SHAK-20190502_Exhibit 99.1
Shake Shack Announces First Quarter 2019 Financial Results
- Total Revenue Grew 33.8% to $132.6 Million -
- Same-Shack Sales Increased 3.6% -
- System-wide Year-Over-Year Unit Growth of 30% -
NEW YORK, NY (Business Wire) — May 2, 2019 — Shake Shack Inc. (“Shake Shack” or the “Company”) (NYSE: SHAK) today reported its financial results for the first quarter ended March 27, 2019, a period that included 13 weeks.
Financial Highlights for the First Quarter 2019 compared to the First Quarter 2018:
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▪ | Total revenue increased 33.8% to $132.6 million. |
| |
▪ | Shack sales increased 33.8% to $128.6 million. |
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▪ | Same-Shack sales increased 3.6%. |
| |
▪ | Shack system-wide sales increased 33.5% to $195.2 million. |
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▪ | Operating income was $5.2 million, or 3.9% of total revenue, which included the impact of costs associated with Project Concrete and other one-time items totaling $0.5 million, resulting in a decrease of 20.8%. |
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▪ | Shack-level operating profit*, a non-GAAP measure, increased 12.5% to $27.0 million, or 21.0% of Shack sales. |
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▪ | Net income was $3.6 million and adjusted EBITDA*, a non-GAAP measure, increased 10.4% to $17.8 million. |
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▪ | Twelve system-wide Shack openings, comprised of five domestic company-operated Shacks and seven licensed Shacks. |
* Shack-level operating profit, adjusted EBITDA and adjusted pro forma net income are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income, adjusted EBITDA to net income, and adjusted pro forma net income to net income attributable to Shake Shack Inc., the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Randy Garutti, Chief Executive Officer of Shake Shack, stated, “We are pleased with the strong momentum from 2018 carried forward into the first quarter of this year. We grew total revenue by almost 34%, Adjusted EBITDA by over 10% and delivered positive same-Shack sales of 3.6%, including a return to positive traffic growth of 1.6%. Our performance was supported by the strength from new openings, the holiday shift and warm weather conditions across a number of key markets early in the quarter and the continued growth of our digital channels, where we see significant ongoing opportunities."
Garutti concluded, “Based on our first quarter results, we are raising both our overall revenue and same-Shack Sales expectations for the year. We are on track to open 36 to 40 new company-operated Shacks, marking our largest class yet. We also plan to open 16 to 18 net new licensed Shacks with our international growth focused on Asia and our new markets of mainland China, Singapore, the Philippines and Mexico. 2019 is off to a solid start as we remain focused on the execution of our key strategic commitments that will continue to drive growth.”
Development Highlights
During the quarter, the Company opened five domestic company-operated Shacks, which included its first Shack in Providence, Rhode Island. The Company opened four international licensed Shacks, which included a Shack in the City of Shanghai, the Company's first Shack to open in mainland China. Additionally, the Company opened three domestic licensed Shacks at Dallas-Fort Worth International Airport, Phoenix Sky Harbor International Airport and Cleveland Hopkins International Airport, further executing on its growth strategy within airports.
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| | | | |
Location | | Type | | Opening Date |
DFW Airport, TX — Dallas-Fort Worth International Airport | | Domestic Licensed | | January 3 |
Phoenix, AZ — Phoenix Sky Harbor International Airport | | Domestic Licensed | | January 8 |
Shanghai, China — XinTianDi | | International Licensed | | January 24 |
Osaka, Japan — Chayamachi | | International Licensed | | February 1 |
Wayne, NJ — Wayne | | Domestic Company-Operated | | February 12 |
Gotemba, Japan — Gotemba Premium Outlets | | International Licensed | | February 24 |
Cleveland, OH — Cleveland Hopkins International Airport | | Domestic Licensed | | March 9 |
New York, NY — Hudson Yards | | Domestic Company-Operated | | March 15 |
Incheon, South Korea — Songdo | | International Licensed | | March 16 |
San Diego, CA — Del Mar | | Domestic Company-Operated | | March 18 |
Providence, RI — Thayer Street | | Domestic Company-Operated | | March 20 |
Larkspur, CA — Marin Country Mart | | Domestic Company-Operated | | March 27 |
During the quarter, the Company closed two international licensed Shacks, World Trade Center in UAE and Avia Park in Russia.
Subsequent to the end of the quarter, the Company opened three domestic company-operated Shacks and three licensed Shacks, including its first Shack in Singapore, located in the brand new Jewel Changi Airport.
First Quarter 2019 Review
Total revenue, which includes Shack sales and licensing revenue, increased 33.8% to $132.6 million in the first quarter of 2019, from $99.1 million in the first quarter of 2018. Shack sales for the first quarter of 2019 were $128.6 million compared to $96.1 million in the same quarter last year, an increase of $32.5 million, or 33.8%, due primarily to the opening of 34 new domestic company-operated Shacks between the first quarter of 2019 and the first quarter of 2018, as well as same-Shack sales growth. Licensing revenue for the first quarter was $4.0 million, an increase of 33.5% from $3.0 million in the same quarter last year, due primarily to the opening of 16 net new licensed Shacks.
Same-Shack sales increased 3.6% for the first quarter of 2019 versus a 1.7% growth in the first quarter last year. The increase in same-Shack sales consisted of a 1.6% increase in guest traffic and a combined increase of 2.0% in price and sales mix. The comparable Shack base includes those restaurants open for 24 full fiscal months or longer. For the first quarter of 2019, the comparable Shack base included 66 Shacks versus 44 Shacks for the first quarter of 2018.
Average weekly sales for domestic company-operated Shacks decreased to $79,000 for the first quarter of 2019 compared to $81,000 for the same quarter last year, primarily due to the addition of newer Shacks at a broader range of average unit volumes.
Operating income decreased to $5.2 million for the first quarter of 2019 from $6.5 million in the same quarter last year. Operating income margins decreased 270 basis points to 3.9%. These decreases included a number of one-time charges and costs related to Project Concrete totaling $0.5 million. Shack-level operating profit, a non-GAAP measure, increased 12.5% to $27.0 million for the first quarter of 2019 from $24.0 million in the same quarter last year. As a percentage of Shack sales, Shack-level operating profit margins decreased 400 basis points to 21.0%, primarily due to: (i) increased costs associated with our promotional launch of Chick'n Bites, higher commodity costs, in particular beef, and an increase in packaging costs associated with our digital channel growth; (ii) increased labor and related expenses resulting from ongoing increases in minimum wages, regulatory factors, such as the Fair Workweek legislation in New York City, as well as higher labor costs from the Shacks that opened at the end of fiscal 2018, which typically carry higher labor costs during the first few months of operations and were exacerbated with the compressed opening schedule; (iii) delivery commissions paid as part of our digital growth and increased overall marketing spend, targeted primarily at limited time offerings; (iv) impact related to the adoption of the new lease accounting standard; and (v) the addition of new Shacks at a broader range of average unit volumes. A reconciliation of Shack-level operating profit to operating income, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
General and administrative expenses increased to $13.9 million for the first quarter of 2019 from $11.8 million in the same quarter last year, primarily due to the increase in the Company's investment across the business, particularly in people resources and foundational infrastructure to support its
ongoing growth initiatives, including costs of $0.5 million related to Project Concrete and other one-time charges. As a percentage of total revenue, general and administrative expenses decreased to 10.5% for the first quarter of 2019 from 11.9% in the first quarter last year.
Net income was $3.6 million, or 2.7% of total revenue, for the first quarter of 2019, compared to $5.0 million, or 5.0% of total revenue, for the same period last year. Net income attributable to Shake Shack Inc. was $2.5 million, or 1.9% of total revenue, for the first quarter of 2019, compared to $3.5 million, or 3.5% of total revenue, for the same period last year. Earnings per diluted share was $0.08 for the first quarter of 2019 compared to $0.13 for the same period last year.
Adjusted EBITDA, a non-GAAP measure, increased 10.4% to $17.8 million. As a percentage of total revenue, adjusted EBITDA margins decreased approximately 280 basis points to 13.5% compared to 16.3% for the year ago period. This decrease was primarily due to the aforementioned items within Shack-level operating profit. A reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Adjusted pro forma net income, a non-GAAP measure, decreased 12.5% to $4.9 million, or $0.13 per fully exchanged and diluted share during the first quarter of 2019, compared to $5.7 million, or $0.15 per fully exchanged and diluted share during the first quarter of 2018. A reconciliation of adjusted pro forma net income to net income attributable to Shake Shack Inc., the most directly comparable GAAP financial measure, is set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.”
Updated 2019 Outlook
These forward-looking projections are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company's Form 10-K for the fiscal year ended December 26, 2018 under the heading “Risk Factors.” These forward-looking projections should be reviewed in conjunction with the consolidated financial statements and the section titled “Trends in Our Business” which forms the basis of our assumptions used to prepare these forward-looking projections. You should not attribute undue certainty to these projections and we undertake no obligation to revise or update any forward-looking information, except as required by law.
For the fiscal year ending December 25, 2019, we have revised our financial outlook to the following with changes from the previous outlook in bold:
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| | | |
| Current Outlook | | Previous Outlook |
Total revenue (inclusive of licensing revenue) | $576 million to $582 million | | $570 million to $576 million |
Licensing revenue | $15 million to $16 million | | $15 million to $16 million |
Same-Shack sales growth (%)(1) | 1% to 2% | | 0% to 1% |
Domestic company-operated Shack openings | 36 to 40 | | 36 to 40 |
Licensed Shack openings, net | 16 to 18 | | 16 to 18 |
Average annual sales volume for domestic company-operated Shacks | $4.0 million to $4.1 million | | $4.0 million to $4.1 million |
Shack-level operating profit margin (%)(2)(3) | 23.0% to 24.0% | | 23.0% to 24.0% |
Total general and administrative expenses | $66.4 million to $68.2 million | | $66.4 million to $68.2 million |
Core general and administrative | $56 million to $57 million | | $56 million to $57 million |
Equity-based compensation | $7.4 million to $7.7 million | | $7.4 million to $7.7 million |
One-time costs related to Project Concrete | $3.0 million to $3.5 million | | $3.0 million to $3.5 million |
Project Concrete capital spend | approximately $4 million | | approximately $4 million |
Depreciation expense | $41 million to $42 million | | $41 million to $42 million |
Pre-opening costs | $13 million to $14 million | | $13 million to $14 million |
Interest expense | $0.3 million to $0.4 million | | $0.3 million to $0.4 million |
Adjusted pro forma effective tax rate (%)(4) | 26.5% to 27.5% | | 26.5% to 27.5% |
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(1) | Includes approximately 1.5% of menu price increases taken in December 2018. |
(2) Includes approximately 50 bps of impact from the adoption of the new lease accounting standard.
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(3) | Shack-level operating profit margin is a non-GAAP measure. A reconciliation to the most directly comparable GAAP measure, operating income, has not been provided as we cannot project certain reconciling items, such as gains or losses on disposal of property and equipment, without unreasonable effort given the uncertainty around the timing and amount of such losses or gains. Losses on disposal of property and equipment were less than $1 million for each of the fiscal years 2018, 2017 and 2016. |
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(4) | Adjusted pro forma effective tax rate is a non-GAAP measure. A reconciliation to the most directly comparable GAAP measure, income tax expense, has not been provided as we cannot project income tax expense without unreasonable effort due to our inability to predict changes in our ownership interest in SSE Holdings, LLC resulting from redemptions of LLC Interests by non-controlling interest holders and equity-based award activity. Income tax expense for fiscal years 2018, 2017 and 2016 was $8.9 million, $151.4 million and $6.4 million, respectively. |
Earnings Conference Call
As previously announced, the Company will host a conference call to discuss its first quarter 2019 financial results today at 5:00 p.m. ET.
The conference call can be accessed live over the phone by dialing (800) 239-9838 or for international callers by dialing (323) 794-2551. A replay will be available after the call and can be accessed by dialing (844) 512-2921or for international callers by dialing (412) 317-6671; the passcode is 7725739. The replay will be available until May 9, 2019.
The conference call will also be webcast live from the Company's Investor Relations website at http://investor.shakeshack.com. An archive of the webcast will be available at the same location on the website shortly after the call has concluded.
Definitions
The following definitions apply to these terms as used in this release:
"Shack sales" is defined as the aggregate sales of food, beverages and Shake Shack branded merchandise at domestic company-operated Shacks and excludes sales from licensed Shacks.
"Same-Shack sales" represents Shack sales for the comparable Shack base, which is defined as the number of domestic company-operated Shacks open for 24 full fiscal months or longer.
"Average unit volume" or "AUV" for any 12-month period consist of the average annualized sales of all domestic company-operated Shacks over that period. AUV is calculated by dividing total Shack sales from domestic company-operated Shacks by the number of domestic company-operated Shacks open during that period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of Shacks open such that it corresponds to the period of associated sales. The measurement of AUV allows the Company to assess changes in guest traffic and per transaction patterns at domestic company-operated Shacks.
"Average weekly sales" is calculated by dividing total Shack sales by the number of operating weeks for all Shacks in operation during the period. For Shacks that are not open for the entire period, fractional adjustments are made to the number of operating weeks open such that it corresponds to the period of associated sales.
"Shack-level operating profit," a non-GAAP measure, is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.
"Shack-level operating profit margin," a non-GAAP measure, is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses as a percentage of Shack sales.
“EBITDA,” a non-GAAP measure, is defined as net income before interest expense (net of interest income), income tax expense, and depreciation and amortization expense.
“Adjusted EBITDA,” a non-GAAP measure, is defined as EBITDA (as defined above), excluding equity-based compensation expense, deferred lease costs, losses on the disposal of property and equipment, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.
“Adjusted EBITDA margin,” a non-GAAP measure, is defined as net income before net interest, taxes, depreciation and amortization, which also excludes equity-based compensation expense, deferred lease costs, losses on the disposal of property and equipment, as well as certain non-recurring and other items that the Company does not believe directly reflect its core operations, as a percentage of revenue.
"Adjusted pro forma net income," a non-GAAP measure, represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring and other items that the Company does not believe directly reflect its core operations.
About Shake Shack
Shake Shack is a modern day “roadside” burger stand known for its 100% all-natural Angus beef burgers, chicken sandwiches and flat-top Vienna beef dogs (no hormones or antibiotics - ever), spun-fresh frozen custard, crinkle cut fries, craft beer and wine and more. With its fresh, simple, high-quality food at a great value, Shake Shack is a fun and lively community gathering place with widespread appeal. Shake Shack’s mission is to Stand for Something Good®, from its premium ingredients and caring hiring practices to its inspiring designs and deep community investment. Since the original Shack opened in 2004 in NYC’s Madison Square Park, the company has expanded to more than 220 locations in 27 U.S. States and the District of Columbia, including more than 70 international locations including London, Hong Kong, Shanghai, Singapore, Istanbul, Dubai, Tokyo, Moscow, Seoul and more.
Investor Contact:
Melissa Calandruccio, ICR
Michelle Michalski, ICR
(844) SHACK-04 (844-742-2504)
investor@shakeshack.com
Media Contact:
Kristyn Clark, Shake Shack
(646) 747-8776
kclark@shakeshack.com
Forward-Looking Statements
This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different. All statements other than statements of historical fact included in this press release are forward-looking statements, including, but not limited to, expected financial outlook for fiscal 2019, expected Shack openings, expected same-Shack sales growth and trends in the Company’s operations. Forward-looking statements discuss the Company's current expectations and projections relating to their financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2018, filed with the Securities and Exchange Commission ("SEC"). All of the Company's SEC filings are available online at www.sec.gov, www.shakeshack.com or upon request from Shake Shack Inc. The forward-looking statements included in this press release are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
SHAKE SHACK INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share amounts)
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| | | | | | | | | | | | | |
| | | Thirteen Weeks Ended | |
| | | March 27
2019 | | | March 28
2018 | |
Shack sales | $ | 128,569 |
| 97.0 | % | | $ | 96,089 |
| 96.9 | % |
Licensing revenue | 4,040 |
| 3.0 | % | | 3,027 |
| 3.1 | % |
TOTAL REVENUE | 132,609 |
| 100.0 | % | | 99,116 |
| 100.0 | % |
Shack-level operating expenses(1): | | | | | |
| Food and paper costs | 37,991 |
| 29.5 | % | | 26,955 |
| 28.1 | % |
| Labor and related expenses | 37,093 |
| 28.9 | % | | 26,687 |
| 27.8 | % |
| Other operating expenses | 15,568 |
| 12.1 | % | | 10,759 |
| 11.2 | % |
| Occupancy and related expenses | 10,899 |
| 8.5 | % | | 7,675 |
| 8.0 | % |
General and administrative expenses | 13,937 |
| 10.5 | % | | 11,809 |
| 11.9 | % |
Depreciation expense | 8,966 |
| 6.8 | % | | 6,498 |
| 6.6 | % |
Pre-opening costs | 2,642 |
| 2.0 | % | | 2,029 |
| 2.0 | % |
Loss on disposal of property and equipment | 351 |
| 0.3 | % | | 190 |
| 0.2 | % |
TOTAL EXPENSES | 127,447 |
| 96.1 | % | | 92,602 |
| 93.4 | % |
OPERATING INCOME | 5,162 |
| 3.9 | % | | 6,514 |
| 6.6 | % |
Other income, net | 564 |
| 0.4 | % | | 228 |
| 0.2 | % |
Interest expense | (72 | ) | (0.1 | )% | | (565 | ) | (0.6 | )% |
INCOME BEFORE INCOME TAXES | 5,654 |
| 4.3 | % | | 6,177 |
| 6.2 | % |
Income tax expense | 2,047 |
| 1.5 | % | | 1,198 |
| 1.2 | % |
NET INCOME | 3,607 |
| 2.7 | % | | 4,979 |
| 5.0 | % |
Less: net income attributable to non-controlling interests | 1,061 |
| 0.8 | % | | 1,471 |
| 1.5 | % |
NET INCOME ATTRIBUTABLE TO SHAKE SHACK INC. | $ | 2,546 |
| 1.9 | % | | $ | 3,508 |
| 3.5 | % |
Earnings per share of Class A common stock: | | | | | |
| Basic | $ | 0.09 |
| | | $ | 0.13 |
| |
| Diluted | $ | 0.08 |
| | | $ | 0.13 |
| |
Weighted-average shares of Class A common stock outstanding: | | | | | |
| Basic | 29,563 |
| | | 27,039 |
| |
| Diluted | 30,392 |
| | | 27,822 |
| |
| |
(1) | As a percentage of Shack sales. |
SHAKE SHACK INC.
SELECTED BALANCE SHEET DATA AND OPERATING DATA
(UNAUDITED)
(dollar amounts in thousands)
|
| | | | | | | | |
| | March 27
2019 |
| | December 26
2018 |
|
SELECTED BALANCE SHEET DATA: | | | |
Cash and cash equivalents | $ | 31,897 |
| | $ | 24,750 |
|
Marketable securities | $ | 47,659 |
| | $ | 62,113 |
|
Total assets(1) | $ | 846,968 |
| | $ | 610,532 |
|
Total liabilities(1) | $ | 561,230 |
| | $ | 337,077 |
|
Total equity | $ | 285,738 |
| | $ | 273,455 |
|
(1) The increases in total assets and liabilities reflects the impact of the new lease accounting standard that was adopted on December 27, 2018 and includes approximately $244.1 million of lease assets and $296.1 million of lease liabilities.
|
| | | | | | | | |
| | Thirteen Weeks Ended | |
| | March 27
2019 |
| | March 28
2018 |
|
SELECTED OPERATING DATA: | | | |
Same-Shack sales growth | 3.6 | % | | 1.7 | % |
Shacks in the comparable base | 66 |
| | 44 |
|
| | | | |
Shack system-wide sales(1) | $ | 195,234 |
| | $ | 146,233 |
|
| | | |
Average weekly sales | | | |
| Domestic company-operated | $ | 79 |
| | $ | 81 |
|
| | | | |
Shack-level operating profit(2) | $ | 27,018 |
| | $ | 24,013 |
|
Shack-level operating profit margin(2) | 21.0 | % | | 25.0 | % |
| | | |
Adjusted EBITDA(2) | $ | 17,844 |
| | $ | 16,166 |
|
Adjusted EBITDA margin(2) | 13.5 | % | | 16.3 | % |
| | | | |
Capital expenditures | $ | 24,985 |
| | $ | 17,718 |
|
| | | | |
Shack counts (at end of period): | | | |
| System-wide | 218 |
| | 168 |
|
| Domestic company-operated | 129 |
| | 95 |
|
| Domestic licensed | 15 |
| | 10 |
|
| International licensed | 74 |
| | 63 |
|
(1) Shack system-wide sales is an operating measure and consists of sales from domestic company-operated Shacks, domestic licensed Shacks and international licensed Shacks. The Company does not recognize the sales from licensed Shacks as revenue. Of these amounts, revenue is limited to Shack sales from domestic company-operated Shacks and licensing revenue based on a percentage of sales from domestic and international licensed Shacks, as well as certain up-front fees such as territory fees and opening fees.
| |
(2) | Shack-level operating profit and adjusted EBITDA are non-GAAP measures. Reconciliations of Shack-level operating profit to operating income and adjusted EBITDA to net income, the most directly comparable financial measures presented in accordance with GAAP, are set forth in the schedules accompanying this release. See “Non-GAAP Financial Measures.” |
SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
To supplement the consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company uses the following non-GAAP financial measures: Shack-level operating profit, Shack-level operating profit margin, EBITDA, adjusted EBITDA, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share (collectively the "non-GAAP financial measures").
Shack-Level Operating Profit
Shack-level operating profit is defined as Shack sales less Shack-level operating expenses including food and paper costs, labor and related expenses, other operating expenses and occupancy and related expenses.
How This Measure Is Useful
When used in conjunction with GAAP financial measures, Shack-level operating profit and Shack-level operating profit margin are supplemental measures of operating performance that the Company believes are useful measures to evaluate the performance and profitability of its Shacks. Additionally, Shack-level operating profit and Shack-level operating profit margin are key metrics used internally by management to develop internal budgets and forecasts, as well as assess the performance of its Shacks relative to budget and against prior periods. It is also used to evaluate employee compensation as it serves as a metric in certain performance-based employee bonus arrangements. The Company believes presentation of Shack-level operating profit and Shack-level operating profit margin provides investors with a supplemental view of its operating performance that can provide meaningful insights to the underlying operating performance of the Shacks, as these measures depict the operating results that are directly impacted by the Shacks and exclude items that may not be indicative of, or are unrelated to, the ongoing operations of the Shacks. It may also assist investors to evaluate the Company's performance relative to peers of various sizes and maturities and provides greater transparency with respect to how management evaluates the business, as well as the financial and operational decision-making.
Limitations of the Usefulness of this Measure
Shack-level operating profit and Shack-level operating profit margin are not necessarily equivalent to similarly titled measures used by other companies due to different methods of calculation. Presentation of Shack-level operating profit and Shack-level operating profit margin is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Shack-level operating profit excludes certain costs, such as general and administrative expenses and pre-opening costs, which are considered normal, recurring cash operating expenses and are essential to support the operation and development of the Company's Shacks. Therefore, this measure may not provide a complete understanding of the Company's operating results as a whole and Shack-level operating profit and Shack-level operating profit margin should be reviewed in conjunction with GAAP financial results. A reconciliation of Shack-level operating profit to operating income, the most directly comparable GAAP financial measure, is set forth below.
|
| | | | | | | | |
| | Thirteen Weeks Ended | |
(dollar amounts in thousands) | March 27
2019 |
| | March 28
2018 |
|
Operating income | $ | 5,162 |
| | $ | 6,514 |
|
Less: | | | |
| Licensing revenue | 4,040 |
| | 3,027 |
|
Add: | | | |
| General and administrative expenses | 13,937 |
| | 11,809 |
|
| Depreciation expense | 8,966 |
| | 6,498 |
|
| Pre-opening costs | 2,642 |
| | 2,029 |
|
| Loss on disposal of property and equipment | 351 |
| | 190 |
|
Shack-level operating profit | $ | 27,018 |
| | $ | 24,013 |
|
| | | | |
Total revenue | $ | 132,609 |
| | $ | 99,116 |
|
Less: licensing revenue | 4,040 |
| | 3,027 |
|
Shack sales | $ | 128,569 |
| | $ | 96,089 |
|
| | | | |
Shack-level operating profit margin | 21.0 | % | | 25.0 | % |
SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
EBITDA and Adjusted EBITDA
EBITDA is defined as net income before net interest, income tax expense and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above) excluding equity-based compensation expense, deferred lease costs, losses on the disposal of property and equipment, as well as certain non-recurring items that the Company does not believe directly reflect its core operations and may not be indicative of the Company's recurring business operations.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, EBITDA and Adjusted EBITDA are supplemental measures of operating performance that the Company believes are useful measures to facilitate comparisons to historical performance and competitors' operating results. Adjusted EBITDA is a key metric used internally by management to develop internal budgets and forecasts and also serves as a metric in its performance-based equity incentive programs and certain bonus arrangements. The Company believes presentation of EBITDA and Adjusted EBITDA provides investors with a supplemental view of the Company's operating performance that facilitates analysis and comparisons of its ongoing business operations because they exclude items that may not be indicative of the Company's ongoing operating performance.
Limitations of the Usefulness of These Measures
EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of EBITDA and Adjusted EBITDA is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. EBITDA and Adjusted EBITDA exclude certain normal recurring expenses. Therefore, these measures may not provide a complete understanding of the Company's performance and should be reviewed in conjunction with the GAAP financial measures. A reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below.
|
| | | | | | | | |
| | Thirteen Weeks Ended | |
(dollar amounts in thousands) | March 27
2019 |
| | March 28
2018 |
|
Net income | $ | 3,607 |
| | $ | 4,979 |
|
Depreciation expense | 8,966 |
| | 6,498 |
|
Interest expense, net | 72 |
| | 558 |
|
Income tax expense | 2,047 |
| | 1,198 |
|
EBITDA | 14,692 |
| | 13,233 |
|
| | | | |
Equity-based compensation | 1,720 |
| | 1,437 |
|
Deferred lease costs(1) | 585 |
| | 69 |
|
Loss on disposal of property and equipment | 351 |
| | 190 |
|
Other income related to the adjustment of liabilities under tax receivable agreement | (14 | ) | | — |
|
Executive transition costs(2) | 38 |
| | — |
|
Project Concrete(3) | 472 |
| | 239 |
|
Costs related to relocation of Home Office(4) | — |
| | 998 |
|
ADJUSTED EBITDA | $ | 17,844 |
| | $ | 16,166 |
|
| | | | |
Adjusted EBITDA margin(5) | 13.5 | % | | 16.3 | % |
| |
(1) | Reflects the extent to which lease expense is greater than or less than cash lease payments. As a result of adoption of the new lease accounting standard on December 27, 2018, these lease costs may also include certain additional lease components, such as common area maintenance costs and property taxes, that were previously not included in lease expense for prior periods. |
| |
(2) | Represents fees paid in connection with the search for certain of the Company's executive and key management positions. |
(3) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.
(4) Costs incurred in connection with the Company's relocation to a new Home Office.
(5) Calculated as a percentage of total revenue.
SHAKE SHACK INC.
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
Adjusted Pro Forma Net Income and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
Adjusted pro forma net income represents net income attributable to Shake Shack Inc. assuming the full exchange of all outstanding SSE Holdings, LLC membership interests ("LLC Interests") for shares of Class A common stock, adjusted for certain non-recurring items that the Company doesn't believe directly reflect its core operations and may not be indicative of recurring business operations. Adjusted pro forma earnings per fully exchanged and diluted share is calculated by dividing adjusted pro forma net income by the weighted-average shares of Class A common stock outstanding, assuming the full exchange of all outstanding LLC Interests, after giving effect to the dilutive effect of outstanding equity-based awards.
How These Measures Are Useful
When used in conjunction with GAAP financial measures, adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are supplemental measures of operating performance that the Company believes are useful measures to evaluate performance period over period and relative to its competitors. By assuming the full exchange of all outstanding LLC Interests, the Company believes these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in net income attributable to Shake Shack Inc. driven by increases in its ownership of SSE Holdings, which are unrelated to the Company's operating performance, and excludes items that are non-recurring or may not be indicative of ongoing operating performance.
Limitations of the Usefulness of These Measures
Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share are not necessarily comparable to similarly titled measures used by other companies due to different methods of calculation. Presentation of adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should not be considered alternatives to net income and earnings per share, as determined under GAAP. While these measures are useful in evaluating the Company's performance, it does not account for the earnings attributable to the non-controlling interest holders and therefore does not provide a complete understanding of the net income attributable to Shake Shack Inc. Adjusted pro forma net income and adjusted pro forma earnings per fully exchanged and diluted share should be evaluated in conjunction with GAAP financial results. A reconciliation of adjusted pro forma net income to net income attributable to Shake Shack Inc., the most directly comparable GAAP measure, and the computation of adjusted pro forma earnings per fully exchanged and diluted share are set forth below.
|
| | | | | | | | | |
| | | Thirteen Weeks Ended | |
(in thousands, except per share amounts) | March 27
2019 |
| | March 28
2018 |
|
Numerator: | | | |
| Net income attributable to Shake Shack Inc. | 2,546 |
| | 3,508 |
|
| Adjustments: | | | |
| | Reallocation of net income attributable to non-controlling interests from the assumed exchange of LLC Interests(1) | 1,061 |
| | 1,471 |
|
| | Executive transition costs(2) | 38 |
| | — |
|
| | Project Concrete(3) | 472 |
| | 239 |
|
| | Costs related to relocation of Home Office(4) | — |
| | 998 |
|
| | Other income related to adjustment of liabilities under tax receivable agreement | (14 | ) | | — |
|
| | Tax effect of change in tax basis related to the adoption of new accounting standards(5) | 1,161 |
| | (311 | ) |
| | Income tax expense(6) | (315 | ) | | (246 | ) |
| Adjusted pro forma net income | $ | 4,949 |
| | $ | 5,659 |
|
| | | | | |
Denominator: | | | |
| Weighted-average shares of Class A common stock outstanding—diluted | 30,392 |
| | 27,822 |
|
| Adjustments: | | | |
| | Assumed exchange of LLC Interests for shares of Class A common stock(1) | 7,539 |
| | 9,761 |
|
| Adjusted pro forma fully exchanged weighted-average shares of Class A common stock outstanding—diluted | 37,931 |
| | 37,583 |
|
| | | | | |
Adjusted pro forma earnings per fully exchanged share—diluted | $ | 0.13 |
| | $ | 0.15 |
|
|
| | | | | | | | | |
| | | Thirteen Weeks Ended | |
| March 27
2019 |
| | March 28
2018 |
|
Earnings per share of Class A common stock - diluted | $ | 0.08 |
| | $ | 0.13 |
|
| Assumed exchange of LLC Interests for shares of Class A common stock(1) | 0.01 |
| | 0.01 |
|
| Non-GAAP adjustments(7) | 0.04 |
| | 0.01 |
|
Adjusted pro forma earnings per fully exchanged share—diluted | $ | 0.13 |
| | $ | 0.15 |
|
| |
(1) | Assumes the exchange of all outstanding LLC Interests for shares of Class A common stock, resulting in the elimination of the non-controlling interest and recognition of the net income attributable to non-controlling interests. |
| |
(2) | Represents costs incurred in connection with the Company's executive search, including fees paid to an executive recruiting firm. |
(3) Represents consulting and advisory fees related to the Company's enterprise-wide system upgrade initiative called Project Concrete.
(4) Costs incurred in connection with the Company's relocation to a new Home Office.
(5) Represents tax effect of change in tax basis related to the adoption of the new lease accounting standard for the thirteen weeks ended March 27, 2019 and the revenue recognition standard for the thirteen weeks ended March 28, 2018.
| |
(6) | Represents the tax effect of the aforementioned adjustments and pro forma adjustments to reflect corporate income taxes at assumed effective tax rates of 19.5% and 23.7% for the thirteen weeks ended March 27, 2019 and March 28, 2018, respectively. |
(7) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation of Adjusted Pro Forma Net Income above for further details.
