Why Shake Shack Looks a Promising Player over the Long Term



Shake Shack’s revenue growth

In 3Q15, Shake Shack (SHAK) reported a revenue growth of 61% to $53.2 million from $31.8 million in 3Q14. This is far ahead of analysts’ estimated $47.3 million for the quarter. Shake Shack operates restaurants under the company-operated model as well as licensed stores. About 96% of Shake Shack’s revenue comes from company-operated stores, primarily located in US markets.

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Shack sales

  • Shake Shack’s company-operated revenue, or Shack Sales, grew 70% to $51 million from $30 million in 3Q14
  • The company’s licensing revenue grew 20% to $2 million from $1.7 million over the same period
  • Shake Shack’s hefty revenue growth should not be surprising given that the company is in its growth stage
  • Given the strong 3Q15 performance, the management raised its revenue guidance for full-year 2015 to $189 million to $190 million, compared to the previous guidance of $171 million to $174 million

Nonetheless, this is impressive when compared to fast-casual player Chipotle (CMG), growing at an average quarterly growth rate of 30% in its initial year.

The drivers

In almost every earnings call, restaurant investors look for updates on same-store sales growth and unit growth, two key drivers of revenue for restaurants such as Shake Shack, Starbucks (SBUX), Chipotle, and McDonald’s (MCD). If the top line or revenue growth is healthy, then a healthy EPS growth should usually follow. We’ll spend time talking about these two drivers in the next few parts.

Currently, Chipotle and Starbucks (SBUX) form about 3.9% of the iShares MSCI USA Momentum Factor ETF’s (MTUM) portfolio.


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