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Entrepreneur
Kurra Bewarse
Username: Entrepreneur

Post Number: 3910
Registered: 05-2011
Posted From: 24.164.46.35

Rating: N/A
Votes: 0

Posted on Tuesday, January 11, 2022 - 11:55 am:   

Shake Shack gets some much needed sizzle with upside Q4 guidance (77.34 +9.09)

Shake Shack (SHAK +13%) is tasting pretty delicious today as the company appears to have closed out 2021 on a strong note. The pricey burger chain provided robust guidance for Q4. Its results perhaps support the case that comfort food remains appealing to a lot of people as the pandemic continues.

SHAK expects Q4 revenue to come in around $203.3 mln, nicely ahead of prior guidance for revenues of $193.5-200.0 mln. Even more impressively, it expects Q4 Same-Shack sales to increase +20.8%, well ahead of prior guidance for an increase in the mid-to-high teens. SHAK was lapping some easy comps from the prior-year quarter, 4Q20, but comps still grew a respectable +2.2% vs 2019, improving from -7.3% in Q3, due to strength in both urban and suburban markets.
Shack-level operating profit margin is expected to be approximately 16% in Q4 — only a slight improvement from 15.8% in Q3, but nevertheless a welcome one. SHAK has been facing higher costs for commodities like beef and chicken as well as for wages, so any margin improvement is positive news.
The stock has been in a downward trend; it has been cut nearly in half since mid-February, when it was trading in the $130 area. SHAK was one of the worst-hit quick-service restaurant chains in connection with COVID-19. Its high prices, lack of drive-thrus, and high exposure to areas hit by the pandemic have weighed on results. SHAK has over 40% exposure to New York City and northern New Jersey. To counter those pressures to sentiment around the stock, investors needed this boost of good news.
SHAK is stepping on the gas in terms of expansion. It opened 36 new company-operated Shacks in 2021. Unit development is targeted to accelerate to 45-50 openings in 2022.
One criticism of SHAK centers on its lack of drive-thru locations. The age of COVID has made drive-thru capabilities more attractive, and missing the ability to offer drive-thru service may have resulted in lost sales for SHAK. However, SHAK is now dipping its toe in the water, as it just opened its first-ever drive-thru locations. One is Maple Grove, MN and the other in Lee's Summit, MO. Early results for those two Shacks are encouraging, and SHAK expects to expand its drive-thru footprint in the years to come.
In less positive news, SHAK saw its operating hours drop in the last week of FY21 and the first two weeks of FY22 as a sharp increase in COVID cases had an impact on its ability to staff and keep all restaurants fully open. However, this seems like it will have more of an impact in Q1 rather than Q4. The company should provide more color on this when it reports full Q4 results in late February.
Overall, this strong guidance, especially the robust comp guidance, is welcome news for investors. The price of this burger chain's shares has been walloped over the past year. It is particularly discouraging because McDonald's (MCD) has performed very well. We think SHAK's higher price point is hurting it during shaky economic times, and its lack of drive-thru locations may be taking a toll during COVID. We would remain cautious buying down here.

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