It may be better for your wallet to go and pick up that Shackburger from Shake Shack (SHAK) this year.
Blame spiraling higher inflation for labor, beef and other inputs to the restaurant chain’s financial model.
“We’ll also be raising our price premium on third-party delivery services from 10% to 15% higher than our in-Shack pricing. This gives us the opportunity for better profitability on those channels, and even more reasons to drive people to our own digital channels for the best value,” Shake Shack CEO Randy Garutti told analysts on an earnings call Thursday night.
Garutti — noting the company wants to protect margins — added the company is about to take another overall menu price increase, too.
“In order to offset some inflationary pressures, we took a price increase of 3% to 3.5% in October of last year. Given the continued outlook, we’ve decided to take another 3% to 3.5% in March, resulting in inflation-based price raise of 6% to 7% heading into Q2,” Garutti added.
The price hikes come as Shake Shack’s profits were clipped in the fourth quarter amid high levels of inflation, and despite a recovery in sales in key markets.
Fourth quarter sales rose 29% from a year ago. But, the company produced an adjusted net loss of $0.11 versus a $0.03 profit a year ago.
Here is how Shake Shack performed compared to Wall Street estimates:
Shake Shack shares plunged 15% to $64.34 in pre-market trading Friday on the results. The company was among the top five trending tickers on the Yahoo Finance platform.
The company’s first quarter outlook also unnerved investors.
Total sales are seen in a range of $196 million to $201.4 million. The Street was looking for $210 million in sales. “Shack level” operating margins are pegged in a range of 11% to 14%. A year ago in the first quarter, margins clocked in at 14.6%.
Shake Shack declined to provide full-year guidance owing to “the substantial uncertainty and resulting material economic impact caused by the COVID-19 pandemic.”
“Although we believe in the long-term growth opportunity for Shake Shack, we see near-term risks to the pace of top-line recovery and margin pressures, which limit our view of the upside opportunity versus current expectations/valuation. Labor cost pressures and investments in people and G&A present near-term margin risk. Traffic could remain choppy in near-term due to COVID impact and heavier urban presence for brand,” said Jefferies restaurant analyst Andy Barish.