Yahoo Finance Shake Shack (SHAK) Stock Rises 20% YTD: More Room to Run?
Shares of Shake Shack Inc. SHAK have increased 20.1% year to date against the industry’s decline of 4.5%. The company is benefiting from expansion, marketing innovation and operational efficiencies. Also, focus on digital initiatives bodes well. However, inflationary pressures are a concern.
Let’s discuss why investors should retain the stock for the time being.
Factors Driving Growth
Shake Shak focuses on store openings to effectively strategize its expansion plans. The company is pleased with the sales level of its recent openings and believes that last year's construction costs were a high watermark. In the fiscal first quarter, the company opened eight new Shacks, including two new drive-throughs. The company plans to open approximately 80 Shacks in the fiscal 2024, suggesting nearly 15%-unit growth. It emphasizes the strategic use of multi-format locations, such as drive-throughs, to unlock new market potential and customer bases.
Shake Shack is working on lowering build costs and pre-opening expenses, aiming for a 10% year-over-year reduction in build costs for new Shacks. The company focuses on structural redesigns and optimizations in construction and kitchen equipment to enhance cost savings. SHAK is developing a robust pipeline for 2025, aiming to achieve even lower build costs than those projected for 2024.
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In response to a competitive market environment, Shake Shack is increasing its marketing investments to drive brand awareness and customer engagement. This includes new packaging, in-shack designs and robust advertising campaigns. These efforts have shown positive returns, driving new and returning customer traffic and enhancing brand visibility. SHAK intends to ramp up investments in this area to drive higher conversion rates and consideration.
The company continues to drive customer interest and sales through limited-time menu offerings. During the fiscal first quarter, it reported solid customer feedback concerning the Korean barbecue burger and Korean chicken sandwich. Shake Shack is optimistic and anticipates the momentum to continue with its summer launch of limited-time offers (LTOs).
The company is making significant strides in improving the guest experience by reducing wait times and enhancing service quality. It plans to introduce new tools to improve wait times and the overall guest experience. These tools will optimize how orders are taken and how food flows through the kitchen. Early improvements have been observed in guest satisfaction scores, both in Shack and through digital channels. There remains significant potential to enhance metrics such as order accuracy, which is anticipated to boost guest perception and build long-term customer loyalty.
Concerns
Shake Shack is confronting substantial challenges due to broader economic factors and adverse weather conditions. The company is navigating economic headwinds, particularly in the Middle East and China. Inflationary pressures are also impacting Shake Shack, notably affecting the prices of its premium ingredients, which have risen sharply over a short period. Total expenses for the fiscal first quarter amounted to $290.5 million, up from $256.5 million in the previous year's quarter. Shake Shack's efforts to maintain profitability through operational efficiencies appear challenged amidst ongoing economic pressures and uncertain consumer confidence. The company expects inflationary pressures, including rising costs of wages, food and paper, to persist in the near term.
Zacks Rank & Key Picks
Shake Shack currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector include:
Wingstop Inc. WING sports a Zacks Rank #1 (Strong Buy) at present. It has a trailing four-quarter negative earnings surprise of 21.4%, on average. The stock has surged 119.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for WING’s 2024 sales and EPS suggests a rise of 27.9% and 37.1%, respectively, from year-ago levels.
Brinker International, Inc. EAT currently sports a Zacks Rank #1. It has a trailing four-quarter earnings surprise of 213.4%, on average. EAT’s shares have risen 106.7% in the past year.
The Zacks Consensus Estimate for EAT’s 2024 sales and EPS indicates 5.1% and 41.3% growth, respectively, from the year-earlier actuals.
El Pollo Loco Holdings, Inc. LOCO currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 19.4%, on average. LOCO’s shares have risen 21.4% in the past year.
The Zacks Consensus Estimate for LOCO’s 2025 sales and EPS indicates 3.8% and 9.9% growth, respectively, from prior-year figures.
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El Pollo Loco Holdings, Inc. (LOCO) : Free Stock Analysis Report
Shake Shack, Inc. (SHAK) : Free Stock Analysis Report
Wingstop Inc. (WING) : Free Stock Analysis Report
