Q1 2025 Shake Shack Inc Earnings Call
Speaker Change: Good morning. Welcome to Shake Shack's first quarter 2025 earnings call. At this time, all participants are in a listen-only mode.
Speaker Change: Thank you operator, and good morning, everyone. Joining me for Shake Shacks Conference call is our CEO, Rob Lynch and CFO Katie Fogarty during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in.
Speaker Change: I used solution 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.
Speaker Change: G, including those discussed in our annual report on Form 10-K filed on February 21st 2025, any forward looking statement statements represent our views only as of today and we assume no obligation to update any forward looking statements. If our views change by now you should have access to our first quarter.
Rob Lynch: <unk>, 20th twenty-five shareholder letter, which can be found on investors that shake shack dot com in the quarterly results section or as an exhibit to our 8-K for the quarter I will now turn the call over to Rob.
Rob Lynch: Thanks, Melissa and good morning, everyone.
Rob Lynch: 2025 is positioned to be a year of transformation for shake Shack, we are making significant progress against our strategic priorities, which will fuel our growth to at least 1500 company operated shacks.
Rob Lynch: While we recognize that many macro headwinds impacted transaction growth across the industry in the first quarter. We are using the current business environment as an opportunity to identify ways to improve our guest experience grow total revenue and continue to reduce both our operating and build costs.
Rob Lynch: Over the past year I've had the privilege to learn about this great business and collaborate with our leadership team to evolve our culture to support our lofty aspirations.
Rob Lynch: We are in a significant growth phase aiming to more than quadruple the number of company operated shacks.
Rob Lynch: To achieve this it will take innovative thinking hard work and continued commitment to delivering enlightened hospitality.
Rob Lynch: Through our efforts, we will create lasting value for all of our stakeholders.
Rob Lynch: Our team has worked to evolve into a performance based organization that can leverage the scale that we're building with each new shack, while continuing to put our team members and guests first.
Rob Lynch: This evolution has resulted in better guest service operational improvements and productivity culinary innovation and menu strategy and the foundation of a brand marketing model.
Rob Lynch: We are swiftly implementing these improvements and have increased our restaurant level profit margin guidance for this year and going forward. We now expect to deliver at least 50 basis points of improvement in our restaurant level profit margins annually over the next three years and are confident in our ability to continue to become better for years to come.
Rob Lynch: Consider that in the first quarter, despite significant weather headwinds coupled with industry and macroeconomic challenges. Our teams grew restaurant level profit margins by 120 basis points year over year to 27%.
Rob Lynch: This marks the highest first quarter restaurant level profit margin since 2019, which shows the underlying strength of our operational improvements and solidifies our confidence in shake shacks long term margin outlook.
Rob Lynch: It's remarkable performance from our team, especially considering the traffic headwinds elevated beef costs that were up mid single digits and 3% to 4% wage inflation.
Rob Lynch: We also exited the quarter with low single digit menu price.
Rob Lynch: Our operational agility helped us become more productive mitigating the need for us to take more price in this competitive value oriented macro environment.
Rob Lynch: This makes me, especially excited about what this business can look like when macro tail winds are once again at our backs.
Rob Lynch: We're remaining focused on excelling in all the areas that we can control executing against our 620 25 strategic priorities designed to grow our business and drive long term profitable growth for our stakeholders.
Rob Lynch: As I have stated previously our first strategic priority is building a culture of leaders.
Rob Lynch: As a domestic company operated business with ambitions to meaningfully grow our footprint, it's crucial to have a strong bench of managers ready to open new shacks.
Rob Lynch: We're investing in training and development for our future shack level leaders and are excited about the opportunity that we are providing for our team members to reach their full potential.
Rob Lynch: Our second priority is improving restaurant operations and as we stated earlier, our increased productivity helped us deliver 120 basis points of margin improvement in the first quarter.
Rob Lynch: Our new systems and processes have made us operationally agile and allowed us to be in better control of our staffing and food management as weather and macro pressures persisted throughout the quarter.
Rob Lynch: Our third priority is driving comp sales with a specific focus on increasing frequency in this highly competitive environment. It is imperative that shake shack continues to reinforce the significant value that we deliver relative to the competitive set we.
Rob Lynch: We will do this through a mix of operational culinary and marketing strategies.
Rob Lynch: Our focus on hospitality and how we operate and our shacks as having a direct impact on driving higher guest satisfaction scores.
Rob Lynch: This was the fifth consecutive quarter in which we improve both speed of service and order accuracy year over year we've.
Rob Lynch: We've also significantly improved our labor labor attainment and waste levels.
Rob Lynch: Leveraging our standardized scorecard across our network of shacks, we are closely measuring our performance and driving continuous improvements across our system.
Rob Lynch: On the culinary front, we are reinforcing the quality of our food and our fine casual positioning.
Rob Lynch: In a short period of time, we have developed a robust calendar that is planned 12 months in advance and sharing that we have compelling innovation and L. T o's across our burgers and sandwiches side items shakes and drinks <unk>.
Rob Lynch: Culinary innovation is the heartbeat of shake shack and developing ideas like U S. R and even fast casual competitors are unable and unwilling to offer is one of the things that drives our competitive advantage.
In mid April we introduced the Dubai Chocolate Pistachio shake to 30 shacks in New York City L. A and Miami this.
Rob Lynch: This shake inspired by the viral Dubai chocolate trend and first introduced in our Middle East Shacks features real pistachio of frozen custard toasted could talk the shredded phyllo and a cracker bolt dark chocolate shelf.
Rob Lynch: While quantities were limited the response was phenomenal with lines out the doors are participating shacks and multiple shacks selling out within minutes.
Rob Lynch: This innovation is attracting guests improving in our culinary strategy is critical to driving traffic and mix.
Rob Lynch: There's a lot more improvements to come like the summer Bbq chicken and Burger L. T O with four sandwiches that feature some of our best ingredients, such as Applewood smoked Bacon and fried pickles.
Rob Lynch: Beyond L. T OS we are committed to evolving our core menu strategy across all of our channels. One channel that we have been very focused on is the drive thru.
Rob Lynch: In particular, we have seen an opportunity to improve our value perception and our operational performance with shake Shack combos.
Rob Lynch: Over the past month, we tested new digital menu boards that feature clear and simple combo options for our guests, which reduced the time. It takes the order we were pleased with the results and are on track to offer the new shack combos across our more than 40 drive throughs by the end of this month.
Rob Lynch: I'm also excited about the potential to drive incremental traffic with our new guest recognition platforms in our App and web channels, where we have recently launched a targeted multi visit challenge designed to drive frequency and deepen guest engagement.
Rob Lynch: We look forward to evaluating the impact and optimizing the way that we drive increased loyalty.
Rob Lynch: Our fourth strategic priority is building and operating shacks with best in class returns.
Rob Lynch: Our new shacks continue to deliver industry, leading cash on cash returns and despite a challenging global procurement environment, we're still on track to reduce our cost to build by at least 10% and 2025.
Rob Lynch: Our consistent ability to open new restaurants, with excellence has positioned us uniquely to deliver above industry total revenue growth of 10, 5% in the quarter, despite weather and macro pressures.
Rob Lynch: We're confident in our ability to open our largest class on record this year and will continue to open even more shacks in 2026.
Rob Lynch: The strength of our current pipeline is only exceeded by the opportunity of our white space.
Rob Lynch: Our fifth priority is to grow our license business and we had an outstanding first quarter with sales growing 10, 4% year over year and seven new shacks opened.
Rob Lynch: We launched our first ever fish sandwich in Hong Kong, which quickly became our second best selling protein and it is now coming to mainland China.
Rob Lynch: The Dubai Chocolate shakes success in the Middle East led to its limited introduction in New York, Miami and L. A we.
Rob Lynch: We expanded our Delta partnership to four new cities, we're qualifying domestic flights offer a shake shack cheeseburger is a meal option for first class passengers and March Tom Brady of Delta brand Ambassador handed out shack burgers at Boston's Logan Airport to celebrate our partnership expansion and the city, where it all started.
Rob Lynch: Our license business continues to be a strong profitable part of our P&L and we have amazing partners that want to continue to grow with US. We also have a significant a significant amount of white space. We're just starting to realize our full potential and are excited about more opportunities on the horizon.
Rob Lynch: Lastly, we're committed to investing in our long term strategic capabilities, we're a growth company and we need to continue to invest our capital in high ROI projects that can support our desired growth.
Rob Lynch: This year, we're accelerating our pace of innovation across development operations guest recognition and our new kitchen innovation lab with.
Rob Lynch: We've already made progress on a number of our projects, including smaller formats improved layouts and new processes that further optimize our labor.
Rob Lynch: We're excited to share future updates on our transformational initiatives to drive sales guest frequency operational improvements and enhanced returns.
Speaker Change: I'm going to now turn the call over to Katie for more color on the quarter and our outlook for the next quarter and the full year, but before I do that I want to thank all of our team members at shake Shack for all the focus effort and hospitality that they exhibited to overcome what might otherwise have been a pretty tough quarter Kt.
Rob Lynch: <unk>.
Katie Fogarty: Thanks, Rob Good morning, everyone in the first quarter as we have done each quarter over the past four years. We grew same shack sales, while also increasing total revenue restaurant level profit and adjusted EBITDA by double digits. In fact this quarter. We grew total revenue by 10, 5% compared to last year expanded restaurant level profit.
Katie Fogarty: Margin by 120 basis points and grew our restaurant profit by 17, 3% to $64 2 million, marking our highest first quarter on record. Additionally, we achieved record high first quarter total revenue and system wide sales levels as well as the highest restaurant and adjusted EBITDA margin since two.
Katie Fogarty: 19.
Katie Fogarty: Now for the details of our first quarter results.
Katie Fogarty: Total revenue of $329 million in system wide sales at $489 4 million with 11, new shack openings system wide in our license business. We grew revenue by 11, 1% year over year to $11 1 million in sales by 10.4% year over year to $179 6 million.
Katie Fogarty: With seven new licensed shack openings.
Katie Fogarty: Our company operated business, we grew shack sales 10, 4% year over year to $309 8 million with four of shack openings, including two drive throughs.
Katie Fogarty: Our AWS was 70 to 72000 and with 20 basis points, our same shack sales growth nearly two thirds every markets grew same shack sales in the quarter, However, weather and macro impacts had an outsized pressure in some of our major markets, such as Los Angeles, and New York City.
Katie Fogarty: Traffic was down four 6% in the quarter due to unfavorable weather and broader industry pressures, we estimate that these industry impact plus the long duration of our Burger L. T O accounting for more than 400 basis points of traffic pressure in the quarter.
Katie Fogarty: Check growth was 8% with approximately 4% in shack menu price and 5% price blended across all of our channels.
Katie Fogarty: We exited the quarter with less than 2% year over year menu price in shack are black truffle L. T O drove positive mix.
Katie Fogarty: Protect trends improved sequentially and was impacted year over year later in the quarter by the timing of the Easter holiday.
Regionally, our southern markets outperformed with Houston, Miami, and Orlando, achieving at least high single digit same shack sales growth. These are the markets, where we had some of the least amount of weather pressures. However, we did face cost pressures in New York City, Washington, D C and Los Angeles due to the weather and macro pressures.
Katie Fogarty: Our same shack sales declined by approximately 1% any problem, while headwinds persisted in April and be rolled off three 5% menu price in March we saw material improvements in our trends as the month progressed the success of our marketing Activations around March madness, and tax day, as well as our new Dubai Shake limited offering had been encouraging and El <unk>.
Katie Fogarty: Last few weeks of April with new menu news and improving weather and a strong spring break and Easter week, we had positive low single digit comp.
Katie Fogarty: Our operators were nimble and did an outstanding job managing through these challenges in the quarter, we generated $64 2 million and restaurant level profit or 27% of shack sales of 120 basis point improvement year over year.
Katie Fogarty: So we didn't pay paper costs were $86 million or 27, 8% of shack sales down 80 basis points versus last year menu price as long as our broader supply chain and process improvements helped offset mid single digit increase in beef costs.
Katie Fogarty: Labor and related expenses were $86 7 million or 28% of shack sales down a hydrogen 10 basis points versus last year, our new hourly labor model performed well and our operators quickly adjusted to the challenging weather trends, we delivered stronger throughput year every year, while also improving speed of service order accuracy and guest scores.
Katie Fogarty: Other operating expenses were $48 3 million or 15, 6% of shack sales up 70 basis points year over year, driven by our marketing initiatives.
Katie Fogarty: Our digital next increased to 38% in the quarter up 130 basis points versus last year, resulting in additional expense.
Katie Fogarty: Occupancy and related expenses were $24 6 million or seven 9% of shack sales in line with last year's levels.
Katie Fogarty: We are very pleased with the margin improvement delivered in the quarter and expect to build upon this momentum throughout this year and over the next several years.
Katie Fogarty: G&A was $40 6 million, excluding $1 2 million in one time adjustment G&A was $39 4 million with a year over year increase led by higher investments in advertising to grow revenue in a tough competitive environment.
Katie Fogarty: Equity based compensation was $4 5 million in the quarter up 24, 7% year over year of Westport point 1 million within G&A.
Preopening costs were $3 2 million in the quarter up 16, 9% year over year as we opened four new shacks and prepare to open 14 to 16 in the second quarter.
Katie Fogarty: We grew adjusted EBITDA by approximately 13, 5% year over year to $40 7 million or 12, 7% of total revenue.
Katie Fogarty: We realized net income they trade a little Shake Shack, Inc. At $4 2 million or earnings at 10 cents per diluted share. We reported an adjusted pro forma net income of $6 4 million or 14 cents per fully exchanged and diluted share.
Katie Fogarty: Our GAAP tax rate was 14% and our adjusted pro forma tax rate, excluding the tax impact of equity based compensation was 24, 6%.
Katie Fogarty: And finally, our balance sheet remains solid with $312 9 million in cash and cash equivalents at the end of the quarter.
Katie Fogarty: Now onto guidance.
Katie Fogarty: Our guidance assumes no material changes in the macroeconomic or geopolitical landscape and the potential impact on system wide sales or cost, including any outsized impacts from tariffs. The guidance that we are providing today assumes that the current environment holds however, we acknowledged a wider range of uncertainty around the macro backdrop and consumer spending.
Katie Fogarty: For the second quarter at 25, we got in total revenue of $346 million to $353 million with 11 nine to $12 3 million of licensing right. Now 14 to 16 company operated shack openings five to seven license openings and for same shack sales to be up low single digit year over year.
Katie Fogarty: We guide restaurant level profit margin of 23% to 23.5%, representing 100 250 basis points of improvement year over year led by the strong execution against our initiatives to reduce the total cost to serve.
Katie Fogarty: We are planning for low single digit year over year inflation in food and paper costs after baking into positive benefits from our supply chain strategies with pressures led by uncertainty in beef pricing that represents 30% to 35% of our blended food and paper basket.
Katie Fogarty: Our marketing plan for this year, it's more evenly split over the quarters versus last year. This is a resulting in a higher year over year step up in both other operating expense and G&A continuing in the second quarter, but then tapering off in the back half of the year.
Katie Fogarty: Onto our full year 2025 outlook, given the wider range of macroeconomic uncertainty and the impacts that we've seen in the first quarter. We expect 2025 same shack sales to grow by low single digits year over year.
Katie Fogarty: Our pricing plans for this year remain modest within shack prices up approximately 2% year over year and overall prices across all channels up approximately 3%.
Katie Fogarty: Our 2025 pipeline for new Shack openings is tracking ahead of plan and we now expect to open 45 to 50 company operated shacks this year, marking the largest class on record we.
Katie Fogarty: We expect to open 35 to 40 licensed shacks and our guidance reflects growing system mindset, a shack count by 14 to 16, 2% year over year.
Katie Fogarty: We expect total revenue of approximately one four to $1 5 billion, reflecting both a wider range of macro outcomes as well as the increased confidence in our 2025 company operated new Shack opening class and continued strength in our license business.
Katie Fogarty: We expect the great momentum, we are selling and our operational improvements to deliver restaurant level profit margins of approximately 22, 5% an increase from our prior guidance of approximately 22%.
Katie Fogarty: Our commodity outlook reflects expectations for flat to low single digit inflation led by beef up low to mid single digit and does not contemplate any potential outside impacts related to tariffs, which we expect to be minimal at this time.
Katie Fogarty: We are planning for labor inflation to be in the low single digit range with pressures easing throughout the year.
Katie Fogarty: We're continuing to manage our G&A investments in light of the challenging macro backdrop and reiterate our plans to invest approximately 11, 5% of total revenue and growing the business this year.
Katie Fogarty: The macro driven sales pressures with the strength of our operational improvement and execution on cost opportunities. We are reiterating our guidance for adjusted EBITDA of $205 million to $215 million, representing 17% to 22% growth year over year when.
Katie Fogarty: When we provided our three year financial targets in January we had shared that that was based on our views of the op business operational potential at the end of last year. However, as Rod stated with the operational improvement that we have identified and continue to produce.
Katie Fogarty: We now expect to grow our restaurant profit margins by at least 50 basis points each year over the next three years. We're tracking ahead of this plan for 2025 with our guidance today.
Katie Fogarty: With this confidence in our trajectory of our margins, we now expect to grow adjusted EBITDA by low to high teens percentage over that period.
Rob Lynch: Thank you for that type of your time and with that I'll turn it back to Rob.
Rob Lynch: Thank you Katie.
Rob Lynch: I want to thank our teams again for their hard work and passion for Shake Shack, which is the driving force behind our ability to navigate this environment and evolve and grow this company to reach new Heights.
Rob Lynch: We're getting better every day and uncovering ways to continue to improve the guest experience push the envelope on our culinary leadership outperform what guests expect from us and all while reducing our operating in build costs.
Rob Lynch: I'm extremely excited about the potential that lies ahead.
Rob Lynch: Thank you to everyone on the call today and for your interest in our company.
Rob Lynch: That operator, please open up the call for questions.
Rob Lynch: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Rob Lynch: Confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
Rob Lynch: And for those using speaker equipment and may be necessary to pick up your handset before pressing the star Ts.
Speaker Change: We ask that you. Please limit to one question one moment, while we poll for questions.
Speaker Change: Our first question is from Brian Vaccaro with Raymond James. Please proceed.
Brian Vaccaro: Hi, Thanks, and good morning.
Brian Vaccaro: My question was just on the store margins you raised your annual outlook as he said and you're also committed to margin expansion over the next three years could you elaborate on what some of the more significant near term opportunities are that allowed you to boost your 25 guide, but also some of the new learnings and thoughts on what levers.
Brian Vaccaro: Do you have at your disposal are giving you confidence in the multiyear outlook as well. Thank you.
Brian Vaccaro: Thanks, Brian.
Brian Vaccaro: This quarter really showed us.
Brian Vaccaro: What we can do with operations and managing and controlling our <unk> and.
Brian Vaccaro: And flexing, our our labor model and how we support our teams and our guests in the restaurants, the new labor model that we put in in Q4 is definitely having a positive material impact on our productivity, but even beyond that just our our our leadership in the field.
Brian Vaccaro: Our ability to see the trends in the marketplace to see where the business is going to see where traffic is and be able to nimbly in an agile and with the great agile.
Brian Vaccaro: Agility be able to.
Brian Vaccaro: <unk> are our labor planning and manage through that and you know it's not the easiest thing to do given our footprint, where we have a lot of restrictions on how we can change our our labor planning in the for the for the first two for the next two or three weeks. So we've just gotten really good.
Brian Vaccaro: I gave 100% credit to our operations leaders they.
Brian Vaccaro: They just are knocking out of the park. They have built a lot of discipline and a lot of capability over the last six months and that's going to carry us in the near term over the long term we have more.
Brian Vaccaro: <unk> improvements to make them that won't necessarily be significantly reducing labor. We are focused on maintaining the high levels of guest service that we have delivered.
Brian Vaccaro: So over the last six months, while we got more productive. We've also increased our guest satisfaction that is our number one priority, but we.
Brian Vaccaro: We do have processes, we do have equipment opportunities to make us more efficient and in the restaurants. So that's going to contribute but we're also seeing and exploring some big opportunities in our supply chain, we have uncovered a lot of great.
Brian Vaccaro: You know ways to get more productive and a lot of different ways, both from a procurement standpoint and distribution standpoint.
Brian Vaccaro: Our sales forecasting standpoint, so those two things both operations and supply chain give us the confidence to to evolve our guide that we put out there are only four months ago. We know a lot more we've learned a lot and we have a lot more confidence.
Speaker Change: Our next question is from Christine Cho with Goldman Sachs. Please proceed.
Christine Cho: Okay, but the opportunity to ask question I see you have tested quite a few things this quarter I think you've mentioned the rollout of the new digital menu boards 40 at the drive thru and different months you try could offering the 999. She can combo promo for a limited time I could you.
Christine Cho: Sure some of your early learnings and observations so far and how this informs your drive thru tried to chico's before it. Thank you.
Christine Cho: Yeah absolutely.
Speaker Change: It's been a long time coming for this brand on drive thru.
Speaker Change: We've tested a lot of different models to try and improve.
Speaker Change: Unique drive through dynamic I mean, the reality is it takes us longer to make our food.
Speaker Change: And then a lot of our competitors and our guests.
Speaker Change: Freak or those other competitors as well and they've been conditioned to expect food that's been sitting there and delivered as soon as you get to the window. It's obviously not our model, we're making everything fresh when when folks order it and so we've had to evolve both our ordering processes as well as our make processes as well as our Haas.
Speaker Change: Metallurgy protocols. So we've been testing that really over the last 30 days with combos in eight of our drive throughs combo digital menu boards in eight of our drive throughs and we've seen significant improvements in both our ordering time speed of service accuracy and guest satisfaction. So.
Speaker Change: We are all in and are going to deploy those combos that combo strategy across all of our drive throughs here was great efficiency over there over the next month and we're also looking at potentially.
Speaker Change: Potentially combos or in our other channels, so potentially looking at kiosks and and in restaurant ordering as well, but we're going to start with a drive thru really understand all the implications both positive and in opportunities to improve before we we look at the the other channels, but we're really excited about.
Speaker Change: What we've seen so far from our most recent testing.
Speaker Change: Our next question is from Michael Tamas with Oppenheimer and company. Please proceed.
Michael Tamas: Hi, Good morning. Thank you I think your previous same store sales guidance had assumed a strong back half of the year just given the timing of some of your strategic initiatives.
Michael Tamas: It seems like you're sort of putting a stake in the ground now with the first quarter is going to be the low point for the year I'm, implying healthier trends, even though your comparisons are actually a little bit tougher as we go forward here.
Speaker Change: Which is a bit unique because I think comparisons for some other companies actually get a little bit tougher so very little bit easier excuse me. So can you talk about maybe any evolution in your thinking about your internal expectations into the back half of the year and can you unpack for us what some of those drivers are that you're most excited about that underpins our confidence to get to that low single digit same store sales guidance for the year.
Speaker Change: Absolutely Great question as we disclosed on our last earnings call. We started off the year really strong we were up over 5% comps in the first three weeks of the quarter.
Speaker Change: And then we have some real challenging weather and you know none of us for can forget the fires in L. A where we have a disproportionate number of our restaurants.
Speaker Change: And then obviously the last two months of the quarter were impacted by the consumer sentiment and some of the other macroeconomic and geopolitical challenges. So we view you know those are some of the biggest headwinds that we that we faced and and those are temporary headwinds. So we we do see some of that.
Speaker Change: Some of that you know getting back to normal. If you will we also you know I also don't want it to get lost that a lot of folks have been down on a you know on our story and during these times because of our premium positioning, but despite our premium positioning we've been able to outpace on comps and.
Speaker Change: Actions some of the more value oriented competitors. So we have a high degree of confidence that our premium positioning and the value that we deliver to two or to our guests can can weather some of these downturns.
Speaker Change: Downturns in consumer sentiment as evidenced by some of our outperformance this quarter, but really what gives us the most confidence moving forward is the work we're doing around our menu strategy and our culinary innovation and L. T OS.
Speaker Change: We one of the challenges we had in Q1 as we didn't have a lot of new news, we had a great L T O and trussell.
Speaker Change: But we ran that for a long time and people loved it and it drove mix for us, but in the end, particularly in the first quarter. The last three months of the of the L. T. O. We didn't see you know the we didn't really see the opportunity to drive a lot of traffic with with new news. We're changing that we are building an L. P. O calendar is full of innovation.
Speaker Change: Not just on our burgers or sandwiches, but on our side on our beverages and on our shakes, which is kind of which is maybe a little bit of a of a new.
Speaker Change: Way to think about things here I mean, we are coming with real innovation on beverages, which is not normal for this brand. So we have opened up the aperture of what we can do from a culinary innovation standpoint, and we're incorporating into really a holistic go to market value proposition that includes our core.
Speaker Change: Strategy R. L T OS our combo strategy, how we think about promotions and how we think about pricing.
Katie Fogarty: You know I don't want it to get lost in Katie's comments that we came out of Q1 with only 2% menu pricing year over year. It's been multiple years. Since this brand was running that low on a year over year pricing and we are really focused on being able to deliver operational and supply chain productivity. So.
Katie Fogarty: You don't have to take a lot of pricing moving forward and we can still deliver.
Katie Fogarty: Great comp comp number so where we're committing to higher margins. While also focused on not leveraging pricing as much as we have in the past and over time, that's going to improve our value proposition, even more and help us be able to continue to outperform.
Speaker Change: Our next question is from Sharon Zackfia with William Blair. Please proceed.
Sharon Zackfia: Hi, good morning, Thanks for taking the question.
Sharon Zackfia: Wanted to follow up on that you know what is kind of the ideal frequency for shake shack in terms of kind of new product innovation or L. T OS and as you're thinking about building out operational muscle like sometimes that increased frequency of change in the menu can run counter to kind of improve.
Sharon Zackfia: Throughput or speed of service. So how how are you kind of balancing that.
Sharon Zackfia: Yeah, you know, it's been something that I have focused on my whole career I've learned a ton about that specific challenge at Taco Bell, where we could make 450000 things out of 14 ingredients and you know I brought that to arby's and and we built a L. T O calendar that had minimal impact on.
Sharon Zackfia: Our operations as well as our supply chain and that's what we're focused on here our operators have done an unbelievable job over the last six months. They literally have transformed restaurant operations at shake shack and the margin cost of the confidence we have in our margins moving forward are representative of that the last thing we want to do is.
Sharon Zackfia: You know penalize them for their efficiency and productivity by dumping a bunch of stuff into the shacks that they create an operational nightmare for them. So we are very focused on our innovation being things that make their lives easier not harder we can do that through investments in equipment.
Sharon Zackfia: We can do that through new processes and procedures. We can also do it through managing our supply chain and a little bit of a different way. So we are committed absolutely that.
Sharon Zackfia: I'll just give you an example, well the reason why we did a limited release on the Dubai Chocolate Shake was because we had the grille. The catastrophe I mean think of that we were asking our operators to grill phyllo dough on our flat tops every morning, and we couldn't do that during the day. So we can only prep twenty-five shakes.
Sharon Zackfia: And we can only do it in 30 shacks, we went out and we found an ingredient that is that doesn't require us to do that and so you know now we can look at opening up that innovation across all of our shacks and make it easier on our operators at the same time. So those are the kinds of solutions.
Sharon Zackfia: They were focused on and that's the kind of innovation that we're going to bring them in the back half.
Speaker Change: Our next question is from Andrew Charles with TD Cowen. Please proceed.
Fran: Thank you this is fran.
Charles I'm, just curious if or if you could rank order what drove <unk> 400 basis points of headwinds that you called out between whether consumer headwinds and a longer backdrop wealth yeah.
Fran: Yes, so what we've called out is we had a low single digit headwind from weather and the.
Fran: The wildfires and the L. T O combined and then heading into February we faced an incremental pressure from industry chefs and so that would be you know the pressures that we saw in February and March and continuing into April.
Speaker Change: Our next question is from Brian Mullan with Piper Sandler. Please proceed.
Brian Mullan: Okay. Thanks, just a clarification on the long term targets you know with with the update to your oil M expectations to expand at least.
Brian Mullan: A few basis points per year for the next three years, you know could you just remind us or talk about what kind of menu pricing.
Brian Mullan: Assumption is actually embedded in there.
Brian Mullan: In the event that traffic proves to be.
Brian Mullan: Lucid you know for the industry or for shake Shack for whatever reason you know do you think you've left yourself the flexibility to.
Brian Mullan: To take less pricing if you think that's the right thing to do.
Brian Mullan: So on our.
Brian Mullan: Conviction around our ability to and confidence around our ability to continue to expand margins I'd say, it's really bucket it into the two things that Raj talked about it's about us getting better and our operations and then also exploring additional opportunities within our supply chain I would say you know with what the team has uncovered over the past six months.
Brian Mullan: Months.
Brian Mullan: There is a lot of opportunity for us to continue to dive in here and you know as we showed in the first quarter you know sticking.
Brian Mullan: Sticking to the strategy of really focusing on the controllable and getting better and our operations and our supply chain, that's helping us to deliver margin expansion in light of pressured our traffic from macros and weather and so you know we expect to continue on this trend.
Brian Mullan: And yeah, I would just say to you know when macros do change we have built a very incredible.
Brian Mullan: Efficient machine here that I expect to have a lot of leverage to the bottom line.
Speaker Change: Our next question is from Jake Bartlett with truly Securities. Please proceed.
Jake Bartlett: Great. Thanks for taking the question was about your innovation.
Jake Bartlett: What you have planned for the rest of the year you recently brought back the barbecue menu, that's something that you've run before.
Jake Bartlett: I'm wondering first part of the question is what is different this time should should we expect this to have a greater impact than it's had in the past.
Jake Bartlett: Particularly excited about what's coming.
Jake Bartlett: With this barbecue menu and then the other question we have seen some innovation I think kind of being tested you've talked about the smoked brisket, Chile, we saw the French onion Char Burger.
Speaker Change: Should we think about those as is just kind of.
Jake Bartlett: In the short term.
Jake Bartlett: Spot innovation that you're putting in or where those tests that we might see in the future. This all kind of at least the question of the cadence of your L. T O strategy going forward I'm really throw out maybe 25, but really long term, whether there should be more more consistent innovation or or whether it's just these big kind of see.
Jake Bartlett: So L chose that you've done historically I know, there's a lot there, but I appreciate it.
Jake Bartlett: Jake.
Speaker Change: Youre hitting my heart rate their body I got to tell you you know as somebody who has taken a lot of pride and.
Speaker Change: You know, bringing new to the world innovation at most places that I've been I, absolutely do not have a passion for running you know retread innovation over and over and over again, so let's get that out there front and center.
Speaker Change:
Speaker Change: The the barbecue platform is a great platform served us well last year, but you know I, just I want to be transparent.
Speaker Change: A true strategic innovation culinary innovation calendar it doesn't happen in a couple of months.
Speaker Change: And why is that.
Speaker Change: Because we are not.
Speaker Change: Where we're not shooting from the hip here, we have built a stage gate process, where we are developing new ideas across all of our platforms. And then we are testing them qualifying them operationalized them, so that when they hit the calendar and they show up at our shacks, they're ready to go.
Speaker Change: And drive comp sales growth. So we are building those new ideas right now you've called out a couple that we are testing and are looking at and and so you know the one thing I will say.
Speaker Change: Well, we're trying to do while we're working to get there is we're trying to bring.
Speaker Change: Innovation, even if these these technically these burgers aren't new to the world it'll be the first time that we offer fried pickles is a sudden we've offered fried pickles is aside we're.
Speaker Change: We're bringing beverage and shake innovation over the summer as well to complement this platform. So we have an absolute.
Speaker Change: You know drive for new to the World innovation and Shake Shack has the culinary chops to be able to do that like no. One else. So I hear you loud and clear and and you can you can without with absolute certainty now that that's our intention to bring new ideas to the world in terms of the cadence I apologize.
Speaker Change: I didn't answer that or on the earlier question, we were still in it and in our quarterly model. You know we are still going to bring you usually bring three or four big sandwich type hero platforms for an L. T O and we're going to supplement that with beverages and <unk>.
Speaker Change: <unk> and N shake innovation as well. So you know, it's usually on a quarterly cadence, but a reserve the right to do that more or less frequently.
Speaker Change: Also looking at how does our L. T O innovation that really hits.
Speaker Change: How would that potentially flow to the core menu and drive everyday value and drive the baseline as opposed to the incremental volume. So we're exploring all of those things as I mentioned earlier, we're going to do all of that without throwing ranch and the mix of our operations. So we want to make sure that.
You know the pace and sequence of our L. T OS the amount of innovation.
Speaker Change: All allows us to continue to deliver the best in class operations that our team's Huntsville.
Speaker Change: Our next question is from Jim Sanderson with Northcoast Research. Please proceed.
Speaker Change: Hey, Thanks for the question I just wanted to follow up on the discussion of our promotions and marketing I think you mentioned mix was slightly positive in the quarter going forward do you expect that mix to be more of a headwind as you launch your marketing plan for the remainder of the year, putting a little bit of pressure on.
Speaker Change: On average check.
Speaker Change: You know I mean.
Speaker Change: I think a lot of times mix gets wrapped up in price and you know as we build out our core menu strategy and complement that with our L. T. OS we're trying to drive both traffic and improvement in mix. So you know we have.
Speaker Change: Premium items, there that that we believe we can bring at premium price points and allow consumers to self select and trade up to right. So some of the things that Jack just mentioned some of the things we're testing some of the sandwiches. We're looking at are our very premium premium ingredients.
Speaker Change: Premium price points and that will afford us the opportunity to drive mix growth without having to take pricing on our core items I mean, I would be happy if we never had to take another price increase on our shack Burger like cant promise that is going to happen, but that would be amazing that would allow us to diversify our portfolio of offerings and allow.
Speaker Change: US to open up our aperture to be more appealing to all income.
Speaker Change: Income levels in all geographies so.
Speaker Change: That doesn't just happen by not taking pricing because we have margin growth objectives. We have sales growth objective. So we have to find other ways combos and the increased attachment rate that we're going to drive on fries and beverages is one way to help that launching premium products is L T OS or even on the core menu.
Speaker Change: All our customers are self select into without having to take pricing is another way to do that increasing our attachment rate on shakes beverages and sides by leveraging innovation is another way to do that increasing our party size by three.
Speaker Change: Creating more more reasons for larger parties to come to shake Shack is another way to do that so we're looking at all of that and one of my favorite ways that we're going to increase mix as we're opening up a full bar at the battery in Atlanta at our new Shack. This summer.
Speaker Change: And you know for all of US for all of you that can visit Atlanta, we're going to have the best cocktails at the best prices in the whole place. So like we're exploring all different ways to drive mix without having to take more pricing on the things we already serve everyday.
Speaker Change: Our next question is from Peter.
Speaker Change: So with B T. I G. Please proceed.
Peter: Great. Thanks for taking the question maybe just two quick questions. If I if I could first on on just the the margin not sure. If I missed this but you know comps were you know are well below I guess guidance and our expectation but margin was above so can you just talk about what you were able to fly.
Peter: So quickly in a matter of you know call. It weeks that helps sustain that margin or actually even grow it a little bit more than we expected and then two on the decision to accelerate unit growth I think 45 to 50 I think prior was around 45 just are you still expect.
Peter: <unk> costs to come down this year of build cost per unit I think you know we're seeing a lot of this tariff conversation I'm not sure if that's built into your into.
Peter: Into your outlook.
Speaker Change: Is that expected to increase construction costs, we're hearing that from several other operators that we could see construction cost rise. Thank you.
Speaker Change: Great question Pete.
Speaker Change: You know, it's it's really exciting to think about what.
Speaker Change: What are margins could have been without these headwinds.
Speaker Change: We have the best labor attainment, we've ever had we have the lowest waste we've ever had we have.
Speaker Change: Things that go into driving margin that are within our control we have taken control of those things and that's why we've been able to deliver even while R.
Speaker Change: Our our sales or our restaurants had been deleveraged by the decrease in sales we.
Speaker Change: We are just measure we've built this scorecard and I know, it's it's just blocking and tackling but we are measuring every K P. I everyday and we build and just discipline and process around our area directors working with their G. M every week and having a call across all their kpis and it is just driving performance.
Speaker Change: Driving operating discipline, and that's what allowed us to deliver the margins and we're going to get even better as our as our revenues and continue to go up on the new unit.
Speaker Change: Acceleration like I honestly if you.
Speaker Change: I Love our culinary innovation that gets me really really excited that our new unit growth is the thing that excites me. Most about this business model, we are going to open up more shacks. This year than we've ever opened up we are going to decrease our costs, despite tariff concerns and construct.
Speaker Change: <unk> concerns by at least 10% were coming in below what we forecasted for the year at this point and you know.
Speaker Change: I'm happy to tell you that in the last two weeks, we've had two record openings the highest sales openings in the history of the brand.
Speaker Change: In drive throughs in the southwest so that doesn't tell you that we are changing what this brand can do I don't know I don't know what well and.
Speaker Change: Our ability to open new formats, and geographies that havent been kind of our.
Speaker Change: Core geographies than in the past outside of New York and open with that amount of volume that amount of sales in this consumer environment.
Speaker Change: It's really a testament to what's coming and so we are you know we are not backing off at all on construction and building new shacks and we are accelerating rapidly I mean, I'm approving you know sites that I'm. Just so excited about everything the team brings is an opportunity for us to go.
Speaker Change: Bring shake shack to new communities and the performance on our openings as one of the most exciting things about this business.
Drew North: Our next question is from drew North with Baird. Please proceed.
Drew North: Great. Thanks for taking my question a lot of the topics I had them unless I've been asked but maybe I'll circle back on a clarification on the Q2 comp outlook.
Drew North: Thanks for the comments on April and the uptick in recent weeks, but I guess with all the movement in the calendar comparisons and seasonality I was just hoping you could expand a bit on the underlying assumptions embedded in the outlook for the balance of Q2, I guess it is a low single digit guidance simply extrapolate the recent run rate on traffic or.
Drew North: Anything we should know about from a calendar comparisons perspective for the balance of Q2 would be helpful. Thank you.
Drew North: Sure Yeah. So our Q2, we're expecting to achieve low single digit comps and.
Drew North: We are you know as we talked about on the call. We're taking the current macro environment that we're seeing and you know that is the basis for kind of the underlying trends.
Drew North: You have new menu innovation, that's going on right now and that just launched with their summer Bbq menu.
Speaker Change: There's four sandwiches this year versus last year had just kids do we have chicken as.
Speaker Change: As well on that platform and we have some exciting menu innovation. That's also you know further innovation that's coming in this quarter. So that's gonna be kind of the bigger you know incremental positive beyond what we saw in the first quarter. You know its really important to go back to what menu innovation can do for shake shack and what lack of.
Speaker Change: <unk> has done to shake shack and its not just a mix issue, it's not just a and I P. C issue and actually is a traffic issue.
Speaker Change: And we know that when we have compelling L. T OS we drive frequency, we drive new guest acquisition and through all of our channels and so it's great to you. Finally, you know black cycle was great, but we ran it for seven months, it's great to have some new food news out there that we expect to help us achieve low single digit comps this quarter.
Speaker Change: And then looking out to the back half of the air.
Speaker Change: Very exciting menu innovation coming.
Speaker Change: Our next question is from Jeff Bernstein with Barclays. Please proceed.
Speaker Change: Yeah.
Speaker Change: Good morning. This is product on for Jeff. Thanks for the question Rob.
Speaker Change: Rob.
Rob Lynch: Pointed to some macro headwinds and uncertainty in your prepared remarks. It seems like in the last few weeks if anything things have become even more uncertain with just constant news headlines.
Rob Lynch: But shake shack has been laser focused on providing that predictable everyday value. Just can you share with us any worsening early learnings you've seen from just the value combos behavior in the drive through any kind of shift in behavior or how consumers are using the menu, especially as all of these <unk>.
Rob Lynch: Those are obviously just constantly pushing these $5 bundle.
Rob Lynch: Yeah, I mean it.
Rob Lynch: You know we fundamentally believe.
Rob Lynch: The we are the best value.
Rob Lynch: And the business.
Rob Lynch: You know, we don't consider ourselves fast food that we absolutely compete against fast food.
Rob Lynch: And so we have to be able to deliver.
Rob Lynch: Our value prop for those people who are most frequent users of <unk> and so.
Rob Lynch: You know that's why I'm, so focused on trying to protect our price points on our core.
Rob Lynch: Vigil and most comparable items. So if you think about the things that are easily.
Rob Lynch: Compared to our our fast food competitors, it's our cheeseburger, which as you know our shack Burger, it's our fries and it's our CSD and.
Rob Lynch: And so you know we are doing our best to keep those price competitive because we know that there are two different ways to that consumers look at value and its absolute price points and its value for the money and there are customers. There are guests that shop on absolute price points.
Rob Lynch: And and we're trying to make sure that we're not.
Rob Lynch: Out of their consideration set set and where we can really win are the guests who shop on value for the money and that's why we continue to innovate against premium items.
Rob Lynch: Items, I mean, our Dubai chocolate shake that we had lines around the corner to get to people lining up before we opened and before we.
Rob Lynch: And selling out like before a lot before at like noon and a lot of these shacks at 849 shake that's the most expensive shake we've ever had the highest price point shake we've had.
Rob Lynch: And.
Rob Lynch: So there is a.
Rob Lynch: There are a lot of guests out there, who really value our premium innovation in our premium items.
Rob Lynch: That's how we're going to continue to drive.
Rob Lynch: Our our traffic. Despite these these challenging you know competitive traffic environments that we're that we're competing in so it's not all about discounts and promotions, even though we feel like we're getting a lot better at that we're doing a lot of targeted.
Rob Lynch: Incentives, we are we talked last year about building out our guest recognition capability, where we can track you know our guests behavior in a much easier.
Rob Lynch: Easier way across all of our channels and deliver targeted incentives that launched in Q1.
Rob Lynch: And where we're optimizing it so that we can benefit from that in the back half and moving forward and then lastly, we are doing things and I would tell you that the reason for our combos are not necessarily to drive significant value. It's much more about ease of ordering and operational accuracy through the <unk>.
Rob Lynch: Try through but there is there is a value halo there and so as we roll those out in 40 drive throughs. This this month, we're going to we're going to be even more compelling on value for our for our guests and as we explore those showing up in our other channels. That's also going to give us a little bit of a value Halo there too so that's.
Rob Lynch: That's how we think about value that's how we believe we're going to remain competitive. Despite what we see is some continued headwinds for the balance of the year.
Speaker Change: Our next question is from Jeff Farmer with Gordon Haskett. Please proceed.
Speaker Change: So just wanted to follow up on the most recent line of questioning so with that launch of your your combo meal L. T O in early March.
Speaker Change: How did customers respond and what did you learn from that response that you can sort of carryforward.
Speaker Change: Yeah, I mean, we're not we're not necessarily disclosing specific mix numbers and those types of details, but what I can tell you is that our order times have improved our accuracy has improved and our guest satisfaction has improved so you know the things that we were really focused on and you know some of those some of.
Speaker Change: Those things aren't completely 100% attributable to the combos, but we've definitely seen you know that the mix of our.
Speaker Change: I'll just tell you well you know we we we made a decision to put in the in the combo Board made a decision to put our double combo is the first combo in the combo board and just with that change we've seen a shift in mix from singles to doubles, which is both revenue and margin Penny profit accretive for us so.
Speaker Change:
Speaker Change: Where we're thinking about these things holistically and how we can continue to drive mix and margin benefits without having to take pricing on our core items. So there's definitely.
Speaker Change: <unk> operational improvements from the condos, but there's there's also sales and profit.
Speaker Change: <unk> from leveraging those combos as well I think a lot of people think Oh combos, you know, you're giving up margin and your.
Speaker Change: No you're giving discounts so its going to negatively impact your mix that doesn't have to be the case I mean, how you place things on the menu.
Speaker Change: And and how you incent your guests to increase their attachment rate really can can actually do just the opposite the way, we're featuring our shakes and a prominent way on the panel right next to the combos can drive higher attachment of our shakes on top of.
Speaker Change: You know our beverage fries and sandwich order. So we're thinking about all of that in our initial results are really strong, but where can they continue to optimize that.
Chris: Our next question is from Chris <unk> with Stifel. Please proceed.
Chris: Great. Thanks, Good morning, guys, Rob I wanted to follow up on your comments around guest recognition and can you just talk a little bit more around the steps that you mentioned around optimization and learning and if theres any additional rollouts left this year to get that underlying infrastructure that you need in place to fully utilize that platform.
Chris: I guess more strategically.
Chris: Can you just flush out what you hope to get out of it and what you hope that data unlocks for you in terms of not just targeting existing customers, but does it open up other possibilities in terms of creating better avatars to go out and target maybe customers that aren't.
Speaker Change: It uses a shake shack yet.
Speaker Change: Yeah. Thanks for the question Chris.
Speaker Change: Yeah, I mean, it helps us understand.
Speaker Change: You know what the.
Speaker Change: The responses to what we do are right. So when we put out.
Speaker Change: A promotion or we put out an L T O or we put out.
Speaker Change: You know any type of guest facing initiatives.
Speaker Change: We are now going to be able to clearly understand what type of behavior that drives across all of our channels right. Before we didn't have that capability. We had we didn't we didn't we weren't able to tie it altogether.
Speaker Change: So obvious the obvious impact of that.
Speaker Change: Is you know for us to be able to drive more frequency and more loyalty across our current guests.
Speaker Change: <unk> target by giving them incentives, giving them.
Speaker Change: Opportunities, creating awareness of things, we know that are going to drive increase.
Speaker Change: Increased behavior, but it also helps us to understand how.
Speaker Change: How to better meet the needs of guests that we haven't yet been able to reach right. So when we know that.
Speaker Change: Uh huh.
Speaker Change: And initiative or promotion that we run is bringing back a guest who hasn't visit us in 12 months, that's that's similar to.
Speaker Change: Gaining understanding of what's going to drive.
Speaker Change: Less frequent or even new guests right and so we can build marketing programs. We can build you know ideas around that knowledge base that can attract new guests both from a.
Speaker Change: Current shack standpoint, and also when we go into new markets. It gives us you know.
Speaker Change: Better knowledge base of how different regions react to different things how different markets react to different things and so when we open up a new shack. We go in with that knowledge base intact and are able to get off to a faster start and be able to deliver better better new shack openings. So yes, the answer long winded way of.
Speaker Change: I'm, saying, yes, it's both going to help our current guests.
Speaker Change: Guests increase their frequency as well as give us the knowledge base that is going to allow us to create programs and ideas that are going to attract new guests.
Speaker Change: Our next question is from Sarah.
Speaker Change: Senator with Bank of America. Please proceed.
Speaker Change: Hi, Good morning. Thank you for the question Jose Austin on for Sarah.
Speaker Change: Wanted to ask.
Speaker Change: You guys reported for Q pretty far into the first quarter. So it just sounds like comps slowed pretty sharply going into March while the industry was broadly starting to recover because you got to talk about that dynamic and then I'm just in the same vein of just macro pressures, but why do you feel like in the first quarter are your you guys.
Speaker Change: Weren't insulated as much from your higher income consumer just as you've been in the past.
Speaker Change: So we actually had.
Speaker Change: Biggest comp challenge in February So March was actually an improvement relatively consistent with the rest of the industry. So we started off really strong in January February was our worst period and then March we started to recover in April has improved since that so we have seen a bit of that trend line.
Speaker Change: Line that you're referencing for the industry and you know I would argue that our premium positioning at our higher income customers has insulated us I mean, I think our comp performance is better than almost most of our competition. So folks that have reported over the last few days and over the last couple of weeks, mostly negative comps.
Speaker Change: So you know, we're delivering positive comps without with less pricing than we've taken over the last three years. So I would argue that we have been relatively insulated and then the last thing I would say is.
Speaker Change: All of this is even gives us even more confidence given our.
Speaker Change: Our our penetration and Los Angeles, and New York and D. C. Where these are the markets that have been you know really disproportionately impacted in Q1 through a number of things whether it's you know some of the the the tourism some of it's the weather.
Speaker Change: Some of it's the geopolitical environment in the macroeconomics like all of those things are disproportionately impacting those markets and we are saturated in those markets and we've been able to deliver these results. Despite that so I'd actually say that we have.
Speaker Change: <unk> exceeded our expectations given the macros that we've been dealing with that.
Speaker Change: Add on to that you know we called out this in the shareholder letter, but if you just look at New York City, Los Angeles, and mid Atlantic, which includes Washington D. C. These areas, where we had weather pressures are.
Speaker Change: We had also you know there were some very unique macro pressures to each of these regions and tourism pressures that was about 75% of the headwind we had in the quarter.
Speaker Change: To replace it and.
Rob Lynch: The rest of the market you know, especially those that didn't even had the last at least amount of weather headwinds I mean, there were you know where we didn't have weather headwinds we had comps that were up mid and high single digit so they're with very much. So a disproportionate impact on those three specific markets from what Rob just described.
Speaker Change: Yeah, and the only thing I'll add on top of that is as we are building 50 between 45 and 50 shacks this year.
Speaker Change: Like most of those shacks arent in those markets I mean, we are diversifying our portfolio. We are building shacks in places that are seeing significant population growth in the southeast and southwest and those are some of our best performing markets right now and some of our best performing new shack openings. So yeah, obviously.
Speaker Change: Q1 was a challenge given the impact of those those markets, where we have a lot of penetration, but as we grow.
Speaker Change: And keep the same model, where we're able to open these shacks with excellence in these markets.
Speaker Change: We're gonna be less exposed to some of those those geographies.
Speaker Change: Our next question is from Daniel quickly another.
Speaker Change: With capital one Securities. Please proceed.
Speaker Change: Hi, everyone. Thank you for taking my question and kind of on a similar subject as we just discussed around the long term goal of 1500 company operated shacks and then taking into the consideration into consideration the macro impacts in February through April have there been any changes to the way that you identify or John.
Speaker Change: Potential new U S locations is there anything from a quantitative or qualitative standpoint.
Speaker Change: It's a great question.
Speaker Change: I think we've talked a little bit about the fact that we are much better.
Speaker Change: A market identification and analysis standpoint on where we're going to go in and where we can be successful with with our new shacks and that that was in place before you know some of this this recent last couple of months.
Speaker Change: Macroeconomic situation impacting these regions I E.
Speaker Change: You know I, we we will we are a new York based company we have.
Speaker Change: Ton of our best Shacks in New York, We will continue to develop and grow in New York City.
We have despite some of the you know some of the challenges in California around wages and what have you we have great shacks in California, They do lots of volume and deliver great margins and we have great teams out there I was just out there last week visiting our northern California teams.
Speaker Change: Who have you know.
Speaker Change: Completely transform that market over the last year and are delivering great results. So so our legacy markets. We will continue to find great pieces of real estate in those markets and open up grades successful shacks, but we are really investing resources and places like air.
Speaker Change: Arizona, Texas, the southeast, including Florida.
Speaker Change: Where we are seeing you know not just great shack openings, but pretty significant comp growth and some of that is driven.
Speaker Change: Driven by macros and you know these markets are growing populations. These markets are increasing their their.
Speaker Change: They're they're buying power, but we have we have really built a model that that you know the drive through is a big help it gives us access to real estate in these markets that we didnt typically that we didn't historically have so we are I would tell you our strategy hasn't necessarily changed but.
Speaker Change: But the strategy that we had in place prior to February I mean development is a long lead time.
Speaker Change: The program it serves us well given kind of where the macros are going and where these different geographies.
Speaker Change: Geographies or Orlando.
Speaker Change: Our final question is from Rahul Cressa tally with J P. Morgan. Please proceed.
Speaker Change: Good morning, guys. Thanks for all the color I have a two part question. The first New York and California are all 30% of the store base and probably even more than 40% of sales can you discuss or what percentage of this.
Speaker Change: 110 stores or so across your system within the company, but it did have a higher mix of tourism Motorola and next to that there have been some reports on like lower bookings in the summer for hotels flights et cetera or whatnot.
Speaker Change: Here if that is contemplated in your guide and then the second part like some of the brands have been leveraging social media really well both organic and paid content can you discuss your plans to leverage the platform either through regional at celebrity Influencers to drive some traffic as you open new shacks and then also.
Speaker Change: Yes.
I'll I'll address the second one first and then Katie can kind of talk to the dynamics impacting New York and California.
Speaker Change: You know social media is kind of what we do we don't have the big franchisee.
Speaker Change: Funded media budgets that a lot of our competitors do that.
Speaker Change: Our providing big TV campaigns.
Speaker Change: So our focus is definitely on.
Speaker Change:
Speaker Change: Paid digital but even more so on earned social and you know we just the best example.
Speaker Change: That is what we just did with Dubai chocolate shake and when we had.
Speaker Change: 12, 15, Influencers in our innovation kitchen, the week before we launched it and we shared it with them and they were developing their content and when that thing hit the shacks.
Speaker Change: The amount of impressions and the amount of positive social momentum that we got I would I would argue is equivalent to almost anything that happened with our much larger competitors over the last year. So.
Speaker Change: You know we leverage influencers in our large markets like New York, but also in our newer markets and smaller markets. When we go in and open New Shack opened opening so social media is really one of the foundational ways that we connect.
Speaker Change: With our guests.
Speaker Change: And then on your question about tourism and certainly what we've called out in the macro headwinds that.
Speaker Change: That we had in New York City, and in Los Angeles, and Washington D. C was impacted by international tourism and our guidance for you know we have expectations that those pressures persist for the rest of the year. Our we also acknowledge a wider degree of uncertainty about how you know the macro environment will.
Speaker Change: Play out and that is also reflected in a wider range of guidance that we gave for this year.
Speaker Change: On top line.
Speaker Change: Thank you we have reached the end of our question and answer session I would like to turn the conference back over to management for closing remarks.
Speaker Change: So I would just like to thank everybody for their I know, there's a lot of calls happening today and there's a lot a lot going on in the industry and I want to thank you for your continued interest in our company and I just want to say that.
Speaker Change: Our teams are 100% focused on the things we can control.
Speaker Change: Can we talk a lot about macro headwinds we talk a lot about the challenges that we're all facing and the uncertainty that's out there, but we're we're mitigating that we're staying focused on the foundation of Shake Shack. That's operations, it's supply chain, it's culinary innovation its development and.
Speaker Change: You know we've never performed at a higher level. This is a testament.
Speaker Change: But to the people that are out there working in our shacks every day the people that are out there working in our supply chains and the people that are building our shacks. So I just want to thank them for free.
Speaker Change: For everything they're doing it's really amazing what's happening right now at shake Shack and we're excited about our future and thankful that all of you are interested in that future so with that.
Speaker Change: I'll say, thanks to everybody.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Yeah.
Speaker Change: Mhm.
Speaker Change: Yeah.
Speaker Change: [music].