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Shake Shack's Earnings Shake Investor Confidence

By Rich Duprey – Feb 24, 2020 at 10:06PM

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New partnerships and investments also caused the restaurant's guidance to come in below expectations.

Changes to Shake Shack's (SHAK -4.00%) third-party delivery providers as well as new investments drove the burger joint to miss analyst fourth quarter sales forecasts and caused guidance for the coming year to be below expectations.

Because Shake Shack also reported on the same day the stock market plunged over 1,000 points due to the novel coronavirus outbreak, not even handily beating Wall Street's expectations of a quarterly loss could stop the restaurant's stock from tumbling 11% on the news.

Man taking big bite out of a burger

Image source: Getty Images.

Not getting the word out

Shake Shack is transitioning from multiple third-party delivery companies such as DoorDash and PostMates to just a single provider, Grubhub (GRUB), and the change has investors concerned its new partner is not a leader in all of the markets Shake Shack operates.

The intense competition for delivery has caused virtually all providers to become money-losing operations, which Grubhub's CEO Matt Maloney partly blames on "promiscuous" consumers with no loyalty to any particular app. Investors worry that could impact Shake Shack sales. 

CEO Randy Garutti promised the fast-casual burger chain would invest in new menu items and digital services, as well as opening as many as 42 new company-owned stores and 25 net new licensed locations.

Garutti said he recognized such investments "can have a near-term impact on same-Shack sales and other aspects of our financial performance, but we believe the company will ultimately benefit from this strategy over time."

Fourth quarter revenue of $151.4 million came in below forecasts of $153.1 million, though adjusted earnings of $0.06 per share upended the $0.01 per share loss expected. Shake Shack expects 2020 sales of $712 million to $720 million compared to analyst projections of $735.6 million.


Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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