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3 Things Shake Shack Inc Management Wants You to Know

By Jeremy Bowman – Nov 17, 2016 at 1:30AM

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The better-burger chain surged after its recent earnings report. Here are three key things you might have missed in the results.

Shake Shack (SHAK 1.15%) delivered another blowout earnings report last week. The stock jumped 11% the day after the results came out, and they have continued to climb since then.

Image source: Shake Shack.

The better-burger chain once again topped estimates on both the top and bottom lines, and it has now beaten earnings expectations in all seven of its quarters since going public. Same-store sales were up a modest 2.9%, but that was seen as a positive at a time when a lot of its peers are complaining about a "restaurant recession." Overall revenue jumped 40% thanks to a crop of high-performing new stores.

Let's take a look at three key points management underscored in its earnings call.

1. The ChickenShack is taking off 

In January, Shake Shack launched its first chicken sandwich, the ChickenShack, nationally after testing it to a warm reception at its three Brooklyn locations. The sandwich -- which features a crispy, all-natural, antibiotic-free chicken breast with lettuce, pickles, and buttermilk herb mayo served on a Martin's potato bun -- like Shake Shack's burgers, helped propel comparable sales to nearly 10% in the first quarter, and its popularity has persisted.

CEO Randy Garutti said the ChickenShack continues to be a top-three selling menu item. It also helps the company diversify its protein risk and serves as a platform for further innovation. Shake Shack recently introduced a Salt and Pepper Honey Chicken sandwich at its three Brooklyn locations. 

The company is also planning to expand its limited-time-offering strategy next year to include one burger and one chicken sandwich, the first of which will be Barbecue Chicken. 

The success of the ChickenShack should pave the way for further menu innovation, allowing the company to reach a broader audience and boost excitement around the brand.

2. The mobile app is spreading

Just a few weeks ago, Shake Shack launched a mobile app allowing customers to order remotely. The app gives customers the opportunity to skip the line at its often crowded restaurants, and it could even help Shake Shack smooth out its service.

Initially, the company tested the app at just one location, Midtown East in Manhattan, but it has already expanded the mobile ordering tool to two more restaurants in New York. Management said the test has gone "incredibly well" so far.

Besides reducing wait times, CEO Garutti also said the app "opens the door for future endless opportunities." Among those could be catering and delivery -- Shake Shack has not officially partnered with any delivery service, but Garutti said PostMates and DoorDash are its biggest partners. He said there are no plans for delivery through the app at this time, but the company is very much interested in third-party delivery.

3. The real-estate pipeline is stronger than ever

The primary reason for the stock's spike last week was the acceleration, once again, of its new store opening guidance. Shake Shack said it now expects 19 new company-operated stores this year instead of 18, and 21 to 22 new company-operated restaurants next year. Considering as early as last year, management was projecting just 10 new company-operated store openings annually, its real estate development has accelerated dramatically, pushing up revenue and profits in the process.

Because of its brand and ability to drive traffic, Shake Shack has become a sought-after partner by landlords. That attractiveness allows the company to be picky about its location selection. On the call, Garutti said the company could open 50 Shacks if it wanted to, but by being selective about locations, personnel, and other such factors, it's growing at the appropriate pace to ensure the future success of the brand. 

New store openings have continued to outperform expectations. While management expects the crop of 2017 to have more modest first-year sales figures, the company's expanding real estate pipeline is a sign of its long-term growth potential, which will be the biggest key to the stock's success. Management had originally projected that the U.S. market would have room for 450 Shacks (with 64 currently in operation), but as new store openings accelerate, that number could easily move higher.

Jeremy Bowman owns shares of Shake Shack. The Motley Fool is short Shake Shack. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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