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Shake Shack plans to increase prices by 3%-3.5% in March.

Shake Shack to raise prices by 3%-3.5% in March

Company executives see further price increases might be made later in the year

Shake Shack plans to raise its prices by 3%-3.5% in March, following a similar price increase in October 2021, the fast-casual chain’s CEO, Randy Garutti, said in an earnings call on Thursday.

“The environment of commodity and labor wage inflation is still taking material impact on our restaurant margins. We expect this dynamic for the foreseeable future,” Garutti said, adding that he would continue to keep an eye on costs and possibly take another price increase later this year.

Shake Shack chief financial officer Katherine Fogerty said she expected mid-to-high single-digit inflation for most of the chain’s non-protein costs, except for paper and packaging, for which she expected double-digit inflation.

She said the biggest part of the chain’s basket was its beef, “where we expect continued inflation and are subject to weekly and monthly moving prices.”

For the 4th quarter of 2021, ended Dec. 29, operating profit was 16.4%, the company reported.

Garutti said the chain would also be raising its price premiums on orders via 3rd-party delivery to 15%, from a previous 10%, compared to in-restaurant prices.

“This gives us the opportunity for better profitability on those channels and even more reasons to drive people to our own digital channels for the best value,” Garutti said.

He said the chain historically has increased prices by around 2% a year, “and that’s given us a strong value proposition for our premium products.”

The earnings report affirmed the preliminary results that New York City-based Shake Shack released in January, with same-store sales surpassing the pre-COVID levels of 2019.

Comp sales were up by 2.2% in the fourth quarter compared to the fourth quarter of 2019.

In the third quarter they were down by 7.3%.

Same-store sales were up by 20.8% compared to the fourth quarter of 2020. For the fiscal year, they were up by 24.2%.

Total revenue for the quarter was up 42.5%  to $203.3 million on sales of 314.3 million. For the year it was up 47.6% to $739.9 million on record sales of $1.1 billion.

Garutti said that, after a strong performance in the 4th quarter of 2021, 2022 started out considerably rockier with the surge in cases of the omicron variant of the novel coronavirus affecting restaurants’ operations and sales.

“We started this year with much more volatility on the business due to omicron,” he said. “The first quarter typically experiences a seasonal decline in sales versus the fourth quarter, but in January a sharp increase of COVID cases limited our ability to staff and keep all of our restaurants fully open. Additionally, we saw many of the drivers of our business, such as office returns, events, travel, tourism and the general gathering of people that contributes to Shake Shack's best results, turned downward. [The] combination of lower-than-average sales per hour, reduced operating hours and outright closures due to COVID resulted in materially lower sales versus our seasonal expectations. We expect these trends may continue to impact sales in our company-owned shacks in our licensed business through the first quarter.”

However, he said results have been improving in February as rates of omicron variant infections have plummeted, with month-to-date same-store sales up by approximately 13% as of Feb. 15 compared to that period last year.

“We're bullish on what spring and our recovery can look like later this year,” he said.

The chain’s outlook for the quarter is total revenue of between $196 million and $201.4 million, and same-store sales increases in the high single digits to low double digits with restaurant-level operating profit margins of between 11% and 14%.

The chain opened 13 company-operated restaurants in the fourth quarter, including its first drive-thru locations. For the year it opened 36 company-owned and 26 licensed restaurants, closing out the year with a total of 369 restaurants, of which 218 are company owned domestic units and 151 are licensed outside the United States. That’s up from 311 locations — 183 company-owned and 128 licensed — in the previous year.

Contact Bret Thorn at [email protected] 

Follow him on Twitter: @foodwriterdiary

TAGS: Finance
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