Shake Shack Announces Second Quarter 2016 Financial Results

NEW YORK–(hospitalitybusinessnews.com)–Shake Shack Inc., today reported financial results for the second quarter ended June 29, 2016, a period that included 13 weeks.

Financial Highlights for the Second Quarter 2016:

  • Total revenue increased 37.2% to $66.5 million.
  • Shack sales increased 38.3% to $64.4 million.
  • Same-Shack sales increased 4.5%.
  • Shack-level operating profit*, a non-GAAP measure, increased 40.6% to $19.9 million, or 30.8% of Shack sales.
  • Adjusted EBITDA*, a non-GAAP measure, increased 39.3% to $15.6 million.
  • Net income was $3.3 million, or $0.14 per diluted share.
  • Adjusted pro forma net income*, a non-GAAP measure, increased 51.9% to $5.2 million, or $0.14 per fully exchanged and diluted share, compared to $3.4 million, or $0.09 per fully exchanged and diluted share in the prior year period.
  • Seven system-wide Shack openings, including four domestic company-operated Shacks and three licensed Shacks.

* Shack-level operating profit, adjusted EBITDA and adjusted pro forma net income are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income (loss), adjusted EBITDA to net income (loss), and adjusted pro forma net income to net income (loss), the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”

Randy Garutti, Chief Executive Officer of Shake Shack, stated, “For the second quarter, we increased revenue over 2015 by 37.2%, opened four new company-operated Shacks domestically, three licensed Shacks and grew comps by 4.5%, on top of an impressive 12.9% increase last year. We continue to execute on our growth strategy, while delivering industry-leading AUVs and, in this past quarter, our 30.8% Shack-level operating profit margin set a new record. Innovating around our core menu continues to be a key driver of our success with the addition of our Chick’n Shack, launched in January, and our most recent LTO, the Bacon Cheddar Shack, launched in June.”

Garutti continued, “Domestically, given favorable development tailwinds in our 2016 pipeline, we have increased guidance to open 18 domestic company-operated Shacks this year. Next week we will reach a milestone of our 100th Shack opening worldwide. We have never been more excited about the opportunities ahead of us and are committed to investing in our team as we envision and execute the next 100 great Shacks.”

Development Highlights

During the quarter, the Company opened four domestic company-operated Shacks, including a Shack in the Fashion Centre at Pentagon City, two Shacks in New York — a Shack in the iconic Herald Square and a second Queens Shack located in Forest Hills —as well as the Company’s first Shack in Minnesota, located in the Mall of America. Additionally, the Company opened one domestic licensed Shack in the Las Vegas market at the T-Mobile Arena and two international licensed Shacks—a second Shack in the Japan market in Ebisu and the Company’s first Shack in Bahrain at the Bahrain City Centre shopping center.

Location Type Opening Date
Muscat, Oman — City Centre Muscat International Licensed February 6
Scottsdale, AZ — Fashion Square Domestic Company-Operated February 26
Phoenix, AZ — Uptown Plaza Domestic Company-Operated March 9
West Hollywood, CA — West Hollywood Domestic Company-Operated March 15
Las Vegas, NV — T-Mobile Arena Domestic Licensed April 6
Tokyo, Japan — Ebisu Atre West International Licensed April 15
Manama, Bahrain — City Centre Bahrain International Licensed April 30
Arlington, VA — Fashion Centre at Pentagon City Domestic Company-Operated May 4
New York, NY — Herald Square Domestic Company-Operated May 18
Forest Hills, NY — Forest HIlls Domestic Company-Operated May 26
Bloomington, MN — Mall of America Domestic Company-Operated June 9

Subsequent to the end of the quarter, the Company opened two domestic company-operated Shacks in New York— a Manhattan Shack located at the Fulton Transit Center and the Company’s first Shack in Westchester at the Cross County Shopping Center. Additionally, the Company opened two international licensed Shacks including a Shack located at the Marina Mall in Abu Dhabi as well as the Company’s first Shack in South Korea.

Second Quarter 2016 Review

Total revenue, which includes Shack sales and licensing revenue, increased 37.2% to $66.5 million in the second quarter of 2016, from $48.5 million for the second quarter of 2015. Shack sales for the second quarter of 2016 were $64.4 million, an increase of 38.3% from $46.6 million in the same quarter last year, due primarily to the opening of new Shacks, as well as same-Shack sales growth. Licensing revenue for the second quarter was $2.1 million, an increase of 10.7% from $1.9 million in the same quarter last year, due primarily to the opening of new licensed Shacks, offset by lower revenue from Shacks located primarily in the Middle East.

Same-Shack sales increased 4.5% for the second quarter of 2016 versus 12.9% growth in the second quarter last year. The comparable Shack base includes those restaurants open for 24 months or longer. For the second quarter of 2016, the comparable Shack base included 23 Shacks versus 16 Shacks for the second quarter of 2015.

Average weekly sales for domestic company-operated Shacks remained constant at $102,000 for the second quarter of 2016 compared to the same quarter last year.

Shack-level operating profit, a non-GAAP measure, increased 40.6% to $19.9 million for the second quarter of 2016 from $14.1 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins increased 50 basis points to 30.8% as we experienced higher flow through from lower than anticipated food costs and the leveraging of labor and related expenses on the increased Shack sales. A reconciliation of Shack-level operating profit to operating income (loss), the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”

General and administrative expenses increased to $7.5 million for the second quarter of 2016 from $6.1 million in the same quarter last year. As a percentage of total revenue, general and administrative expenses decreased to 11.3% for the second quarter of 2016 from 12.5% in the second quarter last year, primarily due to the benefit of higher Shack sales, offset by higher consulting fees and incremental costs associated with our first annual shareholders’ meeting.

Adjusted EBITDA, a non-GAAP measure, increased 39.3% to $15.6 million. As a percent of total revenue, adjusted EBITDA margins increased approximately 40 basis points to 23.5% compared to 23.1% for the year ago period. A reconciliation of adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”

Net income was $3.3 million, or $0.14 per diluted share, for the second quarter of 2016, compared to net income of $1.1 million, or $0.08 per diluted share, for the same period last year.

Adjusted pro forma net income, a non-GAAP measure, increased 51.9% to $5.2 million, or $0.14 per fully exchanged and diluted share during the second quarter of 2016, compared to $3.4 million, or $0.09 per diluted share during the second quarter of 2015. A reconciliation between net income (loss) and adjusted pro forma net income is included in the accompanying financial data.

Updated 2016 Outlook

For the fiscal year ending December 28, 2016, the Company is revising its financial outlook to the following:

  • Total revenue between $253 million and $256 million (vs. $245 million to $249 million).
  • Same-Shack sales growth between 4% and 5%.
  • 18 (vs. 16) total new domestic company-operated Shacks to be opened in 2016.
  • Seven licensed Shacks, net of a relocation (an increase of one Shack from the previous guidance).
  • Approximately 50 basis points (vs. 75 to 100 basis points) of deleverage in labor and related expenses as a percentage of Shack sales, on a year-over-year basis.
  • Adjusted pro forma effective tax rate between 40% and 41%.

 

SHAKE SHACK INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)

(in thousands, except per share amounts)

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 29, 2016 July 1, 2015 June 29, 2016 July 1, 2015
Shack sales $ 64,406 96.9 % $ 46,583 96.1 % $ 116,559 96.6 % $ 82,630 95.8 %
Licensing revenue 2,066 3.1 % 1,867 3.9 % 4,078 3.4 % 3,628 4.2 %
TOTAL REVENUE 66,472 100.0 % 48,450 100.0 % 120,637 100.0 % 86,258 100.0 %
Shack-level operating expenses(1):
Food and paper costs 18,104 28.1 % 13,717 29.4 % 33,136 28.4 % 24,721 29.9 %
Labor and related expenses 15,262 23.7 % 11,168 24.0 % 28,424 24.4 % 20,269 24.5 %
Other operating expenses 5,979 9.3 % 3,723 8.0 % 10,898 9.3 % 7,203 8.7 %
Occupancy and related expenses 5,209 8.1 % 3,859 8.3 % 9,532 8.2 % 7,042 8.5 %
General and administrative expenses 7,496 11.3 % 6,052 12.5 % 14,380 11.9 % 24,437 28.3 %
Depreciation expense 3,404 5.1 % 2,447 5.1 % 6,510 5.4 % 4,638 5.4 %
Pre-opening costs 2,085 3.1 % 1,240 2.6 % 4,110 3.4 % 2,653 3.1 %
TOTAL EXPENSES 57,539 86.6 % 42,206 87.1 % 106,990 88.7 % 90,963 105.5 %
OPERATING INCOME (LOSS) 8,933 13.4 % 6,244 12.9 % 13,647 11.3 % (4,705 ) (5.5 )%
Interest expense, net 68 0.1 % 84 0.2 % 132 0.1 % 162 0.2 %
INCOME (LOSS) BEFORE INCOME TAXES 8,865 13.3 % 6,160 12.7 % 13,515 11.2 % (4,867 ) (5.6 )%
Income tax expense 2,316 3.5 % 1,015 2.1 % 3,615 3.0 % 1,248 1.4 %
NET INCOME (LOSS) 6,549 9.9 % 5,145 10.6 % 9,900 8.2 % (6,115 ) (7.1 )%
Less: net income attributable to non-controlling interests 3,251 4.9 % 4,027 8.3 % 5,140 4.3 % 5,435 6.3 %
NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ 3,298 5.0 % $ 1,118 2.3 % $ 4,760 3.9 % $ (11,550 ) (13.4 )%
Earnings (loss) per share of Class A common stock:
Basic $ 0.15 $ 0.09 $ 0.22 $ (0.96 )
Diluted $ 0.14 $ 0.08 $ 0.22 $ (0.96 )
Weighted-average shares of Class A common stock outstanding:
Basic 22,553 12,058 21,453 12,006
Diluted 23,050 13,339 21,931 12,006

_____________

(1) As a percentage of Shack sales.

SHAKE SHACK INC.
SELECTED BALANCE SHEET DATA AND OPERATING DATA
(UNAUDITED)

(dollar amounts in thousands)

June 29,
2016
December 30,
2015
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents $ 68,371 $ 70,849
Total assets $ 467,367 $ 379,547
Total liabilities $ 288,738 $ 222,528
Total equity $ 178,629 $ 157,019
Thirteen Weeks Ended Twenty-Six Weeks Ended
June 29,
2016
July 1,
2015
June 29,
2016
July 1,
2015
SELECTED OPERATING DATA:
Same-Shack sales growth 4.5 % 12.9 % 6.9 % 12.4 %
Shacks in the comparable base 23 16 23 16
Shack system-wide sales $ 95,888 $ 73,944 $ 179,185 $ 138,247
Average weekly sales
Domestic company-operated $ 102 $ 102 $ 96 $ 96
Shack-level operating profit $ 19,852 $ 14,116 $ 34,569 $ 23,395
Shack-level operating profit margin 30.8 % 30.3 % 29.7 % 28.3 %
Adjusted EBITDA $ 15,609 $ 11,209 $ 26,412 $ 18,207
Adjusted EBITDA margin 23.5 % 23.1 % 21.9 % 21.1 %
Capital expenditures $ 12,420 $ 8,371 $ 26,548 $ 16,929
Shack counts (at end of period):
System-wide 95 71 95 71
Domestic company-operated 51 37 51 37
Domestic licensed 6 5 6 5
International licensed 38 29 38 29

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses the following non-GAAP financial measures: Shack-level operating profit, EBITDA, adjusted EBITDA, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the “non-GAAP financial measures”). The Company believes that these non-GAAP financial measures, when used in conjunction with GAAP financial measures, provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The non-GAAP measures used by the Company are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation.

Shack-Level Operating Profit

Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance and are not required by, nor presented in accordance with, GAAP. The Company believes that Shack-level operating profit and Shack-level operating profit margin, when used in conjunction with GAAP financial measures, are important measures used to by management to evaluate the performance and profitability of each Shack, individually and in the aggregate. A reconciliation of Shack-level operating profit to operating income (loss), the most directly comparable GAAP measure, is set forth below.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(dollar amounts in thousands)

June 29,
2016
July 1,
2015
June 29,
2016
July 1,
2015
Shack-level operating profit $ 19,852 $ 14,116 $ 34,569 $ 23,395
Add:
Licensing revenue 2,066 1,867 4,078 3,628
Less:
General and administrative expenses 7,496 6,052 14,380 24,437
Depreciation expense 3,404 2,447 6,510 4,638
Pre-opening costs 2,085 1,240 4,110 2,653
Operating income (loss) $ 8,933 $ 6,244 $ 13,647 $ (4,705 )
Total revenue $ 66,472 $ 48,450 $ 120,637 $ 86,258
Less: licensing revenue 2,066 1,867 4,078 3,628
Shack sales $ 64,406 $ 46,583 $ 116,559 $ 82,630
Shack-level operating profit margin 30.8 % 30.3 % 29.7 % 28.3 %

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA are non-GAAP supplemental measures of operating performance that do not represent and should not be considered alternatives to net income (loss) or cash flow from operations, as determined by GAAP. EBITDA and Adjusted EBITDA are used by management to measure the operating performance of their business, excluding specifically identified items that management believes do not directly reflect their core operations. A reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is set forth below.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(in thousands)

June 29,
2016
July 1,
2015
June 29,
2016
July 1,
2015
Net income (loss) $ 6,549 $ 5,145 $ 9,900 $ (6,115 )
Depreciation expense 3,404 2,447 6,510 4,638
Interest expense, net 68 84 132 162
Income tax expense 2,316 1,015 3,615 1,248
EBITDA 12,337 8,691 20,157 (67 )
Equity-based compensation(1) 1,210 1,178 2,240 1,970
Pre-opening costs(2) 1,405 927 2,768 1,882
Deferred rent(3) 657 413 1,247 969
Non-recurring compensation expenses related to the IPO(4) 12,818
IPO-related expenses(5) 635
ADJUSTED EBITDA $ 15,609 $ 11,209 $ 26,412 $ 18,207

________________

(1) Represents non-cash equity-based compensation expense and relate solely to stock options and performance stock units granted subsequent to the Company’s IPO.
(2) Non-capital expenditures associated with opening new Shacks exclusive of deferred rent expense incurred prior to opening.
(3) Reflects the extent to which rent expense is greater than or less than cash rent payments.
(4) Non-recurring compensation expense incurred in connection with the Company’s IPO. Includes expense recognized upon settlement of outstanding unit appreciation rights, the related employer withholding taxes and the accelerated vesting of outstanding restricted Class B units.
(5) Costs incurred in connection with the Company’s IPO, including legal, accounting and other related expenses.

SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)

Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share

Adjusted pro forma net income represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests (“LLC Interests”) for shares of Class A common stock, adjusted for certain non-recurring items that management believes do not directly reflect their core operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding stock options.

Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that do not represent and should not be considered alternatives to net income (loss) and earnings (loss) per share, as determined by GAAP. Management believes adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share supplement GAAP measures and enables them to more effectively evaluate their performance period-over-period and relative to competitors. A reconciliation of adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.

Thirteen Weeks Ended Twenty-Six Weeks Ended

(in thousands, except per share amounts)

June 29,
2016
July 1,
2015
June 29,
2016
July 1,
2015
Numerator:
Net income (loss) attributable to Shake Shack Inc. $ 3,298 $ 1,118 $ 4,760 $ (11,550 )
Adjustments:

Reallocation of net income attributable to non-controlling interests from the
assumed exchange of LLC Interests(1)

3,251 4,027 5,140 5,435
Non-recurring compensation expenses incurred in connection with the IPO(2) 12,818
IPO-related expenses(3) 635
Income tax expense(4) (1,310 ) (1,696 ) (1,853 ) (2,579 )
Adjusted pro forma net income $ 5,239 $ 3,449 $ 8,047 $ 4,759
Denominator:
Weighted-average shares of Class A common stock outstanding—diluted 23,050 13,339 21,931 12,006
Adjustments:
Assumed exchange of LLC Interests for shares of Class A common stock(1) 13,748 24,192 14,824 24,192
Dilutive effect of stock options 1,093

Adjusted pro forma fully exchanged weighted-average shares of Class A
common stock outstanding—diluted

36,798 37,531 36,755 37,291
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.14 $ 0.09 $ 0.22 $ 0.13
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