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Shake Shack Beats Analysts’ EPS Expectations in Q2 2018

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Second-quarter performance

Shake Shack’s (SHAK) second-quarter EPS reached $0.26. Removing special or one-time items, the company’s adjusted EPS stood at $0.29, outperforming analysts’ expectations of $0.18. 

Year-over-year, the company’s EPS rose 45.0%, driven by revenue growth and lower effective tax rates and partially offset by a decline in its adjusted EBITDA margin.

Shake Shack’s adjusted EBITDA margin declined from 21.2% in the second quarter of 2017 to 18.8% in the second quarter. This decrease was due to increased labor-related expenses, other operating expenses, other operating costs, and G&A (general and administrative) expenses. These expenses were partially offset by lower occupancy-related expenses.

The company’s labor expenses increased from 25.5% of total revenues to 26.3% due to an increase in the minimum wage and the opening of new restaurants. Other operating expenses rose 1.3% to 10.9% due to delivery commissions paid for its pilot projects as well as repair and maintenance expenses. 

Shake Shack’s G&A expenses rose 0.2% to 10.8% due to the implementation of various growth initiatives. The company’s occupancy-related costs fell 1.4% to 6.6%.

During the second quarter, Shake Shack’s effective tax rate stood at 16.7%, compared to 39.9% in the second quarter of 2017.

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Peer comparisons

During the same period, Chipotle Mexican Grill (CMG) and McDonald’s (MCD) posted EPS growth of 23.7% and 15.0%, respectively. Analysts expect Wendy’s (WEN) EPS to rise 5.7% when it reports its second-quarter earnings on August 7.

Next, we’ll look at Shake Shack’s valuation multiple.

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