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.

Great. Thank you so much, Randy. Good afternoon, everyone, and thank you to the team for such a warm welcome to Shake Shack. I am so excited to be here and contribute to this important growth stage for the company. I have long admired Shake Shack's deep culinary roots, the willingness to push the limits, and elevate flavors. But I am most impressed by the company's commitment to investing in training team members and focusing on standing for something good. Randy's comments earlier on the $10 million investment in team members is just a small part of the narrative here. I spent my first week working in the Shacks, spinning shakes, flipping burgers, and learning from the team members. I have so much appreciation for the teams in our Shacks and in the home office supporting our Shacks. Our teams are at the core of all that we do, and I am humbled to have the opportunity to work with everyone to continue to pave the way forward. I will now highlight the details of the second quarter and share some color around how the business is performing quarter to date. Our results in the second quarter show the steady and continued improvement of our business, with total revenue of $187.5 million, representing a year-over-year growth rate of 104.2%. Shack sales were $181.5 million, a year-over-year growth of 102.7%. Second quarter, average weekly sales were $72,000, exiting the quarter in fiscal June at $74,000, marking the highest level since the pandemic started and up from $64,000 in the first quarter. We show this monthly progression on page seven of the supplemental materials. Average weekly sales were flat month-on-month at $74,000 in fiscal July. This outperformed our typical seasonality expectations. And the growth here is really twofold. First, our guests began to come back to eat in our checks that were the hardest hit by the pandemic. While full recovery at certain checks will take some time, especially with new uncertainty of rising COVID cases, we view these current dynamics as encouraging. And second, importantly, even as our in-check dining sales showed early signs of recovery, we were able to retain a substantial portion of our digital business. I'll go into more detail around digital in a moment, and you can see page 10 of the supplemental materials for more details. Same Shack sales rose 52.7% year-on-year in the second quarter. They were up 38% in fiscal July, compared to up 5.7% in the first quarter. Second quarter traffic grew 61.5% year-on-year, offset by a negative 8.8% price mix. Note that 2020 had a 53rd week, and to normalize for that, our comparable periods for both 2020 and 2019 had been shifted forward one week from the fiscal calendar. This is to show a more like-for-like comparison. We've included an example calendar on page 19 of the supplemental materials. Now into price mix. Just a reminder here, that is driven by average check. That has been historically higher in digital channels than in check. So last year's surge in our digital sales drove a double-digit rise in price mix. Now with our in-check traffic showing signs of a strong recovery and our digital business stabilizing, we expect average check and consequently our price mix to return to a more normal level. The offset here to ticket pressure arising from channel shift is higher traffic. Notably, though, and as Randy just mentioned, the in-check average check has also increased in recent periods, with continued strength across all of our channels this year, thanks in part to contributions from menu innovation, cold beverage in particular. And while our sales continue to recover, we are cognizant that the near-term COVID environment remains uncertain. Using pre-pandemic 2019 sales as one recovery sales-level benchmark, Our same-sex sales were about 12% below 2Q19 levels. While we started the quarter with April sales 15% below 2019 levels, we built on a broad-based recovery each month of the quarter and continue to make headway, ending fiscal June with sales just 11% below 2019 levels, and we are encouraged that we close fiscal July down 9% from 2019 levels. Recovery in our urban shack still presents our greatest opportunity to recapture sales. As we show on page 8 of the supplemental materials, Our urban markets in particular were boosted by foot traffic, events, the beginning of some office workers returning, and a gradual reemergence of domestic tourism, while limited international tourism remains an overhang. We are pleased to announce that we recently reopened two shacks that had been closed since last year. So that's Union Station in Washington, D.C., and Grand Central Terminal in New York. These two shacks depend on urban transit. We expect that they're going to take some time to recover, They'll probably weigh on results in the interim, but it was important to get them reopened and operating as we head into the fall and winter. In addition, I think it's important to note some regions that are performing exceptionally well across many formats and channels, as it should help you to understand the evolving geographic concentration of Shake Shack and how that impacts their recovery. Our regional details can be found on page 9 of the supplemental materials. In the southeast region, and in particular Texas, same-stack sales are now above 2019 levels. We see our momentum here as an example of our potential when we build density and awareness in newer markets and provides us with a more balanced geographic footprint. These markets represent growth opportunities for Shake Shack across a variety of formats. The other key highlight of the quarter has been our digital sales retention, even as in-shack dining showed signs of recovery. Digital sales made up 47% of our shack sales in the second quarter. And as Randy mentioned, we are pleased to have retained approximately 80% of our digital channel sales in fiscal June compared to fiscal January 2021 when our digital sales peaked. When we study our digital guests, we find they continue to show higher loyalty and frequency as well as a greater average check than our traditional in-check guests. Therefore, we are focused on acquiring more first-time guests in our digital ecosystem. In the quarter, we grew our first-time digital guests base by 16.7%, to 2.8 million acquired since mid-March 2020. We look forward to building on a strong foundation by focusing on innovative ways to elevate the digital guest experience. It's important to note that we are still in the early days of this digital evolution of our business, but we are encouraged by consumers' growing demand for our product through order ahead and delivery. At the end of Q2, we took some important steps to improve the profitability on third-party delivery by charging a 10% premium to in-check pricing. This is a step up from the 5% premium we started charging in February. We did maintain in-check price parity on our owned app and web channels. Now on to sales guidance, which we outlined in more details on page 16 of the supplemental materials. Based on its current operating environment, we are guiding to total revenue in the third quarter to be $194 to $200 million, with SHAC sales of $188 to $193 million. This assumes a positive continuation of the trends that I just discussed in both urban and suburban markets, plus the benefit from new SHAC openings and also the reopening of Grand Central and Union Station. We expect our same SHAC sales to increase in the mid to high 20s range for the same period versus 2020. We expect license revenue to be between $6 and $7 million based on the recent recovery in some regions, balanced with continued uncertainty in the global rate of recovery and regional COVID restrictions. Within this guidance is the assumption of no new material sales impacting COVID pressures and a general positive business environment. But if we were to see a slower return to office and travel, these numbers could be impacted. Moving on to profitability. Shack-level operating margin was 19.2% in the second quarter. This is our highest margin since COVID began, and it's a 420 basis point increase versus the first quarter. Our second quarter margin was largely driven by sharper-than-expected recovery of in-shack traffic, as well as strong shack app and web digital retention. As a reminder, our average checks are highest in this channel. Food and paper costs in the second quarter were 30.3% of shack sales, an increase of 70 basis points from the first quarter, driven primarily by beef inflation. We expect to realize the impact of chicken inflation in the second half of the year as we roll off a beneficial locked-in pricing achieved in the first half. Beef costs are expected to remain somewhat elevated from the levels we achieved at the onset of the year. The net effect here is that we expect 3Q COGS to remain at a similarly elevated range that we saw in Q2. Labor costs in the second quarter were 29% of SHAC sales, a decrease of 180 basis points versus the first quarter due to sales leverage. However, Given industry-wide staffing challenges and our significant growth goals, we are making meaningful investments in our teams, and we expect wage inflation in the second half of 2021 to be in the high single-digit range. In line with our prior guidance, we still expect wage inflation for the full year to be in the mid-single-digit range. As we mentioned, these investments are critical to maintaining the strong culture and developing the future leaders we need as we lay the groundwork for all the checks that are to come. To counter some of the inflationary pressures I've just mentioned, during the fourth quarter, we are planning on raising our menu prices by between 3% and 3.5% through a combination of various price tiers and digital pricing initiatives. This is higher than the approximately 2% menu price we have historically taken at the end of most calendar years, and we'll be evaluating the need for further price increases that might go into effect in 2022, depending on how the cost landscape evolves through the rest of the year. Other operating expenses were 13.4% of SHAC sales in the second quarter, a 200 basis point decrease from the first quarter due to leverage across fixed expenses and decreased delivery commissions, as overall delivery as a percentage of sales moderated. However, we expect in-SHAC sales to continue to recover, and we will bring back certain related expenses that were cut in the last year. Therefore, we expect other operating expenses to slightly increase sequentially in the third quarter. Occupancy costs in the second quarter were 8.2% of SHAC sales, a 100-point decrease from the first quarter due to sales leverage. We expect occupancy costs in the third quarter to be in a similar range as the second quarter levels. Bigger picture, our margin recovery is dependent on several things, including the level of commodity and wage pressures, as well as the sales recovery in our highest volume SHACs. As we look to the rest of the year, we expect the recent investment in our teams to weigh on the very strong flow-through that we realized in the second quarter. That being said, we believe these investments are strategic and place the company on a stronger path forward as sales fully recover. With SHAC sales of $188 to $193 million in the third quarter, we expect SHAC-level operating margin to be between 15% and 17%. We outline this in more detail on pages 16 and 17 of our supplemental materials. G&A expense in the second quarter was $20.4 million, including $2 million of equity-based compensation and other non-cash items. We firmly believe that we must continue to invest in people, technology, and marketing to support our recovery and open our robust pipeline of new SHACs. As such, we are slightly raising our 2021 G&A guidance to be between $86 and $88 million as we continue to invest in the infrastructure needed to accelerate our long-term growth. Within G&A, our equity-based compensation is expected to be about $8 million. Pre-opening expense in the second quarter was $2.3 million, a decrease from $3.6 million in the first quarter. At this point in the year, and as we execute on our development pipeline plan, we expect full year 2021 pre-opening expense to be between $13 and $14 million. This is below prior guidance. On an adjusted pro forma basis, we reported a net gain of $2.4 million, or $0.05 per fully exchanged and diluted share. Excluding the tax impact of stock-based compensation, our adjusted pro forma tax rate during the second quarter was 27%. A full reconciliation of our tax rates can be found in the appendix of our supplemental materials. Similar to previous quarters, we will not issue specific 2021 tax guidance at this time, given the continued uncertainty for the rest of the year and timing of recoveries. However, in normal operating environment, our adjusted pro forma tax rate, excluding the impact of stock-based compensation, is expected to be between 26% and 28% in line with 2020 levels. The balance sheet remains in a very strong position to support the growth opportunity ahead of us, and we ended the quarter with $420.2 million in cash and marketable securities. As we continue to grow, we remain cautious and aware of the challenges ahead, both globally and domestically. But despite this, we are confident that our continued investment in people and innovation across our business model place us in a stronger position as the business recovers. And with that, I'll turn it back to Randy.

Thanks, Katie. We realize the situation with the global pandemic is not yet in our rear view mirror. Given our unique position with premier real estate throughout the country, our recovery will still take time. And what we've learned from the past year is that situations can change unexpectedly. However, we remain confident that we can achieve our future growth initiatives. Our continued investment in people will ensure that we're retaining and developing the best talent that is available across our industry and offering our employees multiple avenues through which to grow with the company. Our research and development in new formats, such as ShackTrack and DriveThru, will ensure we're meeting the needs of an ever-changing consumer while we double down on creating a Shack guest experience that is better than ever. We're incredibly excited for what the future holds for us here at Shake Shack. As always, we hope that you and your family stay safe and healthy. With that, operator, go ahead and open up the call for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tool will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from Michael Thomas with Oppenheimer and Company. Please proceed with your question.

Hi, thanks very much. And Katie, congratulations on the new role. You know, the question is really on the new SHACs that are outperforming your base by about 20%. And I'm just wondering, how important is it to you to maintain that positive gap now that you've gotten there? Obviously, in years past, you guys were opening units at sales volumes below your footprint, but that was kind of unique because of your footprint. So as it's expanded and gotten further along, are these new store designs that are accretive and you have this gap, is that something that you're actually targeting internally to continue?

Well, thanks, Michael. It's a mix, right? We've often in the history of Shake Shack outperformed and we've long talked for many years about some of the honeymoon periods that some big shacks often have. What we really like about this class has been the mix of suburban and urban and the mix of formats, and the geographic mix. So within that outperformance of that 20% up and over $81,000 average weekly sales, we've got some really fun new markets. We opened outside of Portland, Oregon in the suburbs of Portland. We opened in Indianapolis in the suburbs with a tremendous start in a shack track drive up scenario. We also expanded in our hometowns. And we're doing fantastically well at Shacks in Hoboken, New Jersey, and in the Bronx in New York City. Those are really good signs. And then, you know, within that of the roughly 20 Shacks that have opened, we've got them across the country. So, look, as we look forward, our strategy is this. We've learned a lot during COVID. That will work its way through the ShackTrack digital ecosystem and some of the physical formats that you will see. That is drive through. It is shack track windows. And it's just really interesting new types of real estate that we can go after because of this across the country. We will do predominantly suburban shacks in the coming year, but we also are going to continue to dive deep on our urban footprint. While we know that's been a lag in our recovery compared to some others that are much bigger than us, We believe in the urban areas, and we think they're going to come back. We've got some great real estate on tap and going to continue to learn as we go. We're really pleased with the new shack performance.

Thanks. Makes a ton of sense. Just on the $10 million of investments that you're making over the next year or so, I'm trying to ballpark it from the presentation slide, but correct me if I'm wrong here, but it looks like about 200 basis points maybe. is impacting specifically into this quarter, which would be about $4 million. So first, can you just confirm if that's in the ballpark? If it's not, feel free to correct it. And then what's the cadence like of that $10 million? Is that more loaded into the front half here over the next 12 months? Thanks.

Yeah, it's a good question. There's a lot of it in some of the retention and spot bonuses that we're doing right now that will be loaded in the back half of the year. In addition, the vast majority of it, as you see, is new and higher wages for our teams. And, again, we raised about two-thirds of the shacks right now in the last couple months, and that was on top of raises for roughly two-thirds of the shacks again in January. So it's really to take care of our teams and get some wages that we can really rebuild with. In terms of breaking it down, we haven't broken it down in that. There are other pressures, as Katie noted, with reopening the businesses. COGS remains elevated with some increased costs right now, with delivery still being a strong part of our business. That impacts our OPEX and some of those kind of dining room reopening expenses that we haven't had for a while. But you've got to remember, too, in this next quarter, we won't have price to offset it, right? We intend in the fourth quarter to take about 3.5% price, and, you know, that will help offset some of that as we go. And hopefully, you know, as evidenced in the second quarter – the sales really was the flow through that made it happen. So now we've got to continue to rebuild those sales, get back, and we'll get there and rebuild the profit as well.

Awesome. Thank you very much.

Thank you. Our next question comes from Joshua Long with Piper Sandler. Please proceed with your question.

Great. Thanks for taking the question. Randy, I wanted to circle back to some of your comments and really just kind of level set and balance the conversation in terms of new unit volumes doing great, new store performance doing great, seeing a little bit of inflation in build-out costs, obviously. So just curious on how you and the team manage that, and obviously wouldn't expect, and you've been very vocal about doing things that are right for the brand, but just curious how you manage that on a near-term basis and or how you think about it if maybe some of these construction costs stay elevated over time. Do we expect to be able to maybe offset some of that with some of these new tools and shack tracks in digital? Or is it just going to be one of those things that when we look back and add it in a couple of years, we'll say, oh, yeah, do you remember all the inflation in the building costs then? Any sort of commentary there in terms of how you and the team think about setting these up, knowing it's for the long term would be helpful.

Yeah, well, so we build shacks for decades to come, not for the next quarter. And we are looking for amazing real estate that will stand the test of time. And we're going to build and do things that others are unwilling or unable to do. If you look at the supplementals that we noted there, there's some really great renderings of the expectation of what our drive-through might look like. It's really important that we invest right now in this learning. The unlock potential that could open up for Shake Shack as we commit to this investment in drive-through and other models is really exciting. And that's where we're focused. So we want to spend and do that right. We are not going to cut back and we are not going to optimize spend when we are trying to optimize learning, average unit volume, and a big white space opportunity. We will balance that over time with obviously getting smarter in our construction. We're obviously living in an elevated price time. We'll see where that goes. Hopefully that can come down over time, but we're also going to balance it with some of the formats, right? We've got some fantastic food court, little simpler build outs. We've got some core shacks that we've really gotten good at building and we'll balance that over time. But again, this is why we fortress our balance sheet. This is why we have set ourselves up with a cash opportunity to build ahead confidently. And that's how we're going to spend the money. with investments in our formats that we believe will open up opportunity down the road.

Well said. Very much appreciate the context there. And then leading into that, your people pipeline and your people culture has been a huge part and will continue to be a huge part of the story. You touched on a little bit on the call, but just curious if you could provide some context on how that pipeline is building. Obviously, labor is tight around the industry right now, but you have a phenomenal culture, and I imagine you can very easily build continue your track record of being an employer of choice. But just curious if you could talk about the people pipeline and kind of how that sets up for, you know, the next, you know, several quarters, years, and maybe if you could also touch on how your license partners are kind of addressing this as well.

Yeah. Look, our people from day one are how we lead. We take care of each other. We stand for something good. We have to invest in that. We're obviously living in a particularly challenging time for many reasons. And at the end of the day, what we need to do is build a bench of strong leaders that are leaders training future leaders. Now, if you look at some of the development we're doing, we have a program today called Shift Up, where we are training our shift managers in financial literacy, in business acumen, in the development that they need to become leaders in our company down the road. Those investments are going to pay off with diversity and equity inclusion goals and exciting programs to educate our teams. We've got all of that in play in addition to just paying people more. And that's what we've got to do. That's why we're going to invest. That's why you'll see it as part of our guidance in this near term margin impact, which is going to be the expectation that we're going to be training up a lot of people. We're going to be opening more shacks next year than we've ever opened. That's really exciting. On the license front, you know, it's kind of hard to distill it down. Each market has its own challenges, some very different than others. You know, there are many markets where, you know, it is challenging to find and develop people and others where, gosh, we're building the most incredible pipeline. Look at our partners in China. so many of our Asian team members throughout those markets that have just built incredible pipelines for growth that are training and capturing. And you're seeing that. You're seeing that in the comeback. If you look at our license sales, there was an incredible comeback this quarter, not just quarter over quarter and year over year, but just every day. So that's exciting. We hope that COVID cooperates. And in the meantime, we'll be developing people and taking them along the way. That's what we do.

And on that point, you know, I would just add here that we've already, you know, in the last quarter we saw a very strong flow through. Our urban sales improved. They went from down 25% versus 2019 levels to now down 18% from 2019 levels. So there is still a lot of room to recover here. And having, you know, strong and well-staffed restaurants is definitely key to that. And we expect to see, you know, the flow through as restaurants continue to recover, you know, even adjusting for the recent investments.

Great. Thanks for the time, Jay. I'll reach you.

Thank you. Our next question comes from Michael Rothstein with Goldman Sachs. Please proceed with your question.

Hi. This is Michael on for Jared. Congratulations, Katie. Good luck in the new role. I had a quick question about your suburban shack recovery in the quarter. It seems versus 2019, you guys have kind of alternated from down 1% on same-store sales to plus 1% and kind of back and forth. Could you go into a little bit about maybe why you haven't seen that accelerate as you may have wanted to? And then I had a quick follow-up. Thank you.

Well, you've got to look at where it's been. It's been basically around that flat level for four months, I want to say. And that, as urban, has continued to recover. So we feel really good about that. Right. You look at the suburban holding. And again, I think I think sometimes because so many of the companies that people on the call might follow, it might be tempting to compare us to them. You have to realize we have just 200 domestic company operators, just 200. Everyone you might compare us to when you talk about suburbs is a totally different geographical footprint. and probably more rated towards those regions that we showed in our regional that are up, that are coming back pretty strong. So we actually feel really good because it makes sense. And even in the suburbs, we have traffic-generating, event-based, special place locations that COVID weighs on in a different way. And that's been the Shake Shack brand, and you see it in the urban recovery, and you see it you know, how we expect to come back. But look, we still got a long way to go. COVID is still a real thing and it has impacted us. But if you look at the basically straight line continued momentum that we've had since, you know, 15 months ago, that's the encouraging thing that we keep pushing for.

You know, and then on that point, you know, our suburban sales went from down 4% versus 2019 levels in the first quarter to now we exited fiscal July to up 1% versus 2019 levels. And I think that that is a pretty amazing number to think about when you look at the very strong recovery that we saw in our urban markets that went from down 25% versus 2019 levels in first quarter 21 to now just down 18%. You know, still a lot of recovery there to come, but the fact that Suburban was able to hold on while we saw a pretty decent recovery in our urban business is encouraging.

Great. Thanks. Appreciate the caller. Yeah, for sure. Just a quick follow-up. You guys, I know this is a little bit granular, but are you seeing any sort of difference in the recovery within, say, Manhattan versus the Bronx or maybe more residential urban environments versus, I know you kind of mentioned that tourism still weighs, but what is that trade-off maybe between more of the business districts and tourism versus residential urban? Thank you.

It's a great question, and we haven't broken it out, but we're happy to say that there's absolutely differences, right? If you were to look at, and this is why we've broken out not just, we've broken out Manhattan, and you've seen the upward trend on all of them, but there's no question our hardest hit shacks are Midtown, are downtown Chicago, are some of the places, not just New York. It is those places that are driven by office, event, tourism, Broadway. Some of our busiest shacks in the world continue to be down significant numbers. And so why are we not worried about that? I'll tell you why. Because those shacks are going to come back. I don't worry for one second whether those shacks will eventually come back. And to have the recovery we've had with that as an overhang is really the story that we've been trying to tell and I think has been well understood. So yeah, if you go to the theater district, 44th and 8th, one of the busiest Shake Shacks in the world prior to the pandemic. It is not one of our busiest right now, but you bet it's going to come back and we're hopeful for Broadway to open and other things like it will impact that. And by the way, the other thing we don't talk a lot about is there's certain Shacks, again, it's not that many, but because of our small comp base, it does have impact that are obviously tourist related and specifically international tourism. We don't break that out, but there is virtually no international tourism. And we have a lot of shacks in places where international and domestic tourists hang out, and that's an overhang. So that's part of why our numbers are where they are. Thanks. Appreciate it.

Thank you. Our next question comes from Lauren Silberman with Credit Suisse. Please proceed with your question.

Thanks for the question, and Katie, congrats again on the role. Randy, follow up on the commentary on the new unit classes. Pre-pandemic, you've talked about units opening at a honeymoon and then in the second year coming down a bit. As you look at the new unit class that was opened in 2019, so the last pre-pandemic class that's starting to enter the comp base, how does the recovery rate of those units compare to older classes? And then any commentary that you can provide on how your 2020 class of new units is performing?

Yeah, so we haven't broken those out yet. It's a really good question, Lauren, and I'll say this. I think it's just too hard to answer just yet. Because of the impacts of COVID, it's not a number I think that is reliable. So going back to history for everyone listening, we generally have said that because shacks often open so hot, we have a, on average, roughly 5% decline in the sophomore year. Some of them are down much more because they're big flagship openings and some are up. quite a bit in year two, right? It balances out to about negative five. That's been part of our story and a part of why we have a 24-month comp base. We certainly have some checks that have opened this year and in 2020 that were really big starts. But when you think about 2020 openings, we only had 20 and they were all impacted by COVID in some way, right? So we are hopeful that as they turn the year on month 13, turn into their sophomore year, and as they get into their multiple years, that there's growth. And I'm sure we'll see that in all categories, right? I'm sure we'll see some that, you know, what we call COVID winners, right, in locations that did better, and what we call the opposite, which was struggled. So, look, we have 130 shacks in our comp base, just 130. I think over time, as we've said, that'll That'll balance out. It'll be less flagship. It'll be more balanced. It'll be more mature. But it's a funky number for a while. There's no question about it.

Okay, and I can just do a quick clarification on the price. The $3.50 that you expect to take in 4Q, is that all in-shack price, or is there any contribution from just digital channel price increases? Yeah.

Hey, how are you? So the 3% to 3.5%, that's a mix of a couple of things. So first of all, it is pricing that we're taking strategically across various tiers of SHACs. And then on top of it, it is the 10% price that we are passing through with our third-party digital partners.

Thank you.

Yep. Thank you. Our next question comes from David Tarantino with Meraki. Please proceed with your question.

David Tarantino Good afternoon. It's actually with Baird. But my question is on the long-term margin framework, I think you've historically talked about 18 to 22 percent for restaurant margin or shack level contribution margin. historically and and there's been a lot of change over the last year uh and you know with all the investments you're making so just wondering if if that's a range that you still think is viable longer term and if so you know what are the main building blocks to get there from here is it just a matter of recovering the sales or is there something else that's needed

Thanks, David. Yeah, look, we haven't changed that long-term guidance. When you look at us being able to put up over 19% in 2Q with a massive part of our company still significantly down, you see the opportunity to build back to where we think we can be. But what are the inputs? Sales, sales, sales, and sales will be the things I'll tell you is going to get there. This is part of our format strategy. When you look at commitment next year that roughly a quarter of of our shacks are going to be drive-through. That's a big new model. We're going to have a lot to learn. We have a lot to drive, and we are hopeful that that will continue to drive strong sales profits over time. So we believe in our business model. We know we have recovery still yet to be had, but we also have evidence that those shacks that continue to come back and sales continue to come back in their off-profits. There's new parts of the business, right? There's significant investments in team. There's digital costs that didn't exist before, but there's also offsets. We feel good about the price we're taking. We feel good about the sales we can recapture. We still got a long road to go, but we believe we can rebuild margins over time.

Great. And then one follow-up on the pricing. Randy, I think given all the cost pressures the industry is seeing and you're seeing and the investments you're making, I'm wondering why you arrived at 3% to 3.5% as the right level and not something higher, I guess.

Yeah, I get it. We could easily, and trust me, we sit around a lot and think about pricing and optimizing that. If you know this company since 16 years of selling burgers in a park in New York, We have roughly taken 2% a year. We have been right around CPI for the entire history of this company. We are very conservative, and we are very long-term thinkers. I've seen every burger ever made at this restaurant company in all these years, and we do not go too far too fast. We take our time. We do the right thing. We do not know yet whether inflationary pressures will be transitory, how long they will last, and there is just no reason to take too much at a time when there's a lot of uncertainty in the world. And that's why we got there. So we feel really good about the three and a half. As Katie said, that is based in some digital moves and some straight in-shack pricing. Our in-shack and app channels will continue to be the best priced, best value. And we feel great about that. And that leaves us the opportunity, David, to do more next year and the future years if we want. And we'll keep an eye on that. But we feel good that towards that, you know, somewhere around the middle of the fourth quarter, we'll take the three and a half, and it's the right move for right now.

And, David, just to add on there, you know, pricing is one way that you can address margin concerns. Really where our focus is is providing that guest with the experience, the delightful experience that they crave and getting, you know, giving them compelling LTOs that they want to pay up for that are margin accretive. Randy did a lot of talking about the LTO or summer menu, the hot honey chicken, the bites and the fries, and also cold beverage. All of these drive a higher ticket. It's a consumer wanting to add on the avocado, wanting to add on the bacon. Those are ways to more organically grow the check rather than just arbitrarily throwing 5% or 6% price across the board.

Makes total sense. Thank you very much.

Thank you. Our next question comes from John Glass with Morgan Stanley. Please proceed with your question.

Thank you very much. Can you talk a little bit about how digital mix between the channels is shifting as we reopen? Are we seeing more of your in-app, white label, your own app growth versus, say, third party? And I think you said 17% increase in new purchasers. So do you know who those people are, those first-time Shack users? Are they or are they just folks that are first-time digital users? What do you know about them and maybe how they behave maybe differently than your legacy digital users?

John, thanks. A couple things. We haven't broken that out. I think I would just high-level say the trends are similar to how they've been. Obviously, as you've seen the comments today about NSHAC returning, that obviously has an impact on the total digital, which includes delivery. I think we'll see more delivery when cold weather comes back, right? You'll see that shift. But we're really pleased with how our channels are continuing to lead the way. But when you say who's that guest, I think what we're most encouraged by is the new learning we can finally start to see here in terms of how many people are omnichannel users of Shake Shack, right? We are seeing more and more guests who are use all channels. And by the way, we don't even know, all right, we don't have the data on third-party delivery. So it's even more than we know, right? But we are seeing a lot of guests who are using our app and web channels and coming into Shack. Don't forget, and we don't talk about this enough, with curbside, you know, as all part of the ShackTrack Digital and other ways to pick up on digital, that just gets more and more fulfilling over time. So more digital guests, both acquisition and retention, and frequency. That's what we're driving for. That's what we're learning. And we really think it's going to be a creative over time, but, but again, you know, we've got to keep investing in these digital tools. We are a young digital ecosystem. We've got a lot to do and we're really proud of the team and their work and where we're at today. And we know we've got a long way to go.

Thanks for that on development. So you tighten your range a little bit and, and are these, you know, I think your higher used to be, I think it was 40, whatever the higher end was, is that slippage just, you know, pipeline and that happens, or is it, is there something that's changing in the real estate market? And can you talk a little bit about, I think you said there's cost inflation next year. Part of it has to do with the drive-thrus, but are you, what is the underlying like inflation and development running in your business right now?

Yeah. So on, on this, Slippage. Look, we're still in the range we thought we would be. There's a couple of those that are going to kind of peak out. What you're seeing is just some longer lead times on often landlord delivery of spaces, often permitting and licensing. There's still cities and municipalities that are just taking longer to issue permits and get things done. So we feel great about getting that class, real strong class, open. We don't think that's really a material change yet. that we're going to see in the ability of real estate. Now, look, if COVID changes things, that can often slow down projects. We don't expect that at the moment, but we're keeping a close eye on that. Sorry, the second part of the question. Inflation on just the shacks. Yeah. So, look, it's a little bit of both. We said about 10% to 15% for the next class. A lot of that will be format-driven with bigger investments in some of our large drive-thrus. You've seen that in those beautiful pictures that we've shared. But some of it's in materials. You've seen a whipsaw, obviously, in materials in the last quarter of lumber, steel. Certain things are still hard to get, still have long lead times, and labor and contractors are up. And you're seeing this cross-country, doesn't matter what market. So it's a mix, Sean. It's a mix of both of those things. So hopefully some of that will be transitory and not super long-term. And some of it is going to be our investment in this learning. And this is, as I said earlier, why we built the balance sheet we did, because these investments are critical to the learning, the future, and the transformation of our company. And you think about it, Shake Shack's never had a drive-thru, ever. We're really excited to see what that means. Got it. Thank you.

Thank you. Our next question comes from Brian Mullen with Deutsche Bank. Please proceed with your question.

Hey, thank you. Just a question around the theme of digital and acquiring and retaining customers. In the past, it sounds like a transaction-based or a points-based loyalty program is not really a part of the plans at Shake Shack, you know, though they are in place in other successful digital concepts. So I'm just wondering if your thoughts there have evolved at all in any way.

Yeah, look, we think about loyalty a lot. Loyalty, what does it ultimately mean? You want people to come to your restaurant. There's lots of ways to do that. We have not developed, announced, or decided on any kind of points-based or other type of loyalty program. At the moment, what we're really honing in on is personalization, is connecting with guests, finding ways to reward guests. initiate and retain, get people back in different ways. We're doing that as we build out our toolbox. And we've still got a lot of building to do there. So, no, no new expectation that you're going to see any kind of traditional loyalty program at Shake Shack anytime soon. We never say never. Lots of ways. We're going to keep testing and learning, and we'll keep you posted.

Just following here on the digital side, You know, we are completely focused on getting consumers on our app and getting our guests on our app. We're providing a more economical way for them to get delivery through our app than through third party, and that's basically where we are looking to build our digital footprint at this time.

Thank you. And then just as a follow-up, you know, on the drive-through plans, it's up to 10 now by then next year. Could you just speak to how you arrive at 10, and is it, Is it because you want to test the SHAC drive-through in a bunch of different geographies, or is it maybe up to 10, because there's actually several different types of drive-through formats you have in mind, or maybe a mix of both?

Yes. Yes, there's a little bit of both. We want to do a lot of geographies. We expect the first few to be in the Midwest, one in Florida, and we really want to test it in what you may call kind of traditional drive-through areas. Look, we know if we do this in like our home market in the New York metropolitan area, like we're pretty confident it's going to work, right? We're confident it's going to work anywhere. But I think we have a lot more to learn when we put it in markets where we have a smaller footprint. And that's part of our investment there. There's great real estate. The team's out there looking for it. We have tremendous opportunity. We want to make a real learning moment, right? We don't want to do that with one or two. That's why we're investing in up to 10 next year where we want to go really all in on this learning. We will do a couple different kitchen designs for our own learning. We will be having various tech solutions for our own learning because we're – look, there's one thing we know for sure. We won't get everything right on the first try. There's companies that have taken 50, 60 years to figure this out. We're going to take our time. We're going to learn things. We're going to mess things up. I can't wait to see it. I can't wait to learn from it. We'll see it the first couple drive-thrus as we're testing and learning. Thank you.

Thank you. Our next question comes from Brett Lebby with MKM Partners. Please proceed with your question.

Thanks for taking my questions. Katie, congratulations. Look forward to interacting. I guess since you had such a a longer-term view of things and you're willing to absorb some near-term pain. How are you thinking right now about staffing levels and the commodities in the supply chain? Are you thinking about it in terms of not just taking care of keeping your current staffers, but also really trying to build out and maybe over-index in how you're looking at the in-stores, maybe have a de-levering effect? less productivity just to make sure that you have the people in case there is that buildup, even if we see some slippage or some pullback on the sales front?

Well, yeah, you've got to build teams that can endure anything, up and down, right? We've been through a lot this last year. We've certainly learned how to do that and how to flex at various levels of sales. No matter where you are, if you're obviously growing momentum or if you're flat or if you're declining, wherever you are, you want to have a strong team. And that costs money. And it certainly costs money right now in retraining, in rehiring. And by the way, just think about it. We've got 200 restaurants. We're about to open 45 to 50 next year, right? You're talking about significant increases. We've got to build teams. We've got to strengthen and we've got to build training teams that can go around. And that costs money on current P&Ls. You know, the run rate business, if you were to look at it for Shake Shack, is, you know, an interesting difference of how you might consider the numbers, right? Whereas we're still in the building phase. We're still in the deep investment phase. We are a growth company. And we believe there's a lot of shacks to be had ahead. That's going to take great people.

Thank you. Our next question comes from Chris O'Call with CIFL. Please proceed with your question.

Thanks. Good evening. This is actually Alec Estrada on for Chris. You know, your urban location saw steady improvement, you know, from April to June, but kind of remained flat from June to July, even though, you know, mobility's up. Was there anything in particular in that July period that may have slowed the rate of recovery in those urban markets? You know, is it just average weekly sales seasonality, or is there something more there?

Hi. Actually, we are encouraged by our July results. Typical seasonality in July is a little bit of a reversal there, and we outperformed normal seasonality. Nothing really new to call out there, just a continuation of the very strong trends that we saw throughout the rest of the quarter.

Okay, thanks. Just one more from me. I think I heard you mention in the prepared remarks that traffic for the quarter was up 62% and check is down nine year over year. I'm curious, how does that compare to 2019? And then more broadly, how have you seen that trend in recent months? And does it vary between urban and suburban locations?

Well, you got to look at check through the lens of COVID for a second. Okay. Generally... 2019 was a different universe in digital, which we know carries a higher average check in all channels, right? Generally, not as a rule, but often our suburban shacks actually have a higher average check because there are more people in the party, so an average transaction. And often some of our urban shacks have a small average check because it's more of a quick lunch, one person in and out type of deal. So all of that is wrapped up in that question. as to how it compares to last year and how it might compare to next year. But in every way, our check continues to grow, and that has been a lot of the comments we've made about some of the items for check and some of the premiumization that we've been able to add through cold beverage innovation and other LTOs.

I mean, I think that's really one of the more remarkable things when I look across the menu mix here and how check has evolved over the past couple of quarters. You know, the amount of attach that we're seeing in cold beverage across all channels even as InShack has come back and digital has moderated a little bit, we've still been able to retain it, is really encouraging. And I think that that speaks to the strength of the menu, to the strength of the LTO profile, and kind of endorses this strategy of really going all in on cold beverage.

Great. Thank you very much.

Thank you. Our next question comes from Jim Sanderson with North Coast Research. Please proceed with your question.

Hey, thanks for the question. I just wanted to dig into a little bit more detail on store margins. Just wondering how you're looking at the Manhattan marketplace and whether there's some locations that are actually achieving much stronger store margins with less of a recovering sales. Maybe they're getting to 90% of pre-COVID and actually finding that they're a little bit more efficient, maybe sales mix from digital. is really helping them improve their efficiency and profitability, any learnings you're seeing from the variation in performance in Manhattan locations.

You know, our urban markets, our Manhattan markets still have a lot of room for recovery there. And really, you know, the margin flow through that you saw this quarter on the return of, you know, the early return of urban and Manhattan traffic kind of shows you of that immense leverage and the power in that model. You know, nothing really to call it on that front. There had been a lot of learnings during COVID, for sure. But, you know, as we start to reopen, or not reopen, but as guests start to come back to the dining room and we kind of staff for that, there's puts and takes on that side. But, you know, as we look ahead here, there's still a lot of great recovery available in urban markets.

And, Jim, you've got to remember, it's also some of our highest rents, right, for the obvious reasons. Yep. that just is tough when you have lower sales in some of these markets that are, you know, but, but again, another reason why I think the, the overall average for the company is so strong, given how hard hit some of those bigger heavy hitters are.

Just a quick follow-up, any thought in, again, some of these urban markets of considering relocations, maybe they're just a handful of stores that just may not work based on what might be a, much lower commuter traffic potential, that type of thing, urban Chicago?

Yeah, it's a good question. We talk about it from time to time, and I've yet to meet a shack I didn't like, so that doesn't mean we won't make a smart business decision when the time comes, but Generally, there really isn't any shacks that we look at and say there's not a reason as we return that this should work. And again, also because we're so young, right? There's so few shacks that have ever even re-signed a lease. Like in the history of the company, there's so few, right? So, you know, we're still in that very early phase where that's probably not the best use of money. But, you know, we'd rather open another one. And that's the intention we probably have. Thank you.

Thank you. Our next question comes from Matt Curtis with William Blair. Please proceed with your question.

Yeah, good afternoon. Thanks for squeezing me in. I just had a question on the upcoming vaccine requirement for indoor dining in New York City. Just curious as to how you're preparing, what kind of guidance you might be getting from the city at this point and basically what you think the impact might be.

Yeah, it's early days on understanding that. I think we are looking for more clarity, and we expect we'll get that in the coming days and weeks, and we're going to follow mandates that our local governments give us. That is what we will do. We certainly probably expect that we'll see more cities take this tact. So as that happens, we will listen, we'll follow, and we'll let you know. I think it's going to be an interesting impact, and we're Not sure. Not sure is the answer, but what we know is that we will follow what we're told to do.

Okay, fair enough. And then just one more. And Randy, you may have touched on this before, but I wasn't quite clear on it. But basically, where is SHAC right now relative to what you believe to be your desired staffing levels, either today or say compared to 2019 or something?

Yeah, there's some shacks. Many of the shacks are fantastic. Here's the theme, the way we say it. There's always been places where it's harder to hire and places where it's easier to hire. Today, where it's hard to hire, it's hard to hire. And where it's easy to hire, it's pretty much easy to hire. And I know that's oversimplifying it, but there really is a wide swath. And it's also, we do think that's transitory too. There's just been pockets of moments where you might have a different staffing level. So I think we still need to optimize. We still need to grow. You're seeing that in our investments that we're going to make to get back to, you know, full staffing levels everywhere. And that'll also come along as sales recover.

Okay. Great. Thanks very much.

Thank you. Our next question comes from Jeff Bernstein with Barclays. Please proceed with your question.

Hi, thanks for squeezing me in. This is product on for Jeff and Katie. Congrats to you on the new role. My question was on beef. With your strict sourcing requirements, what's the outlook for the specialty beef market for the balance of 21 and into 22? Are the supply chain issues and labor shortages that you're seeing at the major processors also spilling into the specialty market? Or are your suppliers kind of independent of that? And then lastly, if you were to experience a disruption in supply, are there enough alternative sources out there that you can pursue? Thanks a lot.

Great. Thank you. So as we're thinking about beef here and what we're seeing, last quarter, as I talked about in my earlier remarks, we did see elevated price in beef. It's moderating here, but it's still up on a year-to-year basis. And Randy, I'll let you discuss that.

Yeah, look, when it comes to the supply, we feel really good about how we work with ranchers and our purveyors. We don't expect any disruptions there. Obviously, we've seen some of those. Those disruptions happened in the real peak of COVID last year where prices went up and there was a lot of outbreaks at various places. That we have not seen, but it's not easy for them either, right? You're seeing that in chicken inflation. You're seeing it across the protein industry. So we're watching it carefully. We don't expect it to come down anytime soon, but we feel good about our ability to supply our restaurants.

Appreciate the color.

Thank you. Our next question comes from Rahul Crow with JP Morgan. Please proceed with your question.

Thanks for squeezing me in, guys. Can you just give us a sense of what happened at some of your near and relevant competition in the urban and suburban markets? Is there a percentage of competition that came off that you can talk around and how this could impact some of your near-term trends in these locations?

Rahul, we lost you there for a moment. I'm so sorry. I think you cut out for a second there. Can you just repeat the suburban-urban clarification?

I'm just looking for some sense of what happened to some of your near and relevant competition in the urban and suburban markets. If you can talk around that. Thank you.

Yeah, it's a really good question. I think in the suburbs, there's more restaurants than ever, right? And as you've seen from traditional fast food or casual dining, as people have returned, there's quite a bit of excitement in the suburban markets, which is why we feel really good about the 2019 compares that we've been able to do. Yeah, I think in suburban, I don't know. I think the death of the restaurant has been much over-exaggerated. I think if you actually look around, you walk around New York City or urban centers, there may be some that, there's certainly some that struggled through the last year, but many of those restaurants made it and many new restaurants are opening. You know, you're seeing it, you're seeing it around New York City. I can walk down the block and there's like really cool, great restaurants opening up all over the place. So I don't think there's any shortage of competition is what I would say. So we have to do what we do. And when we do that, we generally do pretty well. We've always had that mindset. We don't worry so much about what's happening around us. We concern ourselves with how we operate and execute. And if we do that, we feel pretty special about the package of Shake Shack that we've put together. So, yeah, I think it was an interesting question. I don't think it's played out to be as many questions like closures as people may have predicted.

And when I look here at where consumers, where diners are preferring, you know, they're clearly looking more and more towards more convenient options, towards digital options. And that's where I think that, you know, we're meeting them where they want to be, where we have shack track. And then also we're going to be going into drive-thru. So those are two very exciting things that I think will continue to help us, you know, address a pretty competitive landscape.

Thanks a lot for the color, guys. Just a small follow-up on the labor side. For your existing stores that are fully opened up, especially in the urban markets, are the staffing levels back to pre-COVID levels? Are you seeing any changes to your store operating hours on day-to-day operations?

It really depends on the store. It depends on how that shack has evolved digitally. Some do more delivery and pickup than others. Some are very in-shack related. So it's a little bit of a mix. Generally, we are similar to 2019 staffing levels when we are optimized. But again, we've learned a lot through the last year. We've learned how to schedule better. we've learned how to continue to drive our kitchens better. But at the same time, we're always about driving as much sales as we can. So, you know, we're continuing to make sure we have the right people on the shift to optimize. And it's not perfect every day. It's not perfect at every shack. And we've got work to do, but we'll keep plugging away and get there.

Thanks a lot, Randy and Kate. Good luck, guys.

Thank you. Thank you. There are no further questions at this time. I would like to turn the floor back over to Randy Garuti for any closing comments.

Thanks, everyone. Really appreciate the time everyone took today, and stay safe. We'll see you soon. Take care.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.