Shake Shack Inc. Q3 FY2021 Earnings Call

Good afternoon, everyone, and thank you for joining us. Welcome to the Shake Shack Third Quarter 2021 Earnings Conference Call. All participants are currently in a listen-only mode, and a question-and-answer session will take place after the main presentation. This conference is being recorded. I will now hand it over to your host, Annalee Leggett, Senior Manager of Investor Relations and FP&A for Shake Shack. Thank you. You may begin.

Thank you, and good evening, everyone. Joining me for Shake Shack’s conference call is our CEO, Randy Garutti; and CFO, Katie Fogerty. During today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our supplemental materials. Some of today’s statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2021. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. As a reminder, and as we have discussed and disclosed for several quarters now, 2020 included a 53rd week and to normalize for a consistent like-for-like peer comparison, our comparable periods for both 2020 and 2019 have been shifted forward one week from the fiscal calendar. We’ve included an example calendar on Page 19 of the supplemental materials. By now, you should have access to our third quarter 2021 earnings release, which can be found at investor.shakeshack.com in the News section. Additionally, we have posted our third quarter 2021 supplemental earnings materials which can be found in the Events and Presentations section on our site or as an exhibit to our 8-K for the quarter. I will now turn the call over to Randy.

Thanks, Annalee. Good evening, everyone. I want to start off this call as I often do by thanking our teams. There simply has never been a more challenging, but simultaneously more rewarding time to be working in the restaurant industry and in our Shack family. Our teams continue to lead the dynamic sales recovery we’re experiencing across the globe, while navigating some real pressures in a constantly changing environment. Opportunity, a balance for this team and I’m proud of them for always standing for something good. This quarter represented the highest total revenue quarter in our company’s history. With all the noise, it’s easy to overlook that revenue is up 49% this quarter versus the same time last year. In October, we had our highest ever company operated Shack Sales Day hitting just under $3 million. And in the fourth quarter, we expect to surpass $1 billion in system-wide sales for the year, a first for us that is quite a comeback our team is making. Our Same-Shack sales compares continue to improve and are nearly back to 2019 levels on average, most notably exiting fiscal October down just 1%. Our hometown of New York, our hardest hit urban Shacks are leading the way building every day as the energy of offices, events, commuters, and eventually tourists slowly return. For Shake Shack long-term we believe the balance of urban renewal and the strength and focus of our suburban models will build a solid foundation for the future. None of us knows what’s ahead in this environment, but we’re hopeful this momentum continues. Yet as sales keep climbing back, we acknowledge profitability challenges remain, and there’s a fair amount of uncertainty for the world in the coming quarters. As many industries are shared, we too are experiencing a swift and broad acceleration in the cost of goods and labor pressures facing our business. In the third quarter, this coincided with a high number of Shack closure days related to COVID and other weather events, which impacted our sales. Katie will dive more into the detailed numbers in a moment, but I want to name a few highlights. As seen in nearly every industry and especially in hospitality, staffing our Shacks remains challenging, but it’ll always be our top priority as we strive to deliver enlightened hospitality at every one of our touchpoints. In July, we made significant investments in higher wages, retention bonuses, and leadership development initiatives. Still at times, and in some Shacks, we remain below optimal staffing levels and are working harder than ever to attract and retain the strongest teams. You can count on us to invest in wages, bonuses, and incentives that take care of our teams and offer the kind of career opportunities our teams need. All of this will come at a cost, and you’ve seen this in our Q3 numbers, and you should expect this impact to remain a pressure near-term as we work to elevate our people. In addition, we’re seeing inflation throughout the supply chain. Most of the premium ingredients we buy such as the no hormone, no antibiotic proteins that separate us from traditional fast food have seen significant increases in a very short period of time. As just one example, beef, the largest part of our basket was up approximately 30% in the third quarter compared to the same period last year and up high single-digits from just the second quarter. With supply chain inflation and disruptions being felt across the globe, we’re expecting our cost of goods to remain elevated over our historical levels for the foreseeable future. To offset some of this pressure in mid-October, we took an additional 3% to 3.5% in price across our regional price tiers. This is ahead of our normal annual price raise of roughly 1% to 2%. We’ve remained conservative on price of Shake Shack for the 17 years we’ve been in business and believe we have continued pricing power should we need to exercise that further next year. So as sales come back, accelerated growth ahead, and margins pressured where are we looking around the corner? Well, as we wrap up 2021 and plan for the next few years, here’s where we’re focused. First, we’re elevating our people. You’ve heard me talk a bit about this today, but we’re going to do even more to build a diverse and winning team to meet the growth ahead. We expect to continue to invest in higher wages for our teams and programs that fuel their growth opportunity. In 2022, we intend to host our biennial leadership retreat. We will bring together leaders at every management level, across the country and the globe to align, inspire, and plan for the growth ahead. Second, we’re in the midst of a digital transformation, investing deeply in the omni-channel guest experience that will lead our future. We’ve unveiled a brand-new website, focused on the guest ordering experience. We’re launching new menu items exclusively in our app, driving sharp increases in digital guest acquisition, engagement, and sales. We’re investing in data infrastructure to better know and connect with our guests more personally, whether through our digital channels, email and potential offers or rewards, and in every way, we’re working to make the digital hospitality of our company an even better guest experience than we’ve ever had. Count on us to continue to make material investments in our digital transformation in the coming years. As of fiscal September, we entertained nearly 80% of our digital channel sales compared to fiscal January 21, even as in-Shack sales return. So it’s clear these investments are paying off. Third, we’re working hard to build a better Shack. You’ve heard us talk a lot about our excitement for our first-ever drive-thru opening this year and our commitment for up to 10 thru next year. Construction is coming together for our first few drive-thrus located across suburban locations in Kansas City, Minneapolis, Orlando, and Detroit. These are drive-thru heavy markets where we can optimize our learnings, adapt, pivot, and add to the dialogue of this evolving new format for us. We’re also working to optimize our other core Shack formats, learning and adding to our drive-up window Shacks, most recently opening our newest in Oak Lawn in the Chicago area. And all the while, focusing our long-term work on smarter designs, capital allocation, and four-wall metrics that will drive the rapid growth we have ahead. As of fiscal October end, we’ve opened 25 company-operated Shacks this year, with five of those in the third quarter. And the fourth quarter will be a busy one, as we look to open between 10 to 13 more restaurants, our new Shacks this year continue to outperform the overall company average, strengthening our brand across the country. The 2022 class will be 45 to 50 Shacks, our largest class ever. About 25% of the class will have Shack Track drive-up or walk-up windows. And we expect up to 10 drive-thru formats. As is often the case, and maybe even more so next year, due to supply chain disruptions, we expect the class of 22 to be heavily back weighted until the latter part of the year. It’s also important to spend some time talking about the incredible growth in our licensed business. We’ve opened 21 new licensed Shacks so far this year through fiscal October and remain on track to open up to 25 total this year. During the third quarter, we welcomed new Shacks in Singapore at Gardens By The Bay, in Monterrey, Mexico, and Hangzhou, China. Next year, we’ll be going even deeper in these regions, as we expand into brand new markets, such as Chengdu in Central China. On the domestic license side, we remain committed to growing our presence across airports, event venues, and roadside Shacks in the coming years. We also want to congratulate our friends at the Houston Astros, who once again brought Shack Burgers to fans all season and all the way to a great World Series. We’re proud to partner with them and some of baseball’s best as we bring Shake Shack to sports fans in stadiums around the country. While our licensed business continues to benefit from the overall global recovery, conditions do remain volatile and ever-changing. As a reminder, as of fiscal October end, six of our airport locations around the world were still temporarily closed. Many of the pressures we feel here exist similarly across the globe. And we’re working hard with our licensed partners to keep sharing and building Shacks that withstand the test of time in some of the world’s greatest locations. Finally, we’re working continuously to create an uplifting guest experience by elevating everything we do. We’re focused on gathering communities, enriching our neighborhoods, launching great products and driving our brand in new and innovative ways. On the menu front, we’re really excited about our latest LTOs, the Black Truffle Burger and Parmesan Black Truffle Fries, which began as an app-only option to drive digital engagement. This burger features a sauce made with real black truffle oil and is layered with crispy shallots and Gruyère cheese. At $8.99 in most Shacks in our urban markets, this item also pushed the upper envelope to pricing tiers for us. And it’s going to teach us a lot about our opportunities to offer even more premium items down the road. On the beverage front, we remain focused on growing our beverage attach rate. In the quarter, we saw continued strong performance from our cold beverage innovation of cocktail-inspired Summerades followed by our October launch of our new Winterades, featuring seasonal flavors of Cran Citrus Punch, Pomegranate Yuzu Lemonade, and Apple Ciderade. In the quarter, we also teamed up with our friend, Christina Tosi of Milk Bar for a limited-time offering birthday cake and cornflake chocolate drizzle shakes, which we featured in special promotions through our digital channels. Menu innovation continues to be an important part of our strategy to drive traffic to our own digital channels and increase engagement when guests trade up to our exciting LTO offerings and menu add-ons. On the brand side of Shake Shack, we’re doing more fun work than ever. Recently, as one example, as part of Adweek here in New York, we teamed up with Snapchat and turned our Hudson Yards Shack into the SnapShack with a full takeover where the Snap team launched their new augmented reality products inside the Shack itself, you can download special filters, experience a virtual world of characters partying in the Shack upon arrival, and snag exclusive merch through your Snap app. These are the focuses where we need to be spending our time and investing our capital right now, people, digital, new Shack growth, and the guest experience. Our team is excited for what’s ahead. I’ll hand it off to Katie to share more about the details of the quarter and expectations moving forward.

Thank you, Randy, and good evening, everyone. I want to begin by expressing my gratitude to our team for all their hard work. Despite the challenges in the current environment, it is our people and their commitment to providing uplifting guest experiences that are laying the foundation for future success. Our teams make Shake Shack a remarkable place for us all to work. In the third quarter, we reported total revenue of $193.9 million, our highest revenue ever, with a year-over-year growth of 49%. We ended up at the lower end of our expected total revenue range of $194 million to $200 million that we shared in August. I’d like to provide more context regarding our Shack sales this quarter. The impact of COVID-related issues and severe weather led to about 100 days of temporary closures, resulting in roughly $850,000 in lost sales. In spite of this, our average weekly sales during the third quarter, which accounts for closures, was $72,000, meeting our historical seasonality expectations by remaining flat quarter-over-quarter. Although our October average weekly sales have typically declined month-by-month, we were pleased to see $70,000 in average weekly sales for the month, surpassing September levels. More details about our monthly and quarterly average weekly sales performance can be found on Page 6 of the supplemental materials. Same-Shack sales increased by 24.8% year-over-year in the third quarter, fueled by a strong traffic recovery, slightly offset by a change in the guest mix as more diners opted to eat in our restaurants. As a reminder, our in-Shack check averages are lower than our digital check averages. Throughout the year, we've seen the combination of in-Shack recovery and strong digital retention helping us close the gap to our 2019 sales, even with many of our top individual Shacks not fully recovered. During the quarter, Same-Shack sales were approximately 7% below 2019 levels, which is an improvement from the roughly 12% gap we reported in the second quarter. October Same-Shack sales were just 1% below 2019 levels, with growth being fairly broad-based across regions and formats. We're continuing to benefit from steady urban recovery driven by early signs of return to office, events, commuting, and travel. Sales from some of our highest-performing Shacks before COVID, particularly those in New York City, Los Angeles, Chicago, and Boston, played a significant role in our sales recovery this quarter. Although there is a diverse range of performance across our restaurant base, urban Same-Shack sales were down 11% from 2019 levels in September but improved to down 8% in October, showing significant growth from the down 23% we saw in the second quarter. By October, Same-Shack sales in all regions outside of New York City had fully recovered to their 2019 levels. We saw notable strength in Texas and certain Northeast markets where Same-Shack sales are now trending in the high single digits to low double digits above 2019 levels. Our suburban Shacks also exhibited strong growth this quarter, with suburban Same-Shack sales in October being 7% above 2019 levels. We strategically positioned our suburban Shacks in high-traffic areas, some of which experienced more impacts from COVID than others. We provide examples of our suburban Shacks on Page 8 of the supplemental materials for more context on these formats. We also operate Sacks in premium malls and outlet shopping centers, such as in the Westchester mall and Orlando premium outlets. While mall traffic hasn't returned to pre-COVID levels broadly, we are encouraged by the performance we’ve observed this quarter. Due to their smaller footprint, occupancy costs for these locations are generally much lower than for our freestanding units, and we are satisfied with the margins and returns we’re generating from these small-format Shacks, remaining optimistic about their sales recovery potential. We also have accessible suburban locations, like freestanding buildings and those in open-air shopping areas, where recovery has been significantly better than for suburban Shacks reliant on mall traffic. In our supplemental materials, we showcase our new freestanding Shack in Oak Lawn, alongside our Shack in Suburban Square, Pennsylvania, which we opened earlier this year in an outdoor shopping center. It is important to note that our Same-Shack sales comparisons to 2019 include only those Shacks that have been open for at least two years. Most of the suburban Shacks we've opened since 2019 fall into the freestanding and outdoor shopping center formats, similar to Oak Lawn and Suburban Square. Looking ahead to 2022, we are targeting 45 to 50 new openings with more than half in suburban markets, particularly freestanding and shopping center locations that feature enhanced convenience options like drive-thrus and drive-ups. We have a substantial development pipeline consisting of various formats in both urban and suburban regions, and we think our diverse portfolio of Shacks is vital to our growth strategy going forward. Even though in-Shack sales grew approximately 120% year-over-year in the third quarter, we were still able to see growth in our digital sales compared to Q3 2020, retaining almost 80% of our digital business from fiscal September versus its peak in fiscal January 2021. Since the last quarter, we have increased our first-time app and web purchasers by 14%, bringing the total to 3.2 million since mid-March 2020. We're encouraged by our digital retention and issuance, even as our in-Shack sales continue to recover. Our commitment to the digital transformation of our business remains strong, and we are focused on transitioning more of our traditional in-Shack guests into our growing omni-channel to engage with them through multiple touch points. Next year, we'll be increasing our investments in building our in-Shack digital environment, including initiatives such as drive-thru menu boards, pickup screens, and enhancing our kiosks. Investing in digital will remain essential as we strive to improve access, convenience, and connection, aiming to welcome more guests into our own channels. The kiosk program is one aspect of our digital strategies, as some Shacks do not have kiosks yet; however, for those that do, over 75% of sales come through our kiosks and digital channels. Our digital team has developed a kiosk experience that delights our guests and simplifies menu navigation with premium add-ons. In fact, kiosk orders typically have a higher average check compared to cash register orders. Kiosks also enable our team members to work more efficiently and simplify their tasks, allowing us to expand our digital and omni-channel ecosystem over the long term. Moving on to our licensed business, which generated total revenue of $6.9 million this quarter. We benefited from a lot of regions relaxing COVID-related restrictions along with strong performance from our class of 2021. While our licensed business may continue to gain from easing domestic and international travel constraints, we still face global headwinds and uncertainty due to COVID. Regarding sales guidance, which we detail further on Page 17 of the supplemental materials, if there are no significant new COVID-related disruptions, we are projecting total revenue for the fourth quarter to be between $193.5 million and $200 million, with Shack sales of $187 million to $193 million. We anticipate Same Shack sales growth in the mid to high teens for Q4. While we're confident in our ongoing investments in digital business, new Shack openings, and new formats, we remain cautious of ongoing pressures from the labor market, potential supply chain disruptions, commodity price volatility, and continued uncertainty related to COVID as we head into the colder months. Additionally, our sales guidance assumes we will open 12 to 15 new Shacks in the fourth quarter, which includes the two we opened in fiscal October. Due to widespread delays and material shortages across the construction industry, it is possible that some Shack openings occur later than our guidance suggests. Some openings expected in 2021 may shift into 2022. The current state of the global supply chain and labor situation is creating more uncertainty around our opening calendar, which we want to point out as a potential risk to achieving our Q4 Shack sales and total revenue guidance. We anticipate Q4 license revenue to range between $6.5 million and $7 million, reflecting a recovery in particular regions balanced by ongoing global uncertainty. This guidance accounts for the expectation that COVID-related pressures in both our restaurants and supply chains will continue but not materially worsen. In the quarter, we achieved a Shack level operating margin of 15.8%, within our targeted range of 15% to 17%. I'll elaborate more on this shortly, but we observed a 330 basis points margin reduction due to our investments in team members as well as inflation in chicken and beef. This acceleration of costs, as Randy mentioned earlier, is anticipated to continue in the next quarter. We're focused on collaborating with our suppliers, many of whom have been our partners for a long time, to navigate these challenges, and we believe we are in a robust position. Nevertheless, we are likely to keep encountering the impacts from our distributors and the supply chain's capacity to staff and deliver orders. In the third quarter, food and paper costs represented 31% of total Shack sales, with inflated commodity prices in chicken and beef leading to an approximately 130 basis points setback for our Shack level operating margin. We hope protein costs will stabilize through the fourth quarter, but we do not expect them to return to the levels we experienced in 2019 and 2020. We also foresee increases in freight, paper, and packaging costs in the fourth quarter, which will likely remain elevated for the foreseeable future, adding to the inflationary pressures we anticipate facing into 2022. Labor costs during the third quarter accounted for 31.1% of total Shack sales as we invested in wages and bonuses to both retain existing and recruit new team members. We expect continued pressure on labor costs for the foreseeable future, influenced by industry-wide staffing difficulties. However, we view this challenging time as an opportunity to attract top talent. We offer competitive pay, with an average starting wage of approximately $15 per hour, which is a 13% increase from Q4 last year. We also provide benefits including a generous bonus program, paid time off, flexible schedules, healthcare, vision, dental insurance, and 401(k) retirement savings opportunities. These are just some of the ways we express our gratitude to our team members daily. Our strong unit growth pipeline and solid balance sheet, along with our consistent investment in leadership and development, put us in a prime position to offer our team members meaningful career paths. Our Shift Up programs focus on training our hourly team members to advance into management roles and be part of our growth story for years to come. Ultimately, we believe we offer candidates an attractive opportunity to join our Shake Shack family. Investing in our teams continues to be a priority, and we are committed to ensuring we have the best team members to execute our strategic growth plan and nurture the next generation of leaders at Shake Shack. Other operating expenses constituted 14.2% of total Shack sales, showing an 80 basis points increase from the second quarter, as more guests chose to dine in, leading to higher maintenance costs. Additionally, we experienced elevated costs due to the strength of our delivery business. Occupancy costs in the third quarter accounted for 7.8% of total Shack sales, a 40 basis points decline from the second quarter owing to our restaurant footprint and development pipeline. We expect occupancy costs in the fourth quarter to be slightly higher compared to the third quarter. In summary, we're focused on achieving long-term margin recovery, actively working on every aspect of our operations. Our business relies on sales recovery from some of our most affected Shacks that remain below 2019 levels. As we move toward the end of the year, we'll emphasize initiatives to alleviate some of these pressures alongside the price increases we implemented in October. While we anticipate overall sales recovery, the inflation impact from fluctuations in commodity prices and our ongoing investment in team members are expected to continue well into 2022. Therefore, we project Shack level operating margins in the fourth quarter to be between 14% and 16%, as detailed on Pages 16 and 17 of our supplemental materials. G&A expense in the third quarter reached $20.5 million, which includes $2.3 million in equity-based compensation and other non-cash items as we further invest in marketing, technology, and the digital evolution of our business. These strategic focuses are crucial for Shake Shack’s future, and we plan to leverage our strong balance sheet to enhance these key business elements moving forward. We remain dedicated to what makes Shake Shack unique—our people—and we see this moment as a chance to cultivate our teams and the company’s future, grounded in our strong and distinct culture, along with our growth trajectory. As we transition into the fourth quarter and into 2022, we expect our G&A expenses to rise to support our long-term growth initiatives. We reaffirm our full-year guidance range for fiscal 2021 of $86 million to $88 million. In the third quarter, reopening expenses totaled $2.9 million, increased from $2.3 million in the second quarter. At this juncture, as we execute on our development pipeline, we anticipate total preopening expenses for the full year 2021 to range between $13 million and $14 million, consistent with our previous guidance. To remind, we are facing heightened material and labor costs for our Shack buildouts over the next 18 months, and we are committing additional investments in our drive-up format as well as our first-ever drive-thru. With up to 10 drive-thrus slated for development through 2022, and alongside the material and labor inflation we've discussed, we expect historical build-out costs to rise by 10% to 15% on average for the class. We have a lot to learn from this experience, but we are committed to investing in these new formats that we believe can yield strong sales and returns over the long term. On an adjusted pro forma basis, we reported a net loss of $2 million, or $0.05 per fully exchanged and diluted share. Excluding the tax impact of stock-based compensation, our adjusted pro forma tax rate in the third quarter was 30.7%. A complete reconciliation of our tax rates is included in the financial details section of our supplemental materials. As with previous quarters, we will not provide a specific tax guidance range for 2021 at this time due to continued uncertainty for the remainder of the year and the timing of our recovery. Under normal operating conditions, our adjusted pro forma tax rate, excluding the effect of stock-based compensation, is expected to be between 26% and 28%, consistent with 2020 levels. Our balance sheet is strong, ending the quarter with $401.5 million in cash and marketable securities. We will use this to support ongoing investments and initiatives across our business as we advance into the next exciting phase of Shake Shack's journey. While we are not immune to the challenges affecting the overall hospitality industry, we are confident that our investments across various areas of our business and our dedication to our people will position us favorably as we transition towards a more normalized operating environment. Finally, I want to express our gratitude to our employees and their families for their hard work and commitment during this unprecedented time. We hope everyone stays safe and healthy as we head into the holiday season. I will now turn it back to Randy.

Thanks, Katie. It’s really encouraging to see our teams capitalize on the broad-based sales recovery and renewed momentum we’re seeing across the country. Shake Shack was built as a community gathering place, and it’s gratifying to again, see our Shacks filled with friends, colleagues, and visitors. There’s no doubt a number of macro factors impacting our business at the moment, we expect much of that uncertainty to remain through this year and well into 2022. I’ve been working in restaurants since I was 13 years old; it has never been an easy business and I believe most would agree that this is a particularly challenging time with so many persistent pressures hitting all at once. But history tells us that there are seasons to these challenges and great teams and great brands endure. None of us knows exactly what’s coming next and what we do know is that our team is working harder than ever to take care of each other, bring hospitality to our neighborhoods, transform our Shack formats, invest in critical digital infrastructure, and uplift everyone in our Shack community along the way. We look forward to sharing a Shack burger with you soon. And as always, hope you and your family stay safe and healthy. With that operator, go ahead and open up the call for questions.

Thank you. Our first question is from Jim Sanderson with North Coast Research.

Yes. Thanks for the question and congratulations on an improving quarter. I wanted to dig into your commentary about some temporary operational delays in the third quarter and how that impacted average weekly sales. Are you experiencing any reduction in average weekly sales in the current quarter related to staffing challenges?

From time to time, Jim. Thanks. We named a couple of things in the third quarter, right? About 100 days of full closures, right, now the average weekly sales adjust for that. Okay. So that is not included in those. But what we saw in the third quarter, obviously we had hurricanes in the South, we had some pretty dynamic weather in the Northeast as well. But a lot of those were COVID-related closures. From time to time, as Katie noted, we do see either shortened hours or sometimes some small disruptions from the staffing. It’s not broad, but it is from time to time and in certain Shacks. We also see certain things with the supply chain, right? We’ve had moments, like every company has talks about where certain things we need to operate on a given day don’t arrive on the truck. It’s frustrating for our team. It’s not foreseeable in most cases and it’s hard and that does at times impact our sales. Again, it is not broad-based. It is more here and there. But there’s some small impact in this quarter and we would expect for some time to come, that’s going to continue.

All right. And a quick follow-up question on pricing. I think you mentioned low single-digit pricing. A lot of your peers are taking their prices up mid to high single digits. In some instances, we’re seeing menu prices increase 10%. Given the cost inflation pressures on food and labor, wondering how you’re looking at menu pricing going into the fourth quarter and into 2022, meaning can we expect maybe a few more menu price adjustments over the next several quarters in addition to what you’ve already proposed?

Yes. We’re going to look at it really closely. Look, we have a history of 17 years of basically taking 1% to 2% a year. We have been at or below CPI increases forever. We don’t love taking more price; we want to be a brand that sustains the test of time. Even now with these pressures, we may be taking less price than we could. However, we are going to be patient about it. So we’ve taken roughly 3% to 3.5%. We’ve done some of that in our digital channels where we’ve increased – we talked about this last quarter on our third-party delivery where we have a 10% upcharge in there. So we’re doing it more surgically. Should we continue to see rapid inflationary costs on any part of the P&L? We may consider taking more price earlier next year that we plan. Today we don’t have a plan that we got our – towards the end of October, we got our 3% to 3.5% price flowing through the system. I feel good about that. That’s hitting now. And again, it’s not going to offset all of the pressures we see at the moment. But for Shake Shack, we take a long view on these things and we’ll keep an eye on it closely.

And just building on that point there. When you think about how early we are on our growth potential, I think that’s something that’s really important to keep in mind. We still have many more Shacks to build and to open, many new markets to enter, and many new formats. And so, echoing on Randy’s point here, being mindful of that as we think about price will be absolutely essential.

Hi. Thanks for the questions. Lots of great details to digest. I wanted to dive into the suburban trends that you guys disclosed. In October, the trends are particularly encouraging that plus 7. But there seemed to be a pretty meaningful step up versus September. And just wanted to know if there’s anything specific that’s driving that? Is there a seasonality impact there, something in the consumer, or something more granular to your strategy that drove that?

Hi, Jared. Yes, October really across the board for us was just very broad-based. There was a small benefit from the price that we took in the month – we took it mid-month. But what we’re seeing here is a strong rebound in traffic across the board. We thought – we outlined and gave a little bit more detail around our different types of suburban formats and really it was all of those improved. And the important thing here is that we’re beating seasonality. So typically you would expect a more muted October, and across the board, we outperformed that. I’d really also highlight here. We have a pretty strong performing LTO right now with black truffle. We launched that through our app-only channel to begin with and then rolled it out to our stores and just recently through third-party. We’re seeing a lot of strong reception there. On that point, we talked about it a little bit in the script, but we were charging $8.99 for the black truffle burger in our core urban markets. And we’re really learning a lot about our ability to kind of pass on a really premium elevated product to our guests.

And Jared, I would also just note, you’re talking about suburban. I think one of the notes that – is a good vital sign is urban continues to improve and with that suburban improved. So that was encouraging. Now, look, we’ve said it, we’ve shared it, we still had a long way to go in our urban business, especially in New York City and other large metropolitan areas, still not fully recovered and have great impact on the company overall. But it’s encouraging to see the continued recovery in all those markets.

Yes. That’s great. And if I can just quickly follow-up, just a quick question on beef prices. I know you noted that beef was up 30% year-over-year in the third quarter. I’m not sure if I missed it, but did you give an update on what the fourth quarter was looking like so far? Are you seeing that measure accelerate, decelerate, or kind of holding at that 30%? Any color will be really helpful? Thank you.

Yes, sure. So, beef prices, again, as we talked about really kind of spiked up in the third quarter. We’ve seen them come down a little bit, but they are still at elevated levels and we’re seeing them hold a little bit, come down from the high highs. But we’re definitely still in an inflationary environment.

Thanks. Good afternoon. Two quick ones. The first is just a numbers question. When you think about October, November, and December in the prior year, was there anything notable in – well, maybe a two-year trend, anything notable in seeing store sales adjustments that we would want to know, like it’s an easy comparison or more challenging comparison? And then just making sure October would be the lowest average weekly sales month of the quarter. Is that the right way to think about it?

Well, there are a couple of things, there’s some calendar shifts and some other things. Generally in 2019, if you look back at that quarter we talked about sort of a decelerating trend and being a little bit weaker towards the end of the year. Now we’ve got because of the week shift and also there’s a little call out which matters for Shake Shack when holidays and where they fall. So if you look at the calendar, we’re going to have a few days of that Christmas holiday in this year of 2021 and others going into the first quarter. That will have a negative impact on our Q1 upcoming. Additionally, Christmas is on a Saturday. We will lose that day of sales. That is worse than in years past when you lose a Thursday or Friday day of sales. So that’s a little bit of a pressure for us as we look at pressure.

Thanks for the question. And so culture is at the core of how you operate the company in the face of current challenges. Can you talk about what you’re seeing with turnover as well as just overall sentiment among your teams and managers? Are there any markets or regions where you’ve seen outside pockets of labor challenges?

Yes. Well, okay, a couple ways to answer that. Yes, I would say turnover is generally elevated this year than in years past. We expect that, you’re seeing that everywhere. That’s true of our industry right now. And I expect that will continue for a while. We’re hopeful that people continue to come back to the workforce and that they make the choice to work with Shake Shack. We’re doing more than ever in our recruiting and our investments there. And then I’m sorry, remind me the second part of your question.

If you’re seeing - yes, so, well, one which is overall sentiment amongst your team, and then I guess the second part was any markets or regions where you’re seeing outside pockets...

Oh, yes. Sorry. Yes. It – I’ve said this before, where it was hard before COVID, it’s hard, and where it was easier, it’s easier. And that just kind of exists. I think you see that in certain markets around the country that have always been hard, especially in some of our further out, some of our suburban markets where you have younger workforce generally working and you may not have as many of them whose parents don’t want to work during the time of COVID, right, or small examples like that that get bigger over time. But look, this is going to be an ongoing journey. It’s hard. It’s been hard. It’s going to be hard and we’re going to continue to focus to take care of our team. We’ve never thought about it that linearly. I would say we’ve always thought about it as what is the point where the guest is having a great experience and this restaurant is going to be here for many years to come. We don’t run our restaurants by percentages. We run them by guests and human beings and people who need to come in and love our product. If we sense that, we continue to have added pressures and it would be accepted and well received by that community. Then we may certainly choose to take more price in those, but we’re long-term thinkers. We’re not going to overreact because we are having we are all as a world, Shake Shack is not unique in this conversation. The world is experiencing very high inflationary pressures and let’s be patient. And let’s see where that goes in the coming quarters.

Hi, thanks for the questions. Lots of great details to digest. I wanted to dive into the suburban trends that you guys disclosed. In October, the trends are particularly encouraging that plus 7. But there seemed to be a pretty meaningful step up versus September. And just wanted to know if there’s anything specific that’s driving that? Is there a seasonality impact there something in the consumer or something more granular to your strategy that drove that?

Hi Jared, yes, October really across the board for us was just very broad-based. There was a small benefit from the price that we took in the month – we took it mid-month. But what we’re seeing here is a strong rebound in traffic across the board. We thought – we outlined and gave a little bit more detail around our different types of suburban formats and really it was all of those improved. And the important thing here is that we’re beating seasonality. So typically you would expect a more muted October and across the board, we outperformed that. I’d really also highlight here. We have a pretty strong performing LTO right now with black truffle. We launched that through our app-only channel to begin with and then rolled it out to our stores and just recently through third-party. We’re seeing a lot of strong reception there. On that point, we talked about it a little bit in the script, but we were charging $8.99 for the black truffle burger in our core urban markets. And we’re really learning a lot about our ability to kind of pass on a really premium elevated product to our guests.

And Jared, I would also just note, you’re talking about suburban. I think one of the notes that – is a good vital sign is urban continues to improve and with that suburban improved. So that was encouraging. Now, look, we’ve said it, we’ve shared it, we still had a long way to go in our urban business, especially in New York City and other large metropolitan areas, still not fully recovered and have great impact on the company overall. But it’s encouraging to see the continued recovery in all those markets.

Yes. That’s great. And if I can just quickly follow-up, just a quick question on beef prices. I know you noted that beef was up 30% year-over-year in the third quarter. I’m not sure if I missed it, but did you give an update on what the fourth quarter was looking like so far? Are you seeing that measure accelerate, decelerate kind of holding that 30%. Any color will be really helpful? Thank you.

Yes, sure. So, beef prices, again, as we talked about really kind of spiked up in the third quarter. We’ve seen them come down a little bit, but they are still at elevated levels and we’re seeing them hold a little bit, come down from the high highs. But we’re definitely still in an inflationary environment.

Thanks. Good afternoon. Two quick ones. The first is just a numbers question. When you think about October, November, and December in the prior year, was there anything notable in – well, maybe a two-year trend, anything notable in seeing store sales adjustments that we would want to know, like it’s an easy comparison or more challenging comparison? And then just making sure October would be the lowest average weekly sales month of the quarter. Is that the right way to think about it?

Well, there’s a couple of things, there’s some calendar shifts and some other things. Generally in 2019, if you look back at that quarter we talked about sort of a decelerating trend and being a little bit weaker towards the end of the year. Now we’ve got because of the week shift and also there’s a little call out which matters for Shake Shack when holidays and where they fall. So if you look at the calendar, we’re going to have a few days of that Christmas holiday in this year of 2021 and others going into the first quarter. That will have a negative impact on our Q1 upcoming. Additionally, Christmas is on a Saturday. We will lose that day of sales. That is worse than in years past when you lose a Thursday or Friday day of sales. So that’s a little bit of a pressure for us as we look at pressure.

Thanks for the question. And so culture is at the core of how you operate the company in the face of current challenges. Can you talk about what you’re seeing with turnover as well as just overall sentiment among your teams and managers? Are there any markets or regions where you’ve seen outside pockets of labor challenges?

Yes. Well, okay, a couple ways to answer that. Yes, I would say turnover is generally elevated this year than in years past. We expect that, you’re seeing that everywhere. That’s true of our industry right now. And I expect that will continue for a while. We’re hopeful that people continue to come back to the workforce and that they make the choice to work with Shake Shack. We’re doing more than ever in our recruiting and our investments there. And then I’m sorry, remind me the second part of your question.

If you’re seeing - yes, so, well, one which is overall sentiment amongst your team, and then I guess the second part was any markets or regions where you’re seeing outside pockets...