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Shake Shack’s Fourth Quarter Earnings Growth Surges

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Shake Shack’s 4Q EBITDA growth surges

Shake Shack’s (SHAK) adjusted EBITDA[1. Earnings before interest, tax, depreciation, and amortization.] for the fourth quarter was $4.8 million. Its EBITDA grew 59% from $3 million in the corresponding quarter a year ago. This also resulted in an increase in the company’s EBITDA margin[2. EBITDA as a percentage of revenue.] from 13.3% to 13.9%. For fiscal 2014, Shake Shack’s EBITDA increased from $14.5 million to $18.9 million, but its EBIDA margins declined 1.6% year-over-year.

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High-growth company The Habit Burger Grill (HABT) also had an EBITDA growth of 40 basis points in 2014, to 12% from 11.6% in 2013. Chipotle Mexican Grill (CMG) had an EBITDA margin of 24%, and Noodles & Co. (NDLS) had an EBITDA margin of 13% in the last 12 months. You can also find Chipotle Mexican Grill in the Consumer Discretionary Select Sector SPDR ETF (XLY), which is about 10% restaurant stocks.

General and administrative costs

Shake Shack’s general and administrative costs increased to $6 million from $3.3 million in the corresponding quarter in 2013. This increase resulted in a 2.9% increase in general and administrative expenses as a percentage of sales year-over-year. This was a result of an increase in payroll expenses along with one-time IPO-related expenses. The IPO-related expenses amounted to $1.2 million, which was 3.4% of the company’s sales. We’ll discuss the company’s IPO-related expenses in more detail in the next part of this series.

All of these costs resulted in an impact on operating margins, which declined to 22.3%—down 40 basis points year-over-year. According to Shake Shack, higher commodity costs had an impact that wasn’t offset by improvements in labor and occupancy costs. The company’s operating profits were up to $7.4 million from $5 million.

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