Q2 2025 Shake Shack Inc Earnings Call
Operator: Greetings. Welcome to Shake Shack Inc.'s second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Melissa Calandruccio, Investor Relations. Thank you. You may begin.
Greetings, welcome to Shake Shack's. Second quarter 2025 earnings call at this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Melissa kendus investor relations. Thank you.
Melissa Calandruccio: Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch, and our CFO, Katie Fogertey. Additionally, I am very pleased to announce that Allison Sternberg has joined us as Shake Shack's new Head of Investor Relations. Allison brings over 25 years of finance and investor relations expertise across multiple industries, including consumer. We are excited to have her on board and look forward to everyone getting to meet her. Allison?
Allison Sternberg: Thank you, Melissa. I am delighted to be here today. Shake Shack Inc. has long been a brand and company that I've deeply admired, and I'm excited to work alongside this talented team to capitalize on the significant opportunities ahead of us. Over the past few weeks, I've been immersing myself in the business and collaborating closely with Rob Lynch, Katie Fogertey, and our finance team as we prepare for today's earnings call. I look forward to connecting with many of you in the coming months. Now, back to business. 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.
Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Robert Lynch, and our CFO, Katherine Fogerty. Additionally, I'm very pleased to announce that Allison Sternberg has joined us as Shake Shack's new Head of Investor Relations. Allison brings over 25 years of finance and investor relations expertise across multiple industries, including consumer. We're excited to have her on board and look forward to everyone getting to meet her.
Thank you, Melissa. I am delighted to be here today. Shake Shack. Has long been a brand and company that I've deeply admired and I'm excited to work. Alongside this talented team to capitalize on the significant opportunities ahead of us.
Call.
I look forward to connecting with many of you in the coming months.
Now, back to business.
During today's call, we will discuss non-gaap Financial measures which we believe can be useful in evaluating our performance.
Allison Sternberg: Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 21, 2025, and our other SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our Q2 2025 shareholder letter, which can be found at investor.shakeshack.com in the quarterly results section or as an exhibit to our 8K for the quarter. I will now turn the call over to Rob.
The presentation of this additional information, should not be considered in isolation or as a substitute for results prepared in accordance with gaap.
Reconciliations to comparable, gaap measures are available in our earnings release and the financial details section of our shareholder letter.
Some of today's statements may be forward-looking an actual results May differ materially due to a number of risks and uncertainties, including those discussed, in our annual report on form. 10K filed on February, 21st, 2025, and our other SEC filings any forward-looking statements represent our views only as of today. And we assume no obligation to update any forward-looking statements, if our views change,
By now, you should have access to our second quarter, 2025 shareholder letter, which can be found at investor.org quarterly results section or as an exhibit to our 8K. For the quarter,
I will now turn the call over to Rob.
Rob Lynch: Thanks, Allison. Good morning, everyone. Firstly, I want to thank all of our team members across the country who have been leading the efforts to assist their communities impacted by significant weather. I am never surprised, but always thankful for the way our Shake Shack team members contribute their time and resources when challenges arise. I am proud to announce that with their help, we have raised over $100,000 to support communities in Texas and North Carolina impacted by the devastating floods earlier this month. We are all hopeful that this support can help a lot of people in a significant time of need. Onto our Q2 results. I am very proud of the strong results from the second quarter, despite a particularly challenging environment in the first quarter and April.
Thanks Allison. Good morning, everyone.
Firstly, I want to thank all of our team members across the country, who have been leading the efforts to assist their communities impacted by significant weather.
I'm never surprised. But always thankful for the way our Shake Shack team members. Contribute their time and resources when challenges arise
I am proud to announce that with their help, we have raised over $1,000, to support communities in Texas, and North Carolina impacted by the devastating floods. Earlier this month.
We're all hopeful that this support can help a lot of people and a significant time of need.
Onto our Q2 results.
Rob Lynch: Although there are still lingering headwinds facing the industry, these results are reflective of our continued execution against our strategic plan and long-term aspirations, and are the foundation of our confidence in raising our adjusted EBITDA guide for the full year. Just a year ago, I stood here and outlined our areas of focus, and I am humbled by the progress that our entire team has made in such a short period of time. On my first earnings call, I shared three key priorities. The first was driving healthy, safe Shack sales while building brand awareness and affinity. The second was opening more Shacks globally with strong returns for us and our licensed partners. Third was improving profitability in our Shacks and across the enterprise.
I am very proud of the strong results from the second quarter, despite a particularly challenging environment in the first quarter and April.
Although there are still lingering headwinds facing the industry, these results are reflective of our continued execution against our strategic, plan, and long-term aspirations.
And are the foundation of our confidence in raising, our adjusted ibida guide for the full year.
Just a year ago. I stood here and outlined our areas of focus and I am humbled by the progress that our entire team has made and such a short period of time.
On my first earnings call. I shared 3. Key priorities.
The first was driving healthy, safe, Shack sales while building brand awareness and affinity.
The second was opening more Shacks globally, with strong returns for us and our licensed partners.
Was improving profitability, in our shacks, and across the Enterprise.
Rob Lynch: Over the last year, we have made meaningful progress in all three areas, and we have a clear roadmap to continue scaling Shake Shack with discipline and purpose. Let me begin by reinforcing what we are building and why we know that we are positioned to win. Our team members and General Managers are the heart of our brand. They deliver a differentiated guest experience anchored in premium ingredients and enlightened hospitality in beautiful restaurants. That is what sets us apart in the category. Team member and guest satisfaction remain our true north as we execute on a long-term strategy focused on revenue growth and margin expansion. One of my favorite quotes is from Simon Sinek, who says, "Leadership is not about being in charge; it's about taking care of those in your charge." At Shake Shack, we accomplish this through our culture of enlightened hospitality.
Over the last year, we've made meaningful progress in all three areas.
And we have a clear roadmap to continue scaling Shake Shack with discipline and purpose.
Let me begin by reinforcing what we're building and why we know that we're positioned to win.
Our team members and general, managers are the heart of our brand.
They deliver a differentiated guest experience anchored in premium ingredients and enlightened hospitality in beautiful restaurants.
That is what sets us apart in the category.
Team member and guest satisfaction remain our true north as we execute on a long-term strategy focused on revenue growth and margin expansion.
Rob Lynch: We are laser-focused on taking care of our team members so that they can take care of our guests. Over the past year, we've evolved into a performance-based culture that empowers our teams to lead with clarity, accountability, and purpose. We've invested in leadership development programs that go beyond training to prepare our next generation of leaders to open the many Shacks ahead. From Shack-level managers to our support center teams, we're equipping our people with the tools, mentorship, and confidence they need to grow and thrive. We are seeing the results. From improved restaurant-level margins to our ability to open the largest class of new Shacks on record this year, our wins are powered by leaders who are deeply engaged and committed to our success.
1 of my favorite quotes is from Simon sinek who says, leadership is not about being in charge, it's about taking care of those in your charge. At Shake Shack. We accomplished this through our culture of enlightened hospitality.
We are laser focused on taking care of our team members so that they can take care of our guests.
Over the past year, we've evolved into a performance-based culture that empowers our teams to lead with clarity, accountability, and purpose.
We've invested in leadership development programs that go beyond training to prepare our next generation of leaders to open the many Shacks ahead.
From Shaq level managers to our support center teams. We're equipping our people with the tools mentorship and confidence, they need to grow and thrive.
And we're seeing the results.
Rob Lynch: As we scale, we will remain focused on our number one strategic priority of building this culture of leadership, and it will be our fuel, enabling us to grow with consistency, maintain the soul of our brand, and deliver long-term value for our shareholders. To further support our efforts, earlier this month, we welcomed Jamie Griffin as our new Chief People Officer, reporting directly to me. Jamie has held multiple roles across various business segments and multi-unit restaurants, always serving as the connective tissue between field teams and senior leadership in helping them to scale. We are very excited to have him on our team as we bring the world's best fine casual experience to as many guests, team members, and communities as possible. In his role, Jamie will oversee key areas of the company, including team member experience, talent acquisition, organizational design, and leadership development, amongst others.
From improved restaurant-level margins to our ability to open the largest class of new Shacks on record this year, our winds are powered by leaders who are deeply engaged and committed to our success.
As we scale, we will remain focused on our number 1, strategic priority of building this culture of leadership, and it will be our fuel. Enabling us to grow with consistency. Maintain the soul of our brand and deliver long-term value for our shareholders.
Support our efforts earlier this month. We welcome Jamie Griffin as our new Chief people officer reporting directly to me.
Jamie has held multiple roles across various business segments in multi-unit, restaurants, always serving as the connective tissue between field teams and Senior leadership in helping them to scale.
We are very excited to have him on our team as we bring the world's best. Find casual experience to as many guests team members and communities as possible.
Rob Lynch: Additionally, he will lead the Shack Support Center HR team to support enterprise growth, build organizational capabilities, and shape our high-performance people-first culture rooted in enlightened hospitality. Our second strategic priority is improving restaurant operations, and the results speak for themselves. In Q2, we expanded restaurant-level margin by nearly 200 basis points year over year to approximately 24%, our highest in the last 24 quarters. This reflects the strength of our operational foundation and the momentum that we are building. We've implemented a performance scorecard that's driving accountability and visibility across our Shacks, improving both guest experience and profitability versus last year. We are investing in tools that empower our teams to operate more efficiently, including smarter scheduling systems and targeted coaching. This past quarter, we achieved improved labor attainment, speed of service, and order accuracy.
In his role, Jamie will oversee key areas of the company, including team member experience, talent acquisition, organizational design, and leadership development, amongst others.
Additionally, he will lead the shack Support Center HR team to support Enterprise growth, build organizational, capabilities, and shape. Our high-performance people first culture rooted and enlightened hospitality
our second strategic priority is improving restaurant operations.
And the results speak for themselves.
In Q2, we expanded restaurant level margin by nearly 200 basis, points year-over-year to approximately 24%. Our highest in the last 24 quarters,
This reflects the operational foundation and the momentum that we are building.
We've implemented a performance scorecard that's driving accountability and visibility across our Shacks, improving both guest experience and profitability versus last year.
We're investing in tools that Empower our teams to operate more efficiently, including smarter, scheduling systems and targeted coaching.
Rob Lynch: Our third strategic priority and a core focus of our long-term strategy is delivering positive same-Shack sales with a focus on traffic and culinary mix. In the second quarter, we achieved 1.8% same-Shack sales growth. Trends improved throughout the period and into July, where we delivered 3.2% same-Shack sales through a combination of culinary innovation, targeted marketing, operational improvements, and digital activations, all aimed at reaching new guests, increasing guest frequency, and reinforcing our value proposition. Culinary innovation is part of our DNA at Shake Shack. We take immense pride in our ability to serve unbelievable food with the finest quality ingredients made fresh to order for our guests. We are continuing to innovate across our core menu, along with a strong pipeline of LTOs. We look forward to the next 18 months, where we are going to introduce new innovation to our guests as only Shake Shack can.
This past quarter, we achieved improved labor attainment, speed of service and Order accuracy.
Our third, strategic priority, and a core focus of our long-term strategy is delivering positive. Same Shaq sales with a focus on traffic and culinary mix.
In the second quarter, we achieved 1.8%, same Shaq sales growth.
Trends improved throughout the period and into July where we delivered, 3.2% same Shaq sales through a combination of culinary Innovation. Targeted marketing, operational improvements and digital activations.
All aimed at reaching new guests, increasing guest frequency and reinforcing our value proposition.
Culinary Innovation is part of our DNA and Shake Shack.
We take immense pride, in our ability to serve unbelievable food with the finest quality ingredients made fresh to order for our guests.
We are continuing to innovate across our core menu, along with a strong pipeline of LTOs.
Rob Lynch: We are seeing it today with our limited-time summer barbecue platform, Dubai Chocolate Pistachio Shake, and new fried pickle side. These offerings are creating an exciting buzz, bringing in new guests while also driving higher frequency. On the marketing front, we are focused on driving sustained engagement strategies. With our increased scale, we are in the initial stages of testing a paid media component of our business model. We expect to realize the full potential of this brand by clearly defining how Shake Shack is different than fast food and bringing that to life in every market we compete in. As a company, we've historically underinvested in advertising versus many of our larger peers. While same-Shack sales growth has been positive for many quarters now, this has been a limiting factor to achieving our true potential.
We look forward to the next 18 months where we are going to introduce new innovation to our guests. As only Shake Shack can
We are seeing it today with our limited time. Summer barbecue platform Dubai chocolate pistachio, shake and new fried pickles side.
These offerings are creating an exciting buzz, bringing in new guests while also driving higher frequency.
On the marketing front, we are focused on driving sustained engagement strategies.
And with our increased scale, we are in the initial stages of testing a paid media component of our business model.
We expect to realize the full potential of this brand by clearly defining how Shake Shack is different from fast food and bringing that to life in every market we compete in.
Rob Lynch: In Q2, we delivered close to 2% same-Shack sales and approximately 3% of pricing year over year. Compare that to 2024, where we delivered 4% of same-Shack sales with approximately 7% pricing. We are building a different, more sustainable, value-enhancing model that still delivers the premium experience that sets us apart. Moving forward, we will support our amazing culinary offerings with traffic-driving media. This has never been the case for Shake Shack. We have historically relied on our word-of-mouth promotions and other bottom-of-the-funnel marketing initiatives to drive traffic. These tactics will continue to be components of our model where appropriate, but they will be enhanced and supplemented with advertising that brings our brand to life. Last week, we embarked on a paid media campaign around two exciting products and strategies: our Dubai Shake and our new Dollar Soda promotion to drive Shack App adoption and usage.
As a company, we have historically under-invested in advertising versus many of our larger peers. And while Shake same Shaq sales, growth has been positive for many quarters. Now, this has been a limiting factor to achieving our true potential.
In Q2, we delivered close to 2% same-Shack sales growth and approximately 3% pricing year-over-year.
compared that to 2024 where we delivered 4% of same Shaq sales with approximately 7% pricing.
We are building a different more sustainable value, enhancing model. That's still delivers the premium experience. That sets us apart,
Moving forward, we will support our amazing culinary offerings with traffic driving media.
This is never been the case for Shake Shack.
We have historically relied on our Word of Mouth promotions and other bottom of the funnel marketing initiatives to drive traffic.
These tactics will continue to be components of our model where appropriate, but they will be enhanced and supplemented with advertising that brings our brand to life.
Rob Lynch: Building this product marketing muscle is a cornerstone for us to drive long-term sustainable traffic. Delivering incremental sales with great products and marketing will provide even more fuel for continued leverage and restaurant margin expansion. Another sales strategy we have been focused on is offering combos. We believe that combos or bundled meals are important for drive-through success. By reducing the friction for our guests and increasing our value perception, we see potential for combos to drive throughput and frequency. Our combo meals are now live in all 46 of our drive-throughs, and we are excited about the continued opportunity in this important format. Looking forward, we are confident that our holistic approach, combining culinary innovation, guest experience enhancements, and a 360-degree approach to marketing, will continue to drive top growth and strengthen our brand.
Last week, we embarked on a paid media campaign around two exciting products. Our strategies are due by Sheikh and our new dollar soda promotion to drive Shack app adoption and usage.
Building this product must be marketing. Muscle is a cornerstone for us to drop long-term sustainable traffic.
Delivering incremental sales with great products, and marketing will provide even more fuel for continued leverage and restaurant margin expansion.
Offering combos.
We believe that combos are bundled meals are important for drive-through success.
By reducing the friction for our guests and increasing our value perception. We see potential for combos to drive throughput and frequency.
Our combo meals are now live in all 46 of our drive-throughs, and we're excited about the continued opportunity in this important format.
Rob Lynch: Turning to development, we continue to execute with discipline and momentum in Q2, opening new Shacks that reflect the strength of our brand and the scalability of our model. In the second quarter, we opened 13 new domestic company-operated Shacks, bringing our first half total to 17. We remain on track to open 45 to 50 company-operated Shacks in 2025, marking this as the largest class in company history. These openings are concentrated primarily in established markets outside of the Northeast, diversifying our portfolio and increasing the productivity of our supply chain and marketing investments.
Looking forward, we're confident that our holistic approach, combining culinary innovation, guest experience, and enhancements, along with a 360-degree approach to marketing, will continue to drive top growth and strengthen our brand.
Turning to development.
We continue to execute execute with discipline. And momentum, in Q2 opening, new Shacks that reflect the strength of our brand and the scalability of our model.
In the second quarter, we opened 13 new domestic company operated Shacks bringing our first half total to 17.
We remain on track to open 45 to 50 company operated Shacks in 2025 marking, this is the largest class in company history.
Rob Lynch: We are continuing to push the limits of what is possible and to think big with our new location at the Battery in Atlanta, right next to the Braves Stadium. It is our first company-operated Shack offering a great lineup of signature cocktails like the frozen or on the rocks Patron Shackarita alongside boozy shakes and many other premium cocktails, spirits, beer, and wine. This first-of-its-kind shack came to life through a fast cross-functional effort across our company and shows just how much progress we have made on transforming our pace of innovation. This location also features promising new equipment that is allowing us to deliver our high-quality experience with shorter wait times. Just a few weeks in, the team is already hitting it out of the park with strong volumes on both game days and non-game days.
These openings are concentrated primarily in established markets outside of the Northeast, diversifying our portfolio and increasing the productivity of our supply chain and marketing investments.
We are continuing to push the limits of what is possible and to think big with our new location at The Battery in Atlanta.
Right next to the Brave stadium.
It's our first company operated Shack offering a great lineup of signature cocktails like the Frozen or On the Rocks. Patron shakera, alongside boozy shakes and many other premium cocktails Spirits, beer and wine.
This first of, its kind Shack came to life through a fast cross, functional effort, across our company and shows just how much progress we've made on Transforming. Our pace of innovation
This location also features, promising new equipment that is allowing us to deliver our high-quality experience with shorter. Wait times.
Rob Lynch: The wins we are seeing here reinforce the innovative work we have embarked on around kitchen equipment and layout operations and a broader culinary strategy. We are also making solid progress on reducing our build costs. Despite global supply chain uncertainty, we are on track to reduce our cost to build by at least 10% this year, and we are confident that the work our teams have done will allow us to continue to open many more beautifully designed, high-return shacks. Turning to our licensed business, we had an exceptional quarter with nine new openings and strong performance across regions. In China, we expanded our breakfast offering to more cities, along with new menu items tailored to local tastes, helping to stabilize performance in a region that had been under pressure.
Just a few weeks in the team has already hitting it. Out of the park with strong volumes on both game days, and non-game days.
The winds we are seeing here reinforced the Innovative work. We have embarked on around, kitchen equipment and layout operations and a broader culinary strategy.
At least 10% this year.
And we're confident that the work our teams have done will allow us to continue to open many more beautifully designed, high-return Shacks.
Turning to our licensed business. We had an exceptional quarter with 9, new openings and strong performance across regions in China. We expanded our breakfast offering to more cities along with new menu items, tailored to local tastes helping to stabilize performance in a region that had been under pressure
Rob Lynch: We also announced two new licensing partnerships, one with Pen Entertainment to bring Shake Shack to 10 licensed domestic casinos, and another with Grupo Adi Multifood Enterprises to open 12 shacks in Panama, with the first opening next year. These new partnerships reflect our disciplined approach to global growth and our confidence in the long-term potential of the brand. I am also thrilled to share that Shake Shack is now served on Delta flights across 13 domestic airports, and guest feedback has so far been amazing. Looking ahead to 2026, we plan to grow new units system-wide by at least a mid-teens percent, with a continued focus on delivering strong cash-on-cash returns for ourselves and our partners. We are building the infrastructure and capabilities to support this growth while maintaining the integrity of our guest experience and operational excellence.
We also announced 2, new licensing Partnerships 1 with Penn entertainment to bring Shake Shack to 10, licensed domestic casinos. And another with groupo addi multi food Enterprises to open 12 sh in Panama with the first opening next year.
These new Partnerships reflect our discipline Approach to Global growth and our confidence in the long-term potential of the brand.
I'm also thrilled to share that Shake Shack is now served on Delta flights across 13 domestic airports, and the feedback so far has been amazing.
Looking ahead to 2026, we plan to grow new units systemwide by at least a mid-teens percent, with a continued focus on delivering strong cash-on-cash returns for ourselves and our partners.
Rob Lynch: Lastly, as we scale Shake Shack for the future, we are making deliberate investments in our long-term strategic capabilities. A key milestone in this journey is the opening of our second domestic support center in Atlanta later this year. This space will serve as a hub for continued innovation, collaboration, and operational excellence, bringing together our teams from across the globe and enabling us to better support our growing Shack footprint. From culinary innovation, restaurant operations, digital transformation, to supply chain optimization and new kitchen prototypes, we are laying the foundation for a more agile, efficient, and guest-centric organization, one that is built to lead in the years ahead. New York will continue to be our home, and we will continue to invest in amazing, talented team members there, but this new facility will significantly enhance our ability to build the team, pipeline, and future we aspire to.
We're building the infrastructure and capabilities to support this growth while maintaining the Integrity of Our Guest experience and operational excellence.
Lastly, as we scale Shake Shack for the future, we're making deliberate investments in our long-term strategic capabilities.
Key milestone in this journey is the opening of our second domestic Support Center in Atlanta later this year.
This space will serve as a hub for continued, Innovation collaboration and operational excellence. Bringing together our teams from across the globe and enabling us to better support our growing Shack footprint.
From culinary innovation and restaurant operations to digital transformation, supply chain optimization, and new kitchen prototypes, we're laying the foundation for a more agile, efficient, and guest-centric organization.
1 that's built to lead in the years ahead.
Rob Lynch: We look forward to hosting many of you there in the near future. With that, I will turn it to Katie for more details on the quarter.
New York will continue to be our home and we will continue to invest in amazing, talented team members there. But this new facility will significantly enhance our ability to build the team Pipeline and future we aspire to
We look forward to hosting many of you there in the near future.
And with that, I'll turn it to Katie for more details on the quarter.
Katie Fogertey: Thank you, Rob, and good morning, everyone. As Rob shared, we are pleased with our Q2 performance and the continued momentum that we are building across the business. This quarter marks the 18th consecutive quarter of positive same-Shack sales growth, as we also continue to deliver year-over-year expansion in restaurant-level and adjusted EBITDA margins and delivered double-digit adjusted EBITDA growth. These results reflect the strength of our strategy and the discipline with which we are executing. Let's dive into the details. Total revenue for Q2 was $356.5 million, ahead of our guidance range. System-wide sales grew 13.7% year-over-year to $549.9 million, supported by 22 new Shack openings system-wide and positive same-Shack sales growth. In our licensed business, we grew revenue by 20.2% year-over-year to $13.3 million, with sales up approximately 16% to $206.7 million.
Thank you Rob and good morning everyone as Rob shared. We're
Pleased him that we're building a business.
This quarter marks the 18th consecutive quarter of positive same-Shack sales growth, as we also continue to deliver year-over-year expansion in restaurant-level and adjusted IA margins, and delivered double-digit adjusted EVA growth.
these results reflect the strength of our strategy, and the discipline with which we're executing
Let's dive into the details. Total revenue for the second quarter was 356.5 Million ahead of our guidance range, systemwide sales, grew 13.7%, year-over-year to 549.9 million supported by 22. New Shack openings, systemwide and positive, same Shaq, sales growth.
Katie Fogertey: We opened nine licensed Shacks in the quarter and saw strong performance across regions, including the U.S., and meaningful improvements in trends in China, with positive impacts from new menu innovation and extended day parts. In our company-operated business, we grew Shack sales 12.4% year-over-year to $343.2 million, with 13 new Shack openings, including two drive-throughs, bringing our first half total openings to 17. We are on track to open 45 to 50 company-operated Shacks this year, our largest class on record, and are already deep in the work to open even more Shacks next year. Average weekly sales were $78,000, with 1.8% same-Shack sales growth. Importantly, and as Rob just mentioned earlier, we grew comps year-over-year despite less incremental pricing. In-Shack menu price was up approximately 2% and blended across all channels about 3%.
In our licensed business, we grew Revenue by 20.2% year-over-year to 13.3 million with sales up approximately 16% to 206.7 million.
We opened 9 licensed Shacks in the quarter and saw a strong performance across regions including the US and meaningful improvements in Trends. In China with positive impacts from new menu Innovation and extended day parts.
And our company operated business, we grew Shaq sales, 12.4 year-over-year to 343.2 million with 13, new Shack openings, including 2 Drive, bringing our first half total openings to 17.
We are on track to open 45 to 50 company operated Shacks this year, our largest class on record and are already deep in the work to open even more Shacks next year.
Average weekly sales were 78,000 with 1.8%, same track sales growth importantly, and as Rob just mentioned earlier, we grew comps year-over-year despite less incremental pricing.
Katie Fogertey: Traffic was down 70 basis points, and our trends improved in each month of the quarter, with positive traffic exiting the quarter and into July, driven by successful marketing activations, operational improvements, compelling menu innovation, and further improving the guest experience. We are encouraged by the resilience of our Shacks and how we have grown this brand, as well as our pipeline of all that's to come. Turning to culinary innovation, with our strategic culinary calendar, it's not only driving traffic; it's also benefiting mix. Mix in the quarter contributed approximately one percentage point of growth to our comp, led by summer barbecue and merchandising improvements on our digital and kiosk channels. Items per check declined 1.5%, impacted by smaller party sizes. Trends continued to improve into July, with positive 3.2% same-Shack sales growth and positive traffic, led by our national Dubai Shake offering and additional marketing activation.
In the check menu, price was approximately 2%, and blended across all channels about 3%.
Experience.
We are encouraged by the resilience of our Shacks and how we have grown this brand, as well as our pipeline of all that's to come.
turning to culinary Innovation with our strategic culinary calendar. It's not only driving traffic. It's also benefiting mix mix in the quarter. Contributed approximately 1 percentage point of growth to our comp led by summer barbecue and Merchandising improvements on our digital and kiosk channels.
Items per check the client 1.5% impacted by smaller parties sizes.
Katie Fogertey: Turning to restaurant-level profit, we once again had an exceptionally strong quarter of growth. We generated $82.2 million of restaurant-level profit, reaching 23.9% of Shack sales. That's a 190 basis point improvement over last year and our highest second quarter margin since 2019. We're very proud of the great work our teams have done to improve the financial performance of our Shacks while at the same time delivering a better guest experience. Now I'll go through the components. Food and paper costs were $96.6 million, or 28.2% of Shack sales, up 40 basis points versus last year. This was led by a mid-single-digit increase in beef costs. Labor and related expenses were $88.1 million, or 25.7% of Shack sales, down 270 basis points versus last year, reflecting the strong adherence to our new labor guides and model.
Trends continue to improve into July with positive, 3.2% same, check sales, growth and positive traffic led by our national Dubai, Sheikh offering and additional marketing activations.
Turning to restaurant level profits. We once again, had an exceptional strong quarter of growth, we generated 82.2 million of restaurant. Level profit reaching 23.9% of Shaq sales. That's 190 basis. Point improvement over last year and our highest second quarter margin since 2019.
We're very proud of the great work, our teams have done to improve the financial performance of our Shacks. While at the same time, delivering a better guest experience.
Now, go through the components.
Food and paper costs were 96.6 million or 28.2% of Shaq sales up for you basis points versus last year. This was led by mid single digit increase in beef costs.
Katie Fogertey: Other operating expenses were $50.8 million, or 14.8% of Shack sales, up 40 basis points year-over-year, driven by an increase in marketing expenses and our digital mix, partially offset by improvements in utilities. Occupancy and related expenses were $25.6 million, or 7.5% of Shack sales, down 10 basis points year-over-year, led by stronger sales. Taken together, the results our operators delivered in the quarter and the progress we continue to show against our strategic priorities underscore our momentum and commitment to delivering sustainable margin growth for this year and beyond. G&A was $40.7 million, or $40.1 million excluding one-time adjustments. The year-over-year increase reflects strategic investments in our people to support our growth and additional marketing investments. Equity-based compensation was $5.2 million, up 39.3% year-over-year, with $4.7 million in G&A.
7% of Shaq sales down, 270 basis points versus last year reflecting the strong adherence to our new labor guides and model.
Other operating expenses were 50.8 million or 14.8% of Shaq sales up, 40 basis points year-over-year driven by an increase in marketing expenses and our digital mix partially offset by improvements in utilities.
Occupancy and related expenses were $25.6 million, or 7.5% of Shack sales, down 10 basis points year-over-year, led by stronger sales.
Taken together, the results are operators, delivered in the quarter and the progress. We continue to show against our strategic priorities, underscores our momentum momentum and commitment to delivering sustainable margin growth for this year and Beyond.
DNA was 40.7 million or 40.1 million excluding 1 time adjustments. The year-over-year increase reflects strategic investments in our people to support our growth and additional marketing Investments.
Katie Fogertey: Reopening costs were $5 million, up 23.4% year-over-year, as we opened 13 new company-operated Shacks in the quarter and prepare for a strong opening schedule ahead. We grew adjusted EBITDA by 24.8% year-over-year to $58.9 million, representing 16.5% of total revenue, a 160 basis point improvement compared to last year. This marks our highest adjusted EBITDA level on record and second quarter margin since 2018, underscoring the meaningful progress we've made in strengthening our business fundamentals. Despite navigating a challenging inflationary environment and persistent macro headwinds, we have continued to invest responsibly in our long-term growth opportunities. That is positioning Shake Shack well for sustained growth in sales and margin, and that is reflective in our three-year outlook. Depreciation and amortization expense was $26.5 million. Net income attributable to Shake Shack Inc. was $17.1 million, or $0.41 per diluted share.
Equity-based compensation was $5.2 million, up 39.3% year-over-year, with $4.7 million in GNA.
Reopening costs were 5 million up 23.4% year-over-year. As we open 13, new company, operated Shacks in the quarter and prepare for a strong opening schedule ahead.
We grew adjusted IA by 24.8% year-over-year to $58.9 million, representing 16.5% of total revenue. This is a 160 basis point improvement compared to last year.
This marks our highest adjusted e, but a level on record and second quarter margin since 2018 underscoring, the meaningful progress we've made in strengthening our business fundamentals.
Despite navigating a challenging inflationary environment and persistent macro headwinds, we've continued to invest responsibly in our long-term growth opportunities. That's positioning Shake Shack well for sustained growth in sales and margin, and that's reflected in our three-year outlook.
Depreciation and amortization expense was $26.5 million.
Katie Fogertey: Adjusted pro forma net income was $19.5 million, or $0.44 per fully exchanged and diluted share. Our GAAP tax rate was 25.1%. Our adjusted pro forma tax rate that excludes the tax impact of equity-based compensation was 24.6%. Our balance sheet remains strong with $336.8 million in cash and cash equivalents at the end of the quarter. That is up approximately $35 million year-over-year and $24 million sequentially. We grew operating cash flow by 21% year-over-year to a record $65 million. We invested $38 million in CapEx to support our strong opening calendar and are on track to deliver another approximate 10% reduction in our bill costs this year. Now on to guidance. Our guidance assumes no material change in the macroeconomic or geopolitical landscape. For the third quarter of 2025, we expect system-wide unit openings of 20 to 25, with 13 to 16 company-operated and 7 to 9 licensed.
Net income attributable to Shake Shack, Inc. was $17.1 million, or 41 cents per diluted share.
Adjusted pro forma net income was $19.5 million, or $0.44 per fully exchanged and diluted share.
Our gaap tax rate was 25.1%. Our adjusted preform, a tax rate that excludes the tax impact of equity based compensation was 24.6%.
Our balance sheet remains strong, with $336.8 million in cash and cash equivalents at the end of the quarter.
Up approximately 35 million year-over-year and 24 million sequentially. We grew operating Cash Flow by 21% year-over-year to a record 65 million. We invested 38 million in capex, to support our strong opening calendar and are on track to deliver another approximate 10% reduction in our bill costs this year.
Now, into guidance.
Our guidance assumes no material change in the macroeconomic OR geopolitical landscape.
Katie Fogertey: Same-shack sales to grow positive low single digits year-over-year, license revenue of $13.3 to $13.6 million, total revenue of $358 to $364 million, up nearly 13% to 15% year-over-year. Restaurant-level profit margin of 22% to 22.5%. This represents 100 to 150 basis point improvement year-over-year, driven by our operational improvements and sales leverage. We expect low single-digit inflation in food and paper costs, with beef prices now up low teens. Onto our full-year 2025 outlook, where we expect system-wide unit openings of 80 to 90, with 45 to 50 company-operated and 35 to 40 licensed. Same-shack sales to grow positive low single digits year-over-year, license revenue of $51.5 to $52.5 million, total revenue of $1.4 to $1.5 billion, and we are currently tracking to approximately the midpoint of this range. Restaurant-level profit margin of approximately 22.5%.
For the third quarter of 2025, we expect, systemwide unit, openings of 20, to 25 with 13 to 16 company, operated and 729 license.
Same track sales to grow a positive low single digits year-over-year.
Revenue of $13.3 to $13.6 million.
Total revenue of 358 to 364 million up, nearly 13 to 15% year-over-year.
Restaurant level profit, margin of 22, to 22 and a half percent. This represents 100 to 150 basis. Point Improvement, year-over-year driven by our operational improvements and sales Leverage.
We expect low single-digit inflation, and food and paper costs, with beef prices now up low teens.
Onto our full year, 2025 Outlook, where we expect systemwide unit, opening of 80 to 90, with 45, to 50 company operated and 35 to 40 license.
4 to 1.5 billion. And we're currently tracking to approximately the midpoint of this range.
Katie Fogertey: This is 110 basis point improvement year-over-year, and with our strong margin performance year to date and plans for the quarters ahead, we are currently tracking very well against this guide. Food and paper inflation of positive low single digits, led by beef up mid to high single digits. Labor inflation up low single digits. We expect GNA to be between 11.5% to 12% of total revenue. As Rob mentioned, with our profitability tracking ahead of plan and solid wins from some recent marketing activations, we are excited to invest a portion of these incremental profits into additional marketing strategies in our major markets to support Dubai Shake and Dollar Soda. While we haven't factored in a revenue or profit list yet from this incremental media into our Q3 and full-year outlook, we are optimistic about its impact and look forward to updating you.
Restaurant level profit margin of approximately 22 and a half percent. This is 110 basis, point Improvement year-over-year and with our strong margin performance, year-to-date and plans for the quarters ahead, we're currently tracking very well against this guide.
Food and paper inflation is positive and low, with single digits led by beef up, in mid to high single digits.
Labor inflation uploading, single digits.
Katie Fogertey: For your modeling purposes, you should assume that GNA will be evenly split between Q3 and Q4 for the remainder of this year. Equity-based compensation expense is guided to $22 million, with approximately $20 million in GNA. Adjusted EBITDA of $210 to $220 million, representing 20% to 25% growth year-over-year. Depreciation and amortization expense of $107 to $109 million, pre-opening costs of $18 to $19 million, adjusted pro forma tax rate of 24% to 25%, and net income of $50 to $60 million. We remain confident in the trajectory of the business and in achieving our three-year targets of growing revenue by at least a low teens percent year-over-year, expanding our restaurant profit-level margins by at least 50 basis points a year, and growing adjusted EBITDA by at least a low to high teens percent year-over-year.
We expect GNA to be between 11% and 12% of total revenue, as Rob mentioned, with our profitability tracking ahead of plan and solid wins from some recent marketing activations. We're excited to invest a portion of these incremental profits into additional marketing strategies in our major markets to support Dubai, Sheikh, and Dollar Soda. While we haven't factored in a revenue or profit lift yet from this incremental media into our Q3 and full year outlook, we're optimistic about its impact and look forward to updating you.
For your modeling purposes, you should assume that GNA will be evenly split between third quarter and fourth quarter for the remainder of this year.
Equity-based compensation expense is guided to 22 million with approximately 20 million in GNA, adjusted IBA of 210 to 220 million representing 20 to 25% growth year-over-year.
Appreciation and amortization expense of 107 to 109 million reopening cost of 18 to 19 million adjusted. Proforma tax rate of 24 to 25% and that income of 50 to 60 million
Katie Fogertey: Embedded in these targets is a low single-digit comp expectation driven by 1% to 2% mix, 1% to 2% price, and flat to up 1% traffic. Thank you for your time. With that, I'll turn it back to Rob.
We remain confident in the trajectory of the business and in a 3 year targets of growing Revenue by at least a low teens percent year-over-year expanding our restaurant. Profit level margins by at least 50 basis points a year and growing adjusted Ava by at least a low to High Teens percent year-over-year.
In these targets, there is a low single digit, complex expectation driven by 1% to 2% mix, 1% to 2% price, and flat to up 1% traffic.
Rob Lynch: Thank you, Katie. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our strong Q2 performance and the momentum we are seeing across the business as we continue to execute against our long-term strategic plan. Thank you to everyone on the call today and for your interest in our company. With that, operator, please open up the call for questions.
Thank you for your time. And with that, I'll turn it back to Rob.
Thank you, Katie.
I want to thank our teams again for the hard work and passion for Shake Shack, which is the engine behind our strong second quarter performance and the momentum we are seeing in the business as we continue to execute against our long-term strategic plan.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and one follow-up question. One moment while we pull for questions. Our first question is from Brian Vaccaro with Raymond James. Please proceed.
Thank you to everyone on the call today and for your interest in our company. And with that operator, please open up the call for questions.
Thank you. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit yourself to 1 question and 1 follow-up question. One moment while we pull for questions.
Brian Vaccaro: Hi. Good morning, and thank you. I had a quick question. I guess we could start on the margin front. The labor productivity here in the second quarter seemed to take another step higher, if you will. Could you just elaborate on some of the incremental efficiencies that you saw in the second quarter? Katie, maybe you could touch on the hook and take embedded in your third quarter store margin guidance as well.
Efficiencies that you saw in the in the second quarter and and Katie maybe you could you could touch on the puts and takes embedded in your third quarter store margin guidance as well.
Rob Lynch: Hi, Brian. I will start with kind of the work we are doing in operations, and Katie can talk a little bit more in detail about the specific impact on the margin. You know, this has been a focus area since I got here. We have really focused on making sure that we can deliver the kind of performance that we need in order to invest in driving the comp sales. We have not heavily invested in marketing up until very recently because we needed to make sure that when we sent people, we sent our guests into the restaurants, they were going to get great service. We have improved across all three of the things we really measure in our scorecard: people, performance, and profits. We have improved all of our recruiting and retention numbers. Every guest metric is moving in the right direction in terms of performance.
Hi Brian. I'll start with kind of the, the work we're doing in operations and Katie can talk a little bit more in detail about the specific impact on the margin. But, you know, this has been a focus area, um, you know, since since I got here, um, we have really focused on making sure that we can deliver the kind of, uh, performance that that we need in order to invest in driving the comp sales. You know, we have not, um, you know, heavily invested in marketing up until very recently because we needed to make sure that when we sent people, we sent our guests into the restaurants, they were going to get great service and we've improved across all 3 of the things we really measure in our scorecard, people performance and profits. And so we have improved all of our recruiting and retention numbers. Um,
Rob Lynch: Our speed of service has significantly improved. From a profit standpoint, it is really driven primarily by the new labor model and the labor attainment of that model. We delivered the highest labor attainment in the last since we have been really measuring it and monitoring it closely in this quarter. Our teams have just done an unbelievable job. We have got great leaders in place. We are developing talent in order to be able to open up our new Shacks, and the results speak for themselves. I will let Katie get into any detail on the margins.
every guest metric is moving in the right direction in terms of performance. Um our speed of service has significantly improved um our um you know and and from a profit standpoint it's really driven primarily by the new um labor model and the labor attainment of that model. We deliver the highest labor attainment. Um in the last
Katie Fogertey: I just want to echo all that Rob said about the amazing job that our operators are doing and what an impact the scorecard is having on our labor and then just really a lot of other aspects of our restaurant margin line. We showed great progress in the quarter overall, expanding our restaurant-level margin by 190 basis points year-over-year. Some of that was due to some nice sales leverage we had with our 1.8% comp, but we also did have a nice pickup on the labor line. As we look forward to the rest of the year, embedded in our guidance for the third quarter and then the approximate 22.5% for the full year, we expect to continue to see nice wins on a year-over-year basis on our labor line.
You know, since since we've been really measuring it and and monitoring it closely in this quarter, so our teams have just done an unbelievable job. Um, we've, we've got great leaders in place, we're developing talent in order to be able to open up our new shacks, and the the results speak for themselves. So, I'll let Katie get into any detail on the margins. Yeah, I just want to Echo all that. Rob said about the amazing job that our operators are doing, um, and what an impact. The scorecard is having on, you know, our labor, and then just really a lot of other aspects of, um, our restaurant margin line. Um, we showed great progress in the quarter. Um, overall, expanding our restaurant, level margin by 190 basis points, um, year-over-year, you know, some of that, um, was due to kind of, you know, some nice sales, levers, we had with our 1.8% comp. Um, but we also did have a nice um, pickup on the labor line.
Katie Fogertey: The foundational things that our operators are putting into place, and led by Stephanie Sintel and Damon Thomas, have really helped to give us a stable foundation for which we can grow. If you can see from the strong flow-through that we had in the quarter, as we look to invest more into marketing to drive sales, this will be a powerful engine for us to continue to grow margins over the long term. As we look to some puts and takes for the third and fourth quarter, just remind everybody that we do have a heavier opening schedule planned in the third and then in the fourth quarter. We have a new opening team to help open our restaurants with excellence and get us to profitability sooner, which was a benefit in the second quarter.
As we look forward to the rest of the year, um, you know, embedded in our guidance for, um, the third quarter and then the approximate 22 and a half percent for the full year, you know, we expect, um, to continue to see nice wins on a year-over-year basis, um, on our labor line, the foundational things that our operators are putting into place and led by Stephanie cintel, um, and Damon Thomas have really helped to give us a stable foundation for which we can, um, grow. And if you can see from the, um, the strong
Katie Fogertey: We are hopeful that we will continue to get a nice win on that side in the third and fourth quarter. That is not really reflected in our guidance, though.
Flow through that, we had in the quarter. Um, you know, as we look to invest more into marketing to drive sales, this will be a powerful engine for us to continue to grow margins, over long term. Um, as we look to kind of some puts and takes for the third and fourth quarter, just remind everybody that, um, we do have a heavier opening schedule planned in the third. And then, in the fourth quarter, um, we have a new, um, opening team, um, to help open our restaurants with excellence and get us to profitability sooner, um, which was a benefit in the second quarter. Um, and you know, we're hopeful that, you know, we'll continue to get a nice win on that side, and the third and fourth quarter, that's not really reflected in our guidance. So,
Brian Vaccaro: Great. Thank you. If I could just ask a follow-up, just in terms of the kitchen innovation lab, I know it is still early days, and maybe it is a couple of years away until we see some of these things roll. Are there any new learnings on new kitchen prototypes or kitchen formats or new equipment that might have improved quality throughput or other benefits to the business that you might be willing to touch on?
Great, thank you. And, and if I could just ask a follow-up, uh, just just in terms of the kitchen Innovation lab. I know it's still early days and maybe it's a couple years away until we see some of these things, uh role. But are there any new learnings on on the kitchen? On new kitchen uh, prototypes or kitchen formats or new equipment? But that might have improved quality throughput or other uh benefits to the business uh that that you might be willing to touch on
Rob Lynch: Yeah. I mean, I can just share that. We kind of mentioned in the comments that we opened the Battery Shack about a month ago now, and we have been working in Atlanta on a lot of new equipment prototypes. We implemented some of those into the back of the house in the Battery. That was a very high-volume shack, especially the week we opened, which was the week before the All-Star game was there and a lot of home games. So we kind of put our feet to the fire, and I was blown away by the amount of volume we were doing and the service times we were providing. It is not a lot of rocket science. It is really just bringing our kitchens into the 21st century with equipment that currently exists.
Yeah. I mean, I can just share that and we we kind of mentioned in in the in the comments that um, we open the battery uh, Shack about a month ago now. And we, we've been working in Atlanta on a lot of new equipment, prototypes and we implemented some of those into the back of the house and the battery. And, you know, that was a, is a very high volume Shack. Especially
Rob Lynch: We are not inventing stuff. We are just optimizing our processes. We are optimizing our design and our standard prototypes. Some of that is in our fry station, some of that is in our make station, and some of that is in our cold station around our shakes. We were able to significantly improve not just the speed, but also the throughput and our ability to hit the high volumes that that shack demands. I think as we get that equipment into more shacks and we really start deploying that, I think we will be prepared to kind of share a little bit more in detail around what that equipment is and the opportunities that we see moving forward.
Um, you know, currently exists. So, we're not inventing stuff, we're just optimizing our processes. We're optimizing, you know, our our, our design, and our standard prototypes and, you know, some of that is in our fry stations, some of that is in our make station and some of that is in our cold station around our shakes. Um, but we were able to significantly improve, um, you know, not just the speed but also the throughput and the, the the our ability to, to hit the high volumes that, that that check demand. So, I think, you know, as we, as we get that equipment into more shacks and we really um, start deploying that I think will be prepared to kind of share a little bit more in detail around. What those um what those what that equipment is and the opportunities that we see moving forward,
Operator: Our next question is from Christine Cho with Goldman Sachs. Please proceed.
Christine Cho: Yes. Thank you for taking my question. Could you discuss some of the major changes to your go-to-market strategy with the new culinary calendar that includes four main platforms per year, along with size and beverage LTOs? What kind of implications would that have on your advertising and marketing? I am guessing the potential paid media investment that you talked about is one piece of that. Could you also elaborate on how you would approach that paid media investment and how you plan to track the returns and performance? Thank you.
Our next question is from Christine Cho with Goldman Sachs, please proceed.
Yes, thank you for taking my question. Uh, so could you discuss some of the major changes to your go-to Market strategy with the new culinary calendars? Um, that includes 4 main platforms per year, along with sides and beverage ltos and what kind of implications that would have um on your advertising and marketing. Um, so I'm guessing the potential paid media investment that you talked about is 1 piece of that. Um, could you also elaborate on how you would approach that paid media investment?
Rob Lynch: Yeah, Christine. We are so excited right now. We decided this quarter, because we are out ahead of where we thought we were going to be from a profit standpoint, to test and invest in some paid media programs. That has really been just the last two weeks, and we could not be more excited about the results we are seeing. This brand has never had top-of-funnel paid media launched at scale. It is hard to believe, but all of the marketing has always been word-of-mouth, earned media, and bottom-of-funnel kind of promo activations. We leaned in on making some of these investments, and so we are ecstatic with the results. As we look at the calendar moving forward, we are absolutely going to create awareness at the top-of-the-funnel level around our LTOs. We have built an 18-month culinary innovation calendar that is locked and loaded.
And how you plan to track and the returns and performance. Thank you.
Yeah. Christine I mean we are so excited right now. Um, we we decided this quarter because we're, you know, we're out ahead of where we thought we were going to be from a profit standpoint to to test and invest in some paid media programs. And that's really been just the last 2 weeks and we couldn't be more excited about the results we're seeing. Um, you know, this brand has never had
You know.
Rob Lynch: It is not just me saying, "Hey, I like this stuff." We are actually doing guest testing on a lot of the big items that we are launching, and we have got incredible scores back on some of the concepts and some of the product or food that we are creating. So when you take that and you create awareness amongst millions of people that otherwise would not have found out outside of earned media or word-of-mouth, we think there is a lot of comp benefit there. I will just tell you, the composition of the comps is important. We called it out in the script, but I want to reinforce it. Last year, we delivered 4% comp growth with 7% pricing. We were down almost 300 bps on traffic. This year and this quarter, we delivered almost 2% sales growth on 2% pricing.
Uh top of funnel paid media. Um launched at scale, it's hard to believe but all of the marketing has always been Word of Mouth earned media and bottom of funnel, kind of promo activations. And so, you know we we leaned in on making some of these Investments and so we're we're ecstatic with the results and so as we look at the calendar, moving forward, we're absolutely going to create awareness, um, at the at the top of the funnel level around our lto and we have built an 18-month culinary, Innovation calendar, that is, that is locked and loaded and we have, you know, it's it's not just me saying, hey I like this stuff. We're actually doing um guest testing on some of the on a lot of the the big items that we're launching and we've got incredible scores back on some of the concepts and
Some of the product or food that that that we're creating. So when you take that,
And you create awareness amongst millions of people that otherwise wouldn't wouldn't have found out outside of earn Media or Word of Mouth. We think there's a lot of comp benefit there. And, you know, I'll just tell you,
The composition of the comps is important and we called it out in the script, but I want to reinforce it, you know, last year we delivered 4% comp growth with 7% pricing.
Rob Lynch: So we are moving the model to not be dependent on pricing, and we are making consistent sequential improvements in traffic. What that means is we are going to be able to compete in really all macroeconomic environments. For the last year, all the commentary has been about we have got this value-oriented guest, this value-oriented market, can Shake Shack Inc. compete in that type of market? We are doing all the things and the heavy lifting to be able to compete in good times and bad. So Shake Shack Inc. is not going to be a super volatile dependent upon the whims of the guests moving forward. We are building a model that can sustain itself and drive consistent traffic growth moving forward.
You know, we we were down almost 300 basis points on on traffic um this year and this quarter, you know, we we delivered almost 2% sales growth on 2% pricing so you know we are we are moving the model to not be dependent on pricing and you know and and and and and we are making consistent sequential improvements in traffic.
And what that means is, you know, we're going to be able to compete and and really all macroeconomic environments for the last year.
Every calm, all the commentary has been about, you know, we've got this value oriented guessed this value, ored market can Shake Shack compete in that type of market and we're doing all the things in the heavy lifting to be able to compete and, you know, good times and bad. So Shake Shack is not going to be um, you know, a super volatile dependent upon the the the weather.
Rob Lynch: That is all around the culinary innovation and the marketing that we are putting behind it, and then the frequency that we are going to pick up because our guest satisfaction scores are so much better because our operations are so much better.
Terms of the of the guest moving forward. We're building a model that can sustain itself and drive consistent, traffic, growth moving forward, and that's all around the culinary Innovation. And the marketing that we're, we're putting behind it, and then, the frequency, that we are going to pick up because our guest satisfaction scores are so much better because our operations are so much better.
Christine Cho: Thank you. That is a really helpful color. Katie, can I just clarify with you? Is it fair to understand that the introduction of the higher end of the range of G&A guidance was related to this advertising and marketing plans associated with the paid media, or was there something else?
Okay, can I can I just clarify with you so is it fair to understand that the introduction of the higher end of the range of GMA Guidance with related to this advertising and marketing plans?
Katie Fogertey: Yeah. No. I mean, the majority of if you kind of look at the first part of this year, we have been tracking to about 11.7% of total revenue. With the industry and weather pressures in the first quarter, that was a little bit of a pressure. We are kind of expecting that same level to persist through the rest of the year, and that is really with this added media investment. I just want to make sure that it is very clear to everybody that we have not, we just launched this two weeks ago. We have not put any impact from what we are seeing right now in our top line or our margin guidance. We are making these investments because we do believe that they will drive sales, comp, and margin expansion, but that is not in the guidance today.
Associated with the paid Media or was there something else? Yes.
No. I mean, the majority of, if you kind of look at the first part of this year, we've been tracking to about 11.7% of total revenue. Um, you know, we with the industry and whether pressures in the first quarter kind of, uh, you know, that was a little bit of a pressure. We're kind of expecting that same level to persist through the rest of the year. And that is really with this added uh, media investment. I just want to make sure that it's very clear to everybody that we have not, you know, we just launched this uh 2 weeks ago. We have not put any impact um from what we're seeing right now in our top line, or our margin guidance. Um, we're making these Investments because we do believe that they will drive, uh, sales comp and margin expansion but that is not in the guidance today.
Operator: Our next question is from Michael Tamas with Oppenheimer & Company. Please proceed.
Christine Cho: Hi. Thanks. I just wanted to ask about the EBITDA guidance raised to $210 million to $220 million. As you just talked about, you have some higher G&A. You are making these investments a little bit lower pre-opening, but you maintained the revenue and restaurant margin guidance from last quarter. Can you help us understand what has changed within that outlook that allowed you to increase your guidance? Thanks.
Our next question is from Michael tammis with Oppenheimer and Company. Please proceed.
Katie Fogertey: Absolutely. As we've shown this year, we are tracking very well against our expectation to expand our restaurant margins to approximately 22.5%, and that is a range. So we're expecting to have continued strength in our restaurant margin throughout the rest of this year. In the comments I kind of talked about, we're tracking very solidly, strongly against the guidance for the approximately 22.5%. Again, that is an implied range, not an exact target.
Um, hi thanks. You know, I just wanted to ask about the the Eva dog guidance raised to 210 to 220 million dollars. Um, you know, as you talked about, you have some higher GNA. You're making these Investments a little bit lower pre-opening, but you maintained the revenue and restaurant margin guidance from last quarter. So can you help us understand what's changed? Within that Outlook that allows you to increase your guidance. Thanks.
Christine Cho: Gotcha. Thanks. The follow-up is you are obviously stepping up the intensity of marketing, the promotions, and the LTOs. Rob Lynch has mentioned in other calls that these actions are designed to be margin accretive, not dilutive. Can you just help us maybe understand how are they margin accretive? Has anything about the elevated commodity environment that you are seeing right now changed the way you are thinking about deploying any of these innovations that you already planned for? Thanks.
Yeah. Absolutely. I mean, as we've shown um, this year, we are tracking very well, um, against our expectation to um, expand our restaurant margins by, you know, to the approximately 22 and a half percent, and that is a range. So, um, we're expecting to have, you know, continued strength in our restaurant margin throughout the rest of this year. Um, and, you know, the comments, I kind of talked about, we're tracking very solidly strongly against the guidance, for the approximately 22 and a half percent. Um, and again, that is, you know, an implied range, not an exact target.
Gotcha, thanks and then follow up is, you know, you're you're obvious stepping up the intensity of marketing, the promotions and the lto. And you know, rob you mentioned in other calls that these actions are designed to be margin of creative, um, not dilutive and so, can you just help us? Maybe understand, you know, how are they margin accretive and, is there anything about the elevated commodity environment that you're seeing right now? It changed the way you're thinking about deploying any of these innovations that you already planned for.
Rob Lynch: Sure. The majority of the elevated commodity situation is in beef, and obviously, we sell a lot of beef. But we are able to mitigate a lot of that with productivity in our operations and in our supply chain. What we haven't talked about on this call a lot yet is the supply chain optimizations that we are actively working against and delivering. We've looked at every facet of our supply chain, our suppliers across all of our ingredients, our logistics and distribution network. We are very confident that we're going to be able to mitigate a lot of this beef inflation with supply chain and operational productivity. Specifically on how the marketing and the culinary innovation will be margin accretive is we're launching amazing, new-to-the-world type featured items that will be premium priced.
Sure. I mean the you know the majority of the elevated commodity situation is in beef and obviously you know, we sell a lot of beef. Um but we are able to mitigate a lot of that with productivity in our operations and in our supply chain. So you know what we haven't talked about on this call a lot yet, is the supply chain. Um optimizations that we are actively.
Rob Lynch: All the mix that flows from our burgers into this new innovation is going to be mix accretive and therefore margin accretive. Also, we have an opportunity just to create fixed cost leverage. Our sales have been in kind of the for the first half of the year, have been obviously in the 1.5% comp when you factor in both quarters. If we're going to deliver low single digits, we have to do a little bit better than that in the second half. As we continue to drive sales, we're going to continue to pick up some leverage, especially as we continue to get more efficient with our labor. We've committed in our long-range guide to continued margin accretion, and we're very confident that that is going to come to fruition despite the investment in marketing. We're really confident that we're going to continue to get more productive.
Working against and delivering. Um, we we've looked at every facet of our supply chain, our suppliers across all of our ingredients, our logistics and distribution networks. So we we are very confident that we're going to be able to mitigate um a lot of this, you know, beef inflation with uh supply chain and operational productivity on specifically on how the marketing. And and The Culinary Innovation will be margin accretive is we're launching like amazing new to the world type featured items that that will be premium priced and all the mix that flows from, you know, our Burgers into this new innovation is going to be mix, a creative and and therefore, um, margin of creative also, you know, we just, we have an opportunity just to create fixed fixed cost leverage. Um, you know our sales have been, um, you know, in in
In kind of the for the first half of the year have been in obviously in the 1 and a half percent comp when you when you factor in both quarters, if we're going to deliver low single digits, you know we have to do a little bit better than that in the second half and so as we continue to drive sales, we're going to continue to um pick up some some leverage especially as we continue to get more efficient with our labor. So um you know, we've we've committed in our long range. Um, guide to
Continued, margin accretion and we're very confident that that is going to come to fruition.
Despite the investment in, in, in, in marketing, um, we're really confident that we're going to continue to get more productive.
Operator: Our next question is from Sharon Zackfia with William Blair. Please proceed.
Christine Cho: Hi. Thanks. I wanted to ask more about the marketing plans and if there's any thought about maybe bifurcating the messaging. It seems like in the New York region, maybe it's more of a call to action and frequency dynamic, whereas the rest of the country still might be more brand awareness. How do you think about maybe micro-targeting geographically some of the messaging to yield the consumer behavior that you want?
Our next question is from Sharon zakayo with William. Blair, please proceed.
Rob Lynch: It is a great question, and it is actually what we are trying to do. This has kind of been our first test. We launched our media into about 15 different markets, and about half of them were Shake Shack focused, which was much more of a culinary brand-type message around come and get the Shake Shack. In eight other markets, we did Dollar Drinks, which really the intent there is to generate app downloads. We are seeing actually very high order, very high check on these Dollar Drink checks, actually. People are not coming in and just buying a Dollar Drink. The check total on our Dollar Drink transaction is about the same as our average total on our check. We are getting a lot of revenue from promoting Dollar Drinks. We wanted to test both of those messages in different markets to understand how each of them react.
The marketing plans and if there's kind of any thought about maybe bifurcating the messaging, it seems like kind of in the New York Region. Maybe it's more of a, you know, call to action and frequency Dynamic, whereas the rest of the country still might be more brand awareness. So how do you think about kind of maybe my microtargeting geographically some of the messaging to to kind of yield the consumer behavior that you want?
So it's a great question and um, it's actually what we're trying to do and, you know, this is kind of been our first test. We we we launched our media into about 15, different markets and about half of them were Dubai. Sheikh focused, which was much more of a culinary brand. Um type message around come and get, you know, Dubai Sheikh. And then in 8 other markets we did dollar drinks, which um, really the intent there is to to generate app downloads and we're seeing
Rob Lynch: Because once again, as I shared, we really have not done this on this brand before. We are gathering all this information, understanding how these different messages impact both our traffic as well as our check average. Moving forward, the media will be up against our big LTOs. Neither of these are the featured item of the quarter. Moving forward, we will start doing that. That will be primarily a brand and culinary product message that may or may not have a call to action or a featured price point. We are kind of entering into a new dynamic with marketing these things and targeting specific guests primarily in the digital channels with specific messages.
Actually, very high order, um, very high check on these dollar. Drink checks actually not. People aren't coming in and just buying a dollar drink. So, the, the, um, the, the check total on our dollar drink transaction is, is about the same as our average total on our checks. So we're getting a lot of revenue from promoting dollar drinks. So we, we wanted to test both of those message messages in different markets to understand how each of them react. Because once again, you know, as I shared, we really haven't.
Done this on this brand before. So, we're Gathering all this information understanding, um, about how these different messages impacts both our traffic, as well as our check average. And then moving forward, you know, this is the, the media will be up against our big ltos. Um, you know, the neither of these are, you know, the the, the featured item of the of the quarter, um, moving forward, we will start doing that. And that will be um primarily a
Brand. And, and culinary product message that may or may not have a call to action or a featured price point. So, um, this is, you know, we're we're kind of entering into a new
Dynamic, with, with marketing, these things and and and targeting specific guests primarily in the digital channels with specific messages.
Christine Cho: Thank you.
Thank you.
Rob Lynch: Thank you.
Operator: Our next question is from Jim Sanderson with Northcoast Research. Please proceed.
Thank you.
Christine Cho: Hey, thanks for the question. I just wanted to review your outlook on traffic. I think you started the year with about a negative 4.6% and improving ever since then. To get to the flattest traffic for the year implies 1% to 2% traffic growth in the current quarter and fourth quarter. Is that the right way to look at that?
Our next question is from Jim Sanderson with North Coast research. Please proceed.
Hey, thanks for the question. I just wanted to review your outlook on traffic. I think you started the year with a, about a negative -46, and improving every since then, but to get to the flattest traffic for the year, implies 1 to 2% traffic growth in the current quarter and fourth quarter is that the right way to look at that.
Katie Fogertey: Yes. So we have.
Operator: out the traffic guide for the full-year. What I will say is that our traffic has improved in every month, really coming out of the weather pressures that we had in Q2. Then, we did have a nice positive traffic in July as well with our 3.2% comp. What we have with menu innovation that is in our guidance today, and the potential, which is not in our guidance, for the lift from media, we are pretty encouraged by our traffic trends and the outlook for the rest of this year.
Conference Specialist: Okay. As a brief follow-up, you mentioned some marketing initiatives in the back half of July. Has that been a primary driver of the traffic improvement? Is there anything you can take away from your learnings that would help us to understand how that is moving traffic?
Yes. Uh, so we're not we haven't broken out. Um, the traffic guide for the full year, Jim, but what I would say is that our traffic has, um, improved. Um, and every month, um, you know, really coming out of the weather pressures that we had in, um, P2. And then, you know, we we did have nice positive traffic um, in July as well with our uh, 3.2% comp. Um so you know what? We have with menu Innovation. Um, that's in our guidance today and the potential which is not in our guidance for the Lyft from media. Um, we are, you know, pretty encouraged by our traffic Trends and the outlook for the rest of this year.
Operator: Yeah. I think it is a great, you know, July is a really great example when you just take a step back and you look at what we are doing overall. It is exactly what we have been talking about. It is about having compelling culinary out there. Then on top of it, starting to amplify that message. We did not have much of the media impact in July. A lot of this was really, most of the quarter was just launching our great culinary. Then towards the end of the month, we amplified it, as Rob Lynch talked about, in some of our major markets, around Dubai Shake. But we are really excited overall by what our culinary calendar and our media plan can do.
Okay, and there's a brief follow-up. You mentioned some marketing initiatives in the back half of July, has that been a primary driver of the traffic Improvement? Is there anything you can uh take away from your learnings, that would help us to understand how that is moving traffic.
Yeah, I think it's a great, you know, July is a really great example when you just take a step back and you look at what we're doing overall, you know, it's exactly what we've been talking about. It's about having compelling culinary out there and then on top of it, um, starting to, you know, amplify that message. Um, we didn't have, you know, much of the media impact in July. A lot of this was really, uh, most of the quarter was just, you know, launching our great culinary. Um, and then towards the end of the month, we um, Amplified it as Rob talked about and and, you know, some of our major markets um, around uh,
Rob Lynch: I think what we should call out is that the 3.2% is our period seven.
Operator: Yes.
Rob Lynch: Which runs through July 24th.
Operator: Yes.
Rob Lynch: So we turned the media on, right at the end of that. Although we are still, in July, we factored that the media was not baked into the 3.2% because our period ended. We have not disclosed the results of the media.
We haven't disclosed the results of the medium.
Melissa Calandruccio: Our next question is from Jake Bartlett with Truist Securities. Please proceed.
Allison Sternberg: Great. Thanks for taking the question. Mine is on the underlying same-source sales trends. I am thinking about the Dubai Shake and what that might have contributed. If you do the rough math, I think 50 shakes were offered a day. It would imply a pretty significant contribution to same-source sales. You saw a step up in July, but certainly not what that contribution might imply. So, maybe if you could talk about the impact of the Dubai Shake and then the underlying trends, whether there is some pressure that is offsetting the lift that you are getting from the Dubai Shake.
Our next question is from Jake. Bartlett with truist Securities. Please proceed.
Great, thanks for taking the question. Um, you know, mine is on the underlying um same for sales Trends. And I'm I'm thinking about the Dubai um Shake. Um, and what that might have contributed. Um, you do the rough math. I think 50 shakes were offered a day. It's um,
Take, um, it would it would imply a pretty significant um contribution to same for sales. Um, you saw a step up in in July but certainly not what that contribution, you know, might imply. So you maybe just if you could talk about the impact of the Dubai Sheikh to the and then the underlying Trends, whether there's, you know, some pressure that that's offsetting that the lift that you're getting from the Dubai Sheikh.
Rob Lynch: Yeah. I mean, I would tell you that the Dubai Shake has done exceptionally well. We are going to finish essentially selling as much as we forecasted to sell, but it was different in different markets and different Shacks. So it was not like every Shack did 50. Some Shacks, some regions did a little bit less. Some regions did more. In the end, like right now, with the media turned on the Dubai Shake, we have seen a very significant lift in our consumption of Dubai Shake. So, you know, we are confident that when we have great culinary and we market it, we can, we can, you know, sell it at the rate that you are describing. Up until the media, it probably was not 50 Dubai Shakes per Shack per day.
Yeah, I mean, I would tell you that, um, the Dubai Sheikh has done exceptionally well. We're going to finish, um, you know, essentially selling as much as we forecasted to sell.
Uh, but it was different in different markets and different Shacks. So it wasn't like every Shack did 50. Some Shacks in some regions did a little bit less; some regions did more. In the end, like right now, with the media turned on the Dubai Shake, we've seen a very significant lift in our consumption of Dubai Shake. So, um, you know, we are confident that when we have great culinary and we market it, we can.
We can, you know, sell it at the rate that you're describing up until the media. It probably wasn't 50 Dubai Shakes per Shack per day.
Allison Sternberg: Okay. As we think about the cadence throughout the quarter, you have the Dubai Shake benefiting July. You are doing some advertising on the Dubai Shake. How long is the Dubai Shake going to continue? I guess, as we look at the balance of the quarter, feel comfortable with the guidance. It seems like you have a big driver that might be going away, but maybe not. I just want to kind of understand what your plans are for the rest of the quarter.
Rob Lynch: Yeah. I mean, we cannot, we cannot be a one-trick pony, right? We have to continue with a consistent culinary innovation that drives traffic and put the media behind it. The Dubai Shake will run pretty much through the month of August. Then we have other innovation that comes right behind that that we are excited about and that we are going to continue to drive traffic. I think we were moving traffic in the right direction before the Dubai Shake. So, we have a lot of confidence in the pipeline, culinary pipeline to continue to do that.
Okay. And, and, you know, as we think about the, the Cadence throughout the quarter, you have the Dubai Sheikh is is benefiting July. Um, you're you're doing some advertising on the Dubai Sheikh. How, how long is the Dubai? Sheikh going to continue? Um, just, I guess as we look at the balance of the quarter feel comfortable with the guidance. Um, seems like you have a, a big driver that might be going away. But, but but maybe not and is when you can understand what your plans are for the rest of the quarter.
Yeah. I mean we can't we can't be a 1 truck Pony, right? I mean we have to continue with uh uh uh uh consistent culinary Innovation, that drives traffic and and put the media behind it. So um, the device shape will run pretty much through the month of August and then we've got, you know, other Innovation that comes right behind that that we're excited about. And um, that we're going to continue to to drive traffic. And I think, you know, we were moving traffic in the right direction before the Dubai Sheikh. So, um, you know, we have a lot of confidence in the pipeline culinary pipeline to continue to do that.
Melissa Calandruccio: Our next question is from Jeffrey Bernstein with Barclays. Please proceed.
Our next question is from Jeffrey Bernstein with Barkley's, please proceed.
Allison Sternberg: Great. Thank you very much. Rob, you talked a lot about the product innovation pipeline. I think you said you have 18 months that has been well tested. Obviously, that is exciting, and it is driving traffic. Obviously, that potentially butts heads with balancing that against the back-of-the-house complexity in order to still make sure that you are achieving speed of service and guest satisfaction scores. I was wondering, how do you manage that? I am wondering where the intersection is between marketing and operations just to make sure that one does not hurt the other. Then I had one follow-up.
Great, thank you very much.
Robbie talk a lot about the, uh, the product Innovation, um, pipeline. I think you said you have 18 months that's been well tested. Um, and obviously that's exciting, and it's driving traffic.
Obviously, that potentially butts heads with the, you know, balancing that against the back of the house complexity.
in order to still make sure that you're achieving speed of service and guest satisfaction scores just wondering, how do you how do you manage that um wondering whether where the intersection is between marketing and operations, just to make sure that uh 1 doesn't uh hurt the other and then I had 1 follow-up
Rob Lynch: That is a great question. I have been managing that balance my whole career, right? From Taco Bell to Arby's to Papa John's. I can tell you that one of our strengths at Shake Shack Inc. is that we make everything to order. That is a different model than kind of the streamlined assembly line. We have definitely improved our productivity and our efficiency of our core menu operations. We also have flexibility given just the necessity of the model to be able to flex. We have not only tested this, the innovation pipeline with our guests, we have also operationally tested it, embedded it.
That was a great question. And, you know, I've been managing that balance in my whole career right from Taco Bell to Arby's to Papa John's. And you know, I can tell you that 1 of our strengths at uh, Shake Shack is that, you know, we make everything to order and so that is a different model than kind of the streamlined assembly line. I mean, we have definitely improved our productivity and our efficiency of our core menu operations, but we also have flexibility given just the the necessity of the model to be able to flex. So we we have um, not only tested this, The Innovation Pipeline with our guests. We've also
Rob Lynch: Before anything goes out and is launched, we have put it through both supply chain as well as operational tests to make sure that it is not going to create problems and mitigate all the great work that we have done around getting productivity out of our operations.
Operationally tested it and vetted it before. Anything goes out is launched. We've put it through both supply chain as well as operational. Um test to make sure that it's not going to do not going to create, um, problems and and mitigate all the great work that we've done around getting productivity out of our out of our operations.
Allison Sternberg: Got it. My follow-up is just on the most recent trends. It is obviously encouraging to see the 3% plus in July. That does not even incorporate perhaps the last week, which sounds like could have been even stronger. We had heard from a couple of others that maybe after several months of industry improvement, that maybe July was proven to be a little bit choppier or maybe some slowdowns. I am wondering if you were to look at your underlying business, take out kind of the Dubai benefit, do you think that the consumer continues to get better and we should assume broader industry improvement in the coming months? Have you seen any sign of maybe a change in behavior, after the momentum we had seen since what Katie Fogertey mentioned was the weather issues in February?
Got it. And my follow-up is just on the the most recent
To be a little bit choppier or maybe some slowdowns. I'm wondering how you if you would look at your underlying business.
Allison Sternberg: Just wondering how you see the underlying momentum for the broader industry, continuing through the third quarter. Thank you.
Take out kind of the Dubai benefit. I mean, do you think that the consumer continues to get better and we should assume broader industry Improvement in coming months. So you have you seen any sign of maybe a change in behavior? Um, after the momentum we had seen since, uh, what Katie mentioned was the weather issues in February just wondering.
Rob Lynch: I can kind of only speak to Shake Shack and our guests. We have seen consistent sequential improvement in our traffic. We have seen a willingness to buy a $10 shake, which is the most expensive shake that we have ever launched. We have seen, we have a lot of confidence that our guests continue to see a lot of value in our offerings, whether it is our core menu or our LTOs. That is why we are so confident in continuing to drive traffic in the back half and moving forward.
How you see the underlying momentum for the broader industry? Uh, continuing through the third quarter, thank you.
Yeah. I mean I I can kind of only speak to to Shake Shack and and and our guests I mean, we have seen consistent sequential improvement in our traffic. We've seen um a willingness to buy a ten dollar Shake which is the most expensive shake that we've ever launched. Um so we we've seen you know we have a lot of confidence that that our guests continue to Phi see a lot of value and and our offerings, whether it's our core menu or our lto. And that's why we're so confident in continuing to drive traffic in the back, half and moving forward.
Melissa Calandruccio: Our next question is from Jeff Farmer with Gordon Haskett. Please proceed.
Allison Sternberg: Thanks. Thanks and good morning. You guys did touch on it a little bit, but just following up on the standardized scorecard. Two questions. When was that fully rolled out to the system, and what actions are taken for some of the lower performing scorecard restaurants?
Our next question is from Jeff Farmer with Gordon Haskett. Please proceed. Uh, thanks, and good morning. You guys did touch on it a little bit, but just following up on the standardized scorecard. Um, two questions. So when was that fully rolled out to the system, and what actions are taken for some of the lower-performing scorecard restaurants?
Rob Lynch: Yeah. I mean, that was rolled out late last year. And we also made a couple changes to the structure and the leadership model in the operations team right around that period as well. There is no hiding from the scorecard. It is very clear who is delivering on the KPIs that matter and where there are opportunities. I can tell you that our operations team has built a very disciplined model where they are using that scorecard literally, where Stephanie is sitting down with her four VPs every week and going through the scorecard in their regions and identifying where we are doing good and where we have opportunities. Then those VPs are going to their regional directors and doing the same thing. And those regional directors are going to their area directors.
Rob Lynch: So it has just become a very disciplined operating model to identify where we have opportunities to improve. Then we are committed to the development of our leaders and building this culture of leaders. So where there are opportunities, we are working with those leaders to identify what is causing those challenges and to mitigate them. It is like Thomas Edison's strategy without execution is hallucination, right? So we have become a very strong executing company. And that is why there is not going to be a lot of volatility here in these labor numbers. I mean, we have built a disciplined model. And that is why we have so much confidence moving forward because it is what we have talked about for the last year. It is literally the backbone of everything we do.
Yeah. I mean, that was rolled out, um, you know, late last year and, and, you know, we also made a couple changes to the the structure and the leadership model in the operations team, um, right around that period as well. And so, you know it, there's no hiding from the scorecard. It it, it's very clear, you know, who's delivering on the kpis that matter and, and where there's opportunities. And I can tell you that our operations team has built a very disciplined model where they're using that scorecard. Literally, where Stephanie is sitting down with, you know, her 4 vs every week and going through the scorecard in their regions. And identifying, you know, where we're, where we're doing good and where we have opportunities and then those VPS are going to their regional directors and doing the same thing, and those regional directors are going to their area directors. So it's just become a very disciplined operating model to identify
Um, where we have opportunities to improve, and then, you know, we're committed to the development of of our leaders in building this culture of leaders. So where there's opportunities, you know, we're working with those leaders to identify what's causing those challenges and, and to to mitigate them, um, you know, it's like Thomas Edison strategy without execution is hallucination, right? So we've become a very strong executing, um, company. And that's why
Rob Lynch: And we have so much confidence in the people leading that group and the way they are leading it that it affords us the opportunity to go and spend some resources in the supply chain to improve our COGs. I mean, we are running labor right around 26%. COGs are running 28% to 29%. We think there is opportunity in COGs because of the work we are doing in the supply chain. But we could not do that if our operations were not running so seamlessly. We would not be making investments in driving guests into our Shacks with marketing because we would not be getting the returns on those investments if we were not flowing through to the bottom line. So, our operations are at the heart of everything we do. Jamie Griffin, our new Chief People Officer, he is an operations people officer.
Why, you know, there's not going to be a lot of volatility here in these labor numbers. I mean we are we've built a disciplined model and that's why we have so much confidence moving forward because it is it is you know what we've talked about for the last year, it is literally the backbone of everything we do and we have so much confidence in the people leading that group and the way they're leading it, that it, affords us, the opportunity to go and spend some resources in the supply chain to improve our cogs. I mean, we're running labor, you know, right around 26% cogs are running 28 to 29%, we think there's opportunity in cogs because the work we're doing in the supply chain but we couldn't do that if our operations weren't running. Um, so seamlessly we wouldn't be making Investments and driving guests.
Rob Lynch: His whole job is building a pipeline of leaders that can open up all of our new Shacks and making sure that we have the development programs in place to continue to have a pipeline of managers and Assistant Managers who can run these restaurants at the peak level. So we have made those investments. We are really confident with where we are. And that has afforded us the opportunity to move on to investing in driving the sales.
Into our Shacks with marketing because we wouldn't be getting the Returns on those Investments if we weren't flowing through to the bottom line. So, um, our operations are at the heart of everything we do. Jamie Griffin. Our new Chief people officer. He is a operations people officer. His, his whole job is building a pipeline of leaders that can open up all of our new shacks and making sure that we have the development programs in place to continue to have a pipeline of managers and assistant managers who can run these restaurants um, at the peak level. So we're made we've made those Investments. We're really confident with where we are and that's that's afforded us the opportunity to move.
Allison Sternberg: Thank you for that. Just as a quick follow-up, again, from a regional perspective, New York City and the Northeast continue to underperform. The question is to you guys, what is the opportunity to narrow that spread in coming quarters? Is there something structural that is holding that underperformance spread in place, or is there something you can do to bring up those two very important markets for you, the New York City area and the Northeast, to improve or narrow that spread versus the rest of the system?
Bond investing and driving the sales.
Uh, thank you for that for that and just as a quick follow-up. So again, um, from a regional perspective, New York City and in the Northeast,
Rob Lynch: I think it's a great question, but we have to be careful about what we talk about when we say underperform. I mean, those regions, in particular New York City, are our highest AUV restaurants with our highest margins. So they are great restaurants. They'd be the envy of a lot of systems, $10 million restaurants flowing through, 35% plus. So they are performing. Their comp contribution may not be as significant as in the other markets throughout the country. So, we got to work on that. We got to understand what the challenges are there. But I think at least our assessment would say that some of those challenges are more macro around some of the things that are impacting those regions as opposed to maybe some of the other regions that are growing much more, much faster.
Those 2, very important markets for you. The New York City area, and the Northeast to, to improve or narrow, that spread versus the rest of the system.
Rob Lynch: So, we're trying to take all that into context and make the right decisions. But there are a lot of really good restaurants in New York and in the Northeast that we want to make sure we don't, we don't cut off our nose to spite our face.
I I think it's a great question, but we have to be careful about what we talk about when we say underperform, right? I mean those regions in particular, New York City are highest auv restaurants with our highest margins, so they are great restaurants. They'd be the Envy of a lot of systems, you know, 10 million restaurants flowing through 35% plus. So so they are performing um their comp contribution may not be as significant as in the other markets throughout the country. And so yeah, we got to work on that. We got to understand what the challenges are there, but I think at least our assessment would say that some of those challenges are more macro around some of the the things that are impacting those regions as opposed to maybe some of the other regions that are growing much more, um, much, you know, much faster. So, um, we're trying to take all that into context and make the right decisions, but there are a lot of really good restaurants in New York and and
In the Northeast that we want to make sure we don't, we don't um, you know, cut off our nose to spider face.
Melissa Calandruccio: Our next question is from Daniel Guglielmo with BTIG. Please proceed.
Our next question is from Daniel gulo with capital 1 Securities. Please proceed.
Rob Lynch: Hi, everyone. Thank you for taking my question. On the three-year financial targets of the four, do any of them have serious momentum to come in above target? I only ask because when I model out to 2027, I do bump up against the targets, and I am always hesitant to push higher than the team's communicated goals.
Hi everyone. Thank you for taking my question.
On the the 3 year Financial Target of the 4. Do any of them have serious momentum to come in above Target? Uh, I only asked because when I model out to 2027 I do bump up against the targets and I'm always hesitant to push higher than a team's communicated goals.
Rob Lynch: I mean, that's a pretty good problem to have, you know.
Melissa Calandruccio: Yeah. I would just say these are our targets. We have shared our strategic priorities and our progress against them. We are committed to continuing to grow our new Shack openings and continuing to find additional areas of productivity, as well as investing in marketing to drive traffic that will also generate additional productivity for our restaurants. Finally, we expect all of this to fall down nicely to pretty strong adjusted EBITDA growth.
I mean, that's that's a pretty good problem to have. Um, we, you know, I would, I would just say these are our targets. Um, and you know, we've shared our strategic priorities and our progress, um, against them. Um, we are committed to continuing to grow our uh, new Shack openings and continuing to find, um, additional um, areas productivity, as well as investing in marketing to drive traffic that will also generate, um, additional productivity for our restaurants. Um, and finally, we expect all of this to, um, fall down, nicely to, um, you know, pretty strong adjustability to growth.
Rob Lynch: Great. Thank you.
Great. Thank you.
Melissa Calandruccio: We have reached the end of our question and answer session, and that will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
We have reached the end of our question and answer session and that will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.