Shake Shack - $SHAK - Earnings Analysis: Strong revenue growth and improved profitability in Q4 2024.
Business Model
Shake Shack generates revenue primarily through Shack sales and Licensing revenue.
Revenue Sources
- Shack sales include the aggregate sales of food, beverages, gift card breakage income, and Shake Shack branded merchandise at Company-operated Shacks.
- Licensing revenue consists of revenue based on a percentage of sales from licensed Shacks, as well as certain up-front fees, such as territory fees and opening fees.
Income Statement Analysis
- Total revenue increased by 14.8% due to strong Shack sales and Licensing revenue growth.
- Operating income improved significantly, reaching $10.2 million compared to an operating loss in the same quarter last year.
- Net income also showed a positive trend, increasing from $7.3 million to $9.3 million.
Balance Sheet Analysis
- Total assets increased by 5.67% yoy due to increases in Cash and cash equivalents, Property and equipment, net and Operating lease assets
- Total stockholders equity increased by 5.16% yoy due to increase in Additional paid-in capital and Retained earnings
- Total liabilities increased by 5.88% yoy due to increase in Operating lease liabilities
Cash Flow Analysis
- Net cash provided by operating activities increased by 29.53% yoy driven by increase in Net income
- Net cash used in investing activities decreased by 50.06% yoy driven by increase in Maturities of held-to-maturity marketable securities
- Net cash used in financing activities increased by 58.63% yoy driven by increase in Employee withholding taxes related to net settled equity awards
- Cash and cash equivalents increased by 42.75% yoy
Capital Allocation
The company plans to open 45 new Company-operated Shacks in FY2025, and they are now targeting our Company-operated footprint to be at least 1,500 Shacks. The company plans to invest across the business to ensure they have the right people and capabilities to achieve continued profitable growth and accelerate our business as we work towards our bright long term potential of at least 1,500 company operated Shacks.
Management Commentary
We finished the year strong with fourth quarter revenue up 14.8%, driven by 4.3 Same Shack sales.
Restaurant level margins expanded nearly 300 basis points to 22.7% and adjusted EBITDA grew almost 50%.
Our SSS% trends held in January despite the approximate 150 – 200 bps impact from weather and the Los Angeles wildfires, and we have confidence in our strategies to drive continued sales and profitability growth this year.
We are seeing weather and the lingering impacts from the LA wild fires continue into February and we expect some of our Los Angeles Shacks to take a while to fully recover.
Overall Sentiment: Positive, management expresses confidence in strategies driving sales and profitability growth, while acknowledging short-term headwinds from weather and wildfires.
Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.