker Change: the queue stopped growing. So they've done all that diligence. We have yet to do all that diligence at Shake Shack and our drive-thrus make up less than 10% of our footprint. So there's absolutely.
a benefit in throughput at our peak.
ours in our best shacks.
Speaker Change: If you walk around New York City at lunchtime, you're going to see the line 10 deep at almost every Shake Shack.
So there's a throughput benefit
Speaker Change: But there's also a lifetime value benefit from improved speed of service, right? Like people don't come to us sometimes because they know that they're going to have to wait.
Speaker Change: They're okay with it taking a little bit longer to make the food, but we have longer lines than most people. At 4 Million AUV, we're doing a lot of business. We have a lot of traffic and lines.
Speaker Change: Speed is a big focus area for us and to take a minute off of speed of service in one year
That's just not even something that is possible.
Speaker Change: at the QSRs of the world. Taco Bell, Arby's, places I've experienced with, we were trying to take a second off. We were trying to take, you know, two seconds off. We took a minute off. Now, to put that into context, we're still not even close.
to the industry standard total time to delivery. So,
Speaker Change: We have a lot of work to do. We're not disclosing exactly what those times are, but I can tell you that we still have another minute to go before we even get into the ballpark of where I want to be. And all of our initiatives, both in the short term around our process, our equipment,
how we prep.
Speaker Change: cook and hold our food are all geared towards improving our speed without degrading our quality. So that's going to have short-term benefit in 2025, but long-term as we build more drive-throughs, those benefits are going to be even more greatly exacerbated.
Speaker Change: Our next question is from Andy Barish with Jeffries. Please proceed.
Thank you.
Andy Barish: Yeah, hey guys, I'm just trying to level set on the new labor scheduling. I mean it seems like with
Speaker Change: low single-digit wage inflation and the pricing you still have for 25, those kind of...
Speaker Change: offset. So are we expecting that 80 bips to kind of continue before you're lapping in the fourth quarter on the labor line? I know you've got obviously less pricing, but just trying to get the puts and takes there.
Speaker Change: … Will deliver quite strong margin improvement year over year, which is something for your model.
Speaker Change: Our next question is from Jeff Farmer with Gordon High School. Please proceed. Great. Thank you. Just wanted to take another crack at the three-year guidance question. Obviously, as you guys well know, that low to mid-teens EBITDA growth guide sits
Jeff Farmer: just above that low teens revenue growth guide. So it clearly implies a smaller level of margin expansion as you move forward.
Jeff Farmer: Here's a question, and you guys did hit on this, but I'm just looking for greater clarity on if this is sort of conservatism on your part or an expectation for some incremental costs or maybe a combination of both.
I mean, we are definitely in investment mode.
Jeff Farmer: We see huge opportunities. We cannot get a better return than investing our capital into our assets, like News Shack openings.
is the number one value unlock for this company.
and, you know, that requires...
Jeff Farmer: increase GNA investment as well that it requires us to you know continue to build teams it requires us to go and build the development capability we have to get dealmakers real estate people like a lot of that stuff
and the QSR industry sits on the franchisees plate.
Jeff Farmer: here, construction management, real estate, all those things, that's all us. So we're making those investments in 2025 and into 2026 to continue to drive
Jeff Farmer: incremental growth. We are going to build more restaurants, more shacks this year than we built last year. We're going to build more than that in 2026 and beyond. So we're making investments.
Jeff Farmer: You know, the margin opportunities, we can absolutely grow our margins faster than what we've got it to.
but that would come in potentially at the expense.
Jeff Farmer: of the investments necessary to deliver the full realized long-term potential.
Jeff Farmer: of our company. So, I don't know, Katie, if you want to add anything. Yeah, I mean, I think it's important to put that, you know, that into perspective here. So, just looking at 2024, we started the year with about 200 shacks in our comp base.
Jeff Farmer: and we grew our comps by about 3.6% year over year. So it's about 30 million, you're kind of at system-wide AUVs, it's about $30 million of revenue that came from just our comp base.
Jeff Farmer: However, we did increase our sales by $160 million year over year.
Jeff Farmer: So, really, four-fifths of our incremental revenue is coming from us opening up more and more shacks. And to Rob's point, you know,
Jeff Farmer: for us to achieve our total long-term potential of at least 1,500 checks and what that can mean from how big a GSD, but it could be on that side. It does require a level of investment, but we believe we have a great plan in place in order to do that. And we believe we're maximizing the returns from this business.
Jim Sanderson: Our next question is from Jim Sanderson with North Coast Research. Please proceed.
Jim Sanderson: Hey, thanks for the question. I just wanted to go back to the drive-through optimization process. Could you speak a little bit more about what that entails and if menu bundling is going to be part of that solution, or more broadly, how you expect the changes to improve performance?
Thank you. Thank you.
Jim Sanderson: Yeah Jim, menu bundling will absolutely be part of that solution and we will be launching that.
See you.
Jim Sanderson: So I've been talking about it for a long time. We have been building it, we've been optimizing it, and I am committing that it is coming. That's just one part of it though, but it's a big part of it because we, the biggest...
Jim Sanderson: Gap versus best-in-class drive-through is in the order zone for us. So ideally the configurations, the changes we're making
Jim Sanderson: to the menu in the drive-thru will have a very positive impact on the order times. But we're making other improvements as well. Where streamlining, I mean, I talked about it and, you know, I mentioned it earlier.
Jim Sanderson: You know, we are streamlining the drive-thru restaurants. We are improving, in our Kitchen Innovation Lab,
Jim Sanderson: I mean, this is something I want everyone to take away.
For us to do kitchen innovation in the past,
We have built.
Jim Sanderson: shacks with new models to test them. Like think about that. We didn't have a lab
Jim Sanderson: For us to learn, it required us to build more shacks and do things differently. So, while you're trying to open up a new restaurant in an optimized way and drive performance, you're also testing ideas and thinking about, well, maybe this could work, maybe that could work.
Jim Sanderson: The whole idea behind this Kitchen Innovation Lab that we're opening in Atlanta is we are building a modular lab that's going to allow us to test and optimize all of our kitchen equipment.
Jim Sanderson: and build outs and flows and processes. So that is gonna accelerate like a hundred times acceleration of innovation on our model. So that's gonna have a big impact. And then the last thing I'll say is.
you know, are
Jim Sanderson: I know we talked about the flows, but even just the equipment, I mean, we talked about hot holding, we talked about fries, we talked about shake machines, like all those things are on the table that haven't really been on the table in the past. So we're looking at all of that to decrease.
Jim Sanderson: the times in the drive-thru, and we just built our first
single-lane drive-thru that opened in December.
Speaker Change: and Wesley Chappell in Tampa. And I gotta tell you, it has the best times in our system and drive-through and it's single lane and it doesn't even have all of these improved modifications. So lots of upside there.
Speaker Change: Our next question is from Raul Crow with J.P. Morgan. Please proceed.
Speaker Change: Hey guys. Hey Rob, can you talk more about this Atlanta Support Center? I know you mentioned a little bit about the Kitchen Innovation Lab, but over time like how big and what kind of capabilities will this center have? And it does sound like some sort of secondary HQ.
Speaker Change: And then I also wanted to follow up on how you plan to attract the right tech talent out there, given how expensive it's been, and then as you continue to build out your data and tech capabilities.
Speaker Change: In the last quarter, we have moved away from this idea of a headquarters. We have communicated in my year beginning letter, I sent a note out to all of our employees.
and I just let them know, you know...
Everybody in our company is dedicated to one thing.
making our Shaqs successful.
Speaker Change: Every employee, whether you're in finance, you know, you're in tech, you're in marketing, whatever, we're all here to support our operations. And so we have moved from a headquarters vernacular to support shacks, support centers.
and we have three of them. We have New York,
Speaker Change: We have Hong Kong for international business, and we are building Atlanta.
Speaker Change: and Atlanta is going to give us a very convenient location to operate.
a restaurant company out of.
Speaker Change: We are going to be able to recruit different talent from across the country to be able to come to Atlanta, and we're going to be able to do it more efficiently.
Speaker Change: So, we are super proud of our roots in New York City. We have a great team here in New York City doing amazing work and driving all of these great results. That's not going to change.
Speaker Change: Like, we are not moving people from New York to Atlanta, we're just opening up the opportunities both from a recruiting, and you know, you talk about tech talent.
This new office gives us access to a whole new...
Speaker Change: population of tech talent. And we've just hired a new chief information and technology officer and Justin Menon, who is best in class is built, you know, is building a best in class organization. He's going to be based out of Atlanta. Atlanta has over 60 universities within a two hour drive from it.
Speaker Change: It's a hotbed of restaurant operations talent. It's also a hotbed of tech talent. So we feel great.
Speaker Change: about opening this office, giving us a lot more access to recruiting and also giving us a space to be able to do a lot of this innovation work.
Speaker Change: We have reached the end of our question and answer session. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.