Shake Shack, Inc.

Greetings and welcome to the Shake Shack second quarter 2021 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 CFO, Katie Fogarty. 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 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 26, 2021. 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 second quarter 2021 earnings release, which can be found at investor.shakeshack.com in the news section. Additionally, we posted our second quarter 2021 supplemental earnings materials, which can be found in the events and presentation section on our site as an exhibit to our 8K for the quarter. With that, I'll turn the call over to Randy.

Thank you, Rick, and good evening, everyone. I want to begin today's call, as I often do, by thanking our teams who've worked tirelessly to lead our continued recovery. More than ever, we're committed to taking care of each other. We're focused on our team's growth, development, and the opportunity for advancement that Shake Shack offers. This month, we made a commitment to invest an additional $10 million in our SHAC teams over the next year for wage increases, sign-on and retention bonuses, and the funding of programs to promote leadership development, diversity, equity, inclusion at all levels of the SHAC family. Our national average hourly wage is already above $15 per hour. And most importantly, we're providing an opportunity to grow well beyond those rates into training and manager roles in what we call the Steppin' Up model. In addition, We have a particular focus on our SHAC general managers, adding sign-on equity grants and creating opportunities for our GMs to make over $100,000 a year. We're not immune to the challenges this moment has presented for staffing across our industry, but we're committed to building teams that will drive growth for the long term. We'll keep working to attract and retain the best restaurant talent, recognizing the importance of our team, the heartbeat of Shake Shack, by ensuring current and future employees feel cared for and have opportunities for sustainable career growth. Now on to our business performance. Through the first half of the year, our financial performance continues on an upward trend. Total revenue in the second quarter was $187.5 million, up 104% versus last year, which represents our highest revenue quarter ever. Same-stack sales in Q2 were up more than 52%, and now down just 9% when comparing fiscal July 21 to July 2019. driven by continued suburban strength and ongoing improving results in our urban markets. We're encouraged by the double-digit year-on-year growth of our digital sales, even as our in-shack sales improved over 300% year-on-year in the second quarter. While in-shack sales have started to come back, our digital retention stayed strong at approximately 80% in fiscal June versus fiscal January 21, when digital had hit its peak. We launched delivery on our own app in the first quarter, and we continue to invest in our app, web, and in-shack digital capabilities. Digital is and will remain a critical part of our business as we move forward, creating a new level of access, convenience, and connection for our guests. And while our outlook remains tempered given today's ongoing volatile COVID situation, we are really pleased with our momentum. In terms of profitability, shack-level margin improved significantly along with sales, hitting 19.2% for the second quarter. However, we do expect margins to moderate in the coming quarters as we rebuild sales and make significant investments in our team, coupled with continued inflationary pressures in other parts of our business. Focus continues to be the recovery of both sales and profitability across our SHAC base and growth over the long term. Our strategic plan centers on the evolution of our SHAC formats through physical and digital transformation with the objective of delivering a seamless, elevated guest experience. We've already opened 20 domestic company-operated shacks so far this year, and we expect to open between 15 and 18 more through the remainder of the year, heavily weighted towards the fourth quarter. We are narrowing our full year 21 guidance to between 35 to 38 shacks, absent any new COVID-related disruptions. We are thrilled by the strong reception of our new shacks and how they're being received in both new and existing markets. with average weekly sales for our 21 class at $81,000 year-to-date as of fiscal July, nearly 20% higher than the rest of our company-operated shacks. Meanwhile, we're excited to open our first-ever shack drive-thru location later this year, and we're making an even bigger commitment to open about 10 more drive-thrus in 2022. About 20% of that class of 22 will have a shack track walk-up window, And about 10% will have a shack-track drive-up window. And we still expect an accelerated development plan of 45 to 50 shacks in 2022. On cost-to-build expectations, we're experiencing increased material and labor costs as we look into shack build-outs over the next 18 months. Additionally, we're committing extra investment into the learning of our drive-through and drive-up models. With drive-through expected to be a large portion of the class of 22, we're anticipating historical build-out costs to increase about 10% to 15% on average for the class. It's an exciting and critical investment as we build out new formats, which we believe can deliver strong sales and returns over the long term. We've got a lot to learn, and we're committed to investing in new ways to experience Shake Shack. Turn to our license business, which saw a strong uptick in sales during the second quarter. Our expansion has been filled with dynamic openings, including our first shack in Shenzhen in China, our third in Beijing, and our first in the Istanbul airport. We've opened 15 new license shacks so far this year, and due to better than expected development conditions in Asia, we're increasing our full year expected license openings guidance to be between 20 and 25 new license shacks and maintaining between 20 and 25 in 2022. We continue to be encouraged by the global recovery. And we saw improvement in licensed weekly sales performance throughout the second quarter, increasing from 6.6 million in fiscal April to 8.6 million in fiscal June and 8.7 million in fiscal July. The recent increases have been driven by both our international and domestic license shacks, especially in domestic airport locations, which are experiencing increases in passenger volume, as well as reopened stadium shacks and in regions where COVID restrictions have been eased. As we look to the future of our international business, we have a strong focus on the Asia-Pacific region. Following successful openings in Shenzhen, Macau, Beijing, Shanghai, and Hong Kong, our partner in the region plans to continue the momentum in China with an expanded partnership to open more shacks across the country over the next 10 years with new development agreements now signed across Central and South China, including the cities of Chengdu and Guangzhou. And while we remain very cautious on both sales and development expectations in the near term, Given the ever-changing and volatile COVID situation across the globe, we are excited about the long-term future of this important part of our business. And all the while, we're moving forward with culinary innovation. This summer, we've been leading with our hot honey chicken sandwich, as well as hot honey chicken bites and fries with a side of habanero mayo dipping sauce. Our hot honey sandwiches had a 10% attach rate since launching, and we saw a strong response for the promotion in all channels, particularly in digital. Following the response of our avocado bacon sandwich offering, which was on one in five of every transaction, we've temporarily extended the availability of freshly sliced avocado as an add-on to our core menu sandwiches. Our summer menu wouldn't be complete without beverage. We launched two shakes this summer, the triple chocolate chip, and our unique spin on a cherry pop shake, complete with pop and candy. We continue to innovate in cold beverage with a trio of cocktail-inspired summer aides, This non-alcoholic lineup features a lime agave margarita, summer piña punch, and a watermelon mint mojito. We've seen a steady uptick in average in-shack checks this year, and cold beverage purchases were the leading contributor to the lift in the second quarter versus the first. As we move to the next section of the call, I'm thrilled to welcome Katie Fogarty to her first earnings call as Chief Financial Officer here at Shake Shack. Katie brings more than 15 years of finance and investment experience, including equity research, financial modeling and forecasting, and a deep understanding and focus on the restaurant industry. Katie's a natural fit in our Shake Shack culture, and I look forward to partnering with her as she continues the great work of our team and lays the groundwork for the extraordinary growth we have ahead. With that, I'd like to hand the call to Katie to walk you through the financials.