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Transcript of SIGNATURESd18rn0p25nwr6d.cloudfront.net/CIK-0001620533/8044258a-bb... · 2019. 2. 25. ·...
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
February 25, 2019Date 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 or other jurisdiction ofincorporation or organization)
(CommissionFile Number)
(IRS EmployerIdentification No.)
225 Varick Street, Suite 301
New York, New York 10014(Address of principal executive offices) (Zip 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 followingprovisions: ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 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 Rule12b-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 orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition. On February 25, 2019, Shake Shack Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscalyear ended December 26, 2018. 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 ofSection 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, asamended, except as shall be expressly set forth by specific reference in such a filing. Item 7.01 Regulation FD Disclosure. On February 25, 2019, the Company provided supplemental financial information to be used in its earnings presentation for the fiscal fourth quarterended December 26, 2018 on its website at investor.shakeshack.com. The supplemental financial information is furnished as Exhibit 99.2 to thisCurrent 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, orincorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference insuch a filing. Item 9.01 Financial Statements and Exhibits. (d) Exhibits.
ExhibitNumber Exhibit Description99.1 Shake Shack Inc. press release dated February 25, 2019 announcing its financial results for the fourth quarter and fiscal year
ended December 26, 2018. (furnished only)99.2 Supplemental Financial Information dated February 25, 2019 provided by Shake Shack Inc. (furnished only)
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 theundersigned hereunto duly authorized. Shake Shack Inc. (Registrant) By: /s/ Tara Comonte Tara ComonteDate: February 25, 2019 Chief Financial Officer
EXHIBIT INDEX
ExhibitNumber Exhibit Description99.1 Shake Shack Inc. press release dated February 25, 2019 announcing its financial results for the fourth quarter and fiscal year ended
December 26, 2018. (furnished only)99.2 Supplemental Financial Information dated February 25, 2019 provided by Shake Shack Inc. (furnished only)
Exhibit99.1
Shake Shack Announces Fourth Quarter and Fiscal Year Ended 2018 Financial Results
- Fourth Quarter Total Revenue Grew 29.3% -
- Fourth Quarter Same-Shack Sales Increased 2.3% -- Fiscal 2018 Total Revenue Grew 28.0% -
- System-wide Year-Over-Year Unit Growth of 31% -
NEW YORK, NY (Business Wire) — February 25, 2019 — Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE: SHAK), today reportedfinancial results for the fourth quarter and the fiscal year ended December 26, 2018, periods that included 13 and 52 weeks, respectively. Financial Highlights for the Fourth Quarter 2018:
▪ Total revenue increased 29.3% to $124.3 million.▪ Shack sales increased 29.6% to $120.7 million.▪ Same-Shack sales increased 2.3%.▪ Shack system-wide sales increased 27.2% to $178.9 million▪ Operating income was $2.8 million, or 2.3% of total revenue, which included the impact of costs associated with Project Concrete and other
one-time items totaling $0.7 million.▪ Shack-level operating profit*, a non-GAAP measure, increased 15.6% to $27.2 million, or 22.5% of Shack sales.▪ 20 net system-wide Shack openings, including 17 domestic company-operated Shacks and three net licensed Shacks.
Financial Highlights for the Fiscal Year 2018:
▪ Total revenue increased 28.0% to $459.3 million.▪ Shack sales increased 28.6% to $445.6 million.▪ Same-Shack sales increased 1.0%.▪ Shack system-wide sales increased 26.3% to $671.9 million▪ Operating income was $31.7 million, or 6.9% of total revenue, which included the impact of costs associated with Project Concrete and other
one-time items totaling $3.9 million.▪ Shack-level operating profit*, a non-GAAP measure, increased 22.3% to $112.9 million, or 25.3% of Shack sales.▪ Net income was $21.9 million and net income attributable to Shake Shack Inc. was $15.2 million, or $0.52 per diluted share.▪ Adjusted EBITDA*, a non-GAAP measure, increased 14.2% to $73.9 million.▪ Adjusted pro forma net income*, a non-GAAP measure, increased 28.0% to $26.9 million, or $0.71 per fully exchanged and diluted share.▪ 49 net system-wide Shack openings, including 34 domestic company-operated Shacks and 15 net licensed Shacks, representing a net 30.8%
increase in system-wide Shack count. * Shack-level operating profit, adjusted EBITDA and adjusted pro forma net income are non-GAAP measures. Reconciliations of Shack-leveloperating profit to operating income, adjusted EBITDA to net income (loss), and adjusted pro forma net income to net income (loss) attributable toShake Shack Inc., the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedulesaccompanying this release. See “Non-GAAP Financial Measures.” Randy Garutti, Chief Executive Officer of Shake Shack, stated, “2018 was another year of exceptional growth and I couldn’t be more proud of theentire Shake Shack team. We opened a record number of Shacks and drove strong revenue and profits while continuing to build the foundation forsustainable long-term growth ahead."
Garutti concluded, “Looking ahead, in 2019 we expect another year of record unit growth with 36 to 40 new company-operated Shacks, 16 to 18 netnew licensed Shacks with our international growth focused on Asia and our entry into the new markets of mainland China, Singapore, thePhilippines and Mexico. We will be focused on core strategic commitments of investing in our people, creating an exceptional guest experience,cultivating a connected community and innovating our company for the growth ahead.” Development Highlights During the quarter, the Company opened 17 domestic company-operated Shacks, which included the Company's first Shacks in Seattle at SouthLake Union and Palo Alto at the Stanford Shopping Center, as well as deepening its roots in existing markets across the country. Additionally, theCompany opened two international licensed Shacks during the quarter, including the Company's second Shack in Hong Kong, and a domesticlicensed Shack at LaGuardia Airport, marking the Company's 200th Shack. Location Type Opening DateFort Lauderdale, FL— Fort Lauderdale Domestic Company-Operated October 8Seattle, WA — South Lake Union Domestic Company-Operated October 11Hartsdale, NY — Hartsdale Domestic Company-Operated October 14Philadelphia, PA — Midtown Village Domestic Company-Operated October 23Thousand Oaks, CA — Westlake Village Domestic Company-Operated October 23Edina, MN — Southdale Domestic Company-Operated October 30Arlington, VA — Ballston Domestic Company-Operated November 11Chicago, IL — Wrigleyville Domestic Company-Operated November 13Charlotte, NC — Blakeney Domestic Company-Operated November 13Hong Kong, China — Pacific Place International Licensed November 21Oak Brook, IL — Oak Brook Domestic Company-Operated November 30Queens, NY — LaGuardia Airport, Terminal B Domestic Licensed December 1Subhan Area, Kuwait— Al Murouj International Licensed December 5Palo Alto, CA — Stanford Shopping Center Domestic Company-Operated December 15Burbank, CA — Burbank Domestic Company-Operated December 17New York, NY — Harlem Domestic Company-Operated December 18Miami, FL — The Falls Domestic Company-Operated December 19Houston, TX — Montrose Domestic Company-Operated December 20Southlake, TX — Southlake Domestic Company-Operated December 23Irving, TX — Las Colinas Domestic Company-Operated December 23 Subsequent to the end of the quarter, the Company opened one domestic company-operated Shack and three international licensed locations,which included its first in Shanghai, and two domestic licensed Shacks in airports, which were at Dallas Fort Worth Airport and Phoenix Sky HarborAirport. Fourth Quarter 2018 Review Total revenue, which includes Shack sales and licensing revenue, increased 29.3% to $124.3 million in the fourth quarter of 2018 from $96.1 millionfor the fourth quarter of 2017. Shack sales for the fourth quarter of 2018 were $120.7 million, an increase of 29.6% from $93.1 million in the samequarter last year due primarily to the opening of 34 new domestic company-operated Shacks between the fourth quarter of 2018 and the fourthquarter of 2017, as well as same-Shack sales growth. Licensing revenue for the fourth quarter was $3.5 million, an increase of 17.9% from $3.0million in the same quarter last year, primarily due to the opening of 15 net new licensed Shacks between the fourth quarter of 2018 and the fourthquarter of 2017 and the initial strength of newer Shacks in Hong Kong and Japan. Same-Shack sales increased 2.3% for the fourth quarter of 2018 versus 0.8% growth in the fourth quarter last year, which was primarily driven by acombined increase of 2.6% in price and sales mix partially offset by decreased guest traffic of 0.3%. The comparable Shack base includes thoserestaurants open for 24 full fiscal months or longer. At the end of the fourth quarter of 2018, the comparable Shack base included 61 Shacks versus43 Shacks for the fourth quarter of 2017. Average weekly sales for domestic company-operated Shacks decreased to $81,000 for the fourth quarter of 2018 compared to $85,000 for thesame quarter last year, primarily due to the addition of newer Shacks at a broader range of average unit volumes.
Operating income decreased to $2.8 million for the fourth quarter of 2018 from $5.8 million in the same quarter last year. As a percentage ofrevenue, operating income margins decreased 380 basis points to 2.3%. These decreases were primarily due to higher pre-opening costs from a55% increase in the number of openings, $0.7 million of one-time costs related to Project Concrete, the Company's enterprise-wide system upgradeinitiative, and various factors impacting Shack-level operating profit. Shack-level operating profit, a non-GAAP measure, increased 15.6% to $27.2million for the fourth quarter of 2018 from $23.5 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profitmargins decreased 270 basis points to 22.5% primarily due to (i) increased labor and related expenses resulting from ongoing increases in minimumwages, regulatory factors, such as the Fair Workweek legislation in New York City, and the opening of 17 new domestic company-operated Shacksduring the quarter, which typically carry higher labor costs during the first few months of operations; (ii) commissions paid as part of integrateddelivery pilots during the quarter, for which no costs were incurred in the same quarter last year; and (iii) the addition of new Shacks at a broaderrange of average unit volumes. These were partially offset by a decrease in rent expense due to an increase in the number of leases where theCompany is deemed to be the accounting owner and for which less rent expense is recognized. A reconciliation of operating income to Shack-leveloperating profit, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAPFinancial Measures.” General and administrative expenses increased 30.2% to $15.2 million for the fourth quarter of 2018 from $11.7 million in the same quarter lastyear, primarily due to the increase in the Company's investment across the business, particularly in digital, people resources and foundationalinfrastructure to support its ongoing growth initiatives, including costs of $0.7 million related to Project Concrete and other one-time charges. As apercentage of total revenue, general and administrative expenses increased to 12.2% for the fourth quarter of 2018 from 12.1% in the fourth quarterlast year, primarily due to the aforementioned items. Net loss was $0.5 million for the fourth quarter of 2018 compared to a loss of $11.0 million for the same period last year. Net loss attributable toShake Shack Inc. was $1.0 million, or $0.03 per diluted share, for the fourth quarter of 2018, compared to a loss of $12.5 million, or $0.47 per dilutedshare, for the same period last year. This increase was primarily due to the Tax Cuts and Jobs Act of 2017 (the "TCJA") that was enacted into law inDecember 2017, which resulted in an additional $138.6 million of income tax expense and a related benefit of $125.9 million related to theremeasurement of the Company's deferred tax assets and liabilities under its tax receivable agreement. There were no such adjustments in thecurrent year. Adjusted EBITDA, a non-GAAP measure, decreased 3.2% to $14.5 million. As a percentage of total revenue, adjusted EBITDA margins decreasedapproximately 390 basis points to 11.6% compared to 15.5% for the prior year period. These decreases were primarily due to the aforementioneditems within Shack-level operating profit. A reconciliation of net income (loss) to adjusted EBITDA, the most directly comparable GAAP financialmeasure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.” Adjusted pro forma net income, a non-GAAP measure, was $2.4 million, or $0.06 per fully exchanged and diluted share during the fourth quarter of2018, compared to $3.9 million, or $0.10 per diluted share during the fourth quarter of 2017. These decreases were primarily due to theaforementioned 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 2018 Review Total revenue,which includes Shack sales and licensing revenue, increased 28.0% to $459.3 million for fiscal 2018 from $358.8 million for fiscal2017. Shack sales for fiscal 2018 were $445.6 million, an increase of 28.6% from fiscal 2017 due primarily to the opening of 34 new domesticcompany-operated Shacks during fiscal 2018, as well as same-Shack sales growth. Licensing revenue for fiscal 2018 was $13.7 million, an increaseof 10.5% from $12.4 million for fiscal 2017, primarily due to the opening of 15 net new licensed Shacks during fiscal 2018 and strong performance inAsia, including the initial strength of newer Shacks in Hong Kong and Japan. Same-Shack sales increased 1.0% for fiscal 2018 versus a 1.2% decline in the prior year, which was primarily driven by a combined increase of3.7% in price and sales mix partially offset by decreased guest traffic of 2.7%. At the end of fiscal 2018, the comparable Shack base included 61Shacks, compared to 43 Shacks for fiscal 2017. Average unit volume for domestic company-operated Shacks was $4.4 million for 2018 compared to $4.6 million for the prior year, a 4.5% decrease,primarily due to the addition of newer Shacks at lower average unit volumes.
Operating income decreased to $31.7 million for fiscal 2018 from $33.8 million for fiscal 2017 and operating income margins decreased 250 basispoints to 6.9% , which included $3.9 million of one-time charges, comprised of a legal settlement of $1.2 million and costs related to ProjectConcrete. Shack-level operating profit, a non-GAAP measure, increased 22.3% to $112.9 million for fiscal 2018 from $92.3 million for fiscal 2017. Asa percentage of Shack sales, Shack-level operating profit margins decreased approximately 130 basis points to 25.3% primarily due to (i) increasedlabor and related expenses resulting from ongoing increases in minimum wages, regulatory factors, such as the Fair Workweek legislation in NewYork City, and the opening of 34 new domestic company-operated Shacks during fiscal 2018, which typically carry higher labor costs during the firstfew months of operations; (ii) commissions paid as part of integrated delivery pilots, for which no costs were incurred in the same quarter last year;(iii) higher repair and maintenance costs related to some mature, high-volume Shacks; and (iv) the addition of new Shacks at a broader range ofaverage unit volumes. These were partially offset by a decrease in rent expense due to an increase in the number of leases where the Company isdeemed to be the accounting owner and for which less rent expense is recognized. A reconciliation of operating income to Shack-level operatingprofit, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP FinancialMeasures.” General and administrative expenses increased to $52.7 million for fiscal 2018 from $39.0 million for fiscal 2017, primarily due to the increase in theCompany's investment across the business, particularly the addition of headcount to support its ongoing growth initiatives and $3.9 million of one-time charges, including a legal settlement of $1.2 million and costs related to Project Concrete. As a percentage of total revenue, general andadministrative expenses increased to 11.5% for fiscal 2018 from 10.9% in fiscal 2017, primarily due to the aforementioned items. Excluding thecosts associated with Project Concrete and other one-time charges, general and administrative expenses as a percentage of revenue would havedecreased to 10.6% for fiscal 2018. Net income was $21.9 million for fiscal 2018 compared to income of $8.9 million for fiscal 2017. Net income attributable to Shake Shack Inc. was$15.2 million, or $0.52 per diluted share, for fiscal 2018, compared to a loss of $0.3 million, or $0.01 per diluted share, for fiscal 2017. This increasewas primarily due to he Tax Cuts and Jobs Act of 2017 (the "TCJA") that was enacted into law in December 2017, which resulted in anadditional $138.6 million of income tax expense and a related benefit of $125.9 million related to the remeasurement of the Company's deferred taxassets and liabilities under its tax receivable agreement. There were no such adjustments in the current year. Adjusted EBITDA, a non-GAAP measure, increased 14.2% to $73.9 million from $64.7 million for the fiscal year. As a percentage of total revenue,adjusted EBITDA decreased roughly 190 basis points to 16.1% compared to 18.0% for the year ago period. This decrease was primarily due to theaforementioned items within Shack-level operating profit. A reconciliation of net income (loss) to adjusted EBITDA, the most directly comparableGAAP 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 $26.9 million, or $0.71 per fully exchanged and diluted share for fiscal 2018, comparedto $21.0 million, or $0.57 per fully exchanged and diluted share for fiscal 2017. 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.”
2019 Guidance For the fiscal year ending December 25, 2019, the Company is providing the following financial outlook:
▪ Total revenue of between $570 million and $576 million, inclusive of licensing revenue.▪ Licensing revenue of between $15 million and $16 million.▪ Same-Shack sales of between 0% and 1%, which includes approximately 1.5% of menu price increases taken in December 2018.▪ Between 36 and 40 new domestic company-operated Shacks to be opened in fiscal 2019.▪ Between 16 and 18 net new licensed Shacks to be opened in fiscal 2019.▪ Average annual sales volume for total domestic company-operated Shacks is expected to be between $4.0 million and $4.1 million.▪ Shack-level operating profit margin between 23.0% and 24.0%, which includes approximately 50 basis points of unfavorable impact from the
adoption of the newlease accounting standard.
▪ Total general and administrative expenses of between $66.4 million and $68.2 million, which is comprised of:◦ Between $56 million and $57 million of core general and administrative expenses;◦ Between $7.4 million and $7.7 million of equity-based compensation;◦ Between $3.0 million and $3.5 million of primarily one-time costs related to Project Concrete, the Company's operational and
financial systems upgrade initiative, with approximately $4 million of capital spend in 2019.▪ Depreciation expense of between $41 million and $42 million.▪ Pre-opening costs of between $13 million and $14 million.▪ Interest expense of between $0.3 million and $0.4 million.▪ Adjusted pro forma effective tax rate of between 26.5% and 27.5%.
2020 Targets Beginning in February 2018, the Company provided 2020 targets around total revenue and system-wide Shack openings, which it continues totarget the following:
▪ At least 200 domestic company-operated Shacks and at least 120 global licensed Shacks, and▪ Over $700 million in total revenue.
Earnings Conference Call As previously announced, the Company will host a conference call to discuss its fourth quarter and fiscal year 2018 financial results today at 5:00p.m. ET. The conference call can be accessed live over the phone by dialing (800) 239-9838 or for international callers by dialing (323) 794-2551. A replaywill be available after the call and can be accessed by dialing (844) 512-2921 or for international callers by dialing (412) 317-6671; the passcode is4435961. The replay will be available until March 1, 2019. The conference call will also be webcast live from the Company's Investor Relations website at http://investor.shakeshack.com. An archive of thewebcast will be available at the same location on the website shortly after the call 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 licensedShacks. "Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company-operatedShacks 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 overthat period. AUV is calculated by dividing total Shack sales from domestic company-operated Shacks by the number of domestic company-operatedShacks open during that period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks opensuch that it corresponds to the period of associated sales. The measurement of AUV allows the Company to assess changes in guest traffic and pertransaction 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 correspondsto 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 andpaper 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 net interest, taxes, depreciation and amortization. “Adjusted EBITDA,” a non-GAAP measure, is defined as net income before net interest, taxes, depreciation and amortization, which also excludesequity-based compensation expense, deferred rent expense, losses on the disposal of property and equipment, as well as certain non-recurringitems that the Company does not believe directly reflect its core operations. “Adjusted EBITDA margin,” a non-GAAP measure, is defined as net income before net interest, taxes, depreciation and amortization, which alsoexcludes equity-based compensation expense, deferred rent expense, losses on the disposal of property and equipment, as well as certain non-recurring 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 (loss) attributable to Shake Shack Inc. assuming the full exchangeof all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurringitems 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 Viennabeef 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 Standfor Something Good ® , from its premium ingredients and caring hiring practices to its inspiring designs and deep community investment. Since theoriginal Shack opened in 2004 in NYC’s Madison Square Park, the company has expanded to more than 200 locations in 26 U.S. States and theDistrict of Columbia, in more than 70 international locations across London, Hong Kong, Istanbul, Dubai, Tokyo, Moscow, Seoul and more. Investor Contact: Melissa Calandruccio, ICRMichelle Epstein, ICR(844) SHACK-04 (844-742-2504)[email protected] Media Contact: Kristyn Clark, Shake Shack(646) [email protected]
Forward-Looking Statements This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), whichare subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. Allstatements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to,expected financial guidance for fiscal 2019, 2020 targets, expected Shack openings, expected same-Shack sales growth and trends in theCompany’s operations. Forward-looking statements discuss the Company's current expectations and projections relating to their financial position,results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do notrelate 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," thenegatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionarystatements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed inthe Company’s Form 10-K for the fiscal year ended December 26, 2018 filed with the Securities and Exchange Commission ("SEC"). All of theCompany's SEC filings are available online at www.sec.gov, www.shakeshake.com or upon request from Shake Shack Inc. The forward-lookingstatements included in this press release are made only as of the date hereof. The Company undertakes no obligation to publicly update or reviseany 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 Quarter Ended Fiscal Year Ended
December 26
2018 December 27
2017 December 26
2018 December 27
2017 Shack sales $ 120,720 97.1% $ 93,130 96.9% $ 445,589 97.0% $ 346,388 96.5%Licensing revenue 3,545 2.9% 3,006 3.1% 13,721 3.0% 12,422 3.5%TOTAL REVENUE 124,265 100.0% 96,136 100.0% 459,310 100.0% 358,810 100.0%Shack-level operating expenses (1) : Food and paper costs 34,760 28.8% 26,691 28.7% 126,096 28.3% 98,337 28.4%Labor and related expenses 34,443 28.5% 25,048 26.9% 122,094 27.4% 91,740 26.5%Other operating expenses 15,247 12.6% 10,425 11.2% 51,783 11.6% 35,805 10.3%Occupancy and related expenses 9,089 7.5% 7,456 8.0% 32,710 7.3% 28,197 8.1%
General and administrative expenses 15,173 12.2% 11,651 12.1% 52,720 11.5% 39,003 10.9%Depreciation expense 8,095 6.5% 6,094 6.3% 29,000 6.3% 21,704 6.0%Pre-opening costs 4,248 3.4% 2,642 2.7% 12,279 2.7% 9,603 2.7%Loss on disposal of property andequipment 374 0.3% 291 0.3% 917 0.2% 608 0.2%TOTAL EXPENSES 121,429 97.7% 90,298 93.9% 427,599 93.1% 324,997 90.6%OPERATING INCOME 2,836 2.3% 5,838 6.1% 31,711 6.9% 33,813 9.4%Other income, net 444 0.4% 127,501 132.6% 1,514 0.3% 128,123 35.7%Interest expense (645) (0.5)% (499) (0.5)% (2,415) (0.5)% (1,643) (0.5)%INCOME BEFORE INCOME TAXES 2,635 2.1% 132,840 138.2% 30,810 6.7% 160,293 44.7%Income tax expense 3,183 2.6% 143,872 149.7% 8,862 1.9% 151,409 42.2%NET INCOME (LOSS) (548) (0.4)% (11,032) (11.5)% 21,948 4.8% 8,884 2.5%Less: net income attributable to non-controlling interests 410 0.3% 1,431 1.5% 6,769 1.5% 9,204 2.6%NET INCOME (LOSS) ATTRIBUTABLETO SHAKE SHACK INC. $ (958) (0.8)% $ (12,463) (13.0)% $ 15,179 3.3% $ (320) (0.1)% Earnings (loss) per share of Class Acommon stock: Basic $ (0.03) $ (0.47) $ 0.54 $ (0.01) Diluted $ (0.03) $ (0.47) $ 0.52 $ (0.01)
Weighted-average shares of Class Acommon stock outstanding: Basic 29,408 26,305 28,299 25,876 Diluted 29,408 26,305 29,179 25,876
(1)
As a percentage of Shack sales.
SHAKE SHACK INC.
SELECTED BALANCE SHEET AND OPERATING DATA(UNAUDITED)
(dollar amounts in thousands)
December 26
2018 December 27
2017 SELECTED BALANCE SHEET DATA: Cash and cash equivalents $ 24,750 $ 21,507 Marketable securities $ 62,113 $ 63,036 Total assets $ 610,532 $ 470,606 Total liabilities $ 337,077 $ 246,127 Total equity $ 273,455 $ 224,479 Fiscal Quarter Ended Fiscal Year Ended
December 26
2018 December 27
2017 December 26
2018 December 27
2017 SELECTED OPERATING DATA: Same-Shack sales growth 2.3% 0.8% 1.0% (1.2)%Shacks in the comparable base 61 43 61 43 Shack system-wide sales (1) $ 178,939 $ 140,622 $ 671,926 $ 532,137 Average weekly sales Domestic company-operated $ 81 $ 85 $ 84 $ 88
Average unit volumes: Domestic company-operated n/a n/a $ 4,390 $ 4,598 International licensed n/a n/a $ 3,047 $ 3,176
Shack-level operating profit (2) $ 27,181 $ 23,510 $ 112,906 $ 92,309 Shack-level operating profit margin (2) 22.5% 25.2% 25.3% 26.6% Adjusted EBITDA (2) $ 14,461 $ 14,944 $ 73,850 $ 64,664 Adjusted EBITDA margin (2) 11.6% 15.5% 16.1% 18.0% Capital expenditures $ 27,381 $ 20,354 $ 87,525 $ 61,533 Shack counts (at end of period): System-wide 208 159 208 159 Domestic company-operated 124 90 124 90 Domestic licensed 12 10 12 10 International licensed 72 59 72 59
(1) Shack system-wide sales is an operating measure and consists of sales from the Company's 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 toShack sales from domestic company-operated Shacks and licensing revenue based on a percentage of sales from domestic and international licensedShacks .
(2) Shack-level operating profit and adjusted EBITDA are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income and adjustedEBITDA to net income (loss), the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedulesaccompanying this release. See “Non-GAAP Financial Measures.”
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 accountingprinciples (“GAAP”), the Company uses the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profitmargin, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted pro forma net income and adjusted pro forma earnings per fully exchangedand 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 relatedexpenses, other operating expenses and occupancy and related expenses. How This Measure Is UsefulWhen used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplementalmeasures 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 internalbudgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods. It is also used to evaluateemployee compensation as it serves as a metric in certain performance-based employee bonus arrangements. The Company believes presentationof Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of its operating performance thatcan provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that aredirectly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It mayalso assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency withrespect to how management evaluates the business, as well as the financial and operational decision-making. Limitations of the Usefulness of this MeasureShack-level operating profit and Shack-level operating profit margin may differ from similarly titled measures used by other companies due todifferent methods of calculation. Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to beconsidered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack-leveloperating profit excludes certain costs, such as general and administrative expenses and pre-opening costs, which are considered normal, recurringcash operating expenses and are essential to support the operation and development of the Company's Shacks. Therefore, this measure may notprovide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profitmargin should be reviewed in conjunction with the Company's GAAP financial results. A reconciliation of Shack-level operating profit to operatingincome, the most directly comparable GAAP financial measure, is set forth below.
Fiscal Quarter Ended Fiscal Year Ended
(dollar amounts in thousands) December 26
2018 December 27
2017 December 26
2018 December 27
2017 Operating income $ 2,836 $ 5,838 $ 31,711 $ 33,813 Less: Licensing revenue 3,545 3,006 13,721 12,422
Add: General and administrative expenses 15,173 11,651 52,720 39,003 Depreciation expense 8,095 6,094 29,000 21,704 Pre-opening costs 4,248 2,642 12,279 9,603 Loss on disposal of property and equipment 374 291 917 608
Shack-level operating profit $ 27,181 $ 23,510 $ 112,906 $ 92,309 Total revenue $ 124,265 $ 96,136 $ 459,310 $ 358,810 Less: licensing revenue 3,545 3,006 13,721 12,422 Shack sales $ 120,720 $ 93,130 $ 445,589 $ 346,388 Shack-level operating profit margin 22.5% 25.2% 25.3% 26.6%
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 rent expense, losses on thedisposal of property and equipment, as well as certain non-recurring items that the Company does not believe directly reflect its core operations andmay not be indicative of the Company's recurring business operations. How These Measures Are UsefulWhen used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating performance thatthe Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDAis a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance-basedequity incentive programs and certain bonus arrangements. The Company believes presentation of EBITDA and adjusted EBITDA providesinvestors with a supplemental view of the Company's operating performance that facilitates analysis and comparisons of its ongoing businessoperations because they exclude items that may not be indicative of the Company's ongoing operating performance. Limitations of the Usefulness of These MeasuresEBITDA 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 financialinformation 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 withthe GAAP financial measures. A reconciliation of EBITDA and adjusted EBITDA to net income, the most directly comparable GAAP measure, is setforth below. Fiscal Quarter Ended Fiscal Year Ended
(in thousands) December 26
2018 December 27
2017 December 26
2018 December 27
2017 Net income (loss) $ (548) $ (11,032) $ 21,948 $ 8,884 Depreciation expense 8,095 6,094 29,000 21,704 Interest expense, net 645 479 2,407 1,565 Income tax expense 3,183 143,872 8,862 151,409 EBITDA 11,375 139,413 62,217 183,562 Equity-based compensation 1,691 1,800 6,067 5,623 Deferred rent 355 216 876 983 Loss on disposal of property and equipment 374 291 917 608 Legal settlement — — 1,200 — Executive transition costs (1) 60 — 340 664 Project Concrete (2) 684 181 1,292 181 Home Office relocation expenses (3) — 264 1,019 264 Other income related to the adjustment of liabilities under tax receivableagreement (78) (1,362) (78) (1,362)Other income related to the remeasurement of liabilities under taxreceivable agreement due to the enactment of the TCJA — (125,859) — (125,859)ADJUSTED EBITDA $ 14,461 $ 14,944 $ 73,850 $ 64,664 Adjusted EBITDA margin 11.6% 15.5% 16.1% 18.0%
(1) 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.(2) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.(3) Costs incurred in connection with the Company's relocation to a new Home Office.
SHAKE SHACK INC.NON-GAAP FINANCIAL MEASURES
(UNAUDITED) Adjusted Pro Forma Net Income and Adjusted Pro 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 SSEHoldings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that theCompany does not believe are directly related to its core operations and may not be indicative of recurring business operations. Adjusted pro formaearnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class Acommon 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 UsefulWhen used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged anddiluted share are supplemental measures of operating performance that the Company believes are useful measures to evaluate performance periodover period and relative to its competitors. By assuming the full exchange of all outstanding LLC Interests, the Company believes these measuresfacilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over periodbecause 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 ongoingoperating performance. Limitations of the Usefulness of These MeasuresAdjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share may differ from similarly titled measures usedby other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fullyexchanged 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-controllinginterest holders and therefore does not provide a complete understanding of the net income attributable to Shake Shack Inc. Adjusted pro forma netincome and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with GAAP financial results. Areconciliation 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 26
2018 December 27
2017 December 26
2018 December 27
2017 Numerator: Net income (loss) attributable to Shake Shack Inc. $ (958) $ (12,463) $ 15,179 $ (320)Adjustments: Reallocation of net income attributable to non-controlling interests fromthe assumed exchange of LLC Interests (1) 410 1,431 6,769 9,204 Legal settlement — — 1,200 — Executive transition costs (2) 60 — 340 664 Project Concrete (3) 684 181 1,292 181 Home Office relocation expenses (4) — 264 1,019 264 Other income related to the adjustment of liabilities under taxreceivable agreement (78) (1,362) (78) (1,362)Other income related to the remeasurement of liabilities under taxreceivable agreement resulting from the enactment of the TCJA — (125,859) — (125,859)Remeasurement of deferred tax assets 3,794 138,636 3,794 138,636 Tax effect of change in tax basis related to the adoption of ASC 606 — — (311) — Income tax (expense) benefit (5) (1,475) 3,071 (2,290) (377)
Adjusted pro forma net income $ 2,437 $ 3,899 $ 26,914 $ 21,031 Denominator: Weighted-average shares of Class A common stock outstanding—diluted 29,408 26,305 28,299 25,876 Adjustments: Assumed exchange of LLC Interests for shares of Class A commonstock (1) 7,660 10,445 8,664 10,773 Dilutive effect of stock options 848 676 879 555
Adjusted pro forma fully exchanged weighted-average shares of Class Acommon stock outstanding—diluted 37,916 37,426 37,842 37,204
Adjusted pro forma earnings per fully exchanged share—diluted $ 0.06 $ 0.10 $ 0.71 $ 0.57 (1) Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of
the net income attributable to non-controlling interests.(2) 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.(3) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.(4) Costs incurred in connection with the Company's relocation to a new Home Office.(5) Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 26.2% and
22.2% for the fiscal quarter and year ended December 26, 2018, respectively, and 35.7% and 38.5% for the fiscal quarter and year ended December 27, 2017,respectively. Amounts include provisions for U.S. federal income taxes, certain LLC entity-level taxes and foreign withholding taxes, assuming the highest statutory ratesapportioned to each applicable state, local and foreign jurisdiction.
Exhibit99.2
Q4 2018 Highlights 20 Company - Operated and Licensed Shacks opened in Q4 +29% YoY Total Revenue Growth +2.3% Growth in Same - Shack Sales 1 New Innovation Kitchen Items $27.2M Shack - Level Operating Profit 3 $179M Shack System - wide Sales 2 +27% YoY $124M Total Revenue 2 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 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 am ounts, 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 certa in up - front fees such as territory fees and opening fees. 3. Shack - level operating profit is a non - GAAP measure, Definitions of Shack - level operating profit, the most directly comparable financial meas ure presented in accordance with GAAP, is included in the appendix of this presentation.
One of two US Burger chains to receive an “A” for our antibiotic free policy 3 A +14% YoY growth in Adjusted EBITDA 4 FY 2018 Highlights 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 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 am ounts, 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 certa in up - front fees such as territory fees and opening fees. 3. Source: NRDC Chain Reaction Report 4. A djusted EBITDA is a non - GAAP measure. Definitions of adjusted EBITDA to net income, the most directly comparable financial measu re presented in accordance with GAAP, is included in the appendix of this presentation. Actual Adjusted EBITDA in FY 2018 was $ 73.9M vs. net income (loss) of $ 21.9M . 5. Represents Company - Operated and Licensed Shacks at the end of Fiscal Year 2018. $459M Total Revenue +28% YoY +1.0% Growth in Same - Shack Sales 1 3 208 Licensed & Domestic Shacks Worldwide 5 13 Countries 5 Operating in $672M Shack System - wide Sales +26% YoY 2
We are relentlessly focused on excellence, experience and hospitality Stand for Something Good Innovate our business for growth Cultivate a loyal and connected community Deliver a consistently great experience Commit to excellence in our people 2019 Strategic Commitments :
Committing to excellence in our people 1,151 Internal Promotions in 2018 2,000 Jobs created in the US in 2018 GMs Receiving equity in Q1 ' 19, first time since IPO Leadership Development Remains a top priority in 2019 5 Promotions
Company - Operated Domestic development continues with largest class of Shacks in 2019 7 33 103 200 6 11 21 '12 '15 124 ' 20E '18 ' 19E 13 44 160 - 164 Domestic company - operated Shacks Note: CAGR is the compounded annual growth rate represented by the midpoint of the ' 19 range in relation to number of Shacks at end of ‘ 12 1. Represents number of Shacks outside of the New York City area at the end of Fiscal Year 2018 Other NYC 36 to 40 New Shacks in 2019 in multi - formats 5 to 6 New markets including Salt Lake City and New Orleans 43% CAGR from 2012 to 2019 6 Salt Lake City, Utah of our company - operated Shacks outside of NYC 1 >80%
5 30 44 120 3 5 19 12 1 9 '18 ' 20E ' 19E '12 '15 8 4 40 84 100 - 102 Licensed business growing with focus on Asia Licensed Shacks 16 to 18 Net new Licensed openings planned in 2019 3 New countries include Mexico, Singapore, and the Philippines 44% CAGR from 2012 to 2019 Middle East, Turkey, Russia UK Japan, Korea, Hong Kong US XinTianDi , Shanghai, China 7 1 Shack in Shanghai, Mainland China opened in Q1 2019 Note: CAGR is the compounded annual growth rate represented by the midpoint of the ' 19 range in relation to number of Shacks at end of ' 12
Constantly innovating in - Shack guest experience Testing self - order kiosks as part of the in - Shack experience Refreshed app experience, reducing friction in the path to purchase and adding guest - centric functionality App Kiosks Launched web ordering for digital orders outside of the App and with higher order limits Web In - Shack Digital innovation focused on guest experience and expanded convenience Testing Delivery through ongoing pilots with multiple partners Delivery 8
Innovating around our core menu Moving to monthly Shake program to drive excitement and frequency Chick’n Bites launched nationally as a Limited Time Offering Exciting slate of collaborations and partnerships lined up for 2019, starting with EMP Winter House in Aspen, CO Commitment to Stand for Something Good by removing plastic straws and eliminating high fructose corn syrup in nearly all of our food products. Working toward full elimination by end of 2019 9
Consistent, strong performance Total Revenue ($M) Cash Flow from Operations ($M) $119 $191 $268 $359 $459 '14 '15 '16 ' 18 '17 CAGR 40% $14 $41 $54 $71 $85 '14 ' 18 '15 '16 '17 CAGR 57% Shack System - wide Sales 1 ($M) System - wide Shack Count $217 $295 $403 $532 $672 ' 17 ' 16 ' 14 ' 15 ' 18 CAGR 33% 63 84 114 159 208 ' 16 ' 14 ' 15 ' 17 ' 18 CAGR 35% 1. "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. Note: CAGR for total revenue, cash flow from operations, and system - wide sales is the compounded annual growth rate between ' 14 and ‘ 18 Note: CAGR for system - wide Shack Count is the compounded annual growth rate between for ' 14 and ‘ 18 at year end 10
Back - weighted Q4 Shack openings amplified costs, which level out over time 5 5 7 17 100 90 95 Q1 Q2 Q3 107 Q4 • 50% of 2018 new Shacks were opened in the fourth quarter with 7 of those opening in the last 2 weeks of the year • New Shacks typically carry a higher labor rate during initial operating periods prior to settling into normalized operating rhythm New Shacks Existing Shacks 25.8% 28.2% 22.5% 25.0% Quarterly SLOP 1 % Company - operated Shack Openings by Quarter, FY 2018 11 1. Shack - Level operating profit (SLOP) is a non - GAAP measure. A definition and reconciliation of Shack - level operating profit to operating income, the most directly compara ble financial measures presented in accordance with GAAP, is included in the appendix of this presentation.
Key markets face significant ongoing labor headwinds 12 • Ongoing development in markets with high wage inflation and increasing levels of regulation results in significant labor headwinds impacting Shack - level operating margins • Opportunities to streamline and optimize labor are a key focus and include kiosks, scheduling tools, kitchen design and process changes New York City Fast Food Workers Minimum Wage Trend Los Angeles Minimum Wage Trend Note: All minimum wage are represented as of January 1 st in each year NYC Source: https:// labor.ny.gov / workerprotection / laborstandards / workprot / MW%20Updates / fast - food - faq.shtm#0 DC Source: http:// dcwagelaw.com /laws/minimum - wage - overtime/dc/ Los Angeles Source: https:// paywizard.org /salary/minimum - wage/ California#los - angeles - city - and - county - minimum - wage Chicago: https:// www.littler.com /publication - press/publication/ chicago - minimum - wage - ordinance - goes - effect - july - 1 - 2015 2019 $13.25 2016 2017 2018 $10.50 $11.50 $12.50 +26% $10.00 2016 2019 2017 2018 $10.50 $11.00 $12.00 +20% District of Columbia Minimum Wage Trend Chicago Minimum Wage Trend 2017 2018 $13.50 2019 2016 $15.00 $10.50 $12.00 +43% 2019 $10.50 2018 $10.00 2016 2017 $12.00 $13.25 +33%
Income Statement Lease Type Balance Sheet Real estate leases: Impact of new accounting standard 13 • Under the new lease accounting standard (ASC 842), effective in 2019, we will recognize all real estate leases on the balance sheet • Our existing “Build - to - Suit” leases (BTS) will be considered operating leases • We will derecognize all amounts currently on our balance sheet relating to BTS leases, including landlord funded assets and deemed landlord financing liabilities, as well as deferred rent related to our existing operating leases • New Right - of - Use assets and lease liabilities will be recorded for all real estate leases • All expenses associated with our real estate leases will now be recognized in Occupancy and related expenses under the new standard, whereas previously expenses relating to our BTS leases were recognized in Depreciation and Interest Current Treatment New Standard “ Build - to - Suit” Leases (16% of Shacks) Operating Leases (100% of real estate portfolio) Landlord Funded Assets Right - of - Use Assets Occupancy and Related Expenses Operating Leases (84% of Shacks ) Deferred Rent Liabilities Deemed Landlord Financing Liabilities Depreciation Expense Interest Expense Occupancy and Related Expenses Lease Liabilities
Income Statement changes Balance Sheet changes 14 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 resulting Balance Sheet impact Net resulting Income Statement impact • Net increase to total assets of $207 to $217 million • Net increase to total liabilities of $202 to $212 million • Unfavorable impact to Shack - level Operating Profit margin of approximately 50 basis points • Unfavorable impact to Adjusted EBITDA; minimal net impact to Net Income Overall impact of new accounting standard
Fiscal Year 2019 Guidance 15 FY 2019 Guidance FY 2020 Targets Total Revenue $570M to $576M $700M+ Licensed Revenue $15M to $16M Same - Shack Sales growth 0% to 1% Average Unit Volume (includes all domestic company - operated Shacks) $4.0M to $4.1M Domestic company - operated openings 36 to 40 200+ Shack Count Licensed Shack openings 16 to 18, net 120+ Shack Count Shack - level operating profit 23% to 24% General and administrative expenses (includes Project Concrete, equity - based compensation, and other one - time charges) $66.4M to $68.2M Core general and administrative expenses $ 56M to $57M Equity - based compensation $7.4M to $7.7M Project Concrete $3M to $3.5M (G&A) $4M (Capex) Depreciation expense $ 41M to $42M Pre - opening costs $13M to $14M Interest expense $0.3M to $0.4M Adjusted pro - forma tax rate 26.5% to 27.5%
16
Definitions Fourth Quarter & Fiscal Year 2018 17 “Adjusted EBITDA,” a non - GAAP measure, is defined as EBITDA excluding equity - based compensation expense, deferred rent expense, losses on the disposal of property and equipment, 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 rent expense, losses on the disposal of property and equipment, as well as certain non - recurring items that th e 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 - operate d 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 t hat 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 associa ted sales. "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. “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, includ ing food and paper costs, labor and related expenses, other operating expenses and occupancyand 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 - opera ted 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 fro m d omestic 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.
Income Statement Fourth Quarter & Fiscal Year 2018 18 Shack sales $ 120,720 97.1% $ 93,130 96.9% $ 445,589 97.0% $ 346,388 96.5% Licensing revenue 3,545 2.9% 3,006 3.1% 13,721 3.0% 12,422 3.5% TOTAL REVENUE 124,265 100.0% 96,136 100.0% 459,310 100.0% 358,810 100.0% Shack-level operating expenses (1) : Food and paper costs 34,760 28.8% 26,691 28.7% 126,096 28.3% 98,337 28.4% Labor and related expenses 34,443 28.5% 25,048 26.9% 122,094 27.4% 91,740 26.5% Other operating expenses 15,247 12.6% 10,425 11.2% 51,783 11.6% 35,805 10.3% Occupancy and related expenses 9,089 7.5% 7,456 8.0% 32,710 7.3% 28,197 8.1% General and administrative expenses 15,173 12.2% 11,651 12.1% 52,720 11.5% 39,003 10.9% Depreciation expense 8,095 6.5% 6,094 6.3% 29,000 6.3% 21,704 6.0% Pre-opening costs 4,248 3.4% 2,642 2.7% 12,279 2.7% 9,603 2.7% Loss on disposal of property and equipment 374 0.3% 291 0.3% 917 0.2% 608 0.2% TOTAL EXPENSES 121,429 97.7% 90,298 93.9% 427,599 93.1% 324,997 90.6% OPERATING INCOME 2,836 2.3% 5,838 6.1% 31,711 6.9% 33,813 9.4% Other income, net 444 0.4% 127,501 132.6% 1,514 0.3% 128,123 35.7% Interest expense (645) -0.5% (499) -0.5% (2,415) -0.5% (1,643) -0.5% INCOME BEFORE INCOME TAXES 2,635 2.1% 132,840 138.2% 30,810 6.7% 160,293 44.7% Income tax expense 3,183 2.6% 143,872 149.7% 8,862 1.9% 151,409 42.2% NET INCOME (LOSS) (548) -0.4% (11,032) -11.5% 21,948 4.8% 8,884 2.5% Less: net income attributable to non-controlling interests 410 0.3% 1,431 1.5% 6,769 1.5% 9,204 2.6% NET INCOME (LOSS) ATTRIBUTABLE TO SHAKE SHACK INC. $ (958) -0.8% $ (12,463) -13.0% $ 15,179 3.3% $ (320) -0.1% Earnings (loss) per share of Class A common stock: Basic $ (0.03) $ (0.47) $ 0.54 $ (0.01) Diluted $ (0.03) $ (0.47) $ 0.52 $ (0.01) Weighted-average shares of Class A common stock outstanding: Basic 29,408 26,305 28,299 25,876 Diluted 29,408 26,305 29,179 25,876 (1) As a percentage of Shack sales. Fiscal Quarter Ended Fiscal Year EndedDecember 26, 2018 December 27, 2017 December 26, 2018 December 27, 2017
Shack - Level Operating Profit Definitions Fourth Quarter & Fiscal Year 2018 19 Shack - Level Operating Profit Shack - level operating profit is defined as Shack sales less Shack - level operating expenses, including food and paper costs, labo r 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, Shac k - l evel 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 perform anc e 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 opera ting 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 Compan y'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 com panies 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 isolati on or as a substitute for, orsuperior 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 developm ent 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 Shac k - 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 Fourth Quarter & Fiscal Year 2018 20 (dollar amounts in thousands) December 26, 2018 December 27, 2017 December 26, 2018 December 27, 2017 Operating income 2,836$ 5,838$ 31,711$ 33,813$ Less: Licensing revenue 3,545 3,006 13,721 12,422 Add: General and administrative expenses 15,173 11,651 52,720 39,003 Depreciation expense 8,095 6,094 29,000 21,704 Pre-opening costs 4,248 2,642 12,279 9,603 Loss on disposal of property and equipment 374 291 917 608 Shack-level operating profit 27,181$ 23,510$ 112,906$ 92,309$ Total revenue 124,265$ 96,136$ 459,310$ 358,810$ Less: licensing revenue 3,545 3,006 13,721 12,422 Shack sales 120,720$ 93,130$ 445,589$ 346,388$ Shack-level operating profit margin 22.5% 25.2% 25.3% 26.6% Fiscal Quarter Ended Fiscal Year Ended
Adjusted EBITDA Definitions Fourth Quarter & Fiscal Year 2018 21 EBITDA and Adjusted EBITDA EBITDA is defined as net income before interest expense (net of interest income), income tax expense and depreciation and amo rti zation expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity - based compensation expense, deferred rent expense, losses on the disposal of property and equipment, 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 recur rin g business operations. How These Measures Are Useful When used in conjunction with GAAP financial measures, EBITDA and adjusted EBITDA are supplemental measures of operating perf orm ance that the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key met ric 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 arrangeme nts. The Company believes presentation of EBITDA and adjusted EBITDA provides investors with a supplemental view of the Company's operating performance that facilitate s a nalysis 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 of These Measures EBITDA and adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calc ula tion. 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 pre sented in accordance with GAAP. EBITDA and adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of the C omp any's performance and should be reviewed in conjunction with the GAAP financial measures. A reconciliation of EBITDA andadjusted EBITDA to net income, the most directly co mparable GAAP measure, is set forth below.
Adjusted EBITDA Fourth Quarter & Fiscal Year 2018 22 (in thousands) December 26, 2018 December 27, 2017 December 26, 2018 December 27, 2017 Net income (loss) (548)$ (11,032)$ 21,948$ 8,884$ Depreciation expense 8,095 6,094 29,000 21,704 Interest expense, net 645 479 2,407 1,565 Income tax expense 3,183 143,872 8,862 151,409 EBITDA 11,375 139,413 62,217 183,562 Equity-based compensation 1,691 1,800 6,067 5,623 Deferred rent 355 216 876 983 Loss on disposal of property and equipment 374 291 917 608 Legal Settlement — — 1,200 — Executive transition costs (1) 60 — 340 664 Project Concrete (2) 684 181 1,292 181 Home Office relocation expenses (3) — 264 1,019 264 Other income related to the adjustment of liabilities under tax receivable agreement (78) (1,362) (78) (1,362) — (125,859) — (125,859) Adjusted EBITDA 14,461$ 14,944$ 73,850$ 64,664$ Adjusted EBITDA margin 11.6% 15.5% 16.1% 18.0% (2) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete. (3) Costs incurred in connection with the Company's relocation to a new Home Office. Fiscal Quarter Ended Fiscal Year Ended Other income related to the remeasurement of liabilities under tax receivable agreement due to the enactment of the TCJA (1) 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.
Adjusted Pro Forma Effective Tax Rate Fourth Quarter & Fiscal Year 2018 23 Income Tax Expense Income Before Income Taxes Effective Tax Rate Income Tax Expense Income Before Income Taxes Effective Tax Rate As reported 3,183$ 2,635$ 120.8% 8,862$ 30,810$ 28.8% Non-GAAP adjustments (before tax): Legal settlement 60 1,200 Executive transition costs 684 340 Project Concrete 1,292 Home Office relocation 1,019 Other income related to the adjustment of liabilities 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 Tax effect of non-GAAP adjustments and assumed exchange of outstanding LLC Interests 1,463 2,415 Adjusted pro forma 864$ 3,301$ 26.2% 7,669$ 34,583$ 22.2% Less: Windfall tax benefits from stock-based compensation 142 1,910 Adjusted pro forma (excluding windfall tax benefits) 1,006$ 3,301$ 30.5% 9,579$ 34,583$ 27.7% December 26, 2018 Fiscal Quarter Ended Fiscal Year Ended
Investor Contact: Melissa Calandruccio, ICR Michelle Michalski, ICR (844) Shack - 04 (844 - 742 - 2504) [email protected] Media Contact: Kristyn Clark, Shake Shack 646 - 747 - 8776 [email protected] 24