Shake Shack Inc. Q3 FY2025 earnings call

• Team and Culture: The company has strong team retention. There's improved guest service and operational enhancements. External hires bring best practices, and managers are equipped with tools to develop high-performing teams.
• Brand Marketing: Michael Fanuele was appointed Chief Brand Officer to oversee advertising, paid media, etc. New advertising is set to launch later in the quarter.
• Operations: A new labor model has been implemented. There are improved labor targets, higher throughput, better speed of service, and enhanced guest satisfaction scores. Work is ongoing in supply chain diversification, logistics optimization, and technology investments.
• Culinary Innovation: Various limited-time offerings have been launched, such as the Dubai Chocolate Shake, summer barbecue menu, French Onion Soup Burger, etc. The company is focused on premium and value offerings, with plans for new menu items like the French dip Angus steak sandwich and baby back rib sandwich.

Total revenue for Shake Shack in the third quarter of 2025 was $367.4 million, a 15.9% year-over-year growth. Licensing revenue was approximately $14.6 million, up 21.1% year-over-year, and license sales reached $218.7 million, a 15% increase. In the company-operated business, Shack sales grew to $352.8 million, a 15.7% year-over-year rise. Average weekly sales were $78,000, a 2.6% year-over-year growth. Same-Shack sales saw a 4.9% growth with positive traffic. Food and paper costs were $103.5 million, accounting for 29.3% of Shack sales. Labor and related expenses were $88 million, making up 24.9% of Shack sales. Restaurant-level profit was $80.6 million, which was 22.8% of Shack sales, a 180 basis point improvement from the previous year.

For the fourth quarter of 2025, the guidance includes system-wide unit openings of 27 to 37, with 15 to 20 company-operated and 12 to 17 licensed. Total revenue is expected to be between $406 million and $412 million, with same-Shack sales up in the low single digits and license revenue ranging from $15.4 million to $15.7 million. The restaurant level profit margin is projected to be between 23.3% and 23.8%. For the full year 2025, total revenue is anticipated to be approximately $1.45 billion, a 16% year-over-year increase. Same-Shack sales are expected to have low single-digit growth, license revenue is between $54.1 million and $54.5 million, the restaurant level profit margin is around 22.7% to 23%, G&A is expected to be 12.3% to 12.5% of total revenue, equity-based compensation expense is $20 million, preopening costs are $19 million, net income is between $50 million and $60 million, and adjusted EBITDA is between $210 million and $215 million.

• Macroeconomic headwinds in specific markets like New York Metro and Washington, D.C. are impacting overall results.
• The volatile beef market with mid-teens beef inflation expected in the second half of 2025 poses a risk to margins if not managed properly.
• Uncertainty exists regarding the effectiveness of marketing and innovation initiatives in driving the expected traffic and sales.

Q: How do you size the opportunity in the midterm for supply chain initiatives as a key driver of margin expansion? And how do you track and respond to consumer feedback regarding product modifications due to supplier changes?

A: Katie Fogertey mentioned that savings potential is expected to build into next year, with food and paper as a percentage of sales moderating to normalized levels with low single-digit inflation. Rob Lynch stated that there will be no product modifications as they go through thorough testing and validation to ensure suppliers meet quality standards.

Q: Could you provide thoughts on the setup in the fourth quarter given the broad deceleration in the macro intra-quarter and softening trends into October, and any pressures on younger consumers?

A: Robert Lynch said there are pressures on lower-income consumers and younger populations. They incorporated these challenges into their strategy, shifted to in-app value platforms, and saw dramatic changes in business trajectory with increased app traffic.

Q: What surprised you about the French Onion Burger not performing as expected, and how does that change the innovation calendar?

A: Robert Lynch said French Onion was a flavored burger, and moving forward, they are focused on more innovative ideas that bring new stories. They'll continue to innovate on burgers but are now emphasizing newsworthy and viral innovations.

Q: A question on G&A guidance, specifically the uptick in the fourth quarter. What's driving the increase?

A: Katherine Fogertey said they are making meaningful investments in marketing and media to drive the business, including investments in the 1, 3, 5 platform and planned steps later in the year, aimed at driving traffic and sales.