Shake Shack Inc. Q3 FY2025 Earnings Call

Greetings. Welcome to Shake Shack's Third Quarter 2025 Earnings Call. Please note that this conference is being recorded. I will now hand it over to Alison Sternberg, Head of Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch; and CFO, Katie Fogertey. 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 shareholder letter. 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 21, 2025, and our other SEC filings. 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. By now, you should have access to our third quarter 2025 shareholder letter which can be found at investor.shakeshack.com in the Quarterly Results section, or as an exhibit to our 8-K for the quarter. I will now turn the call over to Rob.

Thanks, Alison, and good morning, everyone. We are extremely proud of our third quarter results, which showcase the important foundational work we've been doing to position ourselves for growth in the achievement of our long-term goals. Despite the strength of the outstanding quarter, we will not be complacent. Our focus remains to build a resilient long-term business, one that's not defined by any single quarter. We are making the necessary strategic investments today that set us up for long-term success. This means continuing to prioritize initiatives that strengthen our foundation and support sustainable growth. We have been executing with purpose against the deliberate strategy inspired by our mission to deliver enlightened hospitality to our team members and guests. Collectively, our efforts have resulted in stronger team retention, better guest service, operational improvements and productivity, a steady cadence of culinary innovation and the foundation of a brand marketing model. The engine behind our success in the heart of our brand is our team. We have assembled an incredible group of talent who bring a wealth of experience from both inside and outside the company. Our external hires come from well-established multiunit organizations where they have learned how to implement best practices that can help us as we continue to scale. And we are equipping our managers with tools to develop high-performing teams from within that are building a culture of hospitality, productivity and excellence. It's no surprise to us that we are seeing a reduction in turnover, leading to more tenured, higher-skilled hourly team members, which, in turn, is having a direct impact on the productivity of our labor in our Shacks. We're also building a brand marketing model. We recently announced that we appointed Michael Fanuele as Chief Brand Officer. In this role, he will oversee advertising, paid media and insights and analytics, working in close collaboration with the broader team to advance our marketing strategy and steward our brand in the marketplace. Michael has been supporting our team as a consultant since earlier this year, where he played a pivotal role in helping to build our strategic brand positioning and in making the selection of our new creative agency partner. We're extremely excited to take this next step in evolving our marketing model, which we believe is a critical component for us to build an enduring and powerful comp engine for growth. Michael's creativity, experience and leadership will help us continue to build demand for our culinary innovation, optimize our media investments and strengthen the Shake Shack brand. Over the past year, we have made important strides in improving operations, and I want to spend some time walking everyone through what we are seeing. I'm incredibly thankful to our operations team and our support center for all the work that they have done to advance our business. This year has been an important year across our operations as we establish new practices that will help us scale our business with hospitality, efficiency and excellence. While we do not report this way, we recognize that many in the industry analyze our cost trends on a per operating week basis. We are aware of the fact that we are currently operating with fewer labor hours than we used to, and that our labor costs on an absolute dollar basis per operating week are down, however, still high relative to the fast casual industry. Our historical labor model and the execution of that model was not well positioned to achieve the operating excellence that we need to deliver on our aspirations. In fact, the reduction in hours necessary to operate our Shacks with excellence has improved our ability to serve our guests because we are using those hours in a more productive way. We will continue to optimize our operations and get even more efficient in areas where we're simply overstaffed, while at the same time focusing on and delivering on better hospitality. As we have discussed over the course of 2025, we implemented a new labor model that is an activity-based labor model moving off of the sales-based labor model. We also took a hard look at how we were deploying the hours that our Shacks were allocated and streamlined a lot in the service of the guest experience. We have built a disciplined approach and our Shack leaders are showing real accountability and using the tools and processes provided to attain our labor goals. I am pleased to share with you that nearly all of our Shacks met or beat labor targets in the third quarter. This is a meaningful improvement versus last year where approximately half of our Shacks met their labor targets. We are doing a better job of supporting our managers with strong above-store leadership, data and analytics, as well as recruiting and training tools as they work to optimize the operations of their restaurants and deliver on their goals. But our work is not done. Team members are at the heart of everything we do and the lifeblood of our company. One of the things that I'm most proud of is how much longer we are seeing our team members stay with us. We believe this improvement reflects our ongoing focus on creating an environment where team members can grow and succeed. We have included retention as a key metric on our operator scorecard, and our leaders are focused on training and development to help build a more tenured team. We are seeing improved throughput across all dayparts, including peak, from our team members that have more experience and tenure. This is not surprising as we make many items fresh from scratch and there's a natural and longer learning curve to our process versus traditional fast food. Simply put, the more experience our team has the better they can execute against our operational model. Our top priority is guest satisfaction. We will continue to seek out ways to help our team members become more productive, that it won't come at the expense of guest and team member satisfaction. The evidence of that commitment can be found in our improvement in operating metrics, which we measure as a way to hold ourselves accountable for our North Star, our guests. At Shake Shack, we cook our food to order. That is a big part of why it tastes so good. I am proud that our speed of service has improved from approximately 7 minutes in 2023, to now approximately 5 minutes and 50 seconds. We are going to continue to get even better here. Our guest satisfaction scores across meal taste, cleanliness of our Shacks and likelihood to return has all improved. And finally, with our optimized deployment, we are seeing higher throughput in all dayparts versus last year. In addition to our work in operations, we're also driving improvements across our supply chain, and we are just starting to see the benefits from this. We have identified a long runway of opportunities ahead including, firstly, we are diversifying our supplier base, making sure that we have the right partners and enough partners to mitigate business risk and optimize costs. Second, we are diversifying our supplier footprint and optimizing logistics. Our supplier geography needs to grow as we grow. We're doing a lot of work to reduce time and miles from our suppliers to our distributors and to our Shacks. Lastly, we continue to invest in technologies that support our supply chain department in the critical functions as we scale. As we continue to improve our supply chain, we will also continue to prioritize product quality and innovation, as we have onboarded additional suppliers across several key categories to ensure that we can continue to procure high-quality ingredients. The work we are doing today in our operations and supply chain is also critical to helping us address a volatile beef market as we expect to face mid-teens beef inflation in the second half of 2025. Going forward, planned savings in our supply chain and continued improvements in operations afford us the opportunity to offset a meaningful part of beef inflation without having to take outsized price increases and still expanding our restaurant margins. This hasn't been the case historically for Shake Shack. Another exciting part of our evolution is on the equipment side, where we are actively testing multiple solutions designed to make our Shacks easier to operate with an emphasis on improving product quality, consistency and speed. We plan to roll out the first of these solutions towards the end of the year, starting with new fry holding equipment that will allow us to serve crispier hotter fries every day. There is a lot more to come over the course of 2026 and beyond. We are also investing heavily in our technology infrastructure, particularly our kiosk and digital channels, which will continue to be critical parts of our comp sales growth. In our kiosks and our digital platforms, we are driving positive check growth from improved merchandising of our core menu. As I've stated in the past, we are focused on delivering enlightened hospitality to our guests. A big part of that long-term commitment will be a strong loyalty platform, which we are working to deliver in 2026. As we build this best-in-class loyalty platform, we are currently leveraging our app with value and frequency offers. We have seen success from these initiatives and are tracking approximately 50% more app downloads this year than last. This is important to our long-term growth as our app guests have higher frequency and lifetime value than our non-digital guests. At the end of the day, we know what really excites our guests is our culinary innovation. Our made-to-order model affords us the ability to deliver food that other QSRs and even fast casual concepts cannot easily replicate. Culinary innovation has always been a part of our fine dining heritage and DNA, but the cadence of innovation in place now is unprecedented for us. Our Dubai Chocolate Shake was a powerful illustration. Dubai was highly incremental and drove a positive impact on all key brand measures with the largest brand perception gains on ingredient quality and innovation. Beverage is obviously an important and growing segment within our industry. We have always offered high-quality, innovative teas and lemonades alongside of our world-famous custard shakes. Our goal is to significantly grow our beverage business across soft drinks, teas and lemonades, and to simply own the shake innovation space. With inspiration drawn from global recipes, seasonal occasions, unique textural elements and flavor trends. Following on the success of our Dubai Shake, we've established a shake innovation pipeline with exciting seasonal shake offerings as a plus up to our typical Shake limited-time offer lineup. We're also continuing to fuel our pipeline of new sizes with fried pickles and onion rings and we are seeing strong attachment rates. But our crinkle cut fries continue to be the crown jewel of our sides platform. And alongside our new hot holding equipment, we are about to launch new procedures that will make them crispier, hotter and more consistently seasoned, making them the best we've ever served. We are also going to continue to innovate across burgers and sandwiches. This includes our summer barbecue menu, which we launched in mid-Q2, and our limited-time French Onion Soup Burger that launched in September. We're pushing the envelope and currently have a French dip Angus steak sandwich and a baby back rib sandwich in test markets. These innovations are part of our ongoing strategy to balance premium sandwich offerings with our value platform so that we can continue to drive traffic growth. Once again, our made-to-order model affords us the culinary flexibility to make things that no one else can deliver with the type of premium quality that our guests have come to expect from Shake Shack. While we're focused on developing traffic-driving limited-time offer innovation, we're also continuing to invest in our core menu. These include fry improvements mentioned earlier, new chicken bites, which deliver a more consistent guest experience, and rolling out an improved cheese sauce for our fries that increases cheese coverage and has performed much better in tests than our current offering. Our culinary innovation, as well as improvements to our core menu and operations are enabling us to serve our guests better and have prepared us to amplify our brand through new advertising and paid media. In the third quarter, we invested in paid media at scale for the first time. We shared with you last quarter that we were starting to make some investments in that capability, and I'm happy to report that we are delivering results while learning a lot. We invested media behind Dubai Chocolate Shake as well as our dollar soda and app-only promotion, and these investments are a reason why we are delivering the sales growth that we shared with you today. Our brand positioning work is now complete, and we will launch new advertising starting later this quarter. We are working with one of the most awarded creative agencies in the world to bring our brand story to life through advertising throughout 2026. Turning to development. We have significant white space to open new Shacks in the U.S. and around the world, and we are doing so at lower costs in spite of inflation. As part of our development work, we are also focused on new kitchen prototypes and equipment that could have a significant impact on improving our throughput and quality. This year, we are on track to open our largest class of company-operated Shacks. And next year, we expect to open at least 55 to 60 Shacks as we accelerate our rate of new Shack growth, and continue to build our strong pipeline of Shacks to come. Turning to our licensing business. With 23 new store openings as of Q3, we are well on our way to 35 to 40 openings this year, and we plan on opening 40 to 45 more in 2026. This business is healthy and growing. Our existing markets are performing better than expected despite global macro headwinds with strength coming from new openings in the U.S., Canada, Israel and Turkey. This year, we have announced 4 new license partnerships, most recently with Union Mak in Hawaii to bring the Shake Shack experience to the Aloha state. We are building great momentum in the licensing business, and there is much more to come. As we reflect on the most recent quarter and what is to come, Q3 was an example of our sales model at work. Multiple great limited-time offers in Dubai Chocolate Shake and summer barbecue and an in-app value message with support from advertising and media complemented by a healthy digital business that collectively drove strong traffic in a tough environment. Now going to October. Our sales trends, although positive, were not consistent with what we saw in the third quarter. Macro headwinds to the industry did intensify and we are lapping one of the most iconic limited-time offers in our history, Black Truffle. We continue to invest in advertising and media to support the business. However, our French Onion Burger limited-time offer, while loved by the media, has not been as accretive to traffic or check as was the case for our limited-time offers in Q3. After 3 weeks of analyzing the data, we pivoted and shifted support to our in-app value platforms. Over the last week, our in-app traffic is up 85%, and our overall traffic has seen over a 400 basis point change. Looking ahead, we will need to deliver newsworthy limited-time offers complemented by a strong value platform and a healthy app and loyalty platform, as well as a strong delivery business. That is exactly what we expect from the balance of Q4 and our plan for 2026. We will also need to mitigate the continued traffic declines in the DC and New York Metro, which we believe to be macro in nature with outpaced growth in other regions. I am really proud of the progress the team has made on the plan that we laid out at the beginning of 2025. And the quarterly results show that we are focused on the right strategic priorities moving forward despite the macro challenges. We have a long way to go to realize our full potential, but the progress is certainly heartening, and will allow us the opportunity to continue to gain share against the challenging industry backdrop. And with that, I'll turn it to Katie for more details on the quarter.

Thank you, Rob, and good morning, everyone. We are pleased with the results of our third quarter that marks the 19th consecutive quarter of positive same-Shack sales growth, along with strong restaurant level and adjusted EBITDA margins, and double-digit adjusted EBITDA growth. Considering the macro environment, we feel especially proud of our results that reflect solid momentum and execution across both our company-operated and licensed businesses. We grew total revenue by 15.9% year-over-year to $367.4 million, led by strong new Shack openings and growth in our comp Shack base. We grew licensing revenue by 21.1% year-over-year to approximately $14.6 million, and license sales by 15% to $218.7 million. As we opened 7 licensed Shacks in the quarter and saw broad-based strength across most of our regions. In our company-operated business, we grew Shack sales by 15.7% year-over-year to $352.8 million. We opened 13 new Shacks in the quarter, bringing the total as of the end of the third quarter to 30 openings, well on our way to opening our largest class on record, and we have plans to open 55 to 60 new Shacks in 2026. We grew average weekly sales by 2.6% year-over-year to $78,000. We delivered 4.9% positive same-Shack sales growth that represents a 390 basis point improvement from our first half 2025 run rate. This acceleration was led by improved traffic from initiatives that Rob described earlier in his remarks. We grew traffic by positive 1.3% in the quarter and all months saw positive traffic growth. We had positive comps in traffic in nearly all of our regions. However, we continue to see macro pressures in New York Metro and Washington, D.C. that are weighing on our overall results. New York Metro and D.C. represent over 1/4 of our sales, and we have been experiencing a higher degree of macro pressures in these regions than many industry peers given our footprint today. So a challenging macro backdrop here continues to have an outsized impact on our overall performance. But in spite of those pressures in a few of our markets, we still delivered nearly 5% in same-Shack sales growth with positive traffic. And that's really a testament to our strong success in other markets where we're actively growing our footprint and scaling. In fact, we drove 7% to 8% comps in the South, West and the Midwest, with double-digit comps in San Francisco, Orlando, Dallas and Denver among a lot of other major metros. As our development pipeline has significant tilt away from growing in New York City and D.C., I am optimistic that over time, we can lessen the impact that 1 or 2 markets with specific pressures can have on our overall trends. And Shack menu price was up approximately 2% and blended across all channels up approximately 4%. We took approximately 2% in menu price in the quarter to help offset the cost pressures from the mid-teens percent price increase in the beef market, and rolled off last year's nearly 2% price increase in October. With this, we will exit the year with approximately 3% menu price. We drove 1.4% of positive mix, led by kiosk merchandising efforts. Items per Shack declined 1.6%, consistent with our trends last quarter. Turning to restaurant-level profitability. We generated $80.6 million of restaurant-level profit, reaching 22.8% of Shack sales, a 180 basis point improvement over last year. Overall, the strong performance by our operators and the advancement of our strategic initiatives underscores the momentum we've built and our commitment to sustainable margin expansion over time, all while delivering on better guest metrics that Rob outlined earlier. Food and paper costs were $103.5 million, or 29.3% of Shack sales, up 110 basis points versus last year. The increase was primarily driven by mid-teens inflation in premium beef, which remains the largest part of our commodity basket. Historic low supply and sustained demand are contributing to a volatility in this category, and we expect elevated beef costs to persist through year-end and into next year. In the third quarter, our blended food and paper inflation after factoring in our cost savings was in the mid-single digits range. As we shared in our shareholder letter, while we are planning for these costs to still be up mid-teens percent year-over-year in the fourth quarter, we anticipate only a low single-digit net impact on food and paper costs. This is an improvement from the levels we showed in the third quarter, and this is due to the positive impact from our ongoing supply chain strategies. We expect cost savings from our supply chain to grow and be even more impactful in 2026. Labor and related expenses were $88 million or 24.9% of Shack sales, down 310 basis points year-over-year, reflecting continued operational efficiencies, improved retention and gains in our throughput. Other operating expenses came in at $53.8 million, or 15.2% of Shack sales, up 30 basis points year-over-year. This increase was primarily driven by higher digital sales. Occupancy and related expenses were $27 million or 7.7% of Shack sales, flat year-over-year. G&A was $44.4 million, or 12.1% of total revenue, and up 24.3% year-over-year as we made incremental marketing and people investments to support our growth. Equity-based compensation was $4.4 million, up 6.4% year-over-year, with $3.9 million in G&A. Preopening costs were $4.6 million, up 26.3% year-over-year as we opened 13 new Shacks and prepare for a strong opening schedule in the fourth quarter and into next year. We have approximately 30 Shacks under construction today. We grew adjusted EBITDA by 18.2% year-over-year to $54.1 million, or 14.7% of total revenue, a 30 basis point improvement compared to last year. Depreciation and amortization expense was $27.1 million. Net income attributable to Shake Shack, Inc. was $12.5 million or $0.30 per diluted share. Adjusted pro forma net income was $15.9 million or $0.36 per fully exchanged and diluted share. Our GAAP tax rate was 35.2%, and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 25.1%. Our balance sheet remains strong with $357.8 million in cash and cash equivalents at the end of the quarter. This is up approximately $47 million year-over-year, and $21 million sequentially. We grew operating cash flow by 50% year-over-year to $63 million. We invested $39 million in CapEx to support the strong opening calendar, and are on track to deliver another approximate 10% reduction in our build cost this year. I'm going to now provide our guidance for the fourth quarter and the implications for our fiscal 2025 guidance. Our outlook assumes no major changes to the macro or geopolitical environment. Additionally, our fiscal 2025 includes a 53rd week. Due to the calendar impact from the 53rd week, the Christmas holiday closure falls outside of our comp measurement period this year, resulting in an extra sales day in our fourth quarter and full year comps. Our fourth quarter 2025 guidance, we expect system-wide unit openings of 27 to 37, with 15 to 20 company-operated and 12 to 17 licensed. Total revenue of $406 million to $412 million with same-Shack sales up low single digits year-over-year, and license revenue of $15.4 million to $15.7 million. Restaurant level profit margin of 23.3% to 23.8%. For the full year 2025, we expect total revenue of approximately $1.45 billion, up approximately 16% year-over-year, with same-Shack sales up low single digits year-over-year and license revenue of $54.1 million to $54.5 million. Restaurant level profit margin of approximately 22.7% to 23%, G&A to be approximately 12.3% to 12.5% of total revenue, equity-based compensation expense of $20 million, preopening costs of $19 million, net income of $50 million to $60 million, and adjusted EBITDA of $210 million to $215 million, reflecting the impact from the macro headwinds and increased marketing investment. Please see our shareholder letter for the full details on our fiscal 2025 guidance. Additionally, as a housekeeping note, next year, we are moving to a guidance framework that better conforms with general industry practice, and we look forward to sharing this with you when we provide our fiscal 2026 outlook.

Thank you, Katie. I want to thank our team again for their hard work and passion for Shake Shack, which is the engine behind our strong third quarter performance and our ability to achieve our long-term goals. Thank you to everyone on the call today and for your interest in our company. And with that, operator, please open up the call for questions.

Our first question is from Christine Cho with Goldman Sachs.

Congrats on the strong quarter, and I appreciate all the color. I'd like to better understand your supply chain initiatives as a key driver of the margin expansion going forward. So first, how do you size the opportunity in the midterm? And two, how do you really plan to track and respond to consumer feedback regarding some of these product modifications that may arise due to your supplier changes, and to ensure consistent quality across regions and stores?

Katie, maybe I'll answer the second question first and then you come back to the expectations. Christine, so there will not be any specifications or product modifications. We are committed to delivering the same quality that we have delivered. And it has made Shake Shack's reputation for culinary excellence what it is. So when we're looking at bringing on new suppliers, we go through a very thorough testing and validation process to make sure they can deliver the specifications that meet our standards and that the quality is consistent or better than what we have used in the past. And that's across every component of the supply chain, whether it's the beef that we're using, the buns that we're using, our custard that goes to our shakes, our fries, everything has to meet our standards, or else we will not add that supply to our system.

Christine, regarding the potential for savings, we began implementing additional material cost savings in the fourth quarter, and we expect this trend to continue into next year. As you may have noticed in the third quarter, there was a significant increase in our food and paper costs relative to sales, primarily driven by mid-teens inflation in the beef market. Currently, we are working to alleviate some of that cost pressure through negotiations with our existing suppliers and other supply chain strategies. For the next quarter, we anticipate that the percentage of food and paper costs in relation to our sales will return to more normalized levels, reflecting low single-digit inflation. This development is very advantageous for us, and we foresee these benefits increasing into next year. Historically, when there have been large fluctuations in the beef market, our primary approach has been to raise prices to protect our margins. Now, however, we are equipped with a broader range of tools to effectively manage these challenges. Part of our strategy involves optimizing our cost structure, as Rob mentioned, but it’s also crucial to onboard more suppliers and ensure we have multiple sources for our critical items while pushing for high-quality standards. I am confident that all of these efforts are progressing well, and it is promising to see how they can help us navigate what is likely to be a tough market for beef while maintaining relatively low inflation overall in our business.

And I think we've heard about kind of that broad deceleration in the macro intra-quarter and also softening trends into October. Could you kind of provide us with some thoughts on how you think about that setup in the fourth quarter? I know you pointed to D.C., New York travel pressures. But have you seen any pressures on the spending of the younger consumers under age 35, etc., that you would call out?

Yes. It’s widely recognized that lower-income consumers are facing pressures, and there has also been discussion regarding higher unemployment rates among younger populations, which affects our industry. We’ve integrated these challenges into our strategy. I mentioned earlier that we launched the French Onion LTO at the start of October, but we weren’t experiencing the incremental growth we expected during Q3. We conducted extensive analytics to figure out what was going wrong. It’s clear there’s a trend towards value in this industry, so we reverted to our successful approach from Q3. In the past week and a half, we adjusted our media strategy and focused on our in-app value platform, resulting in significant changes in our business trajectory. We’ve seen over 80% growth in app traffic sales, which has been transformative for us. This will be a significant part of our future plans. We aim for a balanced approach, maintaining our position as the premium player in the burger market while also offering attractive value options that benefit both our guests and our bottom line. By leveraging our smaller business segment, the increased traffic and lower discounts we provide are less detrimental to our overall performance. This strategy is driving the positive results we are currently seeing in Q4 and we expect it will help us achieve strong outcomes in the fourth quarter as well.

Actually, Rob, I wanted to follow up on that last point a little bit. You talked about how the French Onion Burger didn't perform up to what you thought it was going to. So maybe what surprised you relative to what you thought was going to happen? And how does that change the way that maybe you're testing or that innovation calendar? Because the message has been pretty clear that you're excited about the innovation calendar going forward. And so is there anything about what you're doing that might need to change to drive that innovation going forward?

Yes, that's a great question. French Onion was another flavored burger, and while there's still potential for flavored burgers in our innovation plans, we're focusing on a more foundational type of innovation. Moving ahead, we have a major idea coming this quarter that diverges from our usual offerings and aims to tell a new story rather than just introduce a new flavor. Our goal is to present things we've never done before, alongside some of our historical limited-time offerings that have been successful. For example, Truffle was a significant hit, and it's returning, as well as our Korean menu, which was also highly successful. We'll continue to innovate our burgers, but at this point, if we're marketing at a higher price point, the offering must be capable of generating newsworthy media coverage beyond just a brief launch period. We want our guests to engage in conversations about our premium innovations, similar to the Dubai Shake, ideas that can become viral. Additionally, we're seeing unprecedented growth in our digital platforms, especially in our app, both in downloads and sales, which is driving traffic growth in our business. This will be a key focus for us moving forward. We've just introduced our new 1, 3, 5 platform, featuring $1 drinks, $3 fries, and $5 shakes. I believe this is transformative for Shake Shack. We've developed this initiative to demonstrate empathy towards our guests during challenging times, and it seems to resonate well. This balanced approach is how we plan to engage the marketplace—not just with premium offerings, but also by ensuring we deliver value to our guests during this period.

And it's sort of like you knew my next question was going to be about value. Do you think that the 1, 3, 5 on the drinks, the fries and the shakes, do you think that's powerful enough for the consumer to recognize the value while you're still running premium burgers and sandwiches? Or do you think you need to sort of pivot a little bit on more of those like center-of-the-plate entree items to really give the consumer a little bit more value?

Well, I can tell you, I have 10 days of data that would suggest it's extremely impactful. So I'm really excited about what we think this can do for us through the balance of the quarter and heading into 2026. And I can't wait to share those results with you next year when we're reporting on Q4.

I wanted to ask about operations and sort of the guest experience and really appreciate the color you provided on average ticket times now below 6 minutes. I was wondering if you could elaborate just on what you're seeing in terms of other guest satisfaction metrics? Obviously, speed is very important, but it does sound like you're seeing improvements in the experience, quality, maybe taste metrics, that sort of thing. Are there any other metrics worth highlighting?

Brian, I spoke with Stephanie last night around 9:00 after her day ended. She is currently in Atlanta with our senior operations leadership team. We established this Atlanta center to enable collaboration, planning, training, and development among our teams from across the United States. It’s impressive to see that everyone, including our operators and development teams, is utilizing this space right from the start. Stephanie had our operations team there for the past couple of days focusing on their quarterly business planning. They are creating strategies to finish the year strong and ensure a talent pipeline to open 60 new Shacks next year. Our operations have reached an unprecedented level. Each time I think we can't improve anymore, we do. This improvement stems as much from our mindset and culture as from the specific elements of our plan. Currently, our operators are not discussing external challenges; instead, they are focused on enhancing guest service, improving speed, and optimizing labor deployment. They are excited about extending hours to better serve guests at Shacks where it's appropriate. Success breeds success, and our team has excelled over the past year, improving each month. We have experienced some turnover and welcomed external leaders who bring fresh perspectives to our operations team. However, our long-standing team members have also played a significant role in our success. Sometimes, with change, there can be resistance, but my conversation with Stephanie indicated that everyone is fully engaged and positive about our progress. This reassures me that we will continue to enhance our speed and accuracy, especially in delivery, which is a primary focus for us. Accuracy is critical because guests ordering delivery can't rectify their orders in person if something is wrong. We are concentrating on both accuracy and speed. Additionally, as Katie mentioned, we are significantly improving the tenure and retention of our team members. You might think that holding our teams accountable could lead to dissatisfaction, but the reality is the opposite. They are experiencing success and see advancement opportunities, leading to longer tenures. This stability builds their experience, making them more productive and enhancing our operational units. All indicators are heading in the right direction. Guest satisfaction in areas like restaurant cleanliness and friendliness has improved despite lower labor hours. We are not merely reducing labor to cut costs; we are optimizing our labor model, which is resulting in better guest satisfaction.

All right. That's very helpful. And just a follow-up, if I could. Just Katie, a question on the G&A guidance. I think if we did our math right, it implies maybe a $10 million increase in the quarterly spend versus what we saw in Q3. And I understand you've added a lot of new talent to the organization. But could you just elaborate on what's driving the uptick in the fourth quarter?

Yes. Yes. So as Rob talked about, we are making some meaningful investments here in marketing and media to drive the business. We're really excited about the stuff that we have lined up. We started kind of marketing this 1, 3, 5 platform that you talked about on the value side and seeing extremely strong results on the back of it. And we also have some exciting steps planned for later this year. These investments that we're making are all really geared at driving traffic, driving sales which, in turn, we expect to drive profitability at the restaurant level and beyond. So we're really excited about that. For those who haven't followed us as closely last quarter, we did talk about kind of embarking on this new strategy, new for us, kind of common place for the industry. But new for us of investing into paid media to better expand and grow the awareness and our message, and our ability to drive traffic at our restaurants. The results that we showed in the third quarter with 130 basis points of positive traffic growth and some really strong comps, especially relative to a challenged industry give us the confidence that this is indeed the model that we should be doing, and we're excited to make these investments here today.

I wanted to delve in a little bit more on that improvement you've seen in speed. And 5 minutes and 50 seconds is obviously a big improvement, but I'm curious what that bell curve looks like when you look across the Shacks, and what you would view like an ideal speed over time for the company to get to?

That's a great question. When considering speed of service, averages can be misleading. Right now, our focus is on reducing times for tickets over 7 minutes. We aim to ensure we are serving our guests in a way that doesn’t frustrate them. Customers are generally not concerned about a few seconds difference, but they do get upset if it takes 8 minutes or more for their food. Our strategy to lower average ticket times involves minimizing excessively long waits, which often occur during busy periods. To address this, we are looking at some equipment improvements. One issue is that we make fries to order, which takes time. While we can hold fries like everyone else, doing so allows us to serve them hotter and more efficiently. Fry holding is a straightforward way to avoid delays while maintaining or enhancing quality. Additionally, we are optimizing labor deployment. Previously, we had standard staffing schedules with 5 or 6 people arriving at opening, which we don’t always need. Now, we’re staggering shifts to bring in staff as needed, which allows us to better allocate labor during peak times. By reallocating underutilized staff to busier periods, we expect to serve our customers faster and more effectively. Equipment solutions and labor optimization will drive these improvements. If we can keep our times around 5 to 6 minutes, we will satisfy our customers, who understand that cooking to order might take longer, but we cannot let orders extend to 8 to 10 minutes, as that is problematic.

I also wanted to ask a follow-up on the menu innovation. Clearly, I think a lot of it has been on the premium end, and it sounds like French dip and ribs might be there as well. Is the idea that you can keep kind of your base price at a very affordable kind of hurdle for the consumer and allow them to self-select into these higher price points and drive check that way? I'm just curious how you're thinking about kind of balancing premium versus value?

You absolutely nailed it. We have pricing power. I want to make it clear that if there is significant inflation, we can implement price increases to offset that inflation. We are approaching pricing in a disciplined manner and challenging ourselves to avoid raising prices, especially in the current environment. We will continue to use pricing effectively, but we aim to keep our core menu prices as low as possible. Achieving that requires improving efficiency in our supply chain and operations, while also introducing innovations that encourage customers to select higher price points and increase sales. We are being very careful about how we price those premium innovations. We have major innovations launching soon that we are excited about, and we are being aggressive with their price points. This is a crucial time to gain market share, especially in a challenging environment when strong companies improve. We are focused on capturing share and making investments. We’re avoiding excuses because they correlate negatively with results. While we acknowledge the macro challenges, we are building plans to address them and are committed to delivering value at every price point, be it through premium innovations, our core menu, or the value offerings on our app.

My first question is about COGS and the effects of beef inflation, which you expect to continue into 2026. I'm wondering if you could provide a base case or an estimate of overall food cost inflation for 2026, including items beyond beef, especially since you've had some nice offsets this year along with lower costs in other areas. That information would be helpful, and I have a follow-up question after that.

Jake. Looking ahead to next year, we maintain our long-term guidance that aims for continued expansion of our restaurant margins, in line with our three-year outlook. We have reiterated our goal of achieving 50 basis points of margin expansion per year. Our projections for next year indicate that much of this growth will stem from supply chain improvements and the natural leverage associated with business growth. We are on an accelerated path for supply chain savings, and as mentioned, some commodities are showing favorable trends. However, we anticipate beef prices will continue to be a challenge next year. We are collaborating with our suppliers to manage this situation while still achieving our margin expansion goals without heavily relying on price increases to counteract beef market pressures. I will provide further details on our expectations for 2026 when we present our annual guidance in January.

So one of the big untapped opportunities is on equipment. So we have built essentially an equipment innovation center in Atlanta. And our teams are doing work that we've never done before at Shake Shack to bring a standardized kitchen model that leverages equipment that is really all about making our teams more efficient through increasing the ease to execute our model and delivering higher-quality hotter items faster. And we just had our global team come into Atlanta last week, and we shared some of these ideas with them, and they were blown away. And their remark was all the kitchen innovation used to come from our licensees internationally because they were going out and doing things that Shake Shack wasn't necessarily exploring. And now we are bringing the ideas to our restaurants, but also bringing them to our license partners so that they can operate their kitchens more efficiently, drive higher margins and build more Shacks at a more rapid rate globally. So equipment is a big untapped opportunity for us to be able to continue to drive operational efficiency and increase our speed.

Just wanted to build on the marketing discussion. I know you mentioned building a foundation of a brand marketing model. I'm just wondering what new do you think we'll see into '26? I mean it sounds like a ramping on the paid media, which just began and wondering how that will tie in with the new loyalty program being rolled out in '26? How you think the interplay on those will drive incremental traffic? And then I had one follow-up.

Yes. Our focus is on delivering product innovation and value platforms supported by media to attract new guests, raise awareness, and increase traffic. Our loyalty platform is designed to enhance visit frequency. Currently, we're seeing significant adoption and downloads, which will feed directly into our loyalty platform. We will launch our loyalty program with an existing user base, allowing us to utilize it to boost frequency among our most valued guests. Both aspects will work together seamlessly. We will advertise and attract customers with exciting new innovations and value platforms over the next 6 to 9 months as we develop our loyalty platform. Customers will then transition into the loyalty program, and we will use that to increase visit frequency. This is the strategy we will implement next year and beyond.

Understood. There seems to be confidence regarding the company’s growth trajectory and the initiatives in place. Additionally, the unit growth is accelerating with more openings and there is margin expansion in restaurants. However, general and administrative expenses are garnering attention, and we hope to see a good return on that. Given the significant increase in spending this year, particularly with paid media starting in the fourth quarter, should we assume that this increase will continue into 2026, perhaps similar to the fourth quarter of 2025? Is that a reasonable run rate to expect? How should we view the direction of G&A spending, which appears to be the only area that might be counteracting the otherwise positive trends?

Yes. No, it's a great question. I mean, we will obviously be providing guidance on 2026 in January. So I'm not going to necessarily speak to what we're forecasting in sales. But what I can tell you is the G&A is the fuel that's going to drive the comps. And obviously, we are going to make investments that we believe we're going to get returns from. And so this, as I said earlier, this environment, where we're seeing a lot of competitors be challenged and lose traffic. This is our opportunity. This is our opportunity to take share. This is our opportunity to gain customers at a disproportionate rate. So we are all in. We believe ourselves to be a hyper growth company, right? And now we have the operational excellence to have 100% confidence that when we're sending new guests or infrequent guests who may have had a bad experience in the past back to our Shacks, they are going to have a balanced options in terms of value and premium. They're going to have the highest quality that we've ever delivered, and it's all going to be served fast and accurately. So that creates lifetime value. So yes, I mean, we're investing in G&A because that's the fuel. And over time, we should be able to scale that investment. We should be able to grow our revenue faster than we grow the rate at which we invest in marketing and G&A, and that's going to create margin expansion. So this is the first time we've invested at scale in paid media. And so yes, right now, it isn't scaled. It isn't necessarily at the point where we're able to decrease our G&A as a function of revenue, but that's the plan. And so it's either that or we kind of batten down the hatches. And we're not prepared to like issue a dividend anytime soon. This is a growth company. We're going to invest in growth. We believe that we have the right model in place.

Rob, just a question kind of from your background in QSR and sort of taking a higher-level approach to what's been sort of an unrelenting discounting promotional environment, both below you guys as well as above. How do you kind of see that playing out in '26? And is that informing any of your decisions on driving the Shake Shack business? Or do you guys think you can do what you can do if you execute on the plans you've given us today?

Yes, we're currently navigating a competitive landscape where value is a significant focus. There are budget-friendly meal options available, and we're operating our business model effectively within this context, achieving what I believe are superior results. While we're not fully optimized yet, we are committed to learning and improving. Some of our initiatives are performing better than others, but we are well-positioned to foster balanced growth through 2026. We are actively identifying what strategies are effective, which aren't, appropriate price points, execution methods, and target audiences. This information is integral to our future plans. It's never easy to admit when a project doesn't meet expectations after a short duration, but it's essential to emphasize that we have a flexible business model. We are continuously analyzing performance with data and analytics and will quickly pivot to pursue strategies that promise better returns. Our plans for 2026 are already outlined, including what we're launching, the timeline, and our approach. We'll keep evaluating the competitive landscape and our results to ensure ongoing optimization.

We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.