Shake Shack reports results: they’re willing to invest in consumer experience

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Shake Shack Inc (NYSE: SHAK) slid 10% in the stock market after-hours on a larger-than-expected loss for the fiscal fourth quarter. The U.S. firm also gave downbeat guidance for Q1.  

The timing of a return to pre-COVID sales levels is highly dependent upon the return of the high-traffic areas that contributed to many of the strongest Shack sales, including those most reliant on travel, schools, offices and major gatherings. The timing of that recovery remains unknown today.

Key takeaways in the Q4 report

Net loss came in at $9.7 million, much narrower than last year’s $19.4 million.
On a per-share basis, the fast-casual restaurant chain lost 25 cents versus 18 cents expected.
At $203.3 million, revenue was up 29% YoY – marginally ahead of the FactSet consensus.
Digital made up 42% of the total quarterly sales, as per the earnings press release.

Q1 revenue is expected between $196 million and $201.4 million. This compares to analysts at $211.5 million.

MKM’s Levy comments on the earnings report

Commenting on the earnings report, MKM Partners’ Brett Levy, who has a “hold” rating on Shake Shack said on CNBC’s “Closing Bell”:

They’re starting to go against reopening and the stimulus from last year. So, a miss on the top line. Results coupled with pressures at the margin, all of those factors go into weigh on the negativity in the near term.

His price target of $81 means 20% upside from here. According to Shake Shack, traffic was down in January due to omicron, but comparable shack sales jumped 13% in February. Levy lauded the company’s sizable investments in technology and added:

They’re trying to get closer to the consumer with technology and drive-thru while staying true to the core business. For consumer experience, they’re willing to hire, raise wages, treat their employees well, offer competitive benefits, so when consumers come back, they won’t come back to a bare-bone operation.

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