What happened
Shares of Shake Shack (SHAK -0.14%) fell 24.7% in November, according to data from S&P Global Market Intelligence, after the restaurant chain announced underwhelming third-quarter 2019 results and mixed guidance.
To be sure, virtually all of Shake Shack's drop last month came on Nov. 5 alone, the first trading day after its quarterly update hit the wires.
Image source: Shake Shack.
So what
That's not to say Shake Shack's quarter looked bad at first glance. Revenue climbed 31.9% year over year to $157.8 million, translating to adjusted pro forma net income of $10 million, or $0.26 per share (up from $0.21 a year earlier). Analysts on average were technically expecting lower adjusted earnings of $0.20 per share on roughly the same revenue.
But Shake Shack's top line also included a modest 2% increase in same-store sales, well below the 2.5% Wall Street was modeling.
During the subsequent conference call, CEO Randy Garutti pointed to "some noise in our Q3 numbers" caused by the company's transition to Grubhub as its sole delivery partner.
"As we remove direct point-of-sale integrations with DoorDash, Postmates, and Caviar, we expect an impact to our delivery revenue, especially in those regions where [Grubhub] may not be the current market leader," he said.
Now what
Garutti did insist that while it remains to be seen exactly how much volatility the Grubhub move will cause, "the reality is, this represents short- to mid-term revenue risk."
In the meantime, Shake Shack increased its full-year 2019 revenue outlook to call for a range of $592 million to $597 million (up from $585 million to $590 million before). But it simultaneously decreased its guidance for 2019 same-store sales growth to be roughly 1.5% (down from 2% previously).
In the end, if there's one thing our market hates, it's uncertainty. And until Shake Shack provides more clarity on the duration and scope of its Grubhub-related headwinds, I suspect investors will happily find other promising portfolio candidates to satisfy their appetites for growth.
