Shake Shack, Inc.

Greetings. Welcome to Shake Shack second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A 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. Please note this conference is being recorded. I will now turn the conference over to Anna Lee Leggett, Senior Manager of Investor Relations in FBA. Thank you. You may begin.

Thank you, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Randy Grudy, 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 in the financial details section of our quarterly shareholder letter. 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 18, 2022. 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 2022 shareholder letter, which can be found at investor.shakeshack.com. in the quarterly results section, or as an exhibit to our 8K for the quarter. I will now turn the call over to Randy.

Thanks, Anna Lee, and good morning, everyone. We're really pleased with the second quarter performance and how our team is navigating this moment of persistent inflation and an uncertain consumer spending environment. Against this backdrop, the team delivered total revenue growth of 23% year over year, to over $230 million, with total system-wide sales up 25% to over $351 million. Average weekly sales across the country continued to strengthen, rising 12% quarter-over-quarter to 76,000, with a trailing 12-month AUV of 3.8 million. Same-shack sales grew 10.1% year-over-year, driven by 7.8% traffic growth, led mostly by the return of in-shack sales. We generated a shack-level operating profit margin of 18.8%, one of our strongest profit quarters since the onset of COVID-19. and the highest total dollars ever at $42 million. All this strength was supported by a consistent return to in-shack dining, a trend we like to see. And with more guests wanting to gather, you can feel the increased energy in our shacks, which has always been a competitive advantage for us. We retained and kept building upon our strong digital business, representing 38% of total sales. And this is all part of our strategy to provide a great guest experience no matter how our guests prefer to order. The trend to note through the quarter, as so many businesses in our sector have experienced, was continued strong growth through mid-May that began then to level off through June, clearly related to a pullback in mobility, a muted return to office trend, and some caution on the part of the lower-income consumer. While our urban SHACs continue to comp near 20% over last year, these factors cause us not to meet or even higher expectations for the quarter. We're pleased to see that July has remained consistent and retained normal seasonality trends. However, while we remain aggressive in our push towards full urban recovery in the long term, we're cautious as we navigate an uncertain macro environment ahead. On new shack development, we opened five company-operated shacks in the quarter, including two new drive-thrus. We are poised for growth with a strong pipeline of shacks identified, in lease, and under construction. That said, the availability of certain HVAC switchgear and kitchen equipment has impacted our ability to open all the shacks we'd hoped this year. However, all these shacks remain strong investments and will open. We're going to have a challenging push in Q4, working to open approximately 20 to 25 company-operated shacks. At this time, we're actively building our pipeline, and we're targeting to increase our development schedule for 2023, as long as construction and equipment availability returns to more historical reliability. As we execute our long-term strategy to diversify and build new shack formats, we're leaning heavily into our drive-thru plans. Today, we operate six drive-thrus, expecting another four more to open this year. We've optimized these investments for learning, testing various markets, building and kitchen designs, and how we flow food through the kitchen. With all these shacks still so new, we only have a small data set, but we are pleased with what we're seeing. Average weekly sales over the last four months have trended above $80,000 for the group. We're also experiencing roughly 50% of those sales coming through the drive-thru channel, as we continue to invest in a great in-shack experience for those guests who prefer to dine that way with us. Consistent with our targets, these results are trending higher than our traditional suburban formats, and leaves us encouraged for what this can mean for our long-term growth opportunity. By the end of 22, we expect to have at least 10 drive-thrus open, and are targeting opening 10 to 15 more in 2023. We spent a lot of time identifying a great pipeline for our 2023 drive-thru shacks, but understand that this new format takes longer to build and is more capital intensive than our traditional formats. Today, we're operating in an environment of higher build-out costs, lower shack level operating profit, and big investments in more expensive models like drive-thru. As we've noted the last couple of years, We've not changed our long-term expectations, but we know there will be SHACs that have a lower return profile given recent and near-term factors. Longer term, our real estate strategy is to continue to invest in new SHAC types and locations. We've consistently outperformed our AUV targets over time. And with drive-through, we'll be targeting a higher AUV opportunity, which could be a huge unlock towards increasing our total addressable market. We're really excited for what's ahead, and we'll keep sharing our learning as we go. Meanwhile, our licensing business continues to thrive, with revenue up 29% year over year, growing with eight new shacks this quarter. Now, despite strong performance broadly, our business in China was impacted by COVID lockdowns and intermittent market disruptions. Our partners are growing in the U.S. and abroad, and our teams are working on a number of new market launches in 2023 and beyond, while going deeper in our current markets. We're proud to announce that on Sunday, we opened our first ever shack in the city of Chengdu, China, to a crowd of excited fans. I want to provide an update now on the four pillars of our strategic plan and give more color around what's been accomplished thus far and what the future holds. I'll begin with our commitment to elevating our people. In May, we brought together over 1,000 leaders, licensed partners, and key suppliers from around the globe for a week-long leadership development retreat highlighted by new learnings and amazing collaborations. Our growth can only happen as we give our teams the opportunity to develop. And we have a strong track record of growing leaders from within, and our investments here will continue. This quarter, we've raised wages in certain markets. We've added tipping functionality for those guests who've consistently asked for the opportunity to leave a tip for our hardworking teams. We've added even more health benefits and educational opportunities for team members at all levels. Enlightened Hospitality begins with taking care of our team, and you can count on us continuing to invest directly in their future. Digital transformation, our second strategic pillar, has provided us with incredible opportunities to get to know our guests better. Our learning curve is steep, and our investments are critical as we add data capability, functionality, and new tools across our digital products. We're pleased with our retention engagement within our digital channels, and we're leveraging new marketing tools that better help us target our guests. This quarter, we've added day park functionality for the first time, and you may have seen our happy hour shack promo, which is driving afternoon shake sales. You'll also notice a much more capable email, push notification, and guest lifecycle component to our personalized and more regional marketing efforts, all geared towards more connection to drive frequency. Additionally, we've been testing enhanced performance marketing efforts across digital channels. We're learning a lot about our ability to acquire, reengage, and drive connection through new channels as we invest more deeply in direct marketing spend towards the future. There's an endless list of projects we want to tackle here, and you'll see us invest with discipline as we go. Our third pillar, the evolution and development of our shacks continues. Earlier I noted the key elements unfolding in this plan. And while the current environment of construction delays is frustrating, we believe this is a challenging season we'll get past and take all of our learnings into a robust long-term pipeline. We expect to open approximately three new shacks in the third quarter. With a challenging fourth quarter ahead, we now update our new unit guidance expectations to 35 to 40 shacks for 2022. In our licensed development, we now expect to increase guidance for the year. With 16 new shacks open as of fiscal July, we expect to open a total of 25 to 30 licensed shacks for the year. Finally, we're always focused on our food and our guest experience. This quarter, we partnered with Maker's Mark to create the Bourbon Bacon Jam Burger and Chicken Sandwich, which has performed well. Our slate of summer lemonades and shakes were also well-received by our guests and proved to be our strongest lineup of cold beverage and Shake LTOs to date. We're proud again to partner with the Trevor Project for our June Pride Shake LTOs with a portion of sales donated to this important and impactful organization. Look out for some more LTOs coming in hot at the end of the year. Our food continues to raise the bar with premium ingredients and quality preparation. I'll now pass it over to Katie to discuss our financial performance in more detail.