Why Shake Shack’s 2Q17 Earnings Failed to Impress



2Q17 performance

The New York–based fast-casual restaurant chain Shake Shack (SHAK) posted its 2Q17 earnings on August 3. The company posted adjusted EPS (earnings per share) of $0.20 on revenues of $91.3 million. Compared to 2Q16, the company’s EPS rose 42.9% while the company’s revenue grew 37.3%.

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Stock performance

Analysts were expecting the company to post EPS of $0.16 on revenues of $89.5 million. Although Shake Shack’s 2Q17 revenue and earnings were better than expected, the company’s stock price fell on weak same-store sales growth (or SSSG). In 2Q17, the company’s SSSG fell 1.8%, whereas analysts were expecting SSSG to be flat. The weak 2Q17 SSSG could have also compelled analysts to lower their SSSG guidance for 2017 to be in the range of -2% to -3% compared to an earlier flat expectation. As of August 7, 2017, Shake Shack was trading at $32.19, which represents a fall of 2.9% since the announcement of 2Q17 earnings.

Year-to-date performance

2017 has been a tough year for Shake Shack. The company’s stock price has fallen 10.1% since the beginning of 2017. During the same period, the stock prices of Shake Shack’s peers Chipotle Mexican Grill (CMG) and Jack in the Box (JACK) have fallen 10.0% and 14.8%, respectively.

Notably, the broader comparative indices, the iShares U.S. Consumer Services ETF (IYC) and S&P 500 Index (SPX), have returned 10.2% and 10.8%, respectively. IYC has invested 11.9% of its holdings in travel and restaurant companies.

Series overview

In this series, we’ll look at Shake Shack’s 2Q17 performance, management guidance for 2017, and analysts estimates for the next four quarters. We’ll wrap this series up by looking at the company’s valuation multiple and analysts’ recommendations.

First, let’s start by looking at Shake Shack’s 2Q17 revenue.


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