Shake Shack is optimistic as sales and margins improveShake Shack is optimistic as sales and margins improve

Shake Shack, whose core markets are city centers, was hit particularly hard by the pandemic, but the New York City-based chain is rebounding and its executives are upbeat about 2023, when they plan to open around 40 domestic company-owned restaurants and 25-30 licensed units abroad.

The chain closed out 2022 with a total of 436 locations globally, including 285 in the United States. That’s 36 more domestic restaurants and 33 more licensed units than at the end of 2021.

“All of the momentum’s in the right direction,” CEO Randy Garutti told attendees of the ICR conference in Orlando. “Some of the return to travel, work, events, things like this, are all the right things for Shake Shack’s momentum.”

According to unaudited preliminary results for the fourth quarter ended Dec. 28, 2022, the chain saw total revenue of $238.5 million and $900.5 million for the fiscal year, on systemwide sales of $364.1 million for the quarter and $31.2 million for the year. Same-store sales were up by 5.1% for the quarter and 7.8% for the year, and the profit margin for the fourth quarter was 19%, the highest since the start of the pandemic, exceeding expectations.

The margin for the year was around 17%.

Garutti said most of the margin gains came from people returning to eating in the restaurants rather than ordering takeout.

Chief financial officer Katie Fogertey gave conference attendees guidance for the first quarter of 2023. She said Shake Shack’s revenue would be between $234.5 and $243 million with same-store sales growth in the mid to high single digits, percentagewise. She said margins would be 16%-!8% and that 6-8 corporate domestic restaurants would open, along with 5-8 licensed restaurants abroad.

Garutti said unit growth would mostly be driven using the chain’s core standalone format, with buildout costs of around $2 million, but there would also be small-format locations for food courts, urban centers and some suburban locations. The chain now has 23 airport locations, including the first one with a bar in Denver, and four units in roadside travel plazas.

He also was bullish on drive-thrus, of which 11 are now open, most of them in the most recent quarter. They cost more to build — around $2.4 million to $3 million — but have higher average unit volumes. He said the target AUV for drive-thrus is $4 million, and some are tracking even higher than that.

Systemwide AUVs are $2.8 million to $3.2 million.

“We still feel like we are learning at a massive clip, day in and day out,” when it comes to drive-thrus, Garutti said, adding that he plans to open 10-15 more of them this year.

“We think that this will be a critical part of our growth moving forward,” he said.

In terms of technology, most locations now have ordering kiosks, which improve margins and help reduce labor costs. Most of the remaining 60 or so restaurants without kiosks will have them by the end of the year, he said.

Menu innovation for the coming year include a new white truffle menu — including a beef burger, fries and a mushroom burger — that will debut in the first quarter.

Contact Bret Thorn at [email protected]