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Shake Shack (SHAK) Q2 Earnings Top, Same-Store Sales Decline


Shake Shack Inc. SHAK posted strong second-quarter 2017 results, wherein both earnings and revenues beat the Zacks Consensus Estimate.

However, the company’s shares have dropped nearly 1% in afterhours trading on Aug 3 as comps declined in the quarter.

Earnings and Revenue Discussion

Shake Shack’s adjusted earnings of 20 cents per share surpassed the Zacks Consensus Estimate of 16 cents by 25%, and climbed 42.9% year over year. The year -over-year growth reflects an increase in revenues.

Revenues surged 37.4% year over year to $91.3 million and topped the Zacks Consensus Estimate of $89.9 million by 1.6%. An increase in Shack sales and licensing revenues, led to the improvement.

Shake Shack, Inc. Price, Consensus and EPS Surprise

Behind the Headline Numbers

Same-Shack sales (or comps) declined 1.8% year over year, due to a 4.3% decrease in guest traffic partly offset by a combined increase in price and sales mix of 2.5%. Comps compared favorably with prior-quarter comps decline of 2.5%, and unfavorably with the prior-year quarter rise of 4.3%.

Notably, unfavorable weather conditions in the Northeast region that makes up a high percentage of the company’s sales have hurt comps.

Total operating expenses, as a percentage of revenues, increased 50 basis points (bps) to 87.1% mainly on a 180 bps increase in labor costs, 30 bps rise in other operating expenses and 70 bps increase in depreciation expenses.

However, these were somewhat offset by a decline of 70 bps and 100 bps in general and administrative expenses (G&A) and pre-opening costs, respectively.

As a percentage of Shack sales, Shack-level operating profit margins decreased 200 bps to 28.8% primarily due to increased labor and related expenses.

Adjusted EBITDA (earning before interest, tax, depreciation and amortization) surged 36.4% to $19.4 million. However, as a percentage of total revenue, adjusted EBITDA margins decreased roughly 20 bps to 21.2% from 21.4% in the year-ago quarter.

2017 Outlook

The company continues to expect revenues in the range of $351 million to $355 million.

Meanwhile, it projects Same-Shack sales to decrease between 2% and 3%, down from the previous expectation of comps being flat year over year. Notably, this includes roughly 1.5% to 2% of menu price increases taken at the end of Dec 2016.

Shack-level operating profit margin is still guided between 26.5% and 27.5%, while general and administrative expenses are anticipated between $38 million and $40 million.

The company continues to expect opening of 23 to 24 new domestic company-operated Shacks in 2017. Currently, it expects 15 net new licensed Shacks, up from 12 announced earlier.

Zacks Rank & Peer Releases

Shake Shack currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other restaurant stocks, McDonald's Corp. MCD reported second-quarter adjusted earnings per share of $1.73, beating the Zacks Consensus Estimate of $1.62 by 6.79%. The bottom line also increased 19% year over year.

Chipotle Mexican Grill, Inc.’s CMG second-quarter 2017 adjusted earnings were $2.32 per share, which outpaced the Zacks Consensus Estimate of $2.16 by 7.41%. Also, earnings compared favorably with the year-ago quarter figure of 87 cents per share, given a substantial rise in revenues.

In second-quarter 2017, Domino’s Pizza, Inc. DPZ posted earnings of $1.32 per share, which outpaced the Zacks Consensus Estimate of $1.22 by 8.20%. Furthermore, earnings increased 34.7% year over year on strong sales and a lower share count.

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