Shake Shack ( SHAK ) reported preliminary fourth-quarter results that beat expectations, but investors don't seem convinced.
Shares of the fast-casual chain fell 6% on Monday after the company reported same-store sales growth of 4.3% in the last quarter. Total revenue increased approximately 15% year over year to $328.7 million.
In fiscal 2024, same-store sales increased 3.6% and revenue increased 15% to $1.25 billion. The company's 2025 guidance includes revenue growth of 16% to 18% and same-store sales growth of 3%.
Shake Shack has made "a lot of progress" over the past year, "in an environment where you still have concerns about wage inflation and potential commodity inflation, and there have been some risks that have emerged over the past few weeks (like bird flu same)," CEO Rob Lynch told Yahoo Finance at the ICR conference in Orlando, Florida.
"We feel this is better than what we have delivered over a long period of time and better than consensus forecasts, but may not be as ideal as some others thought," he added. The company's shares have risen 85% in the last year.
By 2025, the company expects to expand restaurant margins from 21.4% to 22%, its highest margin in the past eight years.
William Blair analyst Sharon Zackfia cited "commodity cost volatility" and "continued pressure from wage inflation" as two key risks to the business. She has an outperform rating on the stock.
According to Lynch, Shake Shack currently expects inflation in its supply chain to remain in the low single digits, and its team is "very surprised by the stability of the beef market, despite some forecasts being made this year."
He said he expects labor inflation to stabilize at 3% to 4% this year.
As Shake Shack celebrates its 10th anniversary as a public company on January 30, 2015, it has set new growth goals for its proprietary business.
Over time, it aims to reach at least 1,500 company-operated Shacks. Last year, there were 329 company-operated stores, including a record 43 company-operated vacancies. A further 45 are expected to be launched this year.
Lynch said the company is adding new formats such as drive-thru restaurants and smaller-footprint stores.
He also focused on Chipotle's (CMG) model, calling it "best in class" at opening company-operated restaurants "super fast." The taco chain's long-term goal is to open 7,000 stores in North America, with 315 to 345 company-owned restaurants expected to open by 2025.
Deadline: January 14, 4:00:01 pm ET
While Shake Shack doesn't offer franchises in the United States, it works with licensing partners in international restaurants. Lynch called the licensing business a "huge opportunity." It plans to open about 35 to 40 franchise stores this year.
"We're not anywhere in Europe. We're not in South America, we're not in Africa, we're not in Australia, and we have a lot of white space where we can go and build a licensing business," said the former Papa John's (PZZA) CEO, Arby's president and tower executive. said Lynch, vice president of marketing at YUM.
“Going into these markets, meeting with these licensing partners, understanding their needs, and working with them to develop a plan to help accelerate their growth, that’s what I’ve done for the past 15 years.”
However, Zakfia noted that one risk with the Shake Shack plan is "the operational pressure associated with the aggressive unit development plan."
The burger chain started out as a hot dog cart in New York City 20 years ago and continues to grow. Lynch said there may be more differentiated menu items in the future.
“As long as we can optimize it operationally, the sky is the limit from an innovation perspective.”
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Brooke DePalma is a senior reporter at Yahoo Finance. Follow her on Twitter: @Brooke Di Palma Or send an email to bdipalma@yahoofinance.com.
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