Conference Transcript - SHAK 2026-06-08

Mike Tamis, Analyst — Oppenheimer

All right. Thanks, everyone, for participating in Oppenheimer's 26th annual consumer conference. I'm Mike Tamis on the restaurant team, and I'll lead to coverage on Shake Shack. Shake Shack has about 400 company-owned units today and another 300 in its licensed business, with an opportunity to expand its footprint to 1,500 company units over the long term. The company targets annual unit growth in the low teens and EBITDA growth of low to high teens. So we're excited to have Rob Lynch, the CEO, and Michelle Hooks, CFO. Rob joined the company in May of 2024, and Michelle joined just a few weeks ago on May 11th. So thank you both for taking some time to speak with us today.

Rob Lynch, CEO

Thanks for having us, Mike.

Michelle Hook, CFO

Thanks, Mike.

Mike Tamis, Analyst — Oppenheimer

You know, over the last month or so, you've reduced your EBITDA guidance twice, but really only by about 5% in total. You know, the business is solid, and you're still targeting 2.5% to 3% same-store sales for the second quarter here. So can you just talk about maybe what changed in your assumptions when you did alter that guidance last week? And do you think you've appropriately set the bar now for the rest of 2026 to avoid any further reductions?

Rob Lynch, CEO

Yeah, I mean, I'll start and let Michelle add some color. I mean, she's come on the business and had a really material impact, positive impact. And, you know, over the last month, we've been watching really closely the cost structure of the business. You know, the the the beef prices have have gone up relative to what we were forecasting, you know, back in late April. I think everyone recognizes that we recognize that we've done a lot of supply chain work to mitigate a lot of the inflation in beef this year. but June will be the highest beef prices that we've seen. And so with the opportunity last week and this week to meet with investors, we want to make sure that we are giving the most updated, appropriate guide and look forward. So that's what we reflected last week. That's what we brought. We have a lot of confidence in the run rate of the business right now. Obviously, we disclosed in April a minus 0.6 in April comp. And so we guided, you know, two and a half to three last week, which, you know, the math implies that we're seeing acceleration in the business relative to April. So we're we also want to make sure that everyone recognizes we determined that we were going to take any of the revenue attributed to the World Cup out of our guide. That decision was made based on seeing some less than optimized trends on the tourism rates in some of the cities that we have shacks that are participating in the World Cup. So to give a clean look at the business without any modeling that we've done around World Cup, we wanted to reflect that, and that's what this guide reflects. So any impact from World Cup would be additive to this guide. So we chose not to put that in. And then on the year, we didn't change our comp guidance for the year. Comp guidance for the year has been low single digits. On the EBITDA side, it reflects the increase in some of the cost structure. And look, we could take more pricing to try to maintain margin, but we are doing everything we can. To be as competitive as we can in this in this marketplace, we feel like we've you know, we've we've held the line on core pricing a lot more so than we have in the past. And we do see this cost inflation, particularly the beef inflation, you know, is is ever evolving. And so we don't want to take a lot of price to mitigate short term inflation that then puts us in a tough position where we're kind of out ahead of pricing. So that's been our decision. That is why the margin, you know, guide came down and commensurately the EBITDA guide. But I just I would say, Mike, the only thing I'll close with and let Michelle come in, I mean, I still feel great about 22 to 23 percent restaurant operating margins. I know it's not where we thought we were going to be with all the great supply chain work that we've done and where we had forecasted beef prices to be. But, you know, in this this environment where you've got a lot of incremental cost on fuel, I mean, we're seeing fuel surcharges in our supply chain, in our distribution network. The beef prices remain elevated. You know, we've been able to still deliver 22 to 23 percent margins. I can't give the team more credit. The work that they've done on the operations and the supply chain have really allowed us to continue to deliver best-in-class margins in an environment like this. So, Michelle, I don't know if you have anything to add to that.

Michelle Hook, CFO

Yeah, the only thing I'd add is when we look at our new SHAC openings, we're still targeting approximately 16 in Q2 and didn't change our licensed openings. You know, we're targeting eight there. And when you look at the full year, we're still targeting 60 to 65 new shack openings and licensed openings to be in the 40 to 45 range. And so we feel good about the number of new shacks that we're opening as well as other performance. So our recent classes of new shacks have been, you know, at our expectations. And so in addition to what Rob said, which is we think 22% to 23% restaurant-level margins is really healthy, we're really excited about the pipeline that we have and the new shacks that we're opening. And those continuing to help us grow the top line as well.

Mike Tamis, Analyst — Oppenheimer

Yeah, it makes a lot of sense. It's sort of just sticking with guidance as a broader theme right now. You know, I think last week you also talked about potentially changing the way you guide going forward. So maybe what are your thoughts on that? When can we expect to hear more? And then I think your 2027 targets are under review. Maybe what changed in that in that algorithm and how you're thinking about that as well?

Michelle Hook, CFO

Yeah, we're definitely, you know, assessing, you know, aspects of guidance. And so, you know, Rob and I have been discussing and, you know, us giving my quarterly guidance and the amount that we give as an anomaly in our industry. and so we're going to move away from that when we do is still a TBD but as we go into 2027 you know we're going to be on an annual guidance cadence and we'll talk about you know what that looks like in terms of the amount of guidance we give annually I think we give a pretty robust set of guidance today and so we're going to assess the annual guidance but we're going to be moving away from quarterly guidance and when we rip that band-aid off if we do this year is something Rob Rob and I are still talking about and assessing. And when we look at that, the long-term targets that we put out, and those, again, were from fiscal year 25 to fiscal year 27, you know, we've been very open that we're assessing those as well. And part of that, you know, more has to do with what we just talked about on the margin side, which is, you know, Rob and I believe that 22 to 23% is a healthy level of margins for this business. But as we look at how our new shacks are going to be opening in the future and the rate and pace of those, you know, we just want to make sure that we get that assessment done and that, you know, it's an appropriate time considering, you know, we'd be going into the last year about those long-term targets, and so that's something we'll assess the remainder of this year, and as we go into 27, if those need to be updated, we'll give everyone an update on those as well.

Mike Tamis, Analyst — Oppenheimer

Yeah, great. So I just want to take a step back. You know, Rob, since you joined, there's been a lot of changes, And that goes from strategy to marketing, management team. You know, you really accomplished quite a bit over the last, say, two years or so. So now that you've had a chance to really dig in and you have this new team in place, what are the greatest opportunities that are still ahead of you for the company? And can you maybe split that into the near term, say, over the next 12 months and longer term over the next few years?

Rob Lynch, CEO

Yeah, I mean, look, the only thing that I don't love in our P&L right now, and frankly in our company, is kind of our rate of G&A, right?

Mike Tamis, Analyst — Oppenheimer

But to your point, we have invested a lot in the last two years to get to this point.

Rob Lynch, CEO

We we had to professionalize our operations. We had to professionalize our supply chain. I mean, we didn't have a procurement team that, you know, two years ago. And now we do. And, you know, they're driving huge amounts of value right now for us. And operations has step changed from where it was two years ago. So we have built the infrastructure to execute a very efficient, productive restaurant operating model. So now, you know, we need to maintain that given these ongoing challenges in the macro and the costs associated with them. But we also need to make sure that we're driving two things. Well, three things. One is, to Michelle's point, the new restaurant openings. We got to make sure we're really happy. It's a huge part of our model. We just want to make sure that we don't get out in front of our skis and we continue to open these restaurants with excellence. The last thing we want to do is, this will be the highest growth year we've had in a long time. It'll be by far the greatest number of company operated shacks that we've opened. And when we talk about assessing things, we're not talking about like, you know, there's a problem. We need to assess it. We're just talking about this is the first time we've opened up this number of shacks. And there's some implications like in Q1, you know, where we landed when we opened 16 shacks this year versus four last year. There were some implications, you know, not not necessarily, you know, huge negative implications, but like things that we learned from that. So we need to make sure that we're continuing to optimize the rate at which we open up our shack so that we can make sure we open them with excellence. The second thing is, you know, I'm really impressed with the way the team has been able to the marketing team has been able to drive growth on this business without nearly as much pricing as we've leveraged in the past. I mean, we have three straight quarters of traffic growth. We hadn't had three straight quarters of traffic growth, you know, in a very long time. So we have we have built a model that can help us control our comp and drive comp sales growth. We need to make sure we're doing that in the most efficient way. Right. Because that's another G&A investment in our marketing, in the infrastructure to support that. So we need to make sure that we have the right balance of some of our, you know, new guest acquisition and trial driving, you know, platforms, as well as our premium culinary differentiating LTOs. So that's like the barbell, right? We're one, three, five, which is now just transitioned to two, four, six. You know, that's that's driving a huge amount of traffic for our business. And it's bringing people in for the first time and increasing frequency as well. And so when they get in, we need to make sure that they see our LTOs and our premium sandwiches. We trade them up and deliver that differentiating experience that only Shake Shack can. So that's the revenue model between the new Shacks and the marketing. Those are two things we're very focused on. And then lastly, I've already signed up for and committed to G&A leverage in 2027. A lot of the work that goes into delivering that leverage next year is already kicking off and happening. And we need to do that in a way that's not disruptive to the revenue growth that we're seeing, but is definitely allows us to leverage the infrastructure that we've built over the last two years in a more productive way. So those are kind of the three buckets, right? new restaurant delivered with excellence, continued comp growth, and G&A leverage.

Mike Tamis, Analyst — Oppenheimer

Yep. You know, as we think about same-store sales, we kind of bring it back more to the near term here. You know, in April, you were down slightly negative 0.6, but the guidance for the second quarter that you changed last week is up 2.5% to 3%. So that implies that you're doing about a 4% for May and June combined, which is a pretty good acceleration. So I know it's below what you wanted to have originally, but still pretty healthy. You know, with a couple of weeks left in this quarter, like what drove that acceleration and giving you the confidence you're going to be

Rob Lynch, CEO

in that two and a half to three range? Yeah, I almost wouldn't even call it an acceleration. I would call it that April was a blip on the radar screen. I mean, we delivered between four and 5% comp for January, February, and March. So, you know, this is just more consistent with the run rate the business was on. April, there were some nuanced, unique circumstances. So, you know, we we we knew that wasn't going to be a high rate of sales month for us. We didn't you know, obviously we didn't want it to go negative, but it did. But I wouldn't say that there's even like an acceleration in the business. I would just say April was kind of a one month situation. So we are, you know, in order for us to deliver the two and a half to three percent. Like you said, we've got to deliver right around 4% for May, June. We obviously just guided there last week. So we have a lot of confidence in our ability to do that. And that guide is also reflective of us removing any volume that we had in our forecast from World Cup. If that comes through, great. But what's in the guide today is reflective of what our organic run rate on the

Mike Tamis, Analyst — Oppenheimer

business. Yeah, makes sense. And, you know, you touched on, I think it was in the press release as well, that competitive landscape when you updated the guidance. So is there something that changed or, you know, what, why'd you feel compelled to call that out? No, I mean, I, I think

Rob Lynch, CEO

we just have been calling that out like every quarter. I mean, it is a, I don't think that it's new news to anybody that there is a lot of investment in driving traffic by pretty much every concept in the industry so it is a competitive it's been a competitive environment since the day when i got here so that that was not any type of change to anything that we've been dealing with um but it is it it is a reason why you know we have chosen not to take as much pricing as we have in the past so when you think about like the comp competitive environment you you've got these very large-scaled organizations doing, you know, $3 meals and $5 this. And, you know, so, you know, we could have chosen to take more pricing and mitigate some of this inflation in the short term, but we're thinking long-term. Like, we're building this model that is sustainable and durable for the long term. So we are not just going to flippantly take pricing because of that competitive environment. And frankly, that's the way it should be. Like, I think we all need to recognize that there's a return back pre-pandemic days where this business model, at least for us, when we talk about low single digits between 1% to 3% annual growth rate, we need to mitigate inflation, but we need to grow our business with traffic. And we've grown three straight quarters of traffic growth without having done that in a long time. This will be our 22nd straight quarter of same-store sales growth. So, you know, we have built a really solid model where we've proven we can drive growth through our new shacks. We can drive comp growth. We can deliver best-in-class margins. And, you know, we're going to leverage the G&A line. And I think everyone who's invested in us is going to be really happy with the EBITDA growth. It's going to be really happy with what that model spits out. So when Michelle talks about, you know, reassessing these things, it really is just about kind of getting back to the basics and just making sure that, you know, we are, you know, putting our setting the expectations for a business that's really healthy and performing really well. And, you know, we've had some challenges on some of our, you know, some of the reactions to some of the results in the last couple, you know, so far this year. But from you look at it on a go forward basis, like I'm really confident that we're going to perform as well as, you know, as most brands are better than most brands in the industry. So that's, you know, that's kind of how we're thinking about it.

Mike Tamis, Analyst — Oppenheimer

Yeah, that's a good segue. I mean, as we go into the third quarter, your comparisons are a lot tougher. You had a big benefit last year from the Dubai chocolate shake. How do you think about lapping something like that when something goes viral? Do you simply run it again? You put some more marketing support behind there. Do you have new innovation that's coming that you think is going to help you sort of lap over that?

Rob Lynch, CEO

I mean, both of those are strategies that we can employ. You know, it's not like we can't make Dubai shakes anymore. um so we've got you know that up our sleeve should we choose to pull that trigger uh we also have some new innovation i don't know if you guys saw um we we had a viral um dot cake in a you know shake uh this week over the weekend and um so we're always coming up with with new ideas that can drive that kind of like infusion and those are nice and those get the brand out there um but But they also create, like you said, these these kind of inflect these these kind of big laps that you have to kind of lap over. I mean, I want to make sure that the core business is healthy. Right. And that our burgers, fries, shakes and drinks are just, you know, our primary driver of base growth in this industry. And then we'll sprinkle in, you know, these these these LTOs that can drive some brand heat. but we've always got to make sure we're executing our operations and our core food the best we can. That's really what's going to be the long-term driver of the continued revenue growth.

Mike Tamis, Analyst — Oppenheimer

Yeah, sort of touching on that, your digital platform has really been an amazing catalyst for your business. I think you had 35% guest count growth last quarter from your digital platform. I know 135 moved to 246 now, but you introduced the platform, I think it was last October. Or, you know, has that continued to sort of grow? And do you think that's a growth driver moving forward or be sort of leveled off in terms of its mix?

Rob Lynch, CEO

I mean, it continues to drive very significant traffic growth. And, you know, with the kind of, you know, but it is a promotion. It's not our core pricing platform. So we can pull that back or change it at any time. And we decided, given kind of the cost dynamics that we're dealing with right now, we decided to move it to 246 on Friday. And so we're tracking that very closely. You know, I'm very bullish that we're going to be able to continue to drive strong traffic with some improved cost economics around that platform. I mean, 246 is still a great deal for Shake Shack. And I think that we're going to continue to leverage that for a long time. And that's going to help us lap, you know, when we start lapping it in the back half of this year.

Mike Tamis, Analyst — Oppenheimer

Yep. You know, and obviously we've talked about this a little bit, but you've heavily invested in marketing, you know, since you got on board and you're not this new baseline of sales, but you really only started paying for advertising. I think it was the third quarter of last year. So, you know, do you expand, you plan to expand the usage of that platform? Could we see you do regional TV advertising? I think you tested that as well, you know, or is it just going to be more targeted on the digital side?

Rob Lynch, CEO

Yeah, you know, we have shared that our goal is to be, you know, somewhere between two and a half to three percent of sales on advertising. Today, we're at the low end of that range. So although we've increased the investment in advertising and marketing pretty significantly year over year, we're still at the lower range for a lot of our peers. Right. And so there's still an opportunity to invest more. But I'm not going to do that until we are able to make sure that we are getting, you know, best in class returns. Like, I love what we've done in our marketing and media investments. They've driven the traffic over the last three quarters since we started investing. But, like, I think about marketing the same way I think about digital and tech, same way I think about our investment in our restaurants. They're all investments. They all have to deliver a set return, and we will invest more as our returns continue to get better. Right now, we're happy with the returns. We're happy with the way it's impacting our business and helping us to drive comp in this environment. But for us to invest more, it's just going to require better returns because it's going to have to drive even more revenue because I'm going to get leverage on the G&A line. And as you know, the marketing on our business falls into G&A. So, you know, we're at, you know, high, you know, 12 percent-ish. Two and a half of that is marketing. And so if we're going to invest, it's got to disproportionately drive the top line.

Mike Tamis, Analyst — Oppenheimer

Yep. You know, and sort of as we turn over to margins, I think the guidance still implies, you know, just three years ago. Obviously, there's some near-term challenges with beef and fuel surcharges. I think you also mentioned some middle-of-the-P&L cost headwinds. So what are those if they're different? Is that isolated to the near-term? Is that something that's going to keep going forward from here?

Rob Lynch, CEO

Yeah, I mean, there's three big buckets in a restaurant P&L, right? There's the labor line, there's the COGS line, and then there's the OPEX line. And, you know, I think we've done a huge amount of heavy lifting, optimizing our labor. And it's not just taking the labor out. It's about making sure that we are managing our labor much better. And that has happened. And we are running great, you know, great rate of labor on our business. So, you know, I'm not asking the team to pull labor out. Stephanie, our COO, is not asking the team to pull labor out. Like, we're really happy with where we are in the labor. On the COGS line, obviously, we've talked a lot about it, right? But we are, you know, we have mitigated a huge amount. Like, this isn't the first year beef prices have been high. Last year, they were high, too. And, you know, we went from sub-5%, I think, in 23, just creeping over, or I'm sorry, sub-5 dollars in 23, creeping over and continuing to accelerate in 24. And then, you know, last year, and we're kind of at the peak of it right now. And I think if you look back at the history, you would have thought that the supply would have caught up by now. And it's not. So we're preparing accordingly for that. We're making sure that we are continuing to do everything possible to operate this business as efficiently as we can. So it's it's on the food ingredients, but it's also on our cleaning supplies. It's on our services that are provided to our shacks. It's on our tech, everything that goes into, you know, the COGS from a food standpoint, but also everything. The OPEX is tech. It's cleaning. It's, you know, R&M, all the things that go into like the day to day maintenance of our shack. So we're looking at all those things and we're trying to get more productive and more efficient across all of it so that we can continue to deliver these best in class margins despite the headwinds that we face.

Mike Tamis, Analyst — Oppenheimer

Yeah, and, you know, notwithstanding the near-term beef and fuel surcharges, you're obviously doing a lot of supply chain, like you just said. So are those benefits that carry over into 27, or is there anything that keeps them sort of isolated to this year?

Rob Lynch, CEO

No, I mean, you know, we're not doing – we don't have any initiatives that are intended to drive some short-term cost out of the P&L. Everything we're doing and everything we do every day is focused on the long-term. like you know we are not going to compromise the quality of our ingredients we're not going to compromise the quality of our team member or guest experience so you know we're continuing to invest in in in making sure we're delivering the Shake Shack experience but we just need to continue to explore ways that we can do it more productively and those you know I don't have a crystal ball to understand what's around the corner and what's going to impact us you know next. But right now, the initiatives that we are working on are all sustainable, durable initiatives that should continue to foster a really healthy restaurant P&L. And we're going to shift over to

Mike Tamis, Analyst — Oppenheimer

unit growth. And, you know, you're planning to grow 60 to 65 units this year. And, you know, your original comments were to increase that rate next year. I know everything's under review, but maybe just help us understand your people pipeline. You have a new unit task force as well. And how comfortable you are with the rate of growth. Yeah, I mean, I would tell you that our operations

Rob Lynch, CEO

is in the best place it's been in a long time. And so that gives me a lot of confidence that we're able to support new unit growth. And it really just comes down to what we feel is the right rate. The fastest isn't always the best. It's about durable, continuous excellence of execution, right? So we want to make sure that we have the right model in place that can support fantastic new shack openings and then really deliver the kind of best in class returns that we expect, right? I mean, we're doing, you know, we've guided to 30% plus cash on cash and three year payback. So that is a really, really strong model in this industry. And we just want to make sure that we continue to deliver that and balance the returns and balance the operational excellence

Mike Tamis, Analyst — Oppenheimer

with the rate of growth. Yeah. And then obviously you've talked about leveraging your GNA a couple of times here in 2027. You made a lot of big investments between the management team and technology and then also things like marketing. So I'm sure Michelle has it all figured out after a month on the job. But, you know, I just like how much she has figured out after a month on the job. It's kind of amazing. Well, we're looking forward to hearing all of it. You know, can you just talk about maybe how you're thinking about GNA moving forward? I know you're not ready to give numbers yet, but just, you know, maybe qualitatively where you're sort of done with the investment cycle, what you still need to invest in and where do you think you're going

Rob Lynch, CEO

going to get some of this leverage from? Yeah, I mean, look, we're going to grow. We're going to continue to grow rapidly, right? So it's not like we aren't going to need more general managers to open our restaurants or more area directors to oversee those restaurants. But I think we can do it a lot more efficiently. Some of the investments that we've made, particularly on the AI side, allow everyone in our company, whether you're at headquarters or you're out in the field, to have access to data in a much faster, more reliable way, right? I mean, our AI platform that we've built over the last six months, we used to have our data in a lot of different places. So if you're finance, you might be looking at this set of data. If your operations, you're looking at this set. If your supply chain, you're looking at this set. So over the last six months, we've consolidated all of those data sources. So now we have a data stack that sits all together, integrated. And so regardless of whether you're in our restaurants or in our offices, when you need data, you can get it. So like RADs, you know, typically manage between eight and ten restaurants. They used to spend a whole day pulling reports so they can go in and meet with their general managers and walk through their performance and do an accountability review. Like now all that just happens. Like with the AI platform we've put in, we have taken the amount of administrative time for our operators down dramatically that's just one example for the gms in particular you know if something broke in the past you used to have to get on a call or send an email and wait for somebody to respond and get your part or your equipment or what have you now everything is embedded into our ai platform that the gms have um to manage their business so if they need training materials if they need anything so the point i'm making is all of that improves productivity in operations um particularly the above restaurant operations so as we continue to grow you know we should find a fair amount of leverage there um and then obviously as we grow revenue with these shacks like if we grow revenue faster than we grow shacks we're going to get we're going to get some leverage there as well um and if we grow revenue faster we're definitely committed to kind of like, we've already built the supply chain group, I've built the operations group, I've built the marketing team. So as we grow revenue, there's going to be leverage there.

Mike Tamis, Analyst — Oppenheimer

Yeah, you know, we've got about a minute left. So I just want to kind of end with an open mic for you on the consumer. I'd just love to hear your thoughts. You have a pretty diverse business, not only domestically, but internationally. So we'd just love to hear sort of your thoughts on what you're seeing maybe around the country, if there's an income cohort difference, just anything. And, you know, gas price is obviously a huge topic with restaurants. Just how do you think about that impact on your business?

Rob Lynch, CEO

Yeah, you know, I have been really pleased with the durability and sustained run rates on this business. As we already talked, like April was a bit of a blip, but we have continued to perform. And I think it is a function of us striking the right balance between premium and, you know, new guest acquisition and some of the promotions that we use to do that. So, you know, our business is a little bit insulated from some of the, you know, the gas prices, not wholly insulated. You know, we see it on the cost side. We also see it in the macros, like traffic is down as a whole. If you, you know, if you're looking at kind of the place or data, I'm not talking, speaking just to our traffic or our traffic, I'm speaking to like the, the industry traffic. But we've been able to drive traffic growth and we've been able to do it in a way that, that has been profitable and, and our restaurant operating margins, although, you know, we guided down are still really strong. So we have a ton of confidence in our business model with our guests, which are a little bit insulated relative to QSR, that we can continue to drive traffic with what we have coming in the back half of the year and then heading into 27. And at some point, I mean, at some point, the beef situation has to turn, and at that point, we'll be able to make a determination of whether or not we flow that improved cost structure into our margins, or we reinvest it to drive even faster growth. so yeah we love the durability of this business the resiliency I've been here two years and from day one everyone said well you know it's it's it's a value orientation in this industry and Shake Shack hasn't set up to perform in that and we've had two of the best years in the company's history in terms of margin improvement and revenue growth so we're really

Mike Tamis, Analyst — Oppenheimer

excited looking forward. Awesome well with that we're out of time I'd like to once again thank Rob and Michelle from Shake Shack for joining us today and everybody have a great day. Thank you Mike. Thanks, Mike. Thanks, Michelle.