Tag Archives: shake shack

THE WEEK THAT WAS, ENDING MAY 20, JUST A FEW RATINGS CHANGES – with relevant transcripts, and WEEK TO COME

THE WEEK THAT WAS, ENDING MAY 20, JUST A FEW RATINGS CHANGES – with relevant transcripts, and WEEK TO COME

From earnings reports in prior weeks: Jack in the Box and Wingstop maintained at Neutral and Outperform, respectively

https://seekingalpha.com/article/4489787-jack-in-box-inc-s-jack-ceo-darin-harris-on-q1-2022-results-earnings-call-transcript

https://seekingalpha.com/article/4507053-wingstop-inc-s-wing-ceo-michael-skipworth-on-q1-2022-results-earnings-call-transcript

From a week ago: JIM SANDERSON and BRIAN VACCARO upgrade Shake Shack to Buy and MARKET PERFORM, respectively.

https://seekingalpha.com/article/4507719-shake-shack-inc-shak-ceo-randy-garutti-on-q1-2022-results-earnings-call-transcript

THE WEEK TO COME: only two companies scheduled to report

Thursday 5-26 Before Market Open Jack In The Box (JACK) Q2

https://events.q4inc.com/attendee/445663988

Thursday 5-26 After Market Close Red Robin (RRGB)  Q1 

https://ir.redrobin.com/news-events/ir-calendar/detail/19110/q1-2022-earnings-conference-call

 

 

UPDATED CORPORATE DESCRIPTIONS: TEXAS ROADHOUSE (TXRH), SHAKE SHACK (SHAK), SWEETGREEN (SG), PORTILLO’S (PTLO), PAPA JOHN’S (PZZA) with transcripts

UPDATED CORPORATE DESCRIPTIONS: TEXAS ROADHOUSE (TXRH), SHAKE SHACK (SHAK), SWEETGREEN (SG), PORTILLO’S (PTLO), PAPA JOHN’S (PZZA) with transcripts

TEXAS ROADHOUSE

https://www.liptonfinancialservices.com/2022/03/texas-roadhouse-updated-write-up/

SHAKE SHACK

https://www.liptonfinancialservices.com/2022/03/shake-shack-inc-shak/

SWEETGREEN

https://www.liptonfinancialservices.com/2022/01/sweetgreen-sg-in-process/

PORTILLO’S

https://www.liptonfinancialservices.com/2022/04/portillos-ptlo-in-process/

PAPA JOHN’S

https://www.liptonfinancialservices.com/2022/03/papa-johns-pzza-corporate-description/

THE WEEK THAT WAS, ENDING 5/6, LOT’S OF EARNINGS REPORTS, A FEW RATINGS CHANGES, MORE ACTION IN THE WEEK TO COME

THE WEEK THAT WAS, ENDING 5/6, LOT’S OF EARNINGS REPORTS, SEVERAL RATINGS CHANGES, MANY MORE DATA POINTS IN THE WEEK TO COME  – links to transcripts provided

Starbucks reports, only change is David Palmer upgrading. Nobody wants to be negative. NICOLE REAGAN, JOHN GLASS, CHRIS CARRIL and JON TOWER stay neutral. LAUREN SILBERMAN, JEFFREY  BERNSTEIN, DAVID PALMER and ANDREW CHARLES continue to like it.

https://seekingalpha.com/article/4506511-starbucks-corporation-sbux-ceo-howard-schultz-on-q2-2022-results-earnings-call-transcript

Denny’s reports, NICK SETYAN still likes it.

https://seekingalpha.com/article/4506545-dennys-corporations-denn-ceo-john-miller-on-q1-2022-results-earnings-call-transcript

https://seekingalpha.com/article/4506597-dennys-corporation-2022-q1-results-earnings-call-presentation

Restaurant Brands reports, only change is CHRIS O’CULL downgrading to HOLD. M.Stanley analyst maintains underweight. JON TOWER is neutral, while CHRIS CARRIL AND LAUREN SILBERMAN like it here.

https://seekingalpha.com/article/4506236-restaurant-brands-international-inc-qsr-ceo-jose-cil-on-q1-2022-results-earnings-call

Yum Brands reports. No changes. LAUREN SILBERMAN is NEUTRAL while JON TOWER says BUY.

https://seekingalpha.com/article/4506810-yum-brands-inc-s-yum-ceo-david-gibbs-on-q1-2022-results-earnings-call-transcript

Brinker reports (and disappoints). DAVID PALMER downgrades to IN-LINE.  BRIAN MULLAN, NICK SETYAN, and M.STANLEY analyst are NEUTRAL. BRIAN VACCARO and ERIC GONZALES continue to be positive.

https://seekingalpha.com/article/4506810-yum-brands-inc-s-yum-ceo-david-gibbs-on-q1-2022-results-earnings-call-transcript

Wingstop reports (and disappoints). M. Stanley  analyst, NICK SETYAN, JON TOWER and ANDREW CHARLES all stick with it.

https://seekingalpha.com/article/4507053-wingstop-inc-s-wing-ceo-michael-skipworth-on-q1-2022-results-earnings-call-transcript

SHAKE SHACK reports. Everybody maintains. LAUREN SILBERMAN and BRIAN MULLEN are neutral, while PETER SALEH & NICK SETYAN like it.

https://seekingalpha.com/article/4507719-shake-shack-inc-shak-ceo-randy-garutti-on-q1-2022-results-earnings-call-transcript

PAPA JOHN’s reports. LAUREN SILBERMAN and NICK SETYAN continue to like it while BRIAN MULLAN is neutral.

https://seekingalpha.com/article/4507346-papa-johns-international-inc-pzza-ceo-robert-lynch-on-q1-2022-results-earnings-call

 

THE WEEK TO COME:  MORE DATA POINTS

5-09 After Market Close RCI Hospitality Holdings RICK

https://seekingalpha.com/pr/18781450-rci-2q22-call-on-twitter-spaces-on-monday-may-9th-first-to-use-twitters-audio-platform-for

5-10 Before Market Open First Watch Restaurant Gr FWRG

https://viavid.webcasts.com/starthere.jsp?ei=1537799&tp_key=a214d47caa

5-11 Before Market Open Wendy’s WEN

https://event.on24.com/wcc/r/3723491/E08AEE34680249F3308CCBD4D8C0EEFE

5-11 Before Market Open Krispy Kreme DNUT

https://edge.media-server.com/mmc/p/2m66abcw

5-11 After Market Close Dutch Bros BROS

https://events.q4inc.com/attendee/370340001

5-12 Before Market Open Carrols Restaurant Group TAST

https://viavid.webcasts.com/starthere.jsp?ei=1541750&tp_key=1245ec6318

 

 

 

 

UPDATED CORPORATE DESCRIPTIONS FOR DENNY’S, WINGSTOP, CHEESECAKE, SHAKE SHACK, BJ’S and CHUY’S

UPDATED CORPORATE DESCRIPTIONS FOR DENNY’S (DENN), WINGSTOP (WING), CHEESECAKE FACTORY (CAKE), SHAKE SHACK (SHAK), BJ’S (BJRI) and CHUY’S (CHUY)

Denny’s

https://www.liptonfinancialservices.com/2022/01/dennys-corporation-denn-new-writeup/

Wingstop

https://www.liptonfinancialservices.com/2022/01/wingstop/

Cheesecake Factory

https://www.liptonfinancialservices.com/2022/01/cheesecake-factory-updated-write-up/

Shake Shack

https://www.liptonfinancialservices.com/2022/01/shake-shack-inc-shak/

BJ’s

https://www.liptonfinancialservices.com/2021/11/bjs-restaurants-2/

Chuy’s

https://www.liptonfinancialservices.com/2022/01/chuys-holdings-updated-write-up/

 

 

UPDATED CORPORATE DESCRIPTIONS POSTED FOR: WEN, WING, SHAK, RUTH & QSR

UPDATED CORPORATE DESCRIPTIONS POSTED FOR: WEN, WING, SHAK, RUTH & QSR

We are in the process of bringing up to date the corporate descriptions for virtually all the publicly held restaurant companies. Our intent is to provide our readership with a one stop shop at which to find a substantial starting point to study a company. You will find here (as of the most recent quarterly report) the essence of the business, the valuation relative to earnings, EPS (reported and future consensus) and trailing EBITDA, and a thumbnail Balance Sheet. This is our starting  point before studying further. It helps us so maybe it will help you, too.

Enjoy!

Roger

All the Corporate Descriptions can be accessed from our Home Page, but not all are updated yet. Below are links to:

RESTAURANT BRANDS INTERNATIONAL (QSR) CORPORATE DESCRIPTION

 

RUTH’S HOSPITALITY GROUP, INC. (RUTH) CORPORATE DESCRIPTION

SHAKE SHACK (SHAK) – CORPORATE DESCRIPTION

WENDY’S (WEN) CORPORATE DESCRIPTION

WINGSTOP (WING) CORPORATE DESCRIPTION

 

BIG NEWS, AND WE MISSED IT!

BIG NEWS, AND WE MISSED IT!

THE NEWS

We wrote an article two days ago, reviewing the state of the restaurant industry at the one year anniversary of the pandemic.

As part of our “BOTTOM LINE”, advice to publicly held companies, we said “companies, in almost all cases, should sell company stock…..it may be a long time before you see these valuations again.”

Turns out, a week ago, Shake Shack (SHAK), carrying one of the very highest valuations ever seen for a restaurant company, did just that !

SHAK has a $4.8 billion valuation attached to a total of 311 locations, systemwide (183 domestic company operated, 22 domestic licensed, 106 int’l licensed). This values each of the current system locations over $15 million. There is a very long runway for growth and that’s a large reason why this system, with long term (before inflation, of course) AUVs projected to be just above $3M is so well regarded by the investment community.

The other major reason for the valuation is that SHAK was founded by the legendary Danny Meyer, and CEO, Randy Garutti, along with his team, is respected almost as much. Valuation aside, we’ve always given management the highest possible marks, both in terms of operating skills and financial management, and they have proven it once again. Are you ready for the terms of the recent offering ?

THE TERMS

They sold $225 million of senior convertible notes, for a net of $217.9 million, convertible 45% above the $117.53/share last Monday,  or $170.42/share. The notes are due in 2028 and THE INTEREST RATE IS ZERO. The only negative here is that the funds have to be paid back in seven years, unless the stock is above $170/share and who’s to say it won’t be 😊

In the meantime, the $217 M on top of the $184 M the Company had in the bank at yearend gives them $400M to build infrastructure and stores. When you have been given funds at zero percent interest, it doesn’t take much of a return to provide an attractive arbitrage. The company operated locations don’t provide a store level return anywhere close to what it was when the average volume in NYC locations was $7M but a $3M AUV should provide a store level EBITDA in the area of  25-30% annually and that’s a good cash return when the funds cost you nothing.

We suspect lots of other restaurant companies will not be far behind. That’s what ten years of a bull market, supported by worldwide interest rates close to zero, will do for you.

Roger Lipton

SHAKE SHACK PROVIDES UPDATE, STOCK GOES UP OVER 20%, WHAT’S GOING ON?

SHAKE SHACK PROVIDES UPDATE, STOCK GOES UP OVER 20%, WHAT’S GOING ON?

Shake Shack provided a fourth quarter update at the ICR conference on Tuesday, and SHAK has gone up 22% in a little over two days. Let me say, first, that I am neither long nor short SHAK stock. I have always had the highest regard for management, still do and obviously so  does everybody else.

QUANTITATIVELY

(1) Sales have been sequentially improving, domestically, market by market, internationally as well. Suburban are locations improving faster than urban. October was down 21% overall, urban down 33%, suburban down only 4%. Licensed sales also sequentially improving, down 10% in October.

(2) Digital sales now 60%, tripling YOY, 1.4M new users, over 90% retention since May

(3) Developing state of the art drive thru locations, first one to open in ’21, 5-8 more in ‘22

(4) Currently there are 300 locations. After opening 20 in ’20, planning 35-40 in ’21, thinking about 45-50 in ‘22. Internationally: 23 locations opened, a few closed, expect 15-20 in ’21, 20-25 in ’22, mostly in Asia.

(5) Curbside pickup now in 70 locations

(6) Shack Track pickup windows (eight so far) will be in all new locations, sometimes with vestibules.

(7) New product innovation continues, including veggie burger. Lots of regional/community focus.

(8) Using Uber Eats, also building direct delivery capability

(9) New payment systems are being developed, e.g. Apple Pay and Google Pay

(10) Improved use of data platform for targeting/marketing purposes

(9) There were no new financials provided. September quarter showed Adjusted Corporate EBITDA of $8.2M vs. $23.3M, Shack Level EBITDA of 14.8% vs. 23.1% YTY.

QUALITATIVELY

Aside from the numbers, the presentation as always, from a conceptual standpoint, was outstanding.

(1) There is an exciting “digital transformation” taking place.

(2) Focus on ESG, Environmental, Social & Governance

(3) Corporate mantra is Stand For Something Good

(4) “Doubling down on  diversity, equity and inclusion”

(5) The “holistic” digital capability is part of the “Shake Shack ecosystem”

(6) 2020 was a “foundational” year, “really just getting started”.

(7) Some great videos were shown: the curbside pickup, the Beijing opening, the drive thru  experience

(8) Some cautionary comments were provided: a few international stores closed, there’s going to be continued volatility in sales, both domestically and abroad, “airports will be a question mark for some time”, “it’s going to be a tough winter”, ”there’s reality to deal with”.

A LITTLE MORE REALITY

We have written about SHAK often over the last few years. We have pointed out that the store level model, as it has evolved (pre-pandemic), and as management has continuously predicted, is far less profitable than was the case when the company came public. We have suggested that the very high rate of company openings is bound to be inefficient, especially when there are so many moving parts such as new products, new venues, new delivery systems, etc. The company has continuously carried the necessary high level of G&A in these formative years and management indicates that this will continue to be the case. The pandemic has cost almost every restaurant company at least a year or two in terms of profitability and cash flow. In the case of SHAK, because of their inopportune positioning with so many urban, airport, malls and destination locations, along with no drive-thru units, it has no doubt cost them several years.

The current analyst consensus estimates (per Bloomberg) for calendar ’21 and calendar ’22 are: $735M and $913M in sales, $0.21 and $0.64 of EPS, respectively. It should be obvious that these earnings “estimates” can only be “guesses”, especially in ’21, by any of us. It should be noted that the highest EPS in their history was $0.72 in 2019, flat with the $0.71 in ’18. Comps in ‘19 had already flattened, traffic was negative, G&A was high. Average unit volumes, and store level margins were coming down, as management had predicted.

CONCLUSION

The SHAK stock (at $111/share) is now providing a market capitalization of $4.6 billion.  That amounts to about $15M per existing location and obviously almost 200x the “guess” of ‘22 EPS. No question, there is a long runway for growth, but people…..with all due respect to the creation of a “holistic ecosystem”, there are no vaccines or cancer cures being developed here. They are selling burgers.

The company raised about $130M in late April at about $40/share, and that represents most of the $179M of cash currently on the balance sheet. I would, ASAP, sell two or three million more shares. $200-300M more cash, with minimal dilution, would no doubt provide a comfort level to the company. In this environment It would no doubt be snapped up, and afterwards the stock will go higher still 🙂

Roger Lipton

RESTAURANT STOCKS – INDUSTRY OUTLOOK IS CLARIFYING, STOCKS UP FROM LOWS, HOW MUCH RECOVERY IS DISCOUNTED? WITH A FRESH LOOK AT SHAKE SHACK

RESTAURANT STOCKS – INDUSTRY OUTLOOK IS CLARIFYING, STOCKS UP FROM LOWS, HOW MUCH RECOVERY IS DISCOUNTED? WITH A FRESH LOOK AT SHAKE SHACK

Our readers have no doubt noticed that we have had very few writeups on individual companies over the last six to seven months. The whole world is in a “workout” situation and restaurant companies are no exception. Aside from the fact that we don’t know what current balance sheets look like, what operating margins can be expected, how much more sales recovery can be expected and the mix between dine-in and off-premise, everything is perfectly clear. However, we expect to know a lot more with the release of the third quarter results and should be able to make some informed judgements at least as far as the next twelve months.

AT THE MOMENT

The stock prices of the most prominent restaurant companies have recovered a great deal of the sharp decline in February and March, of course with a great deal of variation between companies. Most of the restaurant companies are selling much below their highs early in the year. You will not be surprised to know that Chipotle, Wingstop and Papa John’s are a lot higher than in mid-February. You might be surprised to know, however,  that Dunkin Brands, Brinker, Pollo Loco, McDonald’s, Del Taco, and Yum China are also higher, though more modestly.

TODAY’S VALUATION VS. PRE-PANDEMIC

The following exercise is designed to compare today’s valuation relative to the current best guess of calendar 2021 earnings, compared to the valuations as of 2/15/2020 (before the pandemic hit) relative to “normalized” 2020 earnings, meaning the earnings that were expected in 2020 as of 2/15/20. For the purpose of “normalizing” the 2020 earnings (ex the pandemic’s effect), for the first look we simplistically added 10% to the reported TTM ending 12/31/2019 (or as close to that date as we could calculate). Going forward from here, we used the earnings consensus estimate, per Bloomberg, LP as of today, for 2021, to calculate today’s P/E multiple of forward earnings. To compare earnings 14 months out to the 2020 earnings as of 2/15/20, which were 10.5 months out, if earnings are growing at about 10% annually, we have reduced the forward multiple (calendar 2021) by 5% to bring it roughly in line with the forward multiple as of 2/15/20.  Keep in mind, this initial look is to help us focus on the individual situations that might be most overvalued or undervalued compared to pre-pandemic. As the table below shows, the apparently most overvalued stocks, relative to pre-pandemic levels, are Shake Shack (SHAK) and BJ Restaurants (BJRI). The apparently most undervalued are Wingstop (WING) and Papa Johns’s (PZZA). With this first look in mind, we will fine tune our view of the current situation for each of these four companies, none of which are we currently long or short. We are drawn first to Shake Shack (SHAK), for which the market is apparently discounting quite a recovery.

Shake Shack (SHAK)

Shake Shack (SHAK) has been provided by the capital markets with a great opportunity to raise capital with minimal dilution, as well as allowing pre-IPO shareholders with great liquidity at a high valuation. We have consistently praised management for the culture they have built within a very rapidly growing worldwide system. The halo created by founder Danny Meyer and his team led by Randy Garutti has been maintained, even though modest traffic declines, even before the pandemic, were a fact of life. Earnings per share were $0.71 and $0.72 in calendar 2018 and 2019 respectively, though millions of dollars were capitalized as investment in SG&A (e.g.Project Concrete). We have written many times about how the extraordinarily favorable store level economics, driven early by New York City locations doing approximately $7M annually has been (as Company management predicted) come down materially since the IPO. We encourage readers to SEARCH on our home page for more details, but in essence, new locations, pre-pandemic were doing a little over $3M annually, with store level EBITDA less than half of what they were before and immediately after the IPO.

With that very quick summary in mind, the consensus estimate, as of 2/15/20 was not materially more than the $0.72 of 2019, because traffic was lagging, margins were coming down (as management had predicted) with the more modest new unit volumes, and SG&A was still being built up to support 35-40% unit growth of Company locations. Shake Shack found themselves more exposed than almost everyone else to the effects of the pandemic, since many of their locations are in malls and destination sites, with heavy rents, no drive-thrus and relatively little delivery or curbside pickup before the pandemic.

Management has done an admirable job of adjusting to the new reality. Digital ordering, curbside pickup, and delivery have all been expanded, and there has been sequential improvement from the disastrous lows of March and April through July when the Company reported their Q2 results. With so many urban and destination locations, the sequential improvement has been material but more modest than many peer competitors. SSS were down 64% in April, down 42% in May, 42% in June and 39% in July. Digital sales represented 62% of total Shack Sales in July, with 800,000 first time digital purchasers between March and July, four times higher than a year earlier.

Even so, Q2 same shack sales were down 49.0% and overall sales (including non-comp units) were down 39.5%. There was a predictable operating net loss of $18M and negative EBITDA of an adjusted $8.8M.

There has been no public update of sales trends since the Q2 report, but it is safe to say that the third quarter will be another substantial operating loss (Bloomberg, LP estimates $12.3M), since 50% of the store base and 60% of SSS prior to Covid-19 are in urban locations, plus non-traditional locations in airports and stadiums are still a drag.

In spite of the operating loss so far this year, the Company has no liquidity concerns because they raised about $146M through common stock sales in April. The pleasure of a high valuation is that equity can be raised with minimal dilution. Cash and cash equivalents as of 6/24/20 was $173M vs. $37M on 12/25/19. The number of shares issued and outstanding grew from 34.4M to 38.2M, up only 11%.

There are lots of other operating details we could provide relative to company efforts to adjust to the situation at hand, but analyst consensus estimates provide a pretty good general idea of expectations going forward. Estimates call for a loss in 2020, then profits of $0.11 per share in 2021. There are no current estimates beyond 2021, but it is obviously questionable how quickly Shake Shack can re-invent itself sufficiently to deal with the world as it has changed. Not only are sales trends uncertain but margins are equally in doubt.

At the current price of $68/share, the market capitalization of the equity is $2.8 billion. The $173M of cash could be deducted, still providing an enterprise value of over $2.6 billion. Let’s assume that SHAK can re-acquire something like its previous high valuation, perhaps 50x earnings per share and 25x EBITDA. The Company would need $52M of earnings ($1.36 on the current share base) and $104M of EBITDA to support the current stock price. Based on the obvious uncertainty relative to the newly evolving business model, we don’t know when (or if) that will happen.

Roger Lipton

P.S. The next company we will explore, at first glance within our table above, undervalued, is Wingstop (WING)