Shake Shack Provides First Quarter 2020 Preliminary Results

Shake Shack Inc. (NYSE: SHAK), announced preliminary results for the fiscal first quarter of 2020 and provided an update today on the impact of the COVID-19 pandemic on its business, together with additional measures the Company has taken to enhance its financial liquidity.

“Given the ongoing impact of COVID-19 on our business, our Shack teams have demonstrated their entrepreneurial spirit and continued to adapt our operating models and business strategy. As a result, we’ve seen strong sequential sales increases on a weekly basis since the last week in March. We’ve taken this time to double down on our digital toolbox, and have increased engagement and messaging in our own channels over recent weeks, while also successfully expanding new and existing integrated delivery partnerships with DoorDash, UberEats, Caviar and Postmates. We’re encouraged that these and other crucial business pivots have driven an improvement in recent sales trends, and continued to leverage the strength of our brand. I am beyond proud of how hard our team members are working to support each other, and our communities, during a time when the need for hospitality and comfort is more important than ever. Shacks around the country continue to provide thousands of meals to hospital workers, first responders, firefighters, humane societies and food banks. Our priorities remain the health and safety of our team members and guests, preserving financial flexibility and serving our communities safely” said Randy Garutti, Shake Shack CEO.

Preliminary Unaudited Results for the First Quarter Ended March 25, 2020:

• Total revenue was $143 million, consisting of $138 million of Shack sales and $5 million of licensing revenue.
• Same-Shack sales decreased 12.8% in the quarter versus the same period last year. January and February performance was in line with management expectations, however March saw an immediate and acute impact from COVID-19, leading to a decrease of 28.5% compared to March 2019.
• Operating loss was approximately $0.8 million, or 0.5% of total revenue, which included $1.1 million of impairment of property and equipment.
• Shack-level operating profit¹ was approximately $26 million or 19.1% of Shack sales.
• Cash and marketable securities at the end of the quarter totaled $104 million.
• The Company opened four new domestic company-operated Shacks and eight net new licensed Shacks during the quarter.

Current Trends and Business Update:

• Sales across domestic company-operated Shacks (excluding those that are closed), have seen consistent week over week increases over the last two weeks. While there are no assurances that these trends will continue, we believe the following strategies have contributed to the recent improvement:
  • the operational pivot to new modified drive-through, curbside and digital ordering/take-out models
  • increased marketing on the Company's own social, mobile application and web channels
  • the addition of new and expansion of existing integrated delivery partners as well as promotional activity on certain delivery marketplaces
• The Company’s own channels continue to represent the largest proportion of Shack sales, with digital channels (mobile application and web) having experienced significant growth over recent weeks.
• The Company is continually reviewing the performance of all domestic company-operated Shacks to ensure the sales justify keeping those Shacks open. As of today, the Company has temporarily closed 17 Shacks. About half of those closures have been as a result of mandated closures by local government, or due to closed developments. The remaining closed Shacks operate in heavy tourist or travel restricted zones.
• As of today, given reduced operations and temporary Shack closures, the Company has made the difficult decision to furlough or lay off more than 1,000 employees across Shack operations and the Home Office. In addition, the Home Office and executive teams have taken reduced pay for an indefinite period. During this time, Shake Shack has committed to providing full pay for Shack General Managers, regardless of whether their Shack remains open, in addition to paying out PTO, and covering 100% of medical benefits through July 1 for all furloughed Shack managers and Home Office employees.
• The Company’s licensed business remains materially impacted as COVID-19 continues to cause unprecedented disruption around the globe. At this time, 57 of the Company’s 120 licensed Shacks remain open. All Shacks within the UK, Turkey, Japan and domestic stadium venues are closed. US airport locations have also either fully closed or significantly slowed as air travel has diminished to a near standstill. Despite the challenges, some positive signs are emerging. Dining rooms are open in Korea, Hong Kong and mainland China. Singapore is open for delivery and takeout, and after several weeks of closure, the Philippines and certain Shacks in the Middle East have re-opened for delivery and take out. Average weekly sales in mainland China and Hong Kong have continued to increase steadily in recent weeks.
• Throughout these challenging times, the Company continues to identify new and innovative distribution channels in order to get its product to market. This is highlighted in a new relationship with Goldbelly, a curated online marketing place for regional and artisanal foods. The Company is also selling a similar cook-at-home pack available for pick-up in the San Francisco Bay Area Shacks, also available on all digital channels. Since inception, Shake Shack and Goldbelly have shipped and sold over 8,000 at-home kits across the country, and the partnership has created a significant amount of positive press and marketing coverage.
• The Company’s supply chain has not been materially affected at this time.
• On March 16, the Company withdrew financial guidance for the fiscal year ending December 30, 2020. Further detail around business performance will be shared on the Company’s First Quarter earnings call on May 4, 2020.

Financial Liquidity Update:

• The Company has $112 million in cash and marketable securities² on hand as of April 16.
• On April 10, the Company received a $10 million loan under the Paycheck Protection Program (PPP) through J.P. Morgan.
• Based on current sales levels and with cost reductions taken across the organization, the Company’s current cash burn rate is estimated to be between $1.3 million and $1.5 million per week. This includes approximately $0.8 million of cash rent payments, which are currently planned for discussion, or already under discussion with the Company’s landlords for potential deferral or abatement. In addition, the Company has the ability to further reduce operating and other expenses should these sales levels continue for a more prolonged period of time.
• The estimated cash burn rate also excludes new Shack capital expenditures, which have been temporarily suspended. The Company expects future cash outflows of approximately $12 million related to construction expenses for work previously incurred on already completed but unopened Shacks, or Shacks that were close to being completed at the time of the outbreak.
• The Company has 33 additional signed leases and intends to complete and open these Shacks as soon as the business environment improves to more normalized levels. The Company has an identified pipeline of leases in negotiation for continued growth in 2021 and beyond, and believes additional and improved development opportunities may be available over time due to the impact of COVID-19 on the overall retail and real estate environment.
• As previously announced, the Company drew down on its $50 million revolving credit facility (”RCF”) with Wells Fargo Bank, National Association on March 24. The Company expects to be in compliance with the financial covenants under the RCF for the first quarter of 2020. With respect to future quarters, the Company has been in discussions with its RCF lender regarding potential modifications to the RCF that would create additional financial flexibility throughout the COVID-19 impacted period and further enhance the Company’s ability to resume execution of its long-term strategic growth plan.

Shake Shack will host its First Quarter Earnings Call on May 4, 2020.

Shake Shack Inc. will release First Quarter 2020 financial results on May 4, 2020, after the market closes. In conjunction with the earnings release, Shake Shack will host a conference call at 5:00 p.m. ET. The conference call can be accessed live over the phone by dialing (877) 407-0792, or for international callers by dialing (201) 689-8263. A replay of the call will be available until May 11, 2020 by dialing (844) 512-2921 or for international callers by dialing (412) 317-6671; the passcode is 13700133.