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Category: Stock Market and Shake Shack
Date: 6 November 2019 Stock Price: $66.83 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Shake Shack , a modern day roadside burger stand serving classic American foods such as burgers, hot dogs, shakes, beer and wine. The stock of Shake Shack plunged over 20% following the release of their 3rd quarter 2019 earnings report. Lets take a look at why
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About Shake Shack
Shake Shack is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. With its fresh and simple, high-quality food at a great value, Shake Shack is a fun and lively community-gathering place with widespread appeal.
Financial overview of Shake Shack's 3rd quarter 2019 earnings report
Data below refers to the latest quarter's data unless specified otherwise
Shack counts (at end of period):
- Revenues: $157.762 million (up from $119.647 million for the same quarter of the previous year)
- Revenues increased by 31.8% over the last 12 months
- Total expenses: $149.598 million (up from $110.304 million for the same quarter of the previous year)
- Operating expenses increased by 35.6% over the last 12 months
- Net income: $10.344 million (up from $5.025 million for the same quarter of the previous year)
- Diluted earnings per share: $0.31 (up from $0.17 for the same quarter of the previous year)
- PE ratio of Shake Shack: 53
- Diluted number of shares in issue: 32.916 million (up from 29.883 million for the same quarter of the previous year)
- Cash and cash equivalents: $44.505 million
- Cash and cash equivalents per share: $1.35
- Cash and cash equivalents makes up 2% of Shake Shack's market capital
- Cash and cash equivalents makes up 4.6% of Shake Shack's total assets
- Stockholders equity in Shake Shack: $318.295 million
- Stockholders equity per share: $9.66
- Shake Shack is trading at 6.9 times its stockholders equity per share which is well outside the expected range of between 2 and 4 times that most firms tend to trade at
Shack counts (at end of period):
- System-wide: 254
- Domestic company-operated: 151
- Domestic licensed: 17
- International licensed: 86
Shake Shack management commentary on their 3rd quarter 2019 earnings and fiscal guidance
NEW YORK--(BUSINESS WIRE)-- Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE:SHAK) today reported its financial results for the third quarter ended September 25, 2019, a period that included 13 weeks.
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “We're pleased to report total revenue grew nearly 32% and the team delivered another quarter of positive Same-Shack sales of 2%, continuing to drive positive traffic of 1.2%. Based on our results to date, we are raising our 2019 revenue guidance, including our licensing revenue guidance."
Garutti concluded, “This has been the biggest development year in Shack history as we’ve grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico. In 2020, we will continue to expand even further within key domestic and international markets. Overall, we continue to execute this year’s plan while gearing up for the key strategic initiatives of 2020. We’ll be focused more than ever on putting our people first, simplifying and supporting our operations, and enhancing our winning guest experience."
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “We're pleased to report total revenue grew nearly 32% and the team delivered another quarter of positive Same-Shack sales of 2%, continuing to drive positive traffic of 1.2%. Based on our results to date, we are raising our 2019 revenue guidance, including our licensing revenue guidance."
Garutti concluded, “This has been the biggest development year in Shack history as we’ve grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico. In 2020, we will continue to expand even further within key domestic and international markets. Overall, we continue to execute this year’s plan while gearing up for the key strategic initiatives of 2020. We’ll be focused more than ever on putting our people first, simplifying and supporting our operations, and enhancing our winning guest experience."
Updated 2019 Outlook
- Total revenue (inclusive of licensing revenue): $592 million to $597 million
- Licensing revenue: $18.0 million to $18.5 million
- Same-Shack sales growth (%): approximately 1.5%
- Domestic company-operated Shack openings: 38 to 40
- Licensed Shack openings, net: 24 to 28
- Average annual sales volume for domestic company-operated Shacks: approximately $4.1 million
- Shack-level operating profit margin (%): 22.0% to 22.5%
- Total general and administrative expenses: $67 million to $68 million
- Core general and administrative: $57.5 million to $58.5 million
- Equity-based compensation: approximately $7.5 million
- Costs related to Project Concrete: approximately $2 million
- Project Concrete capitalized costs: $5.5 million to $6.0 million
- Depreciation expense: $41 million to $42 million
- Pre-opening costs: $13 million to $14 million
- Interest expense: $0.45 million to $0.5 million
- Adjusted pro forma effective tax rate (%): 26.5% to 27.5%
Shake Shack (NYSE: SHAK) stock price history
The image below, obtained from Google, shows the stock price history of Shake Shack over the last 5 years. And its been a decent time for Choice Hotels investors over the last 5 years. 5 years ago Shake Shack sock was trading at around $45.90 a share and its currently trading at $66.83 a stock (after its massive 20% slump). That's a healthy return of 45.8% provided to stockholders of Shake Shack over the last 5 years.
The stock of Shake Shack is trading at a lot closer to its 52 week low of $40.67 than it is to its 52 week high of $105.84 which to us is a clear indication that the short term momentum and sentiment of Shake Shack stock is very negative right now. And we suspect the sharp decline yesterday force numerous investors to sell based on margin calls and getting squeeze, which flooded the market with even more shares forcing the price down even further.
The stock of Shake Shack is trading at a lot closer to its 52 week low of $40.67 than it is to its 52 week high of $105.84 which to us is a clear indication that the short term momentum and sentiment of Shake Shack stock is very negative right now. And we suspect the sharp decline yesterday force numerous investors to sell based on margin calls and getting squeeze, which flooded the market with even more shares forcing the price down even further.
Recent coverage of Shake Shack
The extract below discusses the meltdown of Shake Shack stock price following their earnings release as obtained from TheStreet.com
Shares of Shake Shack (SHAK - Get Report) slumped after the burger chain's third-quarter revenue and same-store sales trailed expectations, even as adjusted earnings per share beat expectations. Revenue increased 32% in the latest quarter from a year earlier, to $157.8 million. But analysts polled by Bloomberg anticipated $157.92 million, according to Yahoo.
And same-store sales climbed 2%, lagging analysts' forecast of a 2.9% gain. The 2% increase consisted of a 1.2% increase in customer traffic and a combined increase of 0.8% in price and sales volume. Shake Shack's restaurant level operating margin fell to 23.1% in the third quarter from 25.8% a year ago. The decline stemmed from rising food and paper costs, the company said.
On the positive side, adjusted earnings per share totaled 26 cents in the latest quarter, compared to analysts' projection of 21 cents, according to Yahoo.
Net income surged to $11.4 million, or 31 cents a share, in the third quarter from $6.9 million, or 17 cents per share a year earlier. Shake Shack also raised its full-year 2019 revenue guidance to a range of $592 million to $597 million from its prior range of $585 million to $590 million. But the company trimmed its full-year forecast for same-store sales growth to 1.5% from 2% previously. "This has been the biggest development year in Shack history as we've grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico," Shake Shack CEO Randy Garutti said in a statement.
Read the full article here
Shares of Shake Shack (SHAK - Get Report) slumped after the burger chain's third-quarter revenue and same-store sales trailed expectations, even as adjusted earnings per share beat expectations. Revenue increased 32% in the latest quarter from a year earlier, to $157.8 million. But analysts polled by Bloomberg anticipated $157.92 million, according to Yahoo.
And same-store sales climbed 2%, lagging analysts' forecast of a 2.9% gain. The 2% increase consisted of a 1.2% increase in customer traffic and a combined increase of 0.8% in price and sales volume. Shake Shack's restaurant level operating margin fell to 23.1% in the third quarter from 25.8% a year ago. The decline stemmed from rising food and paper costs, the company said.
On the positive side, adjusted earnings per share totaled 26 cents in the latest quarter, compared to analysts' projection of 21 cents, according to Yahoo.
Net income surged to $11.4 million, or 31 cents a share, in the third quarter from $6.9 million, or 17 cents per share a year earlier. Shake Shack also raised its full-year 2019 revenue guidance to a range of $592 million to $597 million from its prior range of $585 million to $590 million. But the company trimmed its full-year forecast for same-store sales growth to 1.5% from 2% previously. "This has been the biggest development year in Shack history as we've grown our presence around the country and internationally in the new markets of Mainland China, Singapore, the Philippines and Mexico," Shake Shack CEO Randy Garutti said in a statement.
Read the full article here
Shake Shack (NYSE: SHAK) stock valuation
Based on Shake Shack latest earnings report and their fiscal guidance provided what do we value their stock at? Based on the earnings reported and the fiscal guidance provided our valuation model provides a target (full value) price for Shake Shack stock at $52.90 a stock. We therefore believe that stock of Shake Shack is overvalued
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $52.90. We therefore believe a good entry point into the stock of Shake Shack is at $47.61 or below.
Since the stock of Shake Shack is trading at well above our recommended entry point into the stock we rate the stock of Shake Shack as a sell
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $52.90. We therefore believe a good entry point into the stock of Shake Shack is at $47.61 or below.
Since the stock of Shake Shack is trading at well above our recommended entry point into the stock we rate the stock of Shake Shack as a sell
Next earnings release of Shake Shack
It is expected that Shake Shack 4th quarter and full fiscal 2019 earnings report will be released in early February 2020