Shake Shack (SHAK) Q2 Earnings Top, Q3 View Disappoints, Stock Down

Shake Shack Inc. SHAK reported second-quarter fiscal 2022 results, wherein earnings beat the Zacks Consensus Estimate and revenues missed the same. Following the results, the company’s shares declined 6.2% on Aug 4. Investor sentiment was hurt as the company’s second-quarter revenues missed the consensus estimate and the third-quarter guidance also came in below the street estimates.

Earnings & Revenues Details

During the quarter, the company reported break-even earnings, beating the Zacks Consensus Estimate of a loss of 2 cents. In the prior-year quarter, the company had reported adjusted earnings per share of 5 cents.

Quarterly revenues of $230.7 million lagged the Zacks Consensus Estimate of $238 million. The top line increased 23.1% on a year-over-year basis.

Shack sales during the quarter rose 22.1% to $223.1 million, whereas licensing revenues increased 28.5% to $7.7 million year over year. Shack system-wide sales in second-quarter fiscal 2022 soared 24.8% year over year to $351.7 million.

Shake Shack, Inc. Price, Consensus and EPS Surprise

Shake Shack, Inc. price-consensus-eps-surprise-chart | Shake Shack, Inc. Quote

Comps Discussion

Same-Shack sales rose 10.1% in second-quarter fiscal 2022, primarily driven by 7.8% traffic growth. Urban same shack sales rose 19% compared to 2021.

During the first quarter of fiscal 2022, its average weekly sales came in at $76,000, up 12% sequentially.

Operating Highlights

During the reported quarter, the company’s operating loss totaled $0.8 million. Shack-level operating profit margin came in at 18.8% compared to 19.2% in the prior-year quarter.

Total expenses (as a percentage of company revenues) increased 220 basis points (bps) year over year. Food and paper costs (as a percentage of company revenues) increased 70 basis points (bps) year over year. Labor and related expenses declined 50 bps year over year to 29.5%.

Adjusted EBITDA for the reported quarter amounted to $22.1 million compared to $20.6 million reported in the year-ago quarter. Adjusted EBITDA margin contracted 140 bps to 9.6%.

Balance Sheet

As of Jun 29, 2022, cash and cash equivalent totaled $278.3 million compared with $302.4 million as of Dec 29, 2021. Total long-term debt at the end of the quarter increased to $244.1 million compared with $243.5 million at the end of Dec 29, 2021.

Q3 & 2022 Outlook

For third-quarter fiscal 2022, the company expects total revenues between $221 million and $226.5 million. The Zacks Consensus Estimate for revenues is pegged at $245.2 million. Shack sales are anticipated in the range of $213-$218 million. The company’s licensing revenue expectation is between $8 million and $8.5 million for third-quarter fiscal 2022.

For third-quarter fiscal 2022, Shack-Level operating profit is projected in the range of 16-18%. Depreciation expense for 2022 is expected in the range of $70-$75 million.

The company currently has a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the Zacks Retail-Wholesale sector are Potbelly Corporation PBPB, Arcos Dorados Holdings Inc. ARCO and Dollar Tree Inc. DLTR.

Potbelly sports a Zacks Rank #1 (Strong Buy). PBPB has a trailing four-quarter earnings surprise of 26.2%, on average. Shares of PBPB have declined 24.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Potbelly’s 2022 sales and EPS suggests growth of 14.1% and 90.4%, respectively, from the corresponding year-ago period’s levels.

Arcos Dorados carries a Zacks Rank #2 (Buy). ARCO has long-term earnings growth of 34.4%. Shares of the company have increased 21.9% in the past year.

The Zacks Consensus Estimate for Arcos Dorados’ 2022 sales and EPS suggests growth of 25.7% and 120.8%, respectively, from the year-ago period’s levels.

Dollar Tree carries a Zacks Rank #2. DLTR has a trailing four-quarter earnings surprise of 13.1%, on average. The stock has gained 64.9% in the past year.

The Zacks Consensus Estimate for Dollar Tree’s 2022 sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the corresponding year-ago period’s levels.

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