What happened
Shares of Shake Shack (SHAK 4.06%), a hamburger restaurant chain, fell as much as 14% in the first few hours on Friday. The big news came out after the close on Thursday, when the company reported fourth-quarter 2021 earnings. There were positives and negatives to digest, and investors obviously came away with a glass-half-empty feel.
So what
Revenue was $203 million in the fourth quarter of 2021, up 29% from the same stanza of 2020. The top line in the fourth quarter was roughly in line with analyst expectations. That said, the fourth quarter in 2020 included an extra week. Excluding that week, fourth quarter 2021 sales were up an even more impressive 38.8%.
Helping to drive revenue was the fact that the company had 218 company-operated restaurants and 151 licensed locations at the end of the fourth quarter of 2021, compared to 183 and 128, respectively, in the year-ago period. Shake Shack opened 19 stores in the fourth quarter of 2021.
The company also noted that it had record systemwide sales in 2021 with same-store sales up 2.2% compared to 2019. Not a bad update on the top line.
Image source: Getty Images.
The company lost, on an adjusted basis, $0.11 per share in the fourth quarter of 2021, which was worse than the $0.03 loss in the same stanza of 2020. However, it was better than the $0.17 per share loss analysts had been predicting. Again, not so bad.
But one of the big problems that Shake Shake is facing is that many of its historically most-profitable restaurants have been in large cities. With the remote-work trend, these locations have not seen a full business recovery. This is important because management's outlook for the first quarter of 2022 suggests that sales will drop slightly due to the impact of the omicron variant of the coronavirus.
And it didn't give out full-year 2022 guidance because of the uncertainty of the pandemic's impact on demand and the fact that inflation has been running hot. That's not so positive and helps explain why investors were downbeat here today.
Now what
Shake Shack is a fast-growing restaurant chain focused on expanding its geographic presence. So the fact that it is bleeding red ink isn't necessarily all that shocking. But an expanding footprint appears to be covering up still-material headwinds at existing restaurants, notably in urban settings.
So it makes sense that investors are watching closely here for an indication that the pandemic headwinds are abating and demand in big cities has started to substantively recover. Since that's not what management offered up with its outlook, investor concern is understandable.
But, at the same time, it is worth remembering that nothing goes up or down in a straight line, and store expansion is still fairly strong here. That bodes well for when the world has a better handle on the coronavirus.
