Can Shake Shack’s Menu Deliver Tasty Returns?

Shake Shack Inc. (NYSE:SHAK), which started as a hot dog cart, has expanded into a fast food casual restaurant chain known for its high-quality ingredients. Contemporary and community-oriented products, which are the brand’s key characteristics, are helping to drive global expansion.

The company has over 520 locations now around the world, including more than 335 in the United States and 185 international outlets across various major cities​.

It has opened 41 domestic company-operated Shacks, including 18 drive-thrus, and 44 licensed Shacks in the last fiscal year.

All those positives have left some wondering, can you invest in Shake Shack? Yes, Shack Shack shares can be purchased under the ticker symbol SHAK through any broker using a market or limit order.

But is it worth buying shares in this burger brand?

What is Shake Shack’s Growth Plan?

Shake Shack’s 2023 followed a gutsy development strategy that targeted new location openings worldwide. That trend is expected to continue with management planning to open 40 new locations this year.

A key to the success of the brand has been customized experiences, as well as employing really user-friendly digital checkout options. If you have ever ordered using the Shack Shack mobile app, you will know it’s about as good as user experience as you can get when ordering ahead.

For the most part, capital investments are allocated to new Shacks, restoring existing ones, and upgrading the digital infrastructure. 

Management has the tricky job of both upgrading user experiences through better technology without interrupting the current flow that customers have grown accustomed to. Older Shacks also are in the process of being upgraded to ensure they operate smoothly.

A key growth driver that has been a focus too is drive-thrus with 29 open at the end of 2023. These generally are located in high-awareness zones, such as Long Island, New Jersey, and California.

The company is looking to add a twist to the drive-thru model just as they have done with the mobile app so costs are lowered, efficiency is improved and ultimately both customer and employee experiences remain high.

Shake Shack has heavily invested in digital tools and is also completing a kiosk retrofit program in 95% of all domestic shacks. Kiosks lead the rankings in terms of growth and profitability, plus they simplify marketing, labor efficiency, and guest experience.

Further updates are scheduled from expanding the omni-channel functionality to digital marketing and product development in order to boost guest loyalty and retention.

A combination of tasty burgers and fries, an easy ordering experience and prime locations have all combined to win fans on the East Coast, and it’s the same formula management plans to use to grow around the world.

Will the CEO Switch Fuel Shake Shack’s Growth?

After holding the role of Shake Shack CEO since 2011, Randy Garutti announced his retirement in December 2023.

Garutti holds credit for transforming Shake Shack into a serious burger brand that has grown to be immensely popular and plans to stick around in an advisory capacity. 

So what comes next after his departure? Rob Lynch, who was heading Papa John’s as President and CEO will take over his new role as the new CEO on May 20, 2024.

Lynch has a rich history of restructuring and growing brands such as Arby’s, Taco Bell, and even Procter & Gamble. The hire suggests that Shake Shack is planning to drive even faster growth by taking advantage of his skills in marketing, data analytics, and technology.

Shake Shack’s Menu Is Its Secret Ingredient?

One of the keys to Shake Shack’s success has been its attention to detail when it comes to menu items. There’s a reason customers rave about double shack burgers and fresh lemonade. The company has done an exemplary job in catering to regional tastes and launching limited edition items.

New burger flavors, popular chicken sandwiches and hot dog toppings and seasonings all form a piece of the jigsaw puzzle that has led to success. Add to that the various vegan and vegetarian dishes on offer as well as plant-based dishes and the full gamut of consumers preferences are accounted for.

The company is willing to experiment also. For example, at the beginning of the year, it focused on the flavors of Korean cuisine with an all-new Korean BBQ Burger as well as some others.

Unlike many of the larger burger chains where you know precisely what you’re getting year-round, Shake Shack will compliment fully loaded fries and chicken bites and beverages with new shake flavors and seasonal lemonade as well as custard specialties and seasonal delights that are its dessert trademarks.

Combined, these efforts allow Shake Shack to reach a wider audience of consumers and keep retention higher by encouraging them to come back more often.

How Is Shake Shack Performing Financially?

Shack sales for the fiscal year ended December 27, 2023, increased 20.4% to $1.05 billion versus the prior year, while licensing revenue increased by 30.4% year over year to $40.7 million.

The increase was primarily due to 41 net new Shacks opening, which contributed approximately $4 million, as well as higher sales at existing Shacks.

For the most recent quarter, total revenue grew 14.7% year-over-year to $290.5 million. Plus, system-wide sales grew 12.3% year over year to $443.3 million.

Same-Shack sales (SSS) grew 1.6% compared to the prior-year quarter, with trends improving each month of the quarter. Notably, net income came in at $2.2 million versus a net loss of $1.6 million in the same period last year.

Shake Shack’s continuing expansion, adaptive tactics, and people-focused approach should lead to a promising future for the company.

Is Shake Shack a Buy?

Shake Shack stock has shown a steady trend upward, with nearly 50% gains during the past year. The burger company is valued at 134.71x non-GAAP forward earnings, which is pricey compared to its peers.

Also, the stock is currently trading at 3.14 times forward sales, which is more than 250% higher than its industry average. Nonetheless, this is about 12% below the 5-year average.

While Shake Shack has shown that it can make money, the sustainability of the profits is an issue amid increasing competition.

In spite of the analysts’ expectation for a possible 14.6% jump in the near term, the majority, 12 out of 19, suggest Holding for now. The bottom line is the reward to risk ratio may improve over time.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.