Shake Shack announced solid first-quarter earnings Thursday, attributing a spike in traffic and sales to the introduction of the Chick'n Shack and an expansion into new markets. On a call with analysts, chief executive officer Randy Garutti and chief financial officer Jeff Uttz further discussed the numbers. Below, the most interesting takeaways from the call.
1. The company will soon release a limited-time-only Bacon-Cheddar Shack
Garutti describes it as "a classic cheeseburger topped with all-natural bacon, and melted, aged cheddar cheese sauce," retailing for $6.89 (for those who keep track of cheese sauce usage at the chain, Shake Shack uses "a special blend of cheddar and American cheese sauce" to pair with its fries, per the menu).
2. The Chick'n Shack is driving traffic
Shake Shack's fried chicken sandwich (which debuted at the chain's Brooklyn stores before it rolled out nationwide in January) has proved hugely successful in terms of bringing in both new and already-loyal customers. Traffic was up 7.3 percent in the quarter, though it's unclear how much of that was due to the chicken. The sandwich, at $6.29, is priced slightly higher than some of the restaurant's other offerings (it's a dollar more expensive than the standard burger), but executives said they are seeing customers "trade-up and trade-down from certain higher priced items" to order the chicken (the shroom burger, for example, is $6.99).
Calling the sandwich "the largest driver" of growth in the first quarter, Garutti said consumer behavior surrounding the item is "consistent with a top-five seller." When asked whether chicken could serve as a menu "platform" to be built upon (similar to burgers and hot dogs), Garutti called chicken "a category," and said the culinary team is "excited about what they can do with chicken." Executives wouldn't comment on the pipeline, however, for any potential chicken-centered items in the future. They did, however, note the success of a regional twist on the sandwich, in D.C, where Shake Shack teamed with area chef Erik Bruner-Yang on a Crispy Peking Sandwich, available for two weeks only. The four locations at which it was available sold nearly 1,000 Peking Sandwiches on its first day.
Overall, the company expects food costs to leverage slightly over the year. A large portion of those costs stem, of course, from beef, the price of which is currently down. "Beef and dairy are two of the biggest things we buy," said Garutti.
Though he noted that beef is down 11 percent, he added that it is "volatile still, and it surprises me. We thought it would be flat, now I expect it to be down [for the remainder of the quarter]." And later on in the call an executive noted that "I'm not sure beef is down to stay." Executives didn't specify how much dairy costs were down.
4. The company is opening more stores than it initially announced
Though they recently said that Shake Shack would be opening 13 new locations in 2016, executives on today's call upped that number, to 16. It will open an additional 16 stores in 2017, bringing the two-year total to 32. When asked whether that number might go up, Garutti said yes, "so long as we find the right sites."
The company is slightly constrained from growing too fast, too soon, due to supply chain and human resource issues, but Garutti said Shake Shack's workforce is "happier" since the company raised wages for hourly employees, while noting that it was still too early to comment on how those wages are affecting turnover and retention.
Shake Shack stores are now "paying top trainers more than they've ever made," he said, and "entry-level workers are more inspired than ever to make a little more money and grow with the company."
"We're focused on growing our people to meet the need [for more locations]," said Garutti, "which gives us all the confidence to open 32 Shacks in two years. If we can open more than that, we will, but today, 16 feels like a great number."