What happened

Shares of Shake Shack Inc. (SHAK 1.71%) were sliding today after the fast-casual burger chain posted weaker-than-expected comparable sales and a disappointing outlook in its third-quarter earnings report. Despite the company's beating estimates on top and bottom lines, the stock was still trading down 13.6% as of 12:11 p.m. EDT.

A Shake Shack burger in a paper dish

Image source: Shake Shack.

So what

Shake Shack's revenue jumped 26.5% to $119.6 million in the period, beating estimates of $116.8 million, though that growth was driven by new restaurants rather than comparable sales. Same-store sales dipped 0.7% (missing estimates of 1.1% growth) as guest traffic dropped 4% in the quarter, a potential warning sign. But higher prices and a change in sales mix offset it by 3.3%.

Restaurant-level operating margin slipped from 25.8% to 27.2%, as labor costs continue to creep higher and the company opens lower-volume stores in new markets.

On the bottom line, adjusted earnings per share increased from $0.17 to $0.21, which easily beat estimates of $0.13, continuing a historical pattern of earnings beats. CEO Randy Garutti sounded optimistic about the performance, saying: "We're pleased to report that Shake Shack's overall growth remains strong as we head into the end of 2018."

Now what

Looking ahead, Shake Shack actually raised its full-year revenue forecast to $450 million to $452 million, up from a previous range of $446 million to $450 million, but still short of the analyst consensus of $453.4 million. Management did not give detailed guidance for 2019, but said it would open another 36 to 40 company-operated restaurants; this would grow the base by about 30%, indicating another year of strong growth.

Shake Shack trades at a lofty valuation, at a price-to-earnings ratio of over 60 even after today's sell-off; that may explain today's slide as much as anything else, as high expectations are baked into the price. While the quarter's comparable-sales figures, especially traffic, may have been disappointing, the overall growth story remains intact. Still, Shake Shack shares are likely to remain volatile given the pricey valuation.