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Why Shake Shack’s Q2 2018 Earnings Weren’t Impressive

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Second-quarter performance

Shake Shack (SHAK) posted its second-quarter earnings after the market closed on August 2. The company posted an adjusted EPS of $0.29 on revenues of $116.3 million. The company outperformed analysts’ EPS estimate of $0.18 and revenues estimate of $111.0 million. Shake Shack’s SSSG (same-store sales growth) of 1.1% was in line with analysts’ estimates.

Despite posting strong second-quarter earnings, Shake Shack didn’t raise its revenues guidance for 2018 due to delays in opening new restaurants. Investors appeared to be disappointed because they expected the company to increase its guidance. Shake Shack’s stock price was trading 4.8% lower in the aftermarket trading hours on August 2.

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YoY growth

Shake Shack’s revenues have increased 27.3% YoY (year-over-year). The revenue growth was driven by the addition of 25 company-owned restaurants and 20 franchised restaurants in the last four quarters and positive SSSG of 1.1%. An increase in the average check size contributed 3.7% to the company’s second-quarter SSSG, which was partially offset by a 2.6% decline in the traffic at its restaurants. Shake Shack’s SSSG was driven by menu innovations and customers’ enhanced experience due to technological advancements.

EPS growth

Shake Shack’s EPS has grown 45% YoY. The EPS growth was driven by revenue growth and the lower effective tax rate. The EPS growth was partially offset by increased operating expenses. The company’s operating expenses increased from 87.1% of the total revenues to 88.8% due to increased labor costs, other operating expenses, general and administrative expenses, and depreciation expenses. The higher operating expenses were partially offset by lower occupancy and related costs. The company’s effective tax rate was at 16.7%—compared to 39.9% in the second quarter of 2017.

2018 guidance

For 2018, Shake Shack continues to expect its revenues to be $446 million–$450 million with an SSSG of 0%–1%. The company plans to open 32–35 company-owned restaurants and 16–18 franchised restaurants in 2018.

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