Shake Shack: Savoring Growth in the Fast Casual Frontier

A bet on burgers is a bet on America. 

One thing is for certain, Americans will not abandon the consumption of burgers at least any time soon, 

Shake Shack operates in the “fast casual” niche where they stand out as a modern fast food chain, blending the convenience of traditional fast-food with the quality of full-service restaurants. It offers an extensive menu of premium, fresh ingredients at a higher price point, appealing to those who prioritize food quality for their indulgence meals.

They are masters in demonstrating small qualities that shape consumer thinking. It is evident they prioritize the customer experience as it is far superior than traditional fast food chains. 

Restaurants aesthetically consist of a modern design, are extremely well-kept and clean, and a Fort Lauderdale location even has corn hole! 

Warren Buffet's motto is it's better to pay a fair price for a great business than a great price for a fair business and shake shack is certainly a great business. Lets break it down:

Location: Shake shack strategically picks their locations. Typically you will find them in high traffic and high income areas. 

People: Shake shack pays employees more than the industry average and are not shy to dish out bonuses. In 2020 each hourly employee received a bonus of $250-$400 as a token of appreciation for their hard work during the pandemic. 

Growth: Steady growth wins the race. Shake Shack waited 4 years to launch their second location after opening in 2004. When they went public in 2015, they had a plan to open 10 stores per year. A far cry from 5 guys who opened 145 stores between 2010 and 2013. This principle of going slow has allowed them to expand without compromising efficiency and quality (as impacted in their revenue)

Financials: In 2023, Shake Shack demonstrated a robust improvement in its operational efficiency and revenue generation, with a notable recovery in net income and a progressive decrease in accumulated deficit.

Shake Shack reported a total revenue of $1.09 billion for the year, marking a 20.8% increase compared to 2022. This includes $1.05 billion from Shack sales and $40.7 million in licensing revenue. 

The company saw its system-wide sales climb to $1.7 billion, a 23.5% rise from the previous year. Same-Shack sales experienced a 4.4% uptick. 

The operating income stood at $5.9 million, with Shack-level operating profit reaching $208.2 million, representing 19.9% of Shack sales. 

Net income was reported at $20.5 million, with Shake Shack Inc.'s share amounting to $19.8 million, or $0.47 per diluted share. 

The adjusted EBITDA was $131.8 million, and the adjusted pro forma net income was $16.2 million, translating to $0.37 per fully exchanged and diluted share.

All things considered, I believe that Shake Shack is a great long-term company who is showing no signs of slowing down.