Shake Shack, Inc.

Greetings and welcome to the Shake Shack fourth quarter 2020 earnings call. At this time, all participants are in listen-only mode. The question and answer session will follow a 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. I would now like to turn the conference over to your host, Rick Powell, Senior Vice President of Finance and Investor Relations. Please go ahead, Mr. Powell.

Thank you, Jerry, and good evening, everybody. Joining me for Shake Shack's conference call this evening is our CEO, Randy Garuti, and President and CFO, Tara Comont. 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 to substitute the results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the appendix to 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 on Form 10-K filed on February the 24th, 2020, and form 10Q filed on July the 31st, 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 fourth quarter 2020 earnings release, which can be found at investor.shakeshack.com in the news section. Additionally, we have posted our fourth quarter 2020 supplemental earnings materials, which can be found in the events and presentation section on our site. by an exhibit to our 8K for the quarter. And with that, I'll 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. As we close the chapter on 2020, I'm so grateful and proud of the way our Shack family has overcome the obstacles that came our way and led to continued recovery of our business while supporting each other and our communities. We are on an endless pursuit to create uplifting experiences today more than ever. And while the reality of this moment remains volatile, we're working to build a thriving SHAC community on the other side of this pandemic. Focusing on our financial progress, we're encouraged with our Q4 results and the momentum that built through January. February results did take a step back, partially due to the extreme weather experience across the nation that caused more than 130 full or partial loss operating days from SHAC closures. However, we are just a few short weeks away from turning the dial on a year of COVID and looking forward to continued recovery. Looking back at Q4, despite the hurdles facing our business, and with much of the country still under varying degrees of lockdown, we're pleased to report revenue of $157.5 million, with same-shack sales improving to down 17.4% compared to down 31.7% in the third quarter. At the end of Q4, roughly half our shacks were still operating with closed dining rooms. and two remain fully closed. Even under those restrictions, we continue to see sequential positive improvement across all regions when compared to the third quarter. With certain markets, such as the Northeast and Southeast, close to flat versus the prior year as we exited the quarter. And our suburban shacks delivered positive growth in fiscal November and December. Full system-wide recovery will take time, especially in our urban regions hardest hit by the pandemic, but we believe we're on the right track to getting there. Despite the challenges, 2020 resulted in the acceleration of many of our strategic initiatives, each of which strengthens the foundation and opportunity for our ongoing growth. We know people will gather again, and we'll be there to meet that demand as it returns. To do so, we'll be concentrating our work in the following areas. First, executing against a robust development pipeline that aims to grow the addressable market opportunity for Shake Shack. We've got our sights set on accelerated development with great real estate in new and existing markets through evolving formats that allow us to capture sales in new ways. Second, capitalizing on the adoption of our digital tools and doubling down on the investments in those channels, especially ShackTrack. So far, we've added 13 exterior windows, which have improved the flow of guest traffic and the experience for in-shack orders and dining. In addition to delivery orders, About a quarter of app and web orders are now picked up through these windows. Our curbside program, available at more than 70 shacks, also continues to show great potential. Although curbside is not feasible for every shack format, given layout and location, we see this as an opportunity to further boost sales long-term, especially in suburban markets. Across all our shacks, we're working hard to add a level of convenience that increasingly allows our guests to experience ShapeShack on their terms by removing friction points that existed in the past. Third, we are focusing on our products, elevating the classics of our core menu and getting back to offering buzzworthy LTOs, eyeing smart expansion of existing menu categories, including chicken, beverage, and frozen custard. Finally, we continue to stand for something good for our teams, for our communities, building the safest possible shacks we can, and enhancing the benefits we offer, creating more jobs and career development opportunities than ever. Diving into shack development, we are really excited to accelerate unit growth, and we'll be targeting between 35 to 40 new company-operated shacks this year, while ramping up in 2022 to 45 to 50 shacks, representing in total about a 45% increase to our year-end 2020 shack count over the next two years. For 2021, roughly 10% of shacks will be in new markets, including Portland, Tampa, Indianapolis, and more. while the rest of the class will expand our footprint in existing markets in areas such as California, the Northeast, and Florida. At just 186 company-operated checks today, we have such a significant ongoing growth opportunity across the country, and our broadening multi-format strategy allows us even new ways to approach each one. Despite the current COVID headwind, we see opportunity in urban markets, including our hometown of New York City. And we'll be looking to incorporate a number of digitally-led ShackTrack formats within those designs. In our suburban market, we'll be building a broad mix of formats, each of which will have some form of ShackTrack, incorporating drive-up windows, walk-up windows, curbside pickup, and enhanced interior pickup experiences. You'll also see us leaning more heavily into drive-through, with our first-ever drive-through Shack planned later this year in Orlando. and a number of others planned in the next two years, places like Kansas City, Minneapolis, Detroit, and more. Within each of our formats, there is much for us to learn, but we're incredibly excited about the journey and the opportunity to continue to elevate the overall SHAC experience. More than ever, and especially in a post-COVID world, we are going to continue to build great gathering places that enrich our neighborhoods and communities while offering the safety and added convenience that comes with our new and enhanced digital tools. Shifting to our licensed business, 2020 was just as tough for our partners around the world and those in our domestic airport and stadium businesses. We saw an overall steady recovery here through the fourth quarter, as business continued to gradually come back in many markets, with average weekly sales improving from 5.3 million in the third quarter to 6.1 in the fourth. However, just like our company-operated business, our licensed environment remains volatile and continues to be highly impacted by the pandemic. This was particularly evident in the first couple months of this year, with weekly sales taking a step back from the fourth quarter to 5.6 million in fiscal January due to volatility in Asia and the significant lockdowns affecting the United Kingdom. However, weekly sales recently increased to just over 6 million in February. Year-over-year trends have also started to improve now that we're lapping the earliest of the COVID impacts seen in Asia in Q1 of last year, 2020. Here in the United States, our stadium business remains closed, with no clear line of sight into how sports will play out for the 21 season or beyond. Many of our airport locations continue to have greatly reduced traffic or remain closed while travel is so limited. However, as we see the vaccine rollout continue and look towards a recovery throughout 2021, we're hopeful we'll be able to get back to some level of operations in these shacks this year. Throughout all of this, our global brand has remained strong and trusted. We hold some of the most premier real estate worldwide, and we see tremendous white space ahead for our licensed business. We're targeting to open between 15 and 20 new licensed shacks in 21, increasing to between 20 and 25 next year in 22, with significant focus in the near term on China and broader Asian markets. We view our international licensed shacks as a compelling route to efficiently and globally scale the business and the brand. It's a critical and highly accreted part of our business. which we intend to grow substantially over the coming years. Moving on to our products, as part of our commitment to deliver an elevated and uplifted experience, we pride ourselves on quality sourcing and serving craveable menu items. We're continually working to bring delicious, modern, fun versions of the classics made from premium ingredients to our guests. As I outlined in our company animal welfare policy, we source fresh, 100% antibiotic and hormone-free proteins that are vegetarian-fed, humanely raised, and source-verified We're proud to use cage-free eggs, non-GMO buns, and milk from farmers who do not use artificial growth hormones. Our strategy continues to be to serve the best ingredients from best-in-class suppliers. The fourth quarter featured our successful hot chicken lineup, a perennial favorite with our guests and one we expect to bring back. As we kicked off 2021 and increasingly focused on chicken, we extended our offerings with a limited run of our Korean-style chicken menu, developed with our partners in South Korea, and featuring kimchi sourced from a small family-operated company in Portland, Oregon, Choice Kimchi. This launched in January with incredibly high guest demand and a huge amount of media buzz, so much so that some shacks have even sold out. We continue to plan for an exciting LTO lineup this year featuring premium burgers, chicken, and veggie items, as well as the expansion of categories such as cold beverages and frozen custards. Our winter citrus aid has been a big hit and one of our strongest selling lemonades, giving us the confidence to keep adding premium-priced beverages to the menu later this year. We've got some exciting new trios of lemonade flavors coming up in the next two quarters, so stay tuned for those. On our shake menu, our current black sugar vanilla and brownie batter hot chocolate shakes have been popular offerings, and we'll be looking to do more with frozen custard throughout the year. Our marketing initiatives include This year, we'll focus on these culinary moments as well as more seamless guest experience we've been building across both InShack and our digital channels. We've invested heavily in our digital product suite along with improved data insight capabilities, which over time will allow us to drive more personalization and targeting in our communication strategy. Our digital marketing campaigns continue to engage digital users through partnerships, including some recent examples of Waze, YouTube, and others, on top of an already robust organic social program. We'll be creating fun, buzzworthy moments through innovative collaborations, including a national series of some of the best chefs across the country. Finally, and most importantly, we're committed to maintaining the safest possible work environment and the creation of continued development opportunities for our team. We made the decision recently to invest in state-of-the-art UV light and air purification systems to ensure a safe and clean working and dining environment for our teams and our guests in Shaq's. We're extremely proud to have been awarded a 100% score for the third year in a row in the Human Rights Campaign Corporate Equality Index for our support of the LGBTQ plus community in the workplace. A key enabler to our accelerated growth, we're going to keep building teams through new and enhanced recruitment initiatives like brand ambassadors and job board promotions. We're going to continue to provide growth to our teams by encouraging promotions from within. And one of the initiatives we're most proud of this year is a program we call Shift Up. Created in partnership with a nonprofit, the Food Education Fund, we launched Shift Up as an employee educational program designed to progress the careers of future leaders of Shake Shack. Shift Up is a 21-week program for entry-level managers and includes training in professional, financial, and leadership skills with the goal of promotion and progression within the company. Our investment in this program includes fully paying our team for every hour spent learning, all with the goal of breaking down those barriers that can exist to progressing up the ladder of opportunity at the shack and ensuring we prioritize and support diversity, equity, and inclusion for our entire team. Lastly, we're proud to share that even through all the challenges of 2020, we promoted over 1,500 people, with more than 56% of those promotions going to women and 76% to underrepresented minorities. We're committed to continuing to build on a strong DE&I foundation we already have in place and believe that Shake Shack is a company where everyone has equal opportunity to rise through the ranks and build a career for life. And while this has been and remains an incredibly tough environment for all restaurant workers, we're so thankful for our leaders, team members, and our home office support team who together continue to ensure our recovery from this pandemic. I'm incredibly proud of the team's work, and I also know we have so much more to do. And with that, I'll pass over to Tara for an update on our financial performance.