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Category: Stock Market and Shake Shack
Date: 25 February 2020 Stock Price: $64.28 We take a look at the 4th 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 10% following the release of their 4th quarter 2019 earnings report as guidance lagged estimates
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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.
Overview of Shake Shack's 4th quarter 2019 earnings report
Data below refers to the latest quarter's data unless specified otherwise
Shack counts (at end of period):
- Revenues: $151.435 million (up from $124.265million for the same quarter of the previous year)
- Revenues increased by 21.8% over the last 12 months
- Total expenses: $150.947 million (up from $121.429 million for the same quarter of the previous year)
- Operating expenses increased by 24.3 over the last 12 months
- Some margin squeeze being experienced by Shake Shack is their revenues grew at a slower rate than their expenses
- Net loss: -$2.093 million (down from a loss of -$958 thousand for the same quarter of the previous year)
- Diluted earnings per share: -$0.06 (down from -$0.03 for the same quarter of the previous year)
- PE ratio of Shake Shack: 105.4
- Diluted number of shares in issue: 33.877 million (up from 29.408 million for the same quarter of the previous year)
- Cash and cash equivalents: $37.099 million
- Cash and cash equivalents per share: $1.09
- Cash and cash equivalents makes up 1.69% of Shake Shack's market capital
- Cash and cash equivalents makes up 3.8% of Shake Shack's total assets
- Stockholders equity in Shake Shack: $321.985 million
- Stockholders equity per share: $9.50
- Shake Shack is trading at 6.8 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: 275
- Domestic company-operated: 163
- Domestic licensed: 22
- International licensed: 90
Shake Shack management commentary on their 4th quarter 2019 earnings and fiscal guidance
NEW YORK--(BUSINESS WIRE)-- Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE: SHAK), today reported financial results for the fourth quarter and the fiscal year ended December 25, 2019, periods that included 13 and 52 weeks, respectively.
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “2019 was another milestone year at Shake Shack. We opened our largest class of Shacks ever, with 73 across the globe, 39 company-operated and 34 licensed. A total of 49 of those new Shacks were here in the United States, and internationally, we unlocked tremendous revenue growth by entering important new markets for the first time, namely Shanghai, Mexico City, Singapore and Manila. These launches were greeted with incredible local reception and fanfare and were a reminder of the global strength and potential of the Shake Shack brand. In addition to this expansion, we invested in our digital infrastructure, both for our back-office operations, and our guest touchpoints. Total revenue increased by almost 30% to $595 million, and system-wide sales by 33% to nearly $900 million, and we delivered adjusted EBITDA growth of 11% to $82 million, while continuing to make strategic investments for the significant opportunities that lie ahead."
Garutti concluded, “Looking forward, we expect 2020 will be another year of strong unit growth, domestically and internationally, with 40 to 42 new company-operated Shacks and 20 to 25 net new licensed Shacks. Beyond expansion, we believe this year will be defined by our innovation pipeline with focused investments across our digital products. We’re committed to building guest experiences that are more engaging, more convenient and that will provide us with more insights throughout the purchase process. On the menu side, we’re excited about new products making the leap from our innovation test kitchen to Shacks everywhere, through LTOs and core menu additions. Long term, we expect to deliver double-digit adjusted EBITDA growth over the coming years as we continue to grow top line sales, as well as ultimately delivering leverage across various cost line items over time. We recognize this level of growth and investment, at times, can have a near-term impact on same-Shack sales and other aspects of our financial performance, but we believe the company will ultimately benefit from this strategy over time. We are excited about our future and the significant runway we have ahead, as we quickly approach a billion dollars in total system-wide sales and build a company not just for quarters, but for years to come.”
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “2019 was another milestone year at Shake Shack. We opened our largest class of Shacks ever, with 73 across the globe, 39 company-operated and 34 licensed. A total of 49 of those new Shacks were here in the United States, and internationally, we unlocked tremendous revenue growth by entering important new markets for the first time, namely Shanghai, Mexico City, Singapore and Manila. These launches were greeted with incredible local reception and fanfare and were a reminder of the global strength and potential of the Shake Shack brand. In addition to this expansion, we invested in our digital infrastructure, both for our back-office operations, and our guest touchpoints. Total revenue increased by almost 30% to $595 million, and system-wide sales by 33% to nearly $900 million, and we delivered adjusted EBITDA growth of 11% to $82 million, while continuing to make strategic investments for the significant opportunities that lie ahead."
Garutti concluded, “Looking forward, we expect 2020 will be another year of strong unit growth, domestically and internationally, with 40 to 42 new company-operated Shacks and 20 to 25 net new licensed Shacks. Beyond expansion, we believe this year will be defined by our innovation pipeline with focused investments across our digital products. We’re committed to building guest experiences that are more engaging, more convenient and that will provide us with more insights throughout the purchase process. On the menu side, we’re excited about new products making the leap from our innovation test kitchen to Shacks everywhere, through LTOs and core menu additions. Long term, we expect to deliver double-digit adjusted EBITDA growth over the coming years as we continue to grow top line sales, as well as ultimately delivering leverage across various cost line items over time. We recognize this level of growth and investment, at times, can have a near-term impact on same-Shack sales and other aspects of our financial performance, but we believe the company will ultimately benefit from this strategy over time. We are excited about our future and the significant runway we have ahead, as we quickly approach a billion dollars in total system-wide sales and build a company not just for quarters, but for years to come.”
2020 Outlook
For the fiscal year ending December 30, 2020, the Company is providing the following financial outlook:
Current Outlook
For the fiscal year ending December 30, 2020, the Company is providing the following financial outlook:
Current Outlook
- Total revenue (inclusive of licensing revenue):712 million to $720 million
- Licensing revenue: $21 million to $22 million
- Same-Shack sales (%): Low single digit decrease
- Domestic company-operated Shack openings: 40 to 42
- Licensed Shack openings, net: 20 to 25
- Average annual sales volume for domestic company-operated Shacks: $3.7 to $3.8 million
- Shack-level operating profit margin (%): 22.0% to 22.5%
- Total general and administrative expenses: $80 million to $82 million
- Core general and administrative: $72.2 million to $74.2 million
- Equity-based compensation: approximately $7.5 million
- Costs related to Project Concrete: approximately $0.3 million
- Depreciation expense: $52.5 million to $53.5 million
- Pre-opening costs: $15 million to $16 million
- Interest expense: approximately $0.6 million
- Adjusted pro forma effective tax rate (%): 26% to 27%
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 Shake Shake investors over the last 5 years. 5 years ago Shake Shack stock was trading at around $43.10 a share and its currently trading at $64.28 a stock (after its massive over 10% slump). That's a healthy return of 49.2% 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 $49.28 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 today forced 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 $49.28 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 today forced 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
Shake Shack (SHAK) the New York burger chain, reported a wider-than-expected fourth-quarter net loss as revenue rose 22% and same-store sales fell 3.6%. In addition, the company's full-year 2020 revenue outlook lagged Wall Street's expectations. Shake Shack reported a loss of 6 cents a share, compared with 3 cents in the year-earlier quarter. On an adjusted basis, Shake Shack earned 6 cents a share in the latest quarter. Shares outstanding rose 15% to 33.9 million from the year-earlier period.
Revenue reached $151.4 million compared with $124.3 million. Analysts surveyed by FactSet were expecting the company to report a GAAP net loss of a penny a share, or break-even on an adjusted basis, on revenue of $153 million. The FactSet survey was looking for same-store sales to fall 2.9% in the latest quarter. Shake Shack said that customer traffic fell 5.4%, offset partly by higher pricing and a more profitable sales mix. Also a factor in the lower same-store sales: A calendar shift cut a high-traffic holiday week from the latest quarter.
Read the full article here
Shake Shack (SHAK) the New York burger chain, reported a wider-than-expected fourth-quarter net loss as revenue rose 22% and same-store sales fell 3.6%. In addition, the company's full-year 2020 revenue outlook lagged Wall Street's expectations. Shake Shack reported a loss of 6 cents a share, compared with 3 cents in the year-earlier quarter. On an adjusted basis, Shake Shack earned 6 cents a share in the latest quarter. Shares outstanding rose 15% to 33.9 million from the year-earlier period.
Revenue reached $151.4 million compared with $124.3 million. Analysts surveyed by FactSet were expecting the company to report a GAAP net loss of a penny a share, or break-even on an adjusted basis, on revenue of $153 million. The FactSet survey was looking for same-store sales to fall 2.9% in the latest quarter. Shake Shack said that customer traffic fell 5.4%, offset partly by higher pricing and a more profitable sales mix. Also a factor in the lower same-store sales: A calendar shift cut a high-traffic holiday week from the latest quarter.
Read the full article here
Shake Shack (NYSE: SHAK) stock valuation
So based on Shake Shack's latest earnings report what do we value the stock of Shake Shack at? The group has made a loss during the period under the review, however there are other ways to value companies at instead of just relying on the earnings per share. Our valuation models provides a target price of $47.70 a stock.
We therefore believe the stock of Shake Shack is overvalued at its current price. We usually recommend that investors look to enter a stock at least 10% below our target price. Thus a good entry point into the stock of Shake Shack would be at $42.90.
Since the stock of Shake Shack is trading at well above our suggested entry point and target price, we rate the stock of Shake Shake as a sell
We therefore believe the stock of Shake Shack is overvalued at its current price. We usually recommend that investors look to enter a stock at least 10% below our target price. Thus a good entry point into the stock of Shake Shack would be at $42.90.
Since the stock of Shake Shack is trading at well above our suggested entry point and target price, we rate the stock of Shake Shake as a sell
Next earnings release of Shake Shack
It is expected that Shake Shack will release their 1st quarter 2020 earnings report in late May 2020