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Shake Shack to Return $10 Million Support Loan amid Criticism


Apr. 21 2020, Published 8:24 a.m. ET

Shake Shack (NYSE:SHAK) stock rose during Monday’s trading session. The stock rose after the company announced that it will return the government support loan. The stock gained 1.33% and closed the trading day at $43.50 on April 17. As of April 17, Shake Shack’s market capitalization was $1.63 billion.

So far this year, the stock has lost around 27% of its stock value. The key reason for the decline was the coronavirus outbreak, which also weighed on the broader equity markets. The company’s soft fourth-quarter performance also pressured the stock. Chipotle Mexican Grill (NYSE:CMG), McDonald’s (NYSE:MCD) and Wendy’s (NASDAQ:WEN) have also fallen this year. Chipotle, McDonald’s, and Wendy’s have fallen by 2%, 5.2%, and 16.7%, respectively, as of April 17. In contrast, the S&P 500 Index has fallen by 11% this year.

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Government support loan

Earlier this month, the federal government announced a rescue package called the “Paycheck Protection Program” or PPP through the $2.2 trillion CARES Act during the COVID-19 crisis. The loan program was intended to help small businesses pay their employees. However, the loan program ran out of money after bigger companies like Shake Shack, Potbelly, and Ruth’s Chris steak houses opted for the government loan program, according to a Bloomberg report.

“While the program was touted as relief for small businesses, we also learned it stipulated that any restaurant business — including restaurant chains — with no more than 500 employees per location would be eligible,” according to Shake Shack CEO Randy Garutti and founder Danny Meyer. They posted a letter on Garutti’s LinkedIn page on Sunday night. According to Shake Shack’s CEO and founder, the PPP was very confusing. Each Shake Shack restaurant has around 45 employees, so the company applied for the loan to save employees’ jobs.

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Shake Shack will return government loan

Amid widespread criticism, Shake Shack decided to immediately return the $10 million support loan. Late on April 17, Shake Shack received additional capital through an equity transaction in the public markets, which helped it make the decision. Shake Shack executives feel fortunate to have access to capital during this trying time. Now, the executives think that the loan should be given to restaurants that need it the most.

The company’s executives also said, “With adequate funding and some necessary tweaks, the PPP program can provide the economic spark the entire industry needs to get back in business.” The company thinks that the loan program will provide relief for small businesses and help ailing restaurants.

Shake Shack’s efforts amid coronavirus crisis

Shake Shack owned 59.3% of its restaurants at the end of last year. However, the deadly coronavirus forced the company to temporarily close its stores or only operate its delivery services. On April 17, the company provided lower-than-expected preliminary results for the first quarter. Notably, the company temporarily closed 17 stores. Shake Shack announced the temporary closure of its nine company-owned restaurants on April 2. The company provided an update on its first-quarter performance. The company will report its first-quarter results on May 4.

Amid store closures and declining sales, the company expanded its delivery services and partnered with Postmates, DoorDash, Caviar, and Uber Eats. The company has also cut down its expenses. On April 17, Shake Shack announced that it would lay off 1,000 employees in response to the deadly coronavirus. The company’s corporate office and executive teams are also taking pay cuts for an indefinite period amid the crisis.


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