A Mover and Shaker: Why This Restaurant Stock Was Flying

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One of the biggest movers on Thursday was the fast-food chain Shake Shack (NYSE:SHAK), which surged about 24% on the day. At one point, the stock hit a new 52-week high of over $98 per share, and as of late Thursday afternoon, it was trading at around $97 per share.

The catalyst was the company’s impressive fourth-quarter earnings, which bested consensus estimates, and its outlook for robust growth in 2024. Let’s take a look.

Dozens of new Shake Shacks

Shake Shack opened 44 new company-operated restaurants and 41 licensed Shake Shacks in 2023. In the fourth quarter alone, it opened 15 company-operated and nine licensed Shake Shacks. It now has over 500 locations around the world, with more planned for 2024.

In the fourth quarter, Shake Shack’s revenue jumped 20% to $286 million, while its net income was $6.8 million, or 17 cents per share. That’s up from a net loss of $8.1 million, or 20 cents per share, in the fourth quarter of 2022. For the full year, Shake Shack’s revenue rose 21% to $1.1 billion, while its net income was $20.6 million, or 50 cents per share, up from a $23 million net loss in 2022.

The company’s operating profit, which is sales minus operating expenses at the restaurant level, was $54.6 million in the quarter, up from $43.7 million in the previous year’s fourth quarter. That represents an operating profit margin of 19.8%, up from 19%. For the full year, the chain’s operating profit rose 37% year over year to $208.2 million, while its operating profit margin for 2023 was 19.9%, up from 17.5% in 2022.

“We ended the year on a high note, with positive traffic in the fourth quarter through the success of our sales-driving strategies and continued margin expansion,” Shake Shack CEO Randy Garutti said in the earnings release. “Our leadership teams are energized and excited as we embark on our 2024 Strategic Priorities and target another year of strong growth and margin expansion.”

Just getting started

While its fourth-quarter numbers were solid, Shake Shack’s outlook for 2024 may have been the primary catalyst for Thursday’s surge. The company is targeting $1.21 billion to $1.25 billion in revenue in 2024, which would be a 10% to 14% gain over 2023. In addition, Shake Shack estimated same-store sales growth in the low-single digits, compared to 4.4% in 2023.

Further, Shake Shack’s general and administrative expenses are anticipated to rise from $129.5 million in 2023 to between $139 million and $142 million, although its outlook calls for strong growth in adjusted EBITDA. Shake Shack is targeting $160 million to $170 million in adjusted EBITDA this year, which would be 21% to 29% higher than last year. The restaurant-level operating profit margin is projected to be between 20% to 21%, up slightly from 19.9% in 2023.

Finally, the number of new Shack openings is set to be slightly lower than 2023, with 40 new company-operated locations and 40 new licensed locations planned for this year.

“In many ways, we feel that we are just getting started,” Chief Financial Officer Katie Fogertey said in the shareholder letter. “In 2024, we plan to improve the overall guest experience, drive sales, lower the total cost to serve, further optimize labor, show improvement in how we build and open our Shacks, and make the critical investments in our teams.”

Shake Shack stock soared about 78% in 2023, and with Thursday’s surge, it’s already up more than 30% in 2024. While the company’s outlook is solid, it is questionable whether its earnings will be enough to justify its high valuation, especially after this spike. Things could flatten out a bit, so it might not be the right time now to jump on this stock. However, it’s worth keeping an eye on and watching for its valuation to come down a bit.