Can Shake Shack’s 1Q16 Results Set the Road for Recovery?
SHAK’s operations
Unit growth is vital for a company like Shake Shack (SHAK) that is in its growth phase. Unit growth not only increases a company’s top line but it also increases its visibility. By the end of 2015, Shake Shack was operating 84 units with 44 company-owned restaurants, five domestic franchised restaurants, and 35 international franchised restaurants.
Unit growth
Since 1Q15, Shake Shack (SHAK) has added ten company-owned restaurants and eight international franchised restaurants to increase its total unit count to 84. In 1Q16, Shake Shack, which forms 0.01% of the holdings of the iShares Russell 2000 ETF (IWM), has added four more units.
In February 2016, Shake Shack opened its first unit in Oman. Later in the month, the company opened its first restaurant in Arizona, with a flagship store at Scottsdale Fashion Square. In March, the company opened its second restaurant in Phoenix and its first restaurants in Los Angeles, California, taking the total unit count to 88.
Peer comparison
In 1Q16, Panera Bread (PNRA) and Chipotle Mexican Grill (CMG) have added 25 units and 58 units, respectively. During the same period, analysts are expecting Jack in the Box (JACK) to increase its unit count by three units.
Outlook
Overall in 2016, Shake Shack (SHAK) set a guidance to add 13 company-owned restaurants, seven international licensed restaurants, and one domestic licensed restaurant in Las Vegas’s T-Mobile Arena. These additions will increase the restaurant count to 104 units.
In December 2015, Shake Shack signed an agreement with SPC Group to introduce its first restaurants to Seoul, South Korea, in late 2016. Both partners have signed a development agreement to develop 25 restaurants over the next ten years.
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