Shake Shack, Inc.

Greetings and welcome to the Shake Shack third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Senior Vice President of Finance and Investor Relations, Rick Powell. Thank you, Rick. You may begin.

Thank you, Paul, and good evening, everybody. Joining me for Shake Shack's conference call is our CEO, Randy Garuti, and President and CFO, Tara Comer. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the appendix for our supplemental materials. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report from the Form 10-K filed on February 24, 2020, and Form 10-Q filed on July 31, 2020. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our third quarter 2020 earnings release, which can be found at investor.shakeshack.com in the news section. Additionally, we have posted our third quarter 2020 supplemental earnings material, which can be found in the events and presentation sections on our site or as an exhibit to our 8K for the quarter. With that, I will turn the call over to Randy.

Thanks, Rick, and good evening, everyone. We hope you, your families, and our entire Shake Shack community are staying healthy and safe through these challenging times. Burger by burger, Shake Shack continues to come back. Our business during this most recent quarter showed steady recovery thanks to the hard work and dedication of our team, their agility in adapting new shack protocols and models, and an increasingly strong suite of digital capabilities. As a result, guests have been able to enjoy their shack the way they want it with a choice of convenient and safe ordering and pickup options as we continue to expand and elevate the Shake Shack experience. Since our last update at the end of July, forward momentum has continued and we're encouraged to see a strong recovery in both sales and profitability with many Shacks returning to or even exceeding last year's results. Total year-over-year company-operated Shack sales declined 17% in the third quarter compared to a decline of 39% during the second quarter and further improved to a decline of just 5% in fiscal October. and Shacksdale have also improved sequentially in every single one of the last six months. It's an encouraging path to recovery, considering the drag that our high-traffic urban locations continue to have on the business, while suburban shacks are collectively getting close to full recovery. Importantly, we're almost back to a steady state development schedule, and we are ramping up the opening of new locations for the remainder of the year and into 2021 and beyond. As of the end of fiscal October, we've opened 33 shacks during this challenging year, including 15 domestic company-operated, of which four were open in the third quarter. The consistency with which our sales have continued to recover gives us added confidence in the gradual return to a more normal operating environment. As expected, with urban locations still acutely impacted by the pandemic, our suburban shacks continue to recover more quickly, But both have shown strong improvement in recent months, particularly due to increases in in-shack ordering and higher levels of retention of our digital sales. From a regional perspective, we continue to experience a broad range of performance when it comes to the speed and level of sales recovery. At times, this is based on the extent to which dining rooms are open and also the relative concentration of urban shacks, which are understandably more impacted by office, tourists, and high traffic. New York City, particularly Manhattan, continues to lag other regions, and we expect this to be an ongoing headwind for the business until the city fully recovers. Throughout this pandemic, New York City has been hit especially hard. But despite that, we are pleased to see that our hometown is beginning to make real progress, showing sequential improvements in same-track sales from down 64% in the second quarter to down 49% in the third to down 40% in fiscal October. Manhattan specifically is also slowly improving to a year-on-year decline of 60% in same-track sales during the third quarter from 69 in the second quarter and showing further gradual improvement to down 51% in October. It's particularly challenging for Manhattan with some of our historically highest volume locations like Penn Station, the Theater District, Herald Square, and others remain deeply impacted at this time.