8-K
Shake Shack Inc. (SHAK)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 24, 2020
Date
of Report (Date of earliest event reported)
SHAKE
SHACK INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36823 | 47-1941186 |
|---|---|---|
| (State<br> or other jurisdiction of<br><br> <br>incorporation<br> or organization) | (Commission<br><br> <br>File<br> Number) | (IRS<br> Employer<br><br> <br>Identification<br> No.) |
| 225 Varick Street, Suite 301<br><br> <br>NewYork, New York | 10014 | |
| --- | --- | |
| (Address<br> of principal executive offices) | (Zip<br> Code) |
(646)
747-7200
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written<br> communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting<br> material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement<br> communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement<br> communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act
| Title of Each class | Trading symbol(s) | Name of Exchange on which registered |
|---|---|---|
| Class A Common Stock, par value $0.001 | SHAK | New<br> York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On February 24, 2020, Shake Shack Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 25, 2019.
The full text of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing
| Item 7.01 | Regulation FD Disclosure. |
|---|
On February 24, 2020, the Company provided supplemental financial information to be used in its earnings presentation for the fiscal fourth quarter ended December 25, 2019 on its website at investor.shakeshack.com. The supplemental financial information is furnished as Exhibit 99.2 to this Current Report on Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Shake Shack Inc. | ||
|---|---|---|
| (Registrant) | ||
| By: | /s/ Tara<br> Comonte | |
| Tara Comonte | ||
| Date: February 24, 2020 | President and Chief Financial<br> Officer |
EXHIBIT
INDEX
| Exhibit<br><br> <br>Number | Exhibit Description |
|---|---|
| 99.1 | Shake<br> Shack Inc. press release dated February 24, 2020 announcing its financial results for the fourth quarter and fiscal year ended<br> December 25, 2019. (furnished only) |
| 99.2 | Supplemental<br> Financial Information dated February 24, 2020 provided by Shake Shack Inc. (furnished only) |
| 104 | Cover<br> Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
Exhibit 99.1
Shake Shack Announces Fourth Quarterand Fiscal Year 2019 Financial Results
- Fourth Quarter Total Revenue Grew 21.9%-
- Fiscal 2019 Total Revenue Grew 29.4%-
- Fiscal 2019 Same-Shack Sales Increased1.3% -
- System-wide Year-Over-Year Unit Growthof 32% -
NEW YORK, NY (Business Wire) — February 24, 2020 — Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE: SHAK), today reported financial results for the fourth quarter and the fiscal year ended December 25, 2019, periods that included 13 and 52 weeks, respectively.
Financial Highlights for the FourthQuarter 2019:
| ▪ | Total revenue increased 21.9% to $151.4 million. |
|---|---|
| ▪ | Shack sales increased 20.8% to $145.8 million. |
| --- | --- |
| ▪ | Same-Shack sales decreased 3.6%. |
| --- | --- |
| ▪ | Licensed revenue increased 58.6% to $5.6 million. |
| --- | --- |
| ▪ | Shack system-wide sales increased 31.4% to $235.0 million. |
| --- | --- |
| ▪ | Operating income was $0.5 million, or 0.3% of total revenue, and Shack-level operating<br>profit*, a non-GAAP measure, increased 9.4% to $29.7 million, or 20.4% of Shack sales. |
| --- | --- |
| ▪ | Net loss and net loss attributable to Shake Shack Inc. were $2.1 million, or $(0.06)<br>per diluted share, respectively, primarily driven by sales performance, food and labor headwinds and investments across the business. |
| --- | --- |
| ▪ | Adjusted EBITDA*, a non-GAAP measure, increased 2.3% to $14.8 million. |
| --- | --- |
| ▪ | Adjusted pro forma net income*, a non-GAAP measure, was $2.2 million, or $0.06 per fully exchanged and diluted share. |
| --- | --- |
| ▪ | 25 system-wide Shack openings, including 12 domestic company-operated Shacks and 13 licensed Shacks.<br>Four licensed Shack closures, which included three closures in Russia. |
| --- | --- |
Financial Highlights for the FiscalYear 2019:
| ▪ | Total revenue increased 29.4% to $594.5 million. |
|---|---|
| ▪ | Shack sales increased 29.0% to $574.6 million. |
| --- | --- |
| ▪ | Same-Shack sales increased 1.3%. |
| --- | --- |
| ▪ | Licensed revenue increased 45.0% to $19.9 million. |
| --- | --- |
| ▪ | Shack system-wide sales increased 33.2% to $895.3 million. |
| --- | --- |
| ▪ | Operating income was $25.7 million, or 4.3% of total revenue, which included the<br>impact of costs associated with Project Concrete and other one-time items totaling $2.4 million. |
| --- | --- |
| ▪ | Shack-level operating profit*, a non-GAAP measure, increased 13.4% to $128.0 million, or 22.3% of Shack sales. |
| --- | --- |
| ▪ | Net income was $24.1 million and net income attributable to Shake Shack Inc. was $19.8 million, or $0.61<br>per diluted share. |
| --- | --- |
| ▪ | Adjusted EBITDA*, a non-GAAP measure, increased 10.8% to $81.8 million. |
| --- | --- |
| ▪ | Adjusted pro forma net income*, a non-GAAP measure, increased 1.7% to $27.4 million, or $0.72 per fully exchanged and diluted<br>share. |
| --- | --- |
| ▪ | 73 system-wide Shack openings, including 39 domestic company-operated Shacks and 34 licensed Shacks.<br>Six licensed Shack closures, which included four closures in Russia. System-wide Shack count net increase of 32.2%. |
| --- | --- |
* Shack-level operating profit, adjustedEBITDA and adjusted pro forma net income are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income,adjusted EBITDA to net income (loss), and adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc.,the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanyingthis release. See “Non-GAAP Financial Measures.”
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “2019 was another milestone year at Shake Shack. We opened our largest class of Shacks ever, with 73 across the globe, 39 company-operated and 34 licensed. A total of 49 of those new Shacks were here in the United States, and internationally, we unlocked tremendous revenue growth by entering important new markets for the first time, namely Shanghai, Mexico City, Singapore and Manila. These launches were greeted with incredible local reception and fanfare and were a reminder of the global strength and potential of the Shake Shack brand. In addition to this expansion, we invested in our digital infrastructure, both for our back-office operations, and our guest touchpoints. Total revenue increased by almost 30% to $595 million, and system-wide sales by 33% to nearly $900 million, and we delivered adjusted EBITDA growth of 11% to $82 million, while continuing to make strategic investments for the significant opportunities that lie ahead."
Garutti concluded, “Looking forward, we expect 2020 will be another year of strong unit growth, domestically and internationally, with 40 to 42 new company-operated Shacks and 20 to 25 net new licensed Shacks. Beyond expansion, we believe this year will be defined by our innovation pipeline with focused investments across our digital products. We’re committed to building guest experiences that are more engaging, more convenient and that will provide us with more insights throughout the purchase process. On the menu side, we’re excited about new products making the leap from our innovation test kitchen to Shacks everywhere, through LTOs and core menu additions. Long term, we expect to deliver double-digit adjusted EBITDA growth over the coming years as we continue to grow top line sales, as well as ultimately delivering leverage across various cost line items over time. We recognize this level of growth and investment, at times, can have a near-term impact on same-Shack sales and other aspects of our financial performance, but we believe the company will ultimately benefit from this strategy over time. We are excited about our future and the significant runway we have ahead, as we quickly approach a billion dollars in total system-wide sales and build a company not just for quarters, but for years to come.”
Development Highlights
During the quarter, the Company opened 12 domestic company-operated Shacks, further expanding its footprint in existing markets across the country. Additionally, the Company opened 8 international licensed Shacks during the quarter, five of which were in Asia, and five domestic licensed Shacks, all of which were located in airports.
| Location | Type | Opening Date |
|---|---|---|
| Shanghai, China — Kerry Centre | International Licensed | September 26 |
| Las Vegas, NV — McCarran International Airport, Terminal 1 | Domestic Licensed | October 2 |
| Hong Kong, China — Harbour City | International Licensed | October 2 |
| Parsippany, NJ — Parsippany | Domestic Company-Operated | October 7 |
| Schaumburg, IL — Schaumburg | Domestic Company-Operated | October 8 |
| Chicago, IL — Willis Tower | Domestic Company-Operated | October 16 |
| West Sussex, United Kingdom — Gatwick Airport, North Terminal | International Licensed | October 24 |
| Dallas, TX — Addison | Domestic Company-Operated | October 27 |
| Boston, MA — Downtown Crossing | Domestic Company-Operated | November 3 |
| Kenner, LA — Louis Armstrong New Orleans International Airport | Domestic Licensed | November 6 |
| Long Beach, CA — Long Beach | Domestic Company-Operated | November 7 |
| St. Paul, MN — Minneapolis-Saint Paul International Airport, Terminal 1 | Domestic Licensed | November 13 |
| Shanghai, China — IFC | International Licensed | November 13 |
| Charlotte, NC — Charlotte Douglas International Airport | Domestic Licensed | November 15 |
| Watertown, MA — Arsenal Yards | Domestic Company-Operated | November 16 |
| Lawrence Township, NJ — Princeton | Domestic Company-Operated | November 18 |
| New Orleans, LA — Canal Place | Domestic Company-Operated | December 3 |
| Hong Kong, China — Times Square | International Licensed | December 5 |
| Manila, Philippines — SM Megamall | International Licensed | December 6 |
| Staten Island, NY — Empire Outlets | Domestic Company-Operated | December 10 |
| London, UK — Brent Cross | International Licensed | December 10 |
| Mexico City, Mexico — Arcos Bosques | International Licensed | December 10 |
| Fort Lauderdale, FL — Fort Lauderdale-Hollywood International Airport | Domestic Licensed | December 14 |
| San Mateo, CA — Hillsdale | Domestic Company-Operated | December 15 |
| Sunrise, FL — Sawgrass Mills | Domestic Company-Operated | December 23 |
Subsequent to the end of the quarter, the Company opened four domestic company-operated Shacks and six international licensed Shacks.
Fourth Quarter 2019 Review
Total revenue in the fourth quarter of 2019, which includes Shack sales and licensing revenue, increased 21.9% to $151.4 million from the same quarter last year. Shack sales for the fourth quarter of 2019 were $145.8 million, an increase of 20.8% from the same quarter last year due primarily to the opening of 39 new domestic company-operated Shacks between the fourth quarter of 2019 and the fourth quarter of 2018, partially offset by a decline in same-Shack sales. Licensed revenue for the fourth quarter was $5.6 million, an increase of 58.6% from $3.5 million in the same quarter last year, due to the opening of 28 net new licensed Shacks between the fourth quarter of 2019 and the fourth quarter of 2018, and the strong performance of Shacks that opened earlier in the year.
Same-Shack sales decreased 3.6% for the fourth quarter of 2019 compared to 2.3% growth in the fourth quarter last year, driven by decreased guest traffic of 5.4% partially offset by a combined increase of 1.8% in price and sales mix. A holiday calendar shift resulting in one less high traffic shopping week, and a challenging compare in the prior year holiday period due to favorable weather in New York and the Northeast, represented approximately one-third of the same-Shack sales decline. It is also believed that less menu innovation in 2019 may have contributed to the traffic decline during the quarter as the Company intentionally chose to focus on the launch of Chick'n Bites and digital enhancements throughout the year.
In August, the Company announced its decision to move forward with Grubhub as a single partner for integrated and marketed delivery. As of the end of the fourth quarter, the majority of Shacks remained integrated with multiple partners, albeit the Delivery channel experienced a significant slowdown in growth rate compared to earlier in the year.
Fiscal 2019 was also a record development year, with over 80% of new company-operated Shack openings in existing markets, as well as 10 new domestic licensed Shacks, which may have impacted traffic in the comparable base of Shacks. The comparable Shack base includes those restaurants open for 24 full fiscal months or longer and, at the end of the fourth quarter of 2019, included 85 Shacks versus 61 Shacks for the fourth quarter of 2018.
Average weekly sales for domestic company-operated Shacks decreased to $71,000 for the fourth quarter of 2019 compared to $81,000 for the same quarter last year, primarily due to the addition of newer Shacks at a broader range of average unit volumes as well as declines in sophomore and comparable base Shacks.
Operating income decreased to $0.5 million for the fourth quarter of 2019 from $2.8 million in the same quarter last year. As a percentage of revenue, operating income margin decreased to 0.3%, which included increases in general and administrative expenses related to the Company's ongoing investment in future growth, and sales deleverage. Shack-level operating profit, a non-GAAP measure, increased 9.4% to $29.7 million for the fourth quarter of 2019 from $27.2 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins decreased 210 basis points to 20.4%. The decreases in operating income and Shack-level operating profit were primarily due to sales deleverage and the following:
| • | Increases in food and paper costs driven by the higher cost profile of Chick'n Bites; mid-single<br>digit commodity inflation in beef and slight inflation in dairy; and an increase in paper costs, as a direct result of digital<br>sales mix which comes with additional packaging; |
|---|---|
| • | Increases in labor and related expenses driven by wage inflation across the country, less<br>sales leverage on fixed management costs and the impact of increased staffing levels at new Shacks resulting in higher payroll<br>costs; and |
| --- | --- |
| • | Increases in occupancy and related expenses driven by the adoption of the new lease accounting<br>standard that went into effect at the beginning of this fiscal year. |
| --- | --- |
A reconciliation of operating income to Shack-level operating profit, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
General and administrative expenses increased 26.7% to $19.2 million, including $1.9 million related to non-cash equity-based compensation and non-cash technology amortization, in the fourth quarter of 2019 from $15.2 million in the same quarter last year, driven by investments across the Company to support its significant growth. As a percentage of total revenue, general and administrative expenses increased to 12.7% for the fourth quarter of 2019 from 12.2% in the fourth quarter last year, due to the aforementioned items and sales performance.
Net loss was $2.1 million for the fourth quarter of 2019 compared to a loss of $0.5 million for the same period last year. Net loss attributable to Shake Shack Inc. was $2.1 million, or $0.06 per diluted share, for the fourth quarter of 2019, compared to a loss of $1.0 million, or $0.03 per diluted share, for the same period last year.
Adjusted EBITDA, a non-GAAP measure, increased 2.3% to $14.8 million. As a percentage of total revenue, adjusted EBITDA margins decreased approximately 180 basis points to 9.8% compared to 11.6% for the prior year period. These decreases were primarily due to the aforementioned items within Shack-level operating profit and the general and administrative investments to support on-going future growth. A reconciliation of net income (loss) to adjusted EBITDA, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Adjusted pro forma net income, a non-GAAP measure, was $2.2 million, or $0.06 per fully exchanged and diluted share during the fourth quarter of 2019, compared to $2.4 million, or $0.06 per diluted share during the fourth quarter of 2018. This decrease was primarily due to the aforementioned items within operating income and Shack-level operating profit. A reconciliation of net income (loss) attributable to Shake Shack Inc. to adjusted pro forma net income is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Fiscal Year 2019 Review
The Company opened its largest class of Shacks ever, with 73 Shacks across the globe, 39 company-operated and 34 licensed, with a total of 49 Shacks in the United States, strategically expanding its footprint in current markets, across New York City, California, New Jersey, Boston, Texas, the Midwest and more. Shake Shack also launched in a number of new markets, including New Orleans, Salt Lake City and Columbus. Total revenue, which includes Shack sales and licensing revenue, increased 29.4% to $594.5 million for fiscal 2019 from $459.3 million for fiscal 2018. Shack sales for fiscal 2019 were $574.6 million, an increase of 29.0% from fiscal 2018 due primarily to the opening of 39 new domestic company-operated Shacks during fiscal 2019, as well as same-Shack sales growth. Licensing revenue for fiscal 2019 was $19.9 million, an increase of 45.0% from $13.7 million for fiscal 2018, primarily due to the opening of 28 net new licensed Shacks during fiscal 2019 and the strong performance of Shacks that opened in the new markets of Shanghai, Singapore, the Philippines and Mexico City.
Same-Shack sales increased 1.3% for fiscal 2019 versus a 1.0% increase in the prior year, which was primarily driven by a combined increase of 1.8% in price and sales mix partially offset by decreased guest traffic of 0.5%. At the end of fiscal 2019, the comparable Shack base included 85 Shacks, compared to 61 Shacks for fiscal 2018.
The Company’s digital channels, including delivery, were a key contributor to same-Shack sales performance in 2019, in addition to favorable weather at the start of the year and a shift in the Easter break during the second quarter. Following the Company’s announcement to proceed with a single partner for integrated and marketed delivery, growth in this channel slowed significantly in the latter part of the year.
Average unit volume for domestic company-operated Shacks was $4.1 million for 2019 compared to $4.4 million for the prior year, a 6.8% decrease, primarily due to the addition of newer Shacks at lower average unit volumes.
Operating income decreased to $25.7 million for fiscal 2019 from $31.7 million for fiscal 2018 and operating income margins decreased 260 basis points to 4.3%, which included $2.4 million of one-time charges, comprised primarily of costs related to Project Concrete. Shack-level operating profit, a non-GAAP measure, increased 13.4% to $128.0 million for fiscal 2019 from $112.9 million for fiscal 2018. As a percentage of Shack sales, Shack-level operating profit margins decreased approximately 300 basis points to 22.3% primarily due to:
| • | Increases in food and paper costs driven by a higher cost profile of Chick'n Bites, which launched<br>in January 2019; significant commodity inflation in beef and some inflation with dairy; and an increase in paper costs, as a direct<br>result of digital sales mix which comes with additional packaging; |
|---|---|
| • | Increases in labor and related expenses driven by ongoing wage inflation attributable to the<br>availability of labor across the country, as well as the impact of increased staffing levels at new Shacks resulting in higher<br>payroll costs; and |
| --- | --- |
| • | Increases in occupancy and related expenses driven by the adoption of the new lease accounting<br>standard that went into effect at the beginning of the 2019 fiscal year, as well as a benefit recognized in the prior year for<br>deferred rent related to certain historical leases with co-tenancy provisions. |
| --- | --- |
A reconciliation of operating income to Shack-level operating profit, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
General and administrative expenses increased to $65.6 million for fiscal 2019 from $52.7 million for fiscal 2018, primarily due to the increase in the Company's investment across the business to support its growth, and $2.4 million of one-time charges, primarily related to Project Concrete. As a percentage of total revenue, general and administrative expenses decreased to 11.0% for fiscal 2019 from 11.5% in fiscal 2018, primarily due to the timing of various initiatives and leverage on strong sales.
Net income was $24.1 million for fiscal 2019 compared to income of $21.9 million for fiscal 2018. Net income attributable to Shake Shack Inc. was $19.8 million, or $0.61 per diluted share, for fiscal 2019, compared to an income of $15.2 million, or $0.52 per diluted share, for fiscal 2018.
Adjusted EBITDA, a non-GAAP measure, decreased 10.8% to $81.8 million from $73.9 million for the fiscal year. As a percentage of total revenue, adjusted EBITDA decreased roughly 230 basis points to 13.8% for fiscal 2019 from 16.1% in fiscal 2018. This decrease was primarily due to the aforementioned items within Shack-level operating profit and the general and administrative investments to support growth. A reconciliation of net income (loss) to adjusted EBITDA, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Adjusted pro forma net income, a non-GAAP measure, was $27.4 million, or $0.72 per fully exchanged and diluted share for fiscal 2019, compared to $26.9 million, or $0.71 per fully exchanged and diluted share for fiscal 2018. A reconciliation of net income (loss) attributable to Shake Shack Inc. to adjusted pro forma net income is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
2020 Outlook
For the fiscal year ending December 30, 2020, the Company is providing the following financial outlook:
| Current Outlook | |
|---|---|
| Total revenue (inclusive of licensing revenue)^(1)^ | $712 million to $720 million |
| Licensing revenue | $21 million to $22 million |
| Same-Shack sales (%)^(2)(3)^ | Low single digit decrease |
| Domestic company-operated Shack openings | 40 to 42 |
| Licensed Shack openings, net | 20 to 25 |
| Average annual sales volume for domestic company-operated Shacks | $3.7 to $3.8 million |
| Shack-level operating profit margin (%)^(4)^ | 22.0% to 22.5% |
| Total general and administrative expenses | $80 million to $82 million |
| Core general and administrative | $72.2 million to $74.2 million |
| Equity-based compensation | approximately $7.5 million |
| Costs related to Project Concrete | approximately $0.3 million |
| Depreciation expense | $52.5 million to $53.5 million |
| Pre-opening costs | $15 million to $16 million |
| Interest expense | approximately $0.6 million |
| Adjusted pro forma effective tax rate (%)^(5)^ | 26% to 27% |
| (1) | Includes approximately $15 million sales impact from a 53rd week in 2020. |
| --- | --- |
| (2) | Includes approximately 1.5% to 2.0% of menu price increases taken in December 2019. |
| --- | --- |
| (3) | Normalized for the 53rd week. |
| --- | --- |
| (4) | Shack-level operating profit margin is a non-GAAP measure. A reconciliation to the most directlycomparable GAAP measure, operating income, has not been provided as we cannot project certain reconciling items, such as gainsor losses on disposal of property and equipment, without unreasonable effort given the uncertainty around the timing and amountof such gains or losses. Losses on disposal of property and equipment were less than $1.5 million for each of the fiscal years2019, 2018 and 2017. |
| --- | --- |
| (5) | Adjusted pro forma effective tax rate is a non-GAAP measure. A reconciliation to the most directlycomparable GAAP measure, income tax expense, has not been provided as we cannot project income tax expense without unreasonableeffort due to our inability to predict changes in our ownership interest in SSE Holdings, LLC resulting from redemptions of LLCInterests by non-controlling interest holders and equity-based award activity. Income tax expense for fiscal years 2019, 2018 and2017 was $3.4 million, $8.9 million and $151.4 million, respectively. |
| --- | --- |
Earnings Conference Call
As previously announced, the Company will host a conference call to discuss its fourth quarter and fiscal year 2019 financial results today at 5:00 p.m. ET.
The conference call can be accessed live over the phone by dialing (877) 407-0792, or for international callers by dialing (201) 689-8263. A replay of the call will be available until March 2, 2020 by dialing (844) 512-2921 or for international callers by dialing (412) 317-6671; the passcode is 13698494.
The live audio webcast of the conference call will be accessible in the Events & Presentations section on the Company's Investor Relations website at investor.shakeshack.com. An archived replay of the webcast will also be available shortly after the live event has concluded.
Definitions
The following definitions apply to these terms as used in this release:
"Shack sales" is defined as the aggregate sales of food and beverages in domestic company-operated Shacks and excludes sales from licensed Shacks.
"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company-operated Shacks open for 24 full fiscal months or longer.
"Average unit volume" or "AUV" for any 12-month period consist of the average annualized sales of all domestic company-operated Shacks over that period. AUV is calculated by dividing total Shack sales from domestic company-operated Shacks by the number of domestic company-operated Shacks open during that period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks open such that it corresponds to the period of associated sales. The measurement of AUV allows the Company to assess changes in guest traffic and per transaction patterns at domestic company-operated Shacks.
"Average weekly sales" is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales.
"Shack-level operating profit," a non-GAAP measure, is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.
"Shack-level operating profit margin," a non-GAAP measure, is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses as a percentage of Shack sales.
“EBITDA,” a non-GAAP measure, is defined as net income before interest expense (net of interest income), income tax expense, and depreciation and amortization expense.
“Adjusted EBITDA,” a non-GAAP measure, a non-GAAP measure, is defined as EBITDA (as defined above), excluding equity-based compensation expense, deferred lease costs, losses on the disposal of property and equipment, amortization of cloud-based software implementation assets, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.
“Adjusted EBITDA margin,” a non-GAAP measure, is defined as net income before net interest, taxes, depreciation and amortization, which also excludes equity-based compensation expense, deferred lease costs, losses on the disposal of property and equipment, amortization of cloud-based software implementation assets, as well as certain non-recurring and other items that the Company does not believe directly reflect its core operations, as a percentage of revenue.
"Adjusted pro forma net income," a non-GAAP measure, represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring and other items that the Company does not believe directly reflect its core operations.
About Shake Shack
Shake Shack is a modern day “roadside” burger stand known for its 100% all-natural Angus beef burgers, chicken sandwiches and flat-top Vienna beef dogs (no hormones or antibiotics - ever), spun-fresh frozen custard, crinkle cut fries, craft beer and wine and more. With its fresh, simple, high-quality food at a great value, Shake Shack is a fun and lively community gathering place with widespread appeal. Shake Shack’s mission is to Stand for Something Good®, from its premium ingredients and caring hiring practices to its inspiring designs and deep community investment. Since the original Shack opened in 2004 in NYC’s Madison Square Park, the company has expanded to more than 280 locations in 30 U.S. States and the District of Columbia, including more than 95 international locations including London, Hong Kong, Shanghai, Singapore, Philippines, Mexico, Istanbul, Dubai, Tokyo, Moscow, Seoul and more.
Media:
Kristyn Clark, Shake Shack
(646) 747-8776
kclark@shakeshack.com
Investor Relations:
Melissa Calandruccio, ICR
Michelle Michalski, ICR
(844) SHACK-04 (844-742-2504)
investor@shakeshack.com
Forward-Looking Statements
This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the guidance set forth below. All statements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to, expected financial outlook for fiscal 2020, expected Shack openings, expected same-Shack sales growth and trends in the Company’s operations. Forward-looking statements discuss the Company's current expectations and projections relating to its financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in the Company’s Form 10-K for the fiscal year ended December 25, 2019 filed with the Securities and Exchange Commission ("SEC"). All of the Company's SEC filings are available online at www.sec.gov, www.shakeshake.com or upon request from Shake Shack Inc. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
SHAKE SHACK INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except per share amounts)
| Fiscal<br> Quarter Ended | Fiscal<br> Year Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December<br> 25<br> 2019 | December<br> 26<br> 2018 | December<br> 25<br> 2019 | December<br> 26<br> 2018 | |||||||||||||||||
| Shack<br> sales | $ | 145,814 | 96.3 | % | $ | 120,720 | 97.1 | % | $ | 574,625 | 96.7 | % | $ | 445,589 | 97.0 | % | ||||
| Licensing<br> revenue | 5,621 | 3.7 | % | 3,545 | 2.9 | % | 19,894 | 3.3 | % | 13,721 | 3.0 | % | ||||||||
| TOTAL<br> REVENUE | 151,435 | 100.0 | % | 124,265 | 100.0 | % | 594,519 | 100.0 | % | 459,310 | 100.0 | % | ||||||||
| Shack-level<br> operating expenses^(1)^: | ||||||||||||||||||||
| Food<br> and paper costs | 43,127 | 29.6 | % | 34,760 | 28.8 | % | 168,176 | 29.3 | % | 126,096 | 28.3 | % | ||||||||
| Labor<br> and related expenses | 41,920 | 28.7 | % | 34,443 | 28.5 | % | 160,811 | 28.0 | % | 122,094 | 27.4 | % | ||||||||
| Other<br> operating expenses | 17,899 | 12.3 | % | 15,247 | 12.6 | % | 69,169 | 12.0 | % | 51,783 | 11.6 | % | ||||||||
| Occupancy<br> and related expenses | 13,142 | 9.0 | % | 9,089 | 7.5 | % | 48,451 | 8.4 | % | 32,710 | 7.3 | % | ||||||||
| General<br> and administrative expenses | 19,229 | 12.7 | % | 15,173 | 12.2 | % | 65,649 | 11.0 | % | 52,720 | 11.5 | % | ||||||||
| Depreciation<br> expense | 11,153 | 7.4 | % | 8,095 | 6.5 | % | 40,392 | 6.8 | % | 29,000 | 6.3 | % | ||||||||
| Pre-opening<br> costs | 4,156 | 2.7 | % | 4,248 | 3.4 | % | 14,834 | 2.5 | % | 12,279 | 2.7 | % | ||||||||
| Loss<br> on disposal of property and equipment | 321 | 0.2 | % | 374 | 0.3 | % | 1,352 | 0.2 | % | 917 | 0.2 | % | ||||||||
| TOTAL<br> EXPENSES | 150,947 | 99.7 | % | 121,429 | 97.7 | % | 568,834 | 95.7 | % | 427,599 | 93.1 | % | ||||||||
| OPERATING<br> INCOME | 488 | 0.3 | % | 2,836 | 2.3 | % | 25,685 | 4.3 | % | 31,711 | 6.9 | % | ||||||||
| Other<br> income, net | 1,004 | 0.7 | % | 444 | 0.4 | % | 2,263 | 0.4 | % | 1,514 | 0.3 | % | ||||||||
| Interest<br> expense | (132 | ) | (0.1 | )% | (645 | ) | (0.5 | )% | (434 | ) | (0.1 | )% | (2,415 | ) | (0.5 | )% | ||||
| INCOME<br> BEFORE INCOME TAXES | 1,360 | 0.9 | % | 2,635 | 2.1 | % | 27,514 | 4.6 | % | 30,810 | 6.7 | % | ||||||||
| Income<br> tax expense | 3,433 | 2.3 | % | 3,183 | 2.6 | % | 3,386 | 0.6 | % | 8,862 | 1.9 | % | ||||||||
| NET<br> INCOME (LOSS) | (2,073 | ) | (1.4 | )% | (548 | ) | (0.4 | )% | 24,128 | 4.1 | % | 21,948 | 4.8 | % | ||||||
| Less:<br> net income attributable to non-controlling interests | 20 | — | % | 410 | 0.3 | % | 4,301 | 0.7 | % | 6,769 | 1.5 | % | ||||||||
| NET<br> INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. | $ | (2,093 | ) | (1.4 | )% | $ | (958 | ) | (0.8 | )% | $ | 19,827 | 3.3 | % | $ | 15,179 | 3.3 | % | ||
| Earnings<br> (loss) per share of Class A common stock: | ||||||||||||||||||||
| Basic | $ | (0.06 | ) | $ | (0.03 | ) | $ | 0.63 | $ | 0.54 | ||||||||||
| Diluted | $ | (0.06 | ) | $ | (0.03 | ) | $ | 0.61 | $ | 0.52 | ||||||||||
| Weighted-average<br> shares of Class A common stock outstanding: | ||||||||||||||||||||
| Basic | 33,877 | 29,408 | 31,381 | 28,299 | ||||||||||||||||
| Diluted | 33,877 | 29,408 | 32,251 | 29,179 | ||||||||||||||||
| (1) | As a percentage of Shack sales. | |||||||||||||||||||
| --- | --- |
SHAKE SHACK INC.
SELECTED BALANCE SHEET AND OPERATINGDATA
(UNAUDITED)
(dollar amounts in thousands)
| December 25<br> 2019 | December 26<br> 2018 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SELECTED BALANCE SHEET DATA: | ||||||||||||
| Cash and cash equivalents | $ | 37,099 | $ | 24,750 | ||||||||
| Marketable securities | $ | 36,508 | $ | 62,113 | ||||||||
| Total assets^(1)^ | $ | 968,268 | $ | 610,532 | ||||||||
| Total liabilities^(1)^ | $ | 646,283 | $ | 337,077 | ||||||||
| Total equity | $ | 321,985 | $ | 273,455 | ||||||||
| (1) | The increases in total assets and liabilities reflects<br>the impact of the new lease accounting standard that was adopted on December 27, 2018 and includes approximately $279.9 million<br>of lease assets and $340.4 million of lease liabilities as of the period ended December 25, 2019. | |||||||||||
| --- | --- | |||||||||||
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 25<br> 2019 | December 26<br> 2018 | December 25<br> 2019 | December 26<br> 2018 | |||||||||
| SELECTED OPERATING DATA: | ||||||||||||
| Same-Shack sales % | (3.6 | )% | 2.3 | % | 1.3 | % | 1.0 | % | ||||
| Shacks in the comparable base | 85 | 61 | 85 | 61 | ||||||||
| Shack system-wide sales^(1)^ | $ | 235,049 | $ | 178,939 | $ | 895,288 | $ | 671,926 | ||||
| Average weekly sales | ||||||||||||
| Domestic company-operated | $ | 71 | $ | 81 | $ | 79 | $ | 84 | ||||
| Average unit volumes: | ||||||||||||
| Domestic company-operated | n/a | n/a | $ | 4,090 | $ | 4,390 | ||||||
| International licensed | n/a | n/a | $ | 3,367 | $ | 3,047 | ||||||
| Shack-level operating profit^(2)^ | $ | 29,726 | $ | 27,181 | $ | 128,018 | $ | 112,906 | ||||
| Shack-level operating profit margin^(2)^ | 20.4 | % | 22.5 | % | 22.3 | % | 25.3 | % | ||||
| Adjusted EBITDA^(2)^ | $ | 14,798 | $ | 14,461 | $ | 81,840 | $ | 73,850 | ||||
| Adjusted EBITDA margin^(2)^ | 9.8 | % | 11.6 | % | 13.8 | % | 16.1 | % | ||||
| Capital expenditures | $ | 25,603 | $ | 27,381 | $ | 106,507 | $ | 87,525 | ||||
| Shack counts (at end of period): | ||||||||||||
| System-wide | 275 | 208 | 275 | 208 | ||||||||
| Domestic company-operated | 163 | 124 | 163 | 124 | ||||||||
| Domestic licensed | 22 | 12 | 22 | 12 | ||||||||
| International licensed | 90 | 72 | 90 | 72 | ||||||||
| (1) | Shack system-wide sales is an operating measure and consists of sales from the Company's domesticcompany-operated Shacks, domestic licensed Shacks and international licensed Shacks. The Company does not recognize the sales fromlicensed Shacks as revenue. Of these amounts, revenue is limited to Shack sales from domestic company-operated Shacks and licensingrevenue based on a percentage of sales from domestic and international licensed Shacks. | |||||||||||
| --- | --- | |||||||||||
| (2) | Shack-level operating profit and adjusted EBITDA are non-GAAP measures. Reconciliations of Shack-leveloperating profit to operating income and adjusted EBITDA to net income (loss), the most directly comparable financial measurespresented in accordance with GAAP, are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.” | |||||||||||
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SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
To supplement the consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").
Shack-Level Operating Profit
Shack-level operating profit is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.
How This Measure Is Useful
When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that the Company believes are useful measures to evaluate the performance and profitability of its Shacks. Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by management to develop internal budgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods. It is also used to evaluate employee compensation as it serves as a metric in certain performance-based employee bonus arrangements. The Company believes presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of its operating performance that can provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates the business, as well as the financial and operational decision-making.
Limitations of the Usefulness ofthis Measure
Shack-level operating profit and Shack-level operating profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack-level operating profit excludes certain costs, such as general and administrative expenses and pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of the Company's Shacks. Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with the Company's GAAP financial results. A reconciliation of Shack-level operating profit to operating income, the most directly comparable GAAP financial measure, is set forth below.
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollar amounts in thousands) | December 25<br> 2019 | December 26<br> 2018 | December 25<br> 2019 | December 26<br> 2018 | ||||||||
| Operating income | $ | 488 | $ | 2,836 | $ | 25,685 | $ | 31,711 | ||||
| Less: | ||||||||||||
| Licensing revenue | 5,621 | 3,545 | 19,894 | 13,721 | ||||||||
| Add: | ||||||||||||
| General and administrative expenses | 19,229 | 15,173 | 65,649 | 52,720 | ||||||||
| Depreciation expense | 11,153 | 8,095 | 40,392 | 29,000 | ||||||||
| Pre-opening costs | 4,156 | 4,248 | 14,834 | 12,279 | ||||||||
| Loss on disposal of property and equipment | 321 | 374 | 1,352 | 917 | ||||||||
| Shack-level operating profit | $ | 29,726 | $ | 27,181 | $ | 128,018 | $ | 112,906 | ||||
| Total revenue | $ | 151,435 | $ | 124,265 | $ | 594,519 | $ | 459,310 | ||||
| Less: licensing revenue | 5,621 | 3,545 | 19,894 | 13,721 | ||||||||
| Shack sales | $ | 145,814 | $ | 120,720 | $ | 574,625 | $ | 445,589 | ||||
| Shack-level operating profit margin | 20.4 | % | 22.5 | % | 22.3 | % | 25.3 | % |
SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
EBITDA and Adjusted EBITDA
EBITDA is defined as net income before interest expense (net of interest income), income tax expense and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease cost, losses on the disposal of property and equipment, amortization of cloud-based software implementation costs, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance-based equity incentive programs and certain bonus arrangements. The Company believes presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of the Company's operating performance that facilitates analysis and comparisons of its ongoing business operations because they exclude items that may not be indicative of the Company's ongoing operating performance.
Limitations of the Usefulness ofThese Measures
EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below.
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | December 25<br> 2019 | December 26<br> 2018 | December 25<br> 2019 | December 26<br> 2018 | ||||||||
| Net income (loss) | $ | (2,073 | ) | $ | (548 | ) | $ | 24,128 | $ | 21,948 | ||
| Depreciation expense | 11,153 | 8,095 | 40,392 | 29,000 | ||||||||
| Interest expense, net | 132 | 645 | 434 | 2,407 | ||||||||
| Income tax expense | 3,433 | 3,183 | 3,386 | 8,862 | ||||||||
| EBITDA | 12,645 | 11,375 | 68,340 | 62,217 | ||||||||
| Equity-based compensation | 1,761 | 1,691 | 7,600 | 6,067 | ||||||||
| Amortization of cloud-based software implementation costs^(1)^ | 205 | — | 312 | — | ||||||||
| Deferred lease costs^(2)^ | 565 | 355 | 2,608 | 876 | ||||||||
| Loss on disposal of property and equipment | 321 | 374 | 1,352 | 917 | ||||||||
| Other income related to the adjustment of liabilities under tax receivable agreement | (794 | ) | (78 | ) | (808 | ) | (78 | ) | ||||
| Executive transition costs^(3)^ | — | 60 | 126 | 340 | ||||||||
| Project Concrete^(4)^ | 80 | 684 | 2,111 | 1,292 | ||||||||
| Costs related to relocation of Home Office^(5)^ | — | — | — | 1,019 | ||||||||
| Hong Kong Office^(6)^ | 15 | — | 199 | — | ||||||||
| Legal settlement^(7)^ | — | — | — | 1,200 | ||||||||
| ADJUSTED EBITDA | $ | 14,798 | $ | 14,461 | $ | 81,840 | $ | 73,850 | ||||
| Adjusted EBITDA margin^(8)^ | 9.8 | % | 11.6 | % | 13.8 | % | 16.1 | % | ||||
| (1) | Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are includedwithin general and administrative expenses. | |||||||||||
| --- | --- | |||||||||||
| (2) | Reflects the extent to which lease expense is greater than or less than cash lease payments. As a result of adoption ofthe new lease accounting standard on December 27, 2018, these lease costs may also include certain additional lease components,such as common area maintenance costs and property taxes, that were previously not included in lease expense for prior periods. | |||||||||||
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| (3) | Represents fees paid in connection with the search for certain of the Company's executive and key management positions,non-recurring signing bonuses and other transition costs, including related equity-based compensation. | |||||||||||
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| (4) | Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called ProjectConcrete. | |||||||||||
| --- | --- | |||||||||||
| (5) | Costs incurred in connection with the Company's relocation to a new Home Office. | |||||||||||
| --- | --- | |||||||||||
| (6) | Represents costs associated with establishing our first international office in Hong Kong. | |||||||||||
| --- | --- | |||||||||||
| (7) | Expense incurred to establish an accrual related to the settlement of a legal matter. | |||||||||||
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| (8) | As a percentage of total revenue which was $151,435 and $594,519 for the fourth quarter and fiscalyear ended December 25, 2019, respectively, and $124,265 and $459,310 for the fourth quarter andfiscal year ended December 26, 2018, respectively. | |||||||||||
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SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Adjusted Pro Forma Net Income and AdjustedPro Forma Earnings Per Fully Exchanged and Diluted Share
Adjusted pro forma net income represents net income (loss) attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that the Company does not believe are directly related to its core operations and may not be indicative of recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that the Company believes are useful measures to evaluate performance period over period and relative to its competitors. By assuming the full exchange of all outstanding LLC Interests, the Company believes these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income attributable to Shake Shack Inc. driven by increases in its ownership of SSE Holdings, which are unrelated to the Company's operating performance, and excludes items that are non-recurring or may not be indicative of ongoing operating performance.
Limitations of the Usefulness ofThese Measures
Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net income (loss) and earnings (loss) per share, as determined under GAAP. While these measures are useful in evaluating the Company's performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with GAAP financial results. A reconciliation of adjusted pro forma net income to net income (loss) attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands, except per share amounts) | December 25<br> 2019 | December 26<br> 2018 | December 25<br> 2019 | December 26<br> 2018 | ||||||||
| Numerator: | ||||||||||||
| Net loss attributable to Shake Shack Inc. | $ | (2,093 | ) | $ | (958 | ) | $ | 19,827 | $ | 15,179 | ||
| Adjustments: | ||||||||||||
| Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests^(1)^ | 20 | 410 | 4,301 | 6,769 | ||||||||
| Executive transition costs^(2)^ | — | 60 | 126 | 340 | ||||||||
| Project Concrete^(3)^ | 80 | 684 | 2,111 | 1,292 | ||||||||
| Costs related to relocation of Home Office^4)^ | — | — | — | 1,019 | ||||||||
| Hong Kong office^(5)^ | 15 | — | 199 | — | ||||||||
| Legal settlement^(6)^ | — | — | — | 1,200 | ||||||||
| Other income related to the adjustment of liabilities under tax receivable agreement | (794 | ) | (78 | ) | (808 | ) | (78 | ) | ||||
| Tax effect of change in tax basis related to the adoption of new accounting standards^(7)^ | — | — | 1,161 | (311 | ||||||||
| Remeasurement of deferred tax assets | — | 3,794 | — | 3,794 | ||||||||
| Income tax (expense) benefit^(8)^ | 4,924 | (1,475 | ) | 446 | (2,290 | ) | ||||||
| Adjusted pro forma net income | $ | 2,152 | $ | 2,437 | $ | 27,363 | $ | 26,914 | ||||
| Denominator: | ||||||||||||
| Weighted-average shares of Class A common stock outstanding—diluted | 33,877 | 29,408 | 32,251 | 29,179 | ||||||||
| Adjustments: | ||||||||||||
| Assumed exchange of LLC Interests for shares of Class A common stock^(1)^ | 3,665 | 7,660 | 5,921 | 8,663 | ||||||||
| Dilutive effect of stock options | 805 | 848 | — | — | ||||||||
| Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted | 38,347 | 37,916 | 38,172 | 37,842 | ||||||||
| Adjusted pro forma earnings per fully exchanged share—diluted | $ | 0.06 | $ | 0.06 | $ | 0.72 | $ | 0.71 | ||||
| Fiscal Quarter Ended | Fiscal Year Ended | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||
| December 25<br> 2019 | December 26<br> 2018 | December 25<br> 2019 | December 26<br> 2018 | |||||||||
| Earnings per share of Class A common stock - diluted | $ | (0.06 | ) | $ | (0.03 | ) | $ | 0.61 | $ | 0.52 | ||
| Assumed exchange of LLC Interests for shares of Class A common stock^(1)^ | 0.01 | 0.01 | 0.02 | 0.06 | ||||||||
| Non-GAAP adjustments^(9)^ | 0.12 | 0.09 | 0.09 | 0.13 | ||||||||
| Dilutive impact of stock options | (0.01 | ) | (0.01 | ) | — | — | ||||||
| Adjusted pro forma earnings per fully exchanged share—diluted | $ | 0.06 | $ | 0.06 | $ | 0.72 | $ | 0.71 | ||||
| (1) | Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination ofthe non-controlling interest and recognition of the net income attributable to non-controlling interests. | |||||||||||
| --- | --- | |||||||||||
| (2) | Represents costs incurred in connection with the Company's executive search, including fees paid to an executive recruitingfirm. | |||||||||||
| --- | --- | |||||||||||
| (3) | Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called ProjectConcrete. | |||||||||||
| --- | --- | |||||||||||
| (4) | Costs incurred in connection with the Company's relocation to a new Home Office. | |||||||||||
| --- | --- | |||||||||||
| (5) | Represents costs associated with establishing our first international office in Hong Kong. | |||||||||||
| --- | --- | |||||||||||
| (6) | Expense incurred to establish an accrual related to the settlement of a legal matter. | |||||||||||
| --- | --- | |||||||||||
| (7) | Represents tax effect of change in tax basis related to the adoption of the new lease accounting standard for the fiscalquarter and year ended December 25, 2019 and the revenue recognition standard for the fiscal quarter and year ended December 26,2018. | |||||||||||
| --- | --- | |||||||||||
| (8) | Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxesat assumed effective tax rates of (225.6)% and 6.1% for the fiscal quarter and year ended December 25, 2019, respectively,and 26.2% and 22.2% for the fiscal quarter and year ended December 26, 2018, respectively. Amounts include provisions forU.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory rates apportionedto each applicable state, local and foreign jurisdiction. | |||||||||||
| --- | --- | |||||||||||
| (9) | Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted Pro FormaNet Income above for further details. | |||||||||||
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Exhibit 99.2
FOURTH QUARTER 2019 EARNINGS SUPPLEMENTAL FEBRUARY 24, 2020
CAUTIONARY NOTE ON FORWARD - LOOKING STATEMENTS This presentation contains forward - looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. All statements other than statements of historical fact included in this presentation are forward - looking statements, including, but not limited to, expected financial outlook for fiscal 2020, expected Shack openings, expected same - Shack sales growth and trends in Shake Shack Inc.’s (the “Company’s”) operations. Forward - looking statements discuss the Company's current expectations and projections relating to its financial position, results of operations, plans, objectives, future performance and business. You can identify forward - looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward - looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward - looking statements made in this presentation in the context of the risks and uncertainties disclosed in the Company’s Annual Report on Form 10 - K for the fiscal year ended December 25, 2019, filed with the Securities and Exchange Commission ("SEC"). All of the Company's SEC filings are available online at www.sec.gov , www.shakeshack.com or upon request from Shake Shack Inc. The forward - looking statements included in this presentation are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward - looking statement as a result of new information, future events or otherwise, except as otherwise required by law. 2
- "Same - Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company - oper ated Shacks open for 24 full fiscal months or longer. 2. “Shack system - wide sales” is an operating measure and consists of sales from the Company's domestic company - operated Shacks, dom estic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from licensed Shacks as rev enu e. Of these amounts, revenue is limited to Shack sales from domestic company - operated Shacks and licensing revenue based on a percentage of sales from domestic and interna tional licensed Shacks. 3. “Adjusted EBITDA,” a non - GAAP measure, a non - GAAP measure, is defined as EBITDA excluding equity - based compensation expense, def erred lease costs, losses on the disposal of property and equipment, amortization of cloud - based software implementation assets, as well as certain non - recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations. See appendix for definition and reconciliation to most comparable GAAP measure. 4. "Shack - level operating profit," a non - GAAP measure, is defined as Shack sales less Shack - level operating expenses including food and paper co sts, labor and related expenses, other operating expenses and occupancy and related expenses. See appendix for definition and reconciliation to most comparable GAAP measure. 3 FULL - YEAR 2019 HIGHLIGHTS Licensed & Domestic Shacks Worldwide Growth in Same - Shack Sales 1 275 +1.3% Total Revenue $594.5M +29% YoY Shack System - wide Sales 2 $895.3M +33% YoY $81.8M Adjusted EBITDA 3 +11% YoY $128M Shack - Level Operating Profit 4 +13% YoY
Q4 2019 FINANCIAL HIGHLIGHTS 25 New Domestic Company - Operated and Licensed Shacks opened in Q4 $29.7M Shack - Level Operating Profit 4 +9% YoY +31% Shack System - wide Sales 2 $235.0M +22% Total Revenue $151.4M 4 Adjusted EBITDA 3 +2% YoY $14.8M YoY YoY - 3.6% Decrease in Same - Shack Sales 1 1. "Same - Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company - oper ated Shacks open for 24 full fiscal months or longer. 2. “Shack system - wide sales” is an operating measure and consists of sales from the Company's domestic company - operated Shacks, dom estic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from licensed Shacks as rev enu e. Of these amounts, revenue is limited to Shack sales from domestic company - operated Shacks and licensing revenue based on a percentage of sales from domestic and interna tional licensed Shacks. 3. “Adjusted EBITDA,” a non - GAAP measure, a non - GAAP measure, is defined as EBITDA excluding equity - based compensation expense, def erred lease costs, losses on the disposal of property and equipment, amortization of cloud - based software implementation assets, as well as certain non - recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations. See appendix for defini tio n and reconciliation to most comparable GAAP measure. 4. "Shack - level operating profit," a non - GAAP measure, is defined as Shack sales less Shack - level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses. See appendix for definition and reconciliation to most comparable GAAP measure.
2016 2015 $191 $359 $268 $595 2017 $459 2018 2019 Total Revenue $595 Million System - wide Sales 1 $895 Million System - wide Shack Count 275 as of the end of the period Cash Flow from Operations $90 Million $532 $672 $403 $295 $895 275 114 84 159 208 $85 $71 $41 $54 $90 1. “Shack system - wide sales” is an operating measure and consists of sales from the Company's domestic company - operated Shacks, dom estic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from licensed Shacks as rev enu e. Of these amounts, revenue is limited to Shack sales from domestic company - operated Shacks and licensing revenue based on a percentage of sales from domestic and interna tional licensed Shacks. Note: CAGR for total revenue, system - wide sales , system - wide Shack count and cash flow from operations, is the compounded annual growth rate between 2015 and the end of 20 19 . 5 BUSINESS HIGHLIGHTS 2016 2015 2017 2018 2019 2016 2015 2017 2018 2019 2016 2015 2017 2018 2019 Opened largest class of shacks ever, with 73 Shacks around the globe, unlocking major new markets Added $135 million in Total Revenue, a record increase for total dollar growth Grew system - wide sales by 33% and launched in 7 new markets domestically and 4 new markets internationally
CONTINUED INNOVATION & EXPANSION OF SHACK FORMATS FREE STANDING PAD EVENTS AIRPORTS DIGITAL FOCUSED FOOD TRUCK TRANSIT CENTER URBAN STADIUM SHOPPING CENTER ROADSIDE FOOD COURT MALL 6
19 20 19 8 10 8 8 8 13 6 5 19 16 2 5 10 9 California 24 Texas 18 17 Northeast 32 NYC 26 Mid - Atlantic Southeast 27 13 Midwest 26 Pacific Northwest 2 Southwest SIGNIFICANT EXPANSION WITHIN EXISTING MARKETS BUILDING ON GROWING BRAND AWARENESS 7 Aggressively expanding our footprint in existing markets, can at times have a short - term impact on existing Shacks’ performance Shacks opened in 2018 & 2019 Shacks opened in 2017 and prior The above includes domestic company - operated shacks and domestic licensed shacks as of the end of Q4 2019 The regions of domestic company - operated Shacks are defined as: Northeast, which represents non - NYC NY, CT, MA, NJ, RI ; NYC, wh ich represents 5 boroughs; Mid - Atlantic which represents DC, DE, MD, PA, VA; Southeast, which represents AL, FL, GA, LA, NC, TN ; Midwest, which represents IL, KS, KY, MI, MN, MO, OH, WI; Pacific Northwest which represents WA; Southwest, which represents AZ, CO, NV, UT.
EARLY STAGE OF DOMESTIC EXPANSION PLAN AGE OF DOMESTIC COMPANY - OPERATED SHACK BASE 24% 21% 16% 12% 27% Less than or equal to 12 months Greater than 48 months 13 to 24 months 25 to 36 months 37 to 48 months average age of company - operated Shacks 60% of Shacks are < 3 years old 2.9 years 8 The above includes domestic company - operated shacks as of the end of Q4 2019
EARLY STAGE OF DOMESTIC EXPANSION PLAN REGIONAL FOOTPRINT states with less than 5 Shacks states with 5 or more Shacks Only 9 states across the country with 5 or more Shacks; significant opportunity to expand footprint in existing markets The above includes domestic company - operated shacks as of the end of Q4 2019 9
~90% of 2020 openings planned for within existing markets Opening third Shack in Seattle, second location in Nashville and continuing to grow the Los Angeles market with an opening in Santa Monica later this year Testing new kitchen flows in select new Shacks with goal of labor reduction, improved accuracy and greater throughput New Shack design and certain renovations to improve peak time pick - up experience and more fully integrate the digital experience 2020 DOMESTIC DEVELOPMENT FOCUSED ON FURTHER EXPANSION WITHIN EXISTING MARKETS 90 44 64 124 2016 2020 E 2017 163 2015 2018 2019 203 to 205 Domestic company - operated Shacks (At Fiscal Year End) 10 Note: CAGR for total revenue, system - wide sales , system - wide Shack count and cash flow from operations, is the compounded annual growth rate between 2015 and the end of 20 19 .
Long - term opportunity for growth in China is material with only three shacks in Shanghai, six Shacks in Hong Kong, and planned entrance into Beijing market later this year Anticipating coronavirus to have significant impact on business across Asia through much of 2020 Mexico City, Singapore and the Philippines all opened with strong starts and represent significant growth opportunity over the long - term Continued expansion of our domestic licensed business through a variety of locations and formats Plan to open second roadside Shack at Vince Lombardi stop on the New Jersey Turnpike 135 69 2019 40 50 84 112 2015 2016 2017 2018 2020 132 to 137 LICENSED BUSINESS DELIVERING STRONG RESULTS WITH KEY NEW MARKET ENTRIES IN 2019 Licensed Shacks (At Fiscal Year End) 11 Note: CAGR for total revenue, system - wide sales , system - wide Shack count and cash flow from operations, is the compounded annual growth rate between 2015 and the end of 20 19 .
12 STRENGTHENING OUR BRAND BY CREATING BUZZ & CONNECTING WITH OUR COMMUNITIES
13 CONTINUED INVESTMENT IN OUR TEAM Promoted over 1,600 individuals around the company, of whom almost 60% were women Recognized by the Human Rights Campaign and awarded a 100% score on HRC Equality Index for corporate policies and practices Continued investment in additional programs throughout 2020 aimed at leadership development and professional growth Testing a four - day work week for Shack Managers in about a third of Shacks, encouraged with results and early feedback
2019 MENU DEVELOPMENT FOCUSED ON CHICK’N BITES LAUNCH; INCREASING INNOVATION IN 2020 2019 focused on the successful launch of Chick’n Bites which was moved onto the core menu in early 2020, while continuing to assess guest feedback 2020 will see increased levels of menu innovation with buzz - worthy LTOs, expansion of existing categories, and the exploration of new categories A previous favorite, the ShackMeister Burger, will run through Q1 2020, with Hot Chick’n also returning, in conjunction with a new LTO – Hot Chick’n Bites Plan to test new Veggie Shack Burger which is made with real vegetables, herbs and grains as part of new category expansion learning 14
©2004 - 2020 SHAKE SHACK. ALL RIGHTS RESERVED. INVESTING TO IMPROVE DIGITAL EXPERIENCE ACROSS ALL OUR CHANNELS Deploying app, kiosk and web enhancements adding loyalty - driving functionality to drive acquisition and frequency Building an integrated digital and data ecosystem, working towards a single view of the guest Expanding personalized marketing - focused capabilities across different channels and regions Aim to remove friction, and add convenience to the guest journey regardless of the channel 15
DELIVERY UPDATE Decision to pursue a single partner strategy for marketed and integrated delivery (with GrubHub) was announced in August 2019 POS technology integration with Grubhub completed early in the Fourth Quarter although majority of Shacks were still integrated with multiple partners at year end Phased regional transition to single partner integration is ongoing; almost half the Shacks now solely integrated A single integrated partner better enables focus on guest experience, joint marketing activity, activation of g uest data & insights, and sustainable economics Delivery sales in 2020 expected to be volatile as a result of the ongoing transition 16
17 ©2004 - 2020 SHAKE SHACK. ALL RIGHTS RESERVED. SHACK DESIGN EVOLVING FOR THE DIGITAL JOURNEY Digital and in - Shack experiences converging with expansion of digital channels and pick - up in Shack Front of house flow increasingly separating order - ahead channels to minimize friction in pick - up experience In - Shack digital ordering with kiosks in approximately one third of Shacks and further rollout planned Iterative design & renovation process to further integrate the digital experience into the physical Shack experience 17
2020 GUIDANCE 1. Includes approximately $15 million sales impact from a 53rd week in 2020. 2. Includes approximately 1.5% to 2.0% of menu price increases taken in December 2019 3. Normalized for the 53 rd week 4. Includes only domestic company - operated shacks 5. Shack - level operating profit margin is a non - GAAP measure. A reconciliation to the most directly comparable GAAP measure, operat ing income, has not been provided as we cannot project certain reconciling items, such as gains or losses on disposal of property and equ ipm ent, without unreasonable effort given the uncertainty around the timing and amount of such gains or losses. Losses on disposal of propert y a nd equipment were less than $1.5 million for each of the fiscal years 2019, 2018 and 2017. 6. Adjusted pro forma effective tax rate is a non - GAAP measure. A reconciliation to the most directly comparable GAAP measure, inco me tax expense, has not been provided as we cannot project income tax expense without unreasonable effort due to our inability to pr edi ct changes in our ownership interest in SSE Holdings, LLC resulting from redemptions of LLC Interests by non - controlling interest holders and equi ty - based award activity. Income tax expense for fiscal years 2019, 2018 and 2017 was $3.4 million, $8.9 million and $151.4 million, respecti vel y. These forward - looking projections are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company's Form 10 - K for the fiscal year ended December 25, 2019 under the heading “Risk Factors.” These forward - looking projections should be reviewed in conjunction with the consolidated financial statements and the section titled “Trends in Our Business” which forms the basis of our assumptions used to prepare these forward - looking projections. You should not attribute undue certainty to these projections, and we undertake no obligation to revise or update any forward - looking information, except as required by law. Total Revenue 1 Licensed Revenue Same - Shack Sales (%) 2 3 Domestic company - operated openings Licensed Shack openings Average Unit Volume 4 Shack - level operating profit margin 5 (%) General and administrative expenses Core general and administrative expenses Equity - based compensation Project Concrete Depreciation expense Pre - opening costs Interest expense Adjusted pro forma tax rate 6 (%) $712M to $720M $21M to $22M Low single digit decrease 40 to 42 20 to 25, net $3.7M to $3.8M 20% to 22.5% $80M to $82M $72.2M to $74.2M $7.5M $0.3M $52.5M to $53.5M $15M to $16M $0.6M 26% to 27% 18
APPENDIX INCLUDING GAAP & NON - GAAP MEASURES 19
Right - of - use asset & lease liabilities Landlord funded assets & deemed landlord financing liabilities Deferred rent liabilities Occupancy and related expenses Other operating expenses Interest expense • Net increase to total assets of $218 million • Net increase to total liabilities of $213 million IMPACT OF NEW LEASE ACCOUNTING STANDARD 20 Balance Sheet impact from the adoption of the new lease accounting standard Income Statement changes Balance Sheet changes Net resulting Income Statement impact • Approximately 50 basis points net unfavorable impact to Shack - level Operating Profit margin in 2019 due to adoption of the new lease standard • Expect unfavorable impact to Adjusted EBITDA; minimal net impact to Net Income
“Adjusted EBITDA,” a non - GAAP measure” , is defined as EBITDA (as defined above), excluding equity - based compensation expense, deferred lease costs, losses on the disposal of property and equipment, amortization of cloud - based software implementation assets, as well as certain non - recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations. “Adjusted EBITDA margin,” a non - GAAP measure, is defined as net income before net interest, taxes, depreciation and amortization, which also excludes equity - based compensation expense, deferred lease costs, losses on the disposal of property and equipment, amortization of cloud - based software implementation assets, as well as certain non - recurring and other items that the Company does not believe directly reflect its core operations, as a percentage of revenue. "Average unit volumes" or "AUVs" for any 12 - month period consist of the average annualized sales of all domestic company - operated Shacks over that period. AUVs are calculated by dividing total Shack sales from domestic company - operated Shacks by the number of domestic company - operated Shacks open during that period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks open such that it corresponds to the period of associated sales. "Same - Shack Sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company - operated Shacks open for 24 full fiscal months or longer. DEFINITIONS “EBITDA,” a non - GAAP measure, is defined as net income before interest expense (net of interest income), income tax expense, and depreciation and amortization expense. "Shack - level operating profit," a non - GAAP measure, is defined as Shack sales less Shack - level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses. "Shack - level operating profit margin," a non - GAAP measure, is defined as Shack sales less Shack - level operating expenses, including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses as a percentage of Shack sales. "Shack sales" is defined as the aggregate sales of food, beverages and Shake Shack - branded merchandise at domestic company - operated Shacks and excludes sales from licensed Shacks. “Shack system - wide sales” is an operating measure and consists of sales from domestic company - operated Shacks, domestic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from licensed Shacks as revenue. Of these amounts, revenue is limited to Shack sales from domestic company - operated Shacks and licensing revenue based on a percentage of sales from domestic and international licensed Shacks, as well as certain up - front fees such as territory fees and opening fees. 21
INCOME STATEMENT 22 (1) As a percentage of Shack sales. (dollar amount in thousands) Shack sales $ 145,814 96.3% $ 120,720 97.1% $ 574,625 96.7% $ 445,589 97.0% Licensing revenue 5,621 3.7% 3,545 2.9% 19,894 3.3% 13,721 3.0% TOTAL REVENUE 151,435 100.0% 124,265 100.0% 594,519 100.0% 459,310 100.0% Shack-level operating expenses (1) : Food and paper costs 43,127 29.6% 34,760 28.8% 168,176 29.3% 126,096 28.3% Labor and related expenses 41,920 28.7% 34,443 28.5% 160,811 28.0% 122,094 27.4% Other operating expenses 17,899 12.3% 15,247 12.6% 69,169 12.0% 51,783 11.6% Occupancy and related expenses 13,142 9.0% 9,089 7.5% 48,451 8.4% 32,710 7.3% General and administrative expenses 19,229 12.7% 15,173 12.2% 65,649 11.0% 52,720 11.5% Depreciation expense 11,153 7.4% 8,095 6.5% 40,392 6.8% 29,000 6.3% Pre-opening costs 4,156 2.7% 4,248 3.4% 14,834 2.5% 12,279 2.7% Loss on disposal of property and equipment 321 0.2% 374 0.3% 1,352 0.2% 917 0.2% TOTAL EXPENSES 150,947 99.7% 121,429 97.7% 568,834 95.7% 427,599 93.1% OPERATING INCOME 488 0.3% 2,836 2.3% 25,685 4.3% 31,711 6.9% Other income, net 1,004 0.7% 444 0.4% 2,263 0.4% 1,514 0.3% Interest expense (132) -0.1% (645) -0.5% (434) -0.1% (2,415) -0.5% INCOME BEFORE INCOME TAXES 1,360 0.9% 2,635 2.1% 27,514 4.6% 30,810 6.7% Income tax expense 3,433 2.3% 3,183 2.6% 3,386 0.6% 8,862 1.9% NET INCOME (2,073) -1.4% (548) -0.4% 24,128 4.1% 21,948 4.8% Less: net income attributable to non-controlling interests 20 —% 410 0.3% 4,301 0.7% 6,769 1.5% NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC. $ (2,093) -1.4% $ (958) -0.8% $ 19,827 3.3% $ 15,179 3.3% Earnings per share of Class A common stock: Basic ($0.06) ($0.03) $0.63 $0.54 Diluted ($0.06) ($0.03) $0.61 $0.52 Weighted-average shares of Class A common stock outstanding: Basic 33,877 29,408 31,381 28,299 Diluted 33,877 29,408 32,251 29,179 Fiscal Quarter Ended December 25, 2019 December 26, 2018 Fiscal Year Ended December 25, 2019 December 26, 2018
Shack - Level Operating Profit Shack - level operating profit is defined as Shack sales less Shack - level operating expenses, including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses. How This Measure Is Useful When used in conjunction with GAAP financial measures, Shack - level operating profit and Shack - level operating profit margin are supplemental measures of operating performance that the Company believes are useful measures to evaluate the performance and profitability of its Shacks. Additionally, Shack - level operating profit and Shack - level operating profit margin are key metrics used internally by management to develop internal budgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods. It is also used to evaluate employee compensation as it serves as a metric in certain performance - based employee bonus arrangements. The Company believes presentation of Shack - level operating profit and Shack - level operating profit margin provides investors with a supplemental view of its operating performance that can provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates the business, as well as the financial and operational decision - making. Limitations of the Usefulness of this Measure Shack - level operating profit and Shack - level operating profit margin may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Shack - level operating profit and Shack - level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack - level operating profit excludes certain costs, such as general and administrative expenses and pre - opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of the Company's Shacks. Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack - level operating profit and Shack - level operating profit margin should be reviewed in conjunction with the Company’s GAAP financial results. A reconciliation of Shack - level operating profit to operating income, the most directly comparable GAAP financial measure, is set forth below. SHACK - LEVEL OPERATING PROFIT DEFINITIONS 23
SHACK - LEVEL OPERATING PROFIT 24 (dollar amount in thousands) December 25, 2019 December 26, 2018 December 25, 2019 December 26, 2018 Operating income 488$ 2,836$ 25,685$ 31,711$ Less: Licensing revenue 5,621 3,545 19,894 13,721 Add: General and administrative expenses 19,229 15,173 65,649 52,720 Depreciation expense 11,153 8,095 40,392 29,000 Pre-opening costs 4,156 4,248 14,834 12,279 Loss on disposal of property and equipment 321 374 1,352 917 Shack-level operating profit 29,726$ 27,181$ 128,018$ 112,906$ Total revenue 151,435$ 124,265$ 594,519$ 459,310$ Less: licensing revenue 5,621 3,545 19,894 13,721 Shack sales 145,814$ 120,720$ 574,625$ 445,589$ Shack-level operating profit margin 20.4% 22.5% 22.3% 25.3% Fiscal Quarter Ended Fiscal Year Ended
EBITDA and Adjusted EBITDA EBITDA is defined as net income before interest expense (net of interest income), income tax expense and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity - based compensation expense, deferred lease cost, losses on the disposal of property and equipment, amortization of cloud - based software implementation costs, as well as certain non - recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations. How These Measures Are Useful When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance that the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance - based equity incentive programs and certain bonus arrangements. The Company believes presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of the Company's operating performance that facilitates analysis and comparisons of its ongoing business operations because they exclude items that may not be indicative of the Company's ongoing operating performance. ADJUSTED EBITDA DEFINITIONS Limitations of the Usefulness of These Measures EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below. 25
ADJUSTED EBITDA 26 (1) Represents amortization of capitalized implementation costs related to cloud - based software arrangements that are included withi n general and administrative expenses. (2) Reflects the extent to which lease expense is greater than or less than cash lease payments. As a result of adoption of the n ew lease accounting standard on December 27, 2018, these lease costs may also include certain additional lease components, such as common area maintenance costs and property taxes, that were previously not included in lease expense for prior periods. (3) Represents fees paid in connection with the search for certain of the Company's executive and key management positions, non - recu rring signing bonuses and other transition costs, including related equity - based compensation. (4) Represents consulting and advisory fees related to the Company's enterprise - wide system upgrade initiative called Project Concre te. (5) Costs incurred in connection with the Company's relocation to a new Home Office. (6) Represents costs associated with establishing our first international office in Hong Kong. (7) Expense incurred to establish an accrual related to the settlement of a legal matter. (8) As a percentage of total revenue which was $151,435 and $594,519 for the fourth quarter and fiscal year ended December 25, 2019, respectively, and $124,265 and $459,310 for the fourth quarter and fiscal year ended December 26, 2018, respectively. (dollar amounts in thousands) December 25, 2019 December 26, 2018 December 25, 2019 December 26, 2018 Net income (2,073)$ (548)$ 24,128$ 21,948$ Depreciation expense 11,153 8,095 40,392 29,000 Interest expense, net 132 645 434 2,407 Income tax expense 3,433 3,183 3,386 8,862 EBITDA 12,645 11,375 68,340 62,217 Equity-based compensation 1,761 1,691 7,600 6,067 Amortization of cloud-based software implementation costs (1) 205 — 312 — Deferred lease costs (2) 565 355 2,608 876 Loss on disposal of property and equipment 321 374 1,352 917 Other income related to adjustment of liabilities under tax receivable agreement (794) (78) (808) (78) Executive transition costs (3) — 60 126 340 Project Concrete (4) 80 684 2,111 1,292 Costs related to relocation of Home Office (5) — — — 1,019 Hong Kong office (6) 15 — 199 — Legal Settlement (7) — — — 1,200 Adjusted EBITDA 14,798$ 14,461$ 81,840$ 73,850$ Adjusted EBITDA margin (8) 9.8% 11.6% 13.8% 16.1% Fiscal Quarter Ended Fiscal Year Ended
2019 ADJUSTED PRO FORMA EFFECTIVE TAX RATE 27 (dollar amounts in thousands) Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate As reported 2,047$ 5,654$ 36.2% 1,050$ 12,221$ 8.6% (3,144)$ 8,279$ -38.0% 3,433$ 1,360$ 252.4% 3,386$ 27,514$ 12.3% Non-GAAP adjustments (before tax): Executive transition costs 38 88 126 Project Concrete 472 213 1,346 80 2,111 Hong Kong Office 171 13 15 199 Other income related to the adjustment of liaibilities under tax receivable agreement (14) (794) (808) Remeasurement of deferred tax assets in connection with other tax rate changes Tax effect of change in basis related to the adoption of ASC 842 (1,161) (1,161) Tax effect of non-GAAP adjustments and assumed exchange of outstanding LLC Interests 315 1,397 2,765 (4,924) (446) Adjusted pro forma 1,201$ 6,150$ 19.5% 2,447$ 12,693$ 19.3% (379)$ 9,638$ -3.9% (1,491)$ 661$ -225.6% 1,779$ 29,142$ 6.1% Less: Windfall tax benefits from stock-based compensation 459 958 2,827 1,598 5,842 Adjusted pro forma (excluding windfall tax benefits) 1,660$ 6,150$ 27.0% 3,405$ 12,693$ 26.8% 2,448$ 9,638$ 25.4% 107$ 661$ 16.2% 7,621$ 29,142$ 26.2% Thirteen Weeks Ended March 27, 2019 Thirteen Weeks Ended Fiscal Year Ended June 26, 2019 December 25, 2019 Thirteen Weeks Ended December 25, 2019 Thirteen Weeks Ended September 25, 2019
2018 ADJUSTED PRO FORMA EFFECTIVE TAX RATE 28 (dollar amounts in thousands) Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate As reported 1,198$ 6,177$ 19.4% 2,240$ 12,811$ 17.5% 2,241$ 9,187$ 24.4% 3,183$ 2,635$ 120.8% 8,862$ 30,810$ 28.8% Non-GAAP adjustments (before tax): Legal settlement 1,200 1,200 Executive transition costs 248 32 60 340 Project Concrete 239 77 292 684 1,292 Home Office relocation 998 19 2 1,019 Other income related to the adjustment of liaibilities under tax receivable agreement (78) (78) Remeasurement of deferred tax assets in connection with other tax rate changes (3,782) (3,919) Tax effect of change in basis related to the adoption of ASC 606 311 311 Tax effect of non-GAAP adjustments and assumed exchange of outstanding LLC Interests 246 (47) 616 1,463 2,415 Adjusted pro forma 1,755$ 7,414$ 23.7% 2,193$ 13,155$ 16.7% 2,857$ 10,713$ 26.7% 864$ 3,301$ 26.2% 7,669$ 34,583$ 22.2% Less: Windfall tax benefits from stock-based compensation 199 1,326 243 142 1,910 Adjusted pro forma (excluding windfall tax benefits) 1,954$ 7,414$ 26.4% 3,519$ 13,155$ 26.8% 3,100$ 10,713$ 28.9% 1,006$ 3,301$ 30.5% 9,579$ 34,583$ 27.7% Thirteen Weeks Ended March 28, 2018 Fiscal Year Ended December 26, 2018 Thirteen Weeks Ended Thirteen Weeks Ended June 27, 2018 September 26, 2018 Thirteen Weeks Ended December 26, 2018
CONTACT INFORMATION INVESTOR CONTACT Melissa Calandruccio, ICR Michelle Michalski, ICR (844) Shack - 04 (844 - 742 - 2504) investor@shakeshack.com MEDIA CONTACT Kristyn Clark, Shake Shack 646 - 747 - 8776 kclark@shakeshack.com 29