Shake Shack Inc. (SHAK, Financial) reported on Thursday that more price hikes are on the way despite strong fourth-quarter and full fiscal year 2021 results.
Chief Executive Randy Garutti said the New York City-based company will raise prices by another 3% to 3.5% in March. The restaurant chain raised prices between 3% and 3.5% just last October. The price of food bought via third-party delivery services is reportedly scheduled to go up 10% to 15% more than meals bought on premise.
“Shake Shack has historically taken roughly 2% price per year, and that’s given us a strong value proposition for our premium products,” Garutti said, according to a FactSet transcript citing Thursday's earnings call. “We believe these current price raises are necessary to protect margins. We’ll be keeping a close eye towards the cost of our business, and we’ll consider whether additional price may be necessary later this year.”
An uptick in Covid-19 cases, together with slowdowns in travel, tourism, events and people returning to work, contributed to the decision to hike prices. A “combination of lower-than-average sales per hour, reduced operating hours and outright closures due to Covid resulted in materially lower sales versus our seasonal expectations,” Garutti said during the call. “We expect these trends may continue to impact sales in our company-owned Shacks and our licensed business through the first quarter.”
MarketWatch reported that Stifel Financial Corp., the multinational independent investment bank and financial services company, noted that “Time will tell, but with inflation running in the (mid-single digit percentage +) levels and many of Shake Shack’s peers pricing well ahead of historical norms, management’s actions may not prove to be outliers. Our verdict: The company has always been a premium price point, but should its urban markets return in force, many of these markets may be more receptive to their premium pricing.”
Shake Shack’s share price finished the trading day on Friday at $72.07, down 4.14% or $3.11 per share.
The financial results released Thursday showed revenue of $739.9 million for all of 2021. The chain recorded best-ever systemwide sales in the year’s final quarter of $314.3 million, up 42.5% year to year, and $1.1 billion for the full year, a gain of 47.6%. Same-store sales increased 20.8% in the fourth quarter.
Total revenue for the fourth quarter increased 29.0% to $203.3 million versus the same period last year, showing continued year-over-year growth from an increase of 48.7% in the third quarter 2021. This increase is inclusive of the favorable impact of the 53rd week in the fourth quarter 2020, which resulted in incremental revenue of $11.1 million. Excluding the 53rd week, total revenue in the fourth quarter increased 38.8%.
“As we look back on 2021, we remain incredibly grateful and proud of how our Shack family has continued to overcome the many challenges we've faced," Garutti said. "We are pleased to report a strong sales comeback in the fourth quarter with record full year system-wide sales results and same-Shack sales up 2.2% versus 2019.”
However, he continued, sales were impacted by the sharp increase in Omicron cases in fiscal January, causing a decline in traffic, lost hours and unit closures. “While a return to pre-COVID movement patterns remains uncertain, we are pleased to see improvement through fiscal February, with same-Shack sales up approximately 13% month to date."
