Shares of Shake Shack (NYSE:SHAK) were sliding today after the fast-casual burger chain posted disappointing second-quarter results. Investors had expected a weak quarter given that the country was shut down for much of it, but Shake Shack also missed expectations and underperformed peers like Chipotle Mexican Grill and McDonald's.
As of 1:04 p.m. EDT on Friday, the stock was down 13.5%.
Revenue at Shake Shack fell 39.9% to $91.8 million, missing estimates at $93 million. Shake Shack's biggest market is New York, which was the epicenter of the outbreak in the spring and has been slow to recover. The company said that suburban Shacks have outperformed urban locations, which have suffered due to a lack of office workers and tourists. Urban locations represent about half of the base and saw same-store sales decline 57%, compared with a 38% drop at suburban locations.
Shake Shack's restaurants are high volume, but much of its traffic is traditionally dine-in, and the company doesn't have any drive-thru locations, unlike many of its peers, though it plans to open its first next year.
Digital sales made up 75% of total sales in the quarter, and the company saw nearly 1 million new customers sign up through its digital channels.
The bottom line took a hit as restaurant-level operating margin fell to just 2.2%, and it finished the quarter with an adjusted loss per share of $0.45, compared with estimates of a $0.37 loss.
CEO Randy Garutti said: "Despite the challenging environment, total sales and average weekly sales have shown continued improvement throughout the second quarter and the third quarter through July 22. We've got the strongest balance sheet we've ever had, and with gradual recovery underway across the country, we're bullish on our long-term growth opportunity which remains as strong as ever."
Shake Shack had previously withdrawn its financial guidance for the year, and did not offer any forecast for the current quarter. Performance has improved since the nadir, but the company's recovery has been more sluggish than some of its restaurant peers. Chipotle, for example, returned to comps growth in June, while Shake Shack said that comps were down 39% in the four weeks ended July 22.
While the company is making adaptations, including adding digital pickup lanes it calls Shack Tracks, its high concentration in cities and dependence on dine-in customers mean performance is likely to be weak until the pandemic is over.