Shake Shack (SHAK) Q4 2016 earnings summary

Executive summary

• FY2016 revenue rose 40.9% to $268.5M; system-wide sales increased 36.4% to $402.8M, supported by 30 net Shack openings and 4.2% same-Shack sales growth.

• Net income attributable to Shake Shack Inc. was $12.4M versus a $8.8M loss in FY2015; adjusted EBITDA reached $50.2M, while labor costs and new-market execution remained key pressures.

Financial highlights

• Shack sales increased 41.6% to $259.4M; licensing revenue rose 23.8% to $9.1M, bringing total revenue to $268.5M.

• Operating income was $27.8M versus $6.8M in FY2015; net income was $22.1M and net income attributable to Shake Shack Inc. was $12.4M.

• Adjusted EBITDA increased 35.7% to $50.2M; adjusted pro forma net income rose 39.2% to $16.8M, or $0.46 per fully exchanged diluted share.

• FY2015 G&A included $12.8M of non-recurring compensation, $0.6M of IPO costs and $0.8M of legal-settlement expense; FY2016 G&A declined 19.2% to $30.6M.

Outlook and guidance

• FY2017 revenue outlook: $349M-$353M; same-Shack sales growth of 2%-3%, including 1.5%-2% menu price increases and nominal traffic and mix gains.

• Planned FY2017 openings: 22-23 domestic company-operated Shacks and 11 net licensed Shacks; new domestic units are expected to average at least $3.2M annual sales and 21% Shack-level operating profit margins.

• FY2017 guidance includes Shack-level operating profit margin of 26.5%-27.5%, G&A of $38M-$40M, depreciation of $22M, interest expense of $1.6M-$2.0M and adjusted pro forma tax rate of 40%-41%.

• Longer-term target-volume Shacks are expected to average $3.0M annual sales and 20% Shack-level margins; labor inflation is expected to continue pressuring margins.