uploads/2019/11/AdobeStock_252457191.jpeg

Shake Shack Announces Expansion Plans in China, Stock Rises

By

Updated

Shake Shack (NYSE:SHAK) has big plans in China. On Tuesday, the company announced that it will open 55 franchised restaurants in Mainland China by 2030 in association with Maxim’s Caterers Limited. Among the restaurants, 15 will open in South China, which includes cities like Shenzhen, Guangzhou, Fuzhou, and Xiamen. Currently, Maxim’s Caterers operates Shake Shack restaurants in Shanghai and Hong Kong. The franchise has been developing restaurants in Beijing and Macau, which will likely open later this year. The restaurants in China would offer Shake Shack’s signature items like the ShackBurger, Shack-cago Dog, crinkle-cut fries, beer, wine, lemonade, and frozen custard ice cream.

Article continues below advertisement

On the company’s expansion plans, Shake Shack’s chief global licensing officer, Michael Kark, said, “We remain humbled by our fans in China and continue to be encouraged by the performance of our Chinese business through this recovery. It’s a great time to deepen our roots in this market. This is a significant step in our relationship with Maxim’s as we partner to achieve 55 Shacks across mainland China by 2030.”

Shake Shack stock rises

On Tuesday, Shake Shack stock rose to a high of $53.34 before closing at $52.98. The amount represents a rise of 3.6% from the closing price on Tuesday. Despite the rise, the company has lost 11.1% of its stock value this year. Temporarily closing restaurants amid the COVID-19 outbreak, unimpressive first-quarter earnings, and weakness in the broader equity markets led to a fall in the company’s stock price. So far this year, the company has underperformed its peers and the broader equity markets. YTD, the S&P 500 Index has declined by 4.0%, while Chipotle Mexican Grill (NYSE:CMG), McDonald’s (NYSE:MCD), and Wendy’s (NASDAQ:WEN) have returned 25.7%, -6.6%, and -1.9%, respectively.

Analysts’ expectations and recommendations

Temporarily closing restaurants and operating some restaurants with a limited capacity might be a drag on the company’s revenue. For 2020, analysts expect Shake Shack’s revenue to decline by 8.8% to $542.1 million. However, for 2021, they expect Shake Shack’s revenue to rise by 29.9% to $704.3 million. The company owns and operates 58.8% of its restaurants. So, lower sales will likely have a greater impact on the company’s margin. For this year, analysts expect the company to report a loss of $0.38 per share compared to an EPS of $0.72 in 2019. However, analysts expect the company to return to profitability in 2021 with an EPS of $0.29.

Overall, Wall Street favors a “hold” rating for Shake Shack. Among the 19 analysts, 78.9% recommend a “hold,” 10.5% recommend a “buy,” and 10.5% recommend a “sell.” As of Tuesday, analysts’ consensus target price was $51.54. The target price represents a fall of 2.7% from the current stock price.

Advertisement

More From Market Realist